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State v. Elizabethtown Water Co.

Decided: June 3, 1963.

STATE OF NEW JERSEY, BY DAVID D. FURMAN, ATTORNEY GENERAL, PLAINTIFF-APPELLANT AND CROSS-RESPONDENT,
v.
ELIZABETHTOWN WATER COMPANY, A NEW JERSEY CORPORATION (SUCCESSOR BY CONSOLIDATION TO PLAINFIELD-UNION WATER COMPANY AND ELIZABETHTOWN WATER COMPANY CONSOLIDATED), DEFENDANT-RESPONDENT AND CROSS-APPELLANT



For affirmance -- Chief Justice Weintraub, and Justices Jacobs, Francis, Proctor, Hall, Schettino and Haneman. For reversal -- None. The opinion of the court was delivered by Jacobs, J.

Jacobs

The Appellate Division, in a full opinion by Judge Kilkenny, rejected the plaintiff's appeal and the defendant's cross-appeal from judgments entered in the Chancery Division. State v. Plainfield-Union Water Co., 75 N.J. Super. 571 (1962). We granted certification on petitions by the parties. 38 N.J. 498 (1962).

The State instituted custodial escheat actions against water companies which have been consolidated into the defendant

Elizabethtown Water Company. It asserted various claims and obtained judgments which are described in the Appellate Division's opinion and need not be detailed here. The State's appeal before us is confined entirely to an attack on the refusal of the lower courts to grant its additional claim with respect to sums deposited by land developers pursuant to type C main extension agreements. See 75 N.J. Super., at pp. 576-578. Those agreements set forth that, upon the understanding that the Water Company would extend its main at its own cost and expense, the developer would pay a stipulated sum to be returned to it without interest in the following manner:

"as houses are connected to and supplied with water from said extension, Water Company will make an estimate of the annual revenue to be derived from each house and will return to us Three and 50/100 ($3.50) for each One Dollar ($1) of such estimated revenue."

In many instances, application of the afore-mentioned formula resulted in refunds which did not exhaust the entire deposits. In such instances, the unrefunded balances were retained by the Water Company and were reflected on its books in accordance with the prescribed Uniform System of Accounts For Water Companies which provides under Account 218, designated as Customers' Advances For Construction, that when a customer receives a refund of "the entire amount to which he is entitled, according to the agreement or rule under which the advance is made, the balance, if any, remaining in the account shall be transferred to Account 219." During the course of many years the defendant's predecessors accumulated substantial amounts of such balances which were duly recorded in their accounts. In rate proceedings, the Public Utility Commission deducted these amounts from capital investment for the purpose of arriving at the base upon which reasonable return would be calculated. Cf. Langan v. West Keansburg Water Co., 51 N.J. Super. 41, 51 (App. Div. 1958), certif. denied, 28 N.J. 56 (1958).

The State seeks custodial escheat of the afore-mentioned amounts remaining unclaimed for more than five years since July 13, 1945; that date was six years prior to the passage of the Custodial Escheat Act (L. 1951, c. 304) and the moneys in question were not reported thereafter as escheatable. See N.J.S. 2A:37-29 et seq.; State by Parsons v. United States Steel Corp., 22 N.J. 341 (1956). The State's position is that when a development has been completed and refund has been made on the basis of $3.50 for each dollar of estimated annual revenue, any unrefunded balance belongs to the developer and if unclaimed by him for a sufficient period, is subject to escheat. On the other hand, the position of the defendant is that so long as it has made refund on the basis of $3.50 for each dollar of estimated annual revenue, it is under no further obligation under the terms of the agreement and consequently nothing is escheatable. The issue turns on the true meaning of the agreement between the parties and in this connection the State suggests that we should confine ourselves to the four corners of the written agreement without resort to the Commission's regulations or its prescribed accounting practices or other extrinsic interpretive aids. We are satisfied that the agreement is not to be so read in a vacuum but is to be read in the full light shed by all of the attendant circumstances. See Atlantic Northern Airlines, Inc. v. Schwimmer, 12 N.J. 293, 301 (1953). This course would undoubtedly be followed if the developers themselves were claiming the unrefunded balances and while escheat actions are generally not to be viewed with hostility (State by Parsons v. United States Steel Corp., supra, 22 N.J., at p. 360), the State's claims are nonetheless derivative and certainly no broader than the developers' claims. See State by Richman v. Sperry & Hutchinson Co., 56 N.J. Super. 589, 596 (App. Div. 1959), aff'd, 31 N.J. 385 (1960).

Deposit agreements in connection with the extension of utility facilities to new land developments are of long standing in our State. See Elmora Villa, etc., Co. v. Plainfield-Union Water Co., 118 N.J. Eq. 317 (E. & A. 1935); Thomas,

"Public Utilities: Extension of Service," 16 Rutgers L. Rev. 318 (1962). R.S. 48:2-27 provides that the Board of Public Utility Commissioners may require an extension of facilities where, in its judgment, the extension is reasonable and practicable and will furnish sufficient business to justify the construction and maintenance of the same, and when the financial condition of the public utility reasonably warrants the original expenditure required in making and operating the extension. Under the statute, a land developer may institute a proceeding before the Public Utility Commission with a view towards compelling the utility to extend its facilities, and on a proper showing it may obtain a suitable order for the extension. See In re Bd. of Fire Commrs., Fire Dist. No. 3, Piscataway Tp. v. Elizabethtown Water Co., Consolidated, 27 N.J. 192 (1958); In re Tp. of Lakewood v. Lakewood Water Co., 29 N.J. Super. 422 (App. Div. 1954); cf. Petition of Highpoint Development Corp., 65 N.J. Super. 530 (App. Div. 1961), certif. denied, 34 N.J. 473 (1961). But the utility's obligation to extend is by no means an unconditional one for it is expressly subject to the statutory standards which, if unsatisfied, will preclude the order sought by the developer. See Langan v. West Keansburg Water Co., supra. To avoid the expense and delay incident to application to the Commission, along with the uncertainty of the outcome, the developer may be willing to enter into a voluntary business arrangement with the utility under which the utility's speculative risk is reduced or eliminated and the developer is enabled to proceed with knowledge of the incidental costs which will ultimately be borne by purchasers of the houses.

In 1922 such business arrangements were common but they varied in details from utility to utility. During that year a hearing was called by the Board of Public Utility Commissioners for the purpose of determining whether some standardization could be effected. In 1923 the Board announced recommended general rules and regulations which, though not strictly binding, were adopted by the ...


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