In the case of Freeport Water Company v. Freeport City, 1900, the U.S Supreme Court was tasked with determining whether a city could be held liable for damages caused by its failure to supply water as per an agreement made with a private company. The dispute arose when the City of Freeport failed to provide water from its hydrants to the Freeport Water Company due to alleged financial constraints. As a result, several fires broke out causing significant damage which led the water company to sue for compensation. The court ruled in favor of the city stating that it had no legal obligation under Illinois law or any contractual duty towards providing continuous and uninterrupted service at all times irrespective of circumstances beyond their control such as lack of funds. Furthermore, they noted that while municipalities may enter into contracts like private corporations; they are not subject to same liabilities because their primary function is serving public interest rather than making profits.

The dissenting opinion in the case of Freeport Water Company v. Freeport City argued that the majority decision was incorrect because it failed to consider the contract rights of private corporations when they are providing a public service. The dissenting justices believed that once a city has granted a franchise to a company, and this company has invested heavily based on this agreement, it is not fair or legal for the city to then create its own competing utility service without compensating the original provider. They contended that such actions violate principles of good faith and equitable dealing, as well as infringing upon constitutional protections against impairing contracts. Furthermore, they disagreed with how lower courts had interpreted relevant state laws regarding municipal powers over water supply services.