Admiral Realty Co. v. City of New York

Decision Date29 June 1912
Citation99 N.E. 241,206 N.Y. 110
PartiesADMIRAL REALTY CO. v. CITY OF NEW YORK et al. RYON v. WILLCOX et al., Public Service Commission. HOPPER v. SAME.
CourtNew York Court of Appeals Court of Appeals


Appeal from Supreme Court, appellate Division, Second Department.

Action by the Admiral Realty Company against the City of New York and others, and actions by John R. Ryon and by John J. Hopper against William R. Willcox and others, as members of the Public Service Commission for the First District of the State of New York, and others. From judgments for defendants, plaintiffs appealed to the Appellate Division, and from judgments of affirmance entered therein (76 Misc. Rep. 345, 135 N. Y. Supp. 384; 135 N. Y. Supp. 1097, 1140) they appeal. Affirmed.

This is an appeal in each case from a judgment of the Second Appellate Division, affirming by a divided vote a judgment of the Supreme Court at Special Term, sustaining defendants' demurrers to the plaintiffs' complaint and dismissing the same. The actions are brought by taxpayers to restrain the execution by the city of New York, its officials, and the members of the Public Service Commission for the First district, of two contracts, one with the defendant Interborough Rapid Transit Company and the other with the Brooklyn Union Elevated Railroad Company, or whatever company may take its place, for the construction, equipment, and operation of subway and elevated railroads, principally to be located in the boroughs of Manhattan and Brooklyn. The important attack on the contracts is based upon the claim that they and the Rapid Transit Act, under which they are to be executed, violate the provision of the Constitution against the gift by a city of any money or property or loan by it of money or credit to or in aid of any individual, association, or corporation.

It is impossible, within reasonable limits, to state even the substance of these contracts. Their more important provisions, which are involved in the discussion of this appeal, may be briefly summarized as follows:

The proposed contract with the Interborough Company covers, first, the construction and equipment, and, second, the operation by the Interborough Company, of new subways in connection with existing ones. It provides for the construction at an estimated expense of $112,000,000, and for the equipment at the expense of about $21,000,000, of many miles of new subway, which at some points changes into elevated construction, both on the east and west side of Manhattan Island, and with branches extending across the East river. The lines of new construction, generally speaking, in connection with the present subways, will form two complete lines north and south through Manhattan borough, one on the easterly and the other on the westerly side, each terminating in the Bronx at one end and in Brooklyn at the other, with a lateral line to Queens county and feed extensions reaching into the outlying districts of the Bronx, Queens, and Brooklyn boroughs. The Interborough Company is to contribute to the cost of construction $56,000,000 and for equipment $21,000,000. The title or ownership of the subways will always be in the city; and it is contemplated that at the expiration of 49 years, for which they may be operated by the lessee, the latter will have received repayment of sums furnished for construction through the operation of a sinking fund hereinafter referred to. At such expiration the city is to pay for any equipment furnished by the company and taken over by it.

There is a provision for recaption by the city of the subways to be constructed from the lease, above mentioned, at any time after the expiration of 10 years from the date of commencement of operation; and, in case the city thus recaptures the subways and takes their equipment furnished by the operating company before expiration of the lease, it is to repay to the company the sums expended by it for construction and equipment, with an added per cent., which diminishes each year.

There are also various provisions for the construction and equipment of extensions from time to time; but it is unnecessary to go into the details of those, as they are not claimed to substantially modify, for the purposes of this appeal, the other facts which have been or will be referred to.

A lease is to be made to the Interborough Company of the new subways for the term of 49 years, subject ot the right of recapture hereinbefore provided for. This contemplates, within certain limits, the operation of the new and present subways, now leased to the Interborough Company, as a single system. To that end, it is provided that the entire system shall be subject to a single five-cent fare; also that the Interborough Company shall level its present leases of subways, so that the present terms thereof and the extensions to which it is entitled will expire at the same time with the lease of the new subways; also that it will agree to what has been called an ‘exchange of legs,’ so that, in case the city desires to recapture the system to be constructed, it may make such an exchange of new construction on one side of the island with old construction on the other as will enable it to secure a through line on one side from north to south.

Rental or payment to the city by the Interborough Company for the operation and enjoyment of the subways is provided for in the following manner: The receipts of the new and old subways are to be pooled, and therefrom is to be deducted for the benefit of and paid to the company: (1) Operating expenses of the entire system. (2) A yearly sum to represent the average annual income from operation of the existing subway lines and equipment for the two fiscal years ending June 30, 1911, which is $6,335,000, and out of which sum said Interborough Company is to pay its fixed charges, such as interest and sinking fund payments on its capital investment in the present subway lines and equipment. (3) An annual sum equal to 6 per cent. per annum upon the investment of the Interborough Company in the proposed subway lines and equipment amounting to $77,000,000. Out of said sum said company is to pay all charges for interest, as the same becomes due, and provide a sinking fund sufficient to retire and pay off at maturity the principal of its original investment in said subway construction and equipment. This provision also will provide for repayment of such sums as may be expended by the company for betterments or improvements, either to the subways or equipment thereof, during the term of the lease, by details which it is not necessary to state. (4) After the payment of the foregoing sums, there shall be deducted interest and sinking fund upon the capital provided by the city for the construction of the new and such further sum as will bring the payments to be made to the city during the entire period of the 49-year lease up to an amount equal to 8.76 per cent. upon its capital Investment in the original construction in the new subways. (5) The remainder of said proceeds of said earnings shall annually be divided between the city and the company equally. The charges upon the receipts in favor both of the company and the city, in the order state, are cumulative, in case there should be a deficiency of earnings in any year.

Said contract, also, is to provide for the construction by the Interborough Company of a large amount of elevated roads in connection with the property of the Manhattan Elevated Railroad now operated by it, and which will touch the subway system at various points. While the city reserves the right to recapture this new construction, it is stated in behalf of the Interborough Company, without contradiction by the appellants, that under the proposed contract this construction is to be entirely paid for by the Interborough Company and erected under franchises granted by the city; and that therefore it does not become a feature of any importance in the consideration of the questions now being addressed to us

The contract to be made with the Brooklyn Union Elevated Railroad Company, or such companies as it may control, or as may take its place, contemplates and is to provide for the construction of a large amount of subway railroad in the city of Brooklyn and adjacent territory, costing in the neighborhood of $100,000,000, to be paid for by and belong to the city of New York, the expenditure by the said Brooklyn Company or companies of about $26,000,000 in extending and bettering the railroad system now and thereafter to be owned by it or them, and the expenditure by it or them of about $24,000,000 in equipping said new lines. Provisions are to be made for the recaption by the city of said subway lines from the lease which is to be made, and is hereafter referred to, and for the acquisition by it of the equipment and of the extensions and improvements of the Brooklyn Company's system which do not appear, and, so far as I can discover, are not claimed by the appellants to be materially different in principle from those in the case of the Interborough Company already referred to, except that the acquisition by the city of the extensions and improvements of the Brooklyn Company's system, either by recaption or at the end of the term of the proposed lease, must necessarily be somewhat controlled and modified by the physical relation and connection of such extensions and improvements to a system which will belong to a private corporation.

Provisions are also to be made for extensions and improvements both of lines and equipment during the continuance of the lease, which, as in the case of the Interborough Company, do not appear to present for our consideration any legal questions in addition to those which arise in connection with the main provisions of the proposed contract.

A lease is to be made by the city with the Brooklyn Company, under which it will operate for the term of 49 years the lines to be constructed and owned by the city and equipped,...

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