The sun. [volume] (New York [N.Y.]) 1833-1916, 1914-01-12
4 Rule OF CnreasOn.

There was room in the New Haven
railroad convertible bond case Just
decided by the Massachusetts Suprem"
Court for the application Of the rule
Of reason made famous by Chief JUS
tice WHITE In the Federal supreme
Courts latest interpretations Of the
sherman antitrust law. Apparently the
Massachusetts laws as TO the issuance
OF corporate securities and the powers
Of the State Public Service Commits
sion were not at all clear.
The commission itself, in voting 4 to
few weeks ago to authorize the
New Haven road to issue S67,
of q per cent. debcnture bonds, con-
vcrtiblc after five years through a pc
Rod of ten years into stock OF the
company at par. intimated the desira-
bility of n judicial construction OF Its
powers. The opinion Of the court en-
ters into an argument which indicates
further that a certain process OF deiuc-
tive logic was necessary TO reach the
conclusion that the commission had no
authority to permit the bond issue pro-
posed. The court unanimously re-
verses the commission, and the rail-
road must do its financing In some
other way than through the issuance
Of convertible bonds. Nevertheless II
does not appear that the court invoked
the rule of reason in this matter.
OF course the Massachusetts law is
what the Supreme Court Of the State
finds It TO be, but n good deal OF the
courts argumentative method OF ar
irving at results seems TO be ultra
academic In substance II is decided
that the commission could not approve
the bond issue because approval neces-
sarily carried with it sanction for the
issue OF stock { which the bonds
might ultimately he exchanged II. dur
ing the conversion period, the rehabili-
tation of the New Haven railroad
should make the comrany's shares
more valuable than they are now. In
discussing this proposition the court
seemed TO say that the whole transac-
| ton was a process of gambling In ri
lures which was contrary 10 public in.
| terest and might involve the issuance
Of stock at terms unfayorabe to the
company and to the people.
As there are good many converti-
bic bonds outstanding issued by n vari-
| ETY. Of corporations, both railroad and
| Industrial, the decision must b. of wide
spread interest. II may be conceded
that the Massachusetts law regarding
the sale of corporate securities differs
more or less radically from the laws OF
other states. but some observations may
be made on the Judgment rendered by
the Massachusetts court.
In the first place the management of
the New Haven railroad was propos-
| ing to sell bonds now and not to sell
stock In the future. II Is a question
| II any dispute would ever have been
made over It's financial plan had it not
been for the evil days on which the
road has fallen and the disfavor which
has attached 10 Its management in the
past, disfavor passed along TO the ar
rangements made for selling the con-
vertlble debentures. However that
may be, the fact remains that no con.
sidcraton of what the company s
shares might be worth five ears from
now or later and how future financing
might be done could avail TO accom-.
plish the financing imperatively re-
quired at the present time.
In agreeing upon an issue Of de.
benture bonds for the purpose Of rails
Ing funds needed Immediately the d.
rectors of the road were certainly act
ing within their rights, and It is DIFF
ficult to see how the interests OF the
road or the public could be imperilled
by making them convertible into stock
after term Of years. Should con
version take place the company would
rid Itself Of fixed interest charge
and in any event the future value OF
the stock could he Of no help In sclv
ing present problems except as tn,
possibility of enhanced value NIGH
through an offering OF convertible
ponds make 1t easier TO raise money
required now.
In the second place, It has never
peen the law of the land that the
chance Of future profits must not enter
into the calculations of business. Or
the contrary. the hope OF profit which
induces men to take chances has beer
the handspring and motive power OF
! all new enterprise, and It II new enter
prise on which the progressive expan