9 A.2d 609 | Pa. | 1939
Lead Opinion
This appeal is from a decree dismissing a taxpayers' bill filed to enjoin the proposed construction of a sewerage system in part to be paid for by the proceeds of bonds of the township to be issued pursuant to the Act of May 7, 1937, P. L. 574, 53 PS section 19092-2445, and the Act of May 14, 1937, P. L. 630, 53 PS section 1030. Defendant township commissioners filed an answer under Equity Rule 48 setting forth a number of *347 objections to the bill. The parties stipulated for final hearing on the bill and answer.
The township now contains two sewers, a small one owned by the township and the sewerage system in operation in Glenside owned and operated by the Cheltenham and Abington Sewerage Company.1 It is proposed to construct a sewerage system which shall incorporate in it the existing township sewer.
The last assessment of taxable property was $22,930,011. The net debt, when the bill was filed, was $186,418.68, leaving power in the commissioners to increase the debt by $272,181.54 without a special election.
The project includes the construction of the sewage disposal plant at a cost of approximately $250,000.00, to be paid for by general township bonds. The rest of the proposed sewerage system requires the expenditure of $1,100,000.00, to be paid for by so-called non-debt revenue bonds. If the township can avail itself of the Act of May 7, 1937, P. L. 574, 53 PS section 19092-2445, in the manner proposed, $1,100,000 of bonds may be issued without the consent of the electors, but if not, the issue of those bonds would result in an increase of indebtedness over the 2% limit in the sum of $827,818.46.
There are now two methods of financing such improvements. As the proposed expenditure is within the 7% debt limit, it would seem to be possible to finance the project by the issue of general township bonds if the voters so determine. A second method is provided by the Act of May 20, 1937, P. L. 739, 53 PS section *348 2900h, amending the Act of June 28, 1935, P. L. 463, 53 PS section 2900f, authorizing the creation of Municipal Authorities for such purposes. For reasons with which the court is not concerned, defendant commissioners rejected both these methods and based their action on the statute referred to.
Plaintiffs, after averring the enactment of certain ordinances providing for the sewerage system and the issue of bonds in payment, averred that the Act relied on by the township as authority for its action was unconstitutional, inter alia, in conflict (1) with article III, section 20, of the constitution, in that it attempted to authorize the township to delegate to a private corporation (The Provident Trust Company of Philadelphia was selected by the defendants for the purpose) the power to interfere with a municipal improvement, to wit, the sewerage system; (2) with article IX, section 8, as attempting to authorize an increase of indebtedness in excess of 2% of the assessed valuation without the consent of the electors. Other objections were made which need not now be stated.
It is proposed to raise the $1,100,000 by bonds described (in the words of the statute) as "non-debt revenue bonds secured solely by a pledge, in whole or in part, of the annual rentals or charges for the use of such sewer, sewer system or sewage treatment works. Said bonds shall not pledge the credit, nor create any debt, nor be a charge against the general revenues, nor be a lien against any property of the township, but shall be a lien upon and payable solely from the annual rentals or charges for the use of said sewer, sewer system or sewage treatment works." The pledge was to be made effective by a trust of which the Provident Trust Company of Philadelphia was named trustee. Ordinance No. 424 provided in section 2 "Said bonds shall be secured by a Trust Indenture from Abington Township to Provident Trust Company of Philadelphia, Trustee, which is hereby appointed as Trustee under *349 said Trust Indenture, under the terms of which the annual rentals or charges for the use of such sewer system, imposed as aforesaid by Ordinance No. 425, are pledged for the payment of the principal thereof and interest and State tax thereon. Said bonds shall not pledge the credit, nor create any debt, nor be a charge against the general revenues, nor be a lien against any property of said Township, but shall be a lien upon and payable solely from the annual rentals or charges for the use of said sewer system."
The bond provided — "TOWNSHIP OF ABINGTON . . . hereby promises to pay, but only out of annual sewer rentals or charges, to the bearer, or if this bond be registered as hereinafter provided, to the registered owner hereof. . . ." It is also provided — "In case an event of default, as defined in the Indenture, shall occur, the principal of this bond may become or be declared due and payable, in the manner, with the effect and subject to the conditions provided in the said Indenture." The indenture, in articles III and IV, imposes active duties on the trustee during the construction of the sewer, the disposition of the construction fund, and subsequently. In article V "Township covenants that it will maintain a schedule of rates for annual sewer rentals or charges such that the amounts which may reasonably be collected therefrom shall be sufficient to provide funds for (a) the amount expended annually by the Township in the operation, maintenance, repair, alteration, inspection, depreciation or other expenses in relation to the sewer system, including the sewers and the sewerage treatment works; (b) such annual amount as may be necessary to provide for the principal, interest and taxes, if any, on the bonds issued hereunder and secured hereby; and (c) sufficient to establish a margin of safety of ten per centum (10%) of (a) and (b). A schedule of the rates, certified by the Secretary of the Board of Township Commissioners to be in effect, shall be on file with the Trustee at all times." The *350 township agrees that "it will duly and promptly collect all the sewer rentals or charges" and pay them to the trustee; that if in any year the rentals received have been insufficient to raise the sums specified, the township "shall immediately revise the schedule of rates of the annual sewer rentals or charges so that the amounts reasonably to be collected therefrom shall be sufficient to provide for the amounts required. . . ." "If the Township shall fail to revise its schedule of rates within twenty (20) days" the trustee, on the request of holders of not less than 10% of the principal amount of outstanding bonds, may apply to the court to compel the township to revise the rates. Article X deals with defaults and remedy and, inter alia, provides that in specified contingencies the "Trustee shall be entitled to take actual possession of the sewer system as for condition broken, and, in its discretion may, with or without force and with or without process of law, and before or after declaring the principal of said bonds immediately due, and without any action on the part of any bondholders, by its agents or attorneys enter upon, take and maintain possession of all or any part of said sewer system, together with all records, documents, books, papers, and accounts of the Township relating thereto, and may, as the attorney-in-fact or agent of the Township, or in its own name as Trustee, hold, manage and operate said sewer system and collect the sewer rentals or charges, and shall, after paying out of the revenue from said sewer system all expenses for management and operation of said sewer system, and the costs of such repairs, replacements, alterations, and useful additions as may seem to it proper and judicious, and all taxes, assessments or charges, or liens upon said sewer system or any part thereof, together with reasonable attorneys' fees, and after retaining reasonable compensation for all amounts collected as Trustee for its services in that behalf, and such further sums as may be *351 sufficient to reimburse and indemnify the Trustee against any liability, loss or damage on account of any matter or thing done in good faith in pursuance of the duties of the Trustee hereunder, and to pay any moneys advanced or paid out pursuant to this Indenture together with interest thereon at the rate of six per cent. (6 %) per annum, apply the residue, if any, to the payment of the principal of and interest on the bonds."
Section 3 provides "Upon the happening of any event of default specified in Section 1 of this Article and its continuance for the period, if any, specified in said Section, then and in every such case the Trustee, in its discretion, may, and upon the written request of the holders of twenty-five per cent. (25%) in principal amount of the bonds then outstanding, and upon receipt of indemnity to its satisfaction, shall in its own right
(a) By mandamus, or other suit, action or proceeding at law or in equity enforce all rights of the bondholders, including the right to require the Township to collect rates, rentals and other charges adequate to carry out any agreement as to the pledge of the revenues or receipts of the sewer system and to require the Township to carry out any other agreements with or for the benefit of the bondholders, and to perform its or their duties under the aforesaid Act;
(b) Bring suit upon the bonds;
(c) By action or suit in equity require the Township to account as if it were the trustee of an express trust for the bondholders;
(d) By action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the bondholders."
The indenture contains a number of other provisions imposing conditions on the free action of the township and vesting powers in the trustee.
Plaintiffs contend that the vesting of such powers in a private corporation is in conflict with article III, *352
section 20,2 of the constitution, which provides "The General Assembly shall not delegate to any special commission, private corporation or association, any power to make, supervise or interfere with any municipal improvement, money, property or effects, whether held in trust or otherwise, or to levy taxes or perform any municipal function whatever." Plaintiffs' position is that the Act of 1937, as proposed to be applied by the defendants, is a delegation to the township of the power to delegate to a trustee the control and management of the sewerage system in the circumstances described. The municipal improvement or property which plaintiffs aver to be involved is the sewerage system now owned by the township and that now proposed to be added to it. As the legislature itself, with its great powers over municipalities, is prohibited from making such a delegation to a private corporation, the question is, may it authorize a municipality to do what the legislature itself is prohibited from doing. In Commonwealth v. Moir,
We think the township, as the governmental agent of the state, is subject to the same prohibition to which the state is subject. Counsel for defendants contend that the challenged statute "does not delegate to a private corporation any power" but that "It does authorize a municipality voluntarily to enter into an agreement with a private corporation, such as a bank or trust company, representing, as a trustee, the bondholders." As the constitution specifically deprives the state of power to delegate the management of the municipal property to a private corporation, certainly the agent, the township, cannot make such a delegation; the effect of the limitation on the principal would be destroyed if the agent could do what was prohibited. Compare Hammett v. Phila.,
Reference is made in the brief to the fact that in some of the Authority cases the trust indenture made by the Authority contained provisions authorizing a trustee to enter, and, with reference to those provisions, it is said there is no difference between their exercise and the power proposed to be vested in the Provident Trust Company in the record before us. We think there is a great difference; in the Authority cases, the title to the property is in the Authority which makes the contract with the trustee; in case of default the trustee enters under the Authority; but if the defendant township defaults the private corporation is authorized to take over a part of the municipal property and operate it, which is clearly in violation of the constitutional provision.
One other point may be noticed. It has been suggested that, while the conclusion reached would be correct if the operation of the sewerage system were a governmental instead of a proprietary activity, Article III, section 20, does not apply because a proprietary function is under consideration. But the constitution makes no such distinction; the words are plain and must be given their common or popular meaning, for in that sense, the *355
voters are assumed to have understood them when they adopted the constitution: Busser v. Snyder,
As what is proposed to be done by the township is in violation of section 20 of Article III of the constitution, it is unnecessary to consider the other objections made by plaintiffs.
The decree is reversed, the bill is reinstated and the record is remitted with instructions to grant the injunction; costs to be paid by defendants.
Dissenting Opinion
When this case was argued in this court, appellants stressed chiefly the proposition that the non-debt revenue bonds constituted a "debt" within the meaning of sections 8 and 10 of Article IX of the Pennsylvania Constitution and since the proposed debt (if such it is) would increase the township debt to an amount which made it necessary first to obtain the consent of the electors, the statute and ordinance creating the "debt" are unconstitutional. Nineteen pages of appellants' paper book are devoted to that proposition and only one and a half pages to the proposition that the Act *356 of May 7, 1937, P. L. 574, contravenes section 20 of Article III of the Constitution.
It is clear to me that under the trust agreement and the Act of May 7, 1937, P. L. 574, and ordinance # 424 providing against the bonds being a debt of the township or municipality, these non-debt revenue bonds do not constitute a debt of thetownship of Abington. In Tranter v. Allegheny County Authorityet al.,
The majority opinion finds that "what is proposed to be done by the township is in violation of section 20 of Article III of the Constitution," and for that reason alone it holds that what the township proposes to do in respect to the sewer system cannot constitutionally be done. It says: "If the defendant township defaults, the private corporation is authorized to take over a part of the municipal property and operate it, which is clearly a violation of the constitutional provision [sec. 20, *357 Article III]." It adds: "It is unnecessary to consider the other objections made by plaintiffs."
With the conclusion of the majority I cannot agree. If the operation of a sewer system was a governmental function, its ownership and operation could not, under any circumstances, be intrusted to a private corporation, but the ownership and operation of a sewer system is not a governmental function; it is a proprietary function. "Sewers are owned by municipalities in their proprietary capacity, not governmentally": Gemmill v.Calder,
In Gas Water Co. v. Carlisle,
In Gas Water Co. v. Downingtown Borough,
If the legislature could do this in the case just cited without violating the Constitution, it follows that the legislature could constitutionally pass the Act of May 7, 1937, P. L. 574, empowering "any township" to issue "non-debt revenue bonds secured solely by a pledge, in whole or in part, of the annual rentals or charges for the use of such sewer, sewer system or sewage treatment works" and empowering the trustee representing the bondholders to proceed in case of default in payment of the bonds, by mandamus or otherwise in the proper court to protect the rights of the bondholders and conferring upon the trustee the "right to the appointment of a receiver who may enter and take possession of the sewer system or sewage treatment works, or any part or parts thereof, the revenues or receipts from which are or may be applicable to the payment of the bonds so in default, and operate and maintain the same and collect and receive all rentals and other revenues thereafter arising therefrom in the same manner as the township, and shall deposit all such moneys in a separate account, and apply the same in such manner as the court shall direct. . . . All costs and disbursements allowed by the court shall be a first charge on any revenues and receipts derived from the sewer system or sewage treatment works, the revenues or receipts from which are or may be applicable to the payment of the bonds so in default."
I cannot find that the act of the legislature breaches in the slightest degree section 20 of Article III of the Constitution. *361
What was intended to be prohibited by Article III, section 20, of the Constitution has heretofore been well settled. InWilson v. Philadelphia School Dist.,
In Byington v. Sacramento Valley West Side Canal Co.,
In Tranter v. Allegheny County Authority (supra), it was held that the Allegheny County Authority Act did not contravene Article 3, section 20, of the Constitution for two reasons: (1) The Authority was not a special commission, private corporation or association, and (2) "the statute authorizes no supervision or interference with municipal improvements, money, property or effects in the sense contemplated by the Constitution. Allegheny County Authority, as the agent created for the purpose by the state, deals not with property owned by the municipality, but with the highway system of the Commonwealth as to which, as we have repeatedly held, the power of the state is supreme, and this makes it immaterial that the trustee, under the trust indenture, The Colonial Trust Company of Pittsburgh, may enter upon the premises for the purpose of collecting tolls or otherwise in the event of default by the Authority. Cf. Blood v. McCarty,
It is clear to me in the instant case, as in the Tranter case, that the statute authorizes "no supervision or interference with municipal improvements, money, property or effects in the sense contemplated by the Constitution." The prohibition of section 20 of Article III of the Constitution has nothing to do with the property a municipality or townshipholds in its proprietary capacity. Of course, a legislature could not delegate to a special commission or private corporation or association any power to interfere with any municipal improvement, money, property or effects which the municipality or township was using in its governmental
capacity. No special commission or private corporation could, for example, be authorized to take over the management and control of a municipal jail or municipal firehouses or the public money (except as an official depository), but a private corporation can take over the management and control of a water system or sewer system, for the ownership and management of such systems are not governmental functions. The Corporation Act of 1874, P. L. 73, provides that corporations for profit may be chartered for the purpose of "construction and maintenance of sewers," etc., "for the health, comfort and convenience of inhabitants . . ." In the Tranter Case, it is provided by the terms of the contract that "after the cost of all of the public works and improvements to be constructed by defendant Authority shall have been duly paid out of the revenues received by defendant Authority from the same, then all of the property of said City conveyed to defendant Authority will revert to and become the property of the County of Allegheny improved by the public works and improvements constructed thereon by defendant Authority, without cost either to the said City or to the County of Allegheny." In the instant case, the trust indenture *365
provides that "the township may, at its option, on April 1, 1959, or on any interest date thereafter redeem prior to the maturity thereof, any or all of the bonds of Series A3
outstanding, upon payment of the principal amount thereof together with accrued interest." The trust agreement further provides that after default and the trustee or receiver takes possession of the sewer system and operates and maintains and controls the rentals, the revenues shall be applied as follows: after the payment of costs and disbursements allowed by the court, counsel fees, expenses of the trustee, costs of operation, maintenance, repair, alteration, etc., then to the payment of the whole amount of principal and interest and taxes, if any, which shall then be owing or unpaid upon the bonds, and if there is any surplus, it shall be paid "to the township, or to whomever may be lawfully entitled to receive the same." In the instant case, as in the Tranter case, the basic idea is that the revenues from the improvement shall be used for the payment of the improvement and that if the cost of the improvement has been liquidated from the revenues, the property will revert, in the Tranter case to the County of Allegheny and in the instant case to the Township of Abington. Even if there was no such provision in the instant case, that is, if the sewer system was to be constructed by a private corporation and permanently owned and managed by such a corporation, there would be no violation of Article III, section 20, of the Constitution. For private corporations or associations to administer governmental functions would lead to chaos, but to hold that the proprietary functions of municipalities cannot be administered by individuals or private corporations would paralyze municipal progress. What Justice MITCHELL said in his able dissenting opinion in Perkins v.Philadelphia,
Holding as I do that the prohibitions of Article III, section 20, of the Constitution do not relate to property dealt with by municipalities and townships in their proprietary capacities, I am convinced that the constitutionality of the Acts of May 7, 1937, P. L. 574, and of May 14, 1937, P. L. 630, is free from doubt. As to such property, municipalities and townships "stand on the same footing as would any individual or body of persons upon whom the like special franchises had been conferred": per Chief Justice NELSON4 of the Supreme Court of New York (1843), in Bailey v. New York City, 3 Hill 531, 539, citingDartmouth College v. Woodward, 4 Wheat. 668, 672; 2 Kent's Com. 275, 4th ed.; U.S. Bank v. Planters' Bank, 9 Wheat. 907; 1 Brown's Ch. R. 469. Even if there was some slight doubt in my mind about the constitutionality of these acts that would not justify me in judging them unconstitutional. As Mr. Justice LINN, speaking for this court in the Tranter case, supra, said (quoting from Sharpless v. Mayor of Philadelphia,
What the present Chief Justice said in Kelley v. Earle et al.
(2nd case),
That the restriction of Article III, section 20, as toproperty, embraces only property used for governmental purposes is, I think, recognized by a long line of decisions of this court. For example in Baily v. Phila.,
The improved sewer facilities for whose construction the contracts in question were entered into are essential to the comfort and health of the people to be served. The latter are to obtain this service without having a single dollar added to the indebtedness of their township, without subjecting the township's property to the hazard of alienation, and without having the township's taxing power in any degree impaired.
I would affirm the decree of the court below.