Redlands, Lugonia, & Crafton Domestic Water Co. v. City of Redlands

HARRISON, J. The plaintiff is engaged in furnishing water to the city of Redlands and its inhabitants for domestic purposes •and for irrigation, and seeks by this action a judgment annulling the ordinance or resolution adopted by the board of trustees •of that city, in February, 1895, fixing the rates to be charged or collected therefor during'the year commencing July 1, 1895, and requiring the board to fix rates therefor “so as to assure an -annual income to the plaintiff sufficient to pay the interest on its indebtedness, its running expenses, taxes, and to pay the •plaintiff’s stockholders a dividend of not less than seven per cent per annum upon the par value of said stock, and also sufficient to keep the works of said plaintiff used in business in repair.”

At the trial of the cause the court found that the plaintiff •had expended the sum of $314,000 in the acquisition of the plant used by it in so furnishing the water; that its capital stock is divided into five thousand shares of the par value of one hundred dollars each, of which two thousand two hundred and sixty shares have been subscribed, and the full amount of $226,000 paid to the plaintiff by the stockholders subscribing "therefor; that the plaintiff has issued its bonds amounting to $75,000, bearing interest at seven per cent per annum, payable semi-annually, all of which are outstanding, and has also executed to various persons its promissory notes, amounting to $19,000, and bearing a like rate of interest, but that it has bills receivable bearing interest, so that the net amount of its annual interest is $5,600; that the maximum amount of revenue from the rates fixed by the ordinance will yield to the plaintiff the sum of $18,158.51, and the minimum amount of said revenue $14,526.40; that the necessary expenditures to be made by it during said year will be as follows: Operating expenses, $5,150; taxes, $1,350; for maintenance and repairs, $1,562.06. Upon these findings the court refused the plaintiff the relief it "sought, and rendered judgment in favor of the defendants. "From this judgment the plaintiff has appealed, bringing the appeal upon the judgment-roll alone, without any bill of exceptions.

Many of the questions involved in this appeal are considered in the case of San Diego Water Co. v. San Diego, 118 Cal. 556, [36862] Am. St. Rep. 261, and the propositions then determined are applicable to the present case. It was held in that case by an majority of the court .that, for the purpose of fixing the rates-to be charged or collected for furnishing water to the inhabitants of a city, provision should not be made for the bonded or other indebtedness of the company, or of the interest thereon;, that the rates should be the same whether the works are acquired or constructed by the company from its own resources,, or with money borrowed from others; that the value of the-property which is necessarily used in furnishing the water is the basis upon which to determine the amount of revenue to be-provided by the ordinance fixing the rates, and that while the-cost of the plant is an element proper to be considered in determining its value, it is not conclusive thereof. Since the decision of that case the supreme court of the United States has decided the case of Smyth v. Ames, 169 U. S. 466, and in the-opinion rendered by it this subject received further consideration. The question there presented was the reasonableness of the rates that had been fixed by the state of Nebraska for transportation by railroads, and the court held that “the basis of all calculations as to the reasonableness of rates to be charged by a corporation maintaining a highway under legislative sanction-must be the fair value of the property being used by it for the-convenience of the public.” Under the principles determined' by these cases the amount of the capital stock paid into theplaintiif by its stockholders, as well as the amount of its bonded and floating indebtedness, and the interest payable' thereon, become immaterial factors in the question. In the case last cited the court, in considering the principles to be observed in determining the reasonableness of the rates of compensation that had been fixed, said: “It cannot be admitted that a railroad corporation maintaining a highway under the authority of the state-may fix its rates with a view solely to its own interests, and ignore the rights of the public. But the rights of the public-would be ignored if rates for transportation of persons or prop-? erty on a railroad are exacted without reference to the fair value-of the property used for the public, or the fair value of the services rendered, but in order simply that the corporation may meet operating expenses, pay the interest on its obligations, and