Bulman v. McCrane

• Decision Date: 12 December 1973
• Citation: 312 A.2d 857,64 N.J. 105
• Parties: William J. BULMAN, Plaintiff-Respondent, v. Joseph M. McCRANE, Jr., Treasurer, State of New Jersey, et al., Defendants-Appellants.
• Court: New Jersey Supreme Court

Page 105

64 N.J. 105

312 A.2d 857

William J. BULMAN, Plaintiff-Respondent, v. Joseph M. McCRANE, Jr., Treasurer, State of New Jersey, et al., Defendants-Appellants.

Supreme Court of New Jersey.

Argued Oct. 24, 1973.

Decided Dec. 12, 1973.

Stephen Skillman, First Asst. Atty. Gen., for defendants-appellants (George F. Kugler, Jr., Atty. Gen., Morton I. Greenberg, Asst. Atty. Gen., on the brief).

Kenneth L. Estabrook, Elizabeth, for plaintiff-respondent (Lindabury, McCormick & Estabrook, Elizabeth, attorneys; Richard R. Width and Peter A. Somers, Elizabeth, on the brief).

The opinion of the court was delivered by

CONFORD, P.J.A.D., Temporarily Assigned.

The Chancery Division struck down as offensive to our constitutional debt limitation provision, Const. of 1947, Art. VIII, Sec. II, Par. 3, a proposed arrangement by the State to take a 25 year lease on a building to be erected by a developer on state-owned land and to be used by the State as a records storage center and printing facility. 123 N.J.Super. 213, 302 A.2d 163 (1973). We certified the case prior to its consideration by the Appellate Division. 63 N.J. 505, 308 A.2d 669 (1973).

The State was to have the option to purchase at fixed, progressively declining figures during the 10th, 15th and 20th years of the lease, failing which, title to the building would revert to the State at the end of the term. The terms and conditions of the integrated transaction for construction of the building and lease thereof to the State, to be effected on behalf of the State by the Division of Building and Construction and the Division of Purchase and Property, both in the Department of the Treasury, are accurately summarized in the reported Chancery Division opinion and need not be repeated here.

At the outset we state our concurrence in the conclusion arrived at by the Chancery Division in response to the contention of respondent that the State officials named above were without statutory power to enter into the transaction. The determination was that there was ample such power 'if the transaction now before the court is a bona fide lease not in contravention of the constitutional debt limitation'. 123 N.J.Super. at 220, 302 A.2d at 166. We agree with and adopt the reasons advanced by the Chancery Division in that regard. Id. at 220--221, 302 A.2d 163. And since, for the reasons hereinafter set forth, we find the lease a Bona fide one free from constitutional defect, we reject the plaintiff's contention of absence of statutory power. We further dismiss the contention of plaintiff that the arrangement for the construction of the building violates the statutes pertaining to advertising for bidding, N.J.S.A. 52:32--2; 34--8. Here, again, the controlling question is whether the basic transaction is a lease. If so, as we are here holding, the bidding statute is irrelevant. See N.J.S.A. 52:34--9(c). It is noteworthy, however, that the State did advertise for bids and awarded the contract to a responsible bidder who was the lowest of four bidders on the square foot rental rate.

Before turning our attention to what we regard as the major issue--whether the basic transaction here is a lease--we must consider the Attorney General's alternative argument on behalf of the State, rejected by the Chancery Division, that the transaction did not involve an amount of money large enough to come within the constitutional proscription: '* * * a debt or debts, liability or liabilities of the State, Which together with any previous debts or liabilities shall exceed at any time one per centum of the total amount appropriated by the general appropriation law for that fiscal year, * * *.' (Emphasis added.)

The Attorney General points out that the total potential liability of the State under the lease is $3,644,075, which is less than one percent of the fiscal 1972--1973 legislative appropriation of $2,047,934,209. His legal contention is that the approximate $1,200,000,000 in presently outstanding State bonds is not to be included within the text, 'any previous debts or liabilities,' in the excerpt Underscored above, within the true meaning of the Constitution. The implied position is that once the people have voted on specific items of funded debt pursuant to the constitutional mandate the policy underlying the debt limitation provision is met as to such debts and thereafter only new debts aggregating in excess of the one percent limitation are of constitutional concern. ¹ In refusing to entertain that position, the trial court described it as 'farfetched' and as creative of a 'financial bonanza' of which one would have expected the State to take advantage before it sound. (123 N.J.Super. at 239, 302 A.2d 163). It seems to us that a more substantial argument against the position is that the constitutional language does appertain to 'any' previous debt, etc., and that approval by the people at previous referenda of $X in debts does not necessarily signify satisfaction by them with a total outstanding debt of $X plus $Y. But a rejoinder is suggested by the circumstance that the people in voting on a particular debt are not informed by the ballot what the prior outstanding debts are, nor is the question of their satisfaction with the grand debt total required by the Constitution to be submitted to them.

It is also noteworthy that under plaintiff's position every new State debt, no matter how small, must be submitted to popular referendum once previous debts, although approved, pass the one per centum limitation. In the present state of New Jersey's existing bonded indebtedness, the mentioned situation would continue for the foreseeable future.

We think this issue of constitutional interpretation raised by the Attorney General is a substantial one. Unfortunately, however, it was not adequately researched for us by either side. No case on point is cited. Our own independent search of the 1844 and 1947 constitutional proceedings has revealed no significant light as to the framers' intent in the respect under contention. See Proceedings of the New Jersey State Constitutional Convention of 1844 (1942) at 135, 185, 203, 277, 310--311, 340--343, 519--522, 524--527, 595; V Proceedings, Constitutional Convention of 1947, at 543, 590, 600 601, 602, 844. In these circumstances, and in view of the fact that the instant litigation will be concluded by our determination that the contract for a lease did not create a debt or liability within the constitutional proscription, we defer to another day resolution of the issue posed. ²

We thus turn to the primary subject of the appeal--the holding of the Chancery Division that the transaction in substance creates a debt of the State and not a lease, the court having correctly conceded (123 N.J.Super. at 222--223, 302 A.2d 163) that a true lease would not offend the prohibition of 'debts' or 'liabilities' not qualifying under the constitutional requirements for the enabling statute and for approval of the people by referendum (the text of the constitutional section is found in 123 N.J.Super. at 217--218, 302 A.2d 163). After an extensive examination of cases in other jurisdictions, some involving leases for public uses by independent public authorities and others by private lessors, as here, the court concluded 'that the arrangement in this case is an installment contract of purchase and not a lease' and therefore violates the debt clause (Id. at 233, 302 A.2d at 173). Found influential were the circumstances (a) that the State retained ownership of the land, with the 'incongruous result if, at the expiration or earlier termination of the lease, the builder-developer should own a building on land title to which was in the State'; (Id. at 234, 302 A.2d at 174); (b) the fact that the proposed building would have value at the end of the term, of which the State would get the benefit without further cost (Ibid.); (c) the builder-developer would be recapturing during the period of the lease his total cost of construction, profit and financing expense (Id. at 236, 302 A.2d 163); and (d) formal opinions by the Attorney General in the past that transactions like this constituted a debt subject to the debt limitation clause (Id. at 237--239, 302 A.2d 163).

A reading of the trial court's opinion in this matter and the cases from other jurisdictions cited therein, as well as of the opinions of this Court in such cases as McCutcheon v. State Building Authority, 13 N.J. 46, 97 A.2d 663 (1953); Clayton, et al. v. Kervick, et al., 52 N.J. 138, 244 A.2d 281 (1968); Holster v. Bd. of Trustees of Passaic County College, 59 N.J. 60, 279 A.2d 798 (1971); and N.J. Sports & Exposition Authority v. McCrane, 61 N.J. 1, 292 A.2d 545 (1972), reveals that the varying approaches by courts to assertions of violation of debt limitation clauses have been largely dependent upon the differing views of judges as to the scope of the evils sought to be abated by such clauses and as to the degree of flexibility in methods of financing publicly needed facilities which should be accorded modern legislatures and public officials where such methods do not seem to entail the conditions which begot the debt limitation provisions but may yet, on analytical scrutiny, be strongly argued in substance to offend the letter thereof. The McCutcheon and Clayton cases, both Supra, although partly distinguishable from the instant situation in that independent authorities were implicated in the financing plans in those cases, are pertinent in respect of the contrasting treatment in the respective prevailing opinions of the question whether leases by such agencies to state operating departments were truly leases, or rather, to the contrary, installment contracts to purchase, creating present debts within the constitutional provisos. The decisions are also demonstrative of the evolution of the current attitude of this court in the general area.

In McCutcheon the Legislature had created a State...