Western Saving Fund Society v. The City of Philadelphia

• Decision Date: 01 January 1858
• Citation: 31 Pa. 185
• Parties: The Western Saving Fund Society of Philadelphia et al. versus The City of Philadelphia et al.
• Court: Pennsylvania Supreme Court

31 Pa. 185

The Western Saving Fund Society of Philadelphia et al. versus The City of Philadelphia et al.

Supreme Court of Pennsylvania.

APPEAL IN EQUITY from the Court of Nisi Prius.

Hirst, for the appellants.

Gerhard and Meredith, for the appellees.

The opinion of the court was delivered by STRONG, J.

The bill of the complainants prays that the City of Philadelphia, and the Select and Common Councils thereof, may be restrained by the injunction of this court, from proceeding under the provisions of a certain Act of Assembly of this Commonwealth, passed on the 20th of April 1858, entitled "A Supplement to the Act to incorporate the City of Philadelphia;" and from any attempt to invalidate the trusts now existing in the present Trustees of the Philadelphia Gas Works, or the security of the holders of the gas loans, or the system under which the said trusts have been heretofore conducted; or from attempting to change the mode by which the board of trustees has heretofore been elected and constituted, and also from increasing or changing the number of said trustees from their present number of twelve. The bill also prays that the existing trustees may be enjoined against admitting into their board any persons who may be elected under the said Act of Assembly, and against permitting any such persons to intermeddle, interfere, or participate in the said trusts, or in the business of the said board, or the conduct of the Philadelphia Gas Works.

The cause was heard upon bill and answer, before a single judge sitting at Nisi Prius, and an injunction, as prayed for, was granted against the present trustees. An injunction was also decreed against six persons elected under the above-mentioned Act of Assembly (they having been made parties to the bill), restraining them from acting as trustees of the said Philadelphia Gas Works, and from intermeddling, interfering, or participating with or in the said trust, or the business of the said board, or the conduct of the said Philadelphia Gas Works. From this decree the defendants have appealed.

The answer admits all the material facts charged in the bill, and thus the following case is presented.

The Philadelphia Gas Works originated in an attempt by the city councils to create a quasi corporation, by an ordinance passed on the 21st of March 1835. By the terms of that ordinance, persons were authorized to subscribe to a stock capital amounting in the aggregate to $100,000, and pay their subscriptions into the city treasury. The subscribers were to receive certificates for their stock, which entitled them to the profits arising from the manufacture and sale of gas. The ordinance expressly stipulated, that the city should not be liable for anything beyond the amount received from the subscribers. It also provided, that the gas works should be under the exclusive management of twelve trustees, who should be elected by the Select and Common Councils of the city, each council electing one-half; and the term of their office was so arranged, that one-third of the members of the board should be elected each year. The city also reserved the right, at any time when the Select and Common Councils might deem it expedient, to take possession of the works and convert the stock into a loan redeemable in twenty years, with interest payable semi-annually. It would seem to have been the purpose of the city, to cast upon the stockholders all the risk of the enterprise, reserving to itself the right to take the property if it should turn out profitable. Under this ordinance, the necessary stock was subscribed and paid, the trustees were elected, and the works constructed. The enterprise proved successful, and the demand for gas increased beyond the ability of the trustees to supply with their limited capital. To meet this state of things, subsequent ordinances were passed, from time to time, authorizing loans for the extension of the works. They provided that the money should be borrowed by the city, on the requisition of the trustees of the gas works, and that city certificates should be issued to the loanholders. The faith of the city, and also the property of the gas works, were pledged for the repayment of the loans. A sinking fund was also created out of the proceeds of the manufacture and sale of gas, which was set apart as security to the loanholders, before any profits could be distributed to the stockholders. By the first of these ordinances, passed December 22d 1836, it was enacted, that the money arising from the manufacture and sale of gas, should no longer be paid into the city treasury, but that the receipt and payment of all moneys, on account of the gas works, should thereafter be confided to the trustees of said works. On the 14th of January 1841, an ordinance was passed which provided that the city should, on the first of March then next following, take possession of the gas works in their own right, under the privilege originally reserved, and that the stock should be converted into a loan. This ordinance declared, however, that the works should continue under the direction and superintendence of the board of trustees then existing, with all the powers they then possessed, until it should be otherwise provided. Thus they ceased to be trustees for the stockholders, but were thenceforth trustees for the city and for the loanholders. The city then became the owner, and a satisfactory arrangement was made with the original proprietors. Then followed the ordinance of June 17th 1841, the provisions of which lie at the bottom of this case. It authorized a further loan for the purpose of extending the works, the money to be borrowed in such sums as might be required by the trustees, and for which certificates were to be given. These were made transferable at the office of the Philadelphia Gas Works, where also the interest was payable, at such rates, not exceeding five per cent., as the trustees should determine. All the net profits of the works, after the payment of the interest upon the existing loans, were directed to be set apart to constitute a sinking fund; and the faith of the city, and also the sinking fund, the property of the gas works, their income and profits, were pledged for the punctual payment of the interest, and for the ultimate reimbursement of the principal of all the loans made for or on account of the said gas works, as they should become due. "And for the further security of the loanholders of said works," the faith of the city was pledged that the prices of gas, as then fixed, should not be reduced until the distribution of gas by pipes should be completed throughout the city limits, nor at any time so as to reduce the clear profits below eight per centum per annum on the whole amount of the cost of said works, until all the loans contracted for, or that might thereafter be contracted for, should be paid. The third section of the ordinance is in these words: "That, for the further security of said loanholders, it is hereby stipulated that the said works shall be controlled and managed by a board of trustees, elected and constituted as heretofore, who shall have the whole control and management of the said works, and of the said sinking fund, and of all other funds belonging to the said works; and the said trustees shall pay no part of the said funds, nor any part of the profits of said works, into the city treasury, but shall apply and appropriate the same, as is directed by this ordinance, until the interest and principal of said loans shall be fully paid, as they become due, to the said loanholders." On the faith of this ordinance $125,000 were obtained, and certificates were given, declaring that they were issued "in pursuance of an ordinance of the 17th of June 1841." The provisions of the ordinance necessarily became a part of the contract with each loanholder, without which it must be assumed he would not have advanced his money; nor did they enure exclusively to the benefit of the holders of that loan. They were stipulated to be for the "further security of all the loans contracted, or that might thereafter be contracted." Whatever may be said about the rights of antecedent loanholders, it is clear that all holders of the loan of June 17th 1841, or...