Minor v. . Erie R.R. Co. , 171 N.Y. 566 ( 1902 )

I agree with the chief judge that this appeal presents only the question of the proper construction of our statutory provisions which authorize the purchasers on a sale of the property and franchises of a domestic corporation to reorganize and become a corporation (§ 3, chap. 688, Laws of 1892). This concession, however, is made only on the assumption that the following remark contained in the opinion of this court in Parker v. Elmira, C. N.R.R. Co. (165 N.Y. 275), "While it is doubtless true that natural persons cannot exercise the franchises which the state has conferred upon railroad corporations, there is no reason why they cannot be the conduit for transmitting them to another corporation in the manner provided by law," does not state the existing state of legislation on the subject, and that individuals can, under the laws of this state, acquire, maintain and operate a railroad, that they may purchase on the foreclosure of a mortgage, which is my own judgment. For, if this assumption is erroneous and does not truly state the position of the majority of the court on the question, then it seems to me plain that the application of the mileage book laws to this defendant would be unconstitutional. The Supreme Court of the United States held inLake Shore M.S. Ry. Co. v. Smith (173 U.S. 684) that a similar statute of the state of Michigan was not valid as an exercise of the police power of the state to establish maximum fares, but an invasion of the property rights of the company. To this decision we gave effect in Beardsley v. N.Y., L.E. W.R.R. Co. (162 N.Y. 230). The present defendant is the successor in interest of the defendant in the case last cited. It acquired its railroad from the purchaser at a sale on the foreclosure of a mortgage of the property of the earlier corporation. The state authorized that corporation to mortgage its road and franchise, and it is clear that it could not, by subsequent legislation, deprive the bondholders or mortgagees of their security, or prevent them after the acquisition of the road on a foreclosure from exercising its franchises unimpaired. If, therefore, the state forbade the purchasers from operating and running the railroad without forming a corporation, it could not require as a condition of their incorporation that they should surrender part of the franchises which they had acquired under the mortgage. On the assumption, however, which I have stated, I admit that the state might say to the purchasers of any railroad: Hold and operate the railroad you have bought as tenants in common or as partners; that is your right, but if you wish to become incorporated, that is a privilege which we will accord to you only on condition that you give up a part of your franchise. The question then is, Is that the effect of our legislation?

The statute reads: "Such (the new) corporation shall be vested with and be entitled to exercise and enjoy all the rights, privileges and franchises which at the time of such sale belonged to, or were vested in the corporation last owning the property sold, or its receivers, and shall be subject to all the provisions, duties and liabilities imposed by law on such corporations." It is doubtless true that, under these provisions a franchise, personal to the old corporation, such as an exemption from taxation, an exemption from the exercise of the police power to prescribe maximum fares and the like would not pass. But the right which the defendant must have surrendered in this case, if it is held subject to the Mileage Book Act, was not of that character, but was pro tanto a part of the franchise connected with the property itself. This distinction should be clearly apprehended. It lies at the foundation of a line of authorities in the Supreme Court of the United States. (Shields v. Ohio, 95 U.S. 319; R.R. Co. v. Maine, 96 U.S. 499; R.R.Co. v. Georgia, 98 U.S. 359; Norfolk West. R.R. Co. v.Pendleton, 156 U.S. 667; Yazoo M.V. Ry. Co. v. Adams,180 U.S. 1.) Speaking of franchises or privileges of the first class, it is said in the Yazoo Ry. Co. case that "exemptions from taxation are not favored by law and will not be sustained unless such clearly appears to have been the intent of the legislature. Public policy in all the states has almost necessarily exempted from the scope of the taxing power large amounts of property used for religious, educational and municipal purposes, but this list ought not to be extended except for very substantial reasons, and while, as we have held in many cases, legislatures may in the interest of the public contract for the exemption of other property, such contracts should receive a strict interpretation and every reasonable doubt be resolved in favor of the taxing power. Indeed it is not too much to say that courts are astute to seize upon evidence tending to show either that such exemptions were not originally intended or that they have become inoperative by changes in the original constitution of the companies." But these considerations have no application to the case before us. While, as I have said, natural persons are not forbidden to hold and operate a railroad in this state, I think it has plainly been the public policy of the state to have them operated by corporations. Nearly all the statutory regulations for the operation of railroads are in terms confined to corporations. The same is the case with almost all imposed duties. It is only a corporation that is required when its road is intersected by a new railroad to unite with the corporation owning the new railroad in forming the necessary intersections and connections, an obligation that we are enforcing by a decision made this day. It is not necessary to dilate on this subject. I think it may be safely said that nearly every statutory provision in this state ignores the possibility or, at least, the probability that a railroad will be run by natural persons except in the case of receivers of the company owning or leasing the road. Therefore the state was equally interested with the purchasers in having such purchasers incorporate. It is hardly probable that in such a situation the state intended to exact from the purchasers a partial surrender of their franchise as a condition for becoming a corporation and conforming to state policy. Nor does it seem to me that the statute requires such result. The Mileage Book Act, though a general act, is of but very limited application and confined to new railroads. The intent of the statutory provision for consolidation was to subject the reorganized company to all duties and liabilities which the legislature might lawfully impose on corporations as a class, but not to require of it a loss of the property and franchises of the old corporation, all of which the statute says the new company shall be entitled to enjoy and possess.

The order granting a new trial should be reversed and the judgment of the Trial Term should be affirmed, with costs.

O'BRIEN, HAIGHT, VANN and WERNER, JJ., concur with PARKER, Ch. J.; GRAY, J., concurs with CULLEN, J.

Judgment affirmed.