Brode v. Philadelphia

79 A. 659, 230 Pa. 434, 1911 Pa. LEXIS 630

• Court: Supreme Court of Pennsylvania
• Decided: February 27, 1911
• Docket: Appeal, No. 368
• Status: Published

Opinion

Opinion by

Mr. Justice Brown,

By art. IX, sec. 7, of our constitution the general assembly is forbidden to “authorize any county, city, borough, township or incorporated district to become a stockholder in any company, association or corporation, or to obtain or appropriate money for, or to loan its credit to, any corporation, association, institution or individual.” This clause, in substance, was, as is stated in Wheeler v. Phila., 77 Pa. 338, borrowed from the constitution of the state of Ohio, and, in Walker v. City of Cincinnati et al., 21 Ohio St. 14, the supreme court of that state, speaking through its chief justice, said: “The mischief which this section interdicts is a business partnership between a municipality or subdivision of the State, and individuals or private corporations or associations. It forbids the union of public and private capital or credit in any enterprise whatever. In no project originated by individuals, whether associated or otherwise, with a view to gain, are the municipal bodies named permitted to participate in such manner as to incur pecuniary expense or liability. They may neither become stockholders nor furnish money or credit for the benefit of the parties interested therein. Though joint-stock companies, corporations and associations only are named, we do not doubt that the reason of the prohibition would render it applicable to the case of a single individual. The evil would be the same, whether the public suffered from the cupidity of a single person, or from that of several persons associated together. As this alliance between public and private interests is clearly prohibited in respect to all enterprises, of whatever kind, if we hold that these municipal bodies cannot do on their own account what they are forbidden to do on the joint account of themselves and private partners, it follows that they are powerless to make any improvement, however necessary, with their own means, and on their own sole account. We may be very sure that a purpose so unreasonable was never entertained by the framers of the constitution.” All this is unquestionably true. What is forbidden by our constitution is (1) a municipality’s becoming a stockholder in any company, association or corporation; (2) its obtaining or appropriating money for or loaning its credit to any corporation, association, institution or individual; and the first question to be considered on this appeal is whether the Act of April 15, 1907, P. L. 80, violates either of these inhibitions.

The act of 1907 is very brief and its provisions are free from all ambiguity. It provides that a municipality may enter into a contract with a street passenger railway company or motor power company leasing and operating the franchises and property of such other company within the municipal limits, for the purpose of fixing and regulating the franchises, powers, duties and liabilities of such companies and the rights of the respective contracting parties, and by such contract a municipality may, inter alia, agree to accept from the company or companies fixed payments in lieu of the performance of certain duties or of license fees or charges imposed in favor of the municipality by general law or ordinance or by the charters of the respective companies. The municipality is further empowered to contract for the appointment of a certain number of persons to act as directors of the company or companies in conjunction with the directors elected by the stockholders thereof, and for the ultimate acquisition by it, upon terms mutually satisfactory, of the leaseholds, property and franchises of the contracting company or companies. An act of assembly is to be declared void only when it violates the constitution clearly, palpably, plainly and in such manner as to leave no doubt or hesitation in the mind of the court passing upon its constitutionality: Sharpless v. Phila., 21 Pa. 147. Tested by this rule, how can it be said that the act of 1907 is violative of the section of the constitution referred to? In its twenty-four lines there is not to be found a word or clause that can be tortured into the expression of legislative intent that a municipality may become a stockholder in any company, association or corporation, or obtain or appropriate money for or loan its credit to any corporation, association, institution or individual. The granting of a franchise to a street railway company or to a motor power company leasing and operating the franchises and property of the other company necessarily involves a contract or agreement with the municipality granting the franchises, for the purpose of fixing and regulating the same and defining the powers, duties and liabilities of the company and the respective rights of each of the contracting parties. This is all the first sentence of the act of 1907 provides for. The second empowers the municipality to contract for the payment to it by a street railway or motor power company of fixed sums in lieu of the performance of certain duties or of the payment of license fees or charges imposed in its favor by general law or ordinance or by the charter of the leasing or operating company. This offends against nothing in the constitution. If, then, the legislature had the clear power to enact these provisions because not forbidden to do so, it follows as a corollary that it had the power to direct that á municipality, in making its contract with a street railway or motor power company, may, for the protection of its rights under the contract, provide that a certain number of persons shall act as directors of the company in conjunction with the directors elected by the stockholders thereof; and the final clause empowering the municipality to contract for the ultimate taking back of the franchises which it granted and for its acquisition of the leaseholds and property necessary to the exercise of the same is not a provision authorizing it to become a stockholder in a corporation or to appropriate its money for or loan its credit to a corporation. Nothing more need be said in support of the constitutionality of the act of 1907, and we pass to the second question raised by the appellant.

The preambles to the contract are but a recital of the conditions under which it was entered into by the parties to. it. They set forth good reasons for its execution, and nothing appears in them in contravention of the constitution or as indicating a purpose on’ the part of the city to do anything in excess of the powers conferred upon it by the act of 1907. Passing from the preambles to the terms of the contract as they appear in its fifteen clauses, there is not to be found in any one of them a line which provides that during the period for which it is to run a dollar of the city’s money, raised by taxation or otherwise paid into its treasury, is to be obtained by or appropriated to the Philadelphia Rapid Transit Company. The city does not, for any purpose whatever, assume any obligation or incur any liability and its credit is not involved, directly or indirectly, by the contract. During the term thereof the transit company must go on operating its franchises out of its own revenues, without being aided or having' its credit strengthened to the extent of a penny by any obligation or liability assumed by the city. If it succeeds, the success will be its own, and if it fails, the failure will be its own. As to this the contract is so . clear that the lay mind, cannot be misled in reading it. True, if the company shall so successfully operate its lines as to be able to declare dividends in excess of six per cent., the city will share in such excess, but its participation in such profits is, by the express terms of the contract, to be regarded "on account of the additional taxes, assessments and obligations which might otherwise be put upon the company by or for the benefit of the city.” All the moneys which the city is to receive from the company are for lawful considerations passing from it to the company. This, too, plainly appears from the face of the contract. In this connection it is proper to say but a word in disposing of the contention of the appellant that, by the contract, the city becomes .a partner of the transit company. As just stated, what it may receive out of the profits of the company will be in consideration of its forbearance to do what it might lawfully do, and the company understands that it is thus paying for immunity to be extended to it. The city and the company could not become partners, for neither possesses the corporate power to enter into a partnership with anyone, and of this all the world must take notice in dealing with either. That there was no intention on the part of the city or the company of attempting to do what neither had the power to do clearly appears from the twelfth clause of the contract, which formed a part of the ordinance published and recorded for the information of the appellant and every other taxpayer in the city of Philadelphia. That clause is as follows and contains all that need be said on this branch of the case: “Nothing in this contract contained, and no act lawfully done by the city hereunder, shall in any way render the city liable for any of the debts, obligations or liabilities of the company, unless and until it shall exercise in the manner aforesaid its option of purchase, nor shall the credit of the city be pledged or loaned to the company, nor shall it become a joint owner or stockholder in the company, nor shall the payment to the city of a sum equal to the excess of dividends over and above six (6) per cent, as hereinbeforé provided, be in any way construed as making it a partner in the enterprise of operating the said system, but said payment is made upon the conditions of this agreement and is on account of the additional taxes, assessments and obligations which might otherwise be put upon the company by or for the benefit of the city.”

It is argued that even if the act of 1907 is constitutional, the terms of the contract exceed the powers conferred by it upon the city, because the contract is with a motor power company operating some lines not within the city limits. This is straining the words of the act. The Philadelphia Rapid Transit Company has leased and operates a number of street railways “within the limits” of the city, and that it may have leased and now controls three lines beyond such limits does not affect the character in which it contracted with the city. Its chief lines are within the city, it's main business is done there and, in contracting with the city, it did so as a company which had acquired, through stock ownership and leases, control of all the franchises which have been granted for the construction of surface, elevated and underground passenger railways within the city. The capacity in which it contracted was that given it by the act, and that its operations may extend beyond the city does not affect such capacity. The question now before us is not whether the city, at the expiration of fifty years, if it should exercise the option given it, can take over the railway systems beyond its limits, and, even if we should anticipate that it will then be held that it cannot do so, the whole contract is not, for that reason, to be set aside. The outlying railways beyond the city limits lead to the city, and, though of advantage to the transit company, are but incidental to its main business, which is to operate street railways within the city limits. As to them it and the city had full power to make the contract, which is not void simply because the contracting parties may have included what, perhaps, ought to have been excluded. So far as they were able to contract their contract binds them, and its substance and general purpose are not affected by the interest which the transit company may have in the street railways beyond the city limits.

Another contention of the appellant is that the ninth clause of the contract is in violation of art. Ill, sec. 20, of the constitution, as it provides for a commission to invest the moneys of the city. The constitutional provision against which this clause in the contract is said to offend is that no power shall be delegated to a special commission to supervise the moneys belonging to a municipality. The ninth clause of the contract provides for the establishment of a sinking fund by the transit company, into which monthly payments are to be made, but the moneys in this fund, as established and increased from time to time, do not become the moneys of the city as soon as paid into it. The fund is the sinking fund of the Philadelphia Rapid Transit Company, and the moneys in it do not become the moneys of the city until, by a proper ordinance, after the fund reaches $5,000,000, the city shall require the same to be paid into its treasury. Then, and only then, does it become the absolute property of the city. In the interval the commission will have custody and control of the Rapid Transit Company’s sinking fund, and the investments which it is authorized to make will be, if made, confined to securities authorized by statute as proper for trustees, except that the stock of the company may be purchased at a price not above par, and the bonds and underlying securities may be purchased on a four per cent, income basis. And we are unable to see how this is affected by see. 22 of art. Ill of the constitution, which prohibits the legislature from authorizing the investment of trust funds by executors, administrators, guardians or other trustees in the bonds or stock of any private corporation, and agree with the learned court below that, “While it is true that the city could not purchase such stock directly with the city’s money, the said money is received from the company for the use of streets and as a release or in lieu of certain license fees, etc., and is to be held by a sinking fund commission for a length of time for a certain purpose. It is not, during the pendency of that uncompleted purpose, the money of the city, although it is provided that, by proper legal action, it may so become, whereupon it is to be paid immediately into the city treasury.' The transaction is, as a whole, as may be gathered from the purport of the entire contract, a plan by which the company is made to pay the purchase price of its own property if the city should ultimately determine to take it over, and in the meantime the purchase money is to be held apart until it shall be utilized for that purpose, or paid into the city treasury.” If the city should see fit not to exercise the option given it, the stocks and bonds purchased by the commission will be sold and the city will receive the moneys realized from their sale; but if, on the other hand, it should ultimately, in 1957, conclude to avail itself of the right given it under the contract to acquire all the property, leaseholds and franchises of the company, and art. IX, sec. 7, of our present constitution should still be in force, its acquisition of all the property Of the transit company would not constitute it a stockholder of that company within the prohibition of the constitution. That prohibition was to prevent a municipality “from becoming jointly interested as stockholder with any company, association or corporation:” Wheeler v. Philadelphia, supra. This would not be possible if the city should acquire everything belonging to the transit company, for that company would then go out of business and practically die a legal death. This, in effect, is what happens whenever a municipality takes over the property and franchises of a water company in pursuance of statutory authority, but it has never been pretended that in so doing it becomes a stockholder in such company.

The only other question raised by the learned counsel for the appellant which requires notice is as to the failure of the city solicitor to approve the contract. By the second clause of the first section of art. VIII of the Act of June 1, •1885, P. L. 37, the city solicitor is required to prepare all contracts to be made with the city and to indorse his approval on them before they shall take effect. But this is not such a contract. The city councils themselves, by their ordinance, passed in pursuance of the powers conferred upon them by the act of 1907, made the contract, and, therefore, no approval of the city solicitor was required. As to this the learned judge below correctly said: “We do not consider it noteworthy or important that the city solicitor did not approve this contract, for the reason that so much of the act of 1885 as refers to the approval by the city solicitor seems to us to be limited to contracts made between various executive officers of the municipality and other parties, wherein the form must be approved and, indeed, drawn by the city solicitor; and the same reasoning applies to the objection of the non-approval by the controller. This contract was made in the form in which it was executed by councils itself. The latter bodies possess the power and discretion, and upon them falls the responsibility of making such contracts within the legal limitations allowed them, and when they have so acted, the city solicitor would have no right or authority to pass upon their work, unless so requested to do by proper authority, and, indeed, that could not affect the legality of an ordinance after the same had been duly passed.”

Each ground of demurrer to the bill of complaint was well taken. The assignments of error are all overruled and the decree is affirmed at appellant’s costs.

Mr. Justice Mestrezat dissents.