Court Opinion

ID: 6259249
Source: CourtListenerOpinion
Date Created: 2022-02-17 21:56:39.169392+00
Date Added: 2024-06-11T08:59:39.629564
License: Public Domain

Dissenting Opinion by
Me. Chief Justice Bell :
I dissent for each of the following reasons:
The Option Is Illegal and Void
1. SEPTA’s claim is based upon the Option which was contained in the 1907 contract between the City of Philadelphia and Philadelphia Rapid Transit Company (now Philadelphia Transportation Company) and which was assigned by the City to SEPTA for no consideration. This Option violates the Rule against Perpetuities and is void!
In 1901, the City of Philadelphia entered into an Agreement with the Philadelphia Rapid Transit Company. Paragraph Eleventh of this Agreement provided: “The City reserve [s] the right to purchase all the property, leaseholds and franchises of the Company, subject to all indebtedness . . . upon July 1st, 1951, or upon the first day of any July thereafter* by serving six months’ notice . . . [for] an amount equal to par for its capital stock then outstanding, to wit: the thirty million ($30,000,000) dollars of capital stock now authorized plus any additional capital stock issued with the consent of the City hereunder. . . .”
Complementing this right to purchase, Paragraph First of the Agreement included the provision “nor shall the Company, during said term, part with any of *398its stocks, leaseholds or franchises without like [City’s] consent.”
In 1939, the 1907 Agreement was replaced by a new-Agreement between the City and the Philadelphia Transportation Company. Paragraph Eleventh of the 1907 Agreement was amended. Although many changes were made by the parties, the most pertinent changes were as follows: The City was given the right to purchase the entire transportation system; it changed the time when the City could exercise its right of purchase from “July 1st, 1957, or upon the first day of any July thereafter” to "any first day of July hereafter.” Also, the price that the City was to pay by exercising the right to purchase was changed to a price made up of four factors: (1) the amount of PTC’s outstanding bonds, mortgages and ground rents; (2) the par value of PTC’s outstanding preferred stock (of which presently there is none); (3) $10 for each share of PTC’s outstanding common stock; and (4) "the amount of .. . [PTC’s] then undistributed corporate surplus, if any.” Furthermore, the City reserved “whatever right to condemn it now has or shall hereafter have,” a reservation which was not in the Agreement of 1907.
This 1907 Agreement, as amended by the 1939 Agreement, was amended or extended by Agreements entered into between the City and the PTC in 1950, 1957, 1962 and 1965, the latter two Agreements specifically stating that the extensions were without prejudice to the claim of the PTC that the 1907 Agreement terminated either on December 31, 1964 or on June 30, 1965. The City was thus given the right or option to purchase all of the properties of the PTC without any time limit specifically imposed on this right, and until such purchase option was exercised, the PTC could not sell or alienate any of its property, *399stocks, leaseholds or franchises without the City’s consent. Since the City’s interest in the PTC properties would not vest until it exercised its purchase option, which clearly and undoubtedly could be exercised later than the period of 21 years allowed by the Rule against Perpetuities, the Option violates the Rule.
In upholding the City’s right to purchase under the Rule against Perpetuities, the majority relies on three grounds. First, the right to purchase is a contractual right to which the Rule does not apply. Second, if the Rule does apply, the extension Agreement of 1957 acted as a “conveyance” to bring it within the Estates Act of 1947 and the so-called “wait and see” rule incorporated therein. Third, the Rule should not operate on the City’s right to purchase for reasons of public policy. I find no merit in any of these contentions.
An option is an offer to sell to the optionee or, conversely, a right given to the optionee to buy certain property at or within a stated period of time and for a specified price, and when supported by consideration is a contract. However, the fact that an option gives what amounts in this case to a contractual right does not insulate it from the Rule against Perpetuities.
The leading case on this point is Barton v. Thaw, 246 Pa. 348, 92 Atl. 312 (1914). It involved an option and is squarely in point and controlling. That case arose sur a bill in equity to remove a cloud upon title. In 1881, the owners of land conveyed the coal and other minerals underlying the land to grantees. This conveyance contained an option to the grantees, their heirs or assigns “at any future time whatsoever ... to purchase any of said land in fee simple ... at a price not exceeding $100 per acre.” Obviously, there was no time limit within which the option had to be exercised.
This Court adopted the lower Court’s learned Opinion in which it traced and reviewed the Rule against *400Perpetuities from its ancient beginnings and held that it was taken from the common law of England and was part of and imbedded in the common law of our Commonwealth.
The Court accurately stated that the Rule against Perpetuities is a restriction against fettering the alienation of property, that under the Rule vesting must take effect within lives in being and 21 years thereafter (including the period of gestation), that the Rule operates as a nullification and destruction of the intention of the parties, and is a peremptory command of law based upon public policy, and that because of the public policy favoring alienability, the Rule must be remorselessly applied. The Court further said (pages 855, 358, 363-4, 365) : “ ‘When lives cannot be taken as a measure, the perpetuity period is twenty-one years/ Goodwin on Real Property, 280. ‘The period of twenty-one years may be taken in gross, that is, limited simply as a space of time, without reference to any minority, and without being preceded by a life or lives in being.’ Poulke on Rule against Perpetuities, sec. 340. ‘If an absolute term is taken, and no anterior term for a life in being is referred to, such absolute term cannot be longer than twenty-one years/ Perry on Trusts, 349. ‘As to the time within which an executory estate or interest must arise, it is evident that some time limit must be fixed, for if an unlimited time were allowed for the creation of these future and indestructible estates the alienation of lands might be henceforward forever prevented by the innumerable future estates which the caprice or vanity of some owners would prompt them to create. A limit has, therefore, been fixed on for the creation of executory interests, and every executory interest which might, under any circumstances, transgress this limit is void altogether. If no lives are fixed on then the term of twenty-one *401years only is allowed/ Williams on Real Property (6th Am. Ed.), 317. ‘The rule is that where the testator fails to avail himself of lives in being, and adopts a term of years, without reference to any life in being, the term cannot extend beyond twenty-one years from his death.’ Johnston’s Est., 185 Pa. 179.
“A privilege to acquire such right [under the option] was given by the Barton deed, but no such right was conveyed thereby. The event upon which the estate is to arise, to wit, the acceptance of the option to purchase, is uncertain, being unconfined as to limit of time. The interest created by this option, therefore, is not vested, but contingent, and is within the rule against perpetuities. In that respect this case differs from one where the owner of land conveys the coal thereunder, with general mining rights and the right to use surface for mining purposes, as in Dewey v. Great Lakes Coal Company, 236 Pa. 498, cited by counsel for the defendants. In a case like that the rights are conveyed by the deed and vest immediately. There a present fixed right of future enjoyment is conveyed, although the right of enjoyment may not be exercised immediately.
“. . . By its terms the option ... is limited only by the confines of eternity. We cannot conceive of a more violent breach of the rule against perpetuities. . . . And the rule must be rigidly enforced. In Coggins’ App., 124 Pa. 10, Mr. Chief Justice Paxson designates the rule against perpetuities as ‘a rule of property founded upon the highest considerations of public policy, and too firmly imbedded in our system of jurisprudence to be disturbed save by an act of assembly
“3. The option or right to purchase in this case constitutes a cloud upon the title of the plaintiffs *402which they are entitled in equity to have removed by cancellation.”
This Court, in its Opinion in Barton v. Thaw, said (page 366) : “The covenant in question was declared to be void because in violation of the rule against perpetuities. We quite agree with the learned court below that it would be difficult to conceive any case which could be deemed more violative of the rule and a greater hindrance to alienation than the one at bar. The case turns very largely upon the character of the interest in the surface which the optionees took under the covenant. If it was a present, fixed and vested interest in the land the rule against perpetuities would have no application. But is a mere option to purchase land, unlimited as to time and indefinite in duration, which may he exercised in ten years, or in a hundred years, or in a thousand years, or which may never he exercised at all, depending upon the ivish or pleasure of the optionee, a present vested interest? To ash this question would seem to answer it. In no proper legal sense can a mere privilege of exercising a future right to purchase he deemed a present vested interest in land. The optionees may never exercise their option, and failing to do so, they would never acquire a vested interest in the land.”
Barton v. Thaw has been cited with approval in Mather Estate, 410 Pa. 361, 189 A. 2d 586 (1963); Newlin Estate, 367 Pa. 527, 80 A. 2d 819 (1951); Lockhart’s Estate, 306 Pa. 394, 159 Atl. 874 (1932); Lilley’s Estate, 272 Pa. 143, 116 Atl. 392 (1922); Vilsack v. Wilson, 269 Pa. 77, 112 Atl. 17 (1920); Green v. Green, 255 Pa. 224, 99 Atl. 801 (1916); Caruthers v. Peoples Natural Gas Company, 155 Pa. Superior Ct. 332, 38 A. 2d 713 (1944); Morgan v. Griffith Realty Co., 192 F. 2d 597 (10th Cir., 1951); and Middleton v. Western Coal & Mining Co., 241 F. Supp. 407 (W.D. *403Ark.). See also: Lewis Estate, 349 Pa. 571, 37 A. 2d 482 (1944); Ledwith v. Hurst, 284 Pa. 94, 130 Atl. 315 (1925).
The Majority has ignored this clear and well settled law of Pennsylvania and relies instead on §401 of the Restatement of the Law of Property, which states that “A transaction which is exclusively contractual is not subject to the rule against perpetuities.” Of course, this is not controlling but even if it were, an examination of the illustrations and comment under §401 clearly and without the slightest doubt demonstrates that the section does not apply to the type of contractual right asserted here by SEPTA. The rationale of §401 is set forth in the comment to that section: “a. Rationale. The rule against perpetuities has as its sole objective the prevention of ‘inconvenient fetterings of property’ (defined in §370, comment c). When a transaction is ‘exclusively contractual’ (defined comment b) it involves no fettering of any property and hence there is no occasion for applying the rule against perpetuities thereto.”
But an option does involve the fettering of property and certainly the 1907 Option provision did! As Cor-bin points out in his Treatise on Contracts (Yol. 1A, page 481) : “When an owner, by an Option Contract, gives to a promisee an Option to Purchase for a stated period, he has restrained alienation for that period, . . .” That is precisely why this Court held in Barton v. Thaw, 246 Pa., supra, that the Rule against Perpetuities applies to option contracts. The 1907 City-PTC Agreement not only gives the City a right, during an unlimited future, to purchase the franchises and other properties of the PTC, but further prohibits the PTC from “parting with any of its stocks, leaseholds or franchises without [the City’s] consent.” It is difficult to imagine a greater fettering of alienation of property.
*404The restrictive effect of the option in this case is further emphasized by the fact that, as the City and SEPTA claim, the City’s right to purchase could be exercised at any time in the future without limit. Could any statement or contention more clearly demonstrate that this Option unquestionably violates the Rule? Poetically expressed, the Option may be exercised at any time before the stars are old and the sun grows cold and the leaves of the judgment book unfold.
The majority Opinion next states that “If the 1957 agreement is a conveyance under that definition, the Estates Act of 1947 applies, ... for the option was in fact exercised within the time limitation of the rule against perpetuities dating from July 1, 1957.” The Estates Act of 1947 took effect January 1, 191¡8 and applies “only to conveyances effective on or after that day. As to conveyances effective before that day, the existing laws shall remain in full force and effect.”
The 1957 Agreement does not give the City a new option or right to purchase, nor does it expressly modify the original Option given in 1907. Furthermore, (1) an option has never heretofore been “a conveyance,” and (2) an option does not create a legal or equitable title in property: Synes Appeal, 401 Pa. 387, 394, 164 A. 2d 221 (1960); and (3) an option is not “a conveyance” as defined in the Estates Act of 1947. It is clear that prior to any exercise of the Option by the City under Paragraph Eleventh of the 1907 Agreement, the optionee had no interest, legal or equitable, in or to the property subject to the Option, and a right which is void ab initio cannot be revived by one or even by both of the parties.
Finally, the Majority states that the Option should be upheld on the grounds of public policy. It disposes of the Rule against Perpetuities in two sentences: *405“. . . Barton stated at 246 Pa. 364 that its result is dependent on the interests of the community at large. In this case, the danger of fettering the free use of property is out-weighed by considerations of public concern and welfare.” The Majority has mistaken the principle of public policy and has blindly put the shoe on the wrong foot. SEPTA, if ably managed (which, because of its multifarious functions and the varied and complicated problems which are certain to arise, is doubtful of accomplishment) is a desirable objective and a worthwhile public policy, but that does not and cannot legalize the violation of any law or the destruction or abolition of the public policy of the Commonwealth, or the evasion of the many controlling decisions of this Court to the contrary. The Majority cites no authority to support it and obviously proceeds on the recently adopted theory that a worthy objective validates and Constitutionalizes anything and everything, and every case is to be decided on a personal ad hoc basis. This substitutes uncertainty and confusion for certainty, clarity and stability, as well as for long-established and well-settled law, and borders on the ridiculous. I believe, although no one can be sure from the majority Opinion, that the practical result of that Opinion on this point is to judicially exterminate the Rule against Perpetuities, which it now writes off as “gone with the wind.”
Barton v. Thaw, 246 Pa., supra, makes it crystal clear that there are compelling public policy reasons for not permitting unlimited restraints on alienation of property. Furthermore, the public interest of the City and also of SEPTA is adequately and completely protected by the fact that the City and SEPTA may condemn the entire transportation system if, in the public interest, either so desires.
In addition, the Majority conveniently overlooked the fact and the law that neither a Municipality nor *406an Authority is a Sovereign, and what might apply to a Sovereign does not apply to a Municipality or an Authority. A Municipality, not only in its private or proprietary but even in its governmental capacity, has no vested rights in its functions or powers and is Constitutionally subject to change, repeal or total abolition at the will of the Legislature. In Lighton v. Abington Twp., 336 Pa. 345, 9 A. 2d 609, the Court, in an Opinion by Justice Linn, said (pp. 352, 353) : “In Commonwealth v. Moir, 199 Pa. 534, at p. 541, 49 A. 351, Mitchell, J., said: ‘Municipal corporations are agents of the state, invested with certain subordinate governmental functions for reasons of convenience and public policy. They are created, governed, and the extent of their powers determined by the legislature, and subject to change, repeal, or total abolition at its will. They have no vested rights in their offices, their charters, their corporate powers, or even their corporate existence. This is the universal rule of constitutional law, and in no state has it been more clearly expressed and more uniformly applied than in Pennsylvania.’ See also Shirk v. Lancaster, 313 Pa. 158, 162, 169 A. 557.” Accord: Cleaver v. Board of Adjustment, 414 Pa. 367, 200 A. 2d 408; Schultz v. Philadelphia, 385 Pa. 79, 83, 122 A. 2d 279; White Oak Borough Authority Appeal, 372 Pa. 424, 427, 93 A. 2d 437; Genkinger v. New Castle, 368 Pa. 547, 549, 84 A. 2d 303; Philadelphia v. Fox, 64 Pa. 169, 180-181.
It is equally true that in its private or proprietary capacity a municipality is subject to the same duties and obligations as is a private corporation. Said the Court in Commonwealth v. PRT, 287 Pa. 70, 134 Atl. 452, at page 76: “Our cases are numerous in which it has been held that, where the municipality is not engaged in public business, it acts as do others likewise engaged, and is subject to the same duties and obliga*407tions as to its contracts and the responsibility for the acts of those employed by it: [citing cases].” In that particular case, the Court held that the City was engaged in its private or proprietary capacity, and not in its public or governmental capacity, in the operation of transit facilities leased to PET.
Declaratory Judgment Proceedings
2. A declaratory judgment proceeding is not a proper remedy and cannot be granted in this case because both the majority of this Court and the Court below reform the Option and grant SEPTA, contrary to the clear and express terms of the Option, the right to make payment and settlement within a period of not less than six months after the final disposition of this case, in lieu of the time period expressly and specifically required by the Option: Baskind v. National Surety Corp., 376 Pa. 13, 16, 101 A. 2d 645. Cf. also McWilliams v. McCabe, 406 Pa. 644, 657-8, 179 A. 2d 222.
The proper remedy in this case, assuming that the City and SEPTA wish to exercise whatever rights either possesses, would be (a) a bill in equity for specific performance, which could include an extension of the time for settlement, or (b) condemnation by eminent domain.
For the aforesaid reasons, I would reverse the judgment and the Order of the lower Court and dismiss the petition for a declaratory judgment.
Assuming arguendo that SEPTA has the legal right to exercise the City’s aforesaid options, and that a Declaratory Judgment proceeding will lie, I would construe the City’s Option formula as follows:
First: SEPTA must assume the unfunded pension obligations of PTC. This subject was not covered in the Option or in any other part of the Agreements and *408was never within the contemplation of the parties. Section 24 of the Act of August 14, 1963, P. L. 984, as amended,. 66 P.S. §2024, requires that SEPTA “shall recognize and be bound by existing labor union agreements where they exist between labor unions and transportation companies that are acquired, purchased, condemned or leased by the board.” Moreover, these unfunded pension obligations have always been treated by PTC with the approval of the City and of the Pennsylvania Public Utility Commission as a current operating expense when actually paid. It is therefore fair, equitable and just that PTC’s pension obligations be assumed by SEPTA. Cf. Pittsburgh v. Pa. P.U.C., 370 Pa. 305, 88 A. 2d 59; Re Uniform System of Accounts for Electric Corporations, 82 P.U.R. (NS) 161.
Furthermore, there is a stronger and even more compelling reason why SEPTA must assume the pension obligations. The City’s Option provides in the clearest language that the City must pay the PUT stockholders (for all the Company’s property, lock, stock and barrel) “an amount equal to ten (10) dollars per share for all then outstanding common stock of Company, and the amount of the then undistributed corporate surplus, if any, of Company.” The Option makes it mandatory to pay the stockholders (an amount equal to) $10 a share — not $10 conditionally or subject to any deductions whatsoever — and in addition thereto the amount of said surplus, if any. If no undistributed corporate surplus exists or if the liabilities exceed the assets, the City under said Option must pay $10 per share, which, in no event, can be reduced by pensions or by any other liabilities real or assumed, vested or contingent. The Majority’s interpretation, which would greatly reduce or completely eliminate said $10 per share, completely ignores and violates this clear provision of the Option and radically alters the terms of the City’s Option.
*409For these reasons, as well as for the reasons so ably set forth in Justice Roberts’ Opinion, I specifically dissent to this part of the majority Opinion.
Second: Item(4) (d) of the purchase price formula (as used in this Option), namely, “and the amount of the then undistributed corporate surplus, if any, of Company [PTC]” is difficult to interpret. There is no designation of surplus on the books of PTC under the heading “undistributed corporate surplus” or “corporate surplus,” or merely “surplus.” The headings nearest thereto are carried on its books as “capital surplus” and “retained earnings.” The meaning of “corporate surplus” is at times indefinite and uncertain and is dependent on the particular agreement or particular Act (as the case may be). However, I agree with the Opinion of the Majority to the extent that the prima facie intent and the general rule means “the corporate surplus shown on the balance sheet of the Company.”
In Branch v. Kaiser, 291 Pa. 543, 549, 140 Atl. 498, 500 (1928), this Court followed and adopted the following general rule which was thus stated in Edwards v. Douglas, 269 U. S. 204, 214: “. . . The word ‘surplus’ is a term commonly employed in corporate finance and accounting to designate an account on corporate books. . . . The surplus account represents the net assets of a corporation in excess of all liabilities including its capital stock. This surplus may be ‘paid-in surplus,’ as where the stock is issued at a price above par. It may be ‘earned surplus’, as where it was derived wholly from undistributed profits. Or it may, among other things, represent the increase in valuation of land or other assets made upon a revaluation of the company’s fixed property. . . .”
Moreover, it is a matter of common knowledge that a corporation changes from time to time the carried or *410book value of its corporate or capital surplus, and the methods or factors for determining the same, and further that the Federal Government or the State Government has at times employed a different formula for the ascertainment thereof. Consequently, I believe that “undistributed corporate surplus” means prima facie “book value,” but that the various assets of the Company may be revalued and their actual value established by relevant and convincing evidence.
I believe and would hold that the “undistributed corporate surplus” means (a) PTC’s retained earnings, and (b) its capital surplus as shown on the books of the Company at the date of settlement, or its actual capital surplus on that date as proved by a revaluation thereof.

 Italics throughout, ours.