In re Watertown Gaslight Co.

erty and franchise owned and operated by such corporation. Prior to the gas commission law the corporation itself was practically the judge of what bonds and stock were required for the purposes of the company. Section 43 of the stock corporation law, which permitted the issue of stock for property and labor, provided that the stock should be considered full paid, and, in the absence of fraud in the transaction, the judgment of the directors as to the value of the property purchased was conclusive. The fact that the directors of the company might fix the value upon property turned into the company and paid for by stock was a prolific source of stock watering and of fictitious securities issued by corporations. Section 13 of the gas commission law was intended to make the consent of the commission to the issue of new stock and bonds a certain check upon the directors and stockholders of such companies. While the gas commission law is silent as to what' shall guide the commission in consenting to the issue of stock and bonds, except the general provision that it shall be reasonably required for the purposes of the company, section 43 of the stock corporation law is a further guide which limits the issue for property purchased, labor done, or money supplied to the company. The gas commission, therefore, is charged with the duty, when its consent is asked for the issue of new stock or bonds, of determining whether such stock and bonds are to be issued for property, labor done, or money, and for the reasonable requirements of the company. The duties of the commission are administrative to enforce upon the companies the observance of the provisions of the law. The Legislature had the right to put such duty upon the commission, and to prohibit the issue of stock and bonds until the commission approved of such issue as being within the reasonable requirements of the company. With reference to new companies, section 13 of the gas commission law prescribes the condition upon which the certificate may be issued—that is, that the stock and bonds are reasonably required for the purposes of the corporation—and I think, within the fair meaning of the section, the same provision applies to an increase of stock or bonds in case of an existing company. I think, therefore, the constitutionality of this provision of the gas commission law cannot be successfully assailed. Trustees of Saratoga Springs v. Saratoga Gas, etc., Co., 133 App. Div. 203 , 107 N. Y. Supp. 341 , reversed 191 N. Y. 123 , 83 N. E. 693 .

In October, 1903, this company had a capital stock of $100,000, a bonded indebtedness of $50,000, and notes outstanding of $10,000. The present owners paid $187,500 for the capital stock. In 1907, at the time the order in question was made, the plant had been enlarged and improved, and the location of the producing plant changed at an actual cost to the company of about $450,000. The commission evidently considered the plant worth its cost when purchased, and allowed the expenditures actually made, thus bringing the total cost of the plant as it now is to the present stockholders of about $700,000.(l But it finds that much of the old plant was dismantled and scrapped, which became necessary by the change of location of the plant, and it fixed the present value of the plant at $600,000, and consented to its capitalization at that figure. The record discloses that the new capitalization permitted covers only the par value of the stock $100,000, the bonded in

debtedness $50,000, and the actual cost of the changes and improvements to the property $450,000, entirely overlooking the indebtedness on account of the $10,000 note. The evidence does not disclose the cost of the old plant or its value, except we may infer its value from the purchase price. The present owners paid $87,500 over the par value of the stock, which does not seem an unreasonable price when we consider the earnings of the company hereinafter referred to. The fact that the stoqk was worth and sold for a premium of $87,500 furnishes no reason why such sum should be capitalized, or why the company should be permitted to issue new stock or bonds against that sum. It does not appear what surplus, if any, the company then had, nor what dividends it had paid prior to the purchase. There is, therefore, no basis upon which an increase of stock could properly be permitted on acocunt of the value and situation of the property of the company at the time the stock was purchased. The directors of a company still are the agents and-trustees of a corporation, and have the control and management of its affairs for the benefit of the stockholders and the reasonable service of the public; and, until it is shown otherwise, there is a presumption that their acts were honest and in the best interests of the company. There is no finding and no evidence of any fraudulent or improvident action in changing the location or providing for the enlargement of the plant, and, if some of the old plant was necessarily dismantled, it gives no reason why the increase of capital should not be allowed for the money necessary for the erection of the new plant and improvements. The company is bound to give to the public a reasonable and fair service; and, if the growth of the city and business calls for increased facilities, and there wlas a fair prospect of further increase, the company had a right and it was its duty to prepare to meet the present and prospective demands upon it. It was not required to continue the use of the old plant when the necessary enlargement made it proper for the interest of the company to change its plant. An application of this kind is usually made before the money is expended. If this application had then been made and it had appeared that an enlarged plant was necessary, and that the true interests of the company required and the public would be better served by changing the location of the plant, thus rendering a part of the present plant useless, it would have been unreasonable to refuse the company permission to issue securities to raise the necessary funds to make the required improvements simply because some of the old plant would be rendered useless, or to require the stockholders to reimburse the company from their own pockets for the part of the old plant so retired from use. Such practice would prevent all improvement and would be injurious to the public and to the company. We may fairly assume that, if it had appeared to the commission that $450,000 additional capital was required to make the contemplated improvements, the consent of the commission would have followed as a matter of course, and that the application would not have been denied simply for the reason that such improvements would render useless some of the existing property of the company. In good faith the company have met the expenses, and, instead of asking capitalization to cover the estimated costs of the improvements, .now' asks to be reimbursed for the actual cost. In ap

proximate figures the company owed $60,000 in 1903 and has spent $450,000 for new property and the enlargement and the improvement of the plant since, making a total obligation to be met of $510,000. But its present indebtedness is about $432,000, from which it appears that about $58,000 of indebtedness has been paid from the net earnings of the company. The stockholders have drawn no dividends or profits for themselves, but have expended the net earnings of the company, to which they were justly entitled as stockholders, to pay off the indebtedness existing against the company. The amount of the capitalization reasonably required for the purposes of the company, according to the evidence and findings, are old capital stock $100,000, bonds $50,000, and notes $10,000; old capitalization $160,000, new expenditures $450,-000; total capital requirements $610,000. As stated before, most of the old debt has been retired from the surplus earnings; but the surplus earnings belong to the stockholders who have received no dividends or profits from the company, and the dividends which should have come to them have been used in payment of the debts of the company. As a matter of fairness, there is no reason why they should not now receive the capital obligation of the company for the debts which they have thus paid.

It was suggested on the argument that, if any increase in the capitalization is allowed over that permitted by the commission, it be divided as between the bonds and stock in the proportions fixed by the commission. Capitalization of the company, therefore, should be allowed as follows: Stock $152,500, bonds $457,500, which are to issue only upon the terms and conditions fixed by the commission in the order appealed from.

The order should be modified, and the commission is therefore ordered to consent to the issue of such stock and bonds upon the terms stated. No costs are allowed. All concur, except COCHRANE, J., who votes for affirmance.