143 N.Y.S. 148 | N.Y. App. Div. | 1913
The Tarrytown, White Plains and Mamaroneck Street Railroad Company’s property, rights and franchises were sold at a foreclosure sale by a judgment of the Supreme Court for $882,400.73 to one Sutro, who was acting for the New York, New Haven and Hartford Railroad Company. The New Haven Company was the owner of the greater part of the bonds secured by the mortgage foreclosed. Sutro incurred certain legal and other expenses in connection with the purchase amounting to $29,622.68, making the net cost of the railroad to him $912,023.41.
The purchaser and his associates filed the certificate contemplated by section 9 of the Stock Corporation Law (Consol.
The Commission refused to allow stock to issue for the cost of the purchase, and limited the issue to $434,000. It valued the property at $400,000, although it was conceded that its reproductive value, less depreciation, was $445,693.98, and in addition to the value it placed upon the property it allowed $34,000 to cover expenses connected with the purchase and with that application. While it concedes that the purchase was made in good faith on competitive bidding, and that the sale was in all respects fair, it bases its valuation, in a great part, upon the ground that the property was weighed down by a five-cent fare franchise which was binding upon the purchaser (See Public Service Com. v. Westchester St. R. R. Co., 151 App. Div. 914; affd. later in 206 N. Y. 209), and that by reason of such a rate the property could not be operated at a profit and that a part of the purchase price represented the franchises which under section 55 of the Public Service Commissions Law (Laws of 1907, chap. 429; Consol. Laws, chap. 48; Laws of 1910, chap. 480) cannot be capitalized.
The laws of the State contemplate that a railroad shall be operated by a railroad company. (Trojan Railway Co. v. City of Troy, 125 App. Div. 362; Village of Phœnix v. Gannon, 195 N. Y. 471.) It was, therefore, necessary for Sutro to form a new company by filing the certificate and turning the property over to it. Such a company has no property, and no means with which to finance the purchase, except an issue of stock, bonds or securities. The mortgaged property, aside from a nominal scrap value, is only salable to or for a railroad company. The statute, therefore, contemplates that a purchaser under the mortgage may organize a corporation to take over the property, and that the purchase price may be financed by an issue of stock, bonds or other proper securities. Other
The capitalization of a corporation is not in all cases restricted to the value of the corporate property as the Commission sees it. “ But there is no provision in the Public Service Commissions Law that the securities issued shall in no instance exceed the value of the property. Indeed it contains no express provision to that effect at all, though doubtless it was intended by the law to prevent the issue of fictitious or ‘ watered ’ securities, and the Stock Corporation Law (§ 55) forbids the issue of stock or bonds except for money or labor or property at their respective values. ” (People ex rel. Third Ave.
Section 55 of the Stock Corporation Law permits stock to be issued for the value of property purchased, and declares that such stock shall be full paid and, in the absence of fraud in the transaction, the judgment of the directors as to the value of such property purchased shall be conclusive.
Section 55 of the Public Service Commissions Law does not destroy that provision. The two sections may be read in harmony. The latter, in substance, requires, so far as it relates to an issue of stock for property purchased, that there must be an order of the Commission authorizing the issue, stating the amount, the purposes to which it is to be applied, and that in the opinion of the Commission the property to be paid for by the issuing of stock is or has been reasonably required for the necessary purposes of the company. The requirement that the Commission shall approve of the issue and the purposes for which it is issued was undoubtedly to prevent the issue by the company of watered or fictitious securities. An issue of stock for the purchase price at a public
There are other considerations which call for a reversal of the determination. The Commission should have taken into consideration, in valuing the property, its earning power at reasonable rates. The power of the Public Service Commission to fix reasonable rates involves the right to increase as well as to lower rates. The rates are to be reasonable to the public and reasonable to the corporation. (City of Troy v. United Traction Co., 134 App. Div. 756; People ex rel. D. & H. Co. v. Pub. Ser. Com., 140 id. 839; People ex rel. Bridge Operating Co. v. P. S. Com., 153 id. 129, 137; Home Telephone Co. v. Los Angeles, 211 U. S. 265; Murray v. Pocatello, 226 id. 318.)
The Commission entirely overlooked the physical position of this railroad property with reference to the city of New York, which is growing rapidly towards the territory served, and the rapidly increasing traffic in the territory, and that the conditions existing at the sale which influenced the bidding are permanent; that the lines of the company connect with the lines owned by other important railway companies to which it is valuable as a feeder, which companies were both active competitors for the property on the sale, and naturally would be competitors upon any future sale. The bidding did not result from the mere whim or fancy or bad judgment of the bidders, but arose from permanent conditions which made the property
The order is, therefore, reversed upon law and the facts, with costs, and the matter remitted to the Commission for its further action.
The finding of fact disapproved of as against the evidence is that the value of the property is only $400,000.
All concurred.
Determination reversed on law and facts, with $50 costs and disbursements, and matter remitted to Commission for further consideration in accordance with the opinion herein. The find, ing of fact disapproved of as against the evidence is the finding that the value of the property is only $400.000.