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COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE
ON BILLS AFFECTING
GOVERNMENT PRINTING OFFICE
BILLS AFFECTING INTERSTATE COMMERCE.
COMMITTEE INTERSTATE AND FOREIGN COMMERCE, HOUSE OF REPRESENTATIVES, Washington, D. C., Saturday, February 5, 1910. The committee met this day at 10 o'clock a. m., Hon. James R. Mann (chairman) presiding.
The CHAIRMAN. Mr. Reporter, you may insert in the record a letter from Representative Dawson, presenting the views of Mr. P. P. Crafts, of Clinton, Iowa, in reference to the effect of the bill H. R. 17536 on the electric railroads.
The letter is as follows:
COMMITTEE ON NAVAL AFFAIRS. HOUSE OF REPRESENTATIVES,
Hon. JAMES R. MANN,
House of Representatives.
MY DEAR SIR: In the consideration of H. R. 17536, I desire to bring to the attention of the committee the views of Mr. P. P. Crafts, of Clinton, Iowa, general manager of the Iowa and Illinois Railway, which operates an interurban between Clinton and Davenport, Iowa, to that clause of section 9 of the bill which affects electric railways. In a letter to me dated February 1, 1910, Mr. Crafts says:
"That portion of section 9 of H. R. 17536 would certainly be extremely detrimental to the electric railway interests of this country.
"With this clause included there would be placed in the hands of the steam trunk lines a very dangerous weapon, which could be used in crushing already existing electric carriers and could also be used to effectually block future extensions of such lines and the construction of new lines, and would discriminate against communities served by electric interurban railways.
"Unless you already have the figures on hand, I beg to call your attention to the fact that the electric railways in the United States have a track mileage of 38,800, operate 87,200 cars, have a capital stock of $2,250,000,000, and a funded debt of $1,872,000,000.
"A great deal of the recent growth of electric interurbans has been brought about by the increase of freight interchange between such properties and the steam trunk lines. The bars have been in gradual process of letting down for the past three or four years, but should some of the trunk lines, backed by the passage of the bill above mentioned with its harmful clause included, attempt to discriminate against the electric lines in the matter of rate division, etc., and the interchange of freight and passenger traffic, development in electric railways would be very materially hindered." Very truly, yours,
A. F. DAWSON.
Mr. TOWNSEND. I would like, Mr. Chairman, to make a statement to be taken down by the stenographer in reference to the provisions of the bill which we are considering, the Townsend bill, in relation to the issuance of stocks and bonds. Some changes have been made in reference to the provision in the bill 17536 which have arisen from a consideration of the practical application of that provision if it were enacted into a law, and I had suggested that this committee, assuming that it was made up of such fellows as I am myself, not altogether familiar with the financing of railroads, might find some questions. arise that we would all like information upon. I therefore suggested that we ought to have somebody here who is familiar with this class of business, and so Mr. Byrne, of New York, was invited at my suggestion by the Attorney-General, who had been asked to select somebody who was familiar with it to appear before us this morning, and it is for that reason that Mr. Byrne appears.
STATEMENT OF MR. JAMES BYRNE, OF NEW YORK, OF THE LAW FIRM OF BYRNE & CUTCHEON.
Mr. TOWNSEND. What is your principal business, Mr. Byrne? Mr. BYRNE. That of attorney in New York, a general practice, but for a good many years I have examined railroad bonds and stocks, their validity, for various institutions who buy them-insurance companies and trust companies. I have represented a number of railroads at different times as their counsel, usually the smaller railroads, by which I mean not the large railroads like the Pennsylvania or the New York Central. As a matter of fact, I am at the present time the New York counsel for the Seaboard Air Line Railway. I have represented and at present represent reorganization committees of insolvent railroads and other corporations, and have been obliged in connection with this work to become familiar with the statutes of almost all the States and Territories in the country under which railroad securities are issued or railroad corporations are organized and reorganized.
I have considered sections 13, 14, 15, and 16 of the bill as they appear in typewritten form just before me-the proposed bill to create an interstate commerce court. I have considered them as a part of the bill, which may be said to be a bill to prevent stock watering, to insure the payment of par in money or property for every share of stock of a railroad corporation which shall hereafter be issued, and the market value of the bonds; and I have considered whether they cover situations that are sure to arise; in other words, whether they present a method that will work.
The first part of section 13 in the form which I have before me relates, first, to the issuing of stock; second, to the issuing of bonds; third, to the issuing of stocks or bonds to take up notes, for the issuing of which notes the consent of the Interstate Commerce Commission is not required, and for the issuing of what are called collateral trust notes; that is, notes of a railroad corporation secured by the bonds of that railroad corporation as collateral, the issuing of such notes being the method by which the railroads in 1907 tided over those times when it was impossible to sell bonds.
Section 13, in the form in which I have it before me, reads in this way:
That except as hereinafter provided, no railroad corporation which is a common carrier subject to the act to regulate commerce, approved February 4, 1887, as amended, shall hereafter issue for any purpose connected with or relating to any part of its business governed by said act to regulate commerce, as amended, any capital stock or certificate of stock without previous or simultaneous payment to it of not less than the par value of such stock.
That is the general principle of the bill, par for the stock
Or any bond or other evidence of indebtedness except notes maturing not more than one year from the date of their issue.
I think that "one" is a typewriting error for "two," because in the next page it is "two." It is "one" in the printed bill also. It goes
Without previous or simultaneous payment to such corporation of not less than the par value of such bond or other evidence of indebtedness, or if sold at less than par, then of not less than its reasonable market value, which value shall be ascertained by the Interstate Commerce Commission and stated---
Mr. WASHBURN. Excuse me; there is a little variance 'there, though not particularly material; and perhaps you do not care to be interrupted on those points?
Mr. BYRNE. I am perfectly at the convenience of the committee. It says:
Which value shall be ascertained by the Interstate Commerce Commission and stated in a sealed certificate issued by the commission to the corporation.
This is new.
Mr. TOWNSEND. I intended yesterday to have this in and printed, so that we could have it when Mr. Byrne was here.
Mr. WASHBURN. It is not material, then?
Mr. TOWNSEND. No; it is not material unless we can not understand what Mr. Byrne is talking about.
Mr. BYRNE. It goes on:
And stated in a sealed certificate issued by the commission to the corporation, or to any person or persons intending to organize such corporation, and recorded with the commission.
By that phrase, "to any person or persons intending to organize such corporation," the Attorney-General intended to cover the case before the corporation was organized. The people who were going to organize it could find out from the commission whether or not the commission was willing that the bonds should be issued on the present basis.
What follows is somewhat different from the printed bill:
If the commission shall ascertain that there is no reasonable market value of such bond or other evidence of indebtedness at the date of such certificate, then the commission shall ascertain and state in such certificate the reasonable selling price of such bond or other evidence of indebtedness at such date.
In other words, it might be that "the market value" might be invested with a technical meaning. It does have such a meaning in a number of the States, under decisions. Then it might be said there was no market value, and then the commission would find what was the proper selling value of that security [continues]:
And nothing in this section contained shall prevent the issue of such bond or other evidence of indebtedness if sold at or in excess of the selling price so stated, and no property, services, or other thing than money shall be taken in payment to the corporation of the par or other required price of such stock, certificate of stock, bond, or other evidence of indebtedness, except at the fair value of such property, services, or other thing than money, which shall be ascertained by the Interstate Commerce Commission and stated in a sealed certificate issued by it to such corporation, or to any person or persons intending to form such corporation, and recorded with the commission before the issue of said stock, certificate of stock, or other evidence of indebtedness, provided nothing herein contained shall be construed to prevent a corporation subject to this act from issuing its bonds or other obligations to refund an issue of bonds or other obligations heretofore issued and outstanding to the amount requisite to take up or refund the same.
No issue of stock or bonds shall be made for the purpose of paying or taking up notes maturing not more than two years from the date of their issue and hereafter issued by such corporation for a purpose connected with or relating to any of its business governed by said act to regulate commerce as amended, in an amount greater than will suffice, upon issue of such stock or bonds under the rules hereinbefore prescribed concerning issues of stock or bonds to yield a sum equal to the amount of money actually received by such corporation for such notes, or, if such notes were sold at the time of their issue for less than their face value, to yield a sum equal to the amount of such notes if the Interstate Commerce Commission before the issue of such new stock or bonds shall state in a sealed certificate issued by the commission to the corporation and recorded with the commission that the commission finds that said notes were issued