Lighton v. Abington Township

This appeal is from a decree dismissing a taxpayers' bill filed to enjoin the proposed construction of a sewerage system in part to be paid for by the proceeds of bonds of the township to be issued pursuant to the Act of May 7, 1937, P. L. 574, 53 PS section 19092-2445, and the Act of May 14, 1937, P. L. 630, 53 PS section 1030. Defendant township commissioners filed an answer under Equity Rule 48 setting forth a number of objections to the bill. The parties stipulated for final hearing on the bill and answer.

The township now contains two sewers, a small one owned by the township and the sewerage system in operation in Glenside owned and operated by the Cheltenham and Abington Sewerage Company.¹ It is proposed to construct a sewerage system which shall incorporate in it the existing township sewer.

The last assessment of taxable property was $22,930,011. The net debt, when the bill was filed, was $186,418.68, leaving power in the commissioners to increase the debt by $272,181.54 without a special election.

The project includes the construction of the sewage disposal plant at a cost of approximately $250,000.00, to be paid for by general township bonds. The rest of the proposed sewerage system requires the expenditure of $1,100,000.00, to be paid for by so-called non-debt revenue bonds. If the township can avail itself of the Act of May 7, 1937, P. L. 574, 53 PS section 19092-2445, in the manner proposed, $1,100,000 of bonds may be issued without the consent of the electors, but if not, the issue of those bonds would result in an increase of indebtedness over the 2% limit in the sum of $827,818.46.

There are now two methods of financing such improvements. As the proposed expenditure is within the 7% debt limit, it would seem to be possible to finance the project by the issue of general township bonds if the voters so determine. A second method is provided by the Act of May 20, 1937, P. L. 739, 53 PS section 2900h, amending the Act of June 28, 1935, P. L. 463, 53 PS section 2900f, authorizing the creation of Municipal Authorities for such purposes. For reasons with which the court is not concerned, defendant commissioners rejected both these methods and based their action on the statute referred to.

Plaintiffs, after averring the enactment of certain ordinances providing for the sewerage system and the issue of bonds in payment, averred that the Act relied on by the township as authority for its action was unconstitutional, inter alia, in conflict (1) with article III, section 20, of the constitution, in that it attempted to authorize the township to delegate to a private corporation (The Provident Trust Company of Philadelphia was selected by the defendants for the purpose) the power to interfere with a municipal improvement, to wit, the sewerage system; (2) with article IX, section 8, as attempting to authorize an increase of indebtedness in excess of 2% of the assessed valuation without the consent of the electors. Other objections were made which need not now be stated.

It is proposed to raise the $1,100,000 by bonds described (in the words of the statute) as "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. Said bonds shall not pledge the credit, nor create any debt, nor be a charge against the general revenues, nor be a lien against any property of the township, but shall be a lien upon and payable solely from the annual rentals or charges for the use of said sewer, sewer system or sewage treatment works." The pledge was to be made effective by a trust of which the Provident Trust Company of Philadelphia was named trustee. Ordinance No. 424 provided in section 2 "Said bonds shall be secured by a Trust Indenture from Abington Township to Provident Trust Company of Philadelphia, Trustee, which is hereby appointed as Trustee under said Trust Indenture, under the terms of which the annual rentals or charges for the use of such sewer system, imposed as aforesaid by Ordinance No. 425, are pledged for the payment of the principal thereof and interest and State tax thereon. Said bonds shall not pledge the credit, nor create any debt, nor be a charge against the general revenues, nor be a lien against any property of said Township, but shall be a lien upon and payable solely from the annual rentals or charges for the use of said sewer system."

The bond provided — "TOWNSHIP OF ABINGTON . . . hereby promises to pay, but only out of annual sewer rentals or charges, to the bearer, or if this bond be registered as hereinafter provided, to the registered owner hereof. . . ." It is also provided — "In case an event of default, as defined in the Indenture, shall occur, the principal of this bond may become or be declared due and payable, in the manner, with the effect and subject to the conditions provided in the said Indenture." The indenture, in articles III and IV, imposes active duties on the trustee during the construction of the sewer, the disposition of the construction fund, and subsequently. In article V "Township covenants that it will maintain a schedule of rates for annual sewer rentals or charges such that the amounts which may reasonably be collected therefrom shall be sufficient to provide funds for (a) the amount expended annually by the Township in the operation, maintenance, repair, alteration, inspection, depreciation or other expenses in relation to the sewer system, including the sewers and the sewerage treatment works; (b) such annual amount as may be necessary to provide for the principal, interest and taxes, if any, on the bonds issued hereunder and secured hereby; and (c) sufficient to establish a margin of safety of ten per centum (10%) of (a) and (b). A schedule of the rates, certified by the Secretary of the Board of Township Commissioners to be in effect, shall be on file with the Trustee at all times." The township agrees that "it will duly and promptly collect all the sewer rentals or charges" and pay them to the trustee; that if in any year the rentals received have been insufficient to raise the sums specified, the township "shall immediately revise the schedule of rates of the annual sewer rentals or charges so that the amounts reasonably to be collected therefrom shall be sufficient to provide for the amounts required. . . ." "If the Township shall fail to revise its schedule of rates within twenty (20) days" the trustee, on the request of holders of not less than 10% of the principal amount of outstanding bonds, may apply to the court to compel the township to revise the rates. Article X deals with defaults and remedy and, inter alia, provides that in specified contingencies the "Trustee shall be entitled to take actual possession of the sewer system as for condition broken, and, in its discretion may, with or without force and with or without process of law, and before or after declaring the principal of said bonds immediately due, and without any action on the part of any bondholders, by its agents or attorneys enter upon, take and maintain possession of all or any part of said sewer system, together with all records, documents, books, papers, and accounts of the Township relating thereto, and may, as the attorney-in-fact or agent of the Township, or in its own name as Trustee, hold, manage and operate said sewer system and collect the sewer rentals or charges, and shall, after paying out of the revenue from said sewer system all expenses for management and operation of said sewer system, and the costs of such repairs, replacements, alterations, and useful additions as may seem to it proper and judicious, and all taxes, assessments or charges, or liens upon said sewer system or any part thereof, together with reasonable attorneys' fees, and after retaining reasonable compensation for all amounts collected as Trustee for its services in that behalf, and such further sums as may be sufficient to reimburse and indemnify the Trustee against any liability, loss or damage on account of any matter or thing done in good faith in pursuance of the duties of the Trustee hereunder, and to pay any moneys advanced or paid out pursuant to this Indenture together with interest thereon at the rate of six per cent. (6 %) per annum, apply the residue, if any, to the payment of the principal of and interest on the bonds."

Section 3 provides "Upon the happening of any event of default specified in Section 1 of this Article and its continuance for the period, if any, specified in said Section, then and in every such case the Trustee, in its discretion, may, and upon the written request of the holders of twenty-five per cent. (25%) in principal amount of the bonds then outstanding, and upon receipt of indemnity to its satisfaction, shall in its own right

(a) By mandamus, or other suit, action or proceeding at law or in equity enforce all rights of the bondholders, including the right to require the Township to collect rates, rentals and other charges adequate to carry out any agreement as to the pledge of the revenues or receipts of the sewer system and to require the Township to carry out any other agreements with or for the benefit of the bondholders, and to perform its or their duties under the aforesaid Act;

(b) Bring suit upon the bonds;

(c) By action or suit in equity require the Township to account as if it were the trustee of an express trust for the bondholders;

(d) By action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the bondholders."

The indenture contains a number of other provisions imposing conditions on the free action of the township and vesting powers in the trustee.

Plaintiffs contend that the vesting of such powers in a private corporation is in conflict with article III, section 20,² of the constitution, which provides "The General Assembly shall not delegate to any special commission, private corporation or association, any power to make, supervise or interfere with any municipal improvement, money, property or effects, whether held in trust or otherwise, or to levy taxes or perform any municipal function whatever." Plaintiffs' position is that the Act of 1937, as proposed to be applied by the defendants, is a delegation to the township of the power to delegate to a trustee the control and management of the sewerage system in the circumstances described. The municipal improvement or property which plaintiffs aver to be involved is the sewerage system now owned by the township and that now proposed to be added to it. As the legislature itself, with its great powers over municipalities, is prohibited from making such a delegation to a private corporation, the question is, may it authorize a municipality to do what the legislature itself is prohibited from doing. 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.

We think the township, as the governmental agent of the state, is subject to the same prohibition to which the state is subject. Counsel for defendants contend that the challenged statute "does not delegate to a private corporation any power" but that "It does authorize a municipality voluntarily to enter into an agreement with a private corporation, such as a bank or trust company, representing, as a trustee, the bondholders." As the constitution specifically deprives the state of power to delegate the management of the municipal property to a private corporation, certainly the agent, the township, cannot make such a delegation; the effect of the limitation on the principal would be destroyed if the agent could do what was prohibited. Compare Hammett v. Phila., 65 Pa. 146; Lovell v.Griffin, 303 U.S. 444; Hague v. Committee for IndustrialOrganization, 307 U.S. 496; City of Louisville v. Weikel,137 Ky. 784, 127 S.W. 147 (1910). The authority cases relied on (among them, Tranter v. Allegheny County Authority, 316 Pa. 65,173 A. 289; Kelley v. Earle, 325 Pa. 337, 190 A. 140;Williams v. Samuel, 332 Pa. 265, 2 A.2d 834) not only do not support the contention of defendants but are against them. In the Tranter case, for example, the county made no agreement with a private corporation; the Commonwealth dealt with its own property, the custody and management of which it had delegated to the county. It could at any time withdraw it from the county or it could add to the county's burdens in respect to it. The State authorized the creation of a public corporation, the Allegheny County Authority, and required its agent, the county, upon the creation of the Authority, to transfer to the Authority certain property for purposes which were within the jurisdiction of the state. On the same theory the incorporation of Municipal Authorities has been supported. They are public corporations, being corporate agencies engaged in the administration of civil government.³ The state may modify the part performed by its agencies in government by creating other agencies, subject always to constitutional limitations. If there is any resemblance between (1) the exercise of the power of the state to modify township government by taking part of it from the township and vesting it in a public corporation and (2) by statute, authorizing the municipality to make a contract with a private corporation to take over and operate public property, the fact remains that the state may do the first but is expressly prohibited from doing the second.

Reference is made in the brief to the fact that in some of the Authority cases the trust indenture made by the Authority contained provisions authorizing a trustee to enter, and, with reference to those provisions, it is said there is no difference between their exercise and the power proposed to be vested in the Provident Trust Company in the record before us. We think there is a great difference; in the Authority cases, the title to the property is in the Authority which makes the contract with the trustee; in case of default the trustee enters under the Authority; but 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 in violation of the constitutional provision.

One other point may be noticed. It has been suggested that, while the conclusion reached would be correct if the operation of the sewerage system were a governmental instead of a proprietary activity, Article III, section 20, does not apply because a proprietary function is under consideration. But the constitution makes no such distinction; the words are plain and must be given their common or popular meaning, for in that sense, the voters are assumed to have understood them when they adopted the constitution: Busser v. Snyder, 282 Pa. 440, 449,128 A. 80. The section prohibits delegating to any private corporation "any power to make, supervise or interfere with any municipal improvement, money, property or effects whether held in trust or otherwise or to levy taxes or perform any municipal function whatever." There are no words, on the one hand, restricting the prohibition to property etc., used for purely governmental purposes and, on the other, allowing the delegation for property etc., employed in proprietary capacities. Both classes of municipal activity were familiar when the constitution was adopted. The sewerage system is a municipal improvement; it is property belonging to the municipality; in whatever capacity used, whether governmental or proprietary, the words of section 20 expressly include it; we must give them effect.

As what is proposed to be done by the township is in violation of section 20 of Article III of the constitution, it is unnecessary to consider the other objections made by plaintiffs.

The decree is reversed, the bill is reinstated and the record is remitted with instructions to grant the injunction; costs to be paid by defendants.

¹ Owners of properties served by that system have asked and obtained leave to intervene, averring that the acquisition of the system by the township and subjecting the owners of properties connected with the existing system to the payment of the proposed rates deemed necessary to produce sufficient revenue to pay principal and interest on the bonds is, inter alia, in violation of the 14th amendment of the Federal Constitution and also of Article IX, section 7, of the Constitution of Pennsylvania.

² The origin of this constitutional provision is familiar, and while the mischief that raised the subject for discussion in the convention was prior experience with appointed commissions exercising the power of taxation without supervision by the municipality whose inhabitants had to pay the tax (see Tranterv. Allegheny County Authority, 316 Pa. 65, 78, 173 A. 289;Wilson v. School District, 328 Pa. 225, 241, 195 A. 90) the result of the discussion in the convention was that a prohibition more comprehensive in its scope was adopted.

³ 1 Dillon, Municipal Corporations, 5th ed., pp. 62, 142.