State Ex Rel. Daniel v. Broad River Power Co. , 157 S.C. 1 ( 1929 )

This is a proceeding in the original jurisdiction of this Court for a writ ofmandamus, to require the respondents to resume and continue the operation of the electric street railway system in the City of Columbia, the operation of which has been discontinued since March 11, 1927.

The history of the litigation is succinctly stated in the report of the special referee, to whom all issues of law and fact were referred by an order of this Court, dated January 11, 1928.

After taking a mass of evidence, the special referee filed an elaborate report, dated August 16, 1928, in which he recommended a dismissal of the main and intervening petitions. To this report both parties filed exceptions which fairly raise the questions hereinafter considered.

It appears to be a work of supererogation to attempt to add anything to the elaborate and conclusive report of the special referee, which has fully justified the confidence of the Court in his industry, ability, and discriminating judgment. But for the fact that the parties litigant are entitled at least, to the assurance that the case has been most laboriously and carefully considered by the Court, I would content myself with a formal order making the report the judgment of this Court. It is a case of the greatest moment to all parties concerned, and has received the most patient and earnest consideration.

A brief chronology of the events connected with the charters and consolidation of the several corporations involved, is as follows:

In 1882, the Columbia Street Railway Company was chartered by Act of Assembly.

In 1887, the Congaree Gas Electric Company was chartered.

In 1890 the Columbia Electric Street Suburban Railway Electric Power Company was chartered.

In 1891, an Act of Assembly authorized a consolidation of the Congaree Gas Electric Company and the Columbia Electric Street Suburban Railway Electric Power Company, under the name of the Columbia Electric Street Railway, Light Power Company, and the acquisition by such consolidated company of the property and franchises of the Columbia Street Railway Company which would then enter into and be absorbed by the consolidated company.

In 1892, the consolidated company acquired the property and franchises of the Columbia Street Railway Company, and having perfected the consolidation permitted by the Act of 1891, became possessed of the property and franchises of these three corporations, (1) The original horse-car company of 1882, (2) the gas and electric company of 1887, and (3) the electric street railway and power company of 1890, with all of the privileges and obligations of the several constituent companies.

The duration of the charter of each of these companies was 30 years, and that of the consolidated company, 50 years.

In 1892, the consolidated company obtained permission from the city council, by an ordinance, to change the motive power of the horse-car line to electricity, and to lay tracks upon other streets; under it the electric railway system was installed and operated.

In 1907, the Suburban Transit Company was chartered, and was authorized by city council to lay tracks upon certain streets.

In 1911, the name of the consolidated company was changed to Columbia Railway, Gas Electric Company.

In 1912 the consolidated company, under its new name, acquired the property and franchises of the Suburban Transit Company.

Later in the same year, 1912, the charter of the consolidated company was amended, under the general law, so as to continue in force in perpetuity.

The consolidated company continued the maintenance and operation of the four branches of the business, the gas, electric lighting, electric power, and street cars, until 1924, when what is known as the Barstow interests was introduced upon the scene.

At some time during the year 1924, the Barstow interests acquired all, or substantially all, of the capital stock of the consolidated company. (It will be noticed that whenever, in this opinion, the expression "consolidated company" is used, reference is to the Columbia Railway, Gas Electric Company, referred to in the report of the special referee as the Columbia Railway Company), which under the Act of 1891 was a consolidation of the Columbia Street Railway Company, the Congaree Gas Electric Company, and the Columbia Electric Street Suburban Railway Electric Power Company.

After the acquisition by the Barstow interests of the capital stock of the consolidated company, they organized the Broad River Power Company, under a charter granted by the Secretary of State, with a capital stock, afterwards increased to $20,000,000. Common and preferred stock to the amount of (in round numbers), $8,000,000 was issued, and bonds to the amount of $13,000,000.

The general nature of the business proposed to be conducted by this corporation included the building, constructing, acquiring by purchase, lease, consolidation, merger, or otherwise, and operation, of street railways, etc.

At that time it appears that the street railway system, owned and operated by the consolidated company (along with its gas, electric, and power businesses), was being operated at a substantial loss.

I think that it may be read between the lines, and from subsequent developments, that the Broad River Power Company proposed to acquire all of the property of the consolidating companies in a way that would relieve them of the obligation to operate the losing proposition of the street railway system.

A very substantial asset of the consolidated company was its interest in the Columbia Canal. Beginning prior to 1919, and continuing to 1923, there was a controversy between the State and the consolidated company, in reference to the respective rights and interests of the parties in the canal property, which resulted in an effort on the part of the State to declare the rights of the consolidated company forfeited, as will appear by reference to the reported cases on appeal inState v. Columbia Ry., Gas Electric Co., 112 S.C. 528,100 S.E., 355; Id., 129 S.C. 68, 123 S.E., 646; Id.,261 U.S. 236, 43 S.Ct., 306, 67 L.Ed., 629. This litigation eventuated in favor of the consolidated company, but it did not entirely compose the differences between the parties. It was, of course, of interest to the Broad River Power Company that these differences be completely adjusted.

The General Assembly had created the Canal Commission for the purpose of setting the controversy between the parties, and it was then functioning.

The Broad River Power Company, then interested in the double project of composing the differences between the consolidated company and the State, in reference to the canal (in part a source of their power supply), and in acquiring the properties of the consolidating companies without the obligation to operate the street car system, entered into negotiations with the Canal Commission for the settlement of the canal controversy. They attempted to combine the two projects referred to, by submitting drafts of two bills to be passed by the General Assembly: One a bill to settle the canal controversy, and the other a bill authorizing the consolidated company and six other corporations subsidiary to it, including the Columbia (Congaree?) Gas Light Company, to merge or consolidate with, or to sell, transfer, and convey to any one or more of them, or to the Broad River Power Company, all or any part of their respective properties, assets, franchises, charter, or other rights, etc.

The proposed bills, however, appear to have been acted upon by the Canal Commission and by the General Assembly, independently of each other.

The business terms of the bill settling the canal controversy were agreed to by the Canal Commission, a reference therein to the other bill having been struck out, and the bill became a law, 34 Stat. 852, approved March 24, 1925.

The members of the commission, individually, recommended the passage of the other bill, which also became a law, 34 Stat. 842, approved March 19, 1925.

Purporting to proceed under the Act of March 19, 1925, referred to in the report of the special referee as "the merger or enabling Act," there was conveyed to the consolidated company all the properties of its subsidiaries, by deeds dated June 15, 1925, and on the same day the consolidated company, also purporting to act under the authority of the Act of March 19, 1925, executed a deed to Broad River Power Company, conveying all of the property theretofore owned by it, including that which it had acquired from its subsidiaries on that day, with the following reservations:

"Saving and excepting, and Columbia Railway, Gas Electric Company expressly retains the following:

"(a) Its franchises to operate and maintain its street railway in the County of Richland, State of South Carolina within and without the City of Columbia and other municipal corporations in said County.

"(b) All easements, rights of way, rights and privileges necessary for operation of said street railway.

"(c) All street cars, tracks, ties, overhead conductors, brackets, spans, tools, repair equipment, material and supplies used or useful exclusively for street railway purposes.

"(d) All that lot or parcel. * * *"

The deed also conveyed "all poles, including those used exclusively for street railway," the substation, and the car barn, which had been used principally in connection with the street railway business.

The relief prayed for by the petitioners is "double-barreled" in its nature: A writ of mandamus to compel the consolidated company to maintain and operate the street car system, and a similar writ to compel the Broad River Power Company to do the same thing.

I. The first inquiry is whether or not, under the circumstances, the consolidated company is under a legal obligation to maintain and operate the street car system, the special referee having found as a matter of fact that the rehabilitation and operation of the system will result (as its operation heretofore has resulted), in devastating loss.

The main reliance of the petitioners to sustain the affirmative of this inquiry is the consolidating Act of 1891, by which the consolidated company acquired all of the property rights and franchises, with all of the privileges and obligations, of the constituent consolidating companies, one of which was the corporation authorized to maintain and operate the street car system, the Columbia Electric Street Suburban Railway Electric Power Company.

The inquiry naturally arises, then, as a ligament which would bind the consolidated company to the obligation to operate the street car system, whether the corporation thus acquired through the consolidation Act of 1891, by the consolidated company, was under a legal obligation to do so, regardless of the devastating loss that such maintenance and operation would entail; for if such constituent element in the consolidation was not under such obligation, and the consolidated company acquired the property, franchises, andprivileges, subject to its obligations, of the constituent corporation, it would appear illogical and unjust, in the absence of an express undertaking, to impose upon the consolidated company an obligation which the constituent corporation had not assumed, or which had not been imposed upon it.

I think that it is clear, from the authorities, that under the consolidation Act of 1891, the consolidated company acquired, no more and no less, the property, franchises, privileges, and obligations of each of the constituent corporations.

In the case of Philadelphia Wilmington R. Co. v. Maryland, 10 How., 376, 393, 13 L.Ed., 461, the effort was to relieve one of the consolidating companies from certain taxes which it was liable for, prior to the consolidation. The Court said: "And the law which authorizes these two companies to unite themselves with the plaintiff in error declares that this new corporation * * * shall be entitled within this State to all the powers and privileges and advantages at that time belonging to these two companies. It grants it nothing more. Now, as these companies held their corporate privileges under different charters, the evident meaning of this provision is, that whatever privileges and advantages either of them possessed should in like manner be held and possessed by the new company, to the extent of the road they had respectively occupied before the union; that it should stand in their place, and possess the power, rights, and privileges they had severally enjoyed in the portions of the road which had previously belonged to them. And this intention is made still more evident by the fourth section of the law, which makes the new corporation responsible for the contracts, debts, obligations, engagements, and liabilities at law or in equity of the several companies. * * * The plaintiff in error, therefore, took the property of the * * * Company with all the liabilities to which it was subject in the hands of that company."

The case of Tomlinson v. Branch, 15 Wall., 460, 465,21 L.Ed., 189, is of interest from its familiar local coloring as well as from the legal principles announced. The South Carolina Canal Railroad Company was chartered in 1827. It constructed a railroad from Charleston to Hamburg via Branchville, which was completed in 1833. Its charter gave it an exemption from all taxes for a period of 36 years. This period expired in 1869. In the meantime, in 1835, the railroad company, the predecessor of what was afterwards known as the South Carolina Railroad Company, was chartered. It was given a perpetual exemption from all taxes. By the charter it was authorized to construct a railroad from Charleston through the states of Kentucky, Tennessee, North Carolina, and South Carolina; the objective being a connection with the west at Cincinnati and the sea at Charleston. In substantially the language of the late Judge Memminger, the conduct of the war did not keep pace with the grandiloquence of the manifesto, for the construction extended only from Branchville to Columbia, with a branch about midway, to Camden. By reason of the exclusive privileges granted to the Hamburg line, the South Carolina Railroad Company met with difficulty in entering Charleston, and after negotiations between the two companies, an agreement was entered into by which the Hamburg line was merged into the other. In 1843 this amalgamation was legally authorized by an Act of the General Assembly, which provided that all of the rights, privileges, and property belonging to the Hamburg line should be vested in the South Carolina Railroad Company, which should be liable for all the debts and contracts of the other line.

After the expiration of the exemption from taxes of the Hamburg line, which occurred as stated in 1869, the stockholders of the South Carolina Railroad Company filed a bill in equity in the Court below against the said company, as also against one Tomlinson, state auditor, and certain county collectors, to enjoin the company from paying, and the others from collecting, certain taxes imposed upon the company in pursuance of the Acts of the Legislature of South Carolina; it being alleged in the bill that the said company was by charter exempt from taxation and that no adequate legal remedy existed under the laws of the State to obtain redress; the stockholders contending that by the merger of the South Carolina Canal and Railroad Company in the South Carolina Railroad Company, the property of the former is held by the latter, with all the rights and privileges of its own charter attaching thereto, including the right of perpetual exemption from taxation.

The Circuit Court sustained the contention of the South Carolina Railroad Company, in reference to the tax exemption of both companies; but upon appeal to the United States Supreme Court, the claim of exemption upon the property of the South Carolina Railroad Company, not acquired from the Hamburg line, was disallowed; upon the other property the claim was allowed.

In reference to the succession of the South Carolina Railroad Company, to the rights and privileges of the Hamburg line, the Court said: "The keeping alive of the rights and privileges of the old company, and transferring them to the new company in connection with the property, indicates the legislative intent, that such property was to be holden in the same manner and subject to the same rights as before. The owners of the property were to lose no rights by the transfer, nor was the public to lose any rights thereby. * * * But all its rights and duties, its privileges and obligations, as related to the public, or to third persons, remain, and devolve upon the new company."

In the case of R. Co. v. Blake, 9 Rich, 233, the Court said: "The South Carolina Railroad Company by an Act of 1843 (11 Stat. 273), has all the rights and privileges which belonged to either the South Carolina Canal and Railroad Company under its charter of 1828 (8 Stat. 355), or to the Louisville, Cincinnati and Charleston Railroad Company under its charter of 1835 (8 Stat. 409)."

In the case of Delaware Railroad Tax, 18 Wall., 206, 227,21 L.Ed., 888, the Court said: "The purpose of the two provisions was to vest in the new company the rights and privileges which the original companies had previously possessed under their separate charters. * * *"

"`Consolidation' is not sale, and when two companies are authorized to consolidate their roads, it is to be presumed that the franchises and privileges of each continue to exist in respect to the several roads so consolidated." Green Countyv. Conness, 109 U.S. 104, 3 S.Ct., 69, 70, 27 L.Ed., 872.

"It will be observed that a consolidated company formed under this Act acquires all the rights, privileges, and franchises possessed by its constituent companies." New Orleans Co. v. Louisiana Co., 115 U.S. 650, 6 S.Ct., 252, 255,29 L.Ed., 516.

In Punxsutawney v. Gas Co., 238 Pa., 23, 85 A., 1003,1006, the Court said: "The corporation merger and consolidation Act * * * provides in Section 3 that the new corporation shall be possessed of `all the rights, privileges and franchises' theretofore vested `in each of' its constituent corporations, and that `all debts, duties and liabilities of each of said constituent corporations shall thenceforth attach to the new corporation.' As stated by the learned Court below: `The weight of the authorities seems to be that, when the Act of consolidation gives to the consolidated company the rights and privileges of the constituent companies or makes the consolidated company subject to the obligations of the constituent companies, the rights and obligations are not extended by the Act to all of the property of the consolidated company, but only apply severally to the property of each constituent company taken over by the consolidated company'" — citing many authorities.

Now, then, as to the relation of the constituent corporation, the Columbia Electric Street Suburban Railway Electric Power Company, in reference to its legal obligation to operate the system:

The charter Act of 1890 conferred on that company authority to construct and operate an electric line of street railway in the City of Columbia, with the consent of the city council, and to extend the same five miles into the country from the State Capitol. What the special referee stated in reference to the charter of the consolidated company is equally true of the charter of this constituent corporation:

"The franchise obtained from the State and confirmed by the City having been received and acted upon by the railway company, reciprocal obligations necessarily arose. In other words, a contract was thereby created. This proposition rightly understood seems to be indisputable. The railway company having thus undertaken to serve the public, under the authority so granted by the public through their agencies, thereby assumed an obligation which could not be thrown off at will. Harmon v. Columbia Greenville Railroad Co.,28 S.C. 401, 5 S.E., 835, 13 Am. St. Rep., 686; Moore v.Railroad Co., 38 S.C. 24, 16 S.E., 781, 14 C.J., 161-162.

"The real question in this connection is not whether there was a contract, but the nature of the contract and the extent of the obligations thereby imposed. If the ordinances adopted by the city contained nothing whatever except permission to lay the tracks in the streets and operate the railway, as soon as this permission was acted upon, that is to say, accepted, the obligation to exercise the franchise and perform the service came into existence. This, however, would not create a contract to continue the operation of the railway indefinitely or in perpetuity without regard to whether or not reasonable compensation was afforded for the services rendered. A contract resulting in an obligation so onerous as this could not be thus implied. The decisions of the Supreme Court of the United States are clear beyond all doubt that such a contract cannot be elicited from the acceptance of a charter from the State for the operation of a railroad, even where the drastic power of eminent domain has actually been exercised. It follows with equal force that such a contract cannot be elicited from the fact that the consent of the city was sought and obtained as required by the charter."

In support of this proposition, the referee quotes at length from the cases of R.R. Com. v. R. Co., 264 U.S. 79,44 S.Ct., 247, 68 L.Ed., 569, and Bullock v. R. Co., 254 U.S. 513,41 S.Ct., 193, 65 L.Ed., 380, which are quite apposite; the quotations need not be repeated here, as the report will be incorporated in the report of the case.

It has been shown, I think, that so far as the charter is concerned the right to exercise the franchise is permissive only, and contains nothing of so binding an obligation as to require the operation of the system at a distinct loss. The reasoning and conclusion of the referee that there is nothing in the ordinances of the city of like character are satisfactory to me.

There being no express contract in either the statute or ordinance, the rule established by innumerable cases is that the continued operation of a railroad or street car system at a loss cannot be required.

In the case of Charleston-Isle of Palms Co. v. Shealy (D.C.), 266 F., 406, 410 (cited by the referee), upon an application by the plaintiff for leave to abandon an unremunerative enterprise, his Honor, Judge H.A. Smith, in a decree granting that relief, said: "As, therefore, the evidence is that, this property can only be operated, so as to perform the duties imposed upon the complainant by its charter, at a continuing loss, there is no power in the public under the state of facts existing in this cause to compel it. The corporation is authorized to abandon and return to the State its charter, franchises and privileges, and to cease operations, to liquidate by realizing upon what property it may possess (excluding its franchises and public privileges), and pay the proceeds to the parties entitled to receive the same."

In the case of So. Bell Co. v. R.R. Com. (D.C.), 280 F., 901, 906, also cited by the referee, the Court said:

"The State, acting for the public, has no right to compel a corporation to render its services free, nor to exhaust its capital in performing work for the benefit of the public. A corporation has a right, if it finds it unremunerative, unless bound to the contrary by a contract, to cease operating and stop its work."

"The power of a Legislature to compel continuity in a business can only arise where the obligation of continued service by the owner and its employees is direct and is assumed when the business is entered upon. A common carrier, which accepts a railroad franchise, is not free to withdraw the use of that which it has granted to the public. It is true that if operation is impossible without continuous loss (Brooks-Scanlon Co. v. Railroad Commission, 251 U.S. 396, 40 S.Ct., 183, 64 L.Ed., 323; Bullock v. Florida,254 U.S. 513, 41 S.Ct., 193, 65 L.Ed., 380), it may give up its franchise and enterprise, but, short of this, it must continue."Charles Wolff Packing Co. v. Court of IndustrialRelations, 262 U.S. 522, 43 S.Ct., 630, 636,67 L.Ed., 1103, 27 A.L.R., 1280.

In Pittsburgh Co. v. R. Co. (D.C.), 289 F., 133, 134, the question at issue was the power of the Federal Court to authorize a receiver to abandon part of an intrastate railroad. It was held that the Court had no such power. In passing the Court said: "Little question is raised but, that the owners of a railroad may abandon the entire road, if it cannot be operated without continuous loss, and there is no reasonable prospect of profitable operation in the future" — citingBrooks-Scanlon v. R.R. Com., 251 U.S. 396,40 S.Ct., 183, 64 L.Ed., 323, and Bullock v. R.R. Com., 254 U.S. 513,41 S.Ct., 193, 65 L.Ed., 380.

In Fort Smith Co. v. Bourland, 267 U.S. 330,45 S.Ct., 249, 250, 69 L.Ed., 631, the Court, in denying the right to abandon part of a line of street railway, said: "So far as appears, this company is at liberty to surrender its franchise and discontinue operations throughout the city. It cannot, in the absence of contract, be compelled to continue to operate its system at a loss. [Citing the Brooks-Scanlon case.] But the Constitution does not confer upon the company the right to continue to enjoy the franchise and escape from the burdens incident to its use."

Hence we conclude that the constituent corporation had the privilege of abandoning its franchise at any moment when the maintenance and operation of the street car system should become disastrously unremunerative.

It follows that when by the consolidation the consolidated company acquired the same rights and was charged with the same obligations as the constituent corporation, it assumed no higher or more onerous obligations than had been imposed upon that corporation; and that it had the same right of abandonment.

This is not at all inconsistent with the unanimous holdings of the Court that where the corporation retains its franchise and continues to operate under it, it cannot abandon the unprofitable features of the enterprise while retaining the profitable.

"But where a duty which a corporation is obliged to render is a necessary consequence of the acceptance and continuedenjoyment of its corporate rights, those rights not having been surrendered by the corporation, other considerations are, in the nature of things, paramount, since it cannot be said that an order compelling the performance of such a duty at a pecuniary loss is unreasonable." Mo. P.R. Co. v. Kansas,216 U.S. 262, 30 S.Ct., 330, 336, 54 L.Ed., 472.

"To conclude to the contrary would be but to declare that a corporate charter was purely unilateral; that is, was binding in favor of the corporation as to all rights conferred upon it, and was devoid of obligation as to duties imposed, even although such duties were the absolute correlative of the rights conferred. Was the duty which the order here commanded one which the corporation was under the absolute obligation to perform as the result of the acceptance of the charter to operate the road is then the question to be considered."M.P.R. Co. v. Kansas, 216 U.S. 262,30 S.Ct., 330, 336, 54 L.Ed., 472.

"It may not be doubted that the road, by virtue of the charter under which the branch was built, was obliged to carry passengers and freight, and therefore, as long as it enjoyedit charter rights, was under the inherent obligation to afford a service for the carrying of passengers. * * *Testing the alleged unreasonableness of the order in the lightof the inherent duty resting upon the corporation, etc.," M.P.R. Co. v. Kansas, 216 U.S. 262, 30 S.Ct., 330, 336,54 L.Ed., 472.

But it is contended that when the consolidated company accepted the terms of the consolidation Act, applied to the city for permission to lay its tracks upon the streets and to operate a street car system, and actually maintained and operated it, there was created a binding obligation to continue such operation at any and all cost, though it in time would swallow up the property devoted to the operation of the street railway system and also that of the allied enterprises.

I think that what has been held in reference to the obligation of the particular constituent corporation to operate the system, to its right to abandon it when unremunerative, and to the succession of the consolidated company to that right, is a sufficient answer to the contention of the petitioners.

I also approve of the reasoning and conclusion of the referee to the effect that the fact of loss does not relieve the grantee of a franchise from the obligation it imposes, so long as he continues to hold it; but that for the reasons stated, the principle is inapplicable to the conditions presented in the case at bar.

II. The second inquiry is whether or not, under the circumstances, the Broad River Power Company is under a legal obligation to maintain and operate the street car system, regardless of the fact that its rehabilitation, maintenance and operation would entail devastating losses.

There is less ground for maintaining an application for mandamus against this company than against the consolidated company.

If the consolidated company could not under the circumstances be compelled to operate the system at a loss, and the Broad River Power Company had acquired all of the franchises, rights, and privileges of the consolidated company, it stands to reason that it would have succeeded to the right and privilege of the consolidated company to abandon the operation, under the circumstances. That it seems to me would be a sufficient reason to refuse the mandamus. But there are others:

The Broad River Power Company has other branches of its business besides the street car system: The gas business, the electric light business, and the electric power business; to require it to rehabilitate, maintain, and operate the street car system at the stupendous loss apparent, the losses would have to be made up out of the net income of the other departments, and it would be but a matter of time until the entire property of the street car system, and the net income from the other departments would be swallowed up in "that Serbonian bog where armies whole have sunk."

In the incomes of those departments, the patrons of them severally have a direct interest, not only that they be maintained at efficiency, but that the rates may not be unreasonably increased, both of which will necessarily be affected by such withdrawals and diversions.

In addition to this, the conveyance of the property of the consolidated company to the Broad River Power Company specifically excepted the acquisition of the franchise of the street car corporation, the matrix of any duty to operate.

The disposition by the special referee of the intervening petitions should be affirmed by this Court.

I think the judgment of this Court should be that the report of the special referee in all respects be confirmed, and that the main and intervening petitions be dismissed.