In the case of Los Angeles v. Los Angeles City Water Company in 1899, the city of Los Angeles sued its own water company over a dispute regarding property rights and water supply contracts. The Supreme Court ruled in favor of the city, stating that it had not surrendered its right to control or regulate public utilities by entering into a contract with the water company. The court also held that any ambiguity in such contracts should be resolved against private corporations and for municipalities and their inhabitants. This decision established an important precedent for future cases involving municipal utility services, emphasizing government's regulatory power over these entities even when they are privately owned.

In the dissenting opinion for Los Angeles v. Los Angeles City Water Company, Justice Harlan argued that the majority's decision was a departure from established principles of law and equity. He contended that when a city grants a franchise to use its streets for water pipes, it does not surrender its power to regulate rates unless explicitly stated in the contract. Furthermore, he disagreed with the majority's interpretation of ambiguous terms in favor of the corporation rather than public interest. He also criticized their reliance on extrinsic evidence to interpret an unambiguous contract term which should have been interpreted according to its plain meaning under California law. Lastly, he expressed concern about setting precedent where corporations could evade regulation by claiming rights based on vague or implied contractual terms.