130 N.Y.S. 97 | N.Y. App. Div. | 1911
Lead Opinion
Certiorari to review a determination of the Public Service Commission for the First District of the State of New York denying an application under section 55 of the Public Service Commissions Law (Laws of 1907, chap. 429, as amd. by Consol. Laws, chap. 48; Laws of 1910, chap. 480) for an order authorizing the issue of stock and bonds oh the reorganization of the Third Avenue Eailroad Company under and by virtue of sections 9 to 12 of the Stock Corporation Law (Consol. Laws, chap. 59; Laws of 1909, chap. 61).
The Third Avenue Eailroad was duly incorporated in October, 1853, under chapter 140 of the Laws of 1850. Its original capital stock was $1,170,000. 'This was increased from time to' time so that prior to May 15, 1900, it had duly issued at par for cash shares of its capital stock amounting in the aggregate to the par value of $15,995,800, and this amount is now outstanding. An issue of $5,000,000 of first mortgage bonds was created
In order to pay for the acquisition of stock and bonds of certain controlled companies, complete and equip electrically its own lines and those of its controlled companies, provide funds for additions and improvements, the Third Avenue Company in 1900 created an issue, of bonds known as its consolidated four per cent one hundred year gold bonds to the authorized amount of $50,000,000, secured by a consolidated mortgage covering all its property and franchises, including the securities by which it controlled its subsidiary companies and operated the system of through routes and transfers, namely: 1, the Union Railway Company; 2, the Forty-second Street, Manhattanville and St. Nicholas Avenue Railway Company; 3, the Dry Dock, East Broadway and Battery Railroad Company; 4, the Kingsbridge Railroad Company; 5, the Yonkers Railroad Company; 6, the Westchester Electric Railroad Company; 7, the Southern Boulevard Railroad Company, and 8, the Tarrytown, White Plains and Mamaroneck Railway Company. The Board of Railroad Commissioners made an order whereby it granted the application and gave its consent authorizing the Third Avenue Company to execute said consolidated mortgage and to negotiate and issue bonds thereunder to the amount of $50,000,000. The Third Avenue Company actually received $36,953,174.44 for $37,560,000 of its said consolidated bonds. It is these bonds relators now represent.
The Third Avenue system comprised 272 miles of single track of which 64 miles are underground electric trolley, 190 miles overhead trolleys and 18 miles horse car lines. Contemporaneously with the issue of the consolidated bonds the Third Avenue Company leased its property to the Metropolitan Street Railway Company, as authorized by statute. In September, 1907, the Metropolitan Street Railway Company and its assignee and successor, the New York City Railway Company, became insolvent and receivers were appointed by the United States Circuit Court. It was found that the lessee had faded to keep
The receiver has applied the net income, being about $2,800,000, to the improvement and betterment of the property and in addition had issued by the authority of the United States court receiver’s certificates to the amount of $3,500,0Q0, so that since the receivership $5,300,000 has been expended out’of the proceeds of the receiver’s certificates and net earnings .for improvements and betterments, the purchase of new rolling stock and equipment, etc. The bondholders have received no interest since July 1, 1907.
On May 17, Í909, the United States Circuit Court made and entered a decree of foreclosure and sale, adjudging that the consolidated mortgage was a valid and subsisting mortgage lien upon the property and franchises of the Third Avenue Company; that $37,560,000 face value of the consolidated bonds had been duly issued; that the sum of-$40,381,173.33 was then due thereon for principal and interest and that the property and franchises should be sold in the manner in said decree specified, and that the amount so found to be due on the consolidated bonds should bear interest at the rate of six’ per cent per annum from the date of the decree. Interest has, therefore, been accruing at the rate of $2,422,870 per annum from May. 17, 1909, but no part thereof has been paid.
The holders of the- consolidated bonds entered into a bondholders’ agreement, dated November 6; 1907, appointing the ■individual relators as a committee and authorizing them to formulate a plan of reorganization. This committee having presented one plan of reorganization to the Public Service Commission which was not approved, prepared the plan dated
1. Consolidated four per cent bonds- as adjudged by United States court.'.. $37,560,000
2. Interest accrued-thereon as allowed by United States court:
(a) To date of decree. $2,821,173
(b) Prom date of -decree to January 1, 1910.. 1,503,507
- 4,324,680
3. Outstanding stock issued at par for cash. 15,995,800
.4. New cash to be contributed by stockholders... 7,200,000
Total..:. $65,080,480
It was proposed to distribute these new securities among existing bondholders and stockholders as follows: 1. To holders of consolidated bonds, (a) fifteen per cent of principal, $5,634,000, and part of defaulted interest to January 1, 1910, $3,756,000 in refunding bonds, $9,390,000; (b) sixty per cent of principal of income bonds, $22,536,000; (c) twenty-five per cent of principal in new stock, $9,390,000; total in new securities taken at par or face value of $41,316,000. 2. To stockholders, (a) refunding bonds, $6,400,000; (b) forty-five per cent in new stock, $7,200,000; total new capitalization divided among bondholders and stockholders, $54,916,000.
The stockholders, however, were to have no interest in Such new securities unless they paid an assessment of $7,200,000 in cash, at least $6,000,000 of which was to be expended for strictly corporate purposes and not for expenses of reorganization, namely, for receiver’s certificates, taxes, etc.
The bondholders’ committee filed their application and petition praying the Commission to approve the proposed issues. Pending the hearings a sale under the decree became immi
As the Railroad Law (Gen. Laws, chap. 39 [Laws of 1890, chap. 565], § 81; now Consol. Laws, chap. 49 [Laws, of 1910, chap. 481], § 151) authorizes any mortgagee of the property and franchises of a railroad corporation to purchase the same at foreclosure sale and hold and use the same for six months and convey the same to any railroad corporation, the certificate of reorganization of the new company was promptly executed and filed and the tax required by the State of New York duly paid. The certificate provided for the capitalization which had theretofore been determined in the plan of reorganization and the agreement of - readjustment. Immediately after the incorporation of the new. corporation a contract was made between it and the purchasers for the conveyance and transfer to it of all the property and franchises sold at the foreclosure sale and of all surplus moneys acquired on the reorganization and the new corporation agreed to issue to. the bondholders’ committee the necessary amount of new bonds and new stock for distribution among the holders of the old bonds and stock or to discharge the expenses of the reorganization.
The reorganized corporation was permitted to intervene in the proceeding and subsequently the Commission denied the application for leave to issue, the bonds and stocks provided for in the reorganization plan submitted to it.
The main question here presented has not heretofore been
The reorganization statute, which first appeared in section 2 of chapter 502 of the Laws of 1853, was at first confined to railroad and plank road corporations. After numerous amendments, it was finally transferred to the Stock Corporation Law where it now appears in chapter 59 of the Consolidated Laws (Laws of 1909, chap. 61), and is as follows:
“ § 9. Eeorganization upon sale of corporate property and franchises. When the property and .franchises of any domestic stock corporation shall be sold by virtue of a mortgage or deed of trust, duly executed by it, of pursuant to the judgment or decree of a court of competent jurisdiction, or by virtue of any execution issued thereon, and the purchaser, his assignee or grantee shall have acquired title to the same in the manner prescribed by law, he may associate with him any number of persons, not less than the number required by law for an incorporation for similar purposes, at least two-thirds of whom shall be citizens of the United States and one shall be a resident of this State, and they may become a corporation and take and possess the property and franchises thus sold, and which were at the time of the sale possessed by the corporation whose property shall have been so sold, upon making and acknowledging and filing in the offices where certificates of incorporation are required by law to be filed, a certificate in which they shall describe by name and reference to the law under which it was organized, the corporation whose property and franchises they have acquired, and the court by whose authority the sale had been made, with the date of the judgment or decree authorizing or directing the same, and a brief description of the property sold, and also the following particulars:
“ 1. The name of the new corporation intended to be formed by the filing of such certificate; and the place where its principal office is to be located.
“2. .The maximum amount of its capital stock and the number of shares into which it is to be divided, specifying the*326 classes, thereof, whether common or preferred, and the amount of and rights pertaining to each class.
“3. The number of directors, not less nor more than the number required by law for the old corporation, who shall manage the affairs of the new corporation, and the names and post-office addresses of the directors for the first year. They may insert in such certificate any provisions relating to the new corporation, or its management, contained in any plan or agreement which may have been entered into as provided in section ten of this chapter. Such corporation shall be vested with, and be entitled to exercise and enjoy,, all'the rights, privileges and franchises, which at the time of such sale belonged to, or were vested in the corporation last owning the' property sold, or its receiver, and shall be subject to all the provisions, duties and liabilities imposed by iaw on that corporation. ' Any proceedings heretofore taken in substantial compliance with this section as hereby amended, and any and all incorporations based thereon are hereby ratified and confirmed.
“§ 10. Contents of plan or agreement. At or previous to the sale the purchasers thereat, or the persons for whom the purchase is to be made, may enter into a plan or agreement, for or .in anticipation of the readjustment of the respective interests therein of any creditors, mortgagees and stockholders, or any of them, of the corporation owning such property and franchises at the time of sale, and for the representation of such interests in the bonds or stock of the new corporation to be formed, and may therein regulate voting by the holders of the preferred and common stock at any meeting of the stockholders, and may provide for, and regulate voting by the holders, and owners of any or all of the bonds of the corporation foreclosed, or of the bonds issued or to be issued by the new corporation; and such right of voting by bondholders shall be exercised in such manner, for such period, and upon such conditions, as shall be- therein described. Such plan or agreemeut must not be inconsistent with the laws of the State, and shall be binding upon the corporation until changed as therein provided} or as otherwise provided by law. The new corporation, when duly organized pursuant to such plan or agreement and to the provisions of law, may issue its bonds and stock in con*327 form if,y with the provisions of such plan or agreement, and may at any time within six months after its organization, compromise, settle or assume the payment of any debt, claim or liability of the former corporation upon such terms as may be lawfully approved by a majority of the agents or trustees intrusted with the carrying out of the plan or agreement of reorganization, and may establish preferences in favor of any portion of its capital stock and may divide its stock into classes; but the capital stock of the new corporation shall not exceed in the aggregate the maximum amount of stock mentioned in the certificate of incorporation.” •
In Vatable v. N. Y., L. E. & W. R. R. Co. (96 N. Y. 54) Earl, J., said: “A railroad company having the right by law to mortgage, its property and franchises can confer upon the mortgagee the same interests and rights which an individual by mortgage of his property can confer. Unless some statute intervenes, the foreclosure of a railroad mortgage will cut off all the rights and interests of a railroad company, the mortgagor, in the property mortgaged, and nothing will be left for the general creditors and stockholders of the company but their interest in the surplus, if any, after satisfying the mortgage. But for many years the Legislature has attempted to protect the stockholders of railroad companies against the consequences of foreclosures of mortgages upon their property by varying provisions of law more or less effectual.” He then gives the history of the reorganization statutes.
In Louisville Trust Co. v. Louisville, etc., R. Co. (174 U. S. 674) Mr. Justice Brewer, after stating that on foreclosure only the mortgagees or their representatives can be considered as probable purchasers, said: “We must, therefore, recognize the fact, for it is a fact of common knowledge, that, whatever the legal rights of the parties may be, ordinarily foreclosures of railroad mortgages mean not the destruction of all interest of the mortgagor and a transfer to the mortgagee alone of the full title, but that such proceedings are carried on in the interests of all parties who have any rights in the mortgaged property, whether as mortgagee, creditor or mortgagor.”
The foregoing citations and our own statute sufficiently
The statute alluded to further provides: “ The new corporation, when duly organized, pursuant to such plan or agreement and to the provisions of law, may issue its bonds and stock in conformity with the provisions of such plan or agreement.” A direct grant of power to carry out the provisions of its plan is made a part of its fundamental charter. Further, “ And
The Public Service Commissions Law was passed in 1907 in response to a general public sentiment to secure publicity in the affairs of public service corporations and to guard and protect the interests.of the public in their relation to such corporations. As said by Haight, J., in People ex rel. Delaware & Hudson Co. v. Stevens (197 N. Y. 1): “We understand that the paramount purpose of the enactment of the Public Service Commissions Law was the protection and enforcement of the rights of the public.”
It is claimed that the reorganization statute has been repealed by the Public Service Commissions Law, not directly, but impliedly. Repeals by implication' are not favored by the courts, and, unless the provisions of the two acts are so inconsistent that they cannot both exist side -by side, a repeal of the earlier one by the later should not be declared. Especially is this true as in the case at bar where the earlier statute expresses a settled public policy, where it provides precisely for a situation not directly covered or alluded to in the subsequent act and where the subsequent act by amendment recognizes the continued existence of the prior act. .
The reorganization statute deals with a definite thing, the readjustment of the interests of bondholders, stockholders and creditors, upon the reorganization of a corporation upon- the foreclosure of a mortgage given by it of its franchises and property. The Public Service Commissions Law deals generally with the supervision and control of public service corporations. It contains a provision in regard to the issue of securities of such corporations. It is provided in section 55, as amended in 1910: “A common carriel’, railroad corporation or street railroad corporation, organized or existing or hereafter incorporated under or by virtue of the laws of the State of New York, may issue stocks, bonds, notes or other evidence of indebtedness payable at periods of more than twelve months
The Commission claims that under said provision the scheme established by the reorganization statute, which gives the purchasers upon the foreclosure sale the power to make a plan for the readjustment of the respective interests of creditors, mortgagees and stockholders, and for the representation of such interests in the bonds or stock of the new corporation to be formed, and for the incorporation of such plan into the charter of the new corporation formed upon the reorganization, and the direct grant of power to it to issue its bonds and stock in conformity with the provisions of such plan or agreement, has been entirely abrogated, and that although foreclosure under decree of the court has been had under which the validity of the bonds issued by the old company has been established, and although a plan has been adopted and a new corporation has been formed into whose charter has been written that plan, it is.for the Commission to determine the details of the reorganization scheme, and the amount of stock and bonds which may be issued in order to carry it out; that the wishes, views and interests of the purchasers, the bondholders and the stockholders, crystallized in their plan, and on the faith of which the purchase was made and confirmed by the court, are absolutely of no effect whatever; that it has the power to regulate these details.
It is true in a certain sense that the Third Avenue Railway Company, formed as a result of the reorganization plan and under the reorganization statute, is a new corporation; but it
I cannot convince myself that the Legislature accidentally, indirectly and unwittingly would so reverse and destroy the long-established public policy of the State in respect to the reorganization of railroads. The direct question here has not yet been passed upon by the courts and there are not many cases which approach it even indirectly, but there are a few and they are very significant. First, upon the question of repeal by implication. Village of Fort Edward v. Hudson Valley R. Co. (192 N. Y. 139) was an action brought to restrain the defendants from constructing a switch on Broadway in the village of Port Edward, which the defendants intended to intersect their tracks; The Delaware and Hudson Company operated a double-track steam railroad crossing Broadway at right angles. The Hudson Valley Bailway Company operated an electric street railroad in Broadway, and its tracks crossed the Delaware and Hudson at grade. It was alleged in the complaint that the two companies were engaged in building an extension of their railroads diagonally across Broadway, , intersecting and connecting the tracks of the two companies without the consent of the trustees of the village and without the consent of the Public Service Commission. Under section 12 of the Railroad Law (Gen. Laws, chap. 39 [Laws of 1890, chap. 565], as amd. by Laws of 1892, chap. 676) it was provided that “Every railroad corporation, whose road is or shall be intersected by any new railroad, shall unite with the corporation owning such new railroad in form* ing the necessary, intersections aind connections and grant
In People ex rel. South Shore Traction Co. v. Willcox (196 N. Y. 212) the Public Service Commission had determined that the construction and operation of the proposed railroad was both necessary and convenient for the public service, but had refused its consent because it disapproved of the terms and conditions prescribed by the board. of estimate and apportionment of the city of New York. The court held that its only jurisdiction was to determine the question of public convenience and necessity; that it had nothing to do with the terms prescribed by the local authorities and affirmed the order of the Appellate Division (133 App. Div. 556) directing the Commission to grant the application.
In People ex rel. Delaware & Hudson Co. v. Stevens (supra) the Public Service Commission refused the application of the Delaware and Hudson Company to issue bonds for the purpose of paying certain notes issued for the purpose of acquiring the stock and securities of the Hudson Valley Eailway Company and for certain coal lands, upon the ground that the purchase was an unfortunate one for the company; that it paid for the securities more than they were worth. Haight, J., said: “For a generation or more the public has been frequently imposed upon by the issues of stocks and bonds of public service corporations for improper purposes, without actual consideration therefor, by company officers seeking to enrich themselves at the expense of Innocent and confiding investors. One of the legislative purposes in the enactment' of this statute was to correct this evil by enabling the commission to prevent the issue of such stock and bonds, if upon an investigation of the
In People ex rel. New York, N. H. & H. R. R. Co. v. Willcox (200 N. Y. 423), where the court denied the jurisdiction of the Public Service Commission to abate a nuisance affecting the public health, although committed hy a railroad company, upon the ground that such matters were within the’ jurisdiction of the hoard of health, the court in refusing to hold that the provisions of the charter of the city of New York had been repealed or were so repugnant and inconsistent with the provisions of the Public Service Commissions Law as to require them to yield to the latter statute as the later law, said: “Judicial construction of a general statute should guard against interpreting its language, so as to create conflict, or contradiction, with the provisions of an earlier and special statute, if it may stand independently and with a distinct and useful purpose to accomplish. ⅜ » ⅜ ippe commissions were given extensive powers; hut they should not he extended hy implication beyond what may
It seems to me that from these expressions of the court of last resort and the consideration of the two statutes before us, we are compelled to conclude that the reorganization statute still exists in ftili force and effect, unrepealed, unaltered and unamended; that it is complete in and of itself to the extent of its direct provisions; that the relators proceeded under it and in conformity with its provisions and that the new corporation formed in conformity therewith is thereby given the express power to issue the stocks and bonds provided for in the adopted plan of reorganization; that the Public Service Commissions Law is additional and supplementary thereto, as it is additional and supplementary' to the Eailroad Law; that an application was entirely proper to the Commission and that that Commission was vested with the power to determine whether the proposed stocks and bonds were issued under and in conformity with the provisions of the statute for the purposes mentioned therein for the discharge of the actual and not the fictitious debts of the company for the refunding of its' actual obligations, and whether the new corporation had been duly organized and become vested with the title to the property and franchises of the old corporation, but that it was not vested with power to pass upon the plan of reorganization.
As in the Delaware & Hudson case, where it was held when they had determined that the notes were valid obligations of the company, it was their duty to permit the issuance of bonds therefor.It was none of their concern as to whether or not the company had made a good or a bad bargain. So here, the plan of reorganization had determined for what and in what manner the obligations of the company should be issued and it is within the jurisdiction of the Commission to determine whether that plan is being carried out, not whether the plan was good or bad:
In 1910, section 54 of the Public Service Commissions Law
The question which we have deemed to he controlling and which has been heretofore discussed, renders it unnecessary to consider the many interesting points presented at bar respecting the property included by the respondents in their valuation, and respecting the basis of such valuation. The fact that we have not considered it necessary to discuss these questions is not to be taken as implying that we consider that the objections by the relators upon the matter of valuation are without merit.
The order of the Commission should be reversed and the matter remitted to it, with directions to proceed as indicated in this opinion.
Concurrence Opinion
(concurring):
I fully concur in the opinion of Mr. Justice Clarke.
Sections 9 and 10 of the Stock Corporation Law, to which attention has been called, provide a system by which the readjustment of the. respective interests in the property and franchises of a corporation which have been sold by virtue of a mort-.. gage or deed of trust or a . judgment or decree of a court of competent jurisdiction may be carried out. They expressly allow the creditors, mortgagees and stockholders of a corporation owning property and ‘ franchises to purchase at the foreclosure sale and to organize a corporation to carry out the objects for which the corporation was originally organized. The statute expressly gives to .such creditors, mortgagees and stockholders or any of them the right to become a corporation;
This particular subject having thus been regulated by a statute carefully framed to meet such a situation, the Public Service. Commissions Law was passed in 1907. The title of that act is an act to establish the Public Service Commissions and prescribing their powers and duties and to provide for the regulation and control of certain public service corporations. It provided for the appointment of the Public Service Commissioners for each of the two districts into which the State was divided and provided , that each Commission should possess the powers and duties thereinafter specified, and also all
That the power given to the Public Service Commission was not an arbitrary power to be exercised by it without regard to
Upon the facts as they appeared before the Commission it would seem that it was bound to approve the issue of the stocks and bonds by the new corporation in accordance with the plan of reorganization, and the power of the Commission was confined to a determination of the question as to whether the proposed issue was. as authorized by sections 9 and 10. of the Stock Corporation Law and the agreement for the purchase at the sale under the judgment'of foreclosure.
Miller and Dowling, JJ., concurred..
Order of Commission reversed and matter remitted to it to proceed as indicated in opinion.
