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to pay the balance of the floating indebtedness not paid with the proceeds of the bonds previously approved by the Board and issued and sold by the company. During the pendency of this petition, the General Court enacted chapter 536 of the Acts of 1910.
Upon these facts, and upon the assumption that the Board is satisfied that the petitioning street railway company acted in good faith in the sale of the bonds first approved and obtained a fair market value therefor, the following specific questions are asked:
1. Can the Board now, under the authority conferred upon it by said section 103 of Part III. of chapter 463 of the Acts of 1906, as amended by chapter 536 of the Acts of 1910, approve, upon the company's pending petition, the issue of such additional bonds as this Board may deem to be reasonably necessary to realize the balance of the amount of floating indebtedness, previously found by the Board to have been properly incurred, and which the bonds previously approved by it had not been sufficient entirely to pay?
2. Can the Board now, under said statutes, and on the company's pending petition, if the Board approves the issue of any additional bonds as prayed for in said petition, require the company to establish a sinking fund, as provided in said chapter 536 of the Acts of 1910?
3. Is it necessary for said company to authorize and file a new petition subsequent to the enactment of chapter 536 of the Acts of 1910, in order to give this Board jurisdiction under said act to require the company to establish a sinking fund under the provisions thereof?
Section 103 of part III. of chapter 463 of the Acts of 1906 provides as follows:
A street railway company, for the purpose of building an extension, or of acquiring land for pleasure resorts, or of acquiring or building power houses or car houses or park buildings, or of acquiring or equipping additional rolling stock, or of changing its motive power, or of furnishing electricity to a town for light, or of abolishing grade crossings, or of paying betterment assessments for widening or otherwise altering streets, or of complying with any requirements lawfully imposed, or of making permanent investments or improvements, or of acquiring any additional real or personal property necessary or convenient for its corporate objects, or of refunding its funded debt, or for the payment of money borrowed or indebtedness incurred for any of the foregoing purposes, or for other
similarly necessary and lawful purposes, may, in accordance with the provisions of sections one hundred and seven, one hundred and eight, one hundred and eleven and one hundred and twelve of Part III, and of sections forty-eight to fifty-six, inclusive, of Part II, increase its capital stock or issue bonds, secured by mortgage or otherwise, to such an amount, beyond the amounts fixed and limited by its agreement of association or its charter, or by any special law, as the board of railroad commissioners shall determine will realize the amount which has been properly expended or will be properly required, and as said board shall approve for such of the purposes aforesaid as are set out in its petition to said board.
To the purposes for which a street railway company might increase its capital stock, as thus set forth, St. 1909, c. 485, added the further purpose of supplying itself with working capital.
Sections 107 to 112 of part III. of the chapter last quoted contain certain directions and restrictions upon the issuance of stocks, bonds, coupon notes and other evidences of indebtedness by street railway companies, which are not pertinent to the present inquiry.
Sections 48 to 56 of part II. regulate the issuance by a railroad corporation of coupon or registered bonds, coupon notes or other evidences of indebtedness payable at periods of more than twelve months from the date thereof to provide means for funding its floating debt, or for the payment of money borrowed for any lawful purpose, or authorize the mortgage of a part or all of its railroad, equipment or franchise, or a part or all of its real or personal property, together with provisions for the operation and management of the railroad in case there is a default in the performance of the conditions of the mortgage.
St. 1910, c. 536, is as follows:
Section one hundred and three of Part III of chapter four hundred and sixty-three of the acts of the year nineteen hundred and six is hereby amended by adding at the end thereof the following: - Said board, in authorizing the issue of any bonds under this section may prescribe the minimum price at which such bonds shall be sold, and may modify such price from time to time, as the board may deem proper. Whenever said board authorizes or has approved the issue or sale of bonds of a face value in excess of the amount determined by it to have been properly expended or to be properly required, it may, in its order of approval, or
at any time thereafter, require the company issuing such bonds to establish a sinking fund, estimated to realize at the maturity of said bonds a sum equal to the difference between the amount or amounts for which such bonds were authorized or approved, and the face value of the bonds so authorized or approved therefor, and may designate some Massachusetts trust company as trustee and custodian of such fund, and may from time to time change such trustee. The provisions of any agreement relative to said sinking fund, made between the street railway company and the trust company selected as such trustee, shall be submitted to said board and shall not be valid until approved by it.
This statute created no new purpose for which, subject to the approval of the Board of Railroad Commissioners, bonds may be issued. Its only effect is to confer upon the Board authority to prescribe a minimum price at which bonds may be sold, and, where such minimum price is less than par, to provide for the establishment of a sinking fund which will at maturity amount to the difference between the selling price and the par value of the bonds. It follows, therefore, that the first question to be decided is, whether or not section 103, without reference to the amendment passed in 1910, either expressly or by implication, places a limitation upon the sale of bonds issued under its provisions for the purpose of raising money to pay for work of construction or to fund floating indebtedness or for any other lawful purpose.
I am of opinion that there is nothing in section 103, or in the other sections therein referred to, which limits the power of a street railway company to dispose of bonds, lawfully issued, at less than par if the price obtained is the fair market value of the securities sold. Generally speaking, a corporation, in the absence of statutory prohibition or restriction, may issue its bonds or other evidences of indebtedness at a discount, or may dispose of them at less than par, provided that the price realized or the work or materials furnished give a reasonable equivalent for the securities disposed of. Gamble v. Queens County Water Co., 123 N. Y. 91; Coe v. Columbus, etc., Railroad Co., 10 Ohio, 372; Northside Railway Co. v. Worthington, 88 Tex. 562. And this power in railroad or street railway corporations has been uniformly recognized by the Legislature of this Commonwealth.
So in St. 1854, c. 286, which provided that a railroad corporation established by the laws of the Commonwealth might issue bonds for "the purpose of funding its floating debt or for money which it may borrow for any purpose sanctioned by law," and which, in Commonwealth v. Smith, 10 Allen, 448, was held to prohibit the issuance of bonds for any purpose and in any manner other than that therein provided, it was expressly enacted in section 5 that "all bonds or notes which have been, or which may hereafter be, issued by any railroad corporation, shall be binding and collectible in law, notwithstanding such notes or bonds were negotiated and sold by such corporation, or their agents at less than par." And this provision is re-enacted in section 51 of part II. of chapter 463 of the Statutes of 1906, and is by reference applicable to bonds issued under section 103 of part III. of such chapter.
I see nothing in the language of section 103 itself which either directly or by implication negatives the power so recognized. On the contrary, it expressly provides that a street railway company for the purposes specified "may . . . issue bonds . . . to such an amount as the board of railroad commissioners shall determine will realize the amount which has been properly expended or will be properly required, and as said board shall approve for such of the purposes aforesaid as are set out in its petition to said board," a choice of words by which, in my opinion, the Legislature clearly intended to recognize that, if bonds cannot be disposed of for their par value after an effort so to do made in good faith and with due diligence, the amount to be authorized by the Board, computed upon the basis of a sale at par, will not realize an amount equal to that which has been properly expended or will be properly required for the purposes specified, and to authorize the Board to determine the amount, expressed in the par value of the bonds, which will realize such amount. This view is confirmed by the language of St. 1910, c. 536, which could only have been adopted upon the theory that section 103 already recognized that it might be necessary to dispose of bonds at less than par and authorized them to be so disposed of; for such statute does not confer
upon either the street railway company or the Board of Railroad Commissioners any new power in the premises, but provides simply that the Board, in authorizing the issue of bonds under section 103, may prescribe a minimum price at which they may be sold, and where such minimum price is established may provide for a sufficient sinking fund for their redemption at par. Moreover, the Legislature must be deemed to have been well aware that, from the condition of the market or from other causes entirely beyond the control of the petitioning street railway company, it might often be that such company would be unable to dispose of its bonds at par, and, if restricted to an issue of an amount which in par value did not exceed the indebtedness to be met, would be forced to make the deficit good by other means, and would be left with a floating indebtedness originally incurred for a purpose for which bonds might be issued, but which could no longer be bonded, and must be met from earnings or carried as a permanent floating debt.
Adopting this construction of the provisions of section 103 of part III. of chapter 463 of the Acts of 1906, I reply specifically to the questions submitted by your communication as follows:
1. In view of the conclusion above reached, the first inquiry of the Board is reduced in substance to an inquiry whether the Board, having acted upon a petition of a street railway company and determined the amount of bonds which if sold at par value would realize the amount properly expended or properly required, as set forth in the petition, may, upon a subsequent petition, take into consideration the fact that, after an effort made in good faith and with all diligence to dispose of the bonds so authorized at par, the petitioner had failed to do so, and that the amount realized by actual sale upon the market was insufficient to accomplish the whole purpose for which the bonds were issued, and approve a further issue of bonds for the same purpose in order to meet the deficit so created. To this question I am of opinion that the reply should be in the affirmative. If the Board might have approved the issue of the additional bonds in the first instance, I see no reason why they