Cheney Bros. Co. v. Massachusetts, 246 U.S. 147 (1918)

Baltic Mining Co. v. Massachusetts, supra, did not modify these principles, but was decided upon its special facts; for the court found that the Baltic Company did not, like the Western Union Company, conduct interstate and domestic business at the same places and through the same instrumentalities. As applied to the Baltic Company, the Massachusetts statute was sustained. Here the facts, as applied to the present companies, are totally different, although the statute is the same. No attempt was made in the Baltic Case to differentiate the terms of the Kansas and Massachusetts statutes. Nor could any substantial distinction have been established, because of the fact that other companies not then before the court were totally exempted from taxation beyond a $2,000 excise, representing 1/50 of 1% on a capitalization of ten million dollars. The companies there under consideration were subjected to a “fluctuating” percentage tax, increasing in exact proportion to every dollar of additional capital used in or required for extensions of interstate business. The Kansas and Massachusetts statutes being identical in all material respects, the Baltic decision must rest upon its special facts. The vital fact there appearing was, as stated by the court, that each of the corporations in question was carrying on a purely local and p. 151domestic business quite separate from its interstate transactions. It clearly did not profess to hold that, while a “fluctuating” tax is bad, if without limits, it is valid, if within a maximum which had not been reached by any company before the court, and which can be attained only by the largest companies. Nor was the decision at all based on the consideration that two thousand dollars is a small amount or that it is a reasonable tax. [Discussing and explaining Kansas City &c. Ry. Co. v. Kansas, 240 U. S. 227.]

All fair and reasonable incidents to, and all instrumentalities of, interstate commerce are protected equally with the commerce itself. They need not be indispensable, reasonably necessary, or inseparable incidents or instrumentalities, as required by the court below. Local offices and agents used for interstate commerce thus are protected, whether they are indispensable or not. McCall v. California, 136 U. S. 104; Norfolk & Western R. R. Co. v. Pennsylvania, 136 U. S. 114; Western Union Cases, supra; Rearick v. Pennsylvania, 203 U. S. 507; p. 152Stockard v. Morgan, 185 U. S. 27; Caldwell v. North Carolina, 187 U. S. 622; Crenshaw v. Arkansas, 227 U. S. 389.

We do not perceive anything in this that can be regarded as a local business as distinguished from interstate commerce. The maintenance of the Boston office and the display therein of a supply of samples are in furtherance of the company’s interstate business and have no other purpose. Like the employment of the salesmen, they are among the means by which that business is carried on and share its immunity from state taxation. McCall v. California, 136 U. S. 104; Norfolk & Western R. R. Co. v. Pennsylvania, 136 U. S. 114; Crenshaw v. Arkansas, 227 U. S. 389; Rogers v. Arkansas, 227 U. S. 401. Nor is the situation changed by inferring, as the state court did, that orders from customers in Connecticut sometimes are taken by salesmen connected with the Boston office and, after transmission to and approval by the home office, are filled by shipments from the company’s mill in Connecticut to such customers. In such cases it doubtless is true that the resulting sale is local to Connecticut, but the action of the Boston office in receiving the order and transmitting it to the home office partakes more of p. 154the nature of interstate intercourse than of business local to Massachusetts and affords no basis for an excise tax in that State. International Textbook Co. v. Pigg, 217 U. S. 91, 106-107. We think the tax on this company was essentially a tax on doing an interstate business and therefore repugnant to the commerce clause.

This is another Michigan corporation which maintains an office in Boston pursuant to a provision in its articles of association. It deposits the proceeds of its mining and p. 156smelting business in Michigan in Boston banks and, after paying salaries and expenses, distributes the balance in dividends from its Boston office. The management of its mine is under the control of a general manager in Michigan and he in turn is under the control of the company’s directors. The meetings of the latter, which occur several times in a year, are held in the Boston office. At these meetings the directors receive reports from the treasurer and general manager, vote dividends, elect officers, and authorize the execution of deeds and the like for lands in Michigan. These corporate activities in Massachusetts are not interstate commerce and may be made the basis of an excise tax by that State.

“The real estate acquired by this petitioner is of a kind adapted to a very considerable and increasing business, in which there is general competition. The storage and care of automobiles and the performance of necessary service for their repair, maintenance and operation is a widespread business in which large amounts of capital p. 157are invested and considerable numbers of persons are engaged. Such establishments are frequent subjects for lease and sale. There is nothing to indicate or to warrant the inference that the petitioner’s investment in real estate is not readily salable at reasonable prices. It is not property of a nature irretrievably devoted to a limited and monopolistic use, and not readily available either for other valuable uses or to other persons ready to devote it to the same uses at prices fairly equivalent, subject to the general vicissitudes of business conditions, to the original investment. The Greene Case related to railroad property, which is not susceptible of use for any other purpose without great loss. In that opinion it was said, Tt must always be borne in mind that property put into railroad transportation is put there permanently. It cannot be withdrawn at the pleasure of the investors. . / . The railroad must stay, and, as a permanent investment, its value to its owners may not be destroyed.’ ”

The nature and extent of the ercisions and accretions that occurred in the old channel prior to the avulsion here involved, and the p. 160question whether it is practicable now to locate accurately the line of the river as it then ran, will be referred to said commission, subject to a review of its decision by this court if need be.

The facts are as follows: By the Treaty of 1763 between England, France, and Spain, Art. VII (3 Jenkinson’s Treaties, 177, 182), the boundary fine between the British and French possessions at this place was established as “a line drawn along the middle of the River Mississippi,” with consequent recognition of the dominion of France over the territory now comprising the State of Arkansas, and the dominion of Great Britain over that now comprising the State of Tennessee. By the Treaty of Peace concluded between the United States and Great Britain, September 3, 1783, 8 Stat. 80, the territory comprising Tennessee passed to the United States, its westerly boundary being described (Art. II) as “a line to be drawn along the middle of the said River Mississippi.” It formed a part of the State of North Carolina. In the year 1790 North Carolina ceded it to the United States (Act of April 2, 1790, c. 6, 1 Stat. 106). In a report made in the following year by Thomas Jefferson, then Secretary of State, and submitted to Congress by President Washington, the bounds of the ceded territory were described, the western boundary being “the middle of the p. 161river Mississippi.” 1 American State Papers, Public Lands, p. 17. And by Act of June 1, 1796, c. 47, 1 Stat. 491, the whole of the territory thus ceded was made a State. By the Louisiana Purchase, under the Treaty of April 30, 1803, 8 Stat. 200, the territory comprising Arkansas was acquired by the United States from France. It was admitted into the Union as a State by Act of June 15, 1836, c. 100, 5 Stat. 50, its easterly boundary being described as “the middle of the main channel of the said river.”

According to the stipulated facts, the earliest evidence concerning the location of the river at the place in question relates to the year 1823, and is set forth upon a map made recently by Major Humphreys, purporting to show the conditions as they existed at that time. The river flowed southward past Dean’s Island on the Arkansas side, made a bend to the westward at or about the southernmost part of this island, and then swept northerly and westerly around Island No. 37 (Tennessee), a lesser channel known as McKenzie Chute passing between that island and the main Tennessee shore; the main and lesser channels met at the southwestern extremity of Island No. 37, and the river flowed thence southwesterly past Point Able, Tennessee, opposite which it turned again easterly and then northerly, forming what is known as the Devil’s Elbow, and flowed thence easterly or northeasterly around Brandywine Point or Island (Arkansas), until it came within a distance of about two miles from the place where it started its northerly turn opposite Dean’s Island; and at this point it turned again to the southward. It is agreed that in 1823 the river ran substantially as indicated upon the Humphreys map, and that between that year and the year 1876 the width of the channel, by erosion and caving in of the Tennessee bank south, southwest, and west of Dean’s Island, along the mainland and Island No. 37, had increased from its former width of about a p. 162mile or less to a width of 1^4 or 114 miles, with consequent narrowing of the neck of land opposite Dean’s Island. It is a matter in controversy between the parties whether during the same period there were accretions to Dean’s Island and Plum Island, in the State of Arkansas, and to Island No. 37 and the shore below Point Able, on the Tennessee side. A steamboat reconnaissance of the river was made by Colonel Suter under the direction of the War Department in 1874, and a map of the place in question was prepared under his direction and is in evidence. There being no proof of material changes in the river between 1874 and 1876, this map, while not shown to be entirely accurate, is agreed to represent the general situation as it existed in the latter year.

The cut-off and the territory affected by it are the same that are mentioned and dealt with in the cases of Stockley v. Cissna, 119 Fed. Rep. 812; State v. Muncie Pulp Co., 119 Tennessee, 47, and Stockley v. Cissna, 119 Tennessee, 135. The State of Tennessee, in her answer, pleads and relies upon the first and second of these cases as judicial p. 163determinations and evidence of the boundary line between the States at the place in question. Their materiality and effect are matters to be determined.

Tennessee contends that after the old channel ran dry, the owners of the banks and the bed should be restored to their own, according to the original boundaries fixed p. 169before the river changed its course or moved laterally in its bed, such lands being still susceptible of definite location.

Concerning the proper location of an interstate boundary fine with reference to the shores and channel of a navigable river separating one State of the Union from another, much has been written. The subject was brought under the consideration of this court in Iowa v. Illinois, 147 U. S. 1. In that case, Illinois contended that the boundary followed the middle of the channel of commerce, that is, the channel commonly used by steamboats and other craft navigating the river; while on the part of Iowa it was insisted that the line ran in the middle of the main body of the river, taking the middle line between its banks or shores, irrespective of where the channel of commerce might be, and that the measurements must be taken at ordinary stage of water. The contention of each State was supported by a decision of its court of last resort : Dunlieth & Dubuque Bridge Co. v. County of Dubuque, 55 Iowa, 558, 565; Buttenuth v. St. Louis Bridge Co., 123 Illinois, 535, 548. This court recognized these cases as presenting in the clearest terms the different views as to the line of jurisdiction between neighboring States separated by a navigable stream, and thereupon proceeded to analyze their reasoning and doctrine. From a review of the authorities upon international law, it was declared that when a navigable river constituted the boundary between two independent States the interest of each State in the navigation, and the preservation by each of its equal right in such navigation, required that the middle of the channel should mark the boundary up to which each State on its side should exercise jurisdiction; that hence, in international law, and by the usage of European p. 170nations, the term “middle of the stream,” as applied to a navigable river, meant the middle of the channel of such stream, and that in this sense the terms were used in the treaty between Great Britain, France, and Spain, concluded at Paris in 1763, so that by the language “a line drawn along the middle of the River Mississippi,” as there used, the middle of the channel was indicated; that the thalweg, or middle of the navigable channel, is to be taken as the true boundary line between independent States for reasons growing out of the right of navigation, in the absence of a special convention between the States or long use equivalent thereto; and that although the reason and necessity of the rule may not be as cogent in this country, where neighboring States are under the same general government, yet the same rule must be held to obtain unless changed by statute or usage of so great a length of time as to have acquired the force of law; and that the Illinois Enabling Act of April 18, 1818, § 2, c. 67, 3 Stat. 428, which made “the middle of the Mississippi river” the western boundary of the State, the Missouri Enabling Act of March 6, 1820, § 2, c. 22, 3 Stat. 545, which adopted “the middle of the main channel of the Mississippi river” as the eastern boundary of that State, and the Wisconsin Enabling Act of August 6, 1846, c. 89, 9 Stat. 56, which referred to “the centre of the main channel of that river,” employed these varying phrases as signifying the same thing. Hence we reached the conclusion (p. 13) that as between the different views as to the line of jurisdiction between neighboring States, separated by a navigable stream, the controlling consideration “is that which preserves to each State equality in the right of navigation in the river.” It was accordingly adjudged and declared that the boundary line between the contesting States was “the middle of the main navigable channel of the Mississippi River;” and a final decree to that effect was afterwards made, 202 U. S. 59.

It is said that Arkansas has interpreted the line to be at a point equidistant from the well-defined and permanent banks of the river, that Tennessee likewise has recognized this boundary, and that by long acquiescence on the part of both States in this construction, and the exercise of jurisdiction by both in accordance therewith, the question should be treated as settled. The reference is to certain judicial decisions, and two acts of legislation. In Cessill v. State (1883), 40 Arkansas, 501, which was a prosecution for unlicensed sale of liquors upon a boat anchored off the Arkansas shore, it was held that the boundary line, as established by the original treaties and since observed in federal legislation, state constitutions, and judicial decisions was the “line along the river bed equidistant from the permanent and defined banks of the ascertained channel on either side.” This was followed in subsequent decisions by the same court. Wolfe v. State (1912), 104 Arkansas, 140, 143; Kinnanne v. State (1913), 106 Arkansas, 286, 290. The first pertinent decision by the Supreme Court of Tennessee is State v. Muncie Pulp Co. (1907), 119 Tennessee, 47, in which a similar conclusion was reached, partly upon the ground that it had been adopted by the courts of Arkansas. The legislative action referred to consists of two acts of the General Assembly of the State of Tennessee (Acts 1903, p. 1215, c. 420; Acts 1907, p. 1723, c. 516), each of which authorized the p. 172appointment of a commission to confer and act with a like commission representing the State of Arkansas to locate the line between the States in the old and abandoned channel at the place that we now have under consideration; and the Act of 1907 further provided that if Arkansas should fail to appoint a commission, the Attorney General of Tennessee should be authorized to institute a suit against that State in this court to establish and locate the boundary line. These acts, far from treating the boundary as a line settled and acquiesced in, treat it as a matter requiring to be definitely settled, with the cooperation of representatives of the sister State if practicable, otherwise by appropriate litigation.

There is controversy with respect to the application of the foregoing rule to the particular circumstances of this case. It is insisted in behalf of the State of Tennessee that since the rule of the thalweg derives its origin from the equal rights of the respective States in the navigation of the river, the reason for the rule and therefore the rule itself ceases when navigation has been rendered impossible by the abandonment of a portion of the river bed as the result of an avulsion. In support of this contention we are referred to some expressions of Vattel, Almeda, Moore, and other writers; but we deem them p. 174inconclusive, and are of the opinion, on the contrary, that the contention runs counter to the settled rule and is inconsistent with the declarations of this court, in Nebraska v. Iowa, 143 U. S. 359, 367, that “avulsion would establish a fixed boundary, to wit: the centre of the abandoned channel,” or, as it is expressed on page 370, “the boundary was not changed, and it remained as it was prior to the avulsion, the centre line of the old channel,” and in Missouri v. Nebraska, 196 U. S. 23, 36, that the boundary line “must be taken to be the middle of the channel of the river as it was prior to such avulsion.”

This contention is rested chiefly upon a quotation from Sir Matthew Hale, De Jure Maris, c. 4: “If a subject hath land adjoining the sea, and the violence of the sea swallow it up, but so that yet there be reasonable marks to continue the notice of it; or though the marks be defaced; yet if by situation and extent of quantity, and bounding upon the firm land, the same can be known, though the sea leave this land again, or it be by art or industry regained, the subject doth not lose his propriety; and accordingly it was held by Cooke and Foster, M. 7 Jac. C. B., though the inundation continue forty years.” (1 Hargraves’ Law Tracts, 15; Note to Ex parte Jennings, 6 Cow. 542.) To the same effect, 2 Roll. Abr. 168, 1. 48; 7 Cornyns’ Dig., tit. Prerogative, D. 61, 62; 5 Bacon’s Abr., tit. Prerogative, B. 1. A reference to the context shows that the portion quoted is a statement of one of several exceptions to the general rule that any increase p. 175of land per relictionem, or sudden recession of the sea, belonged of common right to the King as a part of his prerogative. It amounts to no more than saying that where the reliction did but restore that which before had been private property and had been lost through the violence of the sea, the private right should be restored if the land is capable of identification. Such a case was Mulry v. Norton, 100 N. Y. 424, the true scope of which decision was pointed out in In re City of Buffalo, 206 N. Y. 319, 326, 327. But this doctrine has no proper bearing upon the rule we have stated with reference to boundary streams. Certainly it cannot be regarded as having the effect of carving out an exception to the rule that where the course of the stream changes through the operation of the natural and gradual processes of erosion and accretion, the boundary follows the stream; while if the stream leaves its former bed and establishes a new one as the result of an avulsion, the boundary remains in the middle of the former channel. An avulsion has this effect, whether it results in the drying up of the old channel or not. So long as that channel remains a running stream, the boundary marked by it is still subject to be changed by erosion and accretion; but when the water becomes stagnant, the effect of these processes is at an end; the boundary then becomes fixed in the middle of the channel as we have defined it, and the gradual filling up of the bed that ensues is not to be treated as an accretion to the shores but as an ultimate effect of the avulsion. The emergence of the land, however, may or may not follow, and it ought not in reason to have any controlling effect upon the location of the boundary line in the old channel. To give to it such an effect is, we think, to misapply the rule quoted from Sir Matthew Hale.

How the land that emerges on either side of an interstate boundary stream shall be disposed of as between public and private ownership is a matter to be determined p. 176according to the law of each State, under the familar doctrine that it is for the States to establish for themselves such rules of property as they deem expedient with respect to the navigable waters within their borders and the riparian lands adjacent to them. Pollard’s Lessee v. Hagan, 3 How, 212, 230; Barney v. Keokuk, 94 U. S. 324, 338; Hardin v. Jordan, 140 U. S. 371, 382; Shively v. Bowlby, 152 U. S. 1, 40, 58; St. Anthony Falls Water Power Co. v. Water Commissioners, 168 U. S. 349, 358; Scott v. Lattig, 227 U. S. 229, 242. Thus, Arkansas may limit riparian ownership by the ordinary high-water mark; (Railway v. Ramsey, 53 Arkansas, 314, 323; Wallace v. Driver, 61 Arkansas, 429, 435, 436;) and Tennessee, while extending riparian ownership upon navigable streams to ordinary low-water mark, and reserving as public the lands constituting the bed below that mark (Elder v. Burrus, 25 Tennessee, [6 Humph.] 358, 368; Martin v. Nance, 40 Tennessee [3 Head], 649, 650; Goodwin v. Thompson, 83 Tennessee [15 Lea], 209), may, in the case of an avulsion followed by a drying up of the old channel of the river, recognize the right of former riparian owners to be restored to that which they have lost through gradual erosions in times preceding the avulsion, as she has done in State v. Muncie Pulp Co., 119 Tennessee, 47. But these dispositions are in each case limited by the interstate boundary, and cannot be permitted to press back the boundary line from where otherwise it should be located.

An answer having been filed, putting the cause at issue, the District Court, by consent of parties, appointed a special master, “with all of the powers conferred upon the master under the rules of practice for the courts of equity of the United States, and subject to the further orders of this court, ... for the purpose of taking all testimony in the suit and reporting to the court said testimony, his findings of fact and such conclusions of law as he may deem essential to the proper advisement of p. 181the court.” After a full hearing he made an elaborate report, sustaining complainant’s main contention. The City and the Public Utilities Commission, defendants, filed numerous exceptions to his findings and conclusions, raising questions respecting certain elements that entered into his valuation of complainant’s plant. Complainant, while declaring that it did not consent to a review of the report so far as it was conclusive under the order of reference, filed exceptions, subject to such ruling as the court might make respecting its reviewability. Upon these exceptions the cause came on to be heard, whereupon the court, being of the opinion that under the terms of the order appointing the special master his findings of fact were not open for its consideration, and that no material questions of law were raised that could be considered without an examination of the facts, ordered that the exceptions of both parties be struck out, confirmed the master’s report, and passed a final decree in favor of complainant in accordance with his findings. Defendants appealed to this court, presenting assignments of error based upon the overruling by the District Court of their exceptions to the master’s report. Complainant filed a cross-appeal presenting assignments of error for consideration only in the event that defendants’ assignments of error, or some of them, should be sustained.

In our opinion, the District Court erred in declining to pass upon the questions raised by the exceptions. Although no opinion was filed, the ruling appears to have been based upon the theory that, because the order of reference was made by consent of parties, the conclusions of the master were not open to question. Kimberly v. Arms, 129 U. S. 512, 524, and Davis v. Schwartz, 155 U. S. 631, 633, 636, are cited in support, but they are distinguishable. In the former case, the reference, made by consent of the parties, authorized the master to hear the evidence and decide all the issues between them, and it p. 182was because of this that the court held the findings were not merely advisory, as in the ordinary case, but were to be taken as presumptively correct, “subject, indeed, to be reviewed under the reservation contained in the consent and order of the court, when there has been manifest error in the consideration given to the evidence, or in the application of the law, but not otherwise;” and that the findings ought to have been treated as “so far correct and binding as not to be disturbed, unless clearly in conflict with the weight of the evidence upon which they were made.” Davis v. Schwartz is to the same effect. In the present case, the consent given to the order of reference was conditioned by the terms of the order itself, which, as we have seen, limited the functions of the master to the taking of testimony and reporting it to the court together with his findings of fact and conclusions of law for the advisement of the court.

It was admitted before the master, and is not here controverted, that the company is the sole owner of the water works, plant, and system in question, including lands, diversion works, reservoirs, filters, conduits, distribution works, and other apparatus, and is serving the City and its inhabitants with water, that no other water works or system of distribution exists in the City, and that although the City has power to construct a system of its own (subject to a limit of cost that will be mentioned p. 183below), it has not commenced to do so. It was, however, contended by defendants, in the answer and upon the hearing before the master—and the contention is here renewed—that as to such of the company’s water diversion rights as had been acquired by it or its predecessors by original appropriation and user (as distinguished from those acquired by purchase) the right to the water itself was not the property of the company but of the City; and this upon the theory that, under the law of appropriation as it obtains in Colorado, the right of diversion belonged to those for whose use and benefit the appropriation was made, the company being entitled to compensation only for its services as carrier in distributing the water by means of the physical system owned by it.

The report of the special master shows, what is not disputed, that his investigation of the matters referred to him was most painstaking and thorough. In estimating the value of the company’s property, he adopted the following method, with the practical consent of the parties: lands and water rights were appraised at their present market values; estimates of the cost of reproducing the structures were made, and, from this cost, allowance for accrued depreciation was deducted so as to determine the reasonable value of the structures in their present condition; and in estimating the cost of reproduction it was assumed that the work would be done under contract after fair competitive bidding, and with reasonable costs for engineering and superintendence in addition to the contract cost. Separate consideration was given to the various tracts of land owned by the company, and the various water rights, diversion works, reservoirs, conduits, distribution pipes, personal property, and other items constituting the plant. He found the plant to be in excellent condition, supplying water abundantly in excess of the needs of the community and under a proper pressure, and found its entire value to be 813,415,899, in which the p. 184only elements seriously questioned by the City were: (a) the disputed water diversion rights, which he held to be the property of the company and valued at $1,998,117; and (b) an item of $800,000 for “going-concern” value, allowed by the master upon the ground that the company had “an assembled and established plant doing business and earning money,” according to the principle laid down by this court in Des Moines Gas Co. v. City of Des Moines, 238 U. S. 153, 165. He made no allowance for franchise value or for any permanent right to maintain the water works in the streets of the City; but he did value the plant as capable of use and actually in use in the public service, and found that a new plant capable of serving the public with like efficiency could not be built for $13,415,899; a finding to which no exception was taken. The master further found that the net earnings of the company under the ordinance of 1914, after making proper allowances for operating expenses, taxes, and depreciation, would be $488,820, or only 3.64% of the reasonable value of the plant; while the prevailing rate of interest for secured loans on business and residence properties in Denver was about 6%, with higher rates for loans less adequately secured.

In the first place, no such question is presented, either by the pleadings, the master’s report, the exceptions, or the assignments of error. The bill averred that complainant was “entitled to have its property devoted to the public use of supplying the City and County of Denver and its inhabitants with water remain unimpaired in value, and to receive for the water supplied and services rendered a reasonable return upon the value of the property so devoted to said uses, and a sufficient amount to protect said property against depreciation and other impairments of value.” The answer admitted complainant’s ownership of the system of water works (except that as to certain of the water rights it was denied upon legal grounds that have been indicated), and admitted that “complainant is entitled to have its property devoted to the public use of supplying the City and County of Denver and its inhabitants with water remain unimpaired in value, so far as its actual use in supplying the City and County of Denver and its inhabitants with water is concerned, and to receive for the services rendered in supplying such water a reasonable return upon the value of the property devoted to such use, and a sufficient amount to protect said property against depreciation and other impairments of value in connection with such use and such water service.” The answer further alleged that the rates fixed by the ordinance of 1914 “are fair, reasonable, just, and will produce for complainant a fair, reasonable, and adequate return upon the capital actually invested by complainant in its water system and carrying service.” The master’s report shows that no question was made before him but that the plant should be valued as a plant in use, except as it was contended that the item of $800,000 for going-concern value ought to be eliminated on the p. 186ground that such an element of value, admittedly existent in a “purchase case,” could not be considered in a “rate case,” and on the further ground that the company’s franchise had expired. This latter point was made the basis of one of the exceptions. Aside from this, the exceptions were devoted mainly to the contention, already mentioned, that the company’s water rights, other than those which had been purchased, were the property not of the company but of the City. It was at no time contended that any element of value except “going concern value” ought to be excluded because of the expiration of the franchise. Defendants’ assignments of error are based upon the exceptions, and raise no other question.

Under the ordinance of 1890 the company had a franchise which expired April 10, 1910, at which time the City had an option either to purchase the works at an appraised valuation, or to renew the contract for a period of twenty years. After its expiration litigation ensued as a result of which this court held, in May, 1913, that the City was under no obligation to accept either option, and that its failure to renew the contract did not amount to an p. 187election to purchase the plant. Denver v. New York Trust Co., 229 U. S. 123, 138. Meanwhile fruitless negotiations were conducted looking to a purchase of the plant by the City, but leaving the parties far apart upon the question of valuation. The City on May 17, 1910, adopted a charter amendment whereby it created the Public Utilities Commission, directed that an offer of $7,000,000 be made for the property of the company, and provided that in case of its rejection steps should be taken to construct a water system owned and operated by the City at a cost not to exceed $8,000,000. The water company rejected the offer of $7,000,000; but the City did not commence—has not yet commenced—the construction of its own water system. The company continued to supply water to the City and its inhabitants at the rates charged during the continuance of the ordinance of 1890. In August, 1913—after our decision in the case just mentioned—the City and the Public Utilities Commission appointed a commission of three to inspect, examine, and report upon complainant’s water system, and after an investigation, during which complainant gave this commission every reasonable opportunity for inspection and examination of its records and data, the commission, on January 14, 1914, made a unanimous report to the effect that complainant’s system was in excellent working condition, adequate for supplying the City’s present needs, and worth, exclusive of going-concern value or water rights, something over $10,000,000, and declaring that it would take five years, without allowance for delays in legal proceedings, for the City to construct a new system of its own, and would cost $12,750,000. After this report, and on February 17, there was submitted to the electors and taxpaying electors of the City a contract by which the City was to purchase complainant’s water system and properties at a price to be fixed by appraisers including the Public Utilities Commission who were to act for the p. 188City, which contract complainant agreed to accept and abide by if favorably voted on by the taxpaying electors. It was rejected. Prior to the first of February the ordinance now in question, greatly reducing the rates, was prepared at the instance of the Public Utilities Commission, circulated as an initiated bill under the appropriate provision of the city charter, received the signatures of more than five per cent, of the electors, but only 5,593 in all,1 was filed with the city clerk about a week after the election.just mentioned, was introduced in the City Council, published once, and passed by the Council on March 3, without amendment and without hearings; that body having acted either in the belief that, since the measure was presented with the signatures of a sufficient number of the citizens, it was mandatory upon the Council to pass it, or else that they had no other option except to refer it to a vote of the people, which was not done. (See Speer v. People, 52 Colorado, 325, 343.) We remark upon the legislative procedure simply because of its bearing upon the interpretation of the measure, which, as we shall see, lacks certainty in its enacting clauses.

The population of the City, by the Census of 1910, was 213,381. p. 189of the former franchise; the City, while endowed with the power to construct a system of its own, but only if it could be done at a cost not exceeding $8,000,000, had not yet commenced the construction of such a system, had just been officially advised that one could not be constructed for less than $12,750,000, and nevertheless had rejected a proposition to purchase complainant’s system at an appraised value.

It is in the light of all these circumstances that the provisions of the ordinance of 1914 must be read. There is a preamble reciting that since 1910 the company had been without franchise and a mere tenant by sufferance of the streets, and that, while it had been supplying the City and its inhabitants with water, it had done so “at rates that are excessive and that should be reduced and regulated accordingly;” and there is a declaration that the enactment is made without recognizing the company’s right to occupy the streets or to continue its service, but for the purpose of regulating and reducing its charges “during the time it shall further act as a water carrier and tenant by sufferance of said streets.” But the enacting provisions, in the terms employed and by necessary intendment, are inconsistent with these declarations, and must be taken to override them. The first section establishes, as the maximum charges permitted to be made by the company, a detailed schedule of “semi-annual water rates payable in advance on the first day of May and November of each year.” The various uses are specified, and many of these are of kinds that cannot be discontinued on brief notice. There is a special rate for irrigation by the season, May 1 to November 1. There is a provision for meter rates, payable monthly, with a clause requiring the company to instal a meter for any person desirous of using water by meter. Section 2 provides that for hydrants, including “those which may thereafter be ordered by the Council to be set upon existing mains or upon p. 190extensions thereof,” the City shall pay annual rentals. And § 4 imposes fines upon the company and its agents for any violation of the ordinance.

In this situation, there can be no question of the company’s right to adequate compensation for the use of its property employed, and necessarily employed, in the pub- p. 191lie service; nor can it be doubted that the property must be valued as property in use. It involves a practical contradiction of terms to say that property useful and actually used in a public service is not to be estimated as hav'ng the value of property in use, but is to be reckoned with on the basis of its “junk value.” Nor is the question of value for present purposes greatly affected, if at all, by the fact that there is neither right nor obligation to continue the use perpetually, or for any long period that may be defined in advance. The reason is not obscure: the cost and detriment to a property owner attributable to the use of his property by the public, and the value of the service rendered by the property to the public, are measured day by day, month by month, year by year, and are little influenced by the question how long the service is to continue. The cost of the service includes the use of the plant, but, ordinarily, not its destruction, except through the slow processes of wear and tear and obsolescence, for which graduated depreciation allowances are made. The whole calculation is a matter of income, not capital, accounting; and the cost and value of the use of a given property for a stated period is the same whether the use is to be continued after the expiration of the period or not. If the period is extended, compensation for the use is extended proportionately.

What we have said establishes the propriety of estimating complainant’s property on the basis of present market values as to land, and reproduction cost, less depreciation, as to structures. That this method was fairly applied by the special master hardly is disputed by appellants, except as they contest the items allowed for “going-concern value” and for the water rights acquired by complainant and its predecessors by original appropriation. With respect to the former item, we adhere to what was said in Des Moines Gas Co. v. Des Moines, 238 U. S. 153, p. 192165: “That there is an element of value in an assembled and established plant, doing business and earning money, over one not thus advanced, is self-evident. This element of value is a property right, and should be considered in determining the value of the property, upon which the owner has a right to make a fair return when the same is privately owned although dedicated to public use.”

The master found that these appropriations were made at times when the company or its predecessor held franchise contracts with the City calling for a supply of water to the inhabitants; that these contracts were limited to short periods, while the use by private consumers was under simple permits or licenses for periods of six months, at rates paid in advance, and under expressed conditions that terminated their right to use the water on violation of the reasonable rules of the company. The parties agree that such a diversion and beneficial use of the unappropriated water of a natural stream is sufficient to initiate and perfect a right to continue to use beneficially the volume of water so appropriated. Complainant contends, and the master held, that the ownership of the p. 193appropriation under such circumstances may be fixed by contract between the one who diverts and the one who beneficially applies the water, and that under the circumstances of the case, upon a proper application of the rule adopted by the Supreme Court of Colorado in City of Denver v. Brown, 56 Colorado, 216, the water rights in question were owned by complainant.