Behnke v. New Jersey Highway Authority

• Decision Date: 25 May 1953
• Docket Number: No. A--122,A--122
• Citation: 97 A.2d 647,13 N.J. 14
• Parties: BEHNKE v. NEW JERSEY HIGHWAY AUTHORITY et al.
• Court: New Jersey Supreme Court

Page 14

13 N.J. 14

97 A.2d 647

BEHNKE v. NEW JERSEY HIGHWAY AUTHORITY et al.

No. A--122.

Supreme Court of New Jersey.

Argued March 23, 1953.

Decided May 25, 1953.

Douglas V. Aitken, Bridgeton, argued the cause for appellant.

Roger Hinds, New York City, submitted a brief for reversal on behalf of New Jersey Taxpayers Ass'n, as Amicus curiae.

Morris M. Schnitzer, Newark, argued the cause for respondent New Jersey State Highway Authority.

Theodore D. Parsons, Atty. Gen. submitted a brief Pro se and on behalf of respondent Walter T. Margetts, Jr., Treasurer of the State of New Jersey (Benjamin Van Tine, Deputy Atty. Gen.)

The opinion of the court was delivered by

HEHER, J.

We have here a proceeding under the Declaratory Judgments Act (N.J.S. 2A:16--50 et seq., N.J.S.A.) to determine the constitutional sufficiency of c. 17 of the Session Laws of 1952, N.J.S.A. 27:12B--20 note, purporting to authorize 'A liability of the State of New Jersey * * * for the guaranty of punctual payment' of the principal and interest accruing upon bonds, not exceeding $285,000,000 in the aggregate principal sum, to be issued by the New Jersey Highway Authority, a body corporate and politic established in the State Highway Department by c. 16 of the Laws of the same year to provide, Inter alia, for the construction and operation of 'modern express highways' and other 'highway projects' as therein delineated, and in particular the consummation of a highway construction project to be known as 'The Garden State Parkway,' extending in a general southerly direction from such points at Paterson and also at State Highway Route No. 17 in Paramus or Ridgewood as the Authority may determine to be most feasible and practicable to a point at or near the city of Cape May. L.1952, pp. 65, 91, 95; N.J.S. 27:12B--1, 20, N.J.S.A.

It was directed that, 'For the purpose of complying with the provisions of the State Constitution,' the act authorizing the creation of state liability for the guaranty of the bonds 'be submitted to the people' at the general election of 1952. L.1952, pp. 95, 100. There was such submission and the act was 'approved.'

The Superior Court, Judge Ewart sitting, sustained the Guaranty Act as not in contravention of state constitutional limitations upon the use of the State's credit, moneys, and taxing power (Behnke v. New Jersey Highway Authority 25 N.J.Super. 149, 95 A.2d 606); and this court certified the cause for appeal at the instance of plaintiff.

The Authority Act itself is not under attack. The Authority is constituted 'an instrumentality exercising public and essential governmental functions,' and it is provided that the exercise by the Authority of the powers conferred by the act 'in the construction, operation and maintenance of projects shall be deemed and held to be an essential governmental function of the State.' L.1952, c. 16, § 4. The body is given perpetual succession; capacity to contract, to sue and be sued in its own name, and to use an 'official seal'; and to acquire, hold and dispose of real and personal property in the performance of its functions and duties, and to exercise the right of eminent domain; and it is empowered to construct and operate highway projects, including feeder roads; to issue bonds or notes of its own 'and to provide for the rights of the holders thereof as provided' in the act; to establish and collect tolls or other charges for transit over or use of its highway facilities; to receive and accept, subject to the approval of the Governor, federal grants in aid of the acquisition or construction of any project within its domain, 'and to receive and accept aid or contributions, except appropriations by the Legislature, from any source, of either money, property, labor or other things of value, to be held, used and applied only for the purposes for which such grants and contributions may be made'; to adopt by-laws for the regulation of its affairs and the conduct of its business, and to establish rules and regulations for the use of any project; and to hire such employees and agents, administrative and technical, as it may deem necessary, and to fix compensation for the service. Section 5. The Authority is authorized, subject to the limitations of the act, to set the terms of its bonds and notes, and to pledge all or any part of its tolls and revenues as security for their payment, and otherwise to safeguard its issued securities and regulate the rights of the holders. Sections 8, 9. Except 'as otherwise provided by or pursuant to any law' thereafter 'submitted to the people' under Section II of Article VIII of the State Constitution, and approved by a majority of the legally qualified voters of the State voting thereon, bonds or notes issued under the provisions of the act 'shall not constitute a debt or liability of the State or of any political subdivision thereof or a pledge of the faith and credit of the State or of any such political subdivision, and all such bonds or notes shall contain on the face thereof a statement to that effect.' Section 10. The State itself makes a pledge to the holders of the issued bonds or notes not to 'limit or restrict the rights' thereby vested in the Authority to pursue any project as defined in the act 'or to establish and collect such tolls or other charges as may be convenient or necessary to produce sufficient revenues to meet the expenses of maintenance and operation thereof and to fulfill the terms of any agreements made with the holders of bonds or notes authorized' by the act 'or in any way impair the rights or remedies of the holders of such bonds or notes until the bonds and notes, together with interest thereon, are fully paid and discharged.' Section 11. Bonds and notes issued under the act are made legal security. Section 12. It is declared that the exercise of the powers granted by the act 'will be in all respects for the benefit of the people of the State, for the increase of their commerce and prosperity, and for the improvement of their health and living conditions,' and 'constitute the performance of essential governmental functions,' and therefore its projects, property and income and its issued bonds or notes, their transfer, and the income therefrom are rendered immune from taxation. Section 16. The Authority is vested with the operative and the regulative functions; and there are sanctions for violations. Section 18. And it is enjoined to make an annual report of its activities and financial operations to the Governor and to the Legislature. Section 19. Then comes specific authority for the construction of 'The Garden State Parkway.' Section 20.

The Guaranty Act provides that all money to be raised by the issuance of bonds guaranteed thereunder by the State 'shall be applied only to finance the Garden State Parkway in accordance with the Authority act,' and such bonds shall 'mature within thirty-five years from their respective dates and bear interest at a rate or rates not exceeding three per centum (3%) per annum,' limited in principal amount to the aggregate stated supra. L.1952, c. 17, §§ 1, 2. The 'punctual payment' of the principal and interest accruing on bonds issued in accordance with the act is 'unconditionally guaranteed by the State of New Jersey.' The 'guaranty made' of the bonds of the Authority issued under the act 'shall make the State unconditionally liable for the payment, when due, of the principal of and interest on the bond so guaranteed'; and 'In the event that the Authority shall fail to pay, when due, the principal of or interest on any bond so guaranteed, the State Treasurer shall pay the same to the holder thereof out of the funds provided pursuant to this act and thereupon the State shall be subrogated to the rights of the holder so paid.' Sections 3, 4. To provide 'ways and means, exclusive of loans,' to discharge any guaranty made under the act and to 'provide funds' to that end, the act 'appropriated' from the State's motor fuel tax receipts 'so much as may be required for such purposes, and the State Treasurer is' directed to make provision accordingly. The power to tax real and personal property is also invoked. Sections 5, 6, 7.

The insistence is that the State's guaranty of the bonds of 'a public corporation, although created and commissioned to perform an essential public function,' constitutes a loan of the State's credit in contravention of Article VIII, Section II, paragraph 1 of the Constitution of 1947, in words thus: 'The credit of the State shall not be directly or indirectly loaned in any case.'

It is urged that this is a peremptory command all inclusive in its operation, interdicting the State's unconditional guaranty of 'the obligations of a corporation, either public or private.' Significance is seen in the omission from this provision of the recently revised Constitution of a specific exception of 'public corporations, to accomplish governmental purposes,' of which the particular type had then become commonplace. The incorporation of the limitation in the 1947 Constitution in the identical terms of the 1844 Constitution is deemed conclusive of a purpose to bar the extension of the State's credit, directly or indirectly, in any and every case.

Amicus curiae suggests that the Constitution itself makes what is termed the obvious distinction between 'a donation or appropriation, on the one hand, and a loan of the credit of the State, on the other hand,' by laying down in Article VIII, Section II, paragraph 3 a 'qualified prohibition' of donations and appropriations by the State, but in Article VIII, Section II, paragraph 1, an 'unqualified prohibition of loans of the state's credit.' And it is also urged that there is a difference of substance in the constitutional sense between 'the making of a loan, or the incurring of an indebtedness, on the one hand, and a Loan of credit on the other,' and the case at hand involves 'not a loan of money either by or to the...