Gilchrist v. Interborough Rapid Transit Co, 159

Decision Date08 April 1929
Docket NumberNo. 159,159
Citation279 U.S. 159,49 S.Ct. 282,73 L.Ed. 652
CourtU.S. Supreme Court

[Syllabus from Pages 159-161 intentionally omitted.]

Mr. Irwin Untermyer, of New York City (Messrs. Samuel Untermyer and Charles Dickerman Williams, both of New York City, on the brief), for Transit Commission of New York.

[Argument of Counsel from pages 161-171 intentionally omitted]

Page 171

Messrs. George P. Nicholson, Charles L. Craig, Joseph A. Devery, and Edgar J. Kohler, all of New York City, for City of New York.

[Argument of Counsel from pages 171-177 intentionally omitted]

Page 177

Messrs. Charles E. Hughes, James L. Quackenbush, William L. Ransom, and Jacob H. Goetz, all of New York City, for appellees.

[Argument of Counsel from pages 177-189 intentionally omitted.]

Page 189

Mr. Justice McREYNOLDS delivered the opinion of the Court.

This direct appeal is from an order of May 10, 1928, by the District Court, Southern District of New York, three judges sitting, which authorized an interlocutory injunc-

Page 190

tion to restrain appellants-the Transit Commission and New York City-from requiring, or attempting to enforce, further acceptance by the Interborough Rapid Transit Company of a five-cent passenger fare over the lines operated by it and from seeking to prevent a charge of seven cents. This court stayed the order pending further hearing. The cause has been twice orally argued before us and helpful briets are on file.

In support of the action below appellees maintain: The five-cent fare originally stipulated and long observed had become noncompensatory. Although specified in the agreements with the city under which the transit lines are being operated, that fare was not immutable, since, by implication, provisions of the Public Service Law of 1907 directing that reasonable rates should be granted to subways, elevated and other street railways were incorporated into the contracts. The Transit Commission in effect denied an application for compensatory rates, insisted upon observance of the five-cent one and intended to take immediate steps to secure enforcement of it. This amounted to action by the state which would deprive the Interborough Company of property without due process of law, contrary to the Fourteenth Amendment.

The city of New York is a municipal corporation, whose charter vests control of streets and other executive powers in the board of estimate and apportionment. The Transit Commission of three members created by chapter 134, New York Laws 1921, exercises powers theretofore intrusted to the Public Service Commission for the First District (chapter 429, Laws 1907) successor to the Board of Rapid Transit Railroad Commissioners organized under the Rapid Transit Act of 1891 (Laws 1891, c. 4).

The Interborough Rapid Transit Company, a New York corporation, with $35,000,000 capital stock, operates elevated and subway lines in four boroughs of Greater

Page 191

New York City. Some of these it owns; some the city owns and lets to it for operation; others-the original elevated lines-it hired in 1903 from the Manhattan Railway Company for 999 years, agreeing to pay therefore interest on $45,000,000 of outstanding bonds, 7 per cent. (now 5 per cent.) on $60,000,000 capital stock of the lessor, and $35,000 annually for administrative expenses. At this time the total yearly payments for use of elevated lines is about $4,900,000.

Greater New York City contains five boroughs-Manhattan coterminous with Manhattan Island (10 miles long) with area of 19 square miles; the Bronx, 41 square miles; Queens, 117; Brooklyn, 80; and Richmond (Staten Island), 57. The population of the city in 1910 was 4,785,000 (in 1927, 5,970,000), of whom 2,330,000 resided within Manhattan, in the southern portion of which are located the great business centers of the metropolitan district. The Bronx, on the mainland north of Harlem River, and Queens and Brooklyn on Long Island, have undergone very rapid development and increased greatly in population since 1900. The expanse of the greater city, together with its peculiar physical characteristics, render exceedingly difficult any effort to provide rapid and cheap transportation for its residents and the crowds of outsiders who travel therein daily for business or pleasure. See Sun Publishing Ass'n v. City of New York, 152 N. Y. 257, 273, 46 N. E. 499, 37 L. R. A. 788.

Prior to 1903, under franchises dating from 1875, the Manhattan Railway, or its predecessors, constructed, owned, and operated the four original elevated railway lines extending northward from South Ferry along Second, Third, Sixth and Ninth avenues. All these were leased by the Interborough Company in 1903 and now constitute the oldest part of its system. Long before and ever since 1913 they have charged five cents per passenger and from this the lessee for many years derived substantial net

Page 192

profits. During 1910 and 1911 the average was $1,589,348.

The subway first constructed begins at City Hall, Manhattan, and extends northward to Ninety-Sixth street-6 miles.1 From the latter point two branches diverge; one continues north across Harlem River to 230th street, in the Bronx-7 miles; the other (West Farms Branch) runs northeast and under Harlem River to 182d street at Bronx Park-7 miles. These lines were constructed for the city, became its property and were let to the Interborough's assignor under 'contract No. 1,' executed February 21, 1900, 2 and authorized by the Rapid Transit Act of 1891 as amended.

This contract-an elaborate instrument of 125 printed pages-provided with great detail that the lessee should equip and thereafter operate the road at its own expense under direction of the Board of Rapid Transit Railroad Commissioners, and further undertook to secure uninterrupted service. Among other things it declared: 'The contractor (Interborough's assignor) shall during the term of the lease be entitled to charge for a single fare upon the railroad the sum of five (5) cents, but not more. The contractor may provide additional conveniences for such passengers as shall desire the same upon not to exceed one (1) car upon each train, and may collect from each passenger in such car a reasonable charge for such additional convenience furnished him, provided that the amount to be charged therefor and the character of such additional convenience shall from time to time be subject to the approval of the board. The contractor may provide not to exceed one (1) car in each train for persons smoking.'

Page 193

The lease was for 50 years (with right of renewal), the rent a sum equal to the annual interest on city bonds issued to secure the necessary funds for construction, plus 1 per centum for amortization. The lessee retained title to all equipment and the city agreed to purchase this at fair value when the lease ended.

Construction under contract No. 1 cost the city around $60,000,000.3

By 'contract No. 2,' dated July 21, 1902, the city contracted with the Interborough's assignor for the construction and operation during 35 years (with privilege of renewal) of an extension to the first subway, commencing at City Hall, Manhattan, and extending under East River to Borough Hall and thence to Atlantic avenue, Brooklyn-4 miles. The lessee undertook to furnish equipment, act under direction of the Board of Rapid Transit Railroad Commissioners, and to pay for use of the lines a sum equal to the interest on bonds issued by the city to meet construction costs, plus 1 per centum for amortization; also to carry out the proposal that passengers should have the right to transportation without change of cars and for a single fare not exceeding five cents for one continuous trip over the railroad and connecting lines. A clause identical with the one above quoted from contract No. 1 prescribed a five-cent fare; another provision obligated the city to purchase the equipment when the lease terminated.

For the construction of this extension the city paid out $6,600,000.

Under contracts 1 and 2 ways extending over approximately 24 miles (75 of single track) were constructed and then equipped. The longest pos-

Page 194

sible continuous trip by a passenger was 17.4 miles. For equipping them the lessee claims a capital investment of $60,000,000; but large items are questioned and the true sum may be less than $40,000,000. This equipment, with real estate valued at $300,000 and office sundries, is all the property connected with the subways which the Interborough now owns. The lines were opened for traffic October 27, 1904, and prior to 1919 their operation yielded annually large net profits.

The court below thought that, unless modified by contract No. 3, infra, contracts Nos. 1 and 2 established an inflexible five-cent fare, and this view has not been seriously questioned here.

In order to meet the insistent demand for quick transportation, after prolonged negotiations, the Public Service Commission, acting for the city with approval of the board of estimate (being specially authorized by the Rapid Transit Act as amended in 1912 (Laws N. Y. 1912, c. 226)), entered into elaborate separate, but related agreements (dated March 19, 1913) with the Interborough and Manhattan Companies for (1) the construction and operation of extensions to the old lines and certain new subways-'contract No. 3'; (2) a third track on the elevated lines-'third track certificate'; (3) extensions to the elevated lines-'extension certificate'; (4) for operation of elevated trains over designated portions of the new subways-'supplementary agreement.'

Contract No. 3-122 printed pages-with great detail provided for immediate (and possible future) extensions of and additions to the subway system then existing, also their equipment and operation until the end of 1967. Under it the following lines were constructed, equipped and put into operation.4 (1) From the end of...

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