The Hawaiian gazette. [volume] (Honolulu [Oahu, Hawaii]) 1865-1918, 1916-06-13
TERRITORY FILES
IT'S final BRIEF
IN TRANSIT CASE
= .+ .4sit HI [%.is1
Attorney General Says Last
Word In Matter Of Electric
Railway capitalization
WILL SUE COMPANY
IF COURT. SUSTAINS
------- ~
Government Claims Corporation
Owes People More Than Quar-
ter-Million Dollars a,.. :

49,
d, The final brief of the territory in
the case of the Territory of Hawaii,
by Ingram NJ Stainback, attorney
general, against the Honolulu Rapid
Transit and Land company, was filed
late yesterday afternoon in the supreme
court. The case is one in which the
territory is seeking to prevent the
railway company from increasing its
capital stock, In a thirty-three page
brief, on some pages of which the
criticism of the Rapid Transit plan
company's claims is quite severe, the
attorney general sets forth the doc
trine that the company is not entitled
to increase its capital stock, and il
states also the intention of the attor-
ney general 3 department to bring pro-
eeedings against the company, should
the court sustain the contentious of the
brief, to recover for the territory per-
,centage of the profits the company has
earned, as is claimed.
Instituted To Prevent Fraud
The brief is signed by Attorney Gen
eral l. NJ. Stainback, and deputies VIM.
II. Heen and William T. Garden, all
three Of whom have been collaborating
on it for many days and nights. 1t is
the last brief in a case which may
have much to do with the pending
proposition in Washington, Of a new
Rapid Transit franchise. The sum
which the brief claims is due the ter
ritory from the Rapid Transit company,
as the public 5 share of the company's
profits, up to April 30, 1915, is $685.
1875. This sum, the brief says, it
is proposed to collect if the conten-
tions of the brief are sustained.
The question at issue is the right Of
the Rapid Transit Company to increase
its capital stock to 81, 100000 and to
pay dividends upon stock Of that value.
The brief says:
at is submitted that this suit was
not CONNIE need for the purpose of hav-
ing the court regulate the Rapid Tran
sit Company, as respondents brief
claims on page II. 1t was instituted
solely for the purpose of preventing a
fraud upon the Territory, the Terri
tory having a pecuniary interest in the
distribution of the income of the said
company"
Intended For Promotion Expense
1--WE are at loss to see how coun-
sci can, by invoking the general cor
poration law and charter provisions,
defeat the provision in Section II re-
serving to the Territory one-half of the
excess income. Under the familiar rule
of statutory construction that a special
statute shall prevail over a general
statute and under the rule of strict
construction, which we urge is the con-
trolling factor in this case, no general
corporation law and no charter provi-
sions can defeat the legislative intent
as expressed in the franchise.
GAS to the>object of Section 81, the
Territory contends that the same is q
mere limitation and not grant or
privilege whereby the company may
give to its stockholders, stock without
consideration. 1t is not unreasonable
to hold that the twenty-five per cent.
limitation was intended, to, cover pro-
motion expenses. According to the
charter which Mr. Ballentyne first at
tempted to obtain, this limitation ex-
pressly referred to the payment of such
promotion expenses. 1t is q matter of
common knowledge that promotion ex-
penses, when paid for in stock, have
usually been excessively overrated, in
value. The court must bear in mind,
however, that the issuance of stock to
promoters is payment for services
actually rendered. This is quite differ
ent from continuing gift of stock for
no services rendered. The following
statement set forth in respondent 8
brief, page As, sustains our theory in
this regard:
Theory Sustained
Section 81 was added limiting
the capital stock to the amount
of the cost of the property plus
twenty five per cent. thereof in
view of the fact that the Tram
ways Company had constructed its
road mainly with the proceeds of
the bonds, amounting to $l5l 900,
and had issued $325,000. of stock
gratis, and Because II Was Thought
Twenty-Five Per Cent. Would Be
Fair Allowance For Promotion.
However, in our opinion, one of
the most important objects, if not the
most important, sought TO be covered
by the twenty-five per cent limitation
was to restrict the capitalization of
'unearned increment 1t is a matter
of common history throughout all
cities that the owners of real estate
have grown enormously wealthy
through the increased value of such
real estate by the mere growth of popu,
lation or by the improvements made
on neighboring property. This section
would limit the capitalization of such
enhanced value.
"SuppOse the Honolulu Rapid Tran
sit & Land Company had started bust
ness with cash received from the sale
of its stock to the amount of $500, 900,
and had thereupon invested the $780,
900 in property for the road, then,
under the res pendent = construction of
Section 81, it would be justified in is
suing twenty-five per cent. additional
stock, Stock would then stand $780,
900. Under that contention it would
then be able to issue bonds for and up