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1906, and tried in June of the same year, the time limit for completion had not expired."

As to the second question, the Appellate Division said:

"For the purpose of this suit it is unnecessary to decide where the power is lodged. The permits at bar were not revoked because the permission of the dock department had not been granted to pierce this strip of land under water."

Direct Action Brought by the City. In February, 1907, an action was brought by the city of New York against the New York and Long Island Railroad Company, the substance of this action being that the corporate existence and powers of the railroad company ceased January 1, 1907, that its work since that time had been carried on without legal authority and that its franchises were forfeited and void. The city asked judgment permanently enjoining and restraining the construction and operation of the railroad. To this complaint the company demurred, and the demurrer was argued before Mr. Justice Davis, of the Supreme Court, in October, 1907.

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Mr. Edward P. Bryan, president of the Interborough Rapid Transit Company, testified before the Commission upon August 20, 1907, that he was chairman of the board of trustees of the New York and Long Island Railroad Company. He also stated that the company ceased to have a board of directors about January 1, 1907, when the board became a board of trustees, practically under the advice of our legal department." He further testified that all the corporate assets which, prior to January 1, 1907, were under the direction or control of the board of directors of the company, were then (August 20, 1907) under the direction and control of the board of trustees and that he signed himself, not as president of the company, but as chairman of the board of trustees.

Mr. Justice Davis, in his opinion handed down December 9, 1907, ruled that the demurrer put in by the company was not properly interposed. He said:

The failure of the defendant to comply with the Railroad Law as to completion and operation of the dailroad was ipso facto an extinction of the corporation, and it does not require the bringing of an action to dissolve the corporation (Matter of Brooklyn, Winfield & Newtown Ry., 72 N. Y. 245). And the so-called franchises mentioned in the complaint werc immediately extinguished (see Brooklyn, Q. Co. & Sub. R. R., 185 N. Y. 185).

"It thus appears from the complaint that the action is brought against a defendant that has no existence. The defendant being dead in the sense referred to above there can be no pleading to the complaint on behalf of that defendant.

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"I do not agree with the demurrant's view that the property rights and franchises mentioned in the complaint survive the extinction of the defendant's corporate existence and pass to the directors as trustees for the benefit of those concerned, and that these trustees are the proper parties defendant. If this were so the trustees might take their own time to build the road and thus defeat the very purpose of the statute to insure a speedy completion of the work for public uses (Matter of Brooklyn, Q. Co. & Sub. R. R., 185 N. Y. 171, 185).

My conclusion is that the demurrer is not properly interposed and has no standing in the case. The demurrer really admits that there is no defendant here. As a matter of fact, there is no action pending, nor was there at the time the demurrer was served. Submit decision and judgment in accordance with these views."

Present Condition. Such was the situation of the litigation at the end of the year. The tunnel was almost if not quite completed, and it is stated that operation could be begun in a short time so far as physical conditions are concerned. Cars have actually been run through for purposes of inspection but not for public use. The stock of the New York and Long Island Railroad Company is practically all owned by the Interborough Rapid Transit Company, which has furnished the funds to build the line (see Mr. Bryan's evidence before the Commission in the Interborough-Metropolitan investigation). The same company owns practically all of the stock of the New York and Queens County Railway Company, the company that operates the street car lines in Long Island City and most of the borough of

Queens. Thus the Interborough Company controls the subway in Manhattan, with which the Steinway tunnel would at present naturally connect; the Steinway tunnel itself, and also the surface lines in Queens, which are naturally the feeders of the tunnel. It would easily be possible within a short time to make an operating connection between the tunnel and the Queens surface lines. In Manhattan a transfer station certainly could be built and possibly an operating connection provided. But no proposition has been made to the Commission by any company looking to this end.

The following statement has been filed with the Commission of the expenditures of the Interborough Rapid Transit Company in connection, with its acquisition of the stock, etc., of the New York and Long Island Railroad Company and the construction of the tunnel, including the estimates of the amounts required to complete the work by the chief engineer of the company: Original cost to the Interborough Rapid Transit Company of fran

chises, etc. ..

Cost of real estate (see Schedule "A," hereto annexed) Cost of construction and equipment (see Schedule nexed).

"B," hereto an

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Total, exclusive of interest accrued...
Interest at 4 per cent per annum to July 15, 1907:
On Interborough Rapid Transit Company's original
investment....

On real estate purchases...

Grand total

On loans and construction account:
Advances from the Interborough Rapid Transit
Company to or for the account of the New York
and Long Island Railroad Company....

$54,490 05
58,142 95

114,499 19

If interest is computed at 5 per cent per annum, the cost is.......

If interest is computed at 6 per cent per annum, the cost is......

$402,035 17
917,693 94

6,126,151 67

$7,445,880 78

227,132 19

$7,673,012 97

$7,729,796 01

$7,786,579 05

Note. We have certain claims against the Pennsylvania Railroad Company and others from which $40,000 will be realized, in the judgment of the chief engineer; the plant, it is estimated, will bring about $160,000; a total credit of $200,000, to be deducted from the figures shown hereinabove.

Thereafter the Rapid Transit Act was amended so as to authorize the Commission, subject to the approval of the Board of Estimate and Apportionment, to purchase the Steinway Tunnel, and the Interborough Rapid Transit Company renewed its previous proposal that the city of New York should purchase the tunnel.

REPORT OF THE COMMITTEE OF THE WHOLE.

'he proposal that the city of New York should purchase the Steinway tunnel first came before this Commission officially in February of this year, in the form of a letter from the Interborough Rapid Transit Company. But as the Commission had no authority at that time to make such an agreement as was proposed, the plan was not passed upon.

In the following weeks of the session, the Legislature passed an act amending the Rapid Transit Law by adding a new section, which was intended by those urging it to authorize this Commission, with the approval of the Board of Estimate

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and Apportionment, to purchase for such price and upon such terms and conditions as may be agreed upon "any line or lines of railway already constructed or in process of construction of the character which might be constructed as a rapid transit railway." With like approval, this Commission may enter into a contract with any person, firm or corporation for the equipment, maintenance and operation of such railway for a term not exceeding twenty-five years, with a covenant for one renewal not exceeding twenty-five years. This contract must state terms and conditions as to rates of fare, character of service, and rental to be paid. This Commission, also, is directed to secure such consents from public authorities and property owners as are necessary to permit operation.

It should be noted that this act, although general in form, was intended to apply so far as known, only to the Steinway tunnel. This tunnel is placed in a class by itself, for every other tunnel or subway that is constructed under the direction of the Public Service Commission must be rented, if at all, for a sum sufficient to pay interest and sinking fund upon the cost of construction. The act passed last spring does not enlarge the powers of the Commission over all subways, but permits in this one case a rental to be fixed which might pay only a minor part of interest and sinking fund, or even no part at all.

PHYSICAL CONDITION OF TUNNEL.

After the passage of this law, the Interborough Rapid Transit Company renewed its proposal to sell the tunnel; but before stating the essential features of this proposal, it may be well to summarize the physical and legal status of the tunnel. As at present constructed, it begins at a loop at Forty-second street and Park avenue, Manhattan, running thence under Forty-second street, East river and Man-o'-War reef to Long Island City, and thence under Fourth street to its intersection with Van Alst avenue, where there is a terminal loop and an open cut approach to the surface. Except under Fourth street, Long Island City, where it is of the usual subway section, the tunnel consists of two single-track tubes. The grades of the main portion of the tunnel are, on the Manhattan side, 3 per cent; in the river section, 1.63 per cent; Long Island City side, 4.5 per cent; the latter grade extending for a distance of about 1,200 feet west of Vernon avenue. A steeper grade of 6.5 per cent occurs at the surface-approach cut at Van Alst avenue. This grade, as well as the radius of the terminal curve would necessitate the operation of motor cars only.

A thorough examination of the tunnel was made by Mr. Seaman, Chief Engineer to the Commission, who reported that it was in good physical condition, except for a few minor defects which could be remedied or were so unimportant as to be disregarded. Considerable work must yet be done, including provision for ventilation and drainage, completion of shafts, stations, track and lighting system, installation of cables and signal system, etc. Mr. Pegram, chief engineer to the company, estimates this work will cost $310,000.

There are three stations on the route: (1st) in Manhattan between Lexington and Third avenues; (2d) in Long Island City at Jackson avenue, and (3d) in Long Island City at Van Alst avenue. The first is the largest and is at a depth of about sixty-five feet below the street surface. A double escalator is to be provided; the other stations are so near the surface that none will be necessary. The Lexington avenue station is too far east to connect with the Grand Central station of the present subway. In the opinion of Mr. Seaman, it might better have been located a block further west, so that one station would provide direct connections with the present Grand Central Station and also the station upon the proposed Broadway-Lexington avenue line. As at present constructed, every passenger coming through the tunnel who wishes to use the present subway in Fourth avenue must go to the street, walk two long blocks and descend again, consuming at least five minutes. If a direct connection were provided, as suggested, the change would not require over two minutes, and in bad weather the inconvenience eliminated thereby would be very considerable. To make this change an additional expenditure of $300,000 will be required, according to Mr. Seaman.

The tunnel is designed for electric surface cars, equipped with a special overhead contact shoe. There is sufficient clearance for the largest cars now in use in the subway, but the radius of the end loops, fifty (50) feet, is so small that only single cars could be operated. The grades are so steep in places that only motor cars can be used; trailers could not be used as is done in the present subway. The tunnel was evidently intended for operation by the surface cars of the New York & Queens County Railroad Company's lines in Long Island City. It is practicable to introduce the Jackson avenue cars either by a connection on Van Alst avenue, or else by constructing a new connection at Jackson avenue and Fourth street. The Borden avenue cars may be introduced in the tunnel by constructing a new connection at Fourth street and Van Alst avenue, which would run over the Pennsylvania Railroad tunnels, as now being constructed.

In many respects the Steinway tunnel is well located to constitute a valuable adjunct of a future comprehensive subway system. It occupies a level below the present subway in Forty-second street and could be extended at some future time across the City to the North river and possibly south to the new Pennsylvania railroad station, or to connect with the Hudson and Manhattan subway in Sixth avenue. If a west side subway south of Forty-second street were built, many of the passengers from the north would proceed down-town by this route. The present east side subway in Fourth avenue would then be freed from its present congested traffic and could accommodate the passengers brought by the Steinway tunnel from Queens and the New York Central Railroad. It will pass under the proposed Lexington avenue subway and could be made to connect therewith. Practically all of the surface lines of the northwestern portion of Queens could be brought to Manhattan by this tunnel or made to connect therewith.

LEGAL SITUATION.

The legal status of the tunnel is set forth in full in the First Report of the Commission. It was originally begun by the New York and Long Island Railroad Company, incorporated in 1887. The stock of this company is now practically all owned by the Interborough Company, which has furnished most of the funds to build the line. The act under which the company was incorporated provided that unless the road was finished and put in operation within ten years from the filing of its articles of association (by July 30, 1897), its corporate life would end. If we accept the claim of the company that this time was extended by later legislation, the limiting date becomes January 1, 1907. As a matter of fact the tunnel was not finished and put in operation by that date, and, as the courts have decided, the corporate powers and existence of the company have ceased. The property of the company is now in the hands of the former directors as trustees, but they have no power to operate.

The City of New York brought suit some time ago, claiming that

company did not have the necessary franchises, permits and consents to authorize construction or operation. An agreed statement of facts has been prepared and probably this case will be presented to the Appellate Division very soon. Perhaps the company did have the necessary authority to operate, if the tunnel had been finished and in operation by January 1, 1907. But this authority is useless now so far as operation by the company or the trustees is concerned. If these rights are legal and sufficient if no further grants are necessary - it is possible that the trustees could sell the property, including the franchises, to a company having the right to operate. These are legal questions not yet settled, but in any event operation could be brought about by new grants of authority.

TERMS OF PROPOSITION.

The proposal made by the Interborough Rapid Transit Company is in substance as follows:

1. The company is to transfer all its interest, title and control over the tunnel as above described, the franchise which it claims to have for the construction of the road and such real estate as will be necessary for its operation, to the City of New York.

2. The City of New York is to pay the "actual cost to Interborough Rapid Transit Company for construction, real estate necessary for rights of way, interest charges, etc., say $7,239,476.50. The exact amount of real estate required will be a subject for adjustment and when determined on, its cost as well as the cost of all other items may be verified by an independent audit."

3. The company is to accept in payment City bonds, 4 per cent at par.

4. The City of New York is to enter into an operating contract with the New York & Queens County Railroad Company to operate the tunnel in connection with its lines in Queens for a period of twenty-five years.

The terms of this agreement are to be as follows:

5. Expenses of operation to be fixed at an arbitrary sum to represent the estimated cost.

6. One-half of this sum to be paid by the City, the balance by the company. 7. A single fare of five cents to be charged between Forty-second street and Fourth avenue, Manhattan, and any point on the line of the New York & Queens County Railway.

8. The City to receive all "local fares," which are to be estimated at twice the fares received at the two stations in Long Island City.

9. When the local fares so paid over shall have reimbursed the City for all amounts advanced for operating expenses, interest on City bonds, a sinking fund of 1 per cent per annum, and all arrears of interest and sinking fund, any surplus of local fares is to be divided equally between City and Company.

10. All through fares to be retained by the company.

ANALYSIS OF OFFER FINANCE.

Considering these provisions in turn, the question at once arises: What amount must the city pay? The offer of the Interborough Company says actual cost" as shown by "an independent audit" and suggests $7,240,000 (to be exact $7,239,476.50). To determine what has been spent, Mr. Weber, Chief Statistician of the Commission, was directed to make a careful examination of the books and vouchers. He reports that the company claims to have expended or incurred liabilities amounting to nearly $8,600,000, divided as follows:

(a) Work and expenses incidental to construction of

tunnel......

Add advances to Degnon Contracting Company.

(b) Real Estate

Expenditures of an intangible nature:

(c) Cost of property and franchises represented by Capital Stock and assignments of judgments.

(d) Legal expenses

(e) Advertising.

(f) Interest on loans and advances.

(g) Liabilities unpaid at Sept. 30, 1908.

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With the aid of engineers, Mr. Weber analyzed these items in detail and reports that the propriety of including certain of them is open to question, as for example, certain large salaries, the allowances made for rush work in order to complete the tunnel before the expiration of the charter of the company (this was unsuccessful), payments for franchises to other than public authorities, legal expenses in furthering certain legislation, and purchases of real estate. How much should be deducted is, of course, a matter of conjecture, but apparently the company considers $7,240,000 as the minimum figure for cost.

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