Opinion
November 15, 1912.
Arthur H. Masten and Charles L. Woody, for the relators.
George S. Coleman and Henry H. Whitman, for the respondents.
This is a proceeding by certiorari to review an order of the Public Service Commission for the First District reducing and fixing the fares which may be charged by the relator the Bridge Operating Company for the transportation of passengers over the Williamsburg bridge in the city of New York.
The facts upon which the writ was sued out are accurately and succinctly stated by counsel for the relators, as follows: By chapter 789 of the Laws of 1895 the mayors of the cities of New York and Brooklyn were directed to appoint a commission for the purpose of constructing a permanent suspension bridge over the East river, between the cities of New York and Brooklyn, under certain conditions, more specifically set forth in the act. By section 5 of the act the commissioners to be appointed were authorized in their discretion to purchase the charter that any corporation might have to construct a bridge such as was contemplated by the provisions of the act, together with such rights as the corporation might have to operate a railroad across such a bridge, provided that "Nothing in this act contained shall prevent said commissioners in their discretion from contracting with any corporation to operate a railroad across said bridge, if said commissioners shall determine it to be in the public interest. * * *"
Section 7 of the act provided that upon completion the bridge should become a public highway between the cities of New York and Brooklyn, and that the care, management and control thereof should be vested in the trustees of the New York and Brooklyn bridge, "who shall possess in relation thereto like powers as are vested in them in relation to the said New York and Brooklyn bridge." By chapter 612 of the Laws of 1896, section 7 of chapter 789 of the Laws of 1895 was amended so as to provide that the care, management and control of the bridge should be vested in the commissioners appointed to construct the bridge, "who shall possess in relation thereto like powers as are at the time of the passage of this act vested in the trustees of the New York and Brooklyn bridge in relation to the said New York and Brooklyn bridge, unless the Legislature shall otherwise provide therefor." At the time of the passage of this act the powers of the trustees of the New York and Brooklyn bridge were defined by chapter 410 of the Laws of 1882 in section 1980, as follows: "The said trustees shall have power to fix the rates of toll for persons, vehicles and animals of every kind and description passing over the said bridge; and may operate, and authorize to be operated, a railroad or railroads over said bridge, and fix the fare to be paid by any passenger upon any railroad operated by them." By chapter 466 of the Laws of 1901, known as the Greater New York charter, a department of bridges was created, the head of which was called the commissioner of bridges, and the act provided in subdivision 5 of section 595 thereof as follows: "The board of commissioners established by chapter seven hundred and eighty-nine of the laws of eighteen hundred and ninety-five is hereby abolished, and all its powers and duties are hereby devolved upon the commissioner of bridges of the City of New York."
Pursuant to the authority of the various acts above set forth, a contract was entered into, dated May 21, 1904, between the city of New York, by the commissioner of bridges, the Brooklyn Heights Railroad Company, the Coney Island and Brooklyn Railroad Company, New York City Railway Company and Bridge Operating Company, under the terms of which the railroad companies were given the right to operate cars over the Williamsburg bridge, under certain conditions, for a minimum period of ten years. The city agreed to complete the construction of the tracks and electrical equipment on the bridge and the Bridge Operating Company agreed to pay to the city $10,000 a year as rental therefor. The New York City Company agreed to operate for a five-cent fare through cars from the terminal at the easterly end of the bridge over the north pair of tracks in connection with its street railroad system in the borough of Manhattan, and the Brooklyn Heights Company and the Coney Island companies agreed to operate for a five-cent fare through cars from the terminal at the westerly end of the bridge over the south pair of tracks in connection with their street railroad systems in the borough of Brooklyn. Bridge Operating Company agreed to operate local cars between the two terminals of the bridge, and the provision of the contract with respect to the fares to be charged by Bridge Operating Company was as follows: "The 'Bridge Company' shall be entitled to charge a rate of fare of three cents, or less, for a single ticket or a single fare, entitling each person, actually or apparently more than three years old, to one passage across the Bridge between the terminals of the surface tracks, and shall keep on sale, in such manner as shall be approved or directed by the 'Commissioner,' tickets at the rate of two tickets for five cents, each of which tickets shall entitle any person actually or apparently over three years of age to one passage across the Bridge between the terminals of the surface tracks; and the 'Bridge Company' shall carry every person actually and apparently under three years of age free, when attended by a person over ten years of age."
Each of the railroad companies was to pay to the city five cents per round trip for every car operated by it over the bridge, and by article 18 of the contract it was provided that the contract should be binding upon and inure to the benefit of the successors and assigns of the respective parties thereto. By another agreement entered into May 21, 1904, Brooklyn Rapid Transit Company and New York City Railway Company agreed to procure forthwith the formation of a corporation under the Business Corporations Law of the State of New York, to be known as Bridge Operating Company, the capital stock to consist of 1,000 shares of the par value of $100, of which stock each of the parties agreed to take 500 shares. Pursuant to this contract Bridge Operating Company was duly formed and duly signed and acknowledged the agreement with the city of New York, dated May 21, 1904, to which it was a party, and on or about September 1, 1904, it purchased cars and other equipment and commenced the operation of local cars over the bridge.
By another agreement, dated May 21, 1904, between the New York City Railway Company, the Brooklyn Heights Railroad Company and the Bridge Operating Company, the operation of cars authorized by the agreement with the city of New York of even date was apportioned between the parties thereto and the rights and obligations of the parties with respect to such operation and with respect to the accounting incidental thereto were defined and determined.
Pursuant to the various agreements above mentioned, the local bridge cars were operated by Bridge Operating Company from on or about September 1, 1904, until on or about June 21, 1907, when the New York City Railway Company and the Brooklyn Heights Railroad Company assumed by contract the obligations of the Bridge Operating Company under its contract with the city of New York and agreed to operate the Bridge Operating Company's cars and plant. Since June 21, 1907, the local bridge cars have been operated by the Brooklyn Heights Railroad Company pursuant to a further agreement with the New York City Railway Company.
On or about October 18, 1909, the receivers of the Metropolitan Street Railway Company, with the approval of the Public Service Commission, purchased from the receiver of the New York City Railway Company the 500 shares of the stock of the Bridge Operating Company owned by the New York City Railway Company, together with the rights of the New York City Railway Company under the contract above mentioned entered into May 21, 1904, with the city of New York. The railroads and property of the Metropolitan Street Railway Company, covered by two mortgages, were purchased by the New York Railways Company and have been, since January 1, 1912, and now are, operated by the New York Railways Company, which company expects to purchase from the receivers of the Metropolitan Street Railway Company the stock of the Bridge Operating Company and the rights originally acquired by the New York City Railway Company in connection therewith, and is now negotiating for the purchase of the same.
The main contention on the part of the relators is that the agreement between the commissioner of bridges, the Bridge Operating Company and the railroad companies which executed the agreement constituted a valid contract for the term of ten years mentioned therein, and that within that term neither the Legislature nor the city of New York could lawfully impair or abrogate it. We are not concerned at the present time with a consideration as to the power of the city of New York to alter the terms of the agreement, for the city is not undertaking so to alter it. The only question before us is as to the power of the Legislature.
The nature of the agreement in question has already been judicially determined. It was held in Schinzel v. Best ( 45 Misc. Rep. 455; affd. on opinion below, 109 App. Div. 917) that it conferred no franchise upon the Bridge Operating Company, but merely a license to operate cars over the bridge, and as such was subject to change in its terms or even total abrogation, if the public interests should so require. (Citing New York Mail N.T. Co. v. Shea, 30 App. Div. 266.)
The right to regulate the fares to be charged by public service corporations is essentially a legislative function, and it may well be doubted whether, in this State, the Legislature may lawfully deprive itself of, or delegate to any other body or officer, municipal or otherwise, the power to bind it for a definite term not to exercise the inherent power to regulate such rates. The Constitution of the State (Art. 8, § 1) provides as follows: "Corporations, formation of. SECTION 1. Corporations may be formed under general laws; but shall not be created by special act, except for municipal purposes, and in cases where, in the judgment of the Legislature, the objects of the corporation cannot be attained under general laws. All general laws and special acts passed pursuant to this section may be altered from time to time or repealed." The Railroad Law as it existed at and long prior to the time when the agreement of May 21, 1904, was entered into, contained this provision: "§ 101. Rate of fare. — No corporation constructing and operating a railroad under the provisions of this article, or of chapter two hundred and fifty-two of the laws of eighteen hundred and eighty-four, shall charge any passenger more than five cents for one continuous ride from any point on its road, or on any road, line or branch operated by it, or under its control, to any other point thereof, or any connecting branch thereof, within the limits of any incorporated city or village. * * * The Legislature expressly reserves the right to regulate and reduce the rate of fare on any railroad constructed and operated wholly or in part under such chapter or under the provisions of this article." (Gen. Laws, chap. 39 [Laws of 1890, chap. 565], § 101, as amd. by Laws of 1892, chap. 676, and Laws of 1897, chap. 688.) This section was re-enacted without change in the present Railroad Law (Consol. Laws, chap. 49; Laws of 1910, chap. 481) which went into effect June 14, 1910, as section 181, except that there was added the following: "And the public service commission shall possess the same power, to be exercised as prescribed in the Public Service Commissions Law." The Public Service Commissions Law (Consol. Laws, chap. 48; Laws of 1910, chap. 480) provides: "§ 26. Safe and adequate service; just and reasonable charges. Every corporation, person or common carrier performing a service designated in the preceding section [transportation of passengers or property from one point to another within the State of New York], shall furnish, with respect thereto, such service and facilities as shall be safe and adequate and in all respects just and reasonable. All charges made or demanded by any such corporation, person or common carrier for the transportation of passengers or property or for any service rendered or to be rendered in connection therewith, as defined in section two of this chapter, shall be just and reasonable and not more than allowed by law or by order of the commission having jurisdiction and made as authorized by this chapter. Every unjust or unreasonable charge made or demanded for any such service or transportation of passengers or property or in connection therewith or in excess of that allowed by law or by order of the commission is prohibited."
Section 2, referred to in the section just quoted, provides (Subd. 5): "The term 'street railroad,' when used in this chapter, includes every railroad by whatsoever power operated, * * * for public use in the conveyance of persons or property for compensation, being mainly upon, along, above or below any street, avenue, road, highway, bridge or public place in any city," etc. The Public Service Commissions Law further provides (§ 49, subd. 1, as amd. by Laws of 1911, chap. 546): "Whenever either commission shall be of opinion, * * * that the rates, fares or charges demanded, exacted, charged or collected by any common carrier, railroad corporation or street railroad corporation subject to its jurisdiction for the transportation of persons or property within the State * * * are unjust * * * the commission shall * * * determine the just and reasonable rates, fares and charges to be thereafter observed and in force as the maximum to be charged for the service to be performed, notwithstanding that a higher rate, fare or charge has been heretofore authorized by statute," etc. (See, also, Laws of 1907, chap. 429, §§ 2, 26, 49.)
It seems to be quite clear that the Legislature retains such complete power over the fares to be charged by public service corporations (short of actual confiscation) that an act reducing the fares to be charged by a railroad corporation is valid, even though the original rate has been fixed by law before the road was built. ( People ex rel. D. H. Co. v. Public Service Commission, 140 App. Div. 839.) There seems to be no doubt that the Legislature, by the statutes above quoted, has conferred upon the Public Service Commission authority to exercise the power to fix and regulate fares. The order now sought to be reviewed must, therefore, be considered as if the Legislature itself had, by act, reduced the fares to be charged by the Bridge Operating Company, and the question to be determined is whether or not the license agreement of May 21, 1904, operated to unalterably regulate and fix the fares in question during the term of the license. That question seems to be answered by the case of Richmond County Gas Light Co. v. Town of Middletown ( 59 N.Y. 228). In that case the Legislature had expressly authorized the town to contract for a supply of gas, and the town had made such a contract for a fixed term of years. Subsequently, and before the expiration of the term of the contract, the Legislature repealed the act authorizing it. It was insisted by the gas company that its contract was protected by the constitutional prohibition against impairing the obligations of a contract. (See U.S. Const. art. 1, § 10, subd. 1.) The court, however, pointed out that the town could exercise no power in the premises except such as was conferred by the Legislature, and could, by no act of its own, extend or expand the legislative authority. The act conferring power upon the town to contract contained no specification of the time for which such a contract might be made, so that, in undertaking to contract for a definite term of years, the town exceeded its grant of power from the Legislature. This, it was held, could not be done, the court saying: "The power so conferred was like the other powers conferred upon the officers of this and the other towns of the State, subject to modification or repeal by subsequent legislation, and that the town auditors could not, by any contract, prevent or at all control the action of the Legislature in this respect." Referring back to the statutory authority under which the agreement of May 21, 1904, was entered into by the bridge commissioner in behalf of the city of New York it will be seen that no authority is given to him to fix any specific time during which the fares authorized by him shall prevail. His authority, like that conferred upon the officers of the town of Middletown, was merely to fix the fares to be charged upon a railroad operating over the bridge (Laws of 1882, chap. 410, § 1980), but he was not given power to make a permanent rate or one which should obtain for any definite period. In so far as he undertook to do this he acted without legislative authority, and his act cannot bind or control the power of the Legislature. The Bridge Operating Company and those interested with it were bound to take notice of the limitations imposed by statute upon the commissioner with whom they contracted. Our conclusion, therefore, is that it is within the power of the Legislature, and consequently within the power of the Public Service Commission, to regulate and reduce the fares to be charged by the Bridge Operating Company notwithstanding the ten-year license issued by the bridge commissioner. The relators rely with much insistence upon certain cases in the Supreme Court of the United States, notably upon Detroit v. Detroit Citizens' Street Railway Co. ( 184 U.S. 368) and Minneapolis v. Street Railway Co. (215 id. 417). In neither of these cases do the facts coincide with those in the principal case, nor is the same legal question involved. In the Detroit case the Legislature had authorized the city to enter into an agreement with the street railway company fixing the fares to be charged. Such an agreement was made for a term of thirty years. Within that time the city, not the Legislature, undertook by ordinance to reduce the fares. It was held that, as between the city and the railway company, the agreement constituted a valid contract which was protected by the Federal Constitution (Art. 1, § 10, subd. 1), and Mr. Justice PECKHAM, who wrote for the court, was careful to say: "The Legislature has not attempted to interfere with the rights of the street railway companies in Detroit, and hence the extent of its power so to do is not involved in this case" (p. 397). A similar state of facts was presented in the Minneapolis case. It was the city, not the Legislature, which undertook to alter the terms of the contract into which it had entered under legislative authority, and no question was involved or discussed as to the power of the Legislature. In Calder v. Michigan ( 218 U.S. 591) the court by Mr. Justice HOLMES made a remark which is pertinent to the present discussion. The Legislature, under its reserved power, had repealed the charter of a water company, which had already laid pipes and established a plant. The court said: "If the city gave the privilege of using the streets to the corporation forever it could not enlarge the right of the corporation to continue in existence as against the sovereign power." If the attempt to reduce the fares to be charged by the Bridge Operating Company was the act of the city, without legislative support or authority, we should have to deal with a very different question, and one to which the Federal cases above cited would very likely be applicable. But we have no such question, nor need we consider now whether or not the reduction of the fares, by the paramount power of the Legislature, would work such a change in the terms of the license as would justify the Bridge Operating Company in surrendering it.
The street railroad companies which own (or expect to acquire) the stock of the Bridge Operating Company own and operate the lines in the city of New York on both sides of the river, running what are termed "through cars" over the bridge. They sought to show that the operation of these through cars over the bridge, not over the whole route including the bridge, was conducted at a loss, and claim that they should be allowed to recoup themselves by sharing, as stockholders, in the extravagant profits of the bridge cars. This offer of proof was, as we think, rightly rejected. The rule generally adopted both by the Federal and the State courts is that in passing upon the reasonableness of rates consideration must be had of the earning capacity of the whole route or road, and not of segregated and individual portions of the lines. ( Portland Railway, etc., Co. v. Railroad Commission of Oregon, 56 Or. 468; State ex rel. McCue v. Northern Pacific R. Co., 19 N. Dak. 45; Minneapolis St. Louis R.R. Co. v. Minnesota, 186 U.S. 257.)
It is further objected that the reduction of fares ordered by the Public Service Commission is unreasonable. Upon this subject we have no hesitation in affirming the action of the Commission. The Bridge Operating Company upon its own showing has been making, at the old rates, an unreasonably large profit, and at the reduced rates will undoubtedly make a much larger profit on its investment than is realized by the average investor.
Our conclusion is that the writ must be dismissed and the order of the Public Service Commission affirmed, with ten dollars costs and disbursements to the respondents.
INGRAHAM, P.J., LAUGHLIN, MILLER and DOWLING, JJ., concurred.
Writ dismissed and order of Commission affirmed, with ten dollars costs and disbursements. Order to be settled on notice.