People ex rel. Third Ave. Ry. Co. v. Pub. Serv. Comm'n for First Dist.

• Decision Date: 21 November 1911
• Citation: 203 N.Y. 299,96 N.E. 1011
• Parties: PEOPLE ex rel. THIRD AVE. RY. CO. et al. v. PUBLIC SERVICE COMMISSION FOR FIRST DIST. et al.
• Court: New York Court of Appeals Court of Appeals

203 N.Y. 299

96 N.E. 1011

PEOPLE ex rel. THIRD AVE. RY. CO. et al.

v.PUBLIC SERVICE COMMISSION FOR FIRST DIST. et al.

Court of Appeals of New York.

Nov. 21, 1911.

Appeal from Supreme Court, Appellate Division, First Department.

Certiorari by the People, on the relation of the Third Avenue Railway Company and others, forming a bondholders' reorganization committee, to review a determination of the Public Service Commission for the First District, denying an application for an order authorizing the issuance of stocks and bonds on the reorganization of the Third Avenue Railway Company, pursuant to the stock corporation law. From an order of the Appellate Division (145 App. Div. 318,130 N. Y. Supp. 97) reversing the order of the Public Service Commission, the Commission appeals, by permission, on certified questions. Questions answered, and order of Appellate Division affirmed.

Charles F. Brown and George S. Coleman, for appellants.

William D. Guthrie, for respondents.

CULLEN, C. J.

The road and property of the Third Avenue Railroad Company (street railroad) was sold under foreclosure, and at the sale was purchased by a committee of the bondholders. This purchase was made under a plan entered into by the parties in interest, bondholders and stockholders, by which it was agreed that a new corporation should be formed, and the securities of the new corporation distributed among the bondholders and stockholders of the old corporation in certain proportions and on the payment of certain amounts in money. The securities-stocks and bonds-called for by the plan of reorganization did not exceed the amount of outstanding securities of the old company and the additional money to be paid to the corporation. After the sale, the committee caused to be organized the Third Avenue Railway Company, one of the relators herein. It applied to the public service commission for leave, under section 55 of the public service commissions law (L. 1910, c. 480; Consolidated Laws, 1910, c. 48), for an order authorizing the securities called for by the reorganization plan. This application was denied by the commission, on the ground that the amount of such securities exceeded the value of the property of the corporation. On certiorari, this determination was reversed by the Appellate Division, and the matter remitted to the public service commission to proceed in accordance with the opinion of the court. From that order, the Appellate Division has allowed an appeal to this court, and certified the following questions for our determination:

‘(1) Have the statutory provisions for the reorganization of corporations embodied in sections 9 to 12 of the stock corporation law been repealed by implication, as to railroad corporations, by the provisions of the public service commissions law?

‘(2) The Third Avenue Railway Company being a corporation duly created under sections 9 and 10 of the stock corporation law, pursuant to a plan of reorganization and agreement of readjustment duly entered into, to take and possess the property and franchises of the Third Avenue Railroad Company, a domestic street railroad corporation, sold by virtue of a mortgage or deed of trust duly executed by said railroad company, and pursuant to the judgment or decree of a court of competent jurisdiction, may such street railroad corporation lawfully issue its stock and bonds to the amount specified in such plan and agreement without first securing from the public service commission for the First district an order authorizing such issues, pursuant to section 55 of the public service commissions law?

‘(3) The Third Avenue Railway Company being a street railroad corporation duly organized under sections 9 and 10 of the stock corporation law, and the issues of stock and bonds proposed to be made by said new corporation being in all respects in conformity with the provisions of sections 9 and 10 of said law and of the plan of reorganization and agreement of readjustment duly entered into pursuant thereto, and the amount of stock and bonds so proposed to be issued by the new corporation being substantially less than the aggregate of the amount of capital stock of the old corporation issued for cash at par and of valid bonds issued for full value received by the corporation and duly adjudged to be valid obligations by a court of competent jurisdiction, together with interest on said bonds, and new cash to be contributed by stockholders for strictly corporate purposes, may the public service commission for the First district nevertheless lawfully refuse to authorize the said company to issue such stock and bonds to the amounts and for the purposes specified in such plan and agreement, including the discharge and refunding of obligations under such plan and agreement, for the reason that, in the opinion of the commission, the present actual value of the property to be acquired by the new or reorganized corporation under said plan and agreement is not equal to the aggregate of the par of the proposed new stock and the market value of the proposed new bonds?

‘(4) If section 55 of the public service commissions law applies to the reorganization of a street railroad corporation and to the issue of stock and bonds of the successor corporation, duly created under sections 9 and 10 of the stock corporation law, in pursuance of a plan of reorganization and agreement of readjustment, were the relators entitled, under the facts shown in the record, to secure from the public service commission for the First district an order authorizing the issue and the amount of the proposed securities as provided in the plan and agreement?

‘(5) The Third Avenue Railway Company being duly organized under sections 9 and 10 of the stock corporation law, pursuant to a plan of reorganization and agreement of readjustment duly entered into, to take and possess the property and franchises of the Third Avenue Railroad Company, a domestic street railroad corporation, sold by virtue of a mortgage or deed of trust duly executed by it, and pursuant to the judgment or decree of a court of competent jurisdiction, must such reorganized or successor corporation first obtain the permission and approval of the public service commission, under section 53 of the public service commissions law, before it may exercise and enjoy any of the rights, privileges, and franchises which, at the time of such sale, belonged to or were duly vested in the corporation last owning the property sold, or its receiver?

‘(6) The Third Avenue Railway Company being duly organized under sections 9 and 10 of the stock corporation law, pursuant to a plan of reorganization and agreement of readjustment duly entered into, to take and possess the property and franchises of the Third Avenue Railroad Company, a domestic street railroad corporation, sold by virtue of a mortgage or deed of trust duly executed by it, and pursuant to the judgment or decree of a court of competent jurisdiction, must such reorganization or successor corporation first obtain the approval of the public service commission, under section 54 of the public service commissions law, to the transfer or assignment to it of the franchises and of any right to or under any franchise to own or operate a railroad or street railroad which, at the time of such sale, belonged to or were duly vested in the corporation last owning the property sold, or its receiver; and must it first obtain the consent of such commission, under said section 54, to the purchase, acquisition, taking, or holding of any part of the capital stock of any street railroad corporation organized or existing under or by virtue of the laws of this state which, at the time of such sale, belonged to or was duly vested in the corporation last owning the property sold, or its receiver?’

[1] The determination of this appeal depends on the construction and effect of certain provisions of the stock corporation law (L. 1909, c. 61; Consolidated Laws 1909, c. 59) and of the public service commissions law. Section 9 of the stock corporation law authorizes the purchaser on a foreclosure or execution sale of the franchises and property of any domestice corporation, to form a new corporation, and prescribes the steps necessary to effect that purpose. Section 10 authorizes the purchasers at such a sale, or the persons for whom such a purchase is made, to enter into a plan or agreement, in anticipation of the readjustment of the respective interests of creditors, mortgagees, and stockholders of the corporation, ‘for the representation of such interests in the bonds or stock of the new corporation to be formed.’ It then authorizes the new corporation, when organized, to issue its bonds and stock in conformity with the provisions of the plans and agreements, and to settle or assume the payment of any debt, claim, or liability of the former corporation upon such terms as may be agreed upon, and to establish preferences in favor of any portion of its capital stock, and to divide its stock into classes; but such stock of the new corporation cannot exceed ‘in the aggregate the maximum amount of stock mentioned in the certificate of incorporation.’ A brief history of the legislation on this subject...