Boston Elevated Ry. Co. v. Metro. Transit Auth.

• Court: United States State Supreme Judicial Court of Massachusetts
• Writing for the Court: WILKINS
• Citation: 323 Mass. 562,83 N.E.2d 445
• Decision Date: 04 January 1949
• Parties: BOSTON ELEVATED RY. CO. v. METROPOLITAN TRANSIT AUTHORITY et al.

323 Mass. 562
83 N.E.2d 445

BOSTON ELEVATED RY. CO.
v.
METROPOLITAN TRANSIT AUTHORITY et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Jan. 4, 1949.

Report from Superior Court, Suffolk County; Hudson, Judge.

Suit by the Boston Elevated Railway Company against the Metropolitan Transit Authority and others, to enjoin the Authority and its trustees from giving notice of election to exercise an option to purchase plaintiff's assets and in the alternative for a declaration that the Authority by contract had assumed and was obligated to pay plaintiff's federal income tax on a capital gain realized from the sale, wherein defendants filed a counterclaim. The trial judge found the facts to be as agreed, and reserved and reported the case, without determination, for consideration of the Supreme Judicial Court.

Decree for defendants ordered entered in accordance with opinion.

[83 N.E.2d 448]

Before QUA, C. J., and LUMMUS, DOLAN, WILKINS and WILLIAMS, JJ.

R. H. Holt, J. L. Hall and R. Wait, all of Boston, for plaintiff.

C. B. Rugg, W. F. Farr, and E. J. Sargant, all of Boston, C. A. Barnes, Atty. Gen., and G. B. Rowell and R. W. Cutler, Jr., Asst. Attys. Gen., for defendants.

WILKINS, Justice.

This bill in equity under G.L.(Ter.Ed.) c. 231A, inserted by St.1945, c. 582, § 1, seeks a declaration that the Metropolitan Transit Authority by contract has assumed, and is obligated to pay, the plaintiff's Federal income tax on a ‘capital gain’ realized by the plaintiff from the sale to the authority of ‘its whole assets, property and franchises as a going concern.’ The defendants, who are the authority and its five trustees, in their answer seek by way of counterclaim a declaration that the authority has not so assumed, and is not obligated to pay, certain bills of the plaintiff's lawyers and of the chairman of its board of directors for services in relation to that sale. The case was heard on the pleadings and a statement of agreed facts. The judge found the facts to be as agreed, and reserved and reported the case, without determination, for the consideration of this court. G.L.(Ter.Ed.) c. 214, § 31.

The plaintiff is a street railway corporation incorporated under St.1894, c. 548, and until noon on August 29, 1947, it owned a rapid transit system in metropolitan Boston. That system it managed and operated until June 30, 1918. On July 1, 1918, by virtue of its acceptance of Spec.St.1918, c. 159, the management and operation devolved upon a board of trustees (hereinafter called the public trustees) appointed by the Governor. The amendment of that statute by St.1931, c. 333, was also accepted by the plaintiff, and the public trustees continued the management and operation until noon on August 29, 1947.¹

The contract of which interpretation is sought is contained in Spec.St.1918, c. 159, as amended and extended by St.1931, c. 333, known as the public control act.² The act originally provided: ‘The acceptance of this act by the Boston Elevated Railway Company shall constitute an agreement upon its part to sell to the commonwealth or any political subdivision thereof at any time during the period of public management and operation its whole assets, property and franchises as a going concern upon the assumption by the commonwealth of all its outstanding indebtedness and liabilities and the payment of an amount in cash equal to the amount paid in in cash by its stockholders for stock then outstanding’ (Spec.St.1918, c. 159, § 16). In the amendment the language respecting the option and the assumption of indebtedness and liabilities is preserved in substantially identical form, but a change was made in the

[83 N.E.2d 449]

amount of the cash payment. After amendment the act reads: ‘The acceptance of this act by the company shall constitute * * * an agreement by the company to sell to the commonwealth or any political subdivision thereof * * * at any time during the period of public management and operation, its whole assets, property and franchises as a going concern upon the assumption by the commonwealth or such political subdivision of all its outstanding indebtedness and liabilities, and the payment of an amount in cash equal to any amount paid in cash for stock hereafter issued and also an amount in cash equal to one hundred and five dollars per share for all common stock at present issued and then still outstanding decreased by one half of any sums hereafter assessed under the provisions of said chapter one hundred and fifty-nine or of this act upon cities and towns served by the company which have not then been repaid to the commonwealth provided however that such decrease shall not reduce the amount payable on account of said common stock below the amount of eighty-five dollars per share’ (St.1931, c. 333, § 17). Under both of the foregoing sections a sale under the option was to effect a dissolution of the company subject to the general statutory provisions relative to the dissolution of corporations.³

The authority is ‘a body politic and corporate and a political subdivision of the commonwealth’ created by St.1947, c. 544, § 1, which became effective June 19, 1947. Its five trustees are appointed by the Governor (§ 2). The authority was ‘authorized and directed to exercise the option’ set forth in St.1931, c. 333, § 17, and the trustees were ‘authorized and directed’ in the name of the authority to notify the plaintiff ‘that the authority elects as of a day and time to be specified in said notice,’ but not later than August 30, 1947, ‘to exercise such option’ (§ 5). Section 5 further provided: ‘Upon the date and the time specified in such notice to the company, the whole assets, property and franchises of the company as a going concern shall, without further conveyance and by virtue of this act, be and become vested in the authority; and all the then outstanding indebtedness and liabilities of the company shall, without further action and by virtue of this act, be assumed by the authority in accordance with the provisions of said section seventeen. In accordance with the provisions of said section seventeen, there shall thereupon and forthwith thereafter be paid to the company an amount in cash equal to eighty-five dollars per share for all the common stock of the company issued and outstanding’. (Emphasis supplied). Upon such cash payment, ‘all claims of every kind and nature against said authority by the company are by virtue of this act released, and thereafter no suit shall be brought against the authority by the company’ (§ 6).

By reason of § 6 and of the italicized words in § 5, we are told in the plaintiff's brief, the present suit was brought on July 2, 1947, to enjoin the authority and its trustees from giving notice of the election to exercise the option and from tendering the cash payment, and, in the alternative, for the declaration mentioned at the opening of this opinion. On July 8 a prayer for preliminary injunction was denied after hearing. On the same day the defendant trustees gave notice in writing of the authority's election to exercise the option ‘as of’ August 29, 1947, at noon. On August 21 an interlocutory decree, entered by consent, declared that the option had been effectively and validly exercised by the authority as provided in § 17 of the public

[83 N.E.2d 450]

control act ‘without modification’ by St.1947, c. 544, and that ‘upon the payment and acceptance of the cash purchase price provided in said § 17, being an amount equal to $85 per share for all the common stock’ of the company issued and outstanding as specified in c. 544, § 5, the authority ‘will have assumed and become liable to pay all the outstanding indebtedness and liabilities' of the company as provided in § 17 ‘without modification’ by c. 544. The interlocutory decree further declared that, ‘upon the assumption of indebtedness and liabilities' by the authority, the suit should proceed to a final determination of the questions relating to the Federal ‘capital gain’ tax raised by the prayer for a declaration.

On August 25 the company's board of directors voted to accept from the authority the sum of $20,297,490 as the cash payment required by the option. On August 27 the board of directors ‘requested the public trustees to accrue immediately on the books of the company as a liability the sum of $6,362,870.75 as the estimated Federal income tax to result from the sale of the company's property to the authority.’ This amount was a tentative figure agreed upon by the company and the commissioner of internal revenue to be ‘set aside out of the cash purchase price, when paid, pending the final determination and assessment of the correct tax in order to avoid a threatened jeopardy assessment.’ On August 28 ‘the public trustees declined this request on the ground that the tax could not accrue until the sale was consummated and that the liability was not one to be assumed by the authority.’ On August 29, 1947, the authority paid, and the company accepted, $20,297,490 as the cash purchase price. On March 15, 1948, the company filed an income tax return for the calendar year 1947 showing a tax of $6,177,796.50 wholly due to the ‘capital gain resulting from sale of company August 29, 1947.’ See Title 26 U.S.C.A. § 117(c)(1), (j).

The commonwealth in making with the company the contract contained in the public control act did not proceed in a sovereign capacity, but put itself in the position of a private citizen. City of Boston v. Treasurer & Receiver General, 237 Mass. 403, 413, 130 N.E. 390;Boston Elevated Railway v. Commonwealth, 310 Mass. 528, 577, 39 N.E.2d 87;Auditor of the Commonwealth v. Trustees of Boston Elevated Railway, 312 Mass. 74, 77, 43 N.E.2d 124;Attorney General v. Trustees of Boston Elevated Railway, 319 Mass. 642, 653, 67 N.E.2d 676. That contract is to be construed as would be a contract between individuals. Boston Molasses Co. v. Commonwealth, 193 Mass. 387, 389, 79 N.E. 827;Commercial Wharf Corp. v. City...