Pennsylvania Utilities Co. v. Public Service Commission

Opinion by

Kephart, J.,

The question presented by this and a number of other appeals now before the court is of considerable importance to utility companies in the Commonwealth. After the decision in the case of Bly v. White Deer Mt. Water Company, 197 Pa. 80, there was a great effort by certain utilities to secure charters for the municipal districts they deemed necessary to their present and future plan of development. These concerns found it impossible, because of the great economic waste, to construct separate operating plants in each of the districts for which charters were secured. The legislature had supplied a way by which the charters might be unified and very much the same result obtained as though a charter for more than one district had been permitted. The Purchase Act of 1876 was largely employed. See Hey v. Springfield Water Co., 207 Pa. 38; Commonwealth v. Lumber City Water Co., 225 Pa. 317; Greensburg Boro. v. Westmoreland Water Co., 240 Pa. 485; and a list of authorities there referred to. As a legal consequence the purchase act differs but little from the merger act which is used to some extent to consolidate companies. This act is now under consideration.

The Lehigh Navigation Electric Company, hereafter termed Lehigh Company, was created under the merger Act by a large number of electric companies authorized to supply light, heat and power to various townships in Carbon, Northampton and other counties. The Beechwood Electric Company, chartered April 4, 1911, to supply Palmer Township, Northampton County, was one .of these companies. The merger took place January 6, 1913. Prior thereto, one of the merged companies had erected one of the largest electrical generating stations in the State and had begun to construct a transmission system. After the merger, prosecution of this work was vigorously proceeded with prior to and since the first of January, 1914, the effective date of the Public Service Law. Neither the Beechwood company nor the new Le-high company had done any physical work in Palmer Township. In August, 1916, the Lehigh company attempted to construct its facilities in this township to serve customers who had demanded service. The Pennsylvania Utilities Company, similarly formed by the merger of a number of other companies, and supplying current in Palmer Township, filed a complaint with the commission. An order having been made adverse to the complainant, the Pennsylvania company appeals.

The right of the appellant as a party aggrieved or affected to take this appeal is challenged. The Pennsylvania company appeared before the commission as a complainant; that body received its protest, directed hearings on account of it, and on the evidence submitted for and against the charge made in the complaint made its order. A protestantes right is ordinarily fixed by the action of the commission. It recognized the complainant as having a sufficient property interest in law to be heard. After such action this court will not now deny to the complainant the right to be heard on appeal. Following the thought expressed in Citizens Elec. I. Company v. Lackawanna & W. V. P. Company, 255 Pa. 145-155, if the Lehigh Company was without legal authority in attempting to invade Palmer Township and was doing an illegal act, the appellant, having a legal right and doing business there, could protest. As to any company attempting an illegal act, the Pennsylvania company had an exclusive franchise. It was a party affected by the order.

It is the theory of the appellant that inasmuch as the consolidated company had not done any business or physical work in Palmer Township prior to the effective date of the Public Service Act, that as to such municipal district the Lehigh Company was a proposed public service company required by the act to secure a certificate. Section 2 of Article III of the Public Service Act provides “Upon the approval of the commission evidenced by its certificate of public convenience, first had and obtained, and not otherwise, it shall be lawful for any proposed public service company — (a) To be incorporated, organized, or created......(b) To begin the exercise of any right, power, franchise, or privilege under any ordinance, municipal contract, or otherwise.” It is further urged that inasmuch as the consolidated company and the Beechwood company had not within two years from the date of letters patent proceeded in good faith to carry on its work and construct or acquire its necessary buildings in Palmer Township, the charter rights and privileges reverted to the State and it was without corporate capacity. It will be observed that the merger was within two years of the date of the letters patent of the Beechwood company and prior to the effective date of the Public Service Act. Our first inquiry must be as to the effect of the merger. There is no constitutional inhibition against merger and the legislature is committed to the policy of permitting corporations to merge and consolidate: Hey v. Springfield Water Co., supra, where the Purchase Act of 1876 was under consideration. After merger the status, if they have any, of corporations which form the merger, and the effect of acts done or omitted, as they relate to these constituent companies, or the new company, are entirely questions of legislative intention. The Merger Act of 1909, P. L. 408, provides: “Section 1......It shall be lawful for any corporation......to merge its corporate rights, franchises, powers, and privileges with and into those of any other corporation or corporations transacting the same or a similar line of business, so that by virtue of this act such corporations may consolidate, and so that all the property, rights, franchises, and privileges then by law vested in either of such corporations, so merged, shall be transferred to and vested in the corporation into which such merger shall be made.” Then follow certain exceptions not material. Section 2 regulates the procedure under which the merger takes place, requiring that there shall be an agreement which shall set forth the name of the new corporation, the names of directors and other officers, the number of shares of stock and par value, and the manner of converting the stock of each of said corporations into the stock of the new corporation. “Section 8......Upon the issuing of new letters patent thereon by the governor, the said merger shall be deemed to have taken place, and the said corporations to be one corporation under the name adopted......possessing all the rights, privileges and franchises theretofore vested in each of them, and all the estate and property, real and personal......all rights of creditors and all liens upon the property of each of said corporations shall continue unimpaired, and the respective constituent corporations may be deemed to be in existence to preserve the same; and all debts, duties and liabilities of each of said constituent corporations ......may be enforced against it.......But such merger ......shall not be complete......until it shall have first obtained from the governor......new letters patent.” It is clear the ultimate effect of this act is to provide a method of incorporation, and, as individuals are associated to form a corporate entity, so two or more corporations may be associated to form a single corporate entity. Upon consolidation thereunder the constituent companies are deemed dissolved and their powers and faculties to the extent authorized are vested in the merged company as a new corporation. It is an entity entirely distinct from that of its constituents. It draws its life from the act of consolidation. The fact that to ascertain the powers and faculties of the new company you must be referred to what existed in the old companies does not affect this result: Railroad Co. v. Georgia, 98 U. S. 359-362; Pullman Palace Car Co. v. Missouri Pacific Railroad Co., 115 U. S. 587-591; 7 R. C. L., Sections 144, 145, 146, 147, and the many authorities there cited. It is not necessary to follow each constituent unit in determining questions which affect the powers and faculties common to all of the several units and which are now exercised by the new concern as its powers for the entire field regardless of the heretofore existing district distinction. The grant of future privileges in certain places, contracts entered into and all forms of corporate enterprise within the scope of the general corporate authority are referable to the consolidated powers as they exist in the new company. Acts done by the new concern, although outside of the place for which one of the old companies was incorporated are regarded, unless of special application to a particular locality, as being acts done for one company covering many municipal districts as one entire field or district. In tbe merger of tbe Lebanon Valley and Reading Railroads, Chief Justice Lowrie states: “This is called a merger of tbe Lebanon corporation into tbe other; but such a merger is a dissolution, destroying tbe actual identity of both, while tbe legal identity of one of them is preserved”: Lauman v. The Lebanon Valley Railroad Company, 30 Pa. 42. When questions arise concerning an act done in tbe field of tbe new company, which act is associated with powers and faculties peculiar to a part of this field because of tbe scope of powers as they existed in one of tbe units before tbe merger, tbe legality of such act is determined from a consideration of such specific powers and faculties as they are vested in tbe new company as tbe act of tbe new company, however, not of tbe old company. There is nothing in tbe Act of 1909 which keeps tbe constituent company alive for the purpose of preserving these special powers that tbe question may be determined. They are kept alive when tbe new company is vested with tbe faculties that were “by law vested in either of said corporations.” If one of tbe constituent companies before merger possessed powers and faculties greater than tbe other members of tbe proposed consolidation, tbe merger does not give such other members the benefits of tbe greater faculties: Kane & E. R. R. Co. v. Pitts. & W. R. R. Co., 241 Pa. 608; Punxsutawney Boro. v. Phillips G. & O. Co., 238 Pa. 23. If it may be said that tbe constituent is kept alive, this existence is purely fictional as an aid in determining, through that medium, tbe special character of tbe grant possessed or as provided by tbe merger act to preserve against tbe old company any rights which creditors might have, but in legal contemplation this is worked out by its successor in right, tbe new company. “Prom tbe time of tbe completion of said merger tbe constituent companies cease to exist,” they have no legal identity or corporate existence, no action can be maintained against such constituent company after the merger as there is no party upon whom papers can be served: Dalmas v. Phillipsburg, Etc., Ry., 254 Pa. 9-15. It is clear then that the Lehigh company was an active, operating company, and as to Palmer Township, was not a proposed company.

In acquiring all the rights and faculties of the constituent companies, they are taken with all their disabilities or limitations, such as may be distinct from the special powers and faculties of a member of the merger. We have considered the faculties as being merged into the new company and extinct so far as the old company was concerned. So would limitations or conditions common to all the companies be merged into a general limitation or condition applicable to the new company, as it covers the entire field and extinct so far as the constituent was concerned. To hold the limitations applicable to each member in its independent capacity will produce great uncertainty and much discord in the legislative idea and working out of the new company and would in effect leave it but a shell, a mere business alliance in which the identity and distinctive existence of the constituent is preserved. One of the limitations is that if the corporation “shall not proceed in good faith to carry on its work and construct or acquire its necessary buildings, structures, property or improvements, within the space of two years from the date of its letters patent......the rights and privileges thereby granted to said corporation shall révert to the Commonwealth”: Act of May 16, 1889, P. L. 241. (Whether this could be raised by any one but the attorney general will be considered later.) These constituents were incorporated at different times and if the question here raised is to be referred to the constituent as if the merger had not taken place the corporate life of the consolidation would be dependent on the date of the letters patent of each and the activity of its officers in beginning business. The consolidation as a new company would have no territory or field within which to operate.

It is difficult to understand how the corporate existence of one of the merged companies could be kept alive to sustain this limitation. Under the act, its powers and faculties had been transferred, its stock is out of existence, it is without officers, without debts, and the sole characteristic to survive in order to answer this question would be this limitation as applied to the particular corporation under consideration. This could not be unless the entire corporate life, the powers, faculties and limitations, all survived. This would be contrary to the great weight of authority. It would nullify the purpose of the merger act which was to unify existing companies and create a new company. In order to safeguard the separate charter rights and privileges of merged companies under a construction here asked for, it would be necessary for each unit to construct independent works in the district covered by each one of the merged companies. It would be an economic waste for such companies to construct transmission lines or works in advance of its ability to utilize them. It is contrary to the spirit of the public service law which seeks the minimum cost to rediice rates. The purpose of the merger act was to create a community of interest with maximum economy in production and effective service as a resultant benefit to the public. These limitations and conditions are just as much a part of the corporation as are its faculties and powers and must so be regarded. When the Lehigh company built its transmission lines through other portions of the district and furnished its commodity from its central station in these districts, these acts were in behalf of and on account of all the territory and inured to the benefit of the entire field to the same extent as it did in the locality where the business was actually transacted. It was in exercise of the general-functions of. the corporation and though no work was done in Palmer Township as such, the commission having found that the new company in good faith proceeded to carry on its work, it satisfied the requirement of the Act of 1889. If it later develops, through lapse of time or from other cause, that the Lehigh Company has failed to meet its charter obligations, the law has provided an ample remedy by which those in authority may correct the evil. This may be done just as completely as though the constituent still existed. We, therefore, hold that the commission’s order was reasonable and in conformity to law when it determined the Lehigh Company was one company, that it was in good faith actually exercising its powers and faculties under its charter obligations before January 1, 1914. That it was then doing business in a large part of its territory and was as to the entire field not a proposed public service corporation. Being a corporation actually doing business and desiring to further perform its charter obligations by supplying its commodity to persons resident within its territory, the public service act does not require it to secure a certificate of public convenience. Section 2 of Article III cannot apply to a company actually engaged in the business called for in its charter. Section 18 certainly did not have in contemplation a certificate for each step taken by a company doing business on January 1,1914, and we can quite easily see a decided difference between such company and one that had received its letters patent and had totally failed for more than two years after their issuance and before the public service act went into effect to acquire any property or do anything in performance of its duty to the public. Such concerns now seeking to do business, having no property of any kind and being entirely outside the Act of 1889 present a much different proposition.' Such was the case of Jenkins Township v. Public Service Commission, 65 Pa. Superior Ct. 122, and Relief Electric L., H. & P. Co.’s Petition, 63 Pa. Superior Ct. 1.

One word with respect to the right of the commission to consider this question. The commission does not undertake to usurp any function of the attorney general. As we said in the Jenkins case, supra: “This act (of 1889) was a part of its organic law and was the limitation placed by the State on the grant contained in the letters patent.” The commission does not declare a charter void. They simply decide, if they find a thing without lawful powers or life, not to infuse new life into it. Their action defines their attitude as a commission toward the enforcement of an act of assembly where a violation of the law is admitted. It still remains for the attorney general to institute the necessary proceedings to declare the charter void. The legislature in the creation of the commission conferred upon it authority to deal with the powers and faculties of corporations. It may be viewed in much the same light as the question presented in Homestead St. Ry. v. Pittsburgh & Homestead Elec. St. Railway, 166 Pa. 162, where conflicting charter rights to a street were determined by a bill for an injunction.

The order of the commission is affirmed, the costs to be paid by the appellant.