Court Opinion

ID: 6283717
Source: CourtListenerOpinion
Date Created: 2022-02-18 16:38:33.893502+00
Date Added: 2024-06-11T09:00:16.610887
License: Public Domain

Dissenting Opinion by
Flood, J.:
I join in Judge Wright’s dissent. A number of considerations compel me to this conclusion.
1. None of the cases cited by the majority indicates that an owner of public utility property is not itself a public utility when it owns practically all of the facilities used or useful in the service being rendered to the public and transfers such property only on a year to year basis to another company which receives merely a fixed nominal sum for operating the facilities, all prof*445its over and above such sum being retained by the owner.
2. We do not have here a situation like that in Citizens’ Passenger Railway Co. v. Public Service Commission, 75 Pa. Superior Ct. 238 (1920), reversed, 271 Pa. 39, 114 A. 642 (1921), where the company owning the facilities had leased them for a fixed rental for a long term. This contrasts strongly with the year to year lease to the Water Company here, with the lessor getting, not a fixed rental, but all of the profits.
3. In the Citizens’ Passenger case the lessor, having parted with its property and franchises for a long term for a fixed annual rental, retained no control over the operations, either expressly or by implication.
4. As the Supreme Court said in the Citizens’ Passenger case the lessor company there had “no rates to make or collect, no service to render to the public and no facilities to furnish or extend”. 271 Pa., at p. 55. This is not so here.
5. In this case the facts in the record lead inescapably to the lower court’s conclusion that the rate-making function is exercised by the Water Company as the agent of the Land Company which alone benefits or is injured as a result of higher or lower rates. The Water Company stockholders have no more interest than if they were Land Company bondholders entitled to a return sufficient to pay the sum of $300 annually which is equal to six per cent upon their original investment.
6. When it is necessary to extend facilities of the Water supply system, this extension is made either out of Land Company’s funds or out of receipts from operations which would otherwise go to the Land Company as profits. It is unrealistic to say that these extensions under these circumstances are not made by the Water Company as agent for the Land Company.
*4467. It may be true, as the majority says, that the word “owning” in the Public Utility Code does not automatically make the owner of facilities used to furnish water to the public a public utility. Yet even where the lessee is the actual operator of the facilities, it cannot be overlooked that this court in the Citizens’ Passenger Railway Co. case, supra, said (at pages 251-252, 75 Pa. Superior Ct.):
“We are not prepared to accept as sound, the broad proposition advanced by counsel for the appellants, that the Public Service Commission has no jurisdiction over the underlying companies, the present appellants. They are existing corporations under the laws of the State of Pennsylvania. They are the final owners of a vast property, which for years has been devoted to a public service and which is today being operated as a public service company engaged in a service vital to the vast population which constitutes the City of Philadelphia. They were chartered as public service companies, and so long as they live and move and have their being under and by virtue of those charters, they must remain public service companies.”
8. The fact that the lessors in the Citizens’ Passenger Railway Co. case had been chartered and had for years operated as a public service corporation does not render the above statement of this court inapplicable to the lessor here. If the Land Company acts, by itself or through an agent, as a public utility it will be held subject to regulation as a utility irrespective of its charter right so to act. Pa. Chautauqua v. Public Service Commission, 105 Pa. Superior Ct. 160, 160 A. 225 (1932).
9. Even though the relation between two companies is in form a lease, it will be construed to be an agency relationship if that is in fact what it is. Wilson v. Public Service Commission, 116 Pa. Superior Ct. 72, 176 A. 510 (1935). In this case there is more pow*447er of control retained by the lessor than there was by the lessor in the Wilson case.
10. It is true the Land Company is not the owner of the stock of Water Company and the majority in number of stockholders in the Land Company are not stockholders in the Water Company. On the other hand, the record does not support the statement of the ¡majority that this is not a case of control of two corporations by a group of common stockholders. The record shows that twelve shareholders of the Land Company, who own seventy-three per cent of that company’s stock, own all of the stock of the Water Company. There is therefore effective power to control the two companies by a group of twelve shareholders or less. The history of the two companies, as set forth in the record, indicates that those shareholders and their predecessors have been acting harmoniously over many years.
11. It should be noted that under the terms of this lease the Water Company received $300 annually for operating this public utility in the first year following the modification of the lease in 1896, and is still receiving $300 annually for operating it sixty-five years later in spite of the great intervening increase in the cost of management of such an enterprise. It is hard to see how the Water Company is doing anything other than acting exclusively or almost exclusively for the Land Company’s interest in this operation.
12. I see nothing in the law or the record to indicate that the commission by merely changing its rules or regulations may compel the Water Company to produce the books or records of the Land. Company if the Land Company is not a public utility. The commission argues that it has not been able to get all information it needs. If it cannot get it directly from the Land Company I do not see how it can force the Water Company to compel the Land Company to produce it for the com*448mission’s benefit. Nothing that I can discover in the language of the Public Utility Code gives the Public Utility Commission authority to make rules and regulations to govern anyone other than a utility.
13. Cooperation by the Land Company in making information available when an increase of rates is sought by the Water Company on its behalf is to be expected. This does not assure the commission of such cooperation in other circumstances.
14. To say that the Water Company, being a public utility company, could acquire the leased property through the right of eminent domain is beside the question in my opinion. Its failure heretofore to do this or to do any other act contrary to the interest of Land Company tends to confirm the existence of a tacit understanding or agreement that Water Company shall act as agent for Land Company.
15. The argument that the Public Utility Commission cannot regulate the Land Company because its income is to a major extent derived from real estate operations is also not determinative of the question. It may nevertheless be regulated insofar as it is carrying on the business of a public utility. Cf. Pa. Chautauqua v. Public Service Commission, supra.
16. The majority suggests that a decision holding the Land Company to be a public utility might result in the exemption of these facilities from real estate taxes and that this would be an unfortunate result for the local municipalities. As a matter of fact, it appears that for many years prior to 1953, the Land Company did get such an exemption because of the confusion created by the two functions which it performed. This does not seem to me to furnish a sound argument for refusing to hold that it is performing the functions of a public utility.
17. In its able and exhaustive brief, the appellant argues that an agency relation cannot be found unless *449“there has been a manifestation by the principal to the agent that the agent may act on his account, and consent by the agent so to act.” Restatement (2d), Agency, §15. But like any other facts such manifestation by the principal and such consent by the agent may be inferred from the circumstances. In other words, “. . . authority to do an act can be created [not only] by written or spoken words . . . [but by] other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal’s account.” Restatement (2d), Agency, §26. I agree with the lower court that the parties’ conduct in this case leads to the inevitable inference that the Water Company is acting as the agent of the Land Company and that there is at least a tacit agreement or understanding between them that this should be done.
18. The fact that the Public Utility Commission or its predecessor, the Public Service Commission, has not hitherto sought to regulate the Land Company is no proof that it has not been performing public utility functions. The commission may not have thought such regulation necessary in the earlier period. The Land Company’s primary interest is to develop real estate and it may have felt and may still feel that the way to attract homeowners and industries to the area is to keep the rates for water as low as possible. It may therefore have been to the Land Company’s interest to keep the water rates at the minimum sufficient to maintain the service efficiently, and it may, indeed, have done so. But this does not prevent the commission from regulating it now. The Commonwealth cannot be held estopped by nonaction on its part.
19. Finally, I regard as the controlling authority in this situation, not the Citizens’ Passenger Railway Co. case, supra, relied upon by the majority, but Wilson v. Public Service Commission, supra, where the lease *450was held to be in reality an operating agreement, and the lessee the agent of the city which owned the facilities. This was held to be an agency agreement instead of a lease despite the facts that (1) the lease could be terminated only at the end of a ten year period; (2) the rate-making authority was not retained expressly or inferentially by the city, the owner of the facilities but by a commission of three of which the city appointed one member, the operator a second, and these two chose a third; (3) the city, as owner of the facilities, was to receive a fixed rent, not profits, whereas the operating company’s fee was to vary depending upon the efficiency of management as reflected in the cost of gas and the growth of the business to be calculated according to a prescribed formula; and (4) while the contract provided for certain standards of operation, the city could not enforce these standards by directly terminating the lease or other direct action, but only through court action for liquidated damages or forfeiture upon proof of failure of the operator to comply with the standards.
There were fewer factors present in the Wilson case than are present in the case before us to warrant the finding of agency. Yet this court said, speaking through Judge Keller: “The City of Philadelphia is still the owner of its gas plant. The plant is being operated under the contract by an agent which receives a limited compensation proportioned to its efficiency, but with a fixed maximum . . .” 116 Pa. Superior Ct., at page 80. “[The] contract was . . . really an operating agreement, and . . . limits the compensation of the operating company to a fixed annual fee, with a limited extra payment based on its efficiency in management, and turns back all profits over and above that fee to the city either by improvements to the works or by lowering the price of gas to the public . . .” Id., at page 81.
I would affirm the judgment of the court below.