Lesser v. Warren Borough

• Decision Date: 14 October 1912
• Docket Number: 123
• Citation: 85 A. 839,237 Pa. 501
• Parties: Lesser v. Warren Borough, Appellant
• Court: Pennsylvania Supreme Court

85 A. 839

237 Pa. 501

Lesser v. Warren Borough, Appellant

123

Supreme Court of Pennsylvania

October 14, 1912

Argued April 30, 1912

Appeal, No. 123, Jan. T., 1912, by defendant, from decree of C.P. Warren Co., March T., 1912, No. 5, on bill in equity in case of Daniel E. Lesser v. Warren Borough. Affirmed.

Bill in equity to restrain an issue of borough bonds.

PRATHER P.J., specially presiding, found the facts to be as follows:

1. The defendant, the borough of Warren, was chartered under the Act of April 3, 1832, P.L. 259, and is now organized under and subject to the General Borough Act of April 3, 1851, P.L 320.

2. That the Warren Water Company is a corporation organized under the Corporation Act of April 29, 1874, P.L. 73, and from the year 1881 has been, and is now furnishing water to the citizens of defendant borough.

The plaintiff, Daniel E. Lesser, is a citizen and taxpayer of the borough of Warren.

4. That under date of Feb. 8, 1903, by a contract in writing it was agreed by and between the said borough and the said water company, that the value of said water plant should be fixed by appraisers chosen as therein provided.

5. Pursuant to said agreement, and for the purpose of determining the value of said water plant, to the end that it might own, possess and operate said plant, the defendant borough caused an appraisement of said water plant and system to be made, and filed the same in the Court of Common Pleas of Warren county.

6. The valuation of said water plant or system, as so determined, is $390,000, at which price the water company proposes to sell and the defendant borough proposes to buy, issuing bonds to said water company in payment therefor, according to the provisions of the Act of May 31, 1907, P.L. 355, and its supplement, the Act of April 22, 1909, P.L. 135.

7. The value of the taxable property in said borough at the last assessment was $4,692,545.00. The constitutional limit of indebtedness upon the consent of its qualified electors at a public election is, therefore, $328,478; and the present indebtedness of said borough is $190,000.

8. The bonds proposed to be issued are to be paid solely out of the receipts and revenues derived or to be derived from said water works or system, and the said borough, by an ordinance duly adopted, and approved by its burgess and council, has made full and ample provision for the creation of a sinking fund out of the said receipts and revenues for the payment of the interest and principal of said bonds as they respectively shall mature.

9. Section 4 of said ordinance reads: "Section 4. That to provide an adequate sinking fund from the receipts and revenues derived from said water works or system for the payment of the interest on said bonds and for their redemption there shall be set aside annually from said receipts and revenues the sum of thirty-two thousand five hundred ($32,500) dollars until and including the year 1921, and the sum of twenty-six thousand ($26,000) dollars until and including the year 1931, and the sum of nineteen thousand five hundred ($19,500) dollars until and including the year 1941, during the existence of the bonds herein authorized and directed to be issued to provide for the payment of the interest and liquidation of the principal thereof. And the moneys arising from said receipts and revenues shall be applied at the periods stated in said bonds herein authorized and directed to be issued and to their redemption at par according to their terms and not otherwise."

The court entered a decree enjoining the issue of the bonds.

Error assigned was decree awarding the injunction.

D. I. Ball, with him Wm. Schnur, for appellant. -- If the borough can issue bonds containing within themselves a strict contract of non-liability on the part of the borough, then the indebtedness of the borough will not be increased by these bonds, and the plaintiff will not be injured by their issue, and his fancied cause of complaint in this case fails: Hoeveler v. Mugele, 66 Pa. 348; Montgomery v. St. Stephen's Church, 4 W. & S. 542; Addystone Pipe & Steel Co. v. Corry, 197 Pa. 41; Barr v. Philadelphia, 191 Pa. 438; Reuting v. Titusville, 175 Pa. 512; Wade v. Oakmont Borough, 165 Pa. 479; Erie's App., 91 Pa. 398.

There appears to be a wide divergence in the decisions of the different states upon various phases of the question of increase of municipal indebtedness. So far as we have access to them, the following authorities support our contention: Kelly v. Minneapolis, 30 L.R.A. 281; Quill v. Indianapolis, 7 L.R.A. 681; Swanson v. Ottumwa, 59 L.R.A. 620.

T. L. Hampson, for appellee. -- The Act of Assembly in question attempts to create a class of obligations outside of the meaning of Section 8 of Article IX; and by so doing would narrow and restrict the ordinary meaning of the word "debt" as used therein. Such action is a palpable attempt to evade by narrowing the construction of said section of the Constitution. This the legislature cannot do: Keller v. Scranton, 200 Pa. 130; Buchanan v. Litchfield, 102 U.S. 278; Doon Township v. Cummins, 142 U.S. 366; Dixon County v. Field, 111 U.S. 83.

Any equity, either present or future, which the borough may acquire in the water works plant and system by the transaction, is hypothecated for the payment of the debt, and is liable to become forfeited upon default in payment: Joliet v. Alexander, 194 Ill. 457 (62 N.E. Repr. 861); Browne v. Boston, 179 Mass. 321 (60 N.E. Repr. 934; Eddy Valve Company v. Town of Crown Point, 166 Ind. 613 (76 N.E. Repr. 536); Brown v. Corry, 175 Pa. 528; Newell v. People, 7 N.Y. 9; Baltimore v. Gill, 31 Md. 375; Erie's App., 91 Pa. 398; McKinnin v. Mertz, 225 Pa. 85.

The case of Brown v. Corry, 175 Pa. 528, rules this case.

Frank P. Cummings and Max L. Mitchell filed an intervening brief for the city of Williamsport.

Before BROWN, POTTER, ELKIN, STEWART and MOSCHZISKER, JJ.

OPINION

MR. JUSTICE BROWN:

The Borough of Warren, incorporated by Act of April 3, 1832, P.L. 259, became subject to the General Borough Act of 1851 on March 10, 1854. The Warren Water Company, incorporated under the General Corporation Act of April 29, 1874, P.L. 73, has been furnishing water to the inhabitants of the Borough of Warren from the year 1881. On February 8, 1903, the borough and the water company entered into a written agreement for the appointment of appraisers to appraise the works, rights, franchises and property of the water company, and the appraisement so to be made was to be regarded as the value of the plant. In pursuance of said agreement appraisers were chosen and an appraisement was made, which was subsequently filed in the court below in a proceeding instituted by the borough to acquire the ownership of the plant or system of the water company. The valuation of the water plant or system, as determined by the appraisers, was $390,000, at which price the company proposed to sell and the borough to buy, the latter to issue bonds to the water company in payment for its property, in accordance with the provisions of the Act of May 31, 1907, P.L. 355, as amended by the Act of April 22, 1909, P.L. 135. The value of the taxable property in the borough at the last assessment was $4,692,545. The constitutional limit of its indebtedness is $328,478. The present indebtedness of the borough is $190,000. The bonds which it proposes to issue are to be paid solely out of the receipts and revenues to be derived from the said water works or system, "without other liability whatsoever" on the part of the said borough. The court below found that, by an ordinance duly adopted, it has made full and ample provision for the creation of a sinking fund out of the said receipts and revenues for the payment of the principal and interest of the bonds as they respectively shall mature.

If the borough be permitted to purchase the plant of the water company, the bonds which it proposes to issue will be $251,522 in excess of the indebtedness which the Constitution permits it to incur. It insists that it may issue these bonds under the Act of 1907, as amended by the Act of April 22, 1909, P.L. 135, which provides for the purchase by municipalities of the water works of corporations, firms or individuals. The provision of the amended act which the borough invokes is the following section: "Section 5. For the purpose of said purchase the municipality may issue bonds, which shall be secured solely by such water works, systems, and property, and the revenues thereof, and without other liability whatever of said municipality thereon, to an amount not exceeding the appraisement of the value fixed by said appraisers or the court. The proceeds of the sale of such bonds shall be used exclusively for the purpose of making payment for the property so acquired." To enjoin the proposed issue of the bonds by the borough, the appellee -- a taxpayer -- filed this bill, averring that their issue would be in violation of Section 8, Article IX, of the Constitution, which declares that the debt of any municipality, except as therein provided, "shall never exceed seven per centum upon the taxable property therein." The injunction prayed for was awarded on the ground that the borough would, if permitted to issue the bonds, increase its indebtedness beyond the limit fixed by the Constitution, and from the decree enjoining it we have this appeal.

When the Borough of Warren and the Warren Water Company entered into the agreement of February 8, 1903, the former could have become the owner of the works and property of the latter under clause 7 of the 34th Section of the Act of April 29 1874, which provides that it shall be lawful, at any time after twenty years from the introduction of water into a borough in which...