# Appendix — Philadelphia Transportation Co. v. Southeastern Pennsylvania Transportation Authority > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_1259%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1968 - **Citation:** 390 U.S. 1011 ## Text . : ‘ we Pe i a eA Cee 7 siglinad tall. Li ictivininder nlite SSA ee EH STOR eo, MAL TANASE A iw eS pe rs P ry P . ; : ’ . z % ” = ° = : . % ‘ F . . 3 . * ° ; , > v 4 = ° ° ! ‘ ° j ; ‘| P . . * . ‘3 4 . . - - . ? - ad 7 : ° « « . : . mt ° . § . } . ’ . t= : ° . : ° : ’ ‘ : . , . ‘ S . a al Neem - 3/0 - . . ; 4 ° 4 3 . ; . é y ’ 2 4 tf ° : z= : . c ’ ee nena tee nstao Aaa , te Rn Supreme Court of the United & ode s cum October Term, 1967. No.9 49 * PHILADELPHIA TRANSPORTATION COMPANY, PHIL- ; ADELPHIA MARKET STREET SUBWAY-ELEVATED RAILWAY COMPANY, MOTOR REAL ESTATE COM- PANY, HILL TOP LAND COMPANY, and a i PHILADELPHIA COACH COMPANY, i and . ' &§ JOSEPH N. JANNEY, E. GRIGGS ADAMS, STANLEY E. DANNECKER, W. WRIGHT and ELIZABETH B. g - HUMPHREYS, THOMAS A. MARSTON, H. MELVIN z POWELL, CARL SCHMIEG, and CHARLES F. and. cman F. TROUTS, Petitioners, v. - 4 . SOUTHEASTERN PENN SYLVANIA TRANSPORTATION a AUTHORITY and CITY OF PHILADELPHIA. APPENDIX TO PETITION FOR A WRIT OF CERTIORARI TO THE SUPREME COURT OF THE COMMONWEALTH OF PENNSYLVANIA’ . Of. Counsel: . : ARNOLD R.- GINSBURG, 1030 Suburban Station Building, . Reavis & McGratu, * Philadelphia, Pennsylvania. 19103 _ Decuert, Price & RHOADS. RosBert THRUN, 1 Chase Manhattan Plaza, New York, New York. 10005 GeorcE J. MILLER, 1600 Three Penn Center Plaza, .. Philadelphia, Pennsylvania. 19102 - Attorneys for Philadelphia i Transportation Company, - eth. : Francis T. ANDERSON, - 1103 Alfred Avenue, Yeadon, Pennsylvania. 19050 Attorney for Joseph N. Janney, et al. . PGE MOLE OLIT TT ee ree Te ee . International, 711 So. 50th St., Phila., Pa. 19143—Tel. SA 7-8711 Area Code 215 INDEX TO APPENDIX. Page’ APPENDIX A—Opinions of the Supreme Court of Pennsylvania Affirming the Declaratory: Judgment .................. la APPENDIX B—Opinions ‘of the Supreme Court of Pennsylvania Affirming the Preliminary Injunction ........ AOE ors: 4la- APPENDIX C—Opinions of the Supreme Court of Pennsylvania in Previous : ‘Appeal SaveceNveseeegreee server udeeenes 42a APPENDIX D—Opinion ‘of the Trial pee in Support of the I NN Bog Ps dad iw pe on nee 45a APPENDIX E—Opinion ‘of the Court’of Common Pleas en banc 19la ApPpENDIx F—Opinion of the Trial Judge i in | Support of Pre- Mine SU oi oka ck bc ces boca BBs 195a . Aprenpix G—Metropolitan Transportation Authorities Act of SP soe tcces phinenees see ecepeceeeces ee eA ee 232a APPENDIX H—Pennsylvania Constitution, Art. 17, §9 ....... 298a AppenpIXx I—Act of April'15, 1907, P.L. 80, § 1, 67 P. S: § 1256 299a APPENDIX J—Act of May 4 1933, P.L. 364, Art. VI, 3 PS... § 2852-701 aueaes rere’ Peery eseears hive ruakeues 300a Appenpix-K—Act of May 28, 1937, P.L. 1053, Art. III, § 301, | as Amended, 66 P.S. §-1141 . IP PROCES rae e aoe. J03a ApreNnDIx L—Act of July 11, 1957, P.L. 711, § 703, 13 PS. IE dace dnes.seek exes encuee hese nas aginsck ys 304a _ APPENDIX M—Paragraph Eleventh m 1907 Agreement Between Philadelphia Rapid Transit eer and City of Phila- MUI nth ccescs WiNeEwer gens bas TANsabeacb ane cueues 305a AppenpDIxX N—Order of. hada tinie Public Utility Comnis- | ales, DT, WUE nus coe cares bie kecdceuveascs 306a Appenpix O—Exchange of Letters Between i McShain and sia csi telco tue uenndengas PPP RS . 38a re ae et * | Dave oe apmnpuinnepemmemacnumascaiaaas _ INDEX TO APPENDIX (Continued). ~~ ’ Page’ Apprenpix P—Issues Raised in SOE CE 6 ic cesecerises 3lla . APPENDIX Q—Portion of PTC’s Supreme Court Brief on the | Preliminary Injuinction ......+..00sseseseeveg eeewered 316a '» AppENDIx R—Portion of PTC’s Brief Before the Court of I ee nod onc bob 400 ba eneadicns 322a Appenpix S—Portion of PTC’s Supreme Court Brief-en the Declaratory Judgment ........... pee edvivareseutiases 360a: > ' ‘ at ARI 2. a Ae i al APPENDIX A. Opinions of the Supreme Court of Pennsylvania . Affirming the Declaratory Judgment. Couen, J. oo Finep: July 27, 1967, These appeals involve two separate actions concerning the same matters. The first (appeals number 188 and 194) presents a petition seeking a declaratory judgment, which action was brought June 18, 1965 by Southeastern Pennsy]l- -vania Transportation Authority (SEPTA) and the City of Philadelphia against Philadelphia Transportation Com- -pany (PTC) and its subsidiaries. Plaintiffs’ petition re- quested the court to determine (1) the right of SEPTA as the city’s assignee to purchase the assets of PTC pursuant to an option to purchase contained in paragraph Eleventh + of an agreement dated July 1, 1907, as’ amended; (2) the meaning. of the purchase price formula set forth in the agreement; and: (3) such other matters necessary to effect the transfer of PTC’s property. Thereafter, certain mi- nority shareholders of PTC petitioned to intervene as de- ’ fendants, and their petition was granted by this Court on May 13, 1966. After hearing extensive testimony, the trial court held on July 14, 1966 (approved by the court en bane on Sept. 16, 1966) that (1) the city’s reserved right of pur- chase under the agreement of 1907, as amended, was valid; (2) the city’s assignment of that right to SEPTA was valid ; (3) SEPTA, as the city’s assignee, must pay to PTC . 8 sum composed of the following amounts reflected by PTC’s balance sheet as of the date of payment: (a) an amount equal to PTC’s then outstanding bond, mortgage. and ground rent indebtedness; (b) an amount equal to ten dollars per share for all then outstanding common stock of PTC-and (c) the amount of the then ‘‘Retained Earnings”’ | of PTC. (1a) TNT ee Fe Ey Fe eee ~~ ‘. Appendix A The sonal. action (appeals number 189 pon 192) in- ; volves a complaint i in equity filed July 8, 1966 by. Edmond G. Thomas (a taxpayer) and PTC against the City, the Mayor, and the Commissioner of Public Property of Phila- delphia, and against SEPTA. Plaintiffs’ complaint prayed, inter alia, for- an injunction restraining defendants from: carrying out’ the agreement of June 8, 1965, whereby the city assigned to SEPTA its right to purchasé PTC. The . eity and SEPTA filed preliminary objections, and gn Sep- tember 16, 1966 the complaint was dismissed for the reasons _, Stated ‘in the opinion of the court en bane filed that day in | the declaratory judgment proceeding. The lower court’s opinion, we believe, sets forth a com- - | prehensive well:reasoned analysis of the problems involved and proposes, in every instance, a solution which this Court : deems fair and proper. Accordingly, we recommend to the . interested reader that he closely study that opinion, for we , intend here only to highlight the matters of importance. ‘ In 1902, the Philadelphia Rapid Transit Company (PRT) was formed as a consolidation of the various transit systems previously existing in Philadelphia. On its own or through subsidiaries, PRT leased, owned and operated - high speed lines, and bus and taxi facilities throughout the city. On July 1, 1907, the city and PRT entered into a written agreement which provided i in Section Eleventh: eee City reserves the right to purchase all the property, leaseholds and frarithises of the Compaiiy, subject “to all indebtedness . . ~ upon July 1st, 1957, or upon the first day of any July thereafter by serving “six months’ notice . . . [for] an amount equal to par - for its capital stock then outstanding, to wit: the thirty | million (30,000,000) dollars of capital stock now au- thorized plus any additional capital stock issued with _ the consent of the City hereunder. . . ..”’ --} Appendiz A , | 3a In the decades ‘that followed, PRT suffered financial * misfortune. Finally, in 1938 the Pennsylvania Public Utility Commission approved a reorganization plan filed by PRT. On May. 20, 1939, City Council consented to the reorganiza- tion and enacted an ordinance authorizing the execution of ° an amendment to the 1907 agreement. On June 12, 1939, the amendment was executed. It made five major changes in Section Eleventh: | 1. The 1939 agreement caabted the city to purchase the entire transportation system (since PTC, «unlike * PRT, owned the leaseholds and franchises of the under- _liers and’ traction companies),: not just PRT’s lease- holds and franchises, ¢ as provided. in the 1907. agree- ment. 2. ‘Tt allowed the Pry to aisles PTC’s asscts free and clear and not subject to PTC’s indebtedness. 3. Jt permitted the city to exercise its reserved right of purchase on any July 1, with 6 months’ notice to PTC. ‘> 4. The formula for determining the purchase price was changed to the following: a. The amount of PTC’s outsianding bonds, mort- gage and ground rents; b. The par value of PT€’s neteinnane preferred stock; c. $10.00 per share of PTC’s vetteeidies common stock ; | d. The amount of PTC’s then undistributed cor- . porate surplus. if 5. The city reserved the right of condemnation. 4 % 4a °The 1907 agreement was further amended on Octo-’ ber 26, 1950, July 1, 1987, July 5, 1962 and February 25, - Appendix A ~ ~ 1965. PTC argues that the purchase option was void under the rule against perpetuities. As the lower court said: ‘“‘The best way to state PTO’s siciaed is to _ state its best case. “In Barton v. Thaw, Appellant, 246 Pa. 348 (1914), plaintiffs were children of Joseph Barton, who had conveyed coal under certaincland to Thaw’s prede- cessors in title, by a deed that provided that ‘And in case. the said parties of the second part, their heirs or assigns, should at: any future time ’. whatsoever desire to purchase any of said land in fee:simple, then the said parties of the first part, for themselves, their heirs or assigns, hereby cove- nant and agree to sell and convey the same to the said parties of the second part, their heirs or as- signs, hereby covenant and agree to sell and convey ‘the same to the said parties of the second part, their heirs or assigns, at a price not exceeding one hundred dollars per acre.’ (246 Pa. at 350) Son “Phe sale of the coal was admittedly good, but plaintiffs claim, by a bill to remove a cloud upon title, that ‘the option to purchase the surface of the land © was void because in violation of the rule against per- petuities. ‘It [was] conceded by counsel that the case presents for the first time to the courts of Pennsyl- vania the question whether an option or right te pur- chase land, unlimited in point of time, violates the rule against perpetuities, and therefore is void... .’ (246 Pa. 350-351). The lower court in a careful opin- a eth LL By OA FMA D LEDER ADL ALIS ALLL CRIA TS Pa Appendix A | 5a ‘ion held that the option did vieiiie the baad and the Supreme Court affirmed. : ‘‘PTC’s argument is that the City’s reserved right » of purchase is also an option ‘unlimited in point of ‘ - time,’ and therefore it is also void. It-has been seen, _ above, that indeed the City’s right of purchase is thus unlimited. Is it, however, therefore void?’’ . The historical purpose of the rule against perpetuities == | was to destroy serious hindrances to the beneficial and : prosperous use of property. “PTC. claims that under _Barton v. Thaw, supra, Pennsylvania law recognizes a | blanket condemnation of all remote options. That is not so, for Barton stated at 246 Pa. 364 that its result is de- pendent | on the interests. of the community at large. In this case, the danger of fettering the free use of property. | is outweighed by considerations ’ of public concern and welfare. ) hy Furthermore, the wasihinen option is not an impress. on land. but is solely a contract right not within the rule against perpetuities. In Philadelphia v. Philadelphia Transportation Co., 386 Pa. 205, 125 A.2d 594 (1956), this Court stated that-until-exercised the opti option gave the city no right in PTC’s property as such, but merely a con- ' tractual right.. With regard to exclusively contractual rights, the Restatement of Property, § 401 provides, ‘‘A transaction which is exclusively contractual’ is not subject” to the rule against perpetuities. ’*, This Court took the same view in a v. Pittsburgh, 375. Pa. 268, 100 A.2d 380 (1953). °' oo, even assuming that the purchase ‘nities fell within and did violate the commor law rule against per- . _ petuities the Estates Act of 1947, Act of April 24, 1947, «+ P.L. 100; 20 P.S. § 301.4 makes that rule inapplicable. Sub-sections 4(a) and (b) provide, ‘‘No interest shall be a. " . Appendia A void as a perpetuity except . . . [u]pon the expiration of the period allowed by the.common law rule against per- © petuities as, measured by actual rather than possible events.''.... .”? With regard to this matter, the lower court stated: ‘Thus, if an option void at common law actually vests withiri 21 years, it i is valid-even though it might . not have vested that soon. Or, as Bregy puts the point, at page 5307 of his treatise on the Estates Act: a 6. ge agreements will no longer be void‘ from the beginning as in Barton v. Thaw. Under | the statute.an unlimited option should be allowed . to run until the expiration of the permissible pe- riod, and-stricken down only if it remains unexer-. - cised at that time.’ (footnotes omitted). “Tf the City and PRT had made no further agree-. ments after the Agreement of 1939, the Estates Act of 1947 would not be pertinent. Howeyer, as was seen in ‘discussing the duration of the City’s reserved right of purchase, the City and PRT made the Agree- - ments of 1957, 1962, and 1965. The importance of ‘ this fact appears when one considers Section 21.of the Estates Act, 20 P.S. § 301.21. This provides that the Estates Act ae .*, . . shall take effect on the first day of January, one ‘thousand “nine -hundred forty-eight, © _and-[except in respects not here material] shall apply only to conveyances effective on. or after | that day. As to conveyances effective before that ’ - day, the existing laws shall voyiain in full force and effect.’ ’’ > . Section 1 of the Estates Act defines a conveyance as _ *£, , . an act hy which it is intended to create an interest ¢ . — ‘Appendix A s_— ae in real or personal property ‘whether the act is intended to have inter vivos or testamentary operation.’’ If the 1957 agreement’ is. a conveyance under that definition, the Estates Act of 1947 applies, and the ‘‘wait and see’’. rule was complied with, for the option was in fact exer- 7 cised within the time limitation of the rule against aie petuities dating from July: 1, 1957. . _ Based on the premise that the city’s reserved right 3 of purchase-expired July 1, 1957, and was extended by agreement to December 31, 1964, PTC further argues that | SEPTA’s attempt, to exercise the purchase option was in- . ' . effective because it was not timely and that the option period was not further extended by the 1965 agreement because the latter ‘agreement was never approved by PTC’s shareholders. We agree with the lower court’s conclusion that the premise of those arguments is unsound because ‘under the 1939 agreement the reserved right *. purchase aa remained effective until exercised. | - ee " The intervening minority shareholders argue that the agreement of 1965 was not intended to extend the reserved right of purchase, but by ‘‘fraud, accident or mistake’’ the - 1965 agreement failed to.express this limitation. ‘Again, . we agree that the court’s evaluation of intervenors’ evi- _ dence in this Tespect to the effect: that they were unsuc- — cessful in proving fraud, accident or mistake. Rather, the testimony of their. witnesses tended to prove that the city intended to preserve the option t purchase PTC, and not to allow it to expire’so that.there was no mutual mistake ; nor were the représentatives of PTC misled by the city during negotions of the 1965 agreement. PTC asserts that the assignment to SEPTA was in- valid because it was made without public auction. The lower court carefully analysed this qneehes in*the follow. ing manner. ~ LAER OL EDEL LN LOLOL HA ELF ment.no matter what it says about public auctions. Moreover, public policy does not require assignment .. by public auction. The reason for requiring competitive bidding is to prevent private business from: gaining favors — of government or from corrupting government. Here, the assignee i is another government agency and the reasons in favor of bidding competitively are absent. : The most perplexing problem concerns interprétation of the purchasé price formula. Four factors are involved: ‘(1) an amount equal to the sum of .the face amount, or call price if any, and accrued interest of all - then outstanding bonds of, and all then outstand- ing prior lien bonds, mortgages and ground rents on the property of,. Company and its wholly-owned subsidiaries. ange — Appendix A hs eee ‘“‘2) plus the par - value of all then outstanding pre- ferred stock of Company. . : . ; ‘¢3) and an amount equal to ten (10) dollars per share «3 forall then. outstanding common stock of ~—_: pany. ... 35 ““4) and. the amount of the then undistributed cor- porate surplus, if any, of Company. sil ‘The word ‘‘then’? refers with respect to each factor | to the particular July 1st-named in the notice of intent to _ exercise’ the options SEPTA named July 1, 1966 as the | settlement date, and the parties extended this. date to — January 1, 1967. The first three factors present no o problem of intuupns- tation or computation. The amount of the outstanding « bonds, mortgages and ground rents can readily be ascer- tained; there is no outstanding preferred stock because PTC converted its preferred- stock to common stotk in ferred shareholders whose dividend rights upon liquidation + were, pursuant to the articles of incorporation, cumulative if, in fact, dividends were ‘earned. Thus, it was ‘possible for PTC to have at the end of a given year earned, accumu- lated, but unpaid. dividends on preferred shares of stock in _ an amount that would exceed the amount of ‘‘earned sur- _ plus”? (or ‘‘retained earnings’’). On account of this situa- tion, the draftsmen of the 1939 agreement did not use as a price factor a sum equal to PTC’s ‘‘then retained earn- . ings,’’ because in such a situation had the option been exer- cised the common shareholders would have: received iess than ten dollars-per share. The draftsmen clearly desired to insure that the common stockholders received ten dol- lars a share if the city exercised its option and not a lesser sum because of an obligation by PTC i in liquidating to pay preferred shareholders earned, accumulated, but unpaid dividends. Accordingly; so long as there. were preferred stockhdtders, ‘‘uhdistributed corporate surplus’’ meant the greater of PTC’s retained earnings or its earned, accumu- lated, but unpaid dividends as of the settlement date. Since 1955, when PTC converted its preferred stock to common _ stock, there have been no Karned, accumulated, but unpaid dividends. Accordingly, by paying an amount equal to PTC’s retained earnings, ‘the city will achieve the purpose of the formula—that the common ‘sintohowers get back ¢ "hei * Appendia: 4 gat Foe 18a what — risked: so much of the a earnings as were not paid to them i in dividends. And this is what ‘‘un- _ distributed corporate surplus’’ means. This means PTC’s retained’ earnings, eecaiie in the language of the court below: ‘‘PTC’s present ‘iia int carries two ac- “counts: ‘Capital Surplus’ and ‘Retained Earnings’ As has just been seen, ‘undistributed corporate sur- plus’ means a fund available for the payment of cash . dividends.. Therefore, it includes only PTC’s ‘Retained Earnings’ account. It does not*include the ‘Capital Surplus’ account because under. Pennsylvania law cash | dividends cannot be paid from capital surplus. Branch, Trustee, v. Kaiser, et al., Appellant,291 Pa. 543 (1938) ;. Berks Broadcasting Co. v. Gaumer et al., we Pa. 620 (1947).’’ (Footnote omitted.) PTC’s retired employees receive pension benefits on a pay-as-you-go basis. PTC has no funded pension plan; pension benefits are paid out of the fare box from current revenues. Actuarial studies reveal that the amounts re- quired to fund past service costs would be approximately $11, 939,392 for non-supervisory retirees and $4,973,304 for supervisory and executive retirees. The parties have stipu- lated that this $17,000,000 obligation is-a present vested liability. The question presented is whether PTC’s ‘‘un- distributed corporate surplus.’ is extinguished by its obli- gation to its retired employees. SEPTA’s accounting ex- pert testified that minimum standards of accounting prin- ciples require that a vested pension liability be carried on the liability side of the balance sheet. PTC did not, in fact, do so because the pension obligation was never funded. Rather, the actuarily determined amount of the obligation was revealed in a footnote to their annual financial reports. f > l4a Appendix A : SEPTA argues that if this liability were placed on the books, it would eliminate all surplus, because there is no offsetting asset onthe books. Consequently, there would be no retained earnings or ‘‘undistributed corporate surplus.’’ Accordingly, contends SEPTA, the purchase price need not include any amount representing PTC’ s ‘‘undistributed corporate surplus. ’’ 7 PTC, on the other hand, presented expert alee justifying its accounting techniques with respect to its pen- sion liability because as.a public utility its rates were fixed - by taking into account pay-as-you-go pension payments in the rates for the year of payment. Thus, argues PTC, it does not have a fund available for cash dividends (re- tained earnings), which is part of the purchase price for- mula. As the lower court indicated, the accounting testimony is neither necessary nor appropriate to a resolution of this issue. Rather an examination of the agreements is sufficient to dispose of the matter. As the trial court stated:. ‘Section Eleventh of the Agreement of 1907. pro- - _vided.that for a price equal to the par value of PRT’s stock the City or its ,assignee could acquire ‘all the property, leaseholds and franchises of the Company, subject to all indebfedness now existing or hereafter _ lawfully created hereunder upon July 1st, 1957. re, This was changed by the Agreement of 1939, so that the | City or its assignee, upon payment of the formula price _ provided in that Agreement, would acquire ‘all the property, leaseholds, and franchises of the Company and its wholly owned subsidiaries upon any first day of July thereafter. . > .’ The clause ‘subject to all in- - debtedness . . [ete.]’ was eliminated. It follows, _ therefore, that if SEPTA pays the formula price, it °* » acquires PTC’s assets not subject to PTC’s obligations, Ser Ne ss - a Appendix A ie., that SEPTA ‘after the acquisition’ will not be sub- ject to PTC’s pension obligation, which is only another way ¢ of saying that SEPTA may not refuse to pay the full formula price by charging against it PTC’s pension obligation as though SEPT As would be —— to ogy (Footnotes omitted.) On this point, PTC carries the argument further and | contends that SEPTA must not only pay for PTC’ 'S Te- . tained earnings but also must assume PTC’s pension obli- gation. We have already decided that SEPTA must, under the formula, pay for PTC’s retained earnings. It is, how- ever, not required under the agreement of 1939 to assume PTC’s pension obligations. The lower court further concluded that SEPTA may not.reduce the purchase price’ by PTC’s cost of financing © and organization expenses because the 1939 agreement in- tended the option price to be a single price for all of PTC’s leases, franchises and assets, and SEPTA must pay the full purchase price. We agree. , In addition, the trial court decided that in heave payment for ‘‘accrued interest of . . . then outstanding . mortgages,’*» SEPTA must pay PTC a sufficient amount.to compensate PTC for any prepayment penalties PTC is called upon to pay if PTC retires its mortgage debt before the maturity date. Again, we agree. - Finally, the court’ below held that the dni when SEPTA must make payment to PTC be extended for a ‘period of not less than six months after final disposition of this case. This is certainly a reasonable extension in view of the fact that SEPTA will not know with certainty the amount it must pay until this case is finally concluded. It must then be allowed sufficient time to raise the money necessary to effect the purchase. l6a | Appendia A ings.’? The meaning of .‘‘corporate surplus’”’ is at.times . indefinite and uncertain and is dependent on the particular agreement or particular Act (as the case may be). How- ever, I agree with the. Opinion of the Majority to the extent that the prima facie intent and the general rule means ‘‘the viele surplus shown on the balance sheet of the Com- pany.’ In Branch v. Mitess. 291 Pa. 543, 549, 140 Atl. 498, 500 (1928), this Court followed and adopted the following general rule which was thus stated i in Edwards v. Douglas, 269 U.S. 204, 214: 66 . . The word ‘surplus’ is a term commonly em- ployed in Meoniib finance and accounting to designate an account on corporate books. . . . The surplus account: rep- - resents the net assets of a corporation in excess of all liabilities including its capital stock. This surplus may be ‘paid-in-surplus,’ as where the stock is issued at a price above par; it may be ‘earned surplus’ as where it was derived wholly from undistributed profits; or tt may, among other things, represent the increase in valuation of land or other assets made ei a revaluation of the com- pany’s ficed property. ... .”” | Moreover, it is a matter of common kuowledes that a corporation changes from time to time the carried or book value of its corporate or capital surplus, and the methods or factors for determining the same, and further that the Federal Government or the State Government has at times employed a different formula for the ascertainment POL ALOT Fe ‘ ee . 32a : Appendix A thereof. Consequently, I believe that ‘undistributed corpo- rate surplus’’ means prima facie ‘‘book value,’’ but that the. various assets of the Company may be revalued and _ their actual value established by relevant and convincing evidence.: _— I believe and would hold; that the ‘candistribated corpo- rate surplus’%# means (a) PTC's retained. earnings, and (b) its capital surplus as shown on the-books of the Com- - pany at the date of settlement, or its actual capital surpine on that date as proved: fash a revaluation thereof. Appendix: A DISSENTING OPINION. Roserts, J. Fiuep: July 27, 1967 The majority opinion, as it frankly states, is merely a highlighting of the opinion of the court below; indeed the majority seems to adopt that opinion in toto. Of neces- sity, therefore, my disagreement must be with the source of this Court’s opinion: ‘ a 1. Perhaps the most ‘eqidtabile aspect of the Court’s duniatiien 3 is its saddling PTC with the obligation of pay- _ ing future pension rights due its retired employees, thereby ~ depriving PTC’s stockholders of approximately $17,000,000. _ As a result the amount they will actually receive for their stock will be considerably less than the $10.00 per share ~ envisioned by the 1939 formula. Indeed the amount re: . quired to meet the pension fund obligation is practically. ° equal to the amount received in exchange for PTC’s stock. Thus the effect of the disposition on this aspect is to wipe out entirely Item 3 of the option formula. Yet in choosing to exercise its option, SEPTA i is obli- gated to take over PTC as an operating transportation system in its entirety. Logically this ought to include PTC’s pension obligation. ‘‘Pensions are wages and con- “ stitute a present benefit, and therefore upon the establish- ment of a pension plan, whether based on past or future | - gervices, or both, the entire charge becomes an operating expense not an income deduction or a charge to surplus.”’ Re: Uniform System of Accounts for Electric Corpora- tions, 82 P.U.R.-(NS) 161 (N.Y. 1950). In Pittsburgh v, Pennsylvania Public Utility Comm’n, 370 Pa. 305, 88 A.2d 59 (1952), this Court held that the burden of pension pay- ~~ \e 34a = Appendix A ments, including those attributable to past services, should be assumed by present and future ratepayers, rather than the stockholders. The following paragraphs from the Court’s opinion seem to me to: be equally applicable to the ~ present case: ‘‘The Superior Court and the City of Pittsburgh rely upon the argument that a decision allowing the ‘freezing payments places a burden on present and ' future ratepayers which should have been borne by those in the past. It is obvious, as the City argues and the Superior Court stated, that as a result of the -Commission’s decision present. and future ratepayers _ must pay that portion of the cost of pensions which is more properly attributable to past services. But the criterion for determining whether present and future ratepayers or the investors nm Bell should bear this portion of the cost is not whether past ratepayers should have paid it. If it were, it was illogical for — the Superior Court to permit the Company to allow that portion of the pension costs attributable to serv- ices rendered between 1913 and 1927 since such costs should have been placed upon ratepayers between those years. Furthermore, even the ratepayers in 1913, by that test, should not have borne the amount which was paid out in pensions: on a pay-as-you-go basis and which was attributable to services rendered before 1913. ‘*Reduced. to its simplest terms, the situation is this: Pensions are now recognized as a proper operat- ing expense. It is fundamental that in order to afford an adequate retirement program any pension plan must take into consideration past services of employes: Osborne et al. v. United Gas Improvement Co. et al., 354 Pa. 57, 63, GE, 46-A. 2d 208. Someone must pay Appendia A oe 35a , for the’ pension . ‘costs properly attributable to vast services. At'the present time such costs can be placed 7 upon present and future ratepayers or the investors in __ . the Company. In the present situation the test for > jet a determining where the burden should be placed as be-* | tween these, two classes of individuals is whether man- agement abused its discretion in 1927 by not placing’ the full cost on the ratepayers from that time on. If,’ they did, the investors for whom they. acted should | _ bear the cost. If they did not, there is no valid” legal objection to placirig the burden on.present_ and future ratepayers. Since we have already demonstrated it . cannot properly be held that management abused its diserétion in 1927, the costs of pensions including the freezing payment were correctly included by the Com- “~~ mission as an operating expense. ‘‘The view which we take of this phase of the case is supported by ample authority. On the other hand, the contention of the City of Pittsburgh that these pen- sion costs should be borne by the Bell stockholders: t is not _— by a decision of any court of last resort... .°% ° : | 370 Pa. at 320- 21, 88 A.2d ia 66-67. (Emphasis supplied | and footnote omitted.) ; 7 : - PTC has always followed the normak procedure of | treating the pension obligations as part ‘of its current operating expense. Accordingly these obligations . have been reflected in its current rate structure. For over twenty-five years this has been done with express knowl- edge and approval of the City of Philadelphia, SEPTA’s assignor, who during this entire period was represented on PTC’s Board of Management. Moreover, PTO’s handling ~ of its pension obligation had’ the approval of the Pennsyl- vania Public Utilities Commission. It seems to me, there- 36a - | Appendia A fore, to be totally irrelevaggt to the issue before us for SEPTA to suggest that if it had been in control of PTC’s management, it would have made different arrangements in order to meet its pension obligation. Had SEPTA chosen to acquire PTC by means of condemnation, the price ~ SEPTA would, have paid would have included the value of PTC’s past pension obligations.. Metropolitan Transpor- tation Act, Act of August 14, 1963, P.L: 894, §8, 66° P.S. § 2008(f) (24) (1) (iii). In exercising the option SEPTA is purchasing PTC ‘‘lock, stock, and. barrel,’’ and ‘is obligated _ to purchase it as it.is—not as it might have been. __ In addition, SEPTA’s failure to assume. PTC’s pen- sion obligation is in conflict with the legislative intention set forth in the statute creating SEPTA, Metropolitan Transportation Authorities Act, Act of August 14, 1963, P.L. 894, 66 P.S. § 2001 et seq. Section 24, 66 P. S. § 2024 provides that SEPTA “shall recognize and be bound by — existing labor union agreements where they exist between labor unions and transportation companies that are ac- _. quired, purchased, condemned or leased.’’ It is evident - that the legislature was thus concerned with the welfare - of the transportation companies’ employees.: The existing anion agreemént specifically provides that retired em- ployees shall ‘‘continue to receive benefits in accordance ‘with the provisions of the contracts ‘which were in effect . .at the times of their respective retirements on- pension.’’ Yet, as the amicus brief points out, SEPTA can hardly be bound by this provision of the union contract, which it assumes on the settlement date, and: at the same time in- sist that retired —— look not to. it, but to PTC, for their benefits. 7 Thus I believe the Court” S treatment of the $17, 000, 000. pension obligation is doubly burdensonie. First, it retro- \ actively compels PTC to -utilize past ‘earnings in order to Appendix A ) . Bla pay for future obligations. This is not only contrary to the _ manner which PTC, with the express approval of the City - and the P.U.C., has in the past treated said obligations, but also contrary to thé*intent of the 1939 agreement itself. Secondly, since these pension obligations have always been ‘Inet on a pay-as-you-go basis, it contravenes the legislative intention by. unnecessarily depriving retired employees of the security of the fare-box. 2. Under the 1939 agreement, the hist price of _PTC’s entire operations is to be determined in accordance with a four factor formula contained therein. The only dispute concerning this formula is the meaning of the term . ‘‘undistributed corporate surplus.’’ I am unable to agree, with either SEPTA’s definition, adopted by the Court, that - undistributed corporate surplus means only the balance. - . sheet figure described as retained earnings, or PTC’s defi- nition that the term means the excess of the fair valuation of all th® assets over the liabilities plus capital stock, thus 7 requiring all the asséts to be valued prior ‘to their inclusion in the formula. — | ° /PTC derives its position from the classic definition of corporate surplus in.Edwards v. Douglas, 269 U.S. 204, 46 * §. Ct. 85 (1925), and approved by this Court in Branch v. Kaiser, 291 Pa. 543, 549, 140 Atl. 498, 500 (1928) : ‘*The -word ‘surplus’ is a term commonly employed in corporate finance and accounting to designate: an ac- count on corporate books. But this is not true of the words ‘undivided profits.’ The surplus account repre- ‘sents the net assets of a corporation in excess of all ’ liabilities including its capitdl stock. This surplus may _be ‘paid-in-surplus,’ as where the stock is issued at a price above par; it'may be ‘earned surplus’ as where it was derived wholly from, undistributed profits; or it 38a Appendiz A may, among other things, represent the increase in. valuation of land or other assets made upon a revalua- tion of the company’s peoperty. ” 269 US. at 214, 46 S. Ct. at 88. While I have no quarrel with this definition, I believe that it is inapplicable in the present case because the entire purpose of the 1939 agreement was to establish a fixed for- mula which would permit the. buyer to know the price he would have to pay at the time he exercised his option. Philadelphia. v. Philadelphia Transp. Co., 386 Pa. 231, 239,° 126 A.2d 132, 135-36 (1956). A valuation proceeding after the option is exercised, as PTC urges, would defeat this purpose; hence I agree with the court below that ‘‘undis- _ tributed corporate surplus’’ is not a valuation but a balance sheet figure. On the other hand, the conclusion that undistributed corporate surplus is limited to the retained earnings of PTC is a non sequitur. In my view, which incidentally is sup- ported by the opinion of the court below, the purpose of the formula price was not only to permit the optionee ‘to purchase the company at a known price but also to insure PTO’s stockholders that in the event the option was exer- cised their equity in the corporation as the same appeared on the company’s books would at least be returned to them. On its books, PTC has divided its stockholders’ equity into three catagories: 1) capital stock, for which the formula compensates the stockholders by requiring the purchaser to pay $10.00 per share for each outstanding share of stock ; 2) retained earnings, for-which, under the opinion of the court below, the stockholders aré compensated for by its inclusion in the term undistributed.corporate surplus;’’ 3) capital surplus, for which under the Court’s determination the stockholders receive no compensation. ” i aed 2 bi lanl at en clleth tM Lh oes Vite! Cea ine Pee epee wre A ppendix A . | 39a I can see no justification for giving SEPTA the capital surplus as a windfall. This account is not a recently created entry but has had the unchallenged acceptance and. approval of both the City and the P.U.C. for more than a quarter of a century. Every advantage of a known cer- tainty which is true about the retained earnings balance sheet figure is equally true about the capital surplus ac- count. As the court below observed: ‘‘There was no fraud or deceit—either alleged or proved—in the way PTC kept its books. The essence of the formula price, as had been seen, is that it is‘a book price. SEPTA is therefore bound to accept PTC’s books in computing the formula price.’’ Accordingly, I would hold that the term ‘‘undistributed _ corporate surplus’’ as used in the 1939 formula means PTC’s retained earnings and capital surplus as reflected on its balance sheet at date of settlement. | 3. Additionally, I am disturbed by the uncertainty gen- erated by the Court’s treatment of PTC’s current cash.and liabilities.- All agree that under the agreemept SEPTA will purchase PTC’s cash as well as its other assets, and that - PTC is liable for the excess of its current liabilities over and above its current cash. However, there is considerable uncertainty as to what the Court’s disposition is with re- _ gard to PTC’s current cash and liabilities. As I read the opinion of the court below, on the one hand, it permits PTC to pay its current liabilities before settlement date, thereby reducing the amount of cash transferable to SEPTA. Pre- sumably, PTC could liquidate all its cash by satisfying as much of its current liabilities as the cash would cover. It is also possible for SEPTA and PTC to make an arrange- ment so that SEPTA will assume the current liabilities to the extent of PTC’s current cash account thus not neces- ' sitating PTC to dispose of its cash in a desperate effort to meet a settlement deadline. On the other hand, the court ~~ 40a Appendix A states that if for any reason-no such agreement is made PTC remains responsible for any liabilities existing on settlement date even though in its cash account there is an ~ amount which could theoretically be utilized to.reduce cur- rent liabilities. - In my view this niielanliale which is not necessary. and could produce a most inequitable result, should, especially in view of the intensity of this litigation, be ikrifed. Vader ‘"the Court’s decree SEPTA has six months in which to - raise the money to purchase PTC. Under these circum- stances PTC. might not know until settlement date whether - or not SEPTA will actually secure the necessary funds to assume control of its operations, and it may be impossible for PTC to settle its current liabilities on such short notice. - On the other hand, if SEPTA fails to purchase the com- -. pany, PTC may find itself with an inadequate cash posi- tion -with which to properly operate the transportation system. I see no. problem in making it crystal clear that the current cash is to be applied to the payment of current: ‘liabilities. On the settlement date SEPTA should only receive that portion of current cash which is in excess of PTC’s current liabilities, unless there is an agreement that SEPTA will assume an amount of current liabilities equal to the amount of current cash it obtains. Mr. Justice O’Brien joins in this opinion. mA Appendix B APPENDIX B. Opinions of the Supreme Court of Pennsylvania . Affirming the Preliminary Injunction. | Fitep: July 27, 1967 Per Curiam. . | ~ Decree affirmed. Mr. Justice Roberts files a dissenting opinion in which Mr. Chief Justice Bell and Mr. Justice O’Brien joins. Dissenting Opinion Fitep: July 27, 1967 - Roserts, J. | | In view of the decision in the declaratory judgment “action between the same parties, decided today, the issues raised by this appeal have become moot. I would there- fore dismiss this appeal without expressing any views as to the propriety of the restraining order. - Mr.-Chief Justice Bell and Mr. Justice O’Brien join in this dissent. | 42a Appendix .C ’ APPENDIX 0. 4 Opinions of the Supreme Court of Pennsylvania in Previous Appeal. Per Curiam. oa, November 29, 1965. This is a declaratory judgment proceeding. seeking a ~ determination: (1) of the validity and enforceability of a provision in a.contract consummated in 1907, as amended, giving the City of Philadelphia the right to purchase ‘‘all the property and franchises’’ of the. Philadelphia Trans- portation Company; and, (2) the formula to be applied in determining the purchase price, as provided for in the | contract. This appeal, under the Act of March 5, 1925, P.L. 23, §1, 12 P.S. § 672, questions the jurisdiction of the court to resolve the issues involved in a declaratory cases proceeding. Our examination of the record is convincing that the lower court properly overruled the jurisdictional objec- - tion, and that every issue, presently pertinent, is correctly and adequately answered in the excellent opinion of the court below. ° , Order affirmed. Dissenting Opinion by Mr. Chief Justice Bell It is apparent from the written record and certainly from the oral argument that this case is bristling (1) with disputes and conflicts of many material and complex facts,* and (2) with mixed questions of fact and law, and (3) with _ a number of highly controversial legal issues which are not * This involved a total of over $15,000,000. Appendix C «48a ‘‘decidable’’ in this proceeding. Under such circamstances, or, indeed, if a dispute as to material facts exists ‘‘or such controversy may arise,’’ or if another appropriate remedy is available, we have always hitherto held that a declaratory judgment proceeding will not lie. Sheldrake Estate, 416 Pa. 551, 553, 207 A.2d 802; Mohney Estate, 416 Pa. 107, 109, 204 A.2d 916; Carlsson v. Pa. General Ins. Co., 417 Pa. 356, 207 A.2d.759; State Farm M. A. Ins. Co. v. Semple, 407 Pa. 572, 180 A.2d 925; Allstate Ins..Co. v. Seward, 407 ° Pa. 628, 631, 182 A.2d 715. See also: McWilliams v. Mc- Cabe, 406 Pa. 644, 179 A.2d 222; Keystone Ins. Co. v. Ware- housing and Equipment. Corp., 402 Pa. 318, 320-322, 165. A.2d 608; Stofflet & Tillotson v. Chester Housing Author- ity, 346 Pa. 574, 578, 31 A.2d 274.* | In Sheldrake Estate, 416 Pa., supra, the Cnet, quoting from Mohney Estate, 416 Pa., supra, said (pages 553-554) >" _ ‘© 6(1) While the grant of a petition for a declaratory judg- ment is a matter of sound judicial discretion: | ‘¢ ¢ - . ~*7, The Commission finds that the fairness 6f the Plan had not been demonstrated for the following” reasons: ‘= 66 eeee 66 ‘‘c. There is reason to believe that. selfish inter- ests are being served to the detriment of PRT em- ployees, stockholders and car-riding-public-stockhold- ‘ers who, have, in many instances, contributed not only hardearned savings, but years of willing and painstak- ing labor .... to these people ..-. . the Plan proposes to give practically nothing of value... . If the under- liers are to secure not only first dates upon, but also essentially all income from, the entire transit system, we believe that the employees and the vitally interested public should know it. Such innocent investors are ap- parently uninformed of the claims of the underliers to _ all property purchased with funds derived from the sale of PRT securities. ‘If such claims are pressed and sustained, PRT stockholders would have nothing of value. We do not believe that PRT stock was pur- chased with the knowledge that the property acquired ‘with such funds would become the property of the un- derliers. An attempt is being made to continue to pull the wool over the eyes of the public and PRT em- - ployees'....”’ | As a result of this opinion and order, the Second Re- © vised Plan of Reorganization was further amended, on November 15, 1938. As thus further amended it is in the record as Exhibit P-8.) On November 22, 1938, the Public A Appendix D 75a _ Utility Commission, Commissioner Buchanan dissenting, approved the plan, with the following statement: ‘‘The plan presently before us does not ye a ‘meet all the objections raised by us in our previous ordérs. Nevertheless, it represents substantial con- cessions: The amount ef Consolidated Mortgage Bonds of the proposed company, which are to be issued to _ holders of securities in underlying companies, has been | reduced from $40,710,218.67 to $32,569,997.78. In place of this difference of $8,200,000.00, it is proposed to in- crease the total par value of new Participating Pre- . ferred’ Stock given this group from $10,305,000 to $12,301,340.00. At the same time the par value of the . Participating -Preferred Stock has been reduced from - $30.00 to $20.00 per share (as compared with $15.00 par _ value suggested in our order), The-stated value of the Common Stock has been reduced from $20.00 to $10.00 » _ per share, which is the figure suggested in our order. Certain fixed obligations such as Divisional Lien Bonds, Real Estate Mortgages, and Ground Rents will . remain the same, likewise in accordance with our order. The total amount of securities which it is proposed to issue is thus $85,015,193.42 as compared with. $99,- . 986,334.31. As a result of this change in capitalization, the fixed interest charges of the proposed company will be:reduced approximately $500,000. ‘‘Several objections to the plan before us, still exist. We realize, however, that the debtor must face * the practical problem of securing approval of the plan’ by its security holders. At the same time, the reduc- tion in fixed charges is sufficiently close to the standard ‘suggested by us as to make it unlikely that the new com- © pany will in the near future become financially em- barrassed and be forced once more to undergo reorgan- 76a © | Appendix D ization. Likewise, the sizeable reduction in funded debt adds to the value of the equity which the holders of . cémmon stock of the proposed company will have. All of this new common stock will be distributed to present holders of Philadelphia: Rapid Transit Company pre- ferred and common stock. As we pointed out in our revious orders, preferred .and common stockholders “Of Philadelpiha Rapid Transit Conipany were responsi- ble to a large extent for financing t the improvements in _ the company ’s system, and we have been anxious that this class of applicant’s security holders. participate ; adequately i in the ownership of any new company. ‘‘The present application is before us merely by the approval required under Section 77b of the Federal Bankruptcy Act. This report and order should not be - construed as requiring the Commission in any proceed- ‘ing brought before it under the Public Utility Law of _ the Commonwealth of Pennsylvania for any purpose to fix a valuation which shall be equal to the total of the securities proposed under the‘applicant’s plan, or to approve or prescribe a rate which shall be sufficient "to yield a return on said securities: THEREFORE, ... the proposed plan of reorganization filed by applicant, » Philadelphia Rapid Transit Company,.and dated De- | ‘gember 1, 1937, as amended June 1, 1938, as amended ’ November 15, 1938, be and same is hereby approved.’’ " (19 Decisions of Pa. P.U.C. 342-3.); 6. The events leading up to the Agreement. of 1939. With the Public Utility Commission’s approval of the reorganization of PRT obtained, it remained for the trus- tees in reorganization to obtain the consent of PRT’s share- ‘holders and underliers and of the City. The present litiga- tien cannot be understood, and hence cannot be disposed of _ Appendix D | _ %Ta | intelligently, without understanding the pulling and hauling - that finally did result in getting the consent of these parties. So far as PRT’s shareholders and the underliers are con- cerned, the terms of consent are embodied in the articles of incorporation of the company that emerged from the reor- ganization, i.e., the Philadelphia Transportation Company.* So far as the ‘City i is concerned, the terms of its consent are embodied i in-the Agreement of 1939.** As has been men- tioned, it is this agreement that contains the City’s right to purchase PTC’s assets, and that is accordingly the storm ‘center of the present litigation. © From the point of view of the trustees in reorganiza- tion, the great and essential gain to PTC as the new, re- organized, company would be that it would be freed from what. had proved to be the crushing burden on PRT of guaranteed rentals. This objective would be achieved be. cause the underliers and the traction companies would be ‘consolidated and merged with the new company, PTC. Thus, the underliers’ perpetual franchises, and the pyramid of leases, with their guaranteed rentals, would become PTC’s property.*** So unburdened, seated PTC would become a solvent operation. ; The underliers and traction companies and their stock- , holders, however, could not be expected to agree to thus relieving PTC unless their interests were protected, and their efforts to secure the maximum protection, in the form - * PTC’s articles of incorporation appear as part of Exhibit P-8. ** Exhibit P-6; the exact date of the agreement is June 12,1939. *** See in particular Article VIII of PTC’s Articles: “Each cor- poration, party hereto [1.e., including the underliers and the traction companies], shall surrender for cancellation . . . and shall release or discharge all leases, agreements, claims, . . . to the end that all property, rights and franchises of each corporation hereto . . . to be included in the merger effected by this agreement shall be and become © the property, right and franchises of the corporation [i.e., PTC]”. (Page 30 of Exhibit P-8.) EPR OO Oe ge eee BP eee OL 78a ia com Appendix D of ‘ensuring that the lion’s share of the capitalization of PTC would be issued to them, are reflected in the successive plans of reorganization referred to in the passages from the decision of the Public Vanier Commission that have been quoted above. In ‘the meantime, PRT’s stockholders, whose invest- . ' ment in PRT had been wiped out," reacted unfavorably to the underliers’ demands. As has been seen, the. Public | Utility Commission. was sympatheti¢ to the -stockholders, especially since the money that the stockholders had paid for their stock-had been used to improve property that PRT. only leased, and the Commission reduced the proposed capi- talization of PTC from $174,000, 000 to $85,000,000, It was the stockholders’ desire to obtain a fair share of this capi- . talization, for it would be backed by property that PTC did | not merely lease but, because of the consolidation with the -underliers and traction companies, owned. | The upshot of these conflicting demands has already been’ indicated in the passage quoted above from the Public Utility Commission’s approval of the reorganization. But before noting the City’s interest in the reorganization, it may be well to state it as it was stated in the Second Re- vised: Plan of Reorganization, as amended November 15, 1938.** The underliers’ and traction companies’ stockhold- -ers received, as the price of their consent to the reorgani- zation, consolidated mortgage bonds of some $32,000,000 face value, participating preferred stock of some $12,000,000 par value, and some $2,000,000 in cash, PRT’ s preferred stockholders waived accumulated dividends . received | for each share of PRT preferred stock one’half share of PTC participating preferred, one half share of PTC com- mon, and $1.00 cash. PRT’s common stockholders received for each share of PRT common one share of PTC common. * See Exhibit D-37A. ** Exhibit P-8, page 1 (“The Nature of the Plan”). Appendia D- | ' . + (9a It is now in order to consider what was s the City’ s price for consenting to the reorganization.” Having obtained the: Public Utility. Commission’s ap- proval of the Second Revised Plan of Reorganization, as amended Heremner 15, 1938, counsel for the trustees in re- organization Wand for PRT appeared at public hearings be- fore the Committee on Transportation and Publie Utilities of the Philadelphia City Council. The proceedings at the second, third, and fourth hearings, which were on April 26, May 1, and May 5, 1939, were transcribed and are on file __ witli the Clerk of City Council. The form the hearings took was this: It was a eee that the City should consent to the reorganization of PRT by agreeing to an amendment of the Agreement of 1907. This amendment would be an agreement between the City . and PTC as the reorganized company. Accordingly, there was presented to the Committee on Transportation a draft of the proposed amendment of the Agreement of 1907, and — public hearings regarding the draft were held. ie As a result of the hearings, City Council did accept, with certain changes, the proposed amendment to the Agree- © - ment of 1907. Its acceptance was by Ordinance of May 20, 1939,* which authorized the execution of the proposed amendment, which when executed became the Agreement of June 12, 1939.** This Agreement of 1939 was then made — part of the Articles of Incorporation of PTC.*** * Exhibit P-7. ** Exhibit P-6. *** See Articles III and V, which appear as part of the Agree- ment of Consolidation and Merger, which in turn appears as part of the Second Revised Plan, Exhibit P-8. (“.-. . ‘the contract... between the City of Philadelphia and Philadelphia Rapid Transit Com- . pany dated July 1, 1907 and amended June 12,1939 . . . will con- tinue in effect between the City of Philadelphia and the om ? [i. e., PTC) . aad F NES I Ee ee ae ee Appendix D 7. The Agreement of 1939, and how it compares with the Agreement of 1907. The critical provision of the Aaaveuiiniih of 1939, so far _as this litigation is concerned, was the. provision that amended Section Eleventh of the Agreement. of 1907.**** This provision appears in Section 1(d) of the Agreement of 1939, and the extent of the amendment may best be seen by superimposing Section 1(d) of the Agreement of 1939 on Section Eleventh of the Agreement of 1907, as follows: ‘‘Bleventh. The City reserves the right to pur- ‘ chase all the property, leaseholds and franchises of the “ Company and its wholly-owned _subsidiaries* [subject to all indebtedness now existing or hereafter lawfully - » .ereated]** upon [July 1st, 1957, or upon the first day of July thereafter] any first day of July hereafter,*by | _ serving six months’ noti¢e onthe Company of its in- tention so to do [,] and upon paying to the Company upon the date named in said notice, an amount equal - to [par for its capital stock then outstanding, to wit: thirty million (30,000,000) dollars of capital now au- **** Other amendments: Section Fourth of the Agreement of 1907 had provided for three City directors (the Mayor and two citizens) ; by the Agreement of 1939 this was increased to five (the Mayor and four citizens). Section Sixth was amended to change the City’s right to participate in dividends. Section Tenth: was amended to eliminate the Company’s right to a reduction of annual payments for pavement in case streets were abandoned. Also, Section 2 of the Agreement of 1939\extended the leaseby the City to PTC of the Broad Street subway and other subway lines, and modified the rentals under the lease; Sections 3, 6, and 7 recognized the reorganization proceedings ; by 'Séction 5 PTC agreed to a rehabilitation and modern- ization program ; and Section 4 orofided that as amended the Agree- ment of 1907 and the Broad Street subway lease “shall remain in full forceand effect.” * The underlined portions were added to Section Eleventh of the _Agreement of 1907 by Section 1(d) of the Agreement of 1939. ** The bracketed portions were eliminated from.Section Eleventh of the Agreement of 1907 by Section 1(d) of the Agreement of 1939, Appendi D 8la thorized plus any additional capital stock issued with the consent of the City hereunder] the sum of the face amount, or call price if any, and accrued interest .of all then outstanding bonds:of, and all then outstanding prior lien bonds, mortgages and ground rents on the property of, Company .and its ‘wholly-owned subsidi- aries, plus the par value of all then outstanding pre- ferred stock of Company, and an ‘amount equal to ten (10) dollars per share for all then outstanding com- mon stock of Company, and the amount of the then un- » distributed “corporate. surplus, if any, of Company. [The fund in the sinking-fund, if not theretofore paid over to the City, shall be available to the City for the , purpose of inaking or assisting in making the said pay- . -ment for the property of the Company. ] The City’s aforesaid right fo purchase shall cover the entire trans- portation system and property, leasehol s and fran- chises of the Company and its wholly-owned subsidi- aries, as a whole, at the time the City exercises said right to purchase and said option to purchase is in lieu of all existing options which the City now has in any | form, whether applicable to the whole system or parts thereof or interest therein: Provided, however, That the City reserves to itself whatever right to condemn it now has or shall hereafter have under any present or - future legislation giving the City the right to condemn., -This contract shall continue in force until such right is exercised, but whenevér ‘the right is exercised the _ City shall succeed to and become the owner, [subject as aforesaid, ] all of the franchises, leaseholds (includ- ing all leaseholds from the City to the Company), rights, property and privileges theretofore vested in the Company and its wholly-owned subsidiaries, and the City may either operate the same or lease the right e) Pr 82a -— *Appendia D- to operate the same for such terms and upon such con- ditions as it may deem fit. The right[s]-of the City to purchase under this paragraph shall be assignable and may be put up at’public-auction to the highest bid- der therefor, The Company reserved its franchise to be-a corporation with the power to operate passenger [railway] transportation systems and may become a bidder for such right[s]”’ . Thus, Section 1(d) of the Agreement of 1939 made five ' Major changes in Section Eleventh of the Agreement of 1907 : 1. The first, and the most important, change is not evi- dent from the face of the amendment but only from its his- _ tory, which has been stated above ift some detail. When the Agreement of 1907 reserved to’the City the right to’ pur- chase ‘‘all the property, leaseholds and franchises of the - Company,’’ it meant, by ‘‘the Company,’’ PRT, and it therefore only enabled the ‘City té replace PRT as the .un- derliers’ and traction companies’ ultimate lessee. But, when - the Agreement of 1939 reserved to the City the right to pur- — chase ‘‘all the property, leaseholds and franchises of the Company,’’ it meant, by ‘‘the Company,’* not PRT but PTC; and because of the manner in which PRT was re- organized and PTC was created, PTC owned the underliers’ and traction companies’ leaseholds and franchises ;.there- - fore, the City was by the Agreement of 1939 restored to the . position that it had enjoyed when the Ordinance of 1857 was in effect, but that it had-surrendered by the Agreement of ' 1907: it could again purchase the entire transit system, not by purchasing the underliers under the Ordinance of 1857, but by purchasing, under the Agreement of 1939, the assets of the new company, PTC, which now owned the underliers’ | and the traction companies’ leaseholds and franchises. | Appendix D mtd are 83a 2. The City’s reserved right of purchase was changed from a right to,purchase PRT’s assets ‘‘subject: to all in- debtedness’”’ to a right to purchase PTC’s assets free and _ Clear. 3. The Gane ae the City could exercise its~reserved right of purchase was accelerated from ‘‘ July 1st, 1957, or -. upon the first day of any July thereafter” to ‘‘any saad day of July hereafter.’’ 4, The price that the City had to pay for the assets that it would acquire by exercising its reserved right of Ypur- chase was changed from the par value of PRT’s outstand- ing capital stock to.a price made up of four factors: the amount of PTC’s outstanding bond mortgages, and ground - rents; the par value of PTC’s outstanding preferred stock; $10 for each share of PTC’s outstanding common stock; and ‘‘the amount of ....{PTC’s] then undistributed corpo- rate surplus, if any. ” | 5. Finally, by the io of 1939 the City reserved ‘‘whatever right to. condemn it riow has or shall hereafter have.’? There was no such reservation, nor any reference to condemnation, in the Agreement of 1907. The full significance of these changes will become ap- parent as the various questions presented by this litigation are considered. But before proceeding to that considera- tion, one further historical fact, of major importance, must be stated. ; When the proposed Agreement. of 1939, making the changes in the Agreement of 1907 that have just been enu- merated, was submitted to City Council’s Committee on Transportation, the Councilmen asked a‘number of ques- tions. These were often answered by the Assistant. City So- licitor, but still more often. by Frederic L. Ballard, Esquire, counsel for PRT. Among the questions thus asked and Sta Appendix D answered were included the very question now argued to this Court. ‘The hearings before the Committee on Trans- portation are, therefore, most pertinent in understanding the Agreement of 1939, and they will be judicially noticed by this Court as legislative history.* Specifically, i in considering whether the City should con- © sent to the reorganization of PRT, the Councilmen asked: ‘What would happen to the City’s right under the Agree- ment of 1907 to purchase the assets of PRT? Would the City be able to purchase the assets of PTC as the reorgan- -jzed company? When could it make such a_ purchase? What assets would the City get by such a ‘purchase? What would it have to pay? And how would its right to purchase be related to, or affected by, its right of condemnation?. — _. These aré not all of the questions presented by the present litigation; but they are most of them; and as to ‘them, the answers are so clearly stated both in the discus- * The use of legislative history in the interpretation of statutes and ordinances, and of contracts resulting from them, is an established judicial practice. See Labor Board v. Jones & Laughlin, aes 0.5. i, 41 (1936). The fundamental rule in interpreting contracts is that the ‘Court should construe contracts according to the intention of the con- tracting parties as gathered from the words of the instrument and the. circumstances surrounding the parties at the time the agreement was made. 3° Corbin on Contracts § 539 (1960). The Pennsylvania Statutory Interpretation Act, Act of May 28, 1938, 46 PS 551, pro- vides that “When the words of a law aré not explicit, the intention of the Legislature may be ascertained by considering, among other mat- ters—(1) the occasion and -necessity for the law;. (2) the circum- stances under which it was enacted; (3) the mischief to be remedied ; - (4) the object to be attained; (5) the former law, if any, including other faws upon the same or similar subjects; (6) the consequences of a particular interpretation; (7) the contemporaneous legislative history ; and (8) legislative and administrative interpretations of such law.” This was so before the Act. See, e.g., Miles’s Estate, 272 -Pa. 329, 339 (1922), and Orlosky, Appellant v. Haskell, 304 Pa. 57, 66 (1931). See also Philadelphia, to Use, Apints. v. Phillips, 179 Pa. Superior Ct. 87, 91 (1955), where the Court states that “The rules of construction applicable to statutes are to be applied with equal force and effect when construing an ordinance.” And see McCormick on ‘Evidence § 329 (1954). 6 4 preety D. 85a sions of the City Councilmen at the public hearings, and in the ‘Agreement of 1939, that there can be no reasonable doubt about what should, and must, be their _—— by this Court. | C. Is either the Agreement of 1907 or the Agreement of 1939 void because of the rule against perpetuities? (Ques- tions Presented, Question No. 1.) : - 1. What is the period within which the City’s reserved right of purchase must be exercised? In advancing the argument that the Agreements of 1907 . and 1939 are void because of the rule against. perpetuities, PTC attacks only the City’s reserved right of purchase; it does not question the validity of the other terms of the Agreements. The period within which the City’s reserved right of purchase must be exercised has been stated above, in out- lining the history of the Agreements of 1907 and 1939, but for convenience it will be restated. Section Eleventh of the-Agreement of 1907 provided that ‘‘The City reserves the right to purchase all the property, leaseholds and fran- chises of [PRT] . . upon July Ist, 1957, or upon the first . day of any July thevenfied by serving six months notice. . This contract shall continue in force until such right is exer- cised....’? By Section 1(d) of the Agreement of 1939 this was changed to provide that ‘‘The City reserves the right: to purchase all the property, leaseholds and franchises of [PTC] upon any first day of July hereafter, by serving six months’ notice .... This contract shall continue in force until such right is caaoal: - ° ; The term of the City’s sight to purchase was, there- ~ fore, indefinite. Until the Agreement of 1939 the right - could not be exercised before July 1, 1957, but it could be’ exercised ‘‘upon the first day of any July thereafter.’? By 86a" | Appendix D the Agreement of 1939 this limitation was removed, and the right could thereafter be exercised ‘‘upon any first day of July.’? Both agreements emphasized that there was no time limit upon the exercise of the right to purchase “w pro- viding that the right should “continue in force until . exercised....’’ Warthermore; Section Ninth of the Agreement of 1907 confirmed that the City’s right to purchase was without time limit. By Section Ninth a sinking fund was created; which the City could apply toward the price of PRT’s. assets if the City exercised its right to purchase. The pay- ments to the fund started on July 1, 1912, and continued for four ten year terms, or until July 1, 1952, in increasing amounts until they were at the rate of $25,000 a month. Then, Section Ninth provided, the payments were to be ‘‘finally at the rate, of thirty thousand (30,000) dollars monthly for the balance of the term of this contract.’? No expression different from this could have been used. The draftsmen could not have provided that the $30,000 pay- ments should ‘‘continue until July 1, 1957,’’ for although the City could, and: hence might, exercise its right to pur- - chase then, it did not have to, and hence might not, for it could exercise the right ‘‘upon the first day of any July’’ after July 1, 1957. Accordingly, the draftsmen were obliged in Section Ninth to use the open-ended expression, ‘‘for the balance of the term,’’ i.e., until whenever the City did exer- cise its right to purchase. When the Agreement of 1939 was executed this indefinite term was confirmed, for-Section - Ninth was not amended, and Section 3 of the Agreement of 1939 provided that ‘‘In all other repsects [i.e., other than as amended by the Agreement of 1939] all the terms and provisions of said contract made July 1, 1907 [i.e.. the. Agreement of 1907)... . . shall remain in full force and effect.”? — | that Appéendiza D 87a _In subsequent agreements with PTC the City consist- . ently preserved the term of its right to purchase as indefi- © nite, and it never agreed to any limitation on that term, ‘ although, as will appear, PTC asserted, unilaterally, for the ~ first time in July, 1962, that the term was not indefinite. The first agreement between the City and PTC after the Agreement of 1939 was executed on October 26,:1950.* It: amended Section Fifth of the Agreement of 1907, which con- cerned the power of the City Controller to audit PTC’s books; it made no reference to any other provision either of the Agreement of 1907 or of the Agreement of 1939.’ The next agreement between the City and PTC was — executed as of July 1, 1957.** It was in six sections (A . through F), and it did refer to the a aicase “ 1907 and 1939. The third recital of the Agreement of 1957 siariaed ‘WHEREAS, thier i is also in existence an danas between the parties dated July 1, 1907, as amended by agreements dated December 20, 1932,*** June 12, 1939 and October 26, 1950 (hereinafter called the ‘1907 Agreement’), which continues in full force and effect subject to the same terms and conditions except as _ specifically provided herein.”’ Thus, the City’s indefinite right to purchase ene eoe” undisturbed, unless ‘‘specifically”’ otherwise provided, and * Exhibit P-9. / ** Exhibit P-12. *** Reproduced in Exhibit P-5. This agreement is not pertinent here. It amended Section Ninth of the. Agreement of 1907. by cap-. turing the sinking fund that had been created: by payments made up to the date of the agreement. | Section Ninth had provided that the ‘fund could be captured when it reached $5,000,000, which it had not by 1932. Under the Agreement of 1932 PTC remained liable to con- tinue the payments required by Section Ninth, but it was to make them © to the City instead of to a sinking fund. 88a | A ppendia D ; there was no provision otherwise. Im fact, the only :pro- “vision in-the. Agreement of 1957 regarding the Agreements: .. of 1907 and 1939, apart from the recital just quoted, was in Section C, which confirmed the City’s indefinite right to purchase, ) Section C concerned Section Tenth of the Agreement of 1907, as amended by the Agreement of 1939. Section Tenth called for payments to the City by PRT (and later by PTC) for five ten year terms of amounts that started at $500,000 a.year and increased.to $700,000.. The last term specified was for the period July 1, 1947, through June 30, 1957. A dispute arose between the City and PTC about whether the payments should continue, PTC reading Section Tenth as providing that the payments ceased after June 30, 1957, but the City reading it as providing that the payments, once having reached the $700,000 platequ, continued’at that rate. Section C of the Agreement of 1957 compromised this dis- pute by: providing as follows: , | “*C, 1907 AGREEMENT | ‘$8. It is recognized that the 1907 Agreement con- tinues in full force and effect, and the Company will continue to make all payments thereunder including, without limiting the generality of ‘the foregoing, the ° payments provided for in Section Tenth of the 1907 Agreement (presently approximately Seven Hundred Thousand Dollars ($700,000) annually) for the period: of five years commencing July 1, 1957; provided, how- ever, that the continuance of such payments under Sec- tion Tenth of such Agreement for. said period of five years shall be without prejudice to the position of either party on the question whether the Company is legally obligated, under the terms of said 1907 Agree- Appendi« D 89a ment, to make such payments subsequent to July 1, 1957, but in no event shall the Company have any claim for repayment of any part of said payments provided for under this Agreement to be paid for the period of five years ending July 1, 1962. ‘9, It is understood that the payments received “ the City under Section Tenth of the 1907 Agreement for the period subsequent to July 1,.1957 will be used by the City for improvement of City-owned transporta- tion facilities in the sole discretion of the City, but in no event shall the Company have any claim for repay- ment of any part thereof.”’ Thus, by the Agreement.of 1957 the City and PTC agreed that except for Section Tenth all of the provisions of the Agreement of 1907, as amended by the Agreement of 1939, 2.e., including the City’s reserved right of purchase, which was exercisable at an indefinite time, continued ‘‘in full force and effect.’’* ) The next agreement ‘between the City and PTC was executed as of July 5, 1962.** It is in form an amendment of the Agreement of 1957, being arranged in the same six sections (A' through fF). In it appears the first assertion by PTC that the Agreement of 1907, as amended by the Agreement of 1939, 7.e., the City’s reserved right of pur- . chase, was not indefinite in term but had an expiration date. m Section C, paragraph 9, of the Agreement of 1962 repre- | sents a further compromise of the parties’ dispute regard- _ * Phila., Aplnt. v. Phila. Trans. Co., 404 Pa. 282 (1961), is not to the contrary. There the Court did not. nor was it called upon, -to construe the Agreement of 1907, as amended. It held that since the City had not exercised its right to purchase, declaratory judgment would not lie. Hence the Court never reached the construction of the agreements. ** Exhibit P-15. ° |... : | eas o> FE ee ON AD OR ee Oe Le o> CES eT Sgr eae “ wwe %a | Appendix D ing the duration of PTC’s obligation. to.make payments to the City under Section Tenth of the Agreement of 1907, as amended. This time PTC agreed to ‘‘continue.to make the payments’’ but at the rate of $50,000 instead of $700,000 a year, and only until December 31, 1964, and ‘without prej- -udice to the position of either party on the question: of whether the Company is legally obligated?’ to make the pay- ‘ments. In consideration of this reduction in the amount of the payments, the Company by paragraph 10 of Section C agreed to make certain improvements ‘in its transit facilities . and services. Paragraph 11 of Section C then provided: ‘‘Bxcept as may be specifically provided for herein, . eagh and every of the terms and conditions of the 1907 Agreement, as amended by the Agreement of July 1, 1957, [in the first recital the ‘1907 Agreement’ is defined as the Agreement of 1907 as amended by the Agree- ment of 1939 and by all the other amending agreements up to tha Agreement of 1957], shall remain in full force and effect. This provision is without prejudice, how- ever, to the claim of the Company that under this Agree- ment the 1907 Agreement terminates on December 31, 1964.”? ° . This is the first appearance of any claim that the City’s _ reserved right of purchase was not indefinite ip term but. had an expiration date. It is to be observed. that the City did not agree to the assertion, and thus preserved its right of purchase unchanged and as provided by the Agreements of 1907 and 1939. PTC’s unilateral assertion that the City’s - right nevertheless expired on December 31, 1964, was with- - out foundation. As has been seen, the Agreements. of 1907 and 1939 provided beyond question that the City’s right could be -exercised upon any July 1st of any year, and in the Agreement of 1957 PTC had recognized that this was Appendix D | 91a so.* PTC’s attempt to claim, in fhe Agreement of 1962, that the City’s right had an expiration date can only be regarded as an attempt to create from thin air a claim that might be useful in later negotiations with the City. The last agreement between the City and PTC was exe- cuted as of. February 25, 1965, effective January 1, 1965.** Section 2 of this Agreement provided that ‘*It is recognized that the 1907 ik as _— tofore amended, continues in full force and effect, and . _ the Company will continue to make all payments there- under including, without limiting the generality of the foregoing, the payments provided for in Section Tenth of the 1907 Agreements, as amended, at the annual rate of Five Hundred Sixty Thousand ($560,000) Dollars for the next six (6) months... .”’ | rae, 4 | And Section 3 provided that ult. * PTC also recognized in its annual reports to stockholders that the City could exercise its reserved right of purchase on any July Ist. In its Annual Report for 1957. it said in footnote 6: “The City .. . may exercise . . . its right to purchase all the property... . . of. the Company . . . upon July 1 of any year . . ” (Exhibit P-27, exhibit M). PTC said the same in its Annual Report for 1958 - (Exhibit P-27, exhibit N), and 1959 (Exhibit P-27, exhibit O), and 1960 (Exhibit P-27, exhibit P), and 1961 (Exhibit P-27, exhibit Q). It even said the same thing in its Annual Reports for 1962, 1963, and 1964 (Exhibit P-27, exhibits R, S, and T). The Annual Reports for 1962 and 1963 did refer to the Agreement of 1962 but only with refer- ence to the Broad Street subway, the Frankford Elevated system, and the reduction of payments. There was no claim in these reports, nor was there in the report for 1964, that the Agreement of 1962 affected the City’s reserved right of purchase. The first time that this - claim was made in any annual réport was in 1965, when footnote’ 5 + said, “It is the position of the Company, not acquiesced i in by the City or SEPTA.. . . that the Agreement of July,1, 1907, as amended, has expired and that the provisions outlined in the preceding two para- graphs [i.e., the City’s right to purchase, and its right to participate : in management] are no longer in effect.” ** Exhibit P-18. | | e ° 9a ° Appendix D _ ‘Except as may be specifically. provided for herein, each and every of the terms and conditions of the 1907 Agreement, as: amended by the 1957 Agreement and 1962 Agreement, shall remain.in full force and effect. This provision is without prejudice, however, to the ‘claim of the Company that, under this Agreement, the 1907 Agreement terminates on June 30, 1965.’’ Thus, in the Agreement of 1965 PTC reiterated its uni- lateral and unwarranted assertion that the City’s reserved _ right of purchase had expired on December 31, 1964, only modifying the assertion, to change the ‘‘expiration’’ from December 31, 1964, to June 30, 1965. For its part, the City _ preserved its right of purchase unchanged and as it was in fact: a right exercisable upon any July 1st of any year.* | Therefore: under the Agreement of 1907, as amended by the Agreement of 1939, the City had the right to purchase _ PTC’s assets upon any first day of J uly after 1939.. With the term of the City’s right. thus defined, PTO’s claim that the right in invalid because of the rule against perpetuities may be examined. | 2. Herewith PTC’s best case. The best way to state PTC's argument is to state its best case. | : * Not only did the City preserve its right of purchase unchanged by being careful, in the Agreements of 1962 and 1965, to reject PTC’s claim,’and to limit that claim as one that;PTC alone asserted, but the City also was careful to state its position to the public. Thus, during the negotiations that led to the Agreement of 1965 it was reported that the City Solicitor said that “The city contends that the option continues indefinitely, independent from the periodic renewals of the operating’ agreement” (Intervenors’ Exhibit I-12) ;:and immediately after the Agreement of 1965 was executed, it was reported that the City Solicitor said that “the city retains the right to exercise the option ‘as ris as PTC is exercising its franchises.” (Intervenors’ Exhibit _ T-1). ‘ s Appendia D | 93a In Barton v. Thaw, Appellant, 246 Pa. 348 (1914), plain- tiffs were children of Joseph Barton, who had conveyed _ coal under certain land to Thaw’s predecessors in title, by a deed that provided that ‘And in case the said parties’ of the second part, their heirs or assigns, should at any future time what- - ' soever desire to purchase any of said land in’fee simple, then the said parties of the first part, for themselves, their heirs dr assigns, hereby covenant and agree ‘to. sell and convey the same to the said parties of the sec- ond part, their'heirs or assigns, at a price not exceeding one hundred dollars per acre.’’ (246 Pa. at 350). The sale of the coal was admittedly good, but plaintiffs claimed, by a bill to remove a cloud upon title, ‘that the option to purchase the surface of the land was void because in violation of the rule against perpetuities. ‘‘It [was] conceded by counsel that the case presents for the first time ~ to the courts of Pennsylvania the question whether an op- ’ tion or right to purchase land, unlimited in point of time, violates the rule against perpetuities, and therefore is void...’ (246 Pa. 350-351).. The lower Court in a care- ful opinion held that the option did violate the ss and the Supreme Court affirmed. PTC’s argument is that the City’s reserved right of purchase is also an option ‘‘unlimited in point of tisfte,’’ and therefore it is also. void. It has been seen, above, that indeed the City’s right of purchase i is thus unlimited. Is it, . however, therefore void? 7 , 3. The sive and consequences of PTC’s sca appraised. No matter how PTC states its argument, the statement — amounts to a repudiation of a promise made so solemnly, - 94a Appendiz.D and repeated so often, and relied upon by so many and to °. such an extent, that the repudiation is almost breathtaking in its audacity.’ This does not mean that this Court may not be bound to accept PTC’s argument, and permit the repudi- ‘ation. But no Court should accept an —ouent, blind to . its nature and consequences. ; : The facts pertinent to appraising the nature and con-— sequences of PTC’s argument have been stated above, in| - outlining the history of transit in_Philadelphia; they need only be summarized here. : : When PTC’s predecessor, PRT, pions in 1907 that in 1957 it would sell its assets to the City, the cireumstances were that PRT was financially crippled because of the | underliers’ guaranteed rentals, and the transit system in © the City was disorganized. Before the. Agreement of 1907 d was made, a draft of it, providing for the City’s right to” purchase, was read to-the Legislature, which then passed the Act enabling the City to, make the Agreement of 1907. Thus PRT was saved by. an agreement that PTC as PRT’s. successor now asserts was void because of the rule against perpetuities, although no one at the time. suggested: to tlie Legislature or the City that .the agreement was void. Having ‘benefitted from the Agreement of 1907, the Com- pany now repudiates it. Great reliance was placed upon this ae.’ void) Agreement of 1907, particularly by the City, which, in re- turn for it, surrendered its rights under the Ordinance of 1857 to purchase the underliers’ franchises, and which, after. . - the agreement, spent over $150,000,000 to build high-speed lines, some of which it leased to PRT at less than cost. As the Agreement of 1907 recited, it'was contemplated that this expansion would ‘be made possible by the agreement, Al- though it may be of no concern to PTC that the City thus committed millions of dollars of taxpayers’ money in reli- Appendiaz D | 95a “ance upon the validity of the Agreement. of 1907, it is of concern to this Court. During the 1930’s PRT went into ica and was _* reorganized as PTC. In order to achieve the reorganiza- tion. PTC made the Agreement of 1939. One might suppose that a company whose very existence is owed to a particular agreement might hesitate to say that the agreement was void. PTC does say that it is only repudiating so much of the Agréement of 1939 as gave the City the right to purchase PTC’s assets on any July 1st, but this is sophistry. The City’s right to purchase is not severable from the other pro- visions of the Agreement of 1939; it was the fulcrum of the ~ _ entire agreement, the, provision without which the City ~ — - would not have consented to the reorganization of PRT and the creation of PTC. There can be no doubt that this is so. -As was discussed in detail in stating the history of the _ Agreement of 1939, what the City achieved by the Agree- ment of 1939 and the reorganization was to regain the right that it had had under the Ordinance of 1857, but had sur- - rendered under the Agreement of 1907, to purchase the - underliers’ franchises and hence once — be able to con- trol its streets. he : When PRT asked City Council to consent to the re- organization, and to enter into the Agreement of 1939, these . matters were discussed. At the second public meetings of the Committee on Transportation and Public Utilities of City Council, on April 26, 1939, one- of the Councilmen, Clarence Crossan, and Frederic L. Ballard, Esquire, coun- a for PRT, engaged i in the following exchange: | ‘‘Mr. Crossan: Isn’t the important point that, so far as We are concerned . . . once the reorganization plan is through, vdin of all of the assets of the ~-eonsolidated company is in that company, and we never more have the question as to where that lies? ~ 96a appa D. “Mr, aie Yes, that is right. _ “*Mr. Crossan: In other words, when we try out that right of recapture, we know that if we do, we: take. ’ over everything which you physically or otherwise pos- sess. . } ‘‘Mr. Batxarp: Yes, as distinguished from an op- tion of very doubtful value under the 1907 contract.”’ _ And later during the hearing: ‘ > munities. 7? (246 Pa, at eh J ust the opposite i is true here. ; ~ The pertinent facts that show how the City’s vinnie . right of purchase freed rather than’ fettered property have - been stated in-some detail in outlining the history of the Agreements of 1907 and 1939, and they — ely he sum-. - * marized here. _ ‘ Before ‘the Re of 1907, any ieee railroad company”? that wished to\use the City’s streets had to = | > under the Ordinance of 1857, ‘‘a detailed statement . ‘certified under. oath . . . of: the: entire cost”? of the pas- © senger railroad, and the City ‘‘reserve[d] the right.at any: . time to purchase the same; by paying the original cost of _ + said road or roads, and cars at a fair valuation. »? There ie can be no question that’ the City’s right might be considered as inhibiting the improvement and-alienability of the pas- senger ‘railroad companies ’ properties (which is not to say ; that. the City did not have the power to reserve the right; ; this will be considered later). By the Agreement of 1907 .. the’ City exchanged its right to purchase under the Ordi- nance of 1857 for a right to-purchase that instead of being exercisable ‘Cat any time’? could not be exercised until July ’ st, 1957; and then only by paying par value for PRT’s capital - stock. The ‘transit situation at the time, and the recitals * of the Agreement of 1907 itself, demonstrate that the rea- By i son for this arrangement was to stimulate investment on a se ‘large scale. This is shown throughout the entire Agreement ae ie ree a , eet Appendix D : 107a of 1907, but it is particularly clear from the =_— i which reads: ‘AND ‘Wisin a or sum of money is required to improve; complete and extend the present system of the Company in order that it shall better serve the pub- lic; and for this purpose it is essential that the position of the Company be clearly defined, and the securities of _ - itself and its underlying properties unquestioned, and its right to make extensions in the future assured, in order that it may obtain credit to finance the increased transit facilities so necessary for the welfare of the pub- | lic and the development of the City;’’, When the Agreement of 1939 was made, the City’s re- served right of purchase was amended so that it could be ‘exercised. on any July 1 after 1939; and if the City did exer- cise its right, it had to pay not only the par value of PTC’s capital stock, but ‘‘the face amount . . . and accrued inter- est of all then outstanding prior lien ete. mortgages and ground rents,’’ and ‘‘the amount of the then undistributed corporate surplus.’’ This, too, like the Agreement of 1907,- not only did not fetter but freed property. The transit sys- tem was in receivership. The Agreement of 1939 saved it, and.by protecting PTC’s shareholders and creditors, per- . mitted. it to expand by making investments that since 1940 run into many millions of dollars. ad) The City’s option is not contrarg y to but i m further- ance of public policy. , . | In Barton v. Thaw the Court said, at 364: - “Tt [the option] prevents the land from answering _ to the needs of growing communities .... It is not a matter which affects the rights of individuals only. ° 108a | Appendia D The entire community is interested. The welfare of the public i is at stake. _It is contrary to the well settled - public policy of the state ....”’ But the City’s reserved right of purchase is just the oppo- site. It w as devised precisely in order to answer*the needs _ of a growing community (Philadelphia), and it was not only in accord with well settled public policy, but was provided for pursuant to express statements of that policy, both by the State Legislature and the City Council. - The manner in which the City’s reserved right of ‘pur- chase was devised to answer the needs of a growing com- munity has just been discussed above, and the discussion need not be expanded except to add a reference to the last recital of the Agreement of 1907, which stated, in part, ‘¢’ . . it is further desirable that provision should be made for the sharing by the City in the earnings of the Company from further growth of the City . ... .’’ - It is beyond dis- pute that the principal purpose, both of the Agreement of 1907 and of the Agreement of 1939 (each of whiich depended upon the City having a reserved right of purchase, as has been discussed), was to provide.a growing community with a transit system that the community needed but without the © agreements would not have. It remains, however, to refer | to the specific statements of this public policy apart from .the agreements themselves. _ | The first expression that it was in the public interest for the City to have the right to purchase the transit sys- tem was by the Ordinance of 1857, by which, as has been seen, the City required the passenger railroad companies to —eonsent to.the City’s right to purchase their facilities. The ordinance went on to provide.that ‘‘any such Company or Companies, refusing to consent to such purchase, shall thereby forfeit all privileges, rights and immunities they Appendia D . —*—«*'109 may have acquired in the use or possession of any of the [City’s] highways... .’* In 1874 the new Pennsylvania Constitution was adopted. Article 17, §9, provided that ‘“No street passenger railway shall be constructed within the limits of any city, borough or township, without the consent of its local authorities.’’ . Thus, the City’s power to reserve its right to purchase the transit system was constitutionally recognized and secured. The extent of the City’s constitutional right was soon stated. In Allegheny City v. Railway, Appellant, 159 Pa. 411 (1893), a street railway company refused to accept an ‘ ordinance that, like Philadelphia’s Ordinance of 1857, pro- vided that the company must accept it, and that ‘‘a failure to comply with its provisions shall work. a revocation of {the company’s] privileges by said ordinance granted.’’ (159 Pa. at 412). In upholding the City’s right to impose such a provision, the Court said: _ _ “The provision of the constitution is peremptory and unlimited. It is part of the pervading intent of that instrunient to give local bodies the control of local affairs. The public history of the time, of which the ‘court may take judicial notice, shows that one of the prime objects ofthe people in calling a constitutional convention was to do away with special legislation which interfered with local affairs . ... . the provision © . is... without expressed Sadtetions of any kind. It j is a eift directly from the constitution to the local bodies, and needs no help, nor permits any interference from the legislature. If any limitations are to be implied by the courts, the implication must arise from clear *. Exhibit P-4, Section 8, also referred to in the discussion, above, on the origin of the Agreements of 1907 and 1939. 110a i Appendix D necessity, as absolute, as peremptory and as unavoid- able as’ the constitutional mandate itself. The burden . therefore is on the party affirming that the exercise of. the local authority is not valid.’’ (159 Pa. at 415). ‘‘The power of the municipal authority to give or refuse consent is unlimited and unqualified. That nec- _ - essarily implies the power to impose reasonable condi- - tions in giving their consent: If they impose unreason- able conditions all the company can do is to refuse to accept.’’ (159 Pa. at 418).* It was not long after this statement by the Supreme Court that the Legislature made it plain that it did not think that.it was an unreasonable condition for the City to insist upon reserving a right to purchase.the transit system, upon terms unlimited by the rule against perpetuities. “By the Act of April 15, 1907,(*) the Legislature em- . powered ‘¢. . . any city, borough or township, of the one part, and any street passenger railway company, sur- face, elevated or underground, or motor power com- pany .. . of the-other part . . . to enter into contracts with oaahr other [which}-... . may provide for the-ulti- -Iate acquisition by the iad authorities, upon terms mutually satisfactory, of the leaseholds, ‘ial and franchises of the contracting companies.”’ Before it approved this Act, the Legislature had read to it a draft of the agreement that became the Agreement of: 1907, including a provision . * Fora later statement in accord, see Phila. Electric Co. v. Phila., " Appellant, 301 Pa. 291, 298, 300 .( 1930) (“the contractual conditions . imposed by the city, which plaintiff could either accept or reject, were impositions certainly within the scope of its municipal powers” ; “the conditions exacted, and which plaintiff accepted, were such as the city deemed proper [citing the Allegheny City case]’’). _ (*) Exhibit P-3. - -_ Appendix D | fila ‘‘That the City of Philadelphia shall have the right at any time after December thirty one, one thousand nine hundred and fifty six,** to purchase ‘all the leases, franchises and.property of the transit com- pany... 79008 4 The remaining’ statements of public policy to be men- | tioned are those by City Council. These are the Ordinances | of July 1, 1907,(*) and of May 20, 1939.(**) The first au- thorized the Mayor to execute upon behalf of the City. the - Agreement of 1907, and the second gave the City’s ‘consent . to the reorganization of PRT as PTC and authorized the Mayor to execute upon behalf of the City the Agreement of 1939. In view of these ‘iain in the Constitution, by the Supreme Court, the Legislature, and City Council, SEPTA and the City contend that the rule against perpetu- | ities is inapplicable as a matter of law, i.e., that so far as the Agreements of 1907 and 1939 are ‘concerned, the rule ‘against perpetuities as‘a rule of common law must yield to applicable legislation. There is great force to this argu- ment. It is difficult to imagine language more broad and ‘ unequivocal than that of the Allegheny City case, supra, or legislation more specifically in point than the Act of April ‘15, 1907, supra. Professor Leach has said, (***) in speaking of a California case involving a lease between the City of ‘Oakland and a contractor, ** Tn the final draft of the Agreement of 1907 this became, as has been seen, July 1, 1957. *** Pennsylvania Legislature, Record, 1907, Vol. 1, page 1749. (*) Exhibit P-2. ° (**) Exhibit P-7. = | (##*) In Leach, “Perpetuities: New Absurdity, Judicial and. Statutory Correctives”, 73 Harv. L. R. 1318 (1960). at 1321. > ~ — li2a. Appendia D ‘‘ Another possible ground for sustaining the Oak- _ land lease**** derives from the fact that a municipality was tHe lessor. The Rule Against Perpetuities is a de-. vice for protecting the public interest against private settlements which unduly tie up the basic resources of - the community. But in this case the city is the public. It is at least arguable that the Rule should not apply at all to dispositions made by duly constituted public bodies. The judge-made Rule was never conceived as a limitation upon the sovereign, and the California con- stitution, incorporating the common-law Rule, should not be construed as a limitation on action by the state or any of: its subdivisions. The inapplicability of stat- utes of limitation is a useful analogy [citing 3 American Law of Property §15.13 (Casner ed. 1952) ].’’* However, it is not necessary to go so far. In similar circum- . stances other Courts have needed only to reason by analogy, and the same approach will be adopted here. | The starting point has been stated by the California Supreme Court in the Wong case, supra, as follows: **** The Court, to the Professor’s dismay, held the lease invalid. Haggerty v. City of Oakland, 161°Cal. App. 2d 407, 326 P. 2d 957 (Dist. Ct. App. 1958). The decision has been widely deplored “in terms which range from rebuke to castigation”, Leach, supra, at 1319, and the Supreme Court of California, in Wong v. DiGrazia, 386 P. 2d 817 (1963), citing*Leach’ with approval, 386 P. 2d at 822 and 823, has expressly disapproved it, 386 P. 2d at 826. - * Cf. Schonthal v. Village of Sylvania, 21 N.E.2d 1008, 1012 (Ohio Ct. App. 1938) (“Certainly no rule against perpetuities could ever be interided to apply to municipal corporations. On the contrary, they are designed and intended to be perpetual.”), and Meritt- Chapman & Scott Corp. v. Public Utility Dist. No. 2, 237 F. Supp. . 985, 994 (S.D.N.Y. 1965) (“This rule [against perpetuities], how- ever, does not apply to these trusts, because they are classified within the category of trusts for a Governmental or Municipal Purpose. (See Abridgement of the Law of Trusts, Austin Wakeman Scott, 1960, p. 675).”).. . ~ Appendiz DD . _ *118a _ “Surely the courts do not seek to invalidate bona. fide transactions by the imported application of esoteric legalisms. Our task is not to block the business path- “way but to clear it, defining it by guideposts that are . reasonably to be expected.’’ (386 P. 2d at 823). A most useful case along this road is Todd v. Citizens’ Gas Co. of Indianapolis, 46 F. 2d 855 (7th Cir. 1931), cert. denied, 283 U. 8. 852 (1931), where the Court refused to apply the rule against perpetuities in a situation very simi- - lar to thease here. By a statute of 1905 the City had been “given the power to regulate gas companies, In accordance with the statute, the City by an ordinance of 1905 approved a contract that granted permission to use the City’s streets. . - for gas lines subject to certain conditions, which were re- quired to be stated in the gas company’s articles of incorpo- ration. Among the conditions it was provided that the company’s stock should be held by five trustees, one of them selected by the Mayor; that the company had to build cer- -.- tain facilities and furnish certain services within a given time; that the City’s board of public works could conduct inspections and tests, and make regulations to which the company would be ‘subject; and that the earnings of the company were to be applied in a stated order, which included application to the cost of extensions ordered by.the board of public’works. A further condition was that when the stock- holders had received by dividends or otherwise the ‘face value of their certificates, plus 10 per cent interest, ‘ ‘it shall be the duty of the trustees and directors of the company to ' convey the gas plant and property belonging to the company to the city . . . and all the right, title, and interest of the company or its certificate holders ... . shall be... extin- - guished . .:. .’’ (46 F. 2d at 858.) This condition was beyond the wiael permitted by the rule against perpetu- ities, for the agreement provided that it should be in force 1l4a * Appendix D for 25 years (46 F. 2d at 859). In an action in equity at- tempting to prevent the transfer of the company to the City | in accordance with the ordinance and agreement of 1905, the Court was met with the argument that’ . “The rights asserted by the city are attacked as void under the rule against perpetuities. An attempt is made, it is charged, to incumber the property of the * Citizens’ Company for twenty-five years with unvested contingent interests.’’ (46 F.2d at 866). The Court had no difficulty in rejecting the argument, It said: _ “The legal title to the property which was siesta with the money contributed by the certificate holders was in the Citizens’ Company, subject to the trust in favor of the inhabitants of the city. This, we think, plainly appears from the charter of the company. The conveyance to the city to be made when the charge in favor of certificate holders was released as a continu- ance of the trust; the city being the successor in the fiduciary relationship. This public charitable trust is not within the rule against perpetuities. The rights arising from the provisions of the company’s charter vested in interest upon the organization of the com- pany, and were postponed merely in enjoyment by the charge on the property in favor of the certificate holders. : “But the rule may not be invoked even on appel- lants’ thedry that the rights of the city amounted to nothing more than an option to be exercised at any time within twenty-five years. The rule against perpetuities concerns rights of property only, and does not affect the making of contracts which do not create the rights of property. By the great weight of authority, a mere Appendix D fee 1S option to purchase land does not vest the holder of an _ option with any interest, legal or equitable, in the land. . Richardson v. Hardwick, 106 U.S. 252, 255, 1 S. Ct. 213, 27 L. Ed. 145; Thacher v. Weston, 197 Mass. 143, 147, ' 83 N.E. 360; Keogh v. Peck, 316 Ill. 318, 147 N.E. 266, 38 A.L.R, 1151, and cases cited in 39 Cyc. 1238, note 19. - The rule to be applied to what appellants claim is an option in a franchise contract would be the same as is applied in the case of an option to purchase contained in a lease, and such options are not within the’ rule against perpetuities. Keogh v. Peck, supra, and cases - cited; Eastman Marble Co. v. Vermont Marble Co., 236 ‘ ” Mass. 138, 128 N.E. 177.’’ (46 F. 2d, at 866). -PTC attempts to distinguish this decision by saying that in 1921 the gas company’s articles were amended to provide for a transfer to the City in 1930. This, says PTC, — meant that the transfer was certain to occur within a period of less than 21 years. But the Court took no such view. It looked only at the original contract, and held it valid. Indeed, the City was acting under the original contract; the persqps who sought to prevent the transfer to the City 3 in- vokeg the amendment of 1921, saying'that this an, the original contract (46 F. 2d at 863). PTC next asserts that in any case the-decision is contra “ _Barton v. Thaw, which brings this discussion full circle. The case is not contra Barton v. Thaw. Barton v. Thaw is unquestionably good law. It is also unquestionably so dif- ferent from the present case that it is not controlling. And for the reasons that have been stated, to extend it to the presént case would permit PTC to repudiate its most solemn agreements, from which it has greatly benefitted, and would do the public, as represented by the City, a great injustice. In Professor Leach’s acid phrase, such a result would be an absurdity. ° 1l6a Appendia D 5. By virtue of the Estates Act of 1947, the sabi against perpetuities is in qny event inapplicable. For completeness of discussion, the current rule against perpetaiies, as compared to the common law rule, must be considered, Assuming that the iia of 1907 and 1939 did violate the common law rule against perpetuities, the City’s reserved right of purchase is saved by the Estates Act of | 1947, Act of April 24, 1947, P.L. 100, 20 PS $301.4. | : The Estates Act provides in Section 4(a) and (b), that. ‘*No interest shall be void as a perpetuity except . . [u]pon the expiration ofthe period allowed by the common law rule against perpetuities as measured by | actual rather than possible events ... .”’ Thus, if an option void at common law actually vests within 21 years, it is valid even though it might not have vested that soon. Or, as Bregy puts the point, at page 5307 of his treatise on the Estates Act: ‘« | . such agreements will no longer be void from the beginning as in Barton v. Thaw. Under the statute an unlimited option should be allowed to run until the expiration of the.permissible period, and stricken down only if it remains unexercised at that time.’’ (footnotes — -omitted). If the City and PTC had made- no further agreements after the Agreement of 1939, the Estates Act of 1947 would not be pertinent. However, as was seen in discussing the duration of the City’s reserved right of purchase, the City and PTC made the Agreements of 1957, 1962,.and 1965. The importance of this fact appears when one considers - Section 21 of the Estates Act, 20 PS §301. 21. This ‘Provides that the Estates Act ak ; Appendia D. a 117a .» , Shall take effect on the first day of January, one endiand nine hundred forty-eight, and [except in _ respects not here material] shall apply only to convey- - ances effective on or after that day. As to conveyances effective before that day, the existing laws shall remain in full force and effect.’’ Therefore, if either the Agreements of 1957, 1962, or 1965 * | was a “‘conveyance,’’ the ‘‘wait and see’’ doctrine of the ‘Estates Act applies, and not the common law rule against _ perpetuities. | ‘‘Conveyance’’ is defined by Section 1 of the Estates Act, 20 PS $301.1, as: ‘*. , . an act by which it is intended to create an interest in real or personal property whether the act is intended to have inter vivos or testamentary opera- tion.” - er | It may be that neither the Agreement of 1962 nor the : Agreement of 1965 is a ‘‘conveyance’’ within this definition, | for, as will be recalled, starting with the Agreement of 1962, PTC unilaterally asserted that the City’s reserved right of purchase had expired on July 1, 1957, to be extended by later agreements: The parties’ intentions, therefore, were not in accord with respect to the right of purchase. - However, the Agreement of 1957 does qualify as a ‘‘con- veyance.’’* There the parties were in accord with respect to the City’s reserved right of purchase; PTC had not con- ceived its perpetuities argument; and by the Agreement of 1957 it agreed with the City that:‘‘It is recognized that the . 1907 Agreement [which was defined to include the Agree- ment of 1939] continues in full force end effect... .°* - * As indicated in the statement~of the Questions Presented, Question No. 2, PTC at the trial argued that the Agreement of 1957, as well as the Agreements of 1962 and 1965, was void because never approved*by the PTC’s shareholders. At oral argument, PTC said ee not making the argument with — to the Agreement _** Exhibit P-12, Section 8. ere ee cere 118a | Appendix D PTC — that this ‘neato’ only to ‘‘recogni- tion’’ and cannot be considered a ‘‘conveyance.’’ The re- sponse ignores.the words that immediately follow the recog- nition, which are that ‘fand the’ Company will continue to make all, pay- ‘ments thereunder . . effective. It is extraordi nary because, as Mr. von Starck as well as Mr. Bauer explained, the Agreement of 1965 was simply the formalization of an understanding that had been reached in December, 1964. What intervenors argue, there-—~ Afore, i is, to put it. simply, that for. some reason they do not disclose, PTC had a right to repudiate its promises. The argument i is further extraordinary because intervenors sug- ' gest no reason why, when SEPTA’s representatives sug- gested to the City that the City assign its right of purchase to SEPTA, anyone was under any obligation to tell PTC. The assignment could not be made until Councilmanic ap- proval was obtained. Accordingly, as has been stated, a bill to enable the assignment was introduced on February : 25, 1965, which, after public hearings, was enacted as an ordinance on June 8, 1965. There was, therefore, full public disclosure and debate before the assignment was made. (iii) The testimony of Albert G. Lyons. . Albert G. Lyons, President of PTC, was intervenors’ last witness. He said that during the negotiations that led . up to the Agreement of 1965 ‘‘there was. no mention” of , the City’s reserved right of purchase, and that by execut- \ ing the Agreement of 1965, ‘‘we did not’’ ‘‘intend to extend the [City’s] option.’’ It is apparent that this testimony proved nothing that .shows fraud or mistake; indeed, like Mr. Bauer’s testi- mony, it did not help. but destroyed intervenors’ case. The fact of the absence during the negotiations of any reference to the City’s right to purchase has been discussed above,’ when commenting on Mr. von Starck’s testimony: arid Mr. Lyon’s intention in executing the Agreement of 1965 was © correct ; the Agreement did not ‘‘extend’’ the City’s option; nor did the City intend it to (as has just been seen, in con- sidering Mr. Bauer’s testimony); nor, indeed, from Mr. | _. Lyon’s testimony, did PTC intend it to, a - Appendia D i 135a (iv) Summary of intervenors’ evidence.’ Intervenors did not prove anything that even suggests, - much less ‘establishes, fraud. They tried to prove mistake ‘ by trying to prove that the City intended to let the option “‘expire,’? but Mr. Bauer proved that the City intend to preserve the option. They tried to prove that PTC was under some mistake as to the @ifect of the “Agreement of 1965, but Mr. von Starck did not say that he was mistaken, : nor did Mr. Lyons. Intervenors never. specified in any pleading what their charges of ‘‘fraud, accident or mistake’? meant. It is ap- parent now that they did not because they could not. E. Was the City’s assignment of its reserved right of purchase to SEPTA invalid because made without a public - auction? (Quéstions Presented, Question-No. 3.) 1. The pertinent provision of the Agreements of 1907 and 1939, and the terms and arateatiadl of the assignment to SEPTA. Section Eleventh of the Agreement of 1907* provided that , “The rights of the City under this paragraph [i.e., the City’s reserved right of purchase] shall be assign- able and may be put up at public auction to the highest | bidder therefor. The Company reserves its franchise to bea corporation with the power to operate passenger railway systems and may become a bidder for such rights. ”’ we Section 1(a) of the Agreement of 1939** amended . these provisions in unimportant respects. The phrase, * Exhibit P-1. ** Exhibit P-6. 136a | - .Appendia -.. ‘‘the rights of the City under this paragraph,’’ was changed to read, ‘‘The right of the City to purchase under this para- . graph’ ’; in the phrase, ‘‘a bidder for such rights,’’ ‘‘rights’’ was changed to ‘‘right’’; and ‘‘passenger railway systems’’ . was changed to ‘‘passenger transportation systems.’’. On June 4, 1965, an ordinance was enacted authorizing the Commissioner of Public Property, on behalf .of the City, to enter into an agreement assigning the City’s re- served right of purchase to SEPTA.* On June 8, 1965, the City and SEPTA did enter into such an agreement,** and on the same day SEPTA exercised it.*** Section 1 of the assignment agreement assigned the City’s. reserved right of purchase to SEPTA, Section 2 provided that if SEPTA did not exercise the right within five years, it would reassign it to the City. Section 3 pro- vided that SEPTA could not assign the City’s assign- ment and recited that the. parties intended to be legally bound.**** And Section 4 provided that if SEPTA ac- quired PTC’s assets at a price no higher than provided in | the formula set forth as part of the City’s reserved right of purchase, SEPTA would succeed to PTC’s rights and ‘obligations under the leases and other agreements (includ- ing the Agreement of 1907, as amended) between the City and PTC, that the Broad Street subway lease would be ex- tended for two. years from the date that SEPTA acquired © PTC’s assets, and that there would be no reductions in the payments ‘due the City under the leases eb other agree- ments unless with the City’s consent. ' * Exhibit P-21. ** Exhibit P-22. *** Exhibit P-23. **e% Tt appeared from the trial that one of PTC's arguments against the assignment would be that it was without consideration. Apparently PTC has abandoned the argument,, for it neither briefed nor made it orally. It may be noted that the assignment is also under seal. Appendix D | ¥ 137a The City’s assignment to SEPTA was without notice ‘to PTC, ‘and was made without public auction or other ) re bidding. 2. PTC’s argument against the assignment. Until oral argument SEPTA and the City evidently believed, because they briefed the point, that PTC con- tended that the Agreements of 1907 and 1939 required that before the City could assign its reserved right of purchase _ it had to conduct a public auction. It appears, however, ‘that PTC has abandoned this argument, if it did intend to ‘make it, for it did not brief the point; also, the Court under- stood PTO’s’ oral argument as abandoning the point. In any case, the argument is without. merit. The provisions of the agreements of 1907 and 1939 distinguish between ‘‘shall’’ and ‘‘may’’: the City’s reserved right of purchase ‘shall be assignable and may be put up at public auction.’’ And see Commonwealth v. A. M. Byers Co., 346 Pa. 555, 561 (1943) (‘‘the word ‘may’ clearly implies discretionary power. The language is permissive, rather than manda- tory’’); Connell, Aplnt., v. Kennett Twp. et al., 356 Pa. 585, 589 (1947) ; Blandon Boro. Incorporation Case, 182 Pa. . Superior Ct. 304, 309 (1956) ; and Weiner'v. Hospital Serv- . ice Plan, 13 D. & C. 2d 689, 692, aff’d per curiam, 187 Pa. Superior Ct. 244 (1958) (‘‘ Although the word ‘shall’ might, in a proper setting, be interpreted. as permissive, the word ‘may’ can never be given the imperative meaning’’). Instead, PTC’s argument is that the Philadelphia Home Rule Charter, adpoted by the electors on April 17, 1951, has intervened, and that it requires that before the City could assign its reserved right of purchase it — to: con- duct a public auctiori. The only provisions of the Home Rule Charter that: rogue public bidding are Sections 5- 900(a) (4), 6-500, and o APRN CTY ap eRe Y 138a . Appendix D 8-200, and 8-201. PTC does refer to Sections 6-500, 8-200, and 8-201, as showing that the Charter in a general way favors public bidding, but the only section that it contends required the City to assign its reserved right of purchase to the highest bidder at a public auction is Section 5-900 (a)(4).. (‘*This is the procedure which the City Council by-passed ... .’’, PTC states in its brief.) ; Before any of these sections is considered, it must be decided whether the Charter does supersede the Agree ments of 1907 and 1939. &, 3. The Philadelphia Home Rule Charter is irrelevant. There.can be no question that this is so. ’ The Home Rule Charter was written and adopted pur- _ suant to the First Class City Home Rule Act, Act of April 21, 1949, P.L. 665, 53 PS §13101. The importance of this source cannot be stated more clearly or forcefully than it was by Mr. Chief Justice Bell for a unanimous Court in Cali v. Philadelphia, Appellant, 406 Pa. 290, 295-298 (1962): “The Charter owes its breath of life and its very existence first to the Constitution of Pennsylvania, and secondly, to the enabling Act which gave it its birth, its powers and its limitations, namely, the First Class Cay ome eae Act of 1949, supra. - -‘We-must ... first examine.the Constitutioti. . . . In Commonwealth ex rel, Truscott ¥. Philadel- phia, 380 Pa., supra, the Court said (page 370): ‘The so-called Home Rule Amendment to the Constitution, Article XV, §1, adopted: November 7, .1922, provided: ‘Cities ... may be given [by the legislature] the right and power to frame and adopt their own charters and to exercise the powers and authority of local self-gov- rt Appendix D 7 139a ernment, subject, however, to such restrictions, limita- tions, and reguigtions, a as may be imposed by the Legis- ' lature.’’ ‘‘When -the City-County Consolidation Amend- ment of 1951 . . . was adopted, very many citizens be- lieved . that thine were securing . . . full and complete ' home vals ... [but the Condilinias and Enabling Act] | make clear that they acquired no such absolute and uriconditional untrammeled right [footnote omitted].”’ Section 11 of the Enabling Act, 53 PS §13111, provides that — : . ' . Any new Charter .. +. thus proposed .. . [and] approved ... shall become the organic law of the city. . No contract existing at the time of the adoption or amendment of a Charter by a City under the provisions of this act shall be affected thereby, but such contract shall have the same force and effect and be of the same validity as if such Charter had not been adopted or - amended.”’ Accordingly : The City’s reserved right of purchase is : provided by the Agreementof 1939; this agreement was a ‘‘contract existing at the time’’ the Charter was adopted, | ~ in 1951; therefore, its terms are to be applied ‘‘as if such / Charter had:not been adopted’’; its terms do not, as PTC apparently concedes, require that the City assign its re- about? public auctions, the provisions are here irrelevant.* * SEPTA and the Ci ity also argue that the. provisions of the ' Charter are irrelevant because of the Metropolitan Transportation - Authorities Act of 1963, Act of Anguat 14, 1963, P.L. 984, 66 — om Be tie ct al 3 e . served right of purchase to the highest bidder at-a public — auction; therefore, no matter what the. Charter provides - .140a Appendix D 4. If the Philadelphia Home Rule Charter did apply to the Agreement of 1939, it would not require that the City must. assign its reserved right of purchase to the highest bidder at a p [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_1259%3A2. Public record. Not legal advice.