
    Trojan Railway Company, Appellant, v. The City of Troy and Others, Respondents.
    Third Department,
    March 23, 1908.
    Railroad — municipal corporation—sale of franchise — obligation of successful bidder to form corporation —■ rights and duties of assignee.
    An individual can lawfully bid in a franchise to operate a surface railway in the streets of a city of the second class. Were bidding restricted to railroad corporations, section 19 of the White charter regarding the sale of franchises in cities of the second class would be without public benefit, since but one street railway corporation exists in each of such cities.
    Such an individual bidder, if successful, becomes obligated to form a corporation with powers extending over the streets, or to assign his bid to some one who will carry out its terms.
    If the bid be assigned, the assignee should be treated as the bidder and is entitled to the franchise, subject to approval by the board of estimate and apportionment.
    The franchise must be sold to the highest bidder; the acceptance of any other bid is illegal, and will be enjoined.
    Chester and Sewell, JJ., dissented, with opinion.
    Appeal by the plaintiff, the Trojan Railway Company, from a judgment of the Supreme Court in favo'r of the defendants, entered in the office of the clerk of the county of Rensselaer on the 13th day of September, 1907, upon the decision of the court, rendered after a trial at the Rensselaer Special Term, sustaining the defendants’ demurrers to the complaint upon the ground that it fails to state facts sufficient to constitute a cause of action, and dismissing said complaint, with notice of an intention to bring up for review an order entered in said clerk’s office on the 6th day of August, 1907, denying .the plaintiff’s motion to continue a preliminary injunction.
    
      Thomas O’ Connor, for the appellant
    
      George B. Wellington, for the respondents the City of Troy and others.
    
      John E. Mac Lean (Lewis E. Carr of counsel), for the respondent United Traction Company.
   Kellogg, J.:

The plaintiff alleged that by an ordinance the defendant city provided for the sale at public auction, to the highest bidder, of the franchise to construct, maintain and operate an electric street surface railroad on certain streets in said city; the advertisement of said franchise for sale, and that one Joseph A. Rowers, a resident of the city, attended said sale and bid for such franchise, and was the highest bidder therefor; that the United Traction Company, the other bidder, protested against the bid of said Powers, claiming that he was not capable of constructing, maintaining and operating said railroad, and, therefore, that his bid was void, and that it was, therefore, the highest bidder; and that while the matter was under consideration by the city authorities the plaintiff was organized as a street surface railroad and the bid of said Powers was assigned to it, notice of which was given to the city authorities, and thereafter the bid of said Powers was rejected and the franchise was stnuck off.to the United Traction Company. Plaintiff sought to enjoin the city authorities from granting the franchise to the traction company, and obtained a. preliminary injunction for that purpose.

We may assume, without deciding, that a private individual cannot maintain and operate a street railway for public use in a city. Several tilings are necessary in order that such a railway may be constructed and maintained: (1) A railway corporation with power to build and maintain a road in the city; (2) if the charter of the company does not cover the proposed streets, there must be filed in the offices where the certificate of incorporation is filed a statement of the names and descriptions of the streets, avenues, etc., upon which it is proposed to construct and maintain the road; (3) the consent of the local authorities; (4) the consent of the property owners. Neither bidder at the sale possessed all of these qualifications, and, therefore, neither of them was qualified to build and maintain the railroad. Either of them, if successful, must subsequently become qualified to build and operate the road, or assign the bid. The personnel of the bidder is immaterial. If a railroad company is the successful bidder under a notice like the one here, it may be insolvent and utterly incapable of building and maintaining a road and may be in the hands of unworthy and unfit men. Nevertheless if it complies with the terms and conditions of the

sale it becomes a bidder and its bid must be acted upon. The statute treats the franchise as property, and upon a sale of property offered generally the bidder is only required to comply with the terms of sale, or he may sell and assign his bid to one who will do so. Section 93 of the Railroad Law (Laws of 1890, chap. 565, as amd. by Laws of 1901, chap. 494) provides for the sale of the local consent, in cities having 1,250,000 inhabitants or more, to the bidder who will agree to give the city the largest percentage of the gross receipts, and provides that such bidder must be an incorporated railroad company and file a bond for the performance of the agreement. The defendant is a city of the second class, the only other second class cities similarly governed then being Albany, Syracuse and Rochester, in each of which all of the railroad systems were operated by a single company. With but one railroad company in each second class city, the White charter, so called (Laws of 1898, chap. 182, as amd. by Laws of 1906, chap. 52), was passed, and provided at section 19, with reference to a sale of such a franchise or consent, that under proper regulations for the protection of the city it should be sold at public auction to the highest bidder upon due notice. The statute would seem to promise something to the taxpayers which it clearly did not grant if it was intended to put them to the expense of publishing the notice of sale' of the franchise to the highest bidder, when that sale was limited to one bidder which clearly without competition could fix its own price. Upon this construction of the statute the publisher of the notice at the expense of the city is the only one who could be benefited by the provision of the statute. We cannot assume that this provision was inserted for that purpose. It treated the franchise as property which the city owned and which it may sell in the manner best calculated to bring the best price for the benefit of the taxpayers of the city. This is not an unreasonable construction of the statute, and the public good can receive no detriment from such a construction. The public can gain no benefit from the act except from such a construction. Under the statute the disposition of the franchise is to be made under proper regulations for the protection of the city, and it must subsequently be approved by a resolution of the board of estimate and apportionment. If the city in this case has not properly protected itself it is its own fault, and should it prove that the present terms are in any way improper, the public interests may be protected by a rejection of the bid by the board of estimate and apportionment, without whose approval after the bidding the franchise cannot be granted.

It was held in Geneva & Waterloo R. Co. v. N. Y. C. & N. R. R. R. Co. (163 N. Y. 228, 234) that the consent of property owners may properly be given to an individual and by him assigned to a corporation, and that the corporation thereby has valid consents, and in the city of Rew York where the sale can only be made to a duly incorporated railroad corporation organized to construct, maintain and operate a street railroad in the city, a company may be the successful bidder, although the Railroad Commission has denied it the certifícate of necessity and convenience and it thereby is not capable of building and maintaining the railroad. (People ex rel. Depew R. Co. v. Comrs., 4 App. Div. 259.)

It was held in Parker v. Elmira, C. & N. R. R. Co. (165 N. Y. 274) that an individual may urdíase a railroad franchise and property and transmit the same unimpaired to another railroad company, the court saying (at p. 281): “ 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 bylaw.” If a natural person can purchase such franchise of a road completed and in operation and transmit it unimpaired to a company which is capable of exercising it, it is difficult to see why a natural person cannot purchase the consent of the city, or the franchise as it is called, for a road to be constructed and transfer it unimpaired to a company which is capable of exercising the franchise.

It is suggested that an individual who is a successful bidder may hold the franchise until it is forfeited by the lapse of time and thus tie up the enterprise and prevent the city from having a railroad. A bid by a corporation is subject to the same criticism. Reither can do it if the ordinance authorizing the sale properly provides for the protection of the city. But it is said the successful bidder becomes obligated to build the railroad within the time limited. If that is so it means that the successful bidder must qualify himself to build the road and build it within the time or cause the road to be built. The railroad company must see that its corporate powers are extended over the streets, and that it gets the proper consents and otherwise complies with the statute, or cause its assignee so to do. An individual bidder becomes obligated to form a corporation with powers extending over the streets and to get the necessary consents from the property owners and do the other acts contemplated, or to assign his bid to some one who will carry out its terms. In one case we have the obligation of a railroad company that the road will be built; in the other we have the obligation of an individual that the road will be built. Either or both bidders may be absolutely irresponsible and the obligation worthless. The statute apparently had in contemplation all these things, and enables the city to protect itself and make such reasonable conditions in the terms of sale as is necessary to fully protect it. That seems to be the only way in which the rights of the public can be protected. The attempted acceptance of the defendant railroad’s bid was, therefore, illegal, as it was not the highest bidder, and the city authorities may properly be restrained from granting the proposed franchise to it. Powers having assigned Ms bid to the plaintiff, it should now be treated as the bidder and stands as the highest bidder and is entitled to the franchise, subject, however, to the approval by a resolution of the board of estimate and apportionment.

In Village of Phoenix v. Gannon (123 App. Div. 93) it was held that under section 92 of the Bailroad Law (as amd. by Lavra of 1893, chap. 434) a natural person could not acquire a franchise to construct a street surface railroad in a village, but we have seen that the rights of the parties in this case depend upon the proper construction of section 19 of the White charter, so called. That case is not, therefore, an authority against the position here maintained.

The interlocutory judgment and the order should, therefore, be reversed, with costs to the appellant, and judgment ordered for the plaintiff as above, with costs, with the right to the defendants within twenty days to withdraw the demurrers and answer upon payment of such costs.

All concurred, except Chester, J., dissenting in an opinion, in which Sewell, J., concurred.

Chester, J. (dissenting):

The only question brought up for our consideration is whether an individual can lawfully bid in a franchise to operate a surface railway in the streets of the city. At the time of making his bid in this case .Powers stated that it was made by him as an individual, and he did not claim to represent any corporation authorized by law to construct and operate street surface railways.

The statute under which the franchise was put up for sale is section 19 of chapter 182 of the Laws of 1898 (as aind. by Laws of 1906, chap. 52), known as the Act for the Government of Cities of the Second Class, which provides that an ordinance authorizing the sale of a franchise must provide for its disposition at public auction, after public notice of at least three weeks, to the “ highest bidder,” and that such sale shall not be valid or take effect unless subsequently approved by resolution of the board of estimate and apportionment.

Both parties agree that under the statutes the operation of street surface railways is confined to corporations, and even before a corporation may construct such a railroad it must have, first, the consent of the Public Service Commission (formerly the Board of . Railroad Commissioners) under section 59 of the Railroad Law (Laws of 1890, chap. 565, added by Laws of 1892, chap. 676, and amd. by Laws of 1895, chap. 545) ; second, it must procure a franchise from the municipality having control of the streets proposed to be occupied, and, third, it must have the consent of the property owners on the streets to be used. So that even if an individual was entitled to bid for the franchise upon a public sale thereof, it would avail him nothing, for the reason that he could not lawfully get the consent of either the Public Service Commission of of the property owners abutting on the streets, for neither of these consents would have any force if given to an individual, as he could never lawfully construct or operate the road. This is a question, too, in which the public have an interest as well as the corporation or the individual concerned, for when the municipal authorities grant a franchise for the operation of a railway in the streets, it is presumed that it is done for the purpose of having such a railway constructed therein, and it would be an idle ceremony to grant or sell the franckise to one who could not lawfully build the road. Therefore, the public desires and needs would not be met or fulfilled. If an individual can lawfully take a franchise on a public sale thereof it would at once become private property in his hands, and so long as he held it as such it would be removed from public control and would be merchandise in his hands for private gain instead of for public weal.

It seems to me clear that when a public franchise is authorized to be sold to the highest bidder ” it means to the highest qualified bidder; that is, to a bidder qualified by law to exercise the franchise offered for sale, otherwise the public interests and the railway corporation involved must inevitably suffer whenever an individual sees that by becoming a bidder on such a sale a personal advantage can be gained for himself.

It was said in Kent v. Common Council (94 App. Div. 529) by Chase, J.: Where a franchise is granted to build a railroad, it imposes upon the company to which it is granted an obligation to build the road.” It would be useless to grant a franchise to an -individual for the simple reason that under the law he could not fulfill the obligation to build. This would seem to indicate that only a corporation authorized to build could properly bid upon a franchise.

It is said that in each of the cities of the second class there is but a single trolley company, so that if an individual cannot bid there would be practically no competition in the case of the sales of public franchises. This, however, is not of much moment, in view of the fact that the municipal authorities under the law have the right to make such proper regulations for the protection of the city as the common council may impose, and no bid is effective unless subsequently approved by a resolution of the board of estimate and apportionment. (Charter Second Class Cities, § 19, supra.) This provision, I think, was inserted for a purpose, and enables the municipality to protect itself from the monopoly or greed of any corporation as it apparently did in the case in question where there was a provision inserted in the terms of sale that no bid less than $7,500, besides the cost of advertising, would be received.

I can conceive of no benefit to accrue to the public from the construction given to the statute in the prevailing opinion. Whatever benefit may come from any increased competition afforded by such r construction will be more than offset, in case of the building of the new road by another company, by the requirement from the public of a double fare for riding over the lines of two companies instead of a single fare for covering the same distance in the cars of a single company. Experience has demonstrated that the public is much better and more cheaply served where a single company operates all the railways in a city than where two companies occupy the field, for the reason that in the one case a liberal use of transfers is compelled by law, which cannot be required in the other.

The views here expressed find support in Village of Phoenix v. Gannon (123 App. Div. 93), where it was held that a grant of a franchise by a village to an individual to operate a street surface railroad upon its streets was void.

I think the judgment and order should be affirmed, with costs.

Sewell, J., concurred.

Interlocutory judgment and order reversed, with costs to appellant, and judgment ordered for the plaintiff as per opinion, with costs, with leave to defendants within twenty days to withdraw demurrer and answer on payment of such costs. 
      
      See Kuhn v. Knight (190 N. Y. 339).— [Rep.
     
      
       See Const, art. 12, § 2; Laws of 1898, chap. 182, § 2, as amd. by Laws of 1905, chap. 501; Legis. Manual, 1908, pp. 202, 203; Id. p 198; Session Laws, 1907, vol. 2, p. 2503; Laws of 1906, chap. 473, §§ 4, 37, 230, 231.—[Rep.
     
      
       See Public Service Commissions Law (Laws of 1907, chap 429), §§ 2, 53, 54, 80, 86, 89.— [Ebb.
     