State v. Great Northern Railway Company
| Decision Date | 28 March 1907 |
| Docket Number | 15,113 - (207) |
| Parties | STATE v. GREAT NORTHERN RAILWAY COMPANY |
| Court | Minnesota Supreme Court |
Original Opinion Filed June 4, 1907.
Action in the district court for Ramsey county for a permanent injunction restraining defendant from taking any action in connection with the plans relating to its proposed issue of capital stock, until defendant shall have made due application to the railroad and warehouse commission of the state of Minnesota and procured its consent to such stock issue after a public hearing as by law provided, and for a temporary injunction pendente lite. An order to show cause having been granted, the defendant filed its answer and the matter was argued before Hallam, J., who directed an injunction pendente lite to issue. From his order defendant appealed. Reversed.
Inter alia the answer admitted that on December 11, 1906, by a resolution duly adopted by its board of directors defendant increased its capital stock by an issue of six hundred thousand shares of the par value of $100 each; that said resolution, duly authenticated, was on December 31, 1906 filed and recorded in the office of the secretary of state of Minnesota; and that the resolution was substantially as follows:
The answer further admitted that said defendant did duly offer said additional stock for subscription for cash at par to stockholders of record January 4, 1907, and more than seventy five per cent. of said stock had been duly subscribed pursuant to said offer, and the first instalment thereof paid; that it was the intention of said defendant not to issue said stock until the full par value thereof had been paid to it in cash at the times and manner stated in the offer, and that by the terms of the offer defendant could not issue any of said stock before May 1, 1908.
The answer alleged that the several corporations whose bonds and stocks defendant proposed to acquire were incorporated under the laws of the states of North Dakota, Montana, and Washington, the Province of Manitoba and the Dominion of Canada, and that each company had constructed and owned lines of railway located in the state where it was incorporated, which railways connected with the lines of the defendant at various points; that none of the roads was parallel or competing with the lines of defendant but constitute branches and feeders of said line; that the purchase of the bonds and stocks of these companies was for the purpose of acquiring said companies and consolidating with them.
The answer alleged that all its outstanding stock is preferred stock and that no common stock has ever been issued.
The answer further alleged that in the year 1898 the railroad and warehouse commission submitted to the attorney general of the state the question whether this defendant could lawfully increase its capital stock without the consent of said commission, and that said attorney general advised said commission that the defendant had the lawful right to increase its stock without their consent; that thereafter on July 22, 1898, the defendant increased its stock in the amount of twenty five million dollars; on October 19, 1898, in the amount of twenty five million dollars; on April 15, 1899, in the amount of twenty four million dollars; on April 20, 1900, in the amount of one million dollars; on February 22, 1901, in the amount of twenty five million dollars; on October 12, 1905, in the amount of twenty five million dollars. That each of these increases was made pursuant to section 10 of the act of February 28, 1865 (Sp. Laws 1865, p. 35, c. 4) and in the manner provided in Laws 1889, c. 228, by resolution of its board of directors setting forth the purpose of such increase and filing a copy of the resolution in the office of the secretary of state and paying the proper fees therefor, aggregating $60,000. That each of these increases was made with full knowledge of the railroad and warehouse commission and the attorney general in office at the time thereof, and without the consent of the commission, and that no protest against any of such increases was made by the commission or the attorney general until this increase of December 11, 1906. That all said increases have been sold and paid in cash at par and are outstanding. That the construction placed upon the laws by the railroad and warehouse commission and the attorney general is a practical construction given to the laws by the authorities charged with enforcing them to the effect that defendant need not apply to said commission for leave to increase its capital stock.
Railway -- Increase of Capital Stock.
This is an appeal from an order granting a temporary injunction restraining the defendant from making any increase in its capital stock without the consent of the railroad and warehouse commission. Held, that the terms and conditions upon which corporations may be created, the powers and capital stock they may have, the purposes for which they may increase their capital stock, and the conditions and limitations thereof are exclusively matters for legislative action, which cannot be delegated.
Regulation by Legislature.
The state having created railway corporations for public purposes, the legislature has the right to enact statutes regulating the increase of their capital stock. Such regulations tend to prevent secrecy of operation and accounts by such public agencies, and the issue and sale of fictitious or watered stock, which is a felony in this state.
Regulation by Legislature -- Increase of Capital Stock.
In the exercise of this right the legislature may enact a statute providing generally for what purposes and upon what terms, conditions, and limitations and increase of capital stock may be made, and confer upon a commission the duty of supervising any proposed increase.
Regulation by Legislature -- Powers of Railroad Commission.
It may also delegate to the commission the duty of finding the facts in each particular case, and authorize and require it, if it finds the existence of facts that bring the case within the statute, to allow the proposed increase; otherwise, to refuse it.
Unconstitutional Delegation of Power.
Any statute, however, which attempts to authorize the commission in its judgment to allow an increase of capital stock for such purposes and on such terms as it may deem advisable, or in its discretion to refuse it, would be unconstitutional, as an attempt to delegate legislative power.
Unconstitutional Delegation of Power.
Section 2872, R.L. 1905, relating to the increase of capital stock of railway corporations, does not violate either article 1, § 11, of the state constitution, or article 1, § 10, of the constitution of the United States which forbid the enactment of any law impairing the obligation of contracts. It does, however, violate section 1, art. 3, of the state constitution, in that it delegates to the commission legislative power.
William R. Begg and Davis, Kellogg & Severance, for appellant.
A. The increase of its authorized capital stock made by this defendant is valid, and the additional stock may lawfully be issued, unless the consent of the railroad and warehouse commission of the state of Minnesota is necessary. Act of Feb. 28, 1865, (Sp. Laws 1865, p. 35, c. 4,) § 10; R.L 1905, §§ 2907, 2899. Defendant has no common stock outstanding. The resolution creating the additional stock provides that the increase shall be assented to by the holders of three-fourths in amount of the outstanding preferred stock, such assent to be evidenced by subscription or assignment of right to subscribe...
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