In re the Long Acre Electric Light & Power Co.

Scott, J. : This proceeding involves the right of the relator, an electric light company, to obtain an allotment of space for its wires in the underground conduits belonging to the-Consolidated Telegraph and Electrical Subway t)bmpany (hereinafter for brevity’s sake, called the Subway Company). The organization of the Subway Company and its erection and maintenance of underground conduits for eléctrica! conductors marked the culmination of the-long struggle, now passed into familiar history, to compel the removal from the streets and public places on Manhattan island of the poles and wires once used for telegraph, telephone and electric light wires¿ .The powers, duties- and obligations of the respondent company are derived from and defined by two certain contracts dated respectively July 27, 1886, and April 7, 1887, between said company and the commissioners of electrical subways for the city of New York, ' which were ratified and confirmed by -the Legislature by chapter 716 of the Laws of'1887. ’ By these contracts the Subway Company was authorized to construct conduits for carrying wires, and among other things it was .provided that the spaces in such conduits should, be leased to any corporation “ having lawful power to operate electrical conductors in any street, avenue, or highway in the .city of New York that may apply for the same, including any company ' or. corporation having or which shall Acquire lawful power to manufacture, use or supply electricity.” The contract also undertook to provide against the danger -that some one company, by leasing more space than it required, should prevent other companies from acquir-. ing space, and further provided for the building of additional -conduits as they might be needed. The commissioners of electrical — 83 — subways agreed on their part to use all lawful means to compel companies operating electrical conductors to rent space in the subways, and the Legislature, by section 3 of the ratifying act, provided that wherever the conduits had been built all poles and wires should be removed, forcibly if necessary, from public streets and places, and in point of fact such poles and wires, including those erected and operated by the predecessor in interest of this relator, were subsequently removed by the public authorities of the city. The ratifying act of 1887 also included a remedy by writ of mandamus iri case the subway company should fail to perforin the duties and obligations assumed by it. The present relator, claiming to be entitled to lay and operate electrical conductors in this city, has applied to the subway company for an allotment of space in the subway now constructed in Forty-second street; and has tendered payment of rental for one year in advance at the rate fixed and charged by said subway company. That company has refused to allot such space and resists the application for a mandamus upon several grounds, but chiefly relies upon the objection that the relator’s company has not “ lawful power to operate electrical conductors in any street.” But first it says that by its answer to the petition it has raised issues of fact, and that for this reason, if any mandamus at all is to issue, it should be in the alternative and not the peremptory form. This objection is satisfactorily answered by the learned justice at Special Term (51 Misc. Rep. 407) and requires no extended discussion at our hands. As he points out, the allegations of the petition are positive and explicit in detail and are met for the most part by ■ denials of knowledge or information, or by denials, positive in form, but which obviously put in issue not facts, but the conclusions of law arising from the facts as stated in the petition. .The principal controversy arises over the denial by the subway company that the relator has any legal right or lawful power to operate electrical conductors under the streets, or has lawful power to manufacture, use or supply electricity. The right which the relator asserts, and which is thus called in question, rests upon a franchise granted by the municipal authorities of the city of Few York to the American Electric Manufacturing Company in 1887. The facts under which the relator claims the right to operate under this franchise are set - forth at length in the petition and are briefly as follows: The — 84 — American Electric Manufacturing Company was incorporated on March 28, 1885, under the General Manufacturing Corporation Act of 1848 (Laws of 1848, chap-. 40, as amd.), which seems to have been the only appropriate act in force at that time under which such á company could have been incorporated. Tbe purposes of said company, as stated in its certificate of incorporation, are very broad, covering- “ the manufacture, generation, utilization and sale.of electricity,” as well as the manufacture., leasing and sale of electrical apparatus.and1 appliances, and the purchase and sale of patent rights and the like.. On May'31, 1887, the board of aider-men of the then city of. Mew York, by resolution (approved by the mayor June 13, 1887), gave and granted to the American Electric Manufacturing Company permission and authority “ to locate and erect poles, and hang wires and fixtures thereon, and to place, construct and use wires, conduits • and conductors for electrical purposes in the.city of Mew York in, over and under the streets, avenues, wharves, piers, .and parks therein or adjacent' thereto,.. according to such plans, as may be directed, approved or allowed by and subject to the powers bf the Electrical Subway Commissioners and to the provisions of Chapter 499 of the Laws of 1885, and' under the supervision of the Commissioner of Public Works and of" the Department of Public Parks within their respective territorial jurisdiction, and subject also to all existing ordinances applicable thereto, and to all reasonable regulations of the privilege hereby conferred which the Common Council may hereafter impose by ordinance or otherwise.” The resolution also makes provision for compensation to the city for the privilege thus conferred. This resolution constitutes the grant or franchise under which the relator claims the light to operate electrical conductors. Its title thereto .is deiived as follows : On April 18, 1888, The American Electric Manufacturing Company, by an "instrument in writing, “granted” to 'Erederick E. Townsend, his executors, administrators and assigns^ “ the sole and exclusive right and privilege to operate for all purposes, under the franchise, privilege,’.permission, authority or right granted to it by the Board of Aldermen of the City of Mew York by a resolution adopted by the said Board on the 31st day of May, "1887,” reciting the terms of such resolution. The language of this instrument is criticised as being a grant of a right under a fran — 85 — cliise, and not an assignment of the franchise itself. What was granted to the manufacturing company was the right to do certain tilings. That right constituted its special franchise, and was property. What was “ granted ” to Townsend was “ the sole and exclusive right and privilege to operate for all purposes under the franchise, privilege, permission, authority or right granted to it by the Board of Aldermen of the City of New York by a resolution adopted by the said Board on the 31st day of May, 1887.” In other words, the company granted or conveyed to Townsend the right, i. e., the franchise, which had been given to it by the board of aldermen, and it gave him “ the sole and exclusive right,” reserving nothing which it could use itself or transfer to anyone else. It is not easy to see how, by any words, a more complete assignment could have been made. On March 14, 1889, the American Electric Illuminating Company was incorporated under the act of 1848, as amended, the objects of its incorporation being the “ manufacture, sale, leasing and ownership of appliances, inventions, letters patent and plant for electric light, heat, power and motion, and the manufacture, sale and transmission of electric light, heat, power and motion.” To this corporation, by a paper dated April 19, 1889, Frederick E. Townsend gave, granted, sold, • assigned, transferred and set over “ any right, title and interest I have and hold or may have-and hold, as trustee for such American Electric Illuminating Company, or individually in and to and under the paper writing and assignment dated April 18th, 1888, made by the American Electric Manufacturing Company, a company duly organized under the laws of the State of New York, unto me, and the rights, permission, privilege, franchise and authority therein referred to.” The American Electric Illuminating Company proceeded to operate under this franchise to the extent that it established a generating plant, erected poles and strung wires, and for more than a year manufactured electricity and supplied it to customers. Its poles ■ and wires were then cut down and removed by the public authorities, and its business, or the major part thereof, was thereupon suspended. In 1897 a judgment creditor began sequestration proceedings against the company which resulted in the appointment of a receiver, and the sale by him, under the order of this, court, of the franchise to carry on busi — 86 — ness in the city of New York. The purchaser on such sale was one Martin Minturn, and the sale to him was duly confirmed. The relator was incorporated on April 23, 1903, under the Transportation Corporations Law (Laws of 1890, chap. 566, art. 6, as amd.), with ample powers, so far as concerned its certificate of incorporation, to generate, sell and distribute electricity, and to construct, maintain and operate conductors therefor. On March 21, 1906, Martin Minturn, by an instrument in writing, gaye, -granted, sold, assigned, transferred and set over to the relator any and all his right, title and interest of every nature and kind in and to and under the above-described franchise. The respondent, relying upon that clause of its contract which requires it to furnish space in its conduits only to companies having “ lawful power ” to operate electrical conductors in New York city, defends its refusal to accord space in said conduits to relator by the contention that said relator has not such lawful powei;, and owns no franchise to operate such conductors, granted either by. the Legislature or the municipal authorities or any other body competent to grant such a franchise. The relator’s title to the franchise under which it claims the right to operate and the history of which has been given, is questioned because, as it is said, the American Electric Manufacturing Company could not assign to Townsend the franchise' granted to it by the board of aid crinen,-and consequently Townsend'took nothing-under tl\e attempted assignment- to him, and could convey nothing to- his assignee, the American Electric Illuminating Company. This contention is based upon the general proposition that a company chartered to perform- duties of a public or .quasi public nature cannot without legislative authority alienate or convey away -its right to perform such duties, or - the property necessary to their performance. In support of this general proposition there are cited to us numberless extracts from text books and judicial opinions.. That there is such a rule of law is not open to question, but like most general rules, it. is subject to exception and qualification both, as to its applicability to specific cases and as to the persons who may in voice it. It remains, therefore, to consider whether or not it is applicable to the circnm: stances of the present case, and whether- or not, in any event, it may be invoked by this respondent. The American Electric Manufacturing Company derived its primary franchise to be a corpora — 87 — tion directly from the Legislature, and with it the power to engage, as a corporation, in the various kinds of business specified in its certificate of incorporation. The right thus conferred involved no public or quasi public duty. The secondary or special franchise to operate a line or lines of electrical conductors, which is the only franchise involved in this proceeding, was granted by the board of aldermen, the proper municipal authority to make such grant. (West Side Electric Co. v. Consolidated Tel. Co., 110 App. Div. 171.) The general rule that a special or secondary franchise is inalienable without express legislative assent has lost practically all its authority in this State. From early days railroad corporations have had legislative authority to transfer to other railroad corporations the special privilege of operating the road (Woodruff v. Erie R. Co., 93 N. Y. 609, 616), and all other stock corporations were accorded that right by chapter 638 of the Laws of 1893 (adding to Stock Corp. Law [Laws of 1892, chap. 688] § 33), which has been since amended by chapter 130 of the Laws of 1901. The relaxation of the general rule is undoubtedly due to the freedom with which corporate charters are now given, and to the universal recognition of the property nature and value of special franchises. A special franchise is generally accompanied by -the grant of the right to use or occupy public property, or to exercise the essentially sovereign power to acquire property by eminent domain, and the consideration for the grant is found in the quasi public service to be rendered. The reason for the rule against alienation of such a franchise is that, by divesting itself of the franchise, the corporation would disable itself from discharging: the public duties for which it had been chartered, and the public has, therefore, been considered as entitled to forbid'such a transfer. When a charter can be obtained by merely executing and filing a certificate, as was the case when the Electric Manufacturing Company was organized, and the exercise' of the special franchise carried with it the public obligation, the reason for the rule largely disappears, especially where, as in the case of a manufacturing company, the sale and distribution of electricity was only a part of the objects for which the company was incorporated. • Whether or not a special franchise be availed of, and by whom it is availed of, is solely a question of public concern. It is not questioned that the grantor of a special privilege might, as a — 88 — -.condition of its grant,'attach the- quality of assignability to it, and the. same .power which conferred'the franchise may ratify en d 'com firm the alienation thereof when attempted .to be effected .without precedent authority. (4 Thomp. Corp. § 5361; Shaw v. Norfolk County Ry. Co., 5 Gray [Mass.], 162; Richards v. Merrimack, etc., R. R. Co., 44 N. H. 127.) It is not essential that s.uch ratification shall assume any particular form. It is sufficient if- it be evidenced .by acts,which recognize the validity of the alienation or assignment, and are inconsistent with any objection thereto. The franchise was granted by the board of aldermen, not as individuals, but as the proper ' local authority to act in that regard as and for the municipality. The - grant was, therefore, a.grant from the city, the owner of' the streets, -for the use and benefit of the public, . It was the city, therefore, the grantor of the franchise, which had the power to consent to and ratify the assignment of -the franchise. The record shows that the American Electric Illuminating Company, claiming and owning no better-right to do so than the franchise in question and the title thereto through the assignment to Townsend, did in fact erect poles in the streets of the. city and string wires thereon, and supply electricity to its customers by means of such poles and wires, and continue to do so until the completion of respondent’s subways and the forcible removal by the public authorities of all the poles and overhead wires then main-.' tained in the more populous section of the city in Manhattan island. Unless the American Electric Illuminating Company had municipal authority to erect poles and string wires, these structures constituted illegal, obstructions which it was the duty óf 'the municipal authorities to remove. We are not to presume that public officers willfully fail to do their duty, and in view of the acute public and official opposition at -that time to the maintenance of overhead wires we should find it difficult to believe that the public authorities stood by and permitted a wholly unauthorized company to add to the. ..unsightly structures then generally condemned and permitted the company to expend -its money in erecting such structures. Of course, we do not intend or undertake to pass upon any question that- may 'arise between tie city and the relator,'but the acquiescence of the city in the abts of the illumináting' company appear to indicate, yyfima, facie, a ratification of and consent to the' devolution upon that company of the title to the franchise originally given to — 89 — the manufacturing company, and if the illuminating company, when its poles and wires had been cut down, had at once applied for space in the subway, we much doubt whether it could have been denied. If it had a right to entrance then it does not appear that its right has been lost by anything that has transpired since. We are next brought to consider whether the respondent is in a position to call into question the validity-of the relator’s title to the special franchise in question. The respondent is a private corporation, operating for its own gain. The contracts between it and the commissioners of electrical subways, as well as the act ratifying these contracts, are replete with provisions designed to prevent the monopolization of the subways. The respondent is invested with no authority to grant or withhold privileges or .'to discriminate between rival applicants for space in its conduits. It is vested with no governmental functions and represents in no sense the public, either of the State or the city. Whether or not a special franchise may be assigned is a matter of public and not of private concern.' Such an assignment is not malum in se, and the Only ground for ever questioning the assignability of such a franchise is that the public were interested in its exercise by the original grantee. Accordingly it has been held that only the public may question the validity of an attempted assignment, and that it is not a question to be raised collaterally or by .any private individual. (4 Thomp. Corp. § 5367; Oakland R. R. Co. v. Oakland, etc., R. R. Co., 45 Cal. 365; 13 Am. Rep. 181.) A similar rule has uniformly been applied as to the right to question the validity of a company’s incorporation, a closely analogous question. Thus, where an attempt had been made to create a corporation by papers with the color of law, but so far defective in execution that they would be held, in a direct proceeding, to be defective and ineffectual, and the corporation has exercised its corporate powers, it is well established that the corporation is safe from collateral attack by any person b'y reason of its defective incorporation, and can be directly attacked only by the State. (Lamming v. Galusha, 81 Hun, 247; Buffalo & Allegany R. R. Co. v. Cary, 26 N. Y. 75; Eaton v. Aspinwall, 19 id. 119.) The relator stands in this precise position. It holds the franchise to operate under a formal assignment from the original grantee, and its predecessor in title, holding under the same assign — 90 — rnent, actually exercised the privilege conferred by the franchise. We do not, of course, hold that tile respondent is obliged to assign space in its conduits' to every one who' may apply, or that it may not, before assigning such space, inquire whether the applicant has a right to enter,-hilt we are of opinion that when application is made by a corporation having apparent, right to. a franchise, and which has actually, with the acquiescence' of the public authorities, exercised the franchise, the validity of its right and title is not open to collateral attack. If, for any public reason, there is a doubt as to the validity of the title, that question can be raised by the proper .municipal authority when-application is made for a permit. If not then raised, the question is of no concern to the respondent. That the franchise was assigned in the first instance to .an individual does not suggest any defect in the chain of title. We are not aware of any statutory or inherent, reason, why. the right to construct and maintain - electrical conductors may ■ not be conferred upon an individual, and none has been, suggested. At all events, Townsend, the assignee, never attempted to. use the franchise, but seems to have served merely as a conduit through whom the franchise passed from one company to another. Such a method of transfer is not invalid. (Parker v. Elmira, C. & N. R. R. Co., 165 N. Y. 274, 280.) Before actually stringing its wires, it is necessary that relator shall have, not only an allotment of- space, but also a permit from the commissioner of water supply, gas and electricity. It seems to be quite unimportant which is applied for first, and Would be of no importance whatever were it not for the rules made by the commissioner of Water supply,, gas and . electricity governing such application. These rules .cover both applications for leave to construct subways and for leave to enter subways already constructed. As to the latter, rule 3, read upon the motion, is applicable. It. is subdivided into two parts, designated (a) and (b). ! Subdivision (a) requires that application for space must be made to the subway company, and certain particulars given. Subdivision (b) reads as follows : “ When applications have been made, and space assigned for conduits underground, the written consent of the commissioner must be obtained . before any" conductors- are placed in the. 'space so assigned.” ' If the relator had applied to the commissioners before it obtained an allotment of space, its application might well have — 91 — been, and doubtless would have been, refused under this rule. The unverified letter of the deputy commissioner that a contrary rule has obtained in practice cannot be considered in contradiction of the plain letter of the rule. It is also suggested that the special franchise itself requires certain plans tobe approved before the franchise can be operated. The grant was of the right to erect poles and hang wires thereon, as well as to place wires underground, and provided that all should be done “ according to such plans as may be directed, approved or allowed by and subject to the powers of the Electrical Subway Commissioners.” If the relator were applying for leave to construct conduits for its wires it would undoubtedly be required to construct them under approved plans, but this is not what it asks. It wishes to draw wires through conduits already constructed according to plans which have been directed, approved and allowed by the subway commissioners, which is precisely what the franchise calls for. It is stated in an affidavit included in the papers read in opposition to the 'motion that there are not sufficient subways constructed in the locality requested by the relator, and that if this application were granted additional subways would necessarily have to be constructed, for which, under the statute, the relator would be obliged to give a bond. It is not asserted that any such bond has been demanded, and it is made quite clear that the respondent does not rely upon this objection to relator’s application, because it is stated in the same affidavit, made by respondent’s superintendent, that “ the sole reason why the respondent has refused to comply with the request of'the relator is that neither has the relator.been duly authorized to conduct the electric light business in the City of Hew York either by legislative act or administrative act, nor is the respondent empowered by law to allot space to it in its subways upon the application made,” and in the formal answer by respondent to relator’s petition it is not alleged, as a reason why the mandamus should not issue, that there are no available ducts. Hence, the existence Of available ducts is not put in issue. In any event, the commissioner of water supply, gas and electricity has power to order newconduits to be constructed, and it appears by his own rules that he will do so when and if he is satisfied that the unused facilities of existing subways are insufficient to meet existing requirements. ■ — 92 — We are of opinion .that, as against the respondent, tire relator has established its right to the allotment of space in the conduits, and the order appealed from is, therefore, affirmed, with ten dollars costs and disbursements. Patterson, P. J., and .Clarke, J., concurred; Ingraham and Laughlin, J J., dissented.