Court Opinion

ID: 3596935
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:44:05.063086+00
Date Added: 2024-06-11T12:43:26.172180
License: Public Domain

The appeals are from three judgments sustaining demurrers to complaints in taxpayers' actions brought to test the validity of two contracts under which it is proposed to extend and unify the rapid transit railways in the city of New York. The complaints attack these proposed contracts on the ground, inter alia, that they violate the provisions of article 8, section 10, of our State Constitution, which declares: "No county, city, town or village shall hereafter give any money or property, or loan its money or credit to or in aid of any individual, association or corporation, or become directly or indirectly the owner of stock in, or bonds of, any association or corporation." Thus far the courts have held that these proposed contracts are not in contravention of this constitutional mandate, and a majority of this court are about to concur in this conclusion. Although I do not favor the writing and publication of dissenting opinions when they serve no purpose save to emphasize divergence of judicial views, this is one of *Page 155 
those exceptional cases in which an important constitutional question justifies the fullest discussion from every side. My dissent from the conclusion reached by the majority of my brethren is based on the broad ground that the contracts which are the subjects of consideration, no less than the legislation by which they are authorized, are fundamentally repugnant to the letter and the spirit of the constitutional provision above quoted.
The contract with the Brooklyn Company, stripped of unnecessary details, provides that the city shall construct an addition to the Fourth avenue line in Brooklyn, now in course of construction; a line under the East river to the Battery, in Manhattan; a line from the Battery by way of Church and Vesey streets, to Broadway; a line through Broadway to 42nd street and through Seventh avenue to 59th street easterly to and over the Queensborough bridge, there to connect with the elevated lines of the Brooklyn Company. The Brooklyn Company shall construct, at its own expense, an elevated extension from the old city line easterly in the borough of Queens to Jamaica; an elevated extension from the Williamsburg bridge northerly to the Queensborough bridge; an elevated extension from the present terminus of its Third avenue line to Bay Ridge and otherwise; and shall third track its lines on Fulton street, Myrtle avenue, Broadway and other streets.
The Brooklyn Company is to equip and operate all these lines as a single system for a uniform fare of five cents per passenger. The city lines are to be leased to the operating company for a period of forty-nine years subject to the city's right to take over the new lines after the lapse of ten years. The estimated expenditure of the city in the completion of lines now under construction and the new lines to be built will be over $86,000,000 and may be much more, and the Brooklyn Company is to invest over $50,000,000 in construction and equipment. These bare outlines of the proposed compact between the *Page 156 
city and the Brooklyn Company very pointedly suggest that the arrangement is a joint venture in the nature of a partnership, but there are further details which serve to disclose more positively its precise character. The contract further provides that the receipts from the existing system and the new subway lines are to be pooled and from the gross receipts of both lines there shall be paid: 1. The operating expenses, including all taxes, rentals of leased property used in operation. 2. Depreciation and renewals. 3. A sum of between $3,000,000 and $3,500,000, being the estimated income of the Brooklyn Company on its existing lines, which are to remain the property of the company. 4. Interest and sinking fund charges upon bonds issued by the company for construction and equipment. 5. Interest and sinking fund charges upon bonds issued by the city. 6. Any amounts in excess of these various payments are to be divided as profits, share and share alike. The distinctive features of this arrangement, briefly recapitulated, are that the city is to contribute subways and the Brooklyn Company is to furnish elevated and surface lines, each of which are to be separately owned but operated as parts of a single system under the management of the Brooklyn Company. In effect the city guarantees the payment of operating expenses, a fixed income on the lines now operated by the Brooklyn Company, the interest and sinking fund charges upon the bonds issued by the Brooklyn Company, and not until all these expenses have been met is the city to receive the interest upon its own bonds issued in aid of the joint enterprise. Finally, and as if to characterize the transaction, it is stipulated that the remainder of the profits, if any, shall be equally divided.
The proposed contract with the Interborough Company is somewhat different in detail, but not essentially different in kind. The city is to contribute the present subways, which were built at the city's expense and are operated by the Interborough Company under lease, with *Page 157 
an equipment costing approximately $48,000,000. Additions and extensions are to be made under the joint auspices of the city and the Interborough Company at a cost of about $133,000,000, of which $77,000,000 will be contributed by the Interborough Company for construction and equipment, and about $56,000,000 will be given by the city for construction. The city is to have the legal title to the road, minus equipment. The Interborough Company is to operate the whole under a lease for forty-nine years, for a single fare of five cents per passenger, and the city is to have the right to take over the new lines at any time after ten years upon repaying to the Interborough Company a stipulated sum for construction which shall diminish in amount as the term continues and cease when the term expires. There are various reciprocal concessions, prominent among which is the so-called levelling of leases by which the leases now held by the Interborough Company are to be extended in one case for twelve years and for twenty-three years in the other. The gross receipts from the combined properties are to be pooled during the continuance of the lease, and from them the following deductions are to be made: 1. Operating expenses, including damages for accidents. 2. Provision for deterioration, renewals and obsolescence. 3. Taxes and insurance. 4. Rentals payable to the city under existing subway contracts. 5. Amortization of brokerage charges. 6. A sum to be paid to the Interborough Company in each year during the continuance of the proposed lease "to represent the average annual income from operation of the existing subway line and equipment for the two fiscal years ending July 30th, 1911, which is $6,335,000, as compensation for the pooling of the receipts of the existing subway and equipment with those of the new subway lines and equipment," for the levelling of leases, for the so-called "exchange of legs," for the Interborough Company's operation of the property, and for furnishing one-half of the cost of constructing *Page 158 
the new subways and the entire cost of equipping the same. 7. The Interborough Company is to receive a sum equal to six per cent for each year during the term of the lease, upon its investment in the subway lines for construction and equipment, which, including its investment in the present subways, will make a total of about $125,000,000. The contract further provides that "if any deficiency shall arise in any year in meeting the aforesaid payments to the Company, such deficiency shall be cumulative and shall be paid off and discharged annually out of the said subway earnings before the payments herein defined shall be made to the city." Not until the foregoing deductions and cumulative payments have been allowed or paid to the Interborough Company is the city to receive any return upon its investment of $56,000,000 and upwards, and then "there shall be deducted out of the profits, interest, sinking fund upon the capital provided by the city for the construction of the new lines and such further sum as will bring the payments to be made to the city during the entire period of the forty-nine year lease up to an amount equal to 8.76 per centum per annum upon its capital investment in the original construction of the new subways." The contract then further provides for the rate of compensation to the city for its capital investment in bettering or improving either old or new subways. These payments to the city are also to be cumulative, subject to the preferential payments to be made to the company, and when all of the foregoing charges have been met, the remainder of profits shall be divided equally. Under this contract, as under the contract with the Brooklyn Company, the salient features are that the city and the Interborough Company are to contribute to the enterprise what they now have in the way of construction or equipment. They unite in supplying the means for additions and extensions. The city is to have title to the newly-constructed subways, but subject to the company's leasehold *Page 159 
for forty-nine years, unless that period can be anticipated by the making of some arrangement under which the city can buy out the company. Meanwhile the company is assured of preferential returns upon its huge investment while the city waits for what may be left.
That these two arrangements constitute two partnerships between the city and two private corporations does not admit of a doubt. In the case of the Brooklyn Company the point is frankly conceded. By whatever name these plans may be called they are joint enterprises in which the essential fact is that the city is lending its credit to two private corporations to the extent of their participation therein. In every partnership or joint venture each participant lends his credit to every other. In this case the legal status of the city, no less than the character of the arrangement, invests the two private corporations with a credit which they could not have without the city's participation. By the city's concessions these two private corporations are given a borrowing power without which the enterprise would be doomed from the beginning to certain disaster. It matters not whether the proposed arrangement is one which is apparently for the public good, or whether it may ultimately prove financially beneficial to the city. If the substance and effect of the transaction will be to commit the credit of the city to a venture in which private corporations are to be beneficiaries, it is a lending of the city's credit for purposes forbidden by the Constitution. It is true that the capital of the city is not to be pledged for the large underlying loans which must be secured by the two corporations in order to float the enterprise, but the income is to be pledged to secure these loans, and this is really the only tangible security, for without income the subways and other structures will be worthless. Very succinctly has one of the counsel for appellants stated the situation when he says: "To pledge the income is to pledge the capital, and this income the city proposes to pledge for forty-nine years, *Page 160 
to guarantee returns on the securities of private corporations."
I do not think we are foreclosed or embarrassed by our decision in the case of Sun Printing  Publishing Assn. v. Mayor, etc.,of N.Y. (152 N.Y. 257). It was there held that the building of a subway is the building of a highway which is concededly a city purpose. It was also held that the Constitution does not prohibit municipalities from constructing their own roads and paying therefor when authorized by proper legislation. There the city built its own subways, and made a lease for their operation upon a fixed rental to be paid by the lessee. A majority of the court, speaking through Judge HAIGHT, united in an opinion in which the author, recognizing the narrow limits within which the case was to be decided, was very careful to limit his expressions to the precise facts then before the court. The opinion will be scanned in vain for even a single utterance which lends support to the contention, now before the court, that a railroad to be built with the combined capital of a city and private corporations, and operated by the private corporations for the benefit of all, is not in contravention of the Constitution.
With the merits of the proposed attempt to give the city a much needed improvement in its rapid transit facilities, the courts have no more concern than they have with the wisdom of the constitutional provision which is invoked by the appellants. It is clearly apparent that the city and the railroad companies are confronted with a problem which taxes human ingenuity and it may readily be assumed that it is being worked out with such degree of skill, wisdom and public spirit as befits so great an undertaking. Conceding all this, and much more, the plain duty of the courts is to uphold the Constitution as it is written even though it may be, for the time being, a hindrance to beneficent results. In the language of Chief Justice MARSHALL in Marbury
v. Madison (1 Cranch, 137): "The Constitution is either a superior paramount *Page 161 
law, unchangeable by ordinary means, or it is on a level with ordinary legislative acts, and, like other acts, is alterable when the Legislature shall please to alter it. If the former part of the alternative be true, then a legislative act contrary to the Constitution is not law: if the latter part be true, then written constitutions are absurd attempts, on the part of the people, to limit a power in its own nature illimitable." Since we still profess to believe that a Constitution is "a superior paramount law," we should do no less than to uphold it in its integrity according to its letter and spirit. The language of the constitutional provision is plain. "No county, city, town or village shall hereafter give any money or property, or loan its money or credit to or in aid of any individual, association or corporation." (Art. 8, section 11.) If there were need for extraneous evidence as to the meaning of this language we should find it in the history of this addition to our Constitution. In was adopted in 1874 to prevent a continuance of the evils which had resulted from the so-called Town Bonding Statutes, under which municipalities had engaged in railroad and other enterprises with private corporations, and had issued municipal bonds in aid of purposes which, although intended to be of some public benefit, were essentially and fundamentally private in their ultimate ends. There the railroad corporations were private concerns, although incidentally serving a public purpose. Here the railroad companies are private corporations also incidentally serving a public purpose. He would be a brave man who would now dare to assert that a town may issue bonds to assist in the building of a railroad to be owned and operated by a railroad corporation. Yet, in the case at bar it is proposed to legalize a transaction which is no different in principle. Here, it is true, the city has the title to the subways which are to be built, but the leasehold, the thing that gives the naked fee its value, is turned over *Page 162 
for forty-nine years to private corporations in order that they may mortgage it to raise their contributions to construction and equipment. Into an enterprise characterized by these elements the city is to pour its millions. If that is not a lending of municipal credit to or in aid of private corporations, then I think we should frankly concede that our Constitution is an absurd attempt on the part of the people to limit a power in its own nature illimitable, for from this time forth it will be difficult, if not impossible, to define the constitutional limitations of municipal powers.
HAIGHT, VANN and COLLIN, JJ., concur with HISCOCK, J.; CULLEN, Ch. J., and WERNER, J., read dissenting opinions; GRAY, J., takes no part.
Judgment affirmed.