TOWNSHIP OF DEPTFORD, PLAINTIFF-RESPONDENT, v. WOODBURY TERRACE SEWERAGE CORP., DEFENDANT-APPELLANT.
Supreme Court of New Jersey
Argued May 5, 1969—Decided July 15, 1969.
54 N.J. 418
Mr. Alfred T. Sanderson argued the cause for plaintiff-respondent.
Mr. William Gural, Deputy Attorney General, argued the cause for Board of Public Utility Commissioners, amicus curiae (Mr. Arthur J. Sills, Attorney General of New Jersey, attorney).
The opinion of the court was delivered by
PROCTOR, J. This appeal concerns the power of the Public Utilities Commission (PUC) to modify an order which had previously approved the franchise of a public utility.
On August 8, 1955, plaintiff Township of Deptford granted a franchise to the defendant, Woodbury Terrace Sewerage Corporation (Woodbury), for the construction and operation of a sewage disposal plant and system which would service one part of the Township. Woodbury is a public utility organized under Title 48:13 of the Revised Statutes. The Township ordinance granting the franchise contained the following option provision:
2b * * * “That the Woodbury Terrace Sewerage Corp. by acceptance of this consent makes an irrevocable continuing and unlimited offer to the Township of Deptford to sell, bargain, transfer and assign to the Township of Deptford, or its successors, all mains, meters, plants and pumping station and all and any other physical equipment of its sewerage system and all rights, privileges and franchises in and pertaining to the tract, for which consent is now given, for the sum of EIGHTY THOUSAND DOLLARS ($80,000.00) or a sum equal to the cost of the sewerage plant excluding the cost of mains, whichever sum is less; deducting nevertheless a sum equal to one-
sixteenth (1/16) of the purchase price, as above provided, for each complete year of operation following the date when the said corporation commences operation of any part of the system, and for the sum of ONE DOLLAR ($1.00) at any time after the expiration of sixteen years from the date when the corporation commences operation of any part of the system. It is mutually agreed that upon the adoption by the Township of Deptford of an ordinanсe accepting the above offer, the Woodbury Terrace Sewerage Corp., shall forthwith without fraud or delay, sell, bargain, transfer and assign the said facilities to the Township of Deptford for the agreed price as herein provided. “The title to be sold to the Township of Deptford for the price as above shall be free and clear of all charges, debts, liens, mortgages, bonds or other encumbrances or obligations whatsoever of the Woodbury Terrace Sewerage Corp. and the said utility company shall not in any way encumber or allow to be encumbered any of the facilities of the company upon which the Township may еxercise its option, provided however, that the Woodbury Terrace Sewerage Corp. may encumber the plant and system in an amount not exceeding at any time that sum for which the Township may purchase the facilities as provided heretofore.”
The grant of the franchise was then approved by the PUC on October 13, 1955. In March 1957, after the plant and part of the system had been constructed at a cost of over $90,000, the PUC informed Woodbury that its annual depreciation charge of 6 2/3% upon which it was basing its rate schedule was too high, since the sewage disposal system had an economic life expectancy of 40-50 years. It suggested that Woodbury use a figure approximating the normal life of the system, instead of measuring depreciation against the reduction in the purchase price specified in the option clause quoted above. (Contrary to the intimation in the dissenting opinion, the parties had made no agreement as to the proper rate of depreciation.) On September 13, 1957 Woodbury petitioned the PUC for a ruling which would either permit the higher rate of depreciation or void the option provision. A public hearing was held, but the Township of Deptford, though duly served, did not appear. On March 26, 1958 the PUC ordered depreciation at the rate of 2 1/4% (a 40-year economiс life) and amended the October 13, 1955 approval of franchise to include the statement:
“This certificate is not to be construed, under any circumstances, as a ruling upon Paragraph 2b of the Ordinance with respect to the acquisition of the utility properties by the Township of Deptford.”
A clause identical to the above appears in the orders approving the franchises of the two other sewer utilities in Deptford Township, Cooper Village and Oak Valley, both of which contained essentially the same option clause in their franchises as in Woodbury‘s. The thrust of Woodbury‘s petition was, to a great extent, that it be placed in the same position vis a vis the Township as the other sewer utilities, both of whose option clauses, it contended, had been voided in 1956.
After the PUC‘s action in 1958, Woodbury expended considerable funds in expanding their system, obtaining approval from the PUC in 1960 and in 1961 for the refinancing of a demand note and the sale of stock in order to pay for the additions. From 1957 to 1967 Woodbury doubled the number of customers being served.
In 1966 the present suit for specific performance of the option provision in the franchise, Paragraph 2b, was instituted by the Township. The trial court held that the option provision could not become operative without PUC approval, and that the action of the PUC in 1958 in sрecifically failing to approve Paragraph 2b had the effect of rendering that provision invalid.
The Appellate Division reversed, holding that the order of the PUC of March 26, 1958 amending the franchise “was not a disapproval of the option but a statement that the PUC neither approved nor disapproved it. Further, assuming the PUC had the power to approve or disapprove the option when it approved the franchise initially, and the right thereafter to amend its approval of the franchise in other respects, we hold that in face of
On this appeal, we begin by examining the PUC‘s order of March 26, 1958 amending its approval of Woodbury‘s franchise. The Legislature has expressly provided that no franchise granted by a municipality “shall be valid until approved by the board.”
In any event, we are convinced from a reading of the record that the PUC intended to void the option clause. The PUC has in many decisions refused to approve conditions in franchises using language similar to that used in the present case, with the intent to thereby render them ineffective. See, e. g., Lynpark Utility Co., P.U.C. Dkt. No. 637-480 (Oct. 17, 1963); Birch Hill Park Disposal Co., P.U.C. Dkt. No. 617-529 (Aug. 22, 1961). The fact that the PUC approved the extension of сredit and the expansion of facilities subsequent to the 1958 order is a clear indication that it treated its amending certificate as having the effect of voiding the option provision. Otherwise, the PUC would be permitting the borrowing of funds based upon an equity which would, as a result of the option clause, prematurely depreciate to zero in about 10 years.
The action taken by the PUC on March 26, 1958 was a disapproval of the option clause. There remains the question whether such a disapproval was within the power of the PUC. With regard to the general powers of the PUC, Justice Hall has said for this Court:
“[T]his State has delegated in most sweeping terms ‘general suрervision and regulation of and jurisdiction and control over all public utilities’ and ‘their property, property rights, equipment, facilities and franchises’ to the Board.
N. J. S. A. 48:2-13 . More specifically, the Board is empowered to direct utilities to furnish safe, adequate and proper service, R. S. 48:2-23,N. J. S. A. , and to that end it may fix just and reasonable standards and practices. R. S. 48:2-25,N. J. S. A. ” In re Public Service Electric and Gas Co., 35 N. J. 358, 371 (1961).
Our courts have consistently held that the Legislature in Title 48 intended to delegate the widest range of regulatory power over public utilities to the PUC. Id., at 371; and see, e. g., Atlantic Coast Electric Ry. Co. v. Public Utility Board, 92 N. J. L. 168 (1918); In re Central Ry. Co., 30 N. J. Super. 520 (App. Div. 1954).
With regard to municipal grants of franchises, the Legislature has expressly provided in
“No privilege or franchise granted after May first, one thousand nine hundred and eleven, to any public utility by a political subdivision of this state shall be valid until approved by the board. Such approval shall be given when, after hearing, the board determines that the privilege or franchise is necessary and proper for the public convenience and properly conserves the public interests. In granting its approval the board may impose such conditions as to construction, equipment, maintenance, service or operation as the public convenience and interests may reasonably require. * * *” (emphasis added).
The language of this statute speaks for itself. While it is no doubt true that Deptford Township had the power tо impose conditions upon which the consent to Woodbury‘s franchise was granted (see
The Appellate Division held that assuming the PUC had the powеr to void the option initially, it lost the power to void the option after it had approved it, “especially after more than two years had elapsed and over 100 houses had been connected to the system.”
The Appellate Division further held that the PUC lacked authority to void thе option “in the face of
“No public utility shall, without the approval of the board, sell, lease, mortgage or otherwise dispose of or encumber its property, franchises, privileges or rights, or any part thereof; or merge or consolidate its property, franchises, privileges or rights, or any part thereof, with that of any other public utility.
“Every sale, mortgage, lease, disposition, encumbrance, merger or consolidation made in violation of this section shall be void.
“Nothing herein shall prevent the sale, lease or other disposition by any public utility of any of its property in the ordinary course of business, nor require the approval of the bоard to any grant, conveyance or release of any lands or interest therein heretofore made or hereafter to be made by any public utility to the United States, State or any county or municipality or any agency, authority or subdivision thereof, for public use. * * *” (emphasis added).
We must always remember that we are not here dealing with a contract provision executed between private parties. We are concerned with an agreement between a municipality and a public utility which has a decided impact upon various sections of the public. The expertise of the PUC is required in supervising and regulating this process so as to properly weigh the interests, not only of the present consumers of the utility‘s services, but also the institutions and individuals who extend credit to the utility so that even greater and more efficient service can be provided the public. We can think of few provisions more stifling to this process, and more detrimental to the consuming public, than the option before us.
Because of the disposition of this case we need not consider the defendant‘s remaining arguments. We therefore reverse the judgment of the Appellate Division and reinstate the judgment of the trial court.
WEINTRAUB, C. J. (concurring). I join in the opinion of Mr. Justiсe Proctor but I add that I believe it was beyond the power of the municipality to exact the option in question, and hence that the option was void from the beginning. In my view no statute authorized the imposition of a condition of that kind.
FRANCIS, J. (dissenting). In 1955 the organizers of defendant Woodbury Terrace Sewerage Corp. were developing a large tract of vacant land (for the construction of approximately 250 one-family homes) in the Township of Deptford. The organizers were not sewer utility operators; they were land developers and builders. It is obvious from the record that at the inception of their building project they had no intention of establishing and operating a sewer system. Apparently they expected to receive water and sewerage service from the Town of Westville, the boundary
Both municipal consent and PUC approval were regulated by statute. With respect to the consent of Deptford, the then controlling statute said:
“The corporate authorities of the municipality may, by ordinance, provide that such consent shall be conditioned upon the payment to the municipality of a specified sum of money, or upon quarterly, semi-annual or annual payment to the municipality of specified sums of money or a specified percentage of the gross receipts of the company. The corporate authorities shall annex to the consent any other terms and conditions upon which such consent is granted.” R. S. 48:13-6 (since repeаled, L. 1962, c. 198, § 198, p. 1029). (Emphasis added.)
It is of interest to note that at the time defendant was incorporated and requested the consent of the Township to operate a franchise, the sewerage companies’ act required the municipal consent containing the terms and conditions thereof to be filed in the office of the secretary of state with the certificate of incorporation.
Defendant negotiated with Deptford for the necessary consent. Both parties were fully competent to bargain and
The majority criticizes this contract—but the parties made it. As I have said, the developers were not utility operators; they were primarily interested in their homes-construction project. The sewer utility was a means to an end and it is a fair inference from the limited record that, being builders, all they were interested in was providing the sewer service for the proposed 250 homes. If they could recover their original investment in the plant upon completion and sale of the homes, they would be well satisfied to turn the system over to the municipality for its operation thereafter. In the meantime, and until Deptford exercised
Woodbury was satisfied with its bargain. It applied to the PUC for approval thereof and its own counsel presented the agreement at a hearing held for that purpose. Counsel for Woodbury was an expert in the utility regulation field—a former PUC commissioner. In offering the certificate of incorporation and the municipal consent in evidence, he said, undoubtedly referring to
“I might add, that pursuant to the statute relating to sewer companies, the filing of the Certificate of Incorporation, with the municipal consent attached thereto, which is required, is deemed to be conclusive evidence of the acceptance of the terms and conditions of the consent granted by the municipality.”
Everyone, including the PUC, agrees that the municipal consent with its terms and conditions was approved and the certificate issued. If the PUC had given any indication that the consent of any part of it might be rejected, Deptford could have asked for time to engage in further bargaining, or it could have withdrawn its consent pending further bargaining. But Woodbury‘s application for approval of “the written consent of Deptford Township” was granted by the PUC, and the parties naturally believed the terms and conditions of the municipal consent had been thoroughly sanctified. In fact in announcing its approval of the PUC said:
“The Board hereby determines that approval of the franchise set forth in the Report and Recommendations is necessary and proper for the public convenience and properly conserves the public interest. * * *”
The record indicates plainly that the parties would have lived with the terms of the franchise if problems had not arisen out of Woodbury‘s understandable effort to apply the plant depreciation rate agreed to therein. On filing the first annual operating report for the year 1955, Woodbury
“If it is your desire to amortize by charges to the Surрlus Account, the investment in plant not recovered by normal depreciation over the period covered by the mandatory offer for sale included in the franchise or municipal consent, there appears to be no objection to such procedure.” (Emphasis added.)
The emphasis is added to call attention to the fact that at this late date in 1957 the PUC was standing by its approval of the option to sell to Deptford and the terms set forth therein.
At this time approximately 112 houses had been built and were being sewered by Woodbury. Unfortunately, however, operating revenue appears to have been insufficient to permit the difference between the 2 1/4% and 6 2/3% depreciation rate to be charged against surplus. Apparently there was no surplus. It is clear that if Woodbury could not have approval of the 6 2/3% rate chargeable to operating expenses as well as permission to charge sufficient rates for its sewer service to provide a reasonable return on its investment, the sale price could not be recaptured in 16 years. It seems fair to say that neither Woodbury nor the Township contemplated the PUC rejection of the depreciation aspect of their agreement.
In September 1957 Woodbury filed a petition with the PUC alleging that it was entitled to reсeive through customer service charges the annual 6 2/3% depreciation rate agreed upon between it and Deptford and approved by the Board in 1955. If such rate could not be allowed, then it requested that the 1955 order be amended by revoking the approval of the portion thereof relating to the agreement to sell its plant to the Township. The petition pointed out that similar option clauses appeared in the franchises of
A hearing was held on the petition. The Township did not appear although it had notice. At this hearing Woodbury‘s experienced counsel asked the Board to amend the 1955 certificate approving the terms and conditions of the municipal consent
“to the extent of revoking or at least not ruling upon the provisions [of the option to sell the plant to Deptford] or at least not ruling upon [that part of the ordinance] and it will then have the quality of these other two sewerage company Certificates * * * and that will result in our establishing * * * the setting up of the accounting for a depreciation item rather than a much higher and greater amortization item.”
In March 1958 the PUC executed an order amending the 1955 “Approval of Franchise” to include the following statement:
“This Certificate is not to be construed, under any circumstances, as a ruling upon Paragraph 2b of the Ordinance with respect to the acquisition of the utility properties of the Township of Deptford.” (Emрhasis added.)
In the same order it fixed the allowable depreciation rate at 2 1/4% per year.
The majority opinion accepts Woodbury‘s contention that the amending order invalidated the PUC‘s original approval of the terms and conditions of the option to sell. Therefore, the opinion holds that the Township cannot obtain specific performance of the agreement to sell. If the amending order
“Coming to grips with the manner in which the Board еxpressed its disapproval of the option provision in this case, it must be admitted that the Board was less articulate than it could have been. However it is clear that the Board withdrew its approval of Paragraph 2b.”
The comment is a masterful example of the art of understatement. And the comment prompts the further inquiry as to whether the Board “expressed its disapproval” or “withdrew its approval,” and said that it was not “ruling” upon the option, thus leaving the parties to ordinary contract remedies in the courts. Judge Gaulkin, writing for the Appellate Division, held that the amending order “was not a disapproval of the option but a statement that the PUC neither approved nor disapproved it.” To me, that is clearly the only sensible construction of the Board‘s language.
In my view it was not necessary for the PUC originally to pass upon the agreement of sale portion of the franchise. Consummation of the sale was intended for the future, and so could have been left for action by the parties at the appropriate time. It may be concluded reasonably from the statement in the amending order that the Board realized its approval of an agreement by a utility to sell its plant to a municipality was not required under
The Township agrees with the Appellate Division view of the effect of the PUC amending order, that is, it says the order left the parties without either approval or disapproval of the sale option. (With the option in that status, appar-
The remedy of specific performance is not an absolute one. It is in large measure discretionary resting on equitable principles to be applied upon a consideration of all the circumstances of the particular case. A judgment granting specific performance need not be unqualified in form. In the exercise of sound judicial discretion it may be granted upon such terms and conditions as justice requires, even to the extent that the performance ordered is not identical with that promised in the agreеment. Willard v. Tayloe, 8 Wall 557, 75 U. S. 557, 565-570, 19 L. Ed. 501 (1870); Stehr v. Sawyer, 40 N. J. 352 (1963); King v. Ruckman, 24 N. J. Eq. 556, 562-565 (E. & A. 1873); Flicker v. Chenitz, 55 N. J. Super. 273, 292-293 (App. Div. 1959); Restatement of Contracts § 359 comments b, c, and illustration 1 at 638-640 (1932); 5A Corbin on Contracts § 1137, p. 97 (1964). With these principles in mind, the affirmance of the Appellate Division should be accompanied by a remand to the trial court subject to consideration there of certain matters hereafter enumerated.
(1) Defendant claimed on oral argument before us that the terms and conditions it agreed to in order to obtain municipal consent for its franchise were not negotiated at arms length; they were imposed on it by Deptford. In effect the contention is that the agreement resulted from economic duress or business compulsion practiced by the municiрality and therefore it should be unenforceable in equity. Such a defense (which if sustained would end the case) is not set forth specifically in the pleadings, but defendants answer does allege generally that enforcement of the agreement to sell the plant would be harsh, unjust, oppressive
(2) As has been indicated above, I believe the parties honestly thought and intended that Woodbury would be allowed by the PUC to recapture 6 2/3% of $80,000 each year of operation as a depreciation rate until the full sum was recovered. It turned out they were both mistaken about it and the rate of depreciation was reduced to 2 1/4%, which reduction meant that recapture would require 40 years instead of 16 years. Basically the mutual intention was that the sale price would be reduced only by such sums as in fact had been recovered by the time Deptford exercised the option to buy the plant. Therefore, in computing the actual price for purposes of spеcific performance equity should grant Deptford credit against the $80,000 (or the alternative price) only for such amounts as Woodbury actually recovered by way of depreciation.
(3) The record shows that in the early 1960‘s certain additions were made to the original plant with the PUC approval, after hearing on notice and nonappearance by Deptford. The language of the terms and conditions of the contract of sale, in my view, are ambiguous as to whether the $80,000 price was to include the cost of new or additional plant which might be necessary thereafter in order to serve increased needs of the public. This aspect of the option ought to be construed in equity most strictly against the municipality. Accordingly, I would condition a judgment of specific performance on Deptford‘s willingness to add to the purchase price the sum fixed by the court as the fair value of all additions or extensions to the plant which became part thereof after completion of the original plant.
Justice HANEMAN joins in this dissent.
For reversal—Chief Justice WEINTRAUB and Justices JACOBS, PROCTOR, HALL and SCHETTINO—5.
For affirmance—Justices FRANCIS and HANEMAN—2.