7. The mortgage has been required to be so altered that instead of bonds being issued thereunder to raise funds with which to make advances to subsidiary companies (taking their bonds in return as security under this mortgage, and thereby devoting to the purposes of the subsidiary companies the proceeds of the new proposed issue) those companies be left to finance their own requirements by the sale of their own securities, upon application to and approval of the Public Service Commissioners, where such approval is required by law.

8. With the exception of such of the bonds as shall be exchanged for the notes of the $25,000,000 note issue, no bonds may be issued by the company for less than par, except after public advertisement for bids upon due notice; with the right to the company, however, to cause an underwriting syndicate to be formed to take the bonds at a price below which they shall not be offered to the public, and subject to such public offering, and to pay a reasonable commission for the formation of such underwriting syndicate; and in respect of the exception made to the foregoing rule in the matter of the issue now authorized the bonds issued and pledged as security for the company's notes may not be disposed of by the company in exchange for such notes at a discount of more than 1 per cent without the consent and approval of the Commission.

9. The proceeds of the sale of all bonds must be set aside, separate and apart from all other assets and funds of the company, and used only for the purposes for which the issue of the said bonds or notes is authorized.

10. The company must keep true and correct accounts showing the application by it of the proceeds of the sale of all bonds, and showing also the receipt and application by it of the proceeds of the sale of all property at any time subject to the lien of the mortgage which may be sold free from such lien, which accounts shall at all reasonable times be subject to inspection by bondholders as well as by the Public Service Commission, and such accounts shall be audited from time to time by an impartial accountant or accountants appointed for such purpose by the Public Service Commission, and a copy of the accounts as so audited be subject at all reasonable times to the inspection of any bondholders

11. The proceeds of the sale of all properties at any time subject to the mortgage and sold free from the lien thereof must, except so far as the same shall be replaced by a new property or equipment, be applied to the reduction of the mortgage debt. The foregoing are the most salient changes which have been suggested by the Commission (and which have been acquiesced in by the petitioner) as necessary to the more perfect protection and security of the bondholders of the company, to the prompt and speedy reduction of the company's indebtedness, and to the more perfect accounting for the disposition of the funds procured through the sale of bonds as authorized.

Special attention may be called to the matter of the Subway Realty Company. The law authorizes the acquisition by the company of real property "for the purposes of its incorporation," which "shall be deemed to be required for a public use (Railroad Law, section 7). By section 18, subdivision 5 of the Railroad Law, the company is authorized "to acquire and use such real estate and other property in this State as may be necessary in the conduct of its business, but the value of such real estate held at any one time shall not exceed the sum of one million dollars ($1,000,000).”

If the right of the petitioner to acquire and hold real property were confined to the two foregoing provisions of the law, it is doubtful whether this Commission could recognize the propriety of its investment in the so-called Belmont Hotel property, but by section 42 of the Stock Corporation Law it is provided that:

"Any corporation may purchase any property authorized by its certificate of incorporation, or necessary for the use and lawful purposes of such corporation, and may issue stock to the amount of the value thereof in payment therefor."

It is also provided by section 40 of the Stock Corporation Law as follows: "Any stock corporation, domestic or foreign, now existing or hereafter organized, except monied corporations, may purchase, acquire, hold and dispose of the stocks, bonds and other evidences of indebtedness of any corporation, domestic or foreign, and issue in exchange therefor its stock, bonds or other obligations if authorized so to do by a provision in the certificate of incorporation of such stock corporation,

or in any certificate amendatory thereof or supplementary there to filed in pursuance of law.

Article 12 of the certificate of incorporation of the petitioner provides as follows: "The corporation shall have power to purchase, acquire, hold and dispose of the stocks, bonds and other evidences of indebtedness of any corporation, domestic or foreign, and to issue in exchange therefor its own stock, bonds or other obligations." It is therefore indubitable that the holding of the Interborough Rapid Transit Company in the capital stock of the Subway Realty Company is for a lawful corporate purpose, and that it has corporate capacity not only to hold, but to pledge, said stock as collateral security for its lawful obligations. The question here presented is not as to whether or not this Commission would approve of the issue of new securities for the purpose of the acquisition by the company of real estate for a hotel purpose, but whether the petitioner's investment heretofore made in the capital stock of the Subway Realty Company is, or was at the time thereof, a proper and lawful investment, as to which there can be no doubt.

The mortgage as executed will in all respects be absolutely subordinate to the rights of the city as lessor under the provisions of the contracts of lease, and can in no way, directly or indirectly, affect, modify, limit or change such rights, and neither will nor can constitute a lien upon the property detrimental or antagonistic to the interests of the city as lessor; and in this connection the proposed mortgage has been so modified as to include within its terms not merely the interest of the petitioner as lessee in the subway railroads, but also all property, real and personal, now, and which may at any time hereafter be acquired, as a part of the equipment of the two said subway railroads, pursuant to the terms of the leases thereof, to the end that in case the mortgage should be foreclosed, the purchaser would step into the shoes of the lessee as the holder not merely of the terms created by the leases, but of all of the property constituting at that time the equipment of the said railroads under the provisions of the contracts, and therefore the better enabled to fulfill and comply with the provisions of the said leases, subject, nevertheless, always, to the city's right of acquisition of the equipment at its then appraised value, at the expiration of the term.

It must also be borne in mind that the authorization of the issue of the $25,000,000 of notes secured by the $30,000,000 of bonds as proposed is not in any respect an authorization to increase the company's indebtedness. The unsecured indebtedness of the corporation at the date of the application amounted to $35,352,726.11. The authorized issue of bonds at the present time is $30,000,000, to secure a note issue of $25,000,000, and there is also brought under the security of the mortgage an outstanding note issue of $10,000,000 maturing two years hence. The purpose for which the issue is authorized is solely for the payment of petitioner's obligations, or for the payment of indebtedness about to mature, as representing accounts payable and obligations incurred for the acquisition, construction, completion, extension and improvement of the company's facilities in the matter of the so-called Brooklyn extension. The obligations heretofore incurred and not yet due by and from the petitioner for the acquisition of the said property and the construction and extension of its road, as aforesaid, including among others the sum of $3,771,147, or thereabouts, payable to the Rapid Transit Subway Construction Company on the completion of the Brooklyn extension of the rapid transit railway to its terminus at Flatbush and Atlantic avenues, Brooklyn, being on account of the excess cost of said railway over and above the amount payable with respect to the construction thereof by the city of New York. The present transaction, therefore, merely provides for the extension or funding of the company's indebtedness in respect to the greater part thereof, and for the liquidation of the remainder thereof. The company's creditors under the mortgage will be in a better position than the present creditors would be in if their claims were reduced to judgment and the property in the hands of a receiver; and a failure to authorize the refunding and the better securing of the company's existing indebtedness would have the effect of compelling the company to seek extensions of its existing debt upon onerous terms, even assuming that, given the present state of the market, such extensions could possibly be secured, or otherwise to fall under the administration of the court. The result of the refunding as proposed is to the benefit of the stockholders and creditors of the company, and carries with it the

assurance to the public of the company's ability to exercise the functions involved in the acceptance by it of its franchise and the terms of the obligations assumed by it to the city of New York in the leases of the rapid transit railways more perfectly and satisfactorily, and to the maintenance of the company's credit under conditions which will the more perfectly enable it to comply with the requirements of this Commission for an improved and extended service.

The Commission has held six public sessions on this matter. No objections have been made to the granting of the petition except on the part of one stockholder, to wit, Continental securities Company, represented by C. H. Venner. its president, the holder of 300 shares of stock, and which has objected upon the five following grounds:

1. That the notice calling the meeting of the stockholders of the petitioner for the purpose of authorizing the mortgage was not sufficiently specific.

2. That the Interborough-Metropolitan Company, or Windsor Trust Company, trustee, as holder of 339,128 shares of stock of the petitioner, was not entitled to vote for the approval of the mortgage, upon the ground that the said InterboroughMetropolitan Company had acquired said stock by issuing its bonds pursuant to an illegal combination with other companies constituting a combination and monopoly in violation of law.

3. That the proposed bond issue is insufficient to meet the future requirements of the company, and that it would be a serious mistake to authorize a mortgage for less than $75,000,000, and that even $100,000,000 would be found insufficient within twenty years.

4. That the investment in the stock of the Subway Realty Company and the advances to that company were unlawful and improper.

5. That the claim of the petitioner against the city of New York when collected should be applied to the payment of the floating debt, and that no bonds should be issued for purposes which could be met by applying the amount of the said claim against the city.

Considering these objections in their order, it is my opinion:

1. As to the notice: The notice calling the special meeting of the stockholders states it to be "for the purpose of considering a proposition to issue and dispose of bonds for the refunding of the obligations of the company and for its other corporate purposes, and to authorize and consent to a mortgage of the property and franchises of the company to secure payment of said bonds and of the present outstanding gold notes of the company or any renewals or extensions thereof, and to take such other action in connection therewith as may be brought before the said meeting."

The requirements for action by stockholders regarding the issue of mortgages by a railroad corporation are those contained in subdivision 10 of section 4 of the Railroad Law, to wit:

"But no mortgage except purchase-money mortgages shall be issued by any railroad corporation under this or any other law without the consent of the

stockholders owning at least two-thirds of the stock of the corporation . which is represented and voted upon in person or by proxy at a meeting called for that purpose upon a notice stating the time, place and object of the meeting.

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The rule as to the form and contents of such notice is succinctly stated in the American & English Encyclopaedia of Law, Second Edition, vol. 26, pages 992-993: No particular form of notice is required, except that the notice must generally show the authority of the person issuing it and the time, place, and objects of the meeting. In stating the time not only the day must be given, but the hour also, and the objects of the meeting, that is, the business to be transacted, must be stated with sufficient particularity to enable the stockholder to determine for himself whether it is necessary for him to attend in order to protect his interests. Technical objections

to the notice, however, will not be sustained where it is substantially sufficient to enable the stockholders to determine whether their interests are involved and to attend the meeting if they wish to do so, and no one has been misled by the defects complained of."

To the same effect see Cook on Corporations, vol. 2, section 595. See also Langan v. Franklin, 26 Abb. N. C. 102; Jones v. Railroad, 67 N. Y. 234; South School District v. Blakeslee, 13 Conn. 227; and Evans v. Boston Heating Co., 157 Mass. 37. The notice as given not only seems ample and sufficient, and in all respects conforming to the requirements of the statute, but the objecting stockholder appeared at the meeting and participated in the discussion and voted upon the proposition to authorize the mortgage, thereby exercising his right of self protection, to enable him to have an opportunity to exercise which right is the purpose of the statutory requirement for notice.

2. The objection to the right of the Interborough-Metropolitan Company or Windsor Trust Company as trustee, to vote the pledged stock: It appears from the proofs submitted that the stockholders of record, to a number in excess of the statutory requirement, appeared at the special meeting and voted to consent to the mortgage, and it is not within the competence of the Commission to go behind such record and determine who are stockholders de jure, that being a matter exclusively for the courts, and it being the duty of the Commission to recognize the stockholders de facto until any questions of law with respect to the holding of such stock shall have been judicially determined.

3. The legality of the investment in the stock of the Subway Realty Company has been already considered, and as hereinbefore appears it is my opinion that the objection is not well taken.

4. As to the objection that the company's claim against the city should not be included in the mortgage, it is unnecessary to consider it other than to note that it was not proposed by the company that the same should be included in the mortgage, and it has not been deemed wise by the Commission to include the same, but rather that the same, whatever it may be if any, when recovered shall be a free asset in the hands of the company for its general corporate purposes.

5. As to the objection that the mortgage is not large enough, it is obvious that it is quite ample for the purpose, and that to authorize a larger issue at this time would be improper and injudicious. The mortgage is ample to meet the requirements of the company at least for some years to come, and when it becomes indubitable that the company's requirements are larger than those which could be properly cared for out of the proceeds of bonds to be issued under the present mortgage it will then be the proper time to consider the enlargement of the mortgage debt by a refunding, and to secure still further issues of the petitioner's bonds.

Thereupon the following final order was issued:

ORDER No. 438.

April 23, 1908.

Whereas, Interborough Rapid Transit Company filed with the Public Service Commission for the First District its petition verified the 4th day of March, 1908, praying for the approval by said Commission of the execution of a mortgage by said company to secure an issue of not to exceed $55,000,000 of its 45-year gold mortgage bonds, as well as certain of its outstanding gold notes, and authorizing the immediate issue of $30,000,000, face value, of said bonds, and for authority to issue its promissory notes to an amount not exceeding $25,000,000, face value, to be dated May 1. 1908, payable not exceeding three years from date, bearing interest payable semi-annually at not exceeding six per cent per annum, and to secure the said notes by the pledge of not exceeding $30,000,000, face value, of the said proposed new mortgage bonds; and praying also the consent of the said Commission as the successor to the Board of Rapid Transit Railroad Commissioners for the City of New York, pursuant to the terms of the leases of said rapid transit railroads, to assign and encumber the said leases of the rapid transit railroads from the city of New York by including the same in said mortgage.

And whereas, the said Public Service Commission did thereupon by order dated March 6, 1908, direct the said petition to be heard on Monday, March 16, 1908, at 2:30 o'clock in the afternoon, and that the petitioner publish a notice of the said application and of the time and place of the said hearing, in the manner and as provided in said order, and the petitioner did thereupon cause notice of said application and of the time and place of said hearing to be published in pursuance of such order, and did file proof thereof with the Secretary of the said Commission before the opening of the said hearing;

And whereas, the petitioner with the leave of the Commission filed its amended petition bearing date March 14, 1908, and on the said 16th day of March, 1908,

the matter coming on to be heard upon the said petition and said amended petition, and said petitioner having duly appeared by George W. Wickersham, its counsel, and the Continental Securities Company having appeared by Clarence II. Venner, its president, and Thomas L. Feitner having appeared in person, and the petitioner having submitted proofs in support of said application, and the hearing having been duly adjourned from time to time, and the Commission having taken the testimony and having examined the books and accounts of the petitioner, and having caused investigation to be made into the condition and value of the railroads and prop. erties of the petitioner, and being fully advised in the premises, it is hereby

Ordered, That the Public Service Commission for the First District does hereby consent to the execution by the said petitioner Interborough Rapid Transit Company, of a mortgage of its leasehold interests in the rapid transit railroads in the city of New York, and the equipment thereof, its leasehold interest in Manhattan Railway and the other property in said mortgage described unto Morton Trust .Company, as trustee, said mortgage to be dated as of November 1, 1907, to secure an issue of the 45-year gold bonds of the said company, said bonds to be dated as of November 1, 1907, to be payable November 1, 1952, to bear interest at not exceeding five per cent per annum, payable semi-annually, upon the terms and conditions in said mortgage set forth and contained, and also to secure two certain issues of gold notes of said petitioner, viz.:

(a) $15,000,000, face value, four per cent three-year gold notes, due May 1, 1908, issued under trust agreement with Windsor Trust Company, trustee;

(b) $10,000,000, face value, three-year five per cent gold notes, due March 1, 1910, issued under trust agreement with Morton Trust Company, trustee;

Provided that the total amount to be secured by the said mortgage of both bonds and gold notes shall not at any time exceed the sum of $55,000,000 of principal, and the said mortgage to be in the form identified as seventeenth revise and filed in the office of the Secretary of the Commission on this 23d day of April, 1908. Further Ordered, That the Commission does hereby authorize the issue by the petitioner of $30,000,000, face value, of bonds pursuant to the said mortgage, and the use of the same by pledging said bonds as collateral security for an issue of $25,000,000, face value, of the three-year six per cent notes of the petitioner, to be dated May 1, 1908, and to be issued under and in conformity with the provisions of a trust agreement between the petitioner and Morton Trust Company, as trustee, dated April, 1908, to be in the form identified as seventh revise and filed in the office of the Secretary of the Commission on the 23d day of April, 1908.

Further Ordered. That the Commission does hereby authorize the sale by the petitioner of the said $25,000,000, face value, of said three-year six per cent notes and the application of the proceeds thereof,

(a) To the discharge or lawful refunding of its obligations, viz.:

$15,000,000, face value, of its four per cent three-year gold notes, due May 1, 1908, issued under trust agreement with Windsor Trust Company, trustee ;

$6,250,172.55 of the promissory notes of the petitioner outstanding April 1, 1908, payable on demand or from time to time on or before June 30, 1908; and

(b) The balance to pay obligations heretofore incurred by the petitioner for the acquisition of property, the construction, completion, extension or improvement of its facilities, or the improvement or maintenance of its service and including the sum of $3.770,000, or thereabouts, payable to Ranid Transit Subway Construction Company on the completion of the Brooklyn extension of the rapid transit railway to its terminus at Flatbush and Atlantic avenues, Brooklyn, being on account of the excess cost of said railway over and above the amount payable with respect to the construction thereof by the city of New York.

It being the opinion of the Commission that the use of the capital to be secured by the issue of said bonds and notes by the said Interborough Rapid Transit Company is reasonably required for the said purposes of the said corporation.

Further Ordered. That the Commission as successor to the Board of Rapid Transit Railroad Commissioners for the City of New York, and pursuant to the provisions contained in the contracts for the construction of the rapid transit railroads in the city of New York, viz.:

(a) Contract between said city and John B. McDonald, dated February 21, 1900, and agreements amendatory thereof and supplemental thereto;

(b) Contract between the city of New York and Rapid Transit Subway Construction Company, dated July 21, 1902, and agreements amendatory thereof and supplemental thereto;

The leasing portions whereof have been heretofore duly assigned to Interborough Rapid Transit Company, does hereby consent to the mortgage of the said respective leases by including the same in the mortgage aforesaid.

Further Ordered, That duplicate originals of the mortgage and note trust agreements consented to and authorized as aforesaid upon execution thereof be filed by the petitioner with the Secretary of this Commission.

The company having filed duplicate originals of the mortgage and agreement with the Secretary of this Commission the following final order was issued:

ORDER No. 445.

April 28, 1908.

Whereas, by resolutions duly adopted by the Public Service Commission for the First District on April 23, 1908, Interborough Rapid Transit Company was authorized to execute its mortgage unto Morton Trust Company, as trustee, dated as of November 1, 1907, to secure an issue of forty-five year gold bonds of the said company