Associated Gas & Elec. Co. v. Pub. Serv. Comm'n

• Decision Date: 31 March 1936
• Citation: 266 N.W. 205,221 Wis. 519
• Court: Wisconsin Supreme Court
• Parties: ASSOCIATED GAS & ELECTRIC CO. v. PUBLIC SERVICE COMMISSION.

221 Wis. 519

266 N.W. 205

ASSOCIATED GAS & ELECTRIC CO.

v.PUBLIC SERVICE COMMISSION.^a1

Supreme Court of Wisconsin.

March 31, 1936.

Appeal from a judgment of the Circuit Court for Dane County; August C. Hoppmann, Judge.

Affirmed.

Action by the Associated Gas & Electric Company and Associated Gas & Electric Corporation against the Public Service Commission of Wisconsin to review an order of the commission denying registration in Wisconsin of a proposed bond issue. From a judgment entered October 10, 1935, confirming the order of the commission, the plaintiffs appeal. The facts necessary to an understanding of the decision of the court are stated in the opinion.Chapman & Cutler, of Chicago, Ill., Rogers & Vance, of Fort Atkinson, and Olin & Butler and Byron H. Stebbins, all of Madison, for appellants.

James E. Finnegan, Atty. Gen., H. T. Ferguson, Sp. Asst. Atty. Gen., and Alvin C. Reis, Chief Counsel, Public Service Commission, of Madison, for respondent.

FOWLER, Justice.

The plaintiff Associated Gas & Electric Corporation petitioned the Public Service Commission of Wisconsin for registration of bonds it was issuing. The commission denied the application. The appellants brought action in the circuit court to review the order of the commission. The court confirmed the order.

The appellants contend (1) that registration of the bonds was not necessary; and (2) that if it was registration should have been granted.

[1][2] The plaintiff Associated Gas & Electric Company, hereinafter referred to as the company, owns all the stock of the plaintiff Associated Gas & Electric Corporation, hereinafter referred to as the corporation. The company had outstanding debentures to the amount of $264,000,000 bearing fixed interest rates and maturing at different times. Its income is practically all derived from the corporation. The corporation's income is derived from its subsidiaries. During the period of the general business depression commencing about 1931, the income of the numerous subsidiaries of the corporation fell off, and thus the income of the company fell off to a point where the company claims it became likely that it would default in its debenture obligations and be forced into receivership. To avoid this, the two corporations devised a plan of converting such portion of their interest-bearing debentures into income debentures, rearranging dates of maturity and rates of interest of the new interest-bearing debentures, and procuring exchanges of the old securities for the new, so as to enable the company to avoid defaults and escape receivership. Some holders of the debentures of the company were residents of Wisconsin. To enable the company to negotiate with Wisconsin residents for exchange of the new securities for the old, the corporation filed with the Public Service Commission of the state, which will hereinafter be referred to as the commission, a petition for a “permit to sell” the new bonds. An exchange is a sale within the terms of the statutes governing the granting of permits to sell. Securities are “registered” when a permit to sell them is granted, and the term “registration” is hereinafter used as synonymous with the word “permit” and the phrase “issuance of a permit.” The commission denied registration, except as to one of the three classes of the new bonds proposed.

The proposed plan provided for giving the debenture holders the choice of three options:

(a) The debenture holders might take in exchange for their debentures new debentures due in 1973 to the amount of 50 per cent. of the old bonds surrendered bearing the same rate of interest as the old bonds. The new debentures were not those of the company, but of the corporation. The amount of these new bonds to be issued was limited to $50,000,000. The new bonds might be exchanged within 10 years from June 15, 1935, to income debentures of the corporation due in 1978, of the kind covered by option (b) and of the same amount as if originally accepted under option (b). Option (a) was terminable at any time. The bonds were to be subject to $10,000,000 of outstanding bonds of the corporation. Registration of these bonds was denied, but as the amount to be issued is now fully subscribed by nonresidents of Wisconsin, the question whether registration of them by the Wisconsin commission was necessary is moot.

(b) Debenture holders might take for their old bonds debentures of the corporation to the amount of the bonds exchanged with interest payable out of earnings after payment of the obligations of the corporation. The bonds were cumulative in nature; 5 1/2 and 5 per cent. bonds were reduced in rate 1 per cent., 4 1/2 reduced to 3 3/4 per cent., and 4 per cent. reduced to 3 1/2 per cent. These bonds were to be subject to the $10,000,000 of outstanding bonds of the corporation.

(c) Debenture holders might take sinking fund income debentures of the company, due in 1983, of the same amount as the debentures surrendered, with interest at the same rate, cumulative, additional interest to be added under specified conditions which need not be stated, as the commission ruled that registration of these bonds was not necessary on the ground that the exchange would merely be one form of bond of the company for another form of bond of the same company of the same denomination.

As the plaintiffs are not prejudiced by the ruling of the commission respecting exchanges of bonds under options (a) and (c), we will limit our consideration of the case to the questions arising respecting option (b), which are above outlined under headings (1) and (2).

[3] (1) Whether any permit was necessary to authorize exchanges under option (b) depends on the terms of the statutes exempting certain classes of bonds from the restrictions respecting the negotiations of securities. The constitutionality or validity of the statutory regulations respecting registration is not attacked. The only question raised is respecting the construction of the statutes relating to exemption from those regulations. The statute which the plaintiffs most strenuously contend exempts the bonds to be transferred under option (b) from the permit regulations is section 189.05 (6), which is as follows:

“189.05. Exempt sales. Except as hereinafter provided the provisions of this chapter prohibiting the sale of securities unless registered by the commission shall not apply to the following transactions: * * *

(6) The sale of securities when made by or on behalf of a vendor not the issuer thereof who, being a bona fide owner of such securities, disposes of his own property for his own account, provided such vendor at the time of such sale is not engaged either wholly or in part in the business of selling securities and such sale is not made, directly or indirectly, for the benefit of any other person or company, or for the purpose of violating or evading any provision of this chapter.”

The meaning of the word “sale” in this statute is fixed by section 189.02 (6), Stats., as covering “every disposition, offer, negotiation, agreement, or attempt to dispose of a security * * * and every exchange of a security for property.” The word “vendor” is not defined in the statute, but it is obviously used as referring to a person effecting a “sale,” and would thus cover the party negotiating or attempting to negotiate the transfer of securities in exchange for property.

[4] As the matter of registration first came before the commission, and as matters stood when the commission first determined the matter, only the corporation was before the commission, and the right of the corporation to registration of bonds issued by itself was the only question involved. The corporation was, within the language of the statute, a “vendor” proposing to “sell” bonds issued by itself, and was not exempted from the provisions of section 189.06 (1), Stats., requiring registration before the bonds could be “sold.”

[5] After the commission first denied the corporation's application, the corporation asked for a rehearing, which was granted, and it was then first contended that it was the company that was in fact disposing of the bonds, and it was disposing of them as the owner thereof in good faith within the meaning of subsection (6) above quoted. The theory upon which it claimed to be such owner is that as part of the plan of reorganization the corporation had declared a dividend of $265,000,000 to the company and in payment of the dividend had delivered to the company the new bonds covered by the options. Said subsection (6) provides that to exempt from registration the vendor must be a “bona fide owner” of securities, disposing of “his own property for his own account,” and that the sale contemplated...