Court Opinion

ID: 9749531
Source: CourtListenerOpinion
Date Created: 2023-08-27 16:49:24.713972+00
Date Added: 2024-06-11T07:25:51.078328
License: Public Domain

Francis, J.
(dissenting). In 1955 the organizers of defendant AVoodbury 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 *428of which adjoins their development. Westville disappointed them and they had to look elsewhere. Deptford had no sewerage facilities other than individual septic tanks. As a consequence the developers decided to build their own sewer system and plant to service their building project. They then organized defendant-corporation and sought the Township’s consent to a sewer utility franchise which they intended to present to the Public Utilities Commission for approval.
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 R. S. 48:13-6 (since repealed, L. 1962, c. 198, § 198, p. 1029).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. N. J. S. A. 48:13-3 (since repealed, L. 1962, c. 198, § 198, p. 1029). It provided also that the filing “shall be conclusive evidence that the company has assented to such terms and conditions [set out in the consent], and the same shall be binding upon the company, its successors and assigns.” N. J. S. A. 48:13-4. This section remained in force until July 13, 1967, 12 years after the consent was granted by Deptford and the franchise approved by the PUC. L. 1967, c. 156, § 3, p. 671.
Defendant negotiated with Deptford for the necessary consent. Both parties were fully competent to bargain and *429both were represented by counsel. The negotiations resulted in the agreement set out in the majority opinion (slip opinion, ¶. 3) which was then incorporated into the'ordinance expressing the consent and purporting to grant the franchise. By the agreement the Township was given a continuing option to purchase the plant for $80,000, or a sum equal to the cost of the plant excluding the cost of the mains, whichever sum was less. (The cost of the mains was to be included by the developer in the sale price of the houses. Therefore their cost was not to be considered investment expense for the sewer utility.) It was agreed by the parties, obviously in good faith and in the belief the PUC would approve, that the $80,000 (or the possible lesser sum mentioned above), which had been stipulated as the investment cost of the plant, would be recaptured by Woodbury on the basis of a depreciation rate of 6 3/3%. per year. If approved it would mean, earnings permitting, that the investment cost woiúd be recovered in 16 years and that at any time thereafter Deptford could exercise its option to take over ownership of the plant for the nominal consideration of one dollar. It was stipulated also that Deptford could exercise its option to buy at any time during the 16-year period for the $80,000 (ox an amount representing cost of plant excluding mains), less whatever amount had been recovered pursuant to the 6 3/3% depreciation rate.
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 homssconstruction 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 350 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 *430its option, the builders-organizers expected to enjoy a reasonable rate of return on the sewer service.
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 N. J. S. A. 48:13-4, supra:
“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, Dept-ford 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 *431apparently claimed the right to use the 6 2/3% rate, based upon the 16-year service life. On March 25, 1957, the PUC advised the company that since the plant’s service life was 40 years, the proper rate of depreciation was 2 % % annually. In its notification the Board wrote:
“If it is your desire to amortize by charges to the Surplus 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 %% 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 receive 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 reqrtested 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 *432two other sewer utility companies operating in Deptford. These franchises were granted later than the one to Wood-bury, and in approving them the PUC had included a clause saying that the certificate of approval was not to be construed as a ruling upon the portion of the ordinance respecting the acquisition of the utility properties involved. After referring to the other cases, Woodbury asked that its franchise be treated in the same fashion, which was that the PUC had expressly refrained from passing on the option provision.
A hearing was held on the petition. The Township did not appear although it had notice. At this hearing Wood-bury’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 he construed, under any circumstances, as a ruling upon Paragraph 2h of the Ordinance with respect to the acquisition of the utility properties of the Township of Deptford.” (Emphasis added.)
In the same order it fixed the allowable depreciation rate at 2 %% 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 *433was intended to invalidate the original approval and the option to sell, why did the PUC not say so? Surely there is no language difficulty there. The Attorney General, in speaking of the language used, says in his brief:
“Coming to grips with the maimer in which the Board expressed its disapproval of the option provision in this case, it must he admitted that the Board was less articulate than it could have teen. 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 N. J. S. A. 48:3 — 7, (quoted in the majority opinion). For that reason its revising order simply said the original approval was not to be construed as a ruling upon the portion of the municipal consent containing the agreement to sell.
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*434ently Deptford felt there was no need to appeal from the amending order.) Consequently it felt free to institute this action in the Chancery Division to obtain specific performance of the option. I believe its right to do so should be sustained, and that the Appellate Division judgment on that subject should be affirmed. However, some procedural and remedial aspects of the action require discussion.
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 agreement. 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 municipality 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 *435and inequitable. Considering the nature of the specific performance remedy, I think the defendant ought to be allowed to present on a retrial the full facts on the issues of economic duress and business compulsion and obtain a ruling thereon. See S. P. Dunham, & Co. v. Kudra, 44 N. J. Super. 565 (App. Div. 1957). The record now before us is not sufficient to permit adequate consideration of such issues.
(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 loth mistaken about it and the rate of depreciation was reduced to 2 %%, 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 specific 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.
*436For the reasons stated the judgment of the Appellate Division should be affirmed and the cause remanded for plenary retrial.
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.