Court Opinion

ID: 3851529
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:32:11.275945+00
Date Added: 2024-06-11T13:48:08.686926
License: Public Domain

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 *Page 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., 316 Pa. 65, 84, 173 A. 289, this court said: "We cannot consider the obligation as the debt of the county, unless it is a debt which the county has agreed to pay or can be required to pay. . . . The denial of power to incur liability on the credit of the county or of any municipality is notice to the prospective purchasers of the bonds that their security and their only source of payment will be in the revenues derived from users of the improved highway facilities: see Moore v.City of Nampa, 276 U.S. 536. The bondholders cannot call upon the public treasuries to contribute; no county or municipal property can be taken for the debt, because the bondholders have agreed to look to a special fund for payment to be raised in the manner provided."1
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, *Page 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, 332 Pa. 281, 3 A.2d 7. The construction, operation, or maintenance of sewer systems, water systems and gas systems by a municipal corporation is in the nature of a private enterprise. A municipality is not required to construct, own, or operate such public utilities. It may contract with private corporations or individuals to furnish such service, or it may, if it so elects, own and operate such utilities for the benefit and convenience of its inhabitants and property owners. See 46 A.L.R. p. 677. The difference between proprietary and governmental functions of a municipality is clearly set forth in Western Saving Fund Society v. Phila., 31 Pa. 175, 183, as follows: "The contracts which a municipal corporation may make for the purpose of supplying the inhabitants with gas-light in their streets and houses, relate to the 'things of commerce,' as distinguished in the civil law from the 'things public,' which are regulated by the sovereign. Such contracts are not made by the municipal corporation, by virtue of its powers of local sovereignty, but in its capacity of a private corporation. The supply of gas-light is no more a duty of sovereignty than the supply of water. Both these objects may be accomplished through the agency of individuals or private corporations, and in very many instances they are accomplished by those means. If this power is granted to a borough or a city, it is a special private franchise, made as well for the private emolument and advantage of the city as for the public good. *Page 358 
The whole investment is the private property of the city, as much so as the lands and houses belonging to it. . . . It stands on the same footing as would any individual or body of persons, upon whom the like special franchises had been conferred." In Bell v. Pittsburgh, 297 Pa. 185, 189,146 A. 567, in an opinion by the present Chief Justice, this court said: "Where a municipal corporation engages in an activity of business, rather than one of a governmental nature, such as the supply of light and water, which is generally carried on by individuals or corporations, it acts as a private corporation, and not in its sovereign capacity." In Moore v. Luzerne County,262 Pa. 216, 105 A. 94, this court, in an opinion by Justice SIMPSON, reiterated the principle that if the grant is "for purposes of private advantage or emolument, though the public may derive a common benefit therefrom, the corporation, quod hoc, is to be regarded as a private company" and "stands on the same footing as would any individual or body of persons."2 InShirk v. Lancaster City, 313 Pa. 158, 164, 169 A. 557, this court pointed out that "public moneys raised through such functions (taxes) are subject to the primary powers of the state . . ., revenues derived in its private capacity, as a return from its water or other utility works, are trust funds and cannot be controlled or taken directly for state purposes." 43 C. J. p. 183, sec. 179, states: "When properly applied, the term governmental functions' should be limited to legal duties imposed by the state upon its creature, which it may not omit with impunity but must perform at its peril."
In Gas  Water Co. v. Carlisle, 218 Pa. 554, 557, 67 A. 844, this court said: "It is a familiar law that a borough, or other municipal corporation, has the incidental or implied right to alienate or dispose of its property, real or personal, of a private nature, held for *Page 359 
the emolument and advantage of the municipality, unless restricted by charter or statute." There are numerous statutory recognitions of the fact that municipalities in respect to their sewer systems function as private corporations. For example, the First Class Township Law of June 24, 1931, P. L. 1206, sec. 2420 (which applies to Abington Township), provides that a township can contract for a sewer system with an individual or corporation and that the latter shall "exercise all the powers of the township in the construction and maintenance and operation of such system of sewage," including the right to collect "charges." It also provides (sec. 2440) for the acquisition of such a system from private owners and for entering into agreements with other townships for the building of sewers. The Act of May 4, 1927, P. L. 519, provides (sec. 2131) that sewer lines may be extended beyond municipal limits. This is cited to show that when a municipality acts in a proprietary capacity, it may act beyond its official boundaries. In its governmental capacity, it cannot, of course, do so.
In Gas  Water Co. v. Downingtown Borough, 175 Pa. 341,34 A. 799, it was held that the legislature has the power to take away the right of a borough to construct water works and it may exercise this power by creating a corporation and conferring upon the latter the power which previously had been conferred upon the borough. This court said: "Its [the legislature's] power over the subject-matter was absolute, and it exercised it by creating a corporation and conferring upon it the power which it had previously conferred upon the borough. It thus created a new agency and conferred upon it privileges which were in terms exclusive of all other agencies. The water company accepted the grant of power which the borough had failed to execute, together with its privileges, and made expenditures and completed the works. The exclusive privilege was the inducement for the expenditure of money in the construction *Page 360 
and operation of the works. . . . The state, dealing with its own agencies, over which it had sovereign control, and conferring upon one of them an unexecuted power which had been possessed by the other, granted to the water company the exclusive authority to supply water to the borough and its vicinity and to such persons residing therein as might desire the same."
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. *Page 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., 328 Pa. 225, 240,195 A. 90, this court, speaking through the present Chief Justice, said, in reference to Article III, section 20: "This section prohibits the delegation to any special commission of the legislature's power to tax. The purpose of the provision was to protect against the exercise of the taxing power by officials not subject to the control of the people." In Tranter v.Allegheny County Authority, 316 Pa. 65, 78, 173 A. 289, Mr. Justice LINN, speaking for this court and in discussing the same section of the Constitution, said: "By 1873, when the convention was engaged in preparing the constitution, public opinion had recognized the economic mistake of taking from municipalities certain powers and conferring them on independent commissions, while, at the same time, requiring the municipality to pay the bills incurred by the commission without any restraining voice in the expenditure. The separation of the power to incur debts from the duty of providing for their payment by taxation, produced the principal mischief complained of and which it was sought to prevent. Notorious examples were the Public Buildings Commission, created to build the city hall in Philadelphia, . . .; and the Penn Avenue Commissioners, operating in the City of Pittsburgh. . . . The subject was considered by the convention with particular reference to the experience of these two cities, and that experience illustrates the character of legislative interference with local government that was intended to be prevented." In Junge's Appeal (No. 2), 89 Pa. Super. 548,564, Judge KELLER said: "The purpose of [section 20, Article III, of the Constitution] was to prohibit the legislature, either directly or indirectly, from taking away municipal powers from the municipal authorities and conferring them on outside bodies, as had been done by the General Assembly from time to time prior to the *Page 362 
adoption of the Constitution of 1873, notably when the legislature in 1870 created and appointed the Public Buildings Commission of Philadelphia." (Judge KELLER'S opinion in that case was approved by this court in Ward's Appeal, 289 Pa. 458,465, 137 A. 630.) In this Junge's Appeal (No. 2), the Superior Court decided that the Act of May 1, 1923, P. L. 122, which provided for the appointment of a Board of Appeals to review decisions of the officer charged with the enforcement of zoning ordinances, did not violate Article III, section 20, of the Constitution. In his opinion in that case Judge KELLER said, after reviewing other decisions: "This is the construction put on Article III, section 20, which has resulted in legislation authorizing the municipalities of the Commonwealth to use boards and commissions to assist in performing many of the details of municipal government. Under these acts authority has been given cities, boroughs, etc., to appoint Boards of Health; Civil Service Commissions; Boards of Appeals in Building Inspection and Examining Commissions; Boards of Revision of Assessments; Sinking Fund Commissions, and many similar agencies." He adds: "The construction of this section of the constitution accepted in practice for many years should be adhered to unless clearly in opposition to the constitutional provision. We do not think it is so opposed." In Kotch v.Middle Coal Field Poor Dist., 329 Pa. 390, 197 A. 334, we held that this section of the Constitution manifests an intention to prevent separation of power to incur debts from duty of providing for their payment by taxation, and to protect against exercise of taxing power by officials not subject to people's control. In McKeown's Petition, 51 Pa. Super. 277, it was held that the Act of May 24, 1901, P. L. 297, authorizing township commissioners of townships of the first class to enter into a contract with taxpayers to make or repair roads, was not contrary to Article III, section 20, of the Constitution, and that this was true even *Page 363 
though the taxpayer, under the contract in question, was acting at the instance of one or more corporations who have indemnified him against loss in execution of contract.
In Byington v. Sacramento Valley West Side Canal Co.,148 P. 791, the Supreme Court of California held that a statute permitting the board of directors of an irrigation district to lease the system of canals and works was not unconstitutional as being in conflict with Article XI, section 13, of the California Constitution since it does not purport to delegateto any private corporation any municipal function. (Italics supplied.) The Supreme Court of California said: "The delivery of water dedicated to public use is not necessarily a municipal function. Such use may be administered by a natural person, or by a private corporation."
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, 112 Cal. 561, 44 P. 1025. Section 501, supra, provides that the defendant cannot pledge the credit of the Commonwealth or of any county, city, borough, township or any other municipality, or create any debt of the county or other *Page 364 
municipality, and that its bonds and debts are a lien upon and payable solely from the assets and revenues of the Authority. It can levy no taxes."
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 *Page 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, 156 Pa. 554, 27 A. 356 (in which case Article III, section 20, of the Constitution was discussed) may be appropriately quoted here: *Page 366 
"A literal adherence to all its [Article III of the Constitution] provisions would have stopped the wheels of government, and so this court was forced to hold when the first great question of the needs of municipal legislation came before it. Some elasticity was absolutely indispensable, and it was found in the principle of classification. I make these observations and this illustration to call special attention to the necessity of reading the Constitution, where it relates to the powers of the legislative branch of the government, in a broad and liberal way, looking to its spirit as more controlling than its mere words. If a statute does not offend against the spirit, does not really do the thing which the constitution means to prohibit, then it should be sustained, although its form may be liable to objection under the strict words of the prohibition."
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, 21 Pa. 147,164): "We can declare an Act of Assembly void, only when it violates the constitution *Page 367 clearly, palpably, plainly; and in such manner as to leave nodoubt or hesitation in our minds."
What the present Chief Justice said in Kelley v. Earle et al.
(2nd case), 325 Pa. 337, at page 344, is apposite here: "To enforce a harsh, literal interpretation of the Constitution when considering the legality of the leases of the projects herein mentioned, which are essential to the life of the State and the comfort, health or security of its people, a construction opposed to all business concepts, would violate all rules of interpretation and cause loss of the respect necessary to the life of that document." The language just quoted is in harmony with what Justice STORY said in 1 Story, Constitution, sections 451, 454 and 455: "They [constitutions] are instruments of a practical nature, founded on the common business of human life, adapted to common wants, designed for common use, and fitted for common understandings." He deprecates that method of constitutional interpretation which "weighs only the force of single words, as philosophers or critics, and not whole clauses and objects, as statesmen and practical reasoners. . . . We should never forget," said he, "that it [the constitution] is an instrument of government we are to construe; and . . . that must be the truest exposition which best harmonizes with its design, its objects, and its general structure."
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., 184 Pa. 594, 39 A. 494, this court, speaking through Justice MITCHELL, said: "The gas works are the property of the City of Philadelphia, not as a municipality but as a business corporation. . . . In the performance of that function [supplying light], the city acts under authority merely and not under municipal obligation. . . . Hence, the city may change its mode of action. . . . It is urged that the city . . . cannot abdicate the function *Page 368 
[of lighting]. . . . This brings us back to the preliminary question on which the whole case rests, whether supplying . . . gas for lighting purposes is a strictly municipal function, or merely a power conferred on the city as a corporation. If the former, it is a duty as well as a power, and cannot be abandoned; if the latter, it is an authority only and may be exercised or not at the city's option." This court there held that Philadelphia had the right to lease its gas works to a private corporation for thirty years. If a city's leasing of its gas works to a private corporation does not offend Article III, section 20, of the Constitution, I cannot understand how a township's providing by due enactments that in a certain contingency of default, the bondholders who furnished the money with which to build a sewer system can, through a trustee or receiver take charge of that system and have the rentals applied to the liquidation of those bonds, offends Article III, section 20, of the Constitution. Providing a lighting system and providing a sewer system are equally functions of a municipality in its proprietary capacity and a municipality can deal with the property it holds in that capacity exactly as the township of Abington has dealt with it in the instant case. Article III, section 20, of the Constitution has nothing whatever to do with property held by municipalities and townships in their proprietary capacity, and sewer systems, as this court has said at least three times in recent years "are owned by municipalities in their proprietary capacity."
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.
1 In Oppenheim v. City of Florence, 155 So. 859, the Supreme Court of Alabama held that bonds for a city's acquiring an electric distribution system, where the city did not obligate itself to pay any sum in liquidation of them except sums derived from the operation of the proposed system, did not constitute a "debt" within the constitutional provision limiting indebtedness. A municipality's debt is "a charge against its general credit."
2 See also Memphis Power  Light Co. v. City of Memphis,112 S.W.2d 817; and Travelers' Ins. Co. v. Wadsworth, 109 Ohio St. 440,142 N.E. 900.
3 These are bonds for the construction of the sewer system.
4 Justice of the Supreme Court of the United States, 1845-1872. *Page 369