Guaranty Trust Co. of New York v. Chicago Union Traction Co.

GROSSCUP, Circuit Judge. Under the bills in these cases, receivers were appointed, who, for four years now, under the direction of the court, have been operating the properties. The history of the cases, up to April, 1906, is fully set forth in Blair v. City of Chicago, 201 U. S. 400, 26 Sup. Ct. 427, 50 L. Ed. 801. Since that time, by amended and supplemental bills and answers, the control, custody and disposition of the properties, as street railway properties, have been expressly surrendered to the court by the companies. The petition under consideration is by the Chicago Railways Company; and it asks that the Chicago Railways Company be put in possession of the properties of the several street railway companies named, in accordance with the terms of an ordinance of the city of Chicago passed Feb. 11th, 1907; which ordinance granted to the Chicago Railways Company, for the term 6f twenty years from Feb. 1st, 1907, the right to construct, maintain and operate, over the streets of Chicago, a street railway covering the present lines of the Union Traction Company, lessee.- The ordinance provides that the Chicago Railways Company shall not have the right to accept it unless at the time of acceptance certain specified numbers of the shares of said Chicago Union Traction Company, North Chicago Street Railroad Company, West Chicago Street Railroad Company, North Chicago City Railway Company and Chicago West Division Railway Company shall have been deposited with a named trustee in token of approval of the ordinance, that is to say, under a deposit agreement in form substantially like the one annexed to the ordinance; and unless also, at the time of the acceptance, the Chicago Railways Company shall be in lawful possession of the lines of the Chicago Union Traction Company “with power and authority to _ comply with the provisions of this ordinance with respect to the operation, maintenance, extension, re-construction, re-equipment and improvement of said railways and to'make from the receipts thereof all the deposits and payments required by the provisions of this ordinance to be made from such receipts, and with* power to transfer to the City, or its licensee, all such possession, rights and powers in accordance with the provisions of this ordinance in that J>ehalf hereinafter set forth.” The ordinance, as amended, provides further that all rights under it shall cease and determine unless by September 14, 1907, there be [920] formulated a plan of re-organization and re-adjustment of the several interests involved in these lines approved by certain persons therein named, — the conception of such ordinance being that so far as possible the interests of ’the old companies be transplanted to the new. The stockholders of these companies are in a situation now, under the terms off the ordinance, to accept the same; and such plan having now been approved as provided for, the question presented by the petition is, shall the properties be turned over accordingly? No interest of any consequence, so far as I have heard (the stockholders and creditors really dissenting holding very small amounts) dispute the business necessity of the order asked. The whole discussion at the hearing, so far as it was a discussion at all, revolved about the question of power — the power of' the court to do this confessedly necessary thing. On the question thus presented there are abundant analogies in the cases in the books, but nothing that can be called a precedent. And being without precedent, to be rightly judged, the peculiar facts that constitute this case must be rightly comprehended. For the purposes of street railway operation, the city of Chicago, spreading out into the country like a fan, from the business center immediately adjacent to the lake, fell naturally into three subdivisions, the north, the west, and the south sides, respectively. In 1886 and 1887, the street railway systems on the north and west sides were still horse railways — the cars, the barns, and much of the tracks being adapted only to horse railway purposes. At that time the city had a population of over three quarters of a million; in every direction its population was pushing out; from every quarter came demands for extensions and better methods; the south side, the companion system, already had a successful cable system; and the alternative put up to the north and west side companies, including the Passenger Railway,- by the very nature of their obligation ’to the public was, either to undertake a readjustment of their lines to the requirements of the times, or to make arrangements with others who would perfect such readjustment; for no public utility of this character can rest upon the purely private right of standing still or going forward as it may choose; the nature of the undertaking and the obligation to the public determine that it cannot stand still — that it must go ahead. In this situation of affairs, the North Chicago City, the West Division, and the Passenger Railway chose to turn over their holdings to two new companies, the North Chicago Street Railroad, and the West Chicago Street Railroad, taking, for the future, stipulated dividends on their stock, and guaranties of their bonds and lending to the new companies the financial credit of the old, for the purposes of new bonds and other obligations; and under this arrangement, involving as it did the issue of many new securities, and followed as it was in 1899 by the consolidation of the properties in the Union Traction Company, has come the system of railroads that is now in the custody of the court, and the series [921] of securities that are involved in the question presented by this petition. This system of railways, on its physical side, is different from any case in the books; for unlike the private rights of way of the steam railroads that have gotten into the courts for reorganization, the so-called rights of way of this system are mere permissive grants, that having been extended, from time to time toward the outlying districts, now present on the map the appearance of zones —in the nearer zones most of the rights already expired, and in the outer zones the rights having varying periods still to run. Then, too, in the matter of the lien of specific securities upon specific property, this case is different from what appears ordinarily in the books; for here, as already indicated, the older properties have been almost wholly replaced by the newer, and what is left of the older is bound up with the newer, as realty and equipment, in a single united system. And parties buying the securities-of such corporations, take them with imputed notice that the property covered, whether it be real estate or personalty, is part of a system — a system that in the very nature of things must continually be replacing the old with the new — adding, discarding, fusing, until in many instances the original identities are all but lost. But marked as these differences are, they are not the chief considerations that distinguish this case from preceding cases. In nearly all the cases in the books, the right of way is a permanent right— as permanent a part of the property as a whole, as is the roadbed itself — and dependent on no negotiation from time to time with the public for renewals. Here there is no roadbed; there is no permanent right of way; there is, except in the extreme outer zones, no right of way at all. What the court as custodian of this property has from the city, is only an offer of a right of way — an offer that if accepted, will give to the property immediately, as a going concern, a value of upwards of thirty millions of dollars; but rejected, would leave the property with only its junk value, possibly not one-half the sum named. Ordinarily the presence of such a consideration would determine, by its own logic, the question of power; for it is almost unthinkable that a court of chancery, charged with the conservation of property, and exercising power therein as broad as the power of ownership itself, is powerless to accept for the owners what the owners, in the exercise of ordinary business sense, would not hesitate to accept — is powerless to accept life; but bound, by the narrow technicalities of the law, to take for its wards only a sentence of death. But notwithstanding this there are those who oppose this motion, professing that they do not accept the facts as stated — professing a confidence that in some way these companies could succeed in holding on to the streets they now possess, though the law does not give them the right of such possession. These people, it seems to me, overlook, or seek to have the court overlook, what every man carefully seeking information in the history before the court cannot help but see. Had the history of the street railways been different from what it was; had the chief promoters, in the dispo [922] sition. of the earnings, done what was at one and the same timé their duty to the stockholders, and their duty to the public; had the corporation policy of Illinois not been wholly indifferent to what became of both stockholders and public after the corporate charters were issued, the outlook might be different. But that is not the history before the court. The history before the court shows a great fortune to a promoter, leaving a broken down system in the hands of those who hold the bag; the public indignant; the public determined that such a thing shall not occur again. And in the face of these facts, it seems plain enough to me that an offer more favorable to the companies, and less guarded than the one .embodied in the ordinance to the Chicago Railways Company, ought never to be expected, for the sufficient reason, if there were no other, that an ordinance more favorable and less guarded ought never to be granted. What, then, in the presence of this situation, ought the court to do on the petition presented? To obtain just such an offer as this— an offer that safeguards the public interest at the same time that it puts into the new arrangement all the interest of the old, big and little, on the basis, of the old — the court, and those aiding it, have for four years now patiently waited and faithfully worked. To be able to obtain such an offer the court refused the demand of one set of stockholders that forfeitures should be declared, and the suggestion of another that the properties should go to the auction block, because, as things looked to the court, a forfeiture would be a means whereby one set of stockholders might recoup some of their losses out of the other, and to sell the properties at auction would have put it in the power of the big interests to recoup their losses out of the little. To obtain this offer the codrt, and those aiding it, have gone through misunderstandings, criticism — private interests not always generous or just, and public opinion not always discriminating — trying faithfully to hold the bow of the ship into the face of the storm until the storm should subside. And with this offer at last obtained, a safe port is at last in sight. Should that port be now rejected merely because no precedent can be found for the last act of piloting that is needed? To my mind conduct like that would be the suppression. of good business sense— the surrender of equity, in its broadest sense and broadest power, to a possible legal fetish. I do not feel called upon, by anything yet called to my attention, to make such surrender. The situation confronting me calls much more convincingly that the' court take the responsibility of creating a precedent. This is made less difficult by the fact that the order asked for will not cut off any dissenting bondholder or creditor from any of his legal rights under the mortgage or under the law — the order reserving to such bondholders or creditors, as elect to have their legal rights further than come in under'this plan, full opportunity to prosecute the same, by foreclosure or otherwise, the same as if the order were not entered. The conscience of the court satisfied that the order ought to be entered, and the júdgment of the court satisfied of its power to enter the order, the form that the order shall take, whether the lawful [923] possession to be lodged in the petition, the Chicago Railways Company, shall be by lease, or by operating agreement, or in some other way, is only a matter of ways and means, the legitimacy of which is to be determined only by their adaptability to the purpose intended., ■