State v. Great Northern Railway Co.

100 Minn. 445 | Minn. | 1907

START, C. J.

This is an appeal by the defendant from an order of the district court of the county of Ramsey granting a temporary injunction restraining the defendant from making any increase in its capital stock without the consent of the Railroad and Warehouse Commission of the state, as provided by R. R. 1905, § 2872. The order was made upon the allegations and admissions of the bill and answer, which, so far as here material, are to' the effect following:

The defendant is a corporation duly organized under and by virtue of chapter 160, p. 294, of the Raws of 1856, and acts amendatory thereof. The maximum limit of the capital stock of the defendant was by its original charter fixed at $30,000,000. By an amendment to its charter (Sp. Raws 1865, p. 35, c. 4, § 10) it was given power “to create and issue in such manner and on such terms as it may deem expedient one or more classes of preferred stock,” “and to make such agreements as it may deem proper with the respective holders thereof as to the dividends thereon.” The defendant prior to this amendment was not authorized to issue preferred stock.

The defendant is authorized to construct, own, and operate railroads, and to acquire other lines of railway running in the same general direction and make them a part of its railway system. It may acquire for this purpose the stock and bonds of other railroads which are not parallel and competitive with its existing lines. It has, in order to secure funds for such purposes, from time to time increased, sold, and issued shares of its capital stock aggregating the par value of $125,-000,000. This increase has been made in the manner prescribed by chapter 228, p. 360, Raws 1889 (R. R. 1905, § 2899), without asking or obtaining the consent of the railroad and warehouse commission, hereinafter referred to as the “commission,” and in no case were any objections made by the commission, or any other officer of the state, although the defendant filed in each case with the secretary of state a duly authenticated resolution of its board of directors stating the number and par value of the shares of stock and the purposes for which they were to be issued.

On December 11, 1906, defendant determined to increase its capital stock to the extent of six hundred thousand shares, of the par value ■of $60,000,000, for the purpose of providing funds for such further and additional equipment, terminals, and facilities, including second main track on existing lines, as may be necessary from time to time, and to acquire the bonds or stock of certain allied lines of railway, with other securities, as its board of directors may from time to time authorize. It caused a duly authenticated resolution of its board of •directors, stating the purpose of such increase of stock and the number and par value of the shares, to be filed in the office of the secretary of state, and it was about to sell and issue the stock in the same manner it had been accustomed to do in the past, when on December '27, 1906, this action was begun by the state to restrain such action -until the consent of the commission to such increase of stock shall have been obtained, in accordance with R. D. 1905, § 2872. It being the ■admitted purpose of the defendant, unless restrained by the court, to •carry into effect its plan for the increase o 1 its capital stock without first obtaining the consent of the commission, it follows that the order ■of the district court restraining such action was right, if there be any valid statute of this state forbidding such increase without such consent; otherwise, it was not.

It is the contention of the state that there is such a statute, namely, R. R. 1905, § 2872, which reads as follows:

Before any railroad corporation shall increase its capital stock, it shall apply to the railroad and warehouse commission in writing, setting forth the amount of the proposed increase, and the purpose for which it is desired. The commission shall thereupon fix a time and place for hearing the application, and require such notice thereof to be given as they deem reasonable. Upon the hearing the commission shall make findings of the facts established in reference to the proposed increase, and, if they allow it, shall prescribe the manner in which and the terms upon which the same shall be made. If they disapprove such increase, the reasons therefor shall be stated in their next annual report. No capital stock shall be issued by any railway corporation until the full amount thereof has been paid to the corporation in money, labor, or materials actually used in the construction of its road, nor shall the capital stock of any such corporation be increased except by special authority of such railroad and warehouse commission.

The original of this statute is chapter 265, p. 384J4, Laws 1887. Some two years after its enactment another statute was passed (chapter 228, p. 360, Laws 1889; R. L- 1905, § 2899), which is substantially as follows: Any domestic railroad company authorized by law to consolidate its property with the property and franchises of any other railroad company, or to purchase the railroad property and franchises of any other railroad company, may effect such consolidation or purchase by acquiring the stocks, bonds and other securities of such other railroad company, and for the special purpose of acquiring the same may create, issue and dispose of its own stocks, bonds or other securities, in addition to the amounts it is otherwise authorized to issue to an amount not exceeding the value of the-stocks or bonds of such other company acquired by it. “It may also create, .issue and dispose of such amounts of stock for any other authorized purpose as the board of directors may find necessary.” Prior to the issue of any stock, the corporation shall file with the secretary of state a duly authenticated resolution of its board of directors stating the number and the par value of the shares to be issued, and the purposes of such issue. But no railroad company shall sell its capital stock for less than its full par value in money, property, work or services, and no such company shall issue or sell any stock or do any act prohibited by any other law relating to such matters.

It is the contention of the defendant that section 2872 was by necessary implication repealed or modified by section 2899, to the extent, at least, of excepting the provisions for an increase of capital stock provided for by section 2899 from the provisions of section 2872, re-quíring the consent of the commission to any increase of capital stock, and, further, that section 2872 in'any event is unconstitutional. On the other hand, it is urged on behalf of the state that section 2872 is constitutional, that it has not been repealed or modified in the respects claimed by the defendant by section 2899, and further, that so much of section 2899 which provides that any corporation of the class therein designated “may also create, issue and dispose of such amounts'of stock for any other authorized purpose as the board of directors may find necessary,” is unconstitutional because it is not germane to the title of the original act.

Sections 2872 and 2899 were re-enacted at the same time by an act known as the Revised Raws of 1905 which was correctly entitled. See report of Revision Commission, p. 4. It follows that it is unnecessary now to inquire whether any part of section 2872 was modified or repealed when section 2899 was originally enacted, for it was competent for the legislature to re-enact a statute which had been repealed; or to inquire whether any part of section 2899 as originally enacted was unconstitutional because of a defect in the title of the act, for, if it were so, it was competent for the legislature to re-enact it under a proper title as it did. The sole question is whether or not section 2872 is constitutional.

The terms and conditions upon which railway corporations may he created, the powers and capital stock they may have, the purposes for which they may increase their capital stock, and the limitations and conditions to be imposed upon the right to such increase, are exclusively matters for legislative action, which cannot be delegated. The state having created such corporations and conferred upon them for public purposes great and extraordinary powers and franchises, including the sovereign power of eminent domain and the right to levy tolls or taxes upon all who use for traffic or travel the modern highways, the railroads, it logically follows that the legislature has the undoubted right to enact statutes regulating the increase and disposition of their capital stock.

In the e-xercise of this right it may pass a statute providing generally for what purposes and upon what terms, conditions, and limitations an increase of capital stock may be made, and confer upon the commission the administrative duty of supervising any proposed increase of stock. It may also delegate to the commission the duty of finding the facts in each particular case, and authorize and require it, if it find the existence of facts that bring the case within the" statute, to allow the proposed increase; otherwise', to refuse it. Any statute, however, which attempts to authorize the commission in its judgment to allow an increase of the capital stock of a corporation for such purpose and on such terms or conditions as it may deem advisable would be a delegation of legislative power and void. Section 1, art. 3, of the state constitution.

Statutory regulations of the increase of the capital stock of railway corporations tend to prevent secrecy of operation and accounts, and the issue and sale of fictitious or watered-stock, by such public agencies. While such stock cannot be taken into consideration in determining what are reasonable rates for railway services (Steenerson v. Great Northern Ry. Co., 69 Minn. 353, 72 N. W. 713), yet the practice of issuing and selling such stock is an admitted evil, a commercial crime. It is, and has been since the year 1887, a felony, punishable by imprisonment in the state prison, or by fine, or both, for any officer of a corporation in this state to issue, sell, or dispose of any fictitious shares of its capital stock, or to issue any of its stock or bonds until they have been paid for in full to the par value actually received in money, labor, or property. Laws 1887, p. 68, c. 12; R. L. 1905, § 2911. We have, then, no question as to the iniquity of issuing fictitious railway stocks and bonds, or as to the right of the legislature to regulate the increase of the capital stock of railway corporations so as to prevent the commission of such felony, or, if committed, to aid in its detection and punishment. All this is practically conceded. The question here is, has the legislature by a valid statute regulated the increase of capital stock, and forbidden it unless it is allowed by the commission?

The defendant claims that the statute (section 2872) is unconstitutional because it violates the obligations of the contract between the defendant and the state, in violation of article 1, § 11, of the constitution of the state of Minnesota, and article 1, § 10, of the constitution of-the United States. The argument in support of this claim is to the effect that by the amendment to its charter, giving it the right to create and issue one or more classes of preferred stock, it was given the absolute right to issue such stock without restriction or limit, and that the statute in question attempts to impair such vested right. If the amendment could be construed as conferring upon the defendant the power to issue stock without limit, nevertheless the legislature would have the right to prescribe such reasonable regulations for the exercise of the right as might be necessary to prevent fraud in the issuing of fictitious stock and to protect the public from the consequences thereof; for the police power of the state cannot be abdicated. State v. St. Paul, M. & M. Ry. Co., 98 Minn. 380, 108 N. W. 261. It is, however, obvious from a reading of the entire amendment that it was not intended to grant to the defendant the right to increase its capital stock beyond the original limitation of $30,000,000, but that the intention was simply to authorize it to issue a preferred class of its authorized capital stock, a right it did not before possess. We hold that section 2872 does not violate the obligations of any contract between the defendant and the state.

It is further urged that the statute is unconstitutional, because it is an attempt to delegate legislative power to an administrative body, the commission; that it purports to confer upon the commission the power to determine whether or not a corporation shall have the right in any case to increase its capital stock, and for what purposes, in what amount, and upon what terms and conditions it will authorize such increase, if at all. The position of the state on this question is, in effect, that the statute does not attempt to delegate to the commission any legislative function, but refers to it the administrative duty of supervision of the increase of stock authorized by law, by ascertaining the facts in each particular case, and, if the facts show that the proposed increase of stock is authorized and in accordance with the requirements of law, then the commission must allow it; otherwise, refuse it. There is little, if any, controversy between the state and the defendant with reference to the law applicable to this particular question; but they differ radically in the construction of the statute. If the construction given to the statute by the state is a permissible one, it is constitutional. On the other hand, if its unambiguous language will not justify any other construction than the one urged by the defendant, it is unconstitutional. A brief reference to some of the adjudged cases will aid us in construing the statute.

In the case of State v. Young, 29 Minn. 474, 9 N. W. 737, it was held “that except where authorized by the constitution, as in respect to municipalities, the legislature cannot delegate legislative power ; cannot confer on any body or person the power to determine what shall be the law. The legislature only must determine what it shall be.” The court applied the rule, and held that a statute providing for the adjustment of the Minnesota state railroad bonds was unconstitutional, because it delegated to a commission of judges therein named the power by its decision to determine which one of two sections of the statute should be operative; that is, the law.

The rule was reaffirmed and applied in the case of State v. Chicago, M. & St. P. Ry. Co., 38 Minn. 281, 37 N. W. 782. The statute considered in that case (section 8, c. 10, p. 53, Laws 1887) authorized the railroad and warehouse commission to find and determine whether the tariffs of rates, fares, charges, or classification, or any part thereof, filed and published by any common carrier, were equal and reasonable, and, if they were not, to compel the carrier to make them so. The question whether this statute delegated legislative powers to the commission was raised, and this court held that there was no attempt to delegate to the commission the power to determine what the law should be, and that in this respect the statute was constitutional. While the judgment of this court was reversed on another point in the Supreme Court of the United States (Chicago, M. & St. P. Ry. Co. v. Minnesota, 134 U. S. 418, 10 Sup. Ct. 702, 33 L. Ed. 970), yet so much of the decision as relates to the question of what is and what is not a delegation of legislative power has never been questioned, and it is the law of this state.

The opinion of the court was delivered by Mr. Justice Mitchell, in which the distinction is ably and clearly marked between legislative powers, which may not be delegated, and administrative duties, the performance of which is essential for the execution of the law, and which may be delegated. He said:

“It is, of course, one of the settled maxims in constitutional law that the power conferred upon the legislature to make laws cannot be delegated by that department to any other body. Where the sovereign power of the state has located the authority, it must remain. The department to whose judgment and wisdom this high prerogative has been intrusted cannot relieve itself of the responsibility by choosing other agencies and substituting their judgment and wisdom for its own. * * * The authority that makes the laws has large discretion in determining the means through which they shall be executed and the performance of many duties which they may provide for by law they may refer to some ministerial officer specially named for the duty. * * * The principle is repeatedly recognized by all courts, that the legislature may authorize others to do things which it might properly, but cannot conveniently or advantageously, do itself. All laws are carried into execution by officers .appointed for the purpose, some with more,-others with less, but all clothed with power sufficient for the efficient execution of the law. These powers often necessarily involve in a large degree the exercise of discretion and judgment, even to the extent of investigating and determining the facts, and acting upon and in accordance with the facts as thus found. In fact, this must be so, if the legislature. is to be permitted effectually to exercise its constitutional powers. If this was not permissible, the wheels of government would often be blocked, and the sovereign state find itself helplessly entangled in the meshes of its own constitution. * * * The difference between the power to say what the law shall be, and the power to adopt rules and regulations, or to investigate and determine the facts, in order to carry into effect a law already passed, is apparent. The true distinction is between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and the conferring an authority or discretion to be exercised under and in pursuance of the law.”

The court then proceeded to apply the test indicated to the statute then under consideration, and held that it did not attempt to delegate legislative powers to the commission, or to invest it with any discretion as to what the law should be, but simply charged it with the administration of the statute, which became a complete law upon its enactment. Or, in other words, the legislature by the statute declared that all freight and passenger rates should be equal and reasonable, and merely imposed upon the commission the administrative duty of determining whether the charges of a carrier in any particular case were or were not equal or reasonable; that is, to determine whether it was or was not obeying the law, and, if not, to compel its obedience by enforcing rates' which the facts found might show to be reasonable-

Another leading case in this state upon .the question under consideration is that of Anderson v. Manchester Fire Assur. Co., 59 Minn. 182, 60 N. W. 1095, 63 N. W. 241, 28 L. R. A. 609, 50 Am. St. 400, which involved the question of the constitutionality of Laws 1889, p. 345, c. 217, which authorized and directed the insurance commissioner .to prepare and file in his office a form of fire insurance policy, together with such provisions, agreements, or conditions as might be indorsed' thereon, which should be known as “Minnesota Standard Policy,” and' further provided that after a given date all insurance contracts should conform in all particulars with such form. The court in that case-approved the rule and applied the test given in State v. Chicago, M. & St. P. Ry. Co., 38 Minn. 281, 37 N. W. 782. The court held the-statute unconstitutional, because it attempted to delegate to the insurance commissioner the legislative duty of determining what provisions-of insurance contracts should and should not be valid.

The cases we have referred to have been followed and approved,, and the distinction between the delegation of legislative powers and administrative duties observed, in the following cases: State v. Copeland, 66 Minn. 322, 69 N. W. 27, 34 L. R. A. 777, 61 Am. St. 410; State v. Wagener, 77 Minn. 501, 80 N. W. 633, 778, 1134, 46 L. R. A. 442, 77 Am. St. 681; McGee v. Board of Co. Comrs. of Hennepin County, 84 Minn. 472, 88 N. W. 6.

If this distinction is kept in mind, as we read the statute here in-question, it is clear from its plain and specific language that it was-not the intention of the legislature thereby simply to delegate to the-commission the administrative duty of determining the facts on each-application of a corporation to be allowed to increase its capital stock,, and, if the facts brought the application within the terms, conditions,, and limitations upon which existing statutes authorized an increase,, allow it; otherwise, deny it. If the legislature had any such purpose in enacting the statute, great pains were taken to conceal the intention by using words which explicitly commit the question of the-increase of capital stock of a railroad corporation in any and all cases-to the exclusive judgment and discretion of the commission. The-statute declares that before any such corporation shall increase its capital stock it shall apply to the commission in writing, setting forth! the amount of the proposed increase and the purpose for which it is desired. The commission must then fix a time and place for hearing the matter and give notice thereof. Upon the hearing the commission must make a finding of the facts established in reference to the proposed increase. What must they then do? Must they allow the increase if they find that “the amount of the proposed increase and the purpose for which it is desired” are such as are authorized by law? Certainly not. There is no such provision in the statute. The language of the statute cannot by any fair or permissible construction be so read. On the contrary, the language used is: “If they allow it (the application for an increase of stock), they shall prescribe the manner in which and the terms upon which the same shall be made. If they disapprove such increase, the reasons therefor shall be stated in their next annual report.” Nor shall the capital stock of any such corporation be increased, except by special authority of such commission. The prescribing “the manner in which and the terms upon which” the capital stock of railway corporations may be increased is a legislative power, not an administrative duty, and cannot be delegated. And yet this is just what the legislature attempted to do by this statute, unless the words we have quoted can be read out of it, and the omitted provisions we have indicated be read into it, by construction. It is only by arbitrarily so construing the statute that we can hold that it authorizes the commission to supervise the issuance of only such stock as is authorized by law, and to charge them with the duty of ascertaining in each case whether the proposed increase is for an authorized purpose and in accordance with the requirements of the law.

As we have suggested, if the statute fairly may be so construed, it is constitutional; but it is impossible so to construe it without disregarding its plain and unambiguous language. The simple truth seems to be that the distinction between the delegation of administrative duties to secure the execution of a statute did not occur to the person who drafted this statute, and that it was the real, as well as the expressed, intention of the statute to commit the whole subject of the increase of capital stock by railway corporations to the judgment and discretion of the commission. This view is strengthened by the fact that at the time the statute was enacted railway corporations were authorized to increase their capital stock, but there was no statute limiting the increase to any particular purposes or prescribing the terms upon which such increase might be made. Such increase could be made by the action of the stockholders and directors of the corporation, whenever in their opinion the increase was required by the corporation, by an amendment of its articles of incorporation, or, in case the corporation was one whose charter was a special law, by filing a certificate of increase with the secretary of state. Chapter 5, p. 10, L,aws 1883. The legislature having never enacted any terms, conditions, or limitations with reference to the increase of capital stock, it could not consistently impose upon the commission the duty of ascertaining whether the purpose and terms of a proposed increase were in accordance with the requirements of law, when there was no such law. But the fact that there was no statute prescribing the purpose, terms, and conditions of a proposed increase of stock suggests a reason why the whole matter was committed to the judgment and discretion of a commission, under the mistaken belief that such duty could be delegated.

It is interesting in this connection to compare this statute (section 2872) with what appears to be its prototype (sections 3663-3665, G. S. [Conn.] 1902). It will be noted that the material provisions of the two statutes are the same, except that the railroad commissioners in Connecticut, after finding the facts, report them, with a recommendation .whether the increase of stock should be allowed or not, to the legislature for its determination; but by our statute the whole matter, including the legislative power to determine whether there shall in any case be an increase of stock, is delegated to the judgment and discretion of the commission.

While an act of the legislature should never be held unconstitutional, except in cases where the conflict between the statute and the constitution is clear, manifest, and irreconcilable by any reasonable construction, yet, when it so conflicts with the constitution, courts have no alternative except to declare it invalid, for the obligation of courts to support the constitution is unceasing and imperative. This is such a case. The statute under consideration is so clearly an attempt to delegate to the commission the legislative power to determine in its judgment and discretion whether or not there shall be an increase of the capital stock of a corporation in any case, and to prescribe the manner in which and the terms on which the same may be made, if allowed, that we must, and do, for that reason hold it to be unconstitutional.

It follows that the order appealed from must be reversed; and it is so ordered.