Opinion of the Justices to the Senate

159 N.E. 55, 261 Mass. 523, 1927 Mass. LEXIS 1496

• Court: Massachusetts Supreme Judicial Court
• Decided: April 20, 1927
• Status: Published

Opinion

On November 22,1927, the Justices returned the following answer:

To The Honorable the Senate of the Commonwealth of Massachusetts:

The Justices of the Supreme Judicial Court respectfully submit these answers to the questions set forth in the order adopted by the Honorable Senate on April 15, 1927. These questions relate to a pending bill (printed as Senate, No. 276 as amended) entitled, “An Act extending the term of the lease to the Commonwealth of the properties of the Boston Elevated Railway Company and continuing public management and operation thereof.” It is in form and substance an amendment of Spec. St. 1918, c. 159. Copies of the order and bill are hereto annexed.

Provision was made by said c. 159 for the public operation through a board of trustees, appointed by the Governor, of the Boston Elevated Railway Company for a period of ten years and thereafter until such time as the Commonwealth shall elect to discontinue public management. That statute was in substance and effect a lease of the property of the railway company to the Commonwealth upon the terms therein specified. The validity of said c. 159 was upheld against attacks, founded upon certain of its provisions alleged to violate the Constitution, in Boston v. Treasurer & Receiver General, 237 Mass. 403, affirmed in Boston v. jack-son, 260 U. S. 309, and in Chelsea v. Treasurer & Receiver General, 237 Mass. 422. See Opinion of the Justices, 231 Mass. 603. The conclusions there reached are accepted without further discussion.

The first three questions of the present order raise the point broadly whether the Commonwealth may guarantee the payment of principal and interest of any securities of the Boston Elevated Railway Company which the trustees may issue under the authority of the proposed bill for the purpose of effecting economies in the fiscal management of the company and of promoting its more efficient service. Public money cannot be appropriated or public credit lent for the aid of private objects or enterprises. Such expenditures can be made only for public purposes and to promote the general welfare. That is too clear for discussion. Lowell v. Boston, 111 Mass. 454. Duffy v. Treasurer & Receiver General, 234 Mass. 42, 50. Opinion of the Justices, 240 Mass. 616, 617. The Boston Elevated Railway is devoted to a public use and its operation and management concern the public welfare. The transportation of the people at large in the district served by the Boston Elevated Railway system is a matter in which the public and the government as the representative of the people have an interest. Boston v. Treasurer & Receiver General, 237 Mass. 403, 414, and cases there collected. Boston & Albany Railroad v. New York Central Railroad, 256 Mass. 600. Prince v. Crocker, 166 Mass. 347. Browne v. Turner, 176 Mass. 9. Sears v. Street Commissioners, 180 Mass. 274, 279. The trustees take and have possession of the properties of the Boston Elevated Railway Company “in behalf of the Commonwealth during the period of public operation” by the express terms of said c. 159, § 2. The operation and management of the Boston Elevated Railway Company during the term of the lease are to be by a board of public officers for the promotion of the general welfare, although at the same time provision is made for the conservation of the private interests of the owners of the railway company. The Commonwealth, having taken possession of the property of the railway company for a public use, can expend public money for its support and operation. It follows that the purposes of the guarantee of the securities described in question 1 are public as distinguished from private, and that public moneys may be expended and the public credit pledged therefor.

It is provided by art. 62, § 1, of the Amendments to the Constitution that the “credit of the commonwealth shall not in any manner be given or loaned to or in aid ... of any corporation which is privately owned andomanaged.” Under said c. 159, as amended by the proposed bill, the Boston Elevated Railway Company, although privately owned, will not be privately managed. On the contrary, it is to be managed, controlled and operated wholly by the board of trustees who are appointed by the Governor, who constitute a public board, who are for all essential purposes public officers although under said c. 159, § 2, “deemed to be acting as agents of the company and not of the commonwealth,” and whose duties are prescribed by a public statute enacted by the General Court pursuant to its constitutional prerogatives.

The provision of § 1 of the proposed act, to the effect that the trustees shall not be considered public officers within the meaning of G. L. c. 271, § 40, does not impair or affect the general nature of their duties as public officers. The further provision exempting the trustees from the terms of G. L. c. 12, § 3, has no bearing upon the character of their service as public officers. For all other purposes they are public officers. They perform public functions.

The further provisions of § 3 of the proposed bill, to the effect that no contracts of the trustees for the operation or lease of additional subways, elevated or surface lines, or any extensions thereof, involving payment of rental or other compensation beyond the period of public operation shall be valid without the consent of the directors of the company, and that extensions or purchases of surface lines in certain conditions may not be made without such consent, do not affect the dominating features of the proposed bill stamping the management.and operation of the corporation as public and not private. It is expressly provided by said c. 159, § 4, that during the period of public control the board of directors of the company shall “have no control over the management and operation of the street railway system.” The entire responsibility of management and operation rests upon the trustees as public officers. This responsibility is not shared with the directors of the railway company.

In these circumstances there is nothing in art. 62 of the Amendments to the Constitution which would be violated by the guarantee by the Commonwealth of securities issued by the trustees as authorized in the proposed bill.

There is nothing in said art. 62 of the Amendments which restricts the lending of the credit of the Commonwealth to such corporations as were -under public management at the time of its adoption. A provision of the Constitution commonly is to be interpreted as stating a broad and general principle of government, regulative of all conditions arising in the future and falling within its terms. Tax Commissioner v. Putnam, 227 Mass. 622, 523, 524.

The circumstance that such securities may be outstanding at the termination of the period of public control and operation does not, in our opinion, render such guarantee by the Commonwealth inconsistent with art. 62 of the Amendments to the Constitution or with any other provision of the Constitution. The minimum period of public control expires in 1943, while the term of the bonds authorized by § 15 of the proposed bill is forty years. The proceeds of the bonds must be used under the proposed bill exclusively and with reasonable dispatch for the promotion of the public purposes therein set forth. It is not the design of the proposed bill that such securities may be sold and the proceeds kept on hand until after the expiration of public control and then turned over to the private owners of the company. Although the proposed bill is not explicit upon this point, we interpret it as meaning that the trustees can sell such securities only to procure money to be expended by themselves or under their direction without unreasonable delay. So interpreted, the public will receive at once the benefit of the proceeds of the bonds and of the use of the credit of the Commonwealth thus given or loaned. The delay in the payment of such bonds until after the termination of public control will have been determined by the Legislature, if the proposed bill be enacted, to be in the public interest. Such delay does not in any particular affect the underlying facts that, at the time the public credit was pledged, public officers were the managers of the Boston Elevated Railway Company and the funds secured by such pledge of the public credit have been expended wholly for a public purpose under the direction of public officers. Those are decisive factors under art. 62 of the Amendments. The taxes which may be levied for reimbursement of the Commonwealth for any payments required of it by virtue of such guarantee need not be levied immediately upon the accrual of the public benefit, but may be postponed until actual cost and loss fall upon the public treasury.

For these reasons we answer, “Yes” to question 1, and “No” to questions 2 and 3.

Question 4 is in effect whether such securities may lawfully be exempted from taxation under State laws. The proceeds from the sale of all such securities must be employed by the trustees under § 15 of the proposed bill either for the retirement or extinguishment of preferred stocks of the company, or for capital investments for which its stock may be issued. All such proceeds, therefore, will in substance and effect be invested in property of the company.

The General Court is authorized and required “to impose and levy proportional and reasonable assessments, rates, and taxes, upon all the inhabitants of, and persons resident, and estates lying, within the said commonwealth.” C. 1, § 1, art. 4, of the Constitution. This constitutional mandate as applied to corporations means that property may be exempted from one form of taxation which bears its fair burden for the support of government through some other form of taxation. If the property of a corporation is taxed to it, its shares of stock may be exempted from taxation in the hands of stockholders. If property in which the proceeds of bonds are invested and by which they are secured is taxed, the bonds in the hands of their resident owners may be exempted from taxation. The principle upon which this kind of exemption rests is avoidance of double taxation, a principle upon which the Legislature has acted in numerous instances. Salem Iron Factory Co. v. Danvers, 10 Mass. 514. Opinion of the Justices, 195 Mass. 607, 610, 611. United States Trust Co. v. Commonwealth, 245 Mass. 75. Opinion of the Justices, 250 Mass. 590, 600, and cases there cited.

Provision has been made by general law for the taxation of what is deemed by the General Court the fair value of all the property of the Boston Elevated Railway Company, either by direct property tax or by excise. See G. L. c. 63, §§ 61-66, as amended by St. 1921, c. 406, and St. 1923, c. 358, § 3, c. 452; G. L. c. 59, §§ 2, 5 cl. 16, as amended by St. 1921, c. 486, § 16, St. 1924, c. 321, St. 1926, c. 279, § 1; G. L. c. 59, § 5, cl. 32; and these statutes specially applicable to the Boston Elevated Railway Company: St. 1897, c. 500, § 10; St. 1898, c. 578, § 28, St. 1908, c. 388, Spec. St. 1917, c. 373, § 12, and Spec. St. 1918, c. 159, §§ 2, 17. A general law for the exemption from taxation of bonds and securities issued by all street railway corporations within the Commonwealth might perhaps be upheld under this principle of avoidance of double taxation. It is to be observed that the proposed bill contains no such exemption. The exemption is restricted to specified securities issued by the trustees as obligations of the Boston Elevated Railway Company. The bonds and securities of all other street railway and railroad corporations already issued or to be issued in the future are left subject to taxation under the general law. G. L. c. 59, § 4 Third. Doubtless, if the Commonwealth should take title to all property and franchises of the Boston Elevated Railway Company, they would be exempt from all taxation levied under State authority unless authorized by special statute. Boston Fish Market Corp. v. Boston, 224 Mass. 31, 34, and cases there cited. But the Commonwealth under the proposed bill will not become vested with such title. The Commonwealth merely takes and has possession of such property through the trustees, who are required to manage and operate but not to own the railway system. By the express terms of said c. 159, § 2, the right to tax the company as if in private ownership continued. Admittedly, the power of the Legislature is broad to grant exemption from taxation for proper purposes. All manner of reasonable classifications to that end may be made. But the power cannot be exercised in “clear and hostile discrimination between particular persons and classes.” Massachusetts General Hospital v. Belmont, 233 Mass. 190, 200-205, and cases there reviewed. It is matter of common knowledge that there are numerous corporations in the Commonwealth performing in general the same kind of public service that is performed by the Boston Elevated Railway Company, differing mainly in the volume of business transacted. The bonds of all such companies are and are to remain subject to taxation. The only ground on which it can be thought that discrimination against the bonds of such companies may be made in favor of the bonds here in question is that these bonds are to be issued by a public board in possession of the property of the railway company for a public use and are to be guaranteed by the Commonwealth, all for a public purpose and the general welfare. They thus will become in a sense an obligation of the Commonwealth. There can be no doubt of the power of the Commonwealth to exempt from taxation bonds and securities issued by it. The liability of the Commonwealth on these bonds, although not primary, may be enforced and may be substantial. For-this reason we are of opinion that such bonds may be exempted from taxes levied under State authority. We answer Yes to question 4.

Question 5 in substance is whether the retirement of preferred and common stocks of the company may be effected by statute without the consent of the holders thereof by the exercise of the power of eminent domain, or otherwise.

It is an underlying principle of our system of government that every person holds all and every part of his property subject to being appropriated for public use by the government for its paramount needs upon payment of reasonable and just compensation. Declaration of Rights, Massachusetts Constitution, art. 10. Amendments to Constitution of the United States, art. 5. This power of government extends to personal as well as to real estate. This power of expropriation for public use extends to shares of stock in a corporation, which represent an undivided interest in its franchise and other property. Offield v. New York, New Haven & Hartford Railroad, 203 U. S. 372. Cincinnati v. Louisville & Nashville Railroad, 223 U. S. 390, 400. Boston Water Power Co. v. Boston & Worcester Railroad, 23 Pick. 360, 392, 393. Central Bridge Corp. v. Lowell, 4 Gray, 474, 481. It is competent for the General Court to effect the retirement of such stock by the exercise of eminent domain. Since that is the provision of the proposed bill, it seems unnecessary to discuss whether such retirement can be effected in any other way or upon any other principle.

It is provided by §§ 12-14, both inclusive, of the proposed bill that minority holders of several classes of stock in the railway corporation, who have not voted in favor of accepting the proposed act as provided in § 16, may be compelled to surrender their shares to the company for retirement upon the terms therein specified. It is to be noted that the proposed act will not go into effect until accepted by the holders of a majority of each class of stock in the railway corporation. The proposed plan for retirement of the stock of nonassenting minority stockholders thus will be approved by the holders of a majority of the stock.

The provisions for the retirement of preferred stock issued under said c. 159, § 5, as set forth in § 12 of the proposed act, are in precise conformity to the conditions as to retirement contained in said § 5, which became an inherent quality or infirmity of such stock when issued. By accepting the stock on such conditions, the holders assented in advance to retirement of their shares upon such terms. They made their investment upon that footing. They cannot complain. Haskell v. New Bedford, 108 Mass. 208. Opinion of the Justices, 251 Mass. 569, at page 612, and cases there collected.

The provisions in §§ 13 and 14 of the proposed bill in effect are that the minority nonassenting holders of other classes of stock of the railway company shall surrender their shares for retirement at a price to be ascertained either (1) by an appraisal of their value by three commissioners appointed by the court, or (2) by trial by jury in the Superior Court to determine their value. Adequate provision is made for the correction of any errors of law in making such appraisal under each method. Upon payment of such value, title to those shares of stock shall vest in the railway company and the certificates of stock shall be cancelled.

The provisions as to ascertainment of the value of the shares are adequate and present no constitutional difficulty. Opinion of the Justices, 251 Mass. 569, 612-615, and cases there cited. Long Island Water Supply Co. v. Brooklyn, 166 U. S. 685.

The provision of § 13 of the proposed bill that, in ascertaining such value, enhancement or diminution thereof arising from the statute itself or the lease of the property of the railway company to the Commonwealth shall be disregarded, is valid. Smith v. Commonwealth, 210 Mass. 259, 262, 263.

The question remains whether the broad provisions for compulsory retirement of stock are violative of any constitutional guaranty. It is to be borne in mind that these provisions are part of a bill proposed for the purpose of effectuating public management of a public utility. Title to the shares of stock does not vest in the Commonwealth but in the railway corporation. No general principle of law prevents the General Court from authorizing a corporation to acquire title to its own stock. Worcester v. Board of Appeal, 184 Mass. 460. The Boston Elevated Railway Company, being a public corporation for the transportation of passengers for hire, belongs to the class of corporations which may be empowered to exercise the power of eminent domain. We are of opinion that this power may be conferred under the conditions set forth in the proposed bill to acquire title by eminent domain to the shares of its own stock of nonassenting minority stockholders. The provisions of the proposed bill are ample respecting the ascertainment and payment of compensation for such shares. The authorization in § 15 of the proposed bill of the pledging of the credit of the Commonwealth for making payment for such shares is adequate assurance of prompt payment of the reasonable and just value of such shares. Therefore there is no violation of the constitutional prohibition against taking property without due process of law.

We answer to question 5 that it is constitutionally competent for the General Court to effect the retirement of such stock by the exercise of eminent domain as provided in the proposed bill.

Question 6 in effect inquires whether §§ 12-14, both inclusive, of the proposed bill, providing for the retirement of the preferred stock of the corporation, would be repugnant to art. 1, § 10, of the Constitution of the United States whereby the several States are forbidden to pass any “law impairing the obligation of contracts.” It is elementary that one cannot by contract prevent the exercise of the powers of government in contravention of the terms of such contract. Manifestly the terms of the contract between the railway company and its stockholders as to ownership of stock are subject to the exercise of the power of eminent domain as provided in the proposed bill.

We do not pause to discuss whether the proposed sections might also be enacted under the police power with respect to a corporation devoted to a public use) because, as already pointed out, these provisions are valid under the power of eminent domain. See Boston & Albany Railroad v. New York Central Railroad, 256 Mass. 600, 610; Marcus Brown Holding Co. Inc. v. Feldman, 256 U. S. 170; and Boston Water Power Co. v. Boston & Worcester Railroad, 23 Pick. 360.

We answer “ No ” to question 6.

Question 7 presents the point whether art. 63 of the Amendments to the Constitution (printed in the order as art. 62 by mistake, as we are informed) would apply to the receipts of the company during the period of public management. It is provided in § 1 of art. 63 that all “money received on account of the commonwealth from any source whatsoever shall be paid into the treasury thereof.”

The railway company under the terms of the proposed bill remains in private ownership, although under the management of public officers. The income which may accrue from the property is in no sense public income, although restrictions are placed upon its use by the terms of the proposed bill. Profits which may accrue, save as thus restricted, belong to the railway company and not to the Commonwealth. Actions and suits for the recovery of obligations arising out of the public management must be brought by and against the railway company and not the Commonwealth. It follows that money received in the management of the railway company is not “received on account of the commonwealth” in the sense in which those words are used in said art. 63, § 1. See in this connection United States v. McCarl, 275 U. S. 1, decided by the United States Supreme Court on October 10, 1927.

We answer “ No ” to question 7.

The eighth question is whether any extension of the lease of the railway company or of the present system of public management would be repugnant to the provisions of art. 59 of the Amendments to the Constitution. That article is in these words: “Every charter, franchise or act of incorporation shall forever remain subject to revocation and amendment.”

The provisions of the proposed bill and of said c. 159, of which it is an amendment, constitute a lease of the property of the railway company to the Commonwealth. It is a contract to which the parties are the railway company as lessor and the Commonwealth as lessee. That is the main feature, although there are other provisions which prescribe the powers and duties of the public managers and which deal with certain financial aspects of the affairs of the railway company. Said c. 159 and the proposed bill are propositions on behalf of the Commonwealth presented to the railway company, which do not become operative until accepted by the railway company in the manner therein provided. There may be some features in said c. 159 and the proposed bill which in a sense are amendments of the franchise charter and act of incorporation of the railway company. So far as such features affect the charter, franchise and act of incorporation of the railway company, they are not general in character but merely to enable it to enter into and continue the lease, which is the main end of the proposed bill. For example, powers are conferred upon the railway company as to making the lease which it did not possess under its earlier acts of incorporation. All these, however, are subsidiary and incidental to the main purpose of said c. 159 and of the proposed bill providing for the lease of the property of the company to the Commonwealth.

The discussion in Boston v. Treasurer & Receiver General, 237 Mass. 403, shows that said c. 159 and the proposed bill differ fundamentally from a charter, franchise or act of incorporation. They constitute in substance and effect a contract as to public business between the Commonwealth and a public service corporation. It follows that there is nothing in them repugnant to the terms of art. 59 of the Amendments to the Constitution.

We answer “ No ” to question 8.

The inquiry presented by question 9 is whether the General Court may constitutionally amend, alter or repeal such provisions of the proposed bill and of said c. 159 as are therein declared to constitute a contract binding upon the Commonwealth. It is expressly provided by said c. 159, § 18, and by § 16 of the proposed bill that certain terms of said acts when accepted by the Boston Elevated Railway Company shall constitute contracts binding upon the Commonwealth. The public faith is thus pledged explicitly in this respect. These terms in legal intendment are contractual in their nature. These terms thus solemnly declared to be contracts are not in the nature of a franchise, charter or act of incorporation of the railway company. They are assertions by the Commonwealth of its design and purpose to treat them as simple commercial contracts and not as an exercise of the sovereign power of legislation in granting or amending a franchise, charter or act of incorporation. One branch of the power of the General Court is its authority “to stipulate for, purchase and obtain all such property, privileges, easements and improvements, as may be necessary or useful to the public,” and “to bind the community by their contracts therefor.” Boston & Lowell Railroad v. Salem & Lowell Railroad, 2 Gray, 1, 32. Boston v. Treasurer & Receiver General, 237 Mass. 403, at page 416. When the Legislature makes contracts of that nature, they are binding upon the Commonwealth and cannot by act of the Legislature alone be revoked or amended.

It was not the design or effect of said art. 59 to prevent the Commonwealth from entering into a binding contract with a domestic corporation, the terms of which would not be subject to revocation or amendment by act of the Legislature. The general.design and effect of that amendment are to prevent a legislative act of granting a charter or franchise, or an act of incorporation remaining forever free from amendment under the contract clause of the Federal Constitution as interpreted by Trustees of Dartmouth College v. Woodward, 4 Wheat. 518. It may also have other bearings and results. But that article does not have the effect of depriving the General Court of its power to make in the public interest a business contract not in the nature of a charter, franchise or act of incorporation which would bind the Commonwealth and not be subject to amendment or repeal. There is a plain distinction between a charter, franchise or act of incorporation and a pure contract touching public business between the Commonwealth and a public service corporation. The latter is not affected by art. 59 of the Amendments.

Although in general the laws as to taxation may be changed at the will of the legislative department of government, nevertheless the sovereign power itself may in certain conditions for the public welfare make a binding contract as to exemptions from taxation. New Jersey v. Wilson, 7 Cranch, 164. Home of the Friendless v. Rouse, 8 Wall. 430. Massachusetts General Hospital v. Belmont, 233 Mass. 190, 200. As to such contractual features, the proposed bill if enacted would not be subject to revocation and amendment without the consent of the railway company.

By way of precaution it may be added that neither the contract nor the due process clauses of the Constitution of the United States, nor any provisions of the Constitution of this Commonwealth, prevent or narrow the exercise of the police power. They do not have “the effect of overriding the power of the State to establish all regulations that are reasonably necessary to secure the health, safety, good order, comfort, or general welfare of the community; . . . this power can neither be abdicated nor bargained away, and is inalienable even by express grant; and ... all contract and .property rights are held subject to its fair exercise.” Atlantic Coast Line Railroad v. Goldsboro, 232 U. S. 548, 558. Wellington, petitioner, 16 Pick. 87, 101, 102. Eastern Railroad v. Boston & Maine Railroad, 111 Mass. 125,130,131.

We answer “ No ” to question 9.

The tenth question is whether the proposed bill would be subject to the referendum provision of art. 48 of the Amendments to the Constitution. It is provided in that article, “The Referendum,” Part III, § 2, “Excluded Matters” that “No law . . . the operation of which is restricted to a particular town, city or other political division or to particular districts or localities of the commonwealth . . . shall be the subject of a referendum petition.”

This question must be answered with particular reference to § 15 of the proposed bill whereby it is provided that “in case the Commonwealth shall be called on to make any payment by virtue of said guaranty [of bonds of the railway company] the amount paid on account thereof . . . shall be assessed upon the cities and towns in which service under this act is operated,” by an addition to the next State tax “assessed in proportion to the number of persons in said cities and towns using the service.” The guaranty is an obligation of the Commonwealth. Provision is made for the immediate assessment of all expense actually incurred by the Commonwealth upon cities and towns particularly specified. It must be assumed that such assessments if and when required will be levied and collected as directed in the proposed bill. As a practical matter of government, the entire financial burden thus will fall exclusively upon such cities and towns and the Commonwealth will be relieved. We are of opinion that the effective operation of the proposed law is restricted to these particular cities and towns, and that therefore the proposed bill falls in the class of matters excluded from the operation of the referendum provision of the Constitution. Opinion of the Justices, 254 Mass. 617. We do not perceive any other provisions of the proposed bill which are not restricted in operation to the district served by the Boston Elevated Railway system or which bring it within the scope of the referendum provision of the Amendment.

We answer “No ” to question 10.

The inquiry propounded by question 11 is whether any provision of the proposed bill would be unconstitutional if enacted into law.

In accordance with the established practice for the reasons set forth in Opinion of the Justices, 239 Mass. 606, 612, and Opinion of the Justices, 247 Mass. 589, 598, we respectfully ask to be excused from answering a general question of this nature.

The order transmitting these questions was received so near the end of the session of the General Court for 1927 that there was not time to make adequate answers before its prorogation. We have therefore taken time for deliberation, and return these answers before the reassembling of the Honorable Senate.

Arthur P. Rugg.

Henry K. Braley.

John C. Crosby.

Edward P. Pierce.

James B. Carroll.

William C. Wait.

George A. Sanderson.