On Petition for Rehearing.
(192 Pac. 390.)
BURNETT, J.2. The elaborate petition by counsel for the plaintiff, for a rehearing of this case, has had our careful attention. At the outset it urges that the court was in error in holding that the city was an agent of the state. The argument depends upon a misconception of the term “agent” as employed in the court’s discussion of the question. Counsel’s statement of the subject depends upon the use of that word as employed in the law of contracts; whereas, in the sense in which it had been used in the various opinions of the court on that subject, it was a synonym for “instrumentality” or “means,” signifying that municipal corporations are instrumentalities devised by the state for use in local government. For instance, Mr. Justice Bean in Coleman v. La Grande, 73 Or. 521 (144 Pac. 468), said:
“However, a city is not constituted as a sovereignty as regards all matters of legislation, but is still to a certain extent a mere agency of the state of which it is a part.”
This language was approved by Mr. Justice Harris in Woodburn v. Public Service Commission, 82 Or. *333114 (161 Pac. 391, Ann. Cas. 1917E, 996, L. E. A. 1917C, 98).
3. The question here involved is not one of compelling the city to engage in the public service of furnishing water to its inhabitants. The question is: "What are the rules of law governing the city after it has voluntarily embarked in such an undertaking? Hence, such cases as People ex rel. Park Commrs. v. Detroit, 28 Mich. 228 (15 Am. Rep. 202), People ex rel. v. Mayor of Chicago, 51 Ill. 17 (2 Am. Rep. 278), Asbury v. Albemarle, 162 N. C. 247 (78 S. E. 146, 44 L. R. A; (N. S.) 1189), and Helena Water Co. v. Steele, 20 Mont. 1 (49 Pac. 382, 37 L. R. A. 412), are not applicable here. Those were instances where in face of a Constitution denying the right to tax the people of a city without their consent, or where charters had lodged in the city authorities the exclusive power to tax for city purposes, the legislature had undertaken to compel the establishment and maintenance by the city of certain public improvements. The courts very properly held that, while of its own volition the city could construct those improvements and tax its inhabitants to maintain them, no extraneous authority could force the city to do so, because that would amount to the imposition of taxes without the consent of those to be taxed. Such is not the case before us. The city has itself voluntarily contracted for a public water service, and the question is: What is the authority of the state, acting through its Public Service Commission, in such cases?
4. Ex industria, counsel has favored us with many historical allusions, pointing out that in Ehode Island, Connecticut and Vermont municipal governments were the primary units of authority. These, *334also, are not applicable here, for Oregon has never been a mere conglomeration of cities and towns. The primary and paramount source of governmental authority in this state is the people, and they, not any aggregation of petty municipalities, ordained the Constitution, giving the state government, expressed in the three departments of the legislative, the executive, and the judicial, ranking authority. Neither does the decision already rendered in this case deny the power of the city to contract. Nor does it seek to impair the obligation of the contract here involved. All of the cases cited on that subject by counsel are those where the city itself, after having made a. contract, sought in some manner of its own motion and by its own authority to violate the agreement. The list of counsel’s citations here follows: New Orleans Waterworks Co. v. Rivers, 115 U. S. 674 (29 L. Ed. 525, 6 Sup. Ct. Rep. 273, see, also, Rose’s U. S. Notes); St. Tammany Waterworks Co. v. New Orleans Waterworks Co., 120 U. S. 64 (30 L. Ed. 563, 7 Sup. Ct. Rep. 405); Walla Walla v. Walla Walla Water Co., 172 U. S. 1 (43 L. Ed. 341, 19 Sup. Ct. Rep. 77); Los Angeles v. Los Angeles City Water Co., 177 U. S. 558 (44 L. Ed. 886, 20 Sup. Ct. Rep. 736); Freeport Water Co. v. Freeport, 180 U. S. 587 (45 L. Ed. 679, 21 Sup. Ct. Rep. 493); Detroit v. Detroit Citizens’ Ry. Co., 184 U. S. 368 (46 L. Ed. 592, 22 Sup. Ct. Rep. 410); Cleveland v. Cleveland Ry. Co., 194 U. S. 517 (48 L. Ed. 1102, 24 Sup. Ct. Rep. 756); Detroit United Ry. Co. v. Detroit, 242 U. S. 238 (61 L. Ed. 268, 37 Sup. Ct. Rep. 87); City of Benwood v. Public Service Commission, 75 W. Va. 127 (83 S. E. 295, L. R. A. 1915C, 261); Vicksburg v. Vicksburg Water Co., 206 U. S. 496 (51 L. Ed. 1155, 27. Sup. Ct. Rep. *335762). In none of these cases was the right of the state to regulate rates involved.
Neither is it denied that the state by express terms may, either directly or by authorizing a municipal corporation so to do, renounce for a reasonable period its authority to supervise or change rates for public service granted by a regularly promulgated franchise. The argument of counsel seems to concede that formerly the state had a right to regulate rates for public service, but that in this state, since the adoption of the amended form of Article XI, Section 2, known as the home rule amendment, that power has been utterly destroyed, and vested entirely in local municipalities in cases where they choose to contract for any public service. As illustrating our conception of his contention, we we take this excerpt from the brief of counsel, commenting upon Salem v. Salem Light & Power Co., 255 Fed. 295 (166 C. C. A. 465):
“The judge who wrote that opinion did not know of the home rule amendment; he did not know that the cities of Oregon exist by virtue of the Constitution of the state, and not by the state, acting through its legislative department.”
5, 6. So far as that is concerned, we are informed by the complaint in this suit:
“That the plaintiff was at all dates and times herein alleged, and now is, a municipal corporation duly incorporated, organized, and existing under and by virtue of the laws of the State of Oregon.”
On demurrer this must be taken as true in point of fact. The constitutional provision referred to, so far as applicable to the case in hand, reads thus:
“Corporations may be formed under general laws, but shall not be created by the legislative assembly *336by special laws. The legislative assembly shall not enact, amend or repeal any charter or act of incorporation for any municipality, city or town. The legal voters of every city and town are, hereby granted power to enact and amend their municipal charter, subject to the Constitution and criminal laws of the State of Oregon.”
In the same Constitution we read, in Article IY, Section 1:
“The legislative authority of the state shall be vested in a legislative assembly, consisting of a Senate and House of Eepresentatives, but the people reserve to themselves power to propose laws and amendments to the Constitution and to enact or reject the same at the polls, independent of the legislative assembly, and also reserve power at their own option to approve or reject at the polls any act of the legislative assembly.”
It is hornbook learning that the legislative assembly of the state may enact any law it chooses, subject only to the restraint of the Constitution of the state or of the United States. In other words, the organic law is a restraining, not an enabling, act. The home rule amendment, as regards the legislative assembly, merely restricts its power, so that it cannot create corporations of any kind by special laws, and especially cannot enact, amend, or repeal any particular charter for any single municipality, city or town; but its power to affect municipalities of all kinds by general laws remains unimpaired. This is the doctrine taught by State ex rel. v. Astoria, 79 Or. 1 (154 Pac. 399), and Rose v. Port of Portland, 82 Or. 541 (162 Pac. 498).
The law-making power vested in the legislative assembly by Article IY, Section 1, as expressed in general laws, still exists with all its original force, so *337far as concerns municipal corporations. Moreover, there must be in existence a city or town, before the legal voters thereof can enact or amend a charter. It must trace its existence to some state law, either general or special. No body of citizens in unorganized territory can act under that amendment and promulgate a charter. Originally, such forms of government were instituted by special acts of the legislative assembly. The plaintiff in this instance was brought into existence by the act of October 19, 1876 (Laws 1876, p. 108), passed by the legislative assembly of that year. The act of February 21, 1893 (Laws 1893, p. 119), embodied in Chapters 1-5 of Title 26, L. O. L., was the first legislative effort of the state to provide a general law for the creation of municipal corporations. Other legislation on the subject is found in Chapter 345, Laws 1913.
Again, given a city or town and legal voters therein, their activities in forming or amending a municipal charter are circumscribed by the Constitution and criminal laws of the State of Oregon. Manifestly, they are subordinate instrumentalities of government. They are “subject to the Constitution and criminal laws of the State of Oregon.” To be subject to the Constitution is to be controlled by all that the legislative assembly lawfully may do under that Constitution, and, as we have seen, the legislature is simply excluded from the enactment of special laws affecting single municipalities. Its power to promulgate general laws which are binding upon all cities and towns is still unimpaired. The state has not yet disintegrated into a collection of petty municipalities. It is still the paramount unit of government established by the people.
*338In New Orleans Gas Co. v. Louisiana Light Co., 115 U. S. 650, 672 (29 L. Ed. 516, 6 Sup. Ct. Rep. 252, 264), we read that:
“The constitutional prohibition upon state laws impairing the obligation of contracts does not restrict the power of the state to protect the public health, the public morals, or the public safety, as the one or the other may be involved in the execution of such contracts. Rights and privileges arising from a contract with a state are subject to regulations for the protection of the public health, the public morals, and the public safety, in the same sense, and to the same extent, as are all contracts and all property, whether owned by natural persons or corporations.”
Again, in Vicksburg v. Vicksburg Waterworks Co., 206 U. S. 496 (51 L. Ed. 1155, 27 Sup. Ct. Rep. 762, see, also, Rose’s U. S. Notes),’ where the city“ attempted to repudiate its contract with the company for water service under a legislative act, the court construed the enabling statute to be one in which the legislature had renounced the right of the state to regulate rates for a certain period. But it quoted with approval this language of the Mississippi Supreme Court in Stone v. Yazoo etc. Ry. Co., 62 Miss. 607, 642 (52 Am. Rep. 193):
“A grant in general terms of an authority to fix rates is not a renunciation of the legislative control, so as to secure reasonable rates. Such a grant evinces merely a purpose to confer power to exact compensation which shall be just and reasonable. It is only where there is an unmistakable manifestation of the purpose to place the unrestricted right in the corporation to determine rates of compensation that the power of the legislature afterwards to interfere can be denied. It is not to be presumed that the right of legislative control was intended to be renounced. Every presumption is against that. If the grant can be interpreted without ascribing to the *339legislature an intent to part with any power, it will be done. Only what is plainly parted with is gone.”
In Benwood v. Public Service Commission, 75 W. Va. 127 (83 S. E. 295, L. R. A. 19150, 261), the court was treating of the precise question here involved, arising under a Public Service Commission Act in substantially the same terms as the one in this state. The court said:
“Though the grant and acceptance of the franchise, wherein certain rates were fixed, created a contract between the water company and the City of Benwood, the rates thereby fixed are nevertheless cognizable for revision by the public service commission under the broad powers delegated thereto, unless prior to the delegation of those powers the legislature had expressly delegated power to the City of Benwood which authorized the city to contract inviolably for the rates mentioned in the franchise for the period stated therein. Bate-making is a legislative act. It is inherent in and belongs primarily to the legislature. The rate-making power is a power of government — a police power of the state. The City of Benwood, at the time of the granting of the franchise, had no rate-making power that could bind the state, if the legislature of the sovereign state had not theretofore delegated the same to the city. And if such delegation or grant of rate-making power was made to the city prior to the delegation of general and state-wide powers in the same particular by the legislature to the Public Service Commission, the language relied upon as evidence of such delegation or grant to the city must be clear and express. The presumption is against exclusive delegation of the legislature’s sovereign rate-making power to a municipality. Unless there has been such delegation by clear and express terms, the power is reserved in the state, which can exercise it at such times and to such extent as may be found advisable. * *
*340“We do not say that the contract as to rates contained in the franchises was not good as between the water company and the city as long as .the legislature did not exercise its superior and supreme power over the' subject of the rates. From the general powers to establish waterworks and to contract and be contracted with, impliedly the city had the power to contract in the matter of rates for water furnished the public as long as the legislature did not exercise the reserved power in that particular. But that implied power was inferior to the reserved power. It was subject to the right of the legislature to prescribe different rates at any time. The legislature, not having expressly delegated to the city power by which it could inviolably agree to the rates, could exercise power in that particular regardless of the franchise provisions. It had withheld supreme power unto itself. Neither by the charter nor by subsequent legislation did it delegate to the City of Benwood authority to agree unalterably as to the rates for a stipulated period.”
Answering the contention that the action of the Public Service Commission in modifying the charter rates amounted to the impairment of the obligation of a contract, the court said:
“In the light of what we have said, this position cannot be sustained.' Nothing that was binding in the contract will be impaired. By it the state was not bound. The contract related to a subject matter belonging to the state. The state had not given-the city the power or agency to contract away its right thereto for a given time. The contract, having been entered into without express legislative authority, was permissive only. It was conditioned upon the exercise of the sovereign power over the subject matter. All this the parties to the contract were bound to know when they entered into it. There can be no impairment of the contract by the act of the state in claiming its own, when it is not bound by the contract. The supervision and regulation of *341the rates by the state, through the Public Service Commission, do not take from either of the parties to the contract any right which they had thereunder. Such supervision and regulation do not therefore impair the obligation of a contract.”
7. No legislation has been or can be pointed out whereby the State of Oregon has surrendered to any municipality its sovereign right so to regulate the rates allowed for service to the public that they shall be reasonable. It is not sound policy to allow the public to be either the victim or the spoiler by sharp trading. On the one hand, the public is entitled to reasonable service; and, on the other hand, it should pay reasonable compensation to those who devote their property and labors to public purposes. The control of the state over this matter, through its legislative department, is exercised by means of the Public Service Commission. It has never been surrendered by the state; much less can it be said that any subordinate municipality of its own motion can usurp such an authority.
8. In the briefs of certain amici curiae much stress is laid upon this excerpt from Section 63 of Chapter 279, Laws of 1911, otherwise known as the Public Service Commission Act:
“Nothing herein shall prevent the transportation of persons or property or the production, transmission, delivery or furnishing of heat, light, water or power * * within this state, free or at reduced rates for the United States, the state, or any municipality thereof. ’ ’
This language must be read with its context. It is found in a section forbidding unjust discrimination, whereby one rate may be charged to one consumer and a greater or less rate exacted from others. The language quoted is merely an exception permitting, *342not requiring, free service to municipalities. Such services, like others, are within the scope of the commission’s power.
9. It matters not, for the purposes of this case, whether the plaintiff was acting in its proprietary or governmental capacity in passing the ordinance embodying the franchise here in question. Whatever term may be applied to the transaction, the plaintiff’ put in motion a public utility supplying service to the public. Indeed, the defendant North Coast Power Company is described in the complaint as a corporation organized—
“For the purpose of supplying water to the City of Hillsboro and its inhabitants, and to other towns in the Tualatin valley, * * and is now engaged as a public utility in selling water in the City of Hillsboro and said other towns in the Tualatin valley.”
The parties involved in the suit before us are, first, a municipal corporation “duly incorporated, organized, and existing under and by virtue of the laws of the State of Oregon,” a concern “engaged' as a public utility in selling water to the general public,” and a Public Service Commission, created by the supreme power of the state to supervise and’ regulate public utilities. We have the municipal and private corporations engaged in a public service the regulation of which clearly comes within the scope of the powers of the Public Service Commission. It was part of the obligation dr binding force of the contract that the state might at any time interfere and regulate the rates of compensation for this public servicé to the end, that they should be made reasonable. The .action of, the commission under the terms of the law creating it is but the enforcement, and not the impairing, of the obligation of that contract. The com*343plaint discloses a case where the commission acted within the authority conferred upon it by constitutional legislation expressive of the unrelinquished power of the state to regulate rates to be charged by public utilities. The demurrer was properly sustained. The petition for rehearing is denied.
Note. — This case has been appealed to the U. S. Supreme Court. Reporter.Affirmed. Rehearing Denied.