Public Service Commission v. Consolidated Gas, Electric Light & Power Co.

Parke, J., delivered the opinion of the Court. The Consolidated Gas Electric Light & Power Company of Baltimore City is a public service corporation, carrying on its business of selling and delivering gas and electricity in Baltimore and vicinity, and William Milnes Maloy is one of its many customers. The company is within and subject to the provisions of what is generally known as the. Public Service Commission Law of Maryland.

The com-, pany called a special or extraordinary meeting of the stockholders on October ¿1st, 1924, to consider tbe advisability of adopting the recommendation of its hoard of directors to amend the charter of the company so as, inter alia., (a) to change the number of shares of the common stock by increasing by four times the then number of shares authorized and likewise the number of shares issued and outstanding, and to provide that all shares of the common stock authorized, issued, or outstanding, should he shares without any nominal or par value instead of shares of the par value of one hundred dollars each; and (b) to empower -the board of directors of this corporation to authorize tbe issuance from time to time of its common stock without par value and securities convertible into shares of its common stock without par value for such consideration as said board of directors may deem advisable. The day before the meeting, Mr. Maloy filed a bill in the Circuit Court for Baltimore City, alleging that the. com ⁹⁴ pany had announced that, if, the meeting of the stockholders should sanction the proposed change, the new shares without par value would he immediately issued as proposed without first securing from the Public Service Commission of Maryland' an order authorizing said issue or its amount. The bill further stated that the commission had been asked to intervene and require the company to apply to it for an authorization of the contemplated issue of the new form of stock, but that the commission had refused because it had been advised by the Attorney General of Maryland that it had no power to pass on the propriety of the issue. On the theory that this left the complainant without other remedy, relief was sought in equity for an injunction to restrain the company from issuing its shares of no par value in exchange for the shares of the common stock then outstanding as proposed or otherwise, unless and until there had been secured from the commission an order authorizing the issue and the amount thereof.

The court passed an order on Octobei’ 20th, 1924, directing the injunction to be issued, unless cause be shown before October 31st; on October 21st, the company demurred, and on October 29th the court sustained the demurrer, with leave to amend. On November 19th, the Public Service Commission of Maryland prayed to be made a party plaintiff, and the commission was granted this request on the same day, when the bill of complaint was amended only by making the commission a party plaintiff and by the filing of other exhibits. The amendment made no changes except to add the commission as a party plaintiff, and three exhibits, which related to> events which had occurred before the filing of the original bill of complaint. The amended bill was promptly demurred to-, and the demurrer was sustained on November 21st, and on the same day separate appeals were taken by William M. Maloy and the commission.

The meeting of the stockholders for the purpose of considering the suggested changes in the charter had not been held when the bill of complaint was filed. The amendment ⁹⁵ of the bill of complaint was after the day of the meeting, but there was nothing in the amended bill of complaint at the time of the second demurrer to inform the court if the charter had been amended as proposed. The demurrer to the amended bill of complaint stated parenthetically that the proposed modification had been “consummated on tbe 21st day of October, 1924, as proposed in said resolutions, as stated in open court by counsel for both parties at the argument on the demurrer to the original bill.” We do not approve of this informal method of introducing a fact into the record, nor shall we take into consideration the statements made at bar that tbe amendment to- the charter had been carried out as intended, and that a change of the issued and outstanding certificates of stock into stock of no par value had been accomplished. The question before the court is on a demurrer, which narrows the facts to- those which are well pleaded in the amended bill of complaint.

These facts we shall test on their intrinsic merit, waiving any technical defects, so that the substantial questions raised on this appeal shall have an answer. We are concerned with only the proposal to change by amendment of charter the number of shares of the authorized common stock by increasing it fourfold, to deprive the shares of any par or nominal value, and then to transform the company’s issued and outstanding shares of stock into the new form of certificates of stock. It is insisted that none of these successive steps could he taken until the company obtained the approval of the Public Service Commission. The question of the wisdom of the company in amending its charter in the form adopted was a matter of internal regulation, beyond the control of the commission, unless plainly bestowed; and it was a matter, also, not affecting either the consumer or the public, or affording a matter of concern to the Public Service Commission.

If the State had not intended the power of amendment to be exercised by the appellee and other corporations of its class, the power would not have been conferred-. The ⁹⁶ jurisdiction of the commission begins as soon as a public service company starts to use its granted powers; and then adequate authority is. delegated to the commission in respect to all those corporate activities which affect the interest of the public and require supervision and regulation. Bagby’s Code 1924, art. 23, secs. 2, 3, 28, 39, 392, 388, 397; Laird v. B. & O. Ry. Co., 121 Md. 179, 189, 190 ; People v. Stevens, 203 N. Y. 7, 19 , 197 N. Y. 1 ; People v. Willcox, 200 N. Y. 431 , 45 L. R. A.

(N. S.) 629; City, etc., Ry. v. Washington, etc., Ry., 122 Md 655, 658; North. Cent. Ry. v. Public Service Commission, 124 Md. 141, 152 ; Public Service Commission v. United Ry. Co., 126 Md. 478, 496 ; Havre de Grace Bridge Co. v. Commission, 132 Md. 16, 22, 23 ; Benson v. Commission, 141 Md. 398, 401 .

It is not open to question that under the Maryland law the appellee had the right to amend its charter in the manner proposed, so as to substitute a common stock in a specified number of shares without any nominal or par value, for its authorized issued and unissued stock, divided into a certain number of shares, with a par value of one hundred dollars. Bagby’s Code 1924, art. 23, secs. 39, 28, 4. The proposed amendment to the charter of the appellee expressly provided that “the capital stock of the corporation, preferred and common, may be issued and disposed of as and when such issuance may, pursuant to the laws of Maryland, be authorized by the board of directors and (when authorization by the stockholders is required by law) by the stockholders.” When this amendment became operative, the appellee had a number of shares of stock which were authorized but unissued, and it had issued and outstanding a large amount of its original stock. The issued and outstanding stock had been issued for capital, but the authorized and unissued stock was merely potential capital, convertible into actual capital by its issue for value.

The evidence of the ownership of the issued and outstanding capital, whether in the usual 'form of certificates for shares of stock or otherwise, ⁹⁷ had to be changed in order to conform to the altered condition resulting from the amended charter. In order to effect this change it was necessary that the original issued and outstanding certificates of stock he surrendered for cancellation, upon the delivery to the respective stockholders of certificates for four shares of the new shares of the common stock of no par value for every one of the outstanding original shares of common stock having the par value of one hundred dollars. As the specified number of the newly authorized shares of stock was in excess of what would he required for this substitution, tbe total of the authorized stock fell into two subdivisions. Tbe first subdivision was represented by the number of shares requisite to^ substitute the new certificates of stock for the old in the ratio of four for one, and the second subdivision was represented by the residual number of the authorized shares of the new style of stock after this contemplated substitution had been made.

It is evident that between the two subdivisions (1) of authorized, issued and outstanding stock and (2) of authorized but unissued and not outstanding stock, there is the difference between actual and potential capital. With respect to the shares of stock taking the place of the original but unissued shares, which constituted the second subdivision or potential capital, there can he no difference of opinion that these shares fall within section 392 of article 23 of Bagbi/s Code 1924, when and as issued, and necessary, (a) for the acquisition of property, the construction, completion, extension or improvement of its plant or distributing system; or (b) for the improvement or maintenance of its service; or (c) for the discharge or lawful refunding of its obligations; or (d) for the reimbursement of moneys actually expended from income or from any other moneys in the treasury of the corporation not secured by or obtained from the issue of stocks, bonds, notes or other evidence of indebtedness of sncb corporation within five years next prior to the filing of an application with the commission for the required authorization for any of the aforesaid ⁹⁸ purposes, except maintenance of service and except replacements, in cases where the applicant shall have kept its accounts and vouchers of such expenditures in such manner as to enable the commission to ascertain the amount of moneys so expended and the purposes for which such expenditure was made, or, (e) when necessary or desirable, in the discretion of the commission, to cause the aggregate capitalization to conform to the fair value of the property of such corporation as established by the commission pursuant to the provisions of section 385. In order for the corporation to have the power to issue the shares of stock in the second subdivision, and thereby convert them from a potential source of capital to actual capital, the law makes the following conditions precedent: “provided, and not otherwise, that there shall have been secured from the commission an order authorizing such issue, and the amount thereof, and stating that in the opinion of the commission, the use of the capital to be secured by the issue of such stock, bonds, notes or other evidences of indebtedness is reasonably required for the said purposes of the corporation.” Code, section 392 of article 23. The shares of stock in this second subdivision were the only ones left and available to the appellee for the procuring of future capital through the disposition of shares of common stock.

They alone were free shares. Those of the first subdivision were dedicated by way of substitution to the representation of the original shares of capital stock issued and outstanding prior to the amendment. The able chancellor held below that the shares of the first subdivision were not within section 392, and the appellants assign this conclusion as the chief ground for reversal.