Pollitz v. Public Utilities
| Decision Date | 20 March 1917 |
| Docket Number | 15482 |
| Citation | 117 N.E. 149,96 Ohio St. 49 |
| Parties | Pollitz Et Al. v. Public Utilities Commission Of Ohio |
| Court | Ohio Supreme Court |
Consolidation of railroad corporations - Status of coloration formed by Ohio and other state companies - No power of contract of guaranty or credit of another company - Except by express authority of charter or statute - Power to acquire and sell bonds of another company - Sections 8683 and 8684, General Code - Organization and powers of private corporations.
A railroad corporation formed by the consolidation of an Ohio company with a company or companies of another state or states, under cooperative legislation in the different states, becomes one company, with a status in each state possessing in Ohio all the rights, privileges and franchises and subject to all the restrictions, disabilities and duties of an Ohio railroad company in all that it does in this state.
A corporation has no power to enter into contracts of guaranty, or suretyship, or otherwise lend its credit to another, unless expressly authorized by its charter or by statute, except where the power to do so is implied from its express powers as necessary and proper in the furtherance of its legitimate business.
A railroad company, which has, in the proper exercise of its powers under Sections 8683 and 8684, General Code, and within the limitations expressed in those sections, purchased stock in another railroad company, and which has in good faith, for the protection of its interests as such stockholder, acquired bonds issued by such other company, has implied power, in order to sell such bonds for an adequate price, to guarantee their payment.
A railroad corporation which is subject to the laws of Ohio has no authority, express or implied, to enter into a joint contract of guaranty, by which it jointly with other companies guarantees an entire issue or series of bonds, issued by another company, of which the Ohio company owns only a portion.
This was a proceeding before the public utilities commission brought by The New York Central Railroad Company.
In its petition filed with the commission the company alleges:
That it is a railroad corporation organized and existing under the laws of the states of New York, Pennsylvania, Ohio, Indiana, Illinois and Michigan, owning a railroad extending from New York to Chicago, with other main lines and branches.
That the Toronto, Hamilton & Buffalo Railway Company is a railroad corporation organized and existing under the laws of the Dominion of Canada, owning a railroad extending from Waterford to Hamilton, and from Hamilton to Welland, with an extension from Hamilton towards Toronto, and an extension from Smithville to Port Maitland, all in the province of Ontario, and connecting with the railroad owned by The Canada Southern Railway Company, operated under lease by The Michigan Central Railroad Company, at Welland and Waterford, and with The Canadian Pacific Railroad, at Hamilton.
That The Toronto, Hamilton & Buffalo Railway Company has an authorized capital stock of $5,500,000, divided into 55,000 shares of the par value of $100 each, of which 45,125 shares have been issued and are now outstanding, owned, in the amounts herein set forth, by the following railroad companies:
The Canadian Pacific Railway Company, 12,246 shares.
That under date of August 1, 1916, The Toronto, Hamilton & Buffalo Railway Company executed its consolidated mortgage as security for its fifty-year gold bonds to be issued to an amount not exceeding $10,000,000, of which, bonds to the amount of $2,000,000, designated Series A and bearing interest at the rate of 41 per cent per annum, have been issued and sold jointly to The New York Central Railroad Company, The Michigan Central Railroad Company, The Canada Southern Railway Company and The Canadian Pacific Railway Com- pany for $1,800,000, The New York Central Railroad Company contributing $450,000 of the purchasing price, The Michigan Central Railroad Company $225,000, The Canada Southern Railway Company $225,000, and The Canadian Pacific Railway Company $900,000. The proceeds of the sale of said bonds are to be, or have been, used to pay outstanding unfunded indebtedness of The Toronto, Hamilton & Buffalo Railway Company, representing expenditures incurred on capital account, and for the corporate capital purposes of said company.
That the owners of Series A bonds intend to sell the same at the best price which can be obtained and use the proceeds to reimburse their respective treasuries for the moneys advanced to pay for the said bonds, and that in order to secure an adequate price it will be necessary for The New York Central Railroad Company, The Michigan Central Railroad Company, The Canada Southern Railway Company and The Canadian Pacific Railway Company to guarantee jointly and severally the payment of the principal and interest of said bonds as they become due.
That the purchase of said bonds has not been capitalized by The New York Central Railroad Company by any issue of its own securities.
Certain exhibits are attached to the petition. The petition prays for an order authorizing the applicant to join with The Michigan Central Railroad Company, The Canada Southern Railway Company and The Canadian Pacific Railway Com- pany in jointly and severally guaranteeing the payment of the principal and interest of said bonds as they come due.
From the petition and conceded facts, it appears that the entire capital stock of The Toronto, Hamilton & Buffalo Railway Company is owned by The New York Central Railroad Company, The Canadian Pacific Railway Company, The Michigan Central Railroad Company and The Canada Southern Railway Company in the proportions stated. These companies and the T. H. & B. company have contracted that the line of the latter should continue to be worked and operated for the mutual benefit and advantage of all of said companies, subject to the powers of the board of railway commissioners for Canada.
The applicant company owns a majority of the stock of the Michigan Central company, for which it in turn leases the line of the Canada Southern from the Detroit river to the Niagara river, connecting with the T. H. & B. at Welland and Waterford, and with the Canadian Pacific at Hamilton. The cantilever bridge over the Niagara into New York state, where connection is made, is part of the leased line.
By an act of the Canadian parliament, approved May 18, 1916, the acquisition of the T. H. & B. bonds by the applicant, the Michigan Central, the Canada Southern, and the Canadian Pacific, was sanctioned. In the act the contract itself is set out in haec verba. The T. H. & B. was authorized to issue its consolidated mortgage bonds not to ex- ceed $10,000,000, and agreed to issue the same from time to time for its proper corporate purposes, with the consent of the four owning railroad companies, which, "will jointly acquire the said bonds as and when issued, upon such terms as may be mutually agreed.
Article 6 of the agreement contains the following:
The Canadian Pacific, 50 per cent.
And they agreed that they would not sell any part of their holdings of T. H. & B. stock, but would retain the same during the continuance of the agreement.
On August 1, 1916, the T. H. & B. executed its consolidated mortgage securing its bonds for $10,000,000, and thereafter issued $2,000,000 of these bonds at 41 per cent and sold them to the owning companies, which bought them at 90 per cent of their face, and contributed to the purchase price as follows:
The New York Central, $450,000.
It further appears that the owners of these bonds desire to sell them in order to reimburse their treasuries for the moneys so advanced, and that to secure an adequate price therefor it is necessary to guarantee payment thereof jointly and severally, and that the New York Central has never capitalized such purchase by the issue of its own securities.
After the hearing the commission made the following order: "Ordered that said The New York Central Railway Company be and it...
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