118 N.Y.S. 969 | N.Y. App. Div. | 1909
Lead Opinion
We are safe in saying, from the opinions of the Commissioners and the brief of their counsel, that the principal reason for the refusal of the consent and authority of the Commission was the fact that the mortgage in question covers only the railroad property and not the coal lands and the trolley properties or the securities representing them.
By section 40 of the Stock Corporation Law, which was in full force when the original indebtedness now sought to be refunded was incurred, a stock corporation may purchase, hold and dispose of stocks, bonds and other evidence of indebtedness of another corporation engaged in a business similar to its own. In a litigation between the relator and one of the subsidiary companies of the Hudson Valley Kail way Company it was determined that the relator must join in a connection of its tracks with those of the electric road for the interchange of business. (Matter of Stillwater & M. St. R. Co., 171 N. Y. 589.) By the decision of this court in Hudson Valley R. Co. v. Boston & Maine Railroad (106 App. Div. 375). it was held that the steam road must interchange cars and freight with the electric road. It cannot, therefore, well be denied that the relator, the Hudson Valley Company and the United Traction Company were engaged in similar businesses. Whether we consider the notes in question as given for the Hudson Valley securities or for the United Traction Company stock, it must be deemed that the notes represented a valid debt incurred
The relator and the Commission join issue as to the power of the Commission. The relator contends that the Commission is of quite limited jurisdiction in the premises; that the statute itself has defined in what cases and for what purposes a railroad corporation may issue its bonds and securities; that the Commission is a statutory board whose duty in this case is solely to determine whether the proposed issues are to be made. and marketed in good faith for necessary corporate purposes as defined by the statute; that it appears conclusively that the bonds desired are for the refunding, on au equitable basis, of obligations which existed against the company before the Public Service Commissions Law was passed, and for a purpose directly permitted by the statute, and that, therefore, the consent of the Commission must follow. The Commission feels that although the indebtedness was honestly incurred before the Public Service Commissions Law went into effect, and for a purpose mentioned in the statute as one for which bonds and mortgages may issue, nevertheless that it has a discretionary power to say whether such issue shall be permitted, and if permitted, upon what part of the property of the corporation the security shall rest.
If we adopt the construction contended for by the relator, the validity of the statute is plain beyond question; for when there is
A Minnesota statute which required the consent of its Commission for an increase of capital stock, but gave no measure by which it could be determined when a corporation might or might not increase its stock, was held invalid as leaving it to the discretion and will of the Commission to determine what issues of stock were proper and what issues were improper. (State of Minnesota v. Great Northern Railway Co., 100 Minn, 455.) As said by Mr. Justice Brewer, for a unanimous court, in Interstate Commerce Comm. v. Chicago G. W. Ry. (209 U. S. 108, 118): “It must be remembered that railroads are the private property of their owners; that while from the public character of the work in which they are engaged the public has the power to prescribe rules for securing faithful and efficient service and equality between shippers and communities, yet in no proper sense is the public a general manager.”
The Commission stands in the place neither of the owner of the property nor of the Legislature, but is a board of public officers whose powers are to be found in the statute and are not to be implied or assumed. Section 3 of the charter of the relator, intrusting the management of its concerns to thirteen managers, repels rather than invites the construction that the officers of the State and not the officers of the corporation are to manage its business. At common law the duty devolves upon a common carrier, and those engaging in a similar public service, to furnish to the public a reasonable service at a reasonable price ; under the police power, legislation enacted for
Without further discussion we may assume that a statute which attempted to vest in a commission a general discretion over a corporation, so that its judgment shall be the test of the propriety of the corporate acts—'so that it may prevent a corporation from issuing its bonds or mortgages in good faith for full value to pay the honest debts of the corporation incurred for purposes expressly authorized by statute — would at least be of doubtful constitutionality, or a statute the validity of which cannot be said to be beyond question.
In the recent case of United States v. Delaioare & Hudson co. (213 U. S. 366), where the validity of the commodities clause of the Hepburn Act was questioned, the court emphasized the rule that where two constructions of an act of legislation are permissible; one of which may render it invalid or may lead to an honest dispute as to its validity, the court will adopt that construction which removés the validity of the statute from question. With that case in mind we have greater confidence in saying that the court will not read into an act powers not given by it when such powers make the validity of the act questionable. It, therefore, seems to be a proper construction of the statute in question to say that it furnishes the measure and the
The stockholders’ consent is required. They may arbitrarily decline to mortgage or bond their property, even though every reasonable consideration would seem to dictate that a mortgage or bond issue is necessary for the business requirements and safety of the corporation. The authority of the Public Service Commission to issue bonds, and its consent to mortgage, is required not as an owner, or as one authorized to control or manage the property or business, but as a board of public officials charged with the duty of seeing that the law is observed. Its order, under section 55 authoriz-. ing such issue, must state the amount thereof, and that, in the opinion of the Commission, the use of the money to be secured thereby is reasonably required for one of said purposes. This clearly indicates that one matter only is to be determined by the Commission, namely, what amount of securities if any is. necessary to issue to produce money required for a purpose mentioned in that section. . If other matters were to be determined, and the board was to place its decision upon other considerations, the statute would naturally require a statement of its conclusions upon such other matters also. In the absence of such requirement, the fact that the Commission is to state the amount found necessary for a purpose mentioned indicates that that is the only matter for its determination.
If the will of the Commission alone is the determining guide as
A fair construction of the statute is that bonds or stocks may issue in the cases mentioned in the statute ; that if the Commission is not satisfied that the proposed issue comes within the terms of the statute it may refuse consent, but when the statutory requirements have been fully met it then is the duty of the Commission to grant its consent. The Commission cannot find the debt one for which the statute authorizes the company to issue bonds and refuse consent because the mortgage does not cover all of the corporate property or because the corporation and the Commission disagree as to the part of the corporate property upon which the bonds should be secured.
This conclusion is the more satisfactory when we consider the salutary rule for the interpretation of a remedial statute, first to ascertain the evil in the existing law and then assume that the statute was intended to remedy such evil. The statutes of this State provide that no corporation shall issue stocks or bonds except for money, labor done or property actually received for the use and lawful purposes of the corporation, but permit a corporation to purchase property and to issue stock for the value thereof, and, in the absence of fraud in the transaction, the judgment of the directors as to the value of the property purchased is conclusive. Under this statute many corporations issue securities in exchange for property or labor turned into the company at fictitious values, so that the securities in fact do not represent actual values, but are, in common parlance, known as watered. It was deemed that such securities issued by a public service corporation were detrimental to the public interest, so far at least as the public might purchase the same, and perhaps as affecting rates to be charged the public.
This statute was evidently intended to protect the public from such securities; to prevent the officers of the company from receiving fictitious values for property or services of which they might be both the buyer and seller; to enable the Commission rather than the directors alone to determine whether the corporation, under the
. Another suggestion has great force confirming this construction of the statute. Ho authority of the Public Service Commission is required for the issue of bonds, notes or obligations unless the time of payment thereof exceeds one year. From a business point of view the company is more apt to be wrecked or thrown into bankruptcy on account of a floating debt than by a funded debt payable upon favorable terms in the distant future. If it was intended that the Commission should act in a way as guardian of the company and see that its indebtedness should not imperil its safety, and thereby possibly injure the public interests, the question of a short-time indebtedness would have been submitted to it also because of the greater peril from such issue. But the fact that the Commission only has authority over stock issues, and bond issues maturing after one year’s time, indicates clearly that the object of the authority of the Commission is to protect the public as would-be purchasers of the securities. The Commission is not to save the company from itself, or from the honest but unwise act of its officers and stockholders in whom alone the statute has vested the power to manage its property and business, but is to protect the public from the wrongful issue of the stocks and securities in which the public are apt to deal.
It seems clear, therefore, that the authority of the Commission in this case is that of an executive or administrative board charged with the duty of determining whether the proposed issue of bonds or mortgages is necessary for a purpose for which the statute permits the issue, and is to be marketed in a manner in which the company will receive the just value thereof. It was, therefore, the 'duty of the Commission, upon the undisputed facts, to grant the consent and authority asked.
The same result follows if we assume that a sound discretion is lodged with the Commission to refuse consent to the issue of bonds or authority to mortgage, even though all the statutory requirements have been fully complied with. This company is in a strong financial position, and from the fiscal showing made it is not possi
In any event it rests with the stockholders and officers of the company to dictate its financial policy and to make the best possible bargain for the company in the' flotation of its securities. The public interests cannot in any manner be imperilled by the method of refunding which the company has selected. Its method seems a wise and proper one, and the refusal by the Commission of its consent is not a reasonable exercise of the discretion which may rest with it.
The determination is, therefore, annulled so far as it refuses consent and authority to issue the bonds in question, and the matter is remitted to the Commission for its further action.
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Sewell, J., concurred ; Smith, P. J., concurred in memorandum, in which Chester and Cochrane, JJ., concurred.
Concurrence Opinion
(concurring):
I concur upon the ground last stated. I am not ready to agree that the Commission is required to authorize the issuance of these bonds in all cases if the conditions of the statute are fulfilled. If the railroad property upon which it was proposed to make them a lien were inadequate as full security, while the company held other property which might be included in the mortgage, and which if included would give full security to the bonds, I think the Commission might withhold its approval for the protection of the public, who are the ultimate purchasers. But this power would seem to be denied by the logic of Mr. Justice Kellogg’s opinion. The necessity for this class of legislation lies in the inability of the Legislature to itself supervise the corporate acts of public service corporations. Its justification lies in the right of the State to protect the public and the public interests. It is nowhere claimed that this Commission may be vested by the Legislature with arbitrary and discretionary powers, nor is it possible in all cases to fix a specific standard by which the Commission is to be guided. That standard must be at times more or less general. In the case of Village of Saratoga Springs v. Saratoga Gas, etc., Co., cited in Mr. Justice Kellogg’s opinion, it was held that a Commission might fix “ reasonable ” rates. The necessity and purpose of this legislation would themselves seem to place a limitation upon the ¡lowers of the Commission and a standard by which it should be guided, to wit, the protection of public interests. In all cases it should be made clearly to appear that the act of the corporation in the management of its affairs, which is assumed to be vetoed by the Commission, is an act in conflict with the public interests. Otherwise the right of the corporation to manage its own affairs would seem to be clearly guaranteed by the Constitution. I agree with Mr. Justice Kellogg that there is nothing in the case at bar to show that the public interests are in any way imperilled by the proposed issue of bonds by the corporation, and that the Public Service Commission should, therefore, have approved of the issue.
Chester and Cochrane, JJ., concurred.
Determination annulled so far as it refuses consent and authority to issue the bonds in question, and the matter remitted to the Commission for further consideration.