Shirk v. City of Lancaster
| Decision Date | 27 November 1933 |
| Parties | SHIRK v. CITY OF LANCASTER. |
| Court | Pennsylvania Supreme Court |
313 Pa. 158
SHIRK
v.
CITY OF LANCASTER.
Supreme Court of Pennsylvania.
Nov. 27, 1933.
[Copyrighted material omitted.]
Appeal No. 226, January term, 1933, from decree of Court of Common Pleas, Lancaster County, Equity Docket, No. 8, page 152; Benj. C. Atlee, President Judge.
Suit in equity by Frank G. Shirk against the City of Lancaster to enjoin the city from collecting from water consumers within the city water rates established by ordinance on the alleged ground that the same were unreasonable, excessive, confiscatory, and unlawful. Decree for plaintiff, and defendant appeals.
Reversed, and record remitted, with directions.
Argued before FRAZER, C. J., and SIMPSON, KEPHART, SCHAFFER, MAXEY, DREW, and LINN, JJ.
H. Edgar Sherts, City Sol., and Wm. B. Arnold, Asst. City Sol., both of Lancaster, and Joseph A. Beck, of Pittsburgh, for appellant.
F. Lyman Windolph (of Windolph & Mueller), of Lancaster, for appellee.
KEPHART, Justice.
Lancaster, a city of the third class, owns its own water system, supplying water to its citizens and, through water companies, to inhabitants of the suburbs. In 1931 the city decided to enlarge its plant and equipment by constructing additional storage facilities and a new and more efficient nitration plant; also to extend and improve its sewerage and drainage system by erecting a disposal plant, the latter pursuant to an order of the state department of health intended to prevent the use of the Conestoga creek as an open sewer. Accordingly, after a report by its engineers and proper action by council, the electors authorized an increase of indebtedness in the sum of $3,250,000, to provide the moneys necessary to take care of both the water and sewerage systems. It was estimated that approximately $1,000,000 would complete the improvements to the former; the balance being necessary for the latter. It was decided by council that no new tax was to be levied to take care of the debt service charge resulting from this increase in debt, but provision was made in the ordinances for an issue of bonds to care for this charge through a lump sum to be taken from general taxes.
At the time the first million dollars was authorized by council, after the electors had voted in favor of the increase of debt, that body by ordinance created a new schedule of water rates repealing all former ordinances fixing rate schedules. The increase in rates ranged from 70 per cent. to 150 per cent., depending on the classification, or from a former gross total of $295,000 to an estimated gross return of $452,500. The actual billing for the first six months under the new rates was $239,000.
Appellee, a citizen and consumer, being dissatisfied with the rates, filed a bill charging the rates were unreasonable and asking the court below to enjoin their imposition and collection. The question involved was whether the municipality could make a profit from its water business. The ascertainment of a proper rate base was ignored. After hearing, the court struck out certain items included in operating charges, disallowed any profit, and, as the rates reflected these items, it decreed the rates unreasonable and restrained their collection by the city. As the decree left the city without any water rates, a supersedeas was allowed which is still in force.
Municipal corporations are creatures of the state, created, governed, and abolished at its will. They are subordinate governmental agencies established for local convenience and in pursuance of public policy. The authority of the Legislature over all their civil, political, or governmental powers is, in the nature of things, supreme, save as limited by the Federal Constitution or that of the commonwealth. As Justice Mitchell, speaking for the court, said in Commonwealth v. Moir, 199 Pa. 534, 541, 49 A. 351, 352, 53 L. R. A. 837, 85 Am. St. Rep. 801: "They have no vested rights in their offices, their charters, their corporate powers, or even their corporate existence. This is the universal rule of constitutional law, and in no state has it been more clearly expressed and more uniformly applied than in Pennsylvania."1
While the foregoing statement of the law is true with respect to the absolute control of the Legislature in matters coining within the sphere of a municipality's governmental functions and possibly as to all property acquired by reason thereof,2 the Legislature's
control of the property of a municipality acquired in its proprietary or private character is another question. These powers, in their nature unlimited, are not conferred primarily or chiefly from considerations connected with the government of the state at large, nor of the municipality, but for the private advantage, comfort, and convenience of the compact community which incorporated as a distinct legal personality or corporate individual. As to such powers, and to the property acquired thereunder, and contracts made with reference thereto, the corporation is to be regarded quo ad hoc as a private corporation, or at least not public in the sense that the power of the Legislature over it or the rights represented by it is omnipotent; all its property of a distinctly private character is fully protected by the constitutional provision protecting private property of an individual or private corporation. New Orleans v. New Orleans Waterworks Co., 142 U. S. 79, 12 S. Ct. 142, 35 L. Ed. 943; Dillon, Municipal Corporations (5th Ed.) volume 1, § 109, p. 182; McQuillin on Municipal Corporations (2d Ed.) volume 1, §§ 238, 239.3 The municipal corporation is regarded as trustee for the inhabitants of the territory embraced within its limits.
Though a municipality has no vested right in the powers conferred for governmental purposes, and the public moneys raised through such functions (taxes) are subject to the primary powers of the state to control and make appropriate provision therefor, revenues derived in its private capacity, as a return from its water or other utility works, are trust funds, and cannot be controlled or taken directly for state purposes. See Board of Commissioners of Tippecanoe County v. Lucas, 93 U. S. 108, 23 L. Ed. 822; People v. Ingersoll, 58 N. Y. 1, 17 Am. Rep. 178; Cary Library v. Bliss, 151 Mass. 364, 25 N. E. 92, 7 L. R. A. 765. This is so even if such revenues were to be used for public purposes; they fall within the protection of the Fourteenth Amendment.4 They may be taxed as other similar receipts are taxed. Com. v. Phila. Rapid Transit Co., 287 Pa. 70, 134 A. 452. The revenues of a municipality from the property thus owned in its private and proprietary character are for the beneficiaries.
Property employed by a municipality in furnishing water to its inhabitants is not used for governmental purposes, and in its ownership and operation the municipality acts in its proprietary character,5 and, as this court has already pointed out in The Western Savings Fund Society v. City of Philadelphia, 31 Pa. 175, 72 Am. Dec. 730; Id., 31 Pa. 185, the power of the Legislature in relation to the water works of a municipality is not "omnipotent." But the protection of Amendment 14 of the Federal Constitution prohibiting the deprivation of property without due process of law does not limit the authority of the Legislature to regulate and control, through rates and allied subjects, this or other species of private property devoted to public use, even though owned by a municipality. This power of control is inherent in the state in its sovereign capacity, exercised for the public welfare under its police power.
This power of regulation and control is exclusively a legislative matter.6 Where a
state constitutes a commission with general powers of regulation over utilities, it includes all such bodies, municipal or otherwise, unless there is definite classification and exemption therefrom. In this state, municipalities as a class are specifically exempted from the Public Service Company Law (66 PS § 1 et seq.) with certain stated exceptions. Barnes Laundry Co. v. City of Pittsburgh, 266 Pa. 24, 109 A. 535; see Springfield G. & E. Co. v. Springfield, 257 U. S. 66, 42 S. Ct. 24, 66 L. Ed. 131.
Municipally owned utilities, in the matter of rates and their regulation, are controlled by the courts under the Act of June 16, 1836, P. L. 1835-36, 785, 789, 790, § 13 (see 17 PS §§ 281, 282). We held in Barnes Laundry Co. v. City of Pittsburgh, supra,7 that this act granted to the courts of com-mon pleas broad chancery powers, and that the right of review of municipal water rates came within the jurisdiction of these courts. The right to originally fix rates of municipally owned plants is given to the municipality under some form of authority, and our power to regulate such rates or determine their reasonableness must come to us direct from the Legislature; we cannot assume such power, though at common law redress could be had for unjust discrimination, overcharges, and other similar matters.8 No greater power isO or can be given to the courts in the matter of the regulation of rates as to their reasonableness than the Legislature itself possessed, nor can we, any more than the Legislature, make orders contrary to the Federal Constitution.
After considering all the cases and the enabling acts under which these waterworks are constructed, under what guise could the Legislature or the courts prohibit a municipal water plant from making a profit? If the Legislature or the courts could deprive a plant owned by the municipality of a fair return which includes a profit, they could prevent a privately owned water company from earning a profit or a fair return. Assuredly, the Legislature, or a commission through them, has no such power, and it could not prevent a municipality from earning a fair return. If it cannot, from what source do...
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