216 Mass. 432 | Mass. | 1914
The New York, New Haven, and Hartford Railroad Company applied to the public service commission (established by St. 1913, c. 784, § 1) for approval of a proposed issue of evidences of indebtedness to an amount of $67,552,000 for the purpose of funding floating debts, purchasing new equipment, and its other uses. The issue was authorized by vote of the stockholders. These proposed evidences of indebtedness were to be payable twenty years after date, to bear interest at the rate of six per cent per annum, and to be convertible at the option of the holders into shares of capital stock at par at any time not less than five nor more than fifteen years after date. In the same petition the company also applied for approval of a proposed issue of its capital stock at par to the amount of 675,520 shares, for the purpose of being able to comply with the convertible feature of these evidences of indebtedness. The commission, one commissioner dissenting, made an order of approval of the issue of the evidences of indebtedness with the convertible feature and the issue at par of the requisite number of shares of stock to pay them according to the terms of the option of conversion into stock.
This order is assailed on the ground, among others, that the commission had no legal power to approve the issue of evidences of indebtedness (called for convenience convertible debentures) exchangeable for stock at par at the option of the holder for a period of ten years beginning five years after their date.
The commission is a quasi judicial tribunal. Its power is to approve the issue of the proposed convertible debentures, and not merely its amount. When application is made to it for approval, it becomes its duty to determine whether as matter of law it is empowered to approve such an issue as is proposed by the corporation.
The approval of the issue of convertible debentures containing the option of exchange for stock at par necessarily involves the further approval of an issue of shares of stock at par in order that the company may be in a position to carry out its contract set forth in the debentures. It has been argued that the order to
It is to be observed that the answer to this question has nothing whatever to do with the general power of a corporation, unrestricted by any public supervision, to issue convertible debentures, Pratt v. American Bell Telephone Co. 141 Mass. 225, Lisman v. Milwaukee, Lake Shore & Western Railway, 161 Fed. Rep. 472, nor with the right or duty of public boards created under other statutes with different powers, to authorize the issuance of such securities, Laird v. Baltimore & Ohio Railroad, 121 Md. 179, nor with the issuance of such securities in accordance with special statutes, John Hancock Mutual Life Ins. Co. v. Worcester, Nashua & Rochester Railroad, 149 Mass. 214. Parkinson v. West End Street Railway, 173 Mass. 446. The interpretation of our statutes alone is involved in this inquiry.
General regulations as to the issuance of bonds by railroad companies are to be found in St. 1874, c. 372, § 49, St. 1875, c. 58, St. 1876, c. 170, Pub. Sts. c. 112, § 62, St. 1883, c. 7, St. 1887, c. 191. Provisions for public supervision of the propriety and necessity of the issuance of railroad securities first appeared in St. 1894, c. 462, whereby it was enacted that no stock or bonds should be issued by railroad corporations unless voted by the railroad commissioners to be reasonably necessary for the purposes for which such stock or bonds were issued. This act was extended by St. 1897, c. 337, to issues of coupons, notes and other evidences of indebtedness payable more than twelve months after date. These provisions were incorporated without substantial change in R. L. c. 109, § 24, and in St. 1906, c. 463, Part II, § 65.
It is apparent from this review of statutes that the progressively developed policy of the Commonwealth has been to regulate and • supervise the issue of stock and obligations by railroad corporations in such a way as to prevent stock watering or financial exploitation of such corporations. In earlier years statutes laid down general rules controlling the conduct of railroad corporations, but leaving the execution to the judgment of the stockholders and officers of the corporations. Since 1894, through the instrumentality of a public board, supervision of this corporate judgment has been required, to the end that only such and so great financial obligations should be issued as would meet the reasonable necessities of the corporation. This policy has been manifested as to other public service corporations, such as gas and electric light companies, aqueduct companies and street
The provisions of St. 1913, c. 784, §§ 15 and 16, which govern the present application, must be read and interpreted in the light of this history of the statutory development of the public regulation of stock issues of railroad corporations. By § 15 “A railroad corporation may issue shares of capital stock, bonds, notes or other evidences of indebtedness, for the purpose of funding its floating debt, or for any other lawful purpose,” but by § 16 “Before any railroad corporation shall issue any shares of capital stock or any bonds, notes or other evidences of indebtedness payable at periods of more than twelve months after the date thereof, it shall apply to the commission for its approval of the proposed issue to such amount as the commission shall determine to be reasonable and proper. . . . Any order of the commission approving any such issue of stock, bonds, notes or other evidences of indebtedness may provide for the application of the proceeds thereof to such particular uses as the commission shall by that order or by some subsequent order specify, and the corporation shall not apply such proceeds otherwise than as thus specified in such order or orders. The decision of the commission as .to the amount of stock which is reasonably necessary for the purpose for which such stock is proposed to be issued shall be based upon the price at which such stock is to be issued, and the commission shall refuse to approve any particular issue of stock, if, in its opinion, the price at which it is proposed to be issued is so low as to be inconsistent with the public interest.”
There is nothing in this or other language in the act to indicate a reversal of the general policy of regulation of issues of stocks, bonds and other evidences of indebtedness by a public board. The words quoted from these sections, which are the vital ones as to the matter now under discussion, are found in substance in earlier acts. The context or collocation fails to show that they have a different meaning now than before. A considerable change is wrought by the legislation of 1913, but it is in the direction of enlarged powers of regulation and supervision on the part of the commission. No intent is disclosed, however, to relax the general policy heretofore established of protecting the public
The approval by the commission of an issue of stock must relate to the present and not to a remote future. This is required by the legislative intent disclosed by the review of the statutes. It also is necessary in order to make the St. of 1913 reasonably effective in the accomplishment of practical results. To the end that the purposes may be accomplished for which legislative regulation has been established, it is necessary that the price to be fixed should relate substantially to present conditions. Of course the statute is to be interpreted rationally, and there must be considerable flexibility as to the time within which stock may be sold after it is authorized. Reasonable limits of time may be considered in approving an issue of stock and putting it on the market. But that is not what is contemplated by the order now under review.
It is not pretended that the price at which the stock of this corporation may be selling within a period of ten years, beginning at the expiration of five years from the present, can be forecast by anybody. Neither its market value nor its real value can be determined except as of a time approximately near the present.
No request has been made for the approval of an issue of bonds without the convertible into stock feature. Apparently no vote
The ground upon which this decision rests is fundamental and it would be superfluous to discuss the numerous other less basic propositions which have been raised and argued. Nor is it necessary to decide questions of practice. The plaintiffs as stockholders plainly have a right to invoke the protection of the court against a proposed issue of convertible debentures and stock such as here is proposed. St. 1913, c. 784, §§ 16, 27. Paine v. Newton Street Railway, 192 Mass. 90. Weston v. Railroad Commissioners, 205 Mass. 94.
Order of public service commission annulled.