Franchise Grants.

Incorporation did not of itself confer upon the company the right to begin work. Consents had still to be obtained from the local authorities and from the State of New York, which are as follows:

"(1) Resolution of the Board of Aldermen of the old City of New York, approved December 31, 1890.

(2) Patent issued by the State of New York, January 5, 1891.

(3) Resolution of the Board of Aldermen of Long Island City, approved October 27, 1891."

By the first resolution the City assented

"to the construction of a double track railroad by the New York and Long Island Railroad Company, in, by and through a tunnel beneath the surface of Forty-second street, from its easterly end, to a point therein between Tenth and Eleventh avenues, in said City, with such connections, branches, turnouts, sidings and switches, as may be requisite and necessary in accordance with the plans and profiles of such railroad heretofore deposited with this Board, or such modification thereof as shall be approved by the Commissioner of Public Works of said City."

For compensation to the City of New York, the ordinance provided that the company should,

pay annually to the City of New York three per centum of its gross earnings or receipts from transportation of persons and property on its railroad within said City; such payment to be exclusive of all taxes levied by and payable to the City of New York on the real or personal property, capital stock or income of said company, and the books of said company showing the amount of its said gross earnings or receipts shall, at all reasonable times and hours be open to the inspection of the Comptroller of the City of New York (or to his duly authorized agents) for the purpose of verifying the returns thereof of said company."

The consent of the State of New York was granted by the following patent: "The People of the State of New York, by the Grace of God, Free and Independent: To all to whom these Presents shall come, Greeting:

"Know Ye, That, pursuant to chapter 140, Laws of 1850, as amended by chapter 601, Laws of 1886, and a resolution of the Commissioners of the Land Office adopted November 25, 1890, we have given and granted, and by these presents do give and grant unto the New York and Long Island Railroad Company, its successors and assigns, a right of way ninety-nine feet in width and fifty feet in height within which to construct a tunnel for the use and operation of the above-named grantees' railroad beneath the waters of the East River upon and along the route of said railroad, between the City of New York and Hunter's Point in Long Island City, as shown in plan and profile, upon the charts filed in the office of our Secretary of State, with the water grant papers of the month of January, 1891.

"Together with all and singular the rights, hereditaments and appurtenances to the same belonging, or in any wise appertaining; to have and to hold the above described premises unto the said the New York and Long Island Railroad Company, its successors and assigns forever."

Long Island City, by the last resolution referred to, assented to the construction of a double track railroad upon and along the following lines and routes:

"Route One Beginning at a point under the ground at or near the westerly end of Fifth street and in the middle line thereof at low water mark, on the east side of the East River in said city; thence running easterly beneath streets and private property to a point at or near the intersection of Fourth street and West avenue; thence along Fourth street to or near Van Alst avenue, with a station hereafter to be located between the easterly shore of the East River and Van Alst avenue; thence northeasterly by a curved line to Meadow street; thence along Meadow street to Beach street;

The whole route may be indicated as follows:

A (New York City), B (Dock Property), C (East River), D-E (Long Island City), F. A is Forty-second street at "a point therein between Tenth and Eleventh avenues," Manhattan.

B is "beneath the surface of Forty-second street from (at) its easterly end," Manhattan.

C to D is "beneath the waters of the East River upon and along the route of said ' railroad, between the City of New York and Hunter's Point in Long Island City, as shown in plan and profile, upon the charts filed in the office of our Secretary of State, with the water grant papers of the month of January, 1891."

E is "At or near the westerly end of Fifth street and in the middle line thereof at low water mark," Long Island City.

F is Meadow street at Beach street, Long Island City.

Route as Constructed It will be noted that the route above described differs from the route set forth in the articles of association and from the location of the tunnel as actually constructed. The company claims to have obtained the legal right to make such alterations, but the Corporation Counsel of the City has denied this. The route as actually constructed is approximately as follows: From a loop at the intersection of Park avenue and Forty-second street, somewhat below the present subway, the line' extends under Forty-second street, under the wharf property of the City at the end of Forty-second street, East River, to the west end of Fifth street, Long Island City; from thence it runs under private property to Fourth street, and under Fourth street to a point between Jackson and Van Alst avenues. The portion from Forty-second street to a point between Tenth and Eleventh avenues has not been constructed. The line is composed of two tracks for its entire length and for most of the distance each track is located in a separate tunnel.

A comparison of the route as actually built with the rights granted by the City of New York, the State of New York and Long Island City, shows how a difference of opinion has arisen as to whether the company has obtained the proper legal authority for the construction of a tunnel under dock property in New York City; that is, the section between "B" and "C" in the above diagram. The company claims that the resolution of the board of aldermen covers this section. The legal representatives of the City have claimed that jurisdiction over this strip of land 300 feet in width was vested in the Department of Docks, and that it was necessary to secure the consent of this Department for the construction of the route. The courts have not yet passed upon this point.

City's Efforts to Stop Work When the company resumed work in 1905 it obtained from the Fire Commissioners of The City of New York licenses to use and keep explosives at the four shafts where it was prosecuting its work, and later in the year obtained permission from the Building Department to erect certain temporary structures. About this time there arose considerable discussion regarding the legal right of the company to proceed with the work. Many claim that the company had forfeited its charter because of its failure to complete the tunnel by July 30, 1892, and that it was proceeding illegally.

Upon January 22, 1906, the Inspector of Combustibles of the Fire Department, New York City, informed the contractors doing the work that four permits for blasting had been revoked " by direction of the Corporation Counsel." Two days later the Superintendent of Buildings informed the contractors that certain building permits had been revoked "for the reason that the right to build this tunnel is disputed." No infractions of the permits themselves were alleged. Thereupon the railroad company brought a suit to stay the revocation of the permits, and a preliminary injunction was granted. The main contentions of the Corporation Counsel in opposing an injunction were that the company was not a legal corporation and that it had no right to construct the tunnel. The case came first before Justice Blanchard of the Supreme Court who said:

Independent of the foregoing considerations, however, the validity of the plaintiff's franchise, in which a large amount of capital is invested and great public interests are concerned, cannot properly be determined upon affidavits. To solve this question now against the plaintiff would permit such interference with the plaintiff's work as would prevent its completion within the time set therefor, upon which its franchise is conditional. The plaintiff will be irremediably damaged if the doubt were now resolved against it. The defendant, on the other hand, cannot be prejudiced by the postponement. For this reason the Court may well refuse to determine the question upon the present motion, and instead may properly

Vol. II 12

make a restraining order permitting the continuance of the work under the alleged franchise until the question may be tried in court according to the rules of evidence. Upon this ground, as well as upon the merits, the plaintiff's motion for a continuation, pendente lite, of the preliminary injunction, is granted.”

The case came on for trial before Mr. Justice Fitzgerald in June, 1906, who concluded that:

1. The plaintiff had acquired at the time of the beginning of this action, and now has, due legal power and lawful authority to construct and operate its tunnel and railroad."

2. "There was no warrant or authority in law for the attempted revocation of any of said licenses and permits, either for the use of explosives or for temporary buildings; and said licenses and permits were and are of full force and effect." 3. "The time of the plaintiff to complete the construction of its tunnel will expire on the 31st day of December, 1906.”

In his opinion Mr. Justice Fitzgerald said:

"The validity of plaintiff's incorporation under the provisions of the General Railroad Act of 1850, as affected by various subsequent statutes, particularly the prohibition of chapter 10, Laws of 1860 applicable only to the city of New York, the constitutionality of the Tunnel Act, chapter 582, Laws of 1880, the alleged failure of defendant in any event to comply with its provisions, the legality of the consents of the local authorities and of the abutting owners, the lapsing by expiration of time of the defendant's franchises and its failure to comply with statutory requirements in the matter of the change of route, were all sharply presented and definitely determined,"

when the matter was before Mr. Justice Blanchard. Accordingly a decision was rendered for the company.

As to the contention of the city that the railroad company had failed to obtain the consent of the dock department for the 300-foot strip referred to above, Mr. Justice Fitzgerald said:

"It is claimed that this land under water is within the exclusive control of the dock department, and that no action of the Board of Aldermen can confer any right of way or easement under this portion of the bed of the East river. This is a proposition not affecting the validity of plaintiff's charter, but challenging its right to construct its tunnel upon a portion of its designated route. It does not appear that any application for consent was made and refused, nor was the failure to obtain such consent made a ground for the revocation of the permits. There is some suggestion of acquiescence. If plaintiff becomes a trespasser it does so at its peril, and no adjudication now can deprive the city or the dock department of their remedies, while irreparable loss might result to the plaintiffs if it were, by the revocation of permits, prevented from prosecuting a work the failure to complete which within a short period of time might involve the forfeiture of its charter and the consequent loss of the vast sum of money already expended." The Case in the Appellate Division. The appeal from this judgment was argued in the Appellate Division in October, 1907, and the Appellate Division, by unanimous opinion, affirmed the judgment of Mr. Justice Fitzgerald. Although the case was not decided until 1907, it was begun in 1906, and therefore the court did not assume to decide these two questions:

1. The effect of the failure of the company to construct and operate its road by the prescribed time, namely, January 1, 1907.

2. The effect of the failure to get the consent of the dock department of the city of New York for a portion of its road as at present constructed. The Appellate Division did say, however:

"The articles of association were filed on the 30th of July, 1887; the company entered into a contract for the construction of its road in June, 1890; work was begun thereunder, and by July 30, 1892, upwards of 10 per cent of the capital had been expended. The time for completion had been extended by chapter 700 of the Laws of 1895; 647 of the Laws of 1901; 487 of the Laws of 1902; 597 of the Laws of 1903; to January 1, 1907. As this case was commenced in February,

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. Το this complaint the company demurred, and the demurrer was argued before Mr. Justice Davis, of the Supreme Court, in October, 1907.

Mr. Edward P. Bryan, president of the Interborough Rapid Transit Company, testified before the Commission upon August 20, 1907, that he was chairman of He the board of trustees of the New York and Long Island Railroad Company. 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.

"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 If this were concerned, and that these trustees are the proper parties defendant.

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. 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."

As a

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 Cars could be begun in a short time so far as physical conditions are concerned. 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 franchises, etc.

....

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

Total, exclusive of interest accrued...

$402,035 17 917,693 94

B," hereto an

6,126,151 67

$7,445,880 78

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...

$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 herein above.

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.

The 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