
    The People of the State of New York ex rel. The Delaware and Hudson Company, Relator, v. The Public Service Commission of the State of New York, Second District, Respondent.
    Third Department,
    November 16, 1910.
    Constitutional law — reduction of railroad fares by Public Service Commission — amendment and repeal of corporate charters — when statute fixing railroad fares is not contract—parties to proceeding before Public Service Commission — rights of lessor of railroad.
    Chapter 4 of the Laws of 1890 authorizing the Ticonderoga Railroad Company to charge a fare of twenty-five cepts for the transportation of passengers over the whole or any portion of its line, in effect amended the charter of said company by prescribing different rates of fare from those imposed by the General Railroad Act under which the company was incorporated. As by virtue of the State Constitution and various statutes the power to amend or repeal corporate charters is reserved to the People, the Public Service Commission acting under its power to fix railroad rates conferred by the Legislature, may reduce the rate of fare allowed by said statute without infringing the constitutional prohibition against the impairment of contracts.
    Moreover, said act authorizing said railroad to charge a twenty-five-cent fare was not a contract with the State, not being founded upon a consideration, but on the contrary was a mere gift or concession by the People.
    In a proceeding before the Public Service Commission against the Delaware and Hudson Company as lessee of the Ticonderoga railroad for the purpose of compelling it to reduce the fare charged on said road, the lessor is not a necessary party, although under the lease it is entitled to receive from the lessee a certain dividend upon its capital stock.
    
      It seems, that the lessor, if aggrieved by a determination reducing fares, should apply for a rehearing on which it may question the reasonableness and justice of the fares fixed.
    Certiorari issued out of the Supreme Court and attested on the 14th day of July, 1910, directed to the Public Service Commission of the State of New York, Second District, commanding said Commission to certify and return to the office of the clerk of the county of Albany all and singular the proceedings had before the Commission in relation to the reduction of the rate of fare charged for transportation of passengers on the Ticonderoga railroad, with the decision, opinion and the order therefor.
    The Ticonderoga Railroad Company was incorporated in December, 1889, with a capital stock of $30,000, under the provisions of the General Railroad Act of 1850 (Laws of 1850, chap. 140, as amd.) February 13, 1890, the Legislature passed an act (Laws of 1890,, chap. 4) which is in the following language :
    “ Section 1. The Ticonderoga Railroad Company is hereby authorized to charge a fare of twenty-five cents per person for passage, one way, over the whole or any portion of its railroad.
    “ § 2. This act shall take effect immediately.”
    In August, 1890, an agreement was entered into between the Delaware and Hudson Company of the first part, and the Ticonderoga Railroad Company of the second part, wherein the second party agreed to construct the railroad track and procure such legislation as may be necessary to authorize a charge not exceeding twenty-five cents for each passenger, and certain charges for freight, and the first party agreed to take possession of the road upon its completion and operate it during the corporate existence of second party, and that the charges for transportation should not exceed the amount above stated. It was mutually agreed that first party should retain twenty-five per cent of the annual gross amount earned, and from the excess, after paying the interest on the bonds, taxes and expenses, the second party should be paid a dividend of five per cent upon the capital stock. It was also mutually agreed that none of the provisions of the contract should be binding upon first party if legislation authorizing the charges was not obtained.
    Shortly after the execution of the contract the railroad was constructed and it has since been operated by the relator under the agreement. In September, 1908, a complaint was filed with the Public Service Commission alleging that the twenty-five cent rate was unreasonable, and praying for an investigation and such relief as may be just. The relator answered denying that the fare was unreasonable, and alleging “ that the 25c passenger rate complained of is authorized by the Charter of the Ticonderoga E. B.”
    On the hearing before the Commissioners March 2, 1909, briefs upon the question of their jurisdiction in the matter were submitted, and on the twenty-fourth day of June the contention of the relator was overruled. Further hearings were thereafter had from time to time and until the 22d day of June, 1910, when the Commissioners made a finding of fact that the charge of twenty-five cents for transporting a passenger “is unjust and unreasonable, and that the maximum just and reasonable rate, fare and charge for transporting a passenger one way over the said road is the sum of fifteen cents.” On the same day they made a final order requiring the relator forthwith to file, post and publish a schedule, showing a charge of fifteen cents for such service. On the 7tli day of July, 1910, an application was made by the relator for a rehearing, and that the Ticonderoga Eailroad Company be made a party to the proceeding, upon the ground, among others, that the Ticonderoga railroad was an interested and a necessary party. The application was denied, and thereupon the relator procured the writ of certiorari to be issued to review each of the orders made by the Commission.
    
      Lewis E. Carr, for the relator.
    
      Ledyard P. Hale, for the respondent.
   Sewell, J.:

It is the theory of the relator (1) that the Ticonderoga Railroad Company having, by chapter 4 of the Laws of 1890, obtained its right to charge and collect a fare of twenty-five cents for the transportation of a passenger, the Public Service Commission had no power to hold and decide that it was unreasonable; (2) that the act authorizing the Ticonderoga Railroad Company to charge a fare of twenty-five cents for the transportation of a passenger created a contract right which cannot be impaired by a subsequent act of the Legislature or by an order of the Public Service Commission; (3) that the Ticonderoga Railroad Company was a necessary party to the proceeding.

The very satisfactory opinion delivered by the chairman of the Commission upon the first question renders it unnecessary to enter upon a discussion of it in this court. The question whether the -act of 1890 constituted a contract not- subject to modification or repeal was, we think, also correctly answered by the learned chairman, and we agree with the discussion of that question found in his opinion. It is unnecessary to further discuss that "question, except to say that this act was apparently in the nature of an alteration and amendment of the charter of the Ticonderoga Railroad Company — a substitute for the provision in the General Railroad Act (Laws of 1850, chap. 140, § 28, subd. 9, as amd. by Laws of 1887, chap. 724) prescribing the rate of fare for transporting a passenger. If I am correct in this conclusion, the act was, by the express terms of section 1 of the General Railroad Act of 1850, subject to the provision of the Revised Statutes that The charter of every corporation, that shall hereafter be granted by the Legislature, shall be subject to alteration, suspension and repeal, in the discretion of the Legislature.” (1 R. S. 600, § 8.) It was also within the power reserved to the Legislature by the provision in section 1 of article 8 of the State Constitution of 1846, which was in effect when the act of 1890 was passed. This provision is that “ 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.” This provision was incorporated into the Constitution of 1894 without change, and the statutory provision, after being repealed in 1891 and 1892 (Laws of 1890, chap. 563, §§ 23, 26; Laws of 1892, chap. 687, § 34), was, in 1895, enacted in section 40 of the former General Corporation Law (Gen. Laws, chap. 35 [Laws of 1892, chap. 687], added by Laws of 1895, chap. 672), and is now contained in section 320 of the present General Corporation Law (Consol. Laws, chap. 23 ; Laws of 1909, chap. 28).

It will be observed that under the power reserved in these acts and the Constitution, the Legislature is clothed with power to deprive a corporation of its franchise, to prescribe the terms and conditions upon which it may live and exercise its franchise, and to pass all needful laws for the regulation and control of its domestic affairs, freed from the restrictions imposed by the Federal Constitution upon legislation impairing the obligation of contracts. (People v. O'Brien, 111 N. Y. 1; Munn v. Illinois, 94 U. S. 113 ; Mayor, etc., v. Twenty-third St. R. Co., 113 N. Y. 317.)

In the case of Hinckley v. Schwarzschild & S. Co. (107 App. Div. 470) Mr. Justice Hatch, after reviewing the authorities upon the question of the reserved power of the Legislature, said : These cases, would seem to authorize the conclusion that acts which do no more than regulate and control the internal management of a corporation, so far as it has relation to the public and concerns the policy of the State, are within the power to alter and repeal, even though the exercise of the power • adds to the burden of the stockholder by increasing his liability, or diminishes the value of his stock, or changes the name, offices or proportion in management and control of the corporation.”

If, however, we assume, as the relator claims, that the act of 1890 was not in the nature of an alteration or amendment of the General Eailroad Act of 1850. under which the Ticonderoga Eailroad Company was formed, it seems to me that it is not necessary to have recourse in this instance to the reserved power of the Legislature. An answer to this claim is that the right to charge a fee of twenty-five cents, granted by the act in question, was a mere gift or concession by the State and not the result of a contract. 'The act did not purport to make a contract. It was not in the form of a contract and did not contain the necessary elements. The element of a consideration was lacking. Nothing was required" to be done by the company as a consideration for the right, and I do "not find anything in the act which authorizes the legal conclusion that the enactment was in the nature of a contract as distinguished from a mere act of" legislation. If the views above expressed are correct it is quite apparent that the relator had no vested right in the perpetuity of the law, and "that its repeal merely operated as a" revocation of a gratuitous concession and was valid and effectual.

A complete answer to the contention of the relator that the Ticonderoga Railroad Company was a necessary party to the proceeding is that the question of a defect of parties cannot arise under the Public Service Commissions Law. The proceeding under this statute is against any common carrier or railroad corporation for an act done or omitted to be done by such common carrier o.r railroad corporation in violation of law, the terms and conditions of its franchise or an order of the Commission. It provides that whenever "the Commission shall be of opinion, after a hearing, that the fates or fares demanded, charged or collected by any such carrier or corporation are unjust or unreasonable, the Commission shall determine the just and reasonable rates, fares and charges to be thereafter observed, and shall fix the samé by an order, to be served upon common carriers or railroad corporations by whom such rates, fares and charges are thereafter to be observed. The statute also provides that “ After an order has been made by a commission any party interested therein may apply for a rehearing .in respect to any matter determined therein, and the commission may grant and hold" such a rehearing if in its judgment sufficient reason therefor be made to appear. * * * If, after such rehearing and a consideration of the facts, including those arising since the making of the order, the commission shall be of opinion that the original' order or ■ any part thereof is in any respect unjust or unwarranted," the commission may abrogate, change of modify the same.” (See Laws of 1907, chap. 429, §§ 22, 48, 49.) These" provisions, with amendments thereto, are now contained in the present Public Service Commissions Law. (See Consol. Laws, chap. 48 [Laws of 1910, chap. 480], §§ 2'2, 48, 49.)

From the text of the statute it is apparent that the party complained of is the only party to a proceeding, upon a complaint that the fares charged are unreasonable, and that if the property or right of any other corporation is affected by the order of the Commission, it may apply for a rehearing in respect to any matter determined therein. It is true that the Ticonderoga Bail road Company is interested in the revenue derived from the carrying of passengers, and that a reduction of the rate of fare may cut off or affect the right to a dividend upon its stock and the interest on its bonds ; but the Delaware and Hudson Company is not charged with the protection of the rights of the Ticonderoga Company and is not the proper representative of its rights. If the Ticonderoga Company is aggrieved, if any injury has been done to the rights of that corporation, it may apply for a rehearing and contest the question whether the fare fixed by the Commission is reasonable and just. It was not for the relator to make the application for the benefit of its lessor or for its own protection. There is no provision in the lease that the lessor shall charge the fare authorized by the act of 1890. The rate is left to the discretion of the lessor except that it is provided that the fare shall not exceed the rate allowed by the statute. For these reasons I am of opinion that the order of the Public Service Commission should be affirmed, with costs.

Cochrane and Houghton, JJ., concurred; Kellogg, J., concurred in memorandum, in which Smith, P. J., concurred.

Kellogg, J. (concurring):

I think that the Legislature had the power to repeal or modify the special statute authorizing a twenty-five-cent fare on the railroad in question. Section 49 of the Public Service Commissions Law (Consol. Laws, chap. 48; Laws of ■ 1910, chap-480) provides that the Commission' when a rate is found excessive may change it notwithstanding that a higher rate, fare or charge has been heretofore authorized by statute.” This is substantially a modification of the special act in question, so that; as modified, it provides, in substance, that the company may charge twenty-five cents until the Public Service Commission duly determines that the charge is excessive, in which case the Commission may fix a proper rate.

Smith, P. J., concurred.

Order unanimously affirmed, with costs.  