App. Div.] Third Department, May, 1910. a careful perusal of his testimony shows that most of the guaranties he mentioned were made from the New York office, or were expressly authorized in each case. He wrote the company advising them to make the guaranties, and asking it to permit him to make them in his own name, and most of the guaranties he made were in fact in his own name and did not purport to bind the company. The sale of stock in question was the first one to the plaintiff, and was made without any suggestion that there was to be a guaranty. The defendant says: "The purchase of the stock was before the guarantee. I admit that part, but the guarantee was given two months after the stock was purchased and paid for through the fact that this Vai! matter had been brought to Mr. Sherman's attention. While I cannot recollect all the details, as I recollect, he wanted to know 'Mr. Vail has a guarantee, can't I have a guarantee too from Daugherty & Albers?' I said 'yes' that Albers had authorized me to give guarantees if I had to use them in the sale of stock. * * * I am just stating that Albers informed me that I had authority to make these guarantees. I gave this guarantee, as I recollect it, it was two months after the original stock was delivered at the suggestion of Mr. Sherman. I told him I had authority to give it and I gave it to him. I signed the agreement for Daugherty and Albers. It was delivered in Kingston. I forget whether I delivered it or Mr. Pultz. It was written by Pultz and I think it was signed in Kingston when he bought the second block of stock. I think the first and second agreement were given at the same time." "As I recollect the matter, this stock was purchased and paid for before anything was said about the guarantee. The guarantee was given two months later." After this sale was completed, and after the company had notified the defendant that it could not give any more guaranties, he made other sales of stock to the plaintiff, giving his personal guaranty, and in order to help make these additional sales he gave the company's guaranty to cover the former sale, which he concedes was made without guaranty. The by-laws in evidence prima facie negative the authority of the defendant to issue this guaranty. It cannot be implied from a power to make a sale, for the reason that it is no part of a sale where the agent gets ten per cent for making it, to have the Third Department, May, 1910. [Vol. 138. principal agree to purchase back the property sold for the full purchase price at any time the purchaser may elect. It is a most extraordinary agreement, the authority to make which must appear, as the agreement itself is practically inconsistent with the terms of sale. Viewing the evidence most favorably to the defendant it shows that in several cases where he specially called the attention of the company to the transaction they reluctantly gave this guaranty. He gave many such guaranties in his own name, and apparently for the reason that the company would not make them, as he feared it would not. This sale to the plaintiff was made without any sug gestion of guaranty, and was an absolute sale of the stock. He was permitted, if he could not sell the stock without the guaranty, to use it, and did use it in two or three cases. February eighteenth, before the guaranty was given, the company notified him it would give no further guaranties, and thereafter he gave guaranties in his own name, and about March twenty-seventh thereafter did induce the sale of other stock to the plaintiff upon his guaranty, and at the plaintiff's request he gave this guaranty to the plaintiff, saying that he had authority to give it. He had no authority; whatever authority he had to give guaranties had been revoked; this sale had been made without guaranty, and there was never any authority in him to guarantee it. He was receiving ten per cent commissions on sales, and in order to make new sales under his own guaranty he executed this guaranty in violation of his express instructions. It is immaterial, therefore, whether we take the plaintiff's version or the defendant's version of the transaction; the guaranty was issued without authority and for his own benefit. The judgment should, therefore, be affirmed. COCHRANE, J., concurred. Judgment reversed on law and facts, referee discharged and new trial granted, with costs to appellant to abide event. App. Div.] Third Department, May, 1910. THE PEOPLE OF THE STATE OF NEW YORK, Plaintiff, v. THE NEW YORK CENTRAL AND HUDSON RIVER RAILROAD COMPANY, Defendant. Third Department, May 4, 1910. Public Service Commission — railroad — permission to issue securities – agreement evading law- penalty. Five railroad corporations, forming a single system, desiring to issue securities without obtaining the consent of the Public Service Commission, entered into an agreement with four individuals, vice-presidents of the five railroads, parties of the first part, and a trust company, which, after reciting that the railroads desired more equipment and deemed it expedient to obtain the same through the medium of an equipment trust, provided that the parties of the first part should sell to the trust company the necessary equipment; that ten per cent of the purchase price should be paid at once by the railroads and the remainder in certificates known as "New York Central Lines Equipment Trust Certificates of 1907." It was further provided that the trust company having the legal title should then rent the equipment to the railroads upon their agreement to pay as rental the costs of the trusts, all taxes, assessments, licenses and dues, the dividend warrants attached to the certificates, and an annual sum sufficient to retire each year a part of the issue, all of which rental the trust company covenanted to apply to its proper purposes. It was further provided that the trust company should in no event be liable on the certificates and that in case of default the holders could proceed at once against the railroads. The certificates were delivered to the parties of the first part, who sold them and with the proceeds purchased the necessary equipment. Held, that the certificates were in the nature of stock, bonds, etc., within the meaning of section 55 of the Public Service Commissions Law and that the railroads, having issued them without the permission of the Commission, are liable for the penalty prescribed by section 56. The certificates were in effect the obligations of the railroad companies, which should not be allowed to accomplish through a fiscal agent what they were forbidden to do directly. The object of section 55 of the Public Service Commissions Law is to protect the public and, perhaps, stockholders of corporations, from an issue of securities which represent useless and unnecessary expenditure. SUBMISSION of a controversy upon an agreed statement of facts, pursuant to section 1279 of the Code of Civil Procedure. Ledyard P. Hale, for the plaintiff. Albert II. Harris, for the defendant, SMITH, P. J.: Third Department, May, 1910. [Vol. 138. This controversy involves the right of the plaintiff to recover against the defendant a penalty under section 56 of the Public Service Commissions Law (Laws of 1907, chap. 429). By that section any common carrier subjects itself to a penalty not to exceed the sum of $5,000 for a violation of any of the requirements of the Public Service Commissions Law. Defendant is charged with the violation of the provisions of section 55 of that law. That section, so far as material to this controversy, reads as follows: "A common carrier, railroad corporation or street railroad corporation, organized or existing or hereafter incorporated under or by virtue of the laws of the State of New York, may issue stocks, bonds, notes or other evidence of indebtedness payable at periods of more than twelve months after the date thereof, when necessary for the acquisition of property, the construction, completion, extension or improvement of its facilities, or for the improvement or maintenance of its service or for the discharge or lawful refunding of its obligations, provided and not otherwise that there shall have been secured from the proper 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 evidence of indebtedness is reasonably required for the said purposes of the corporation * * In 1907 the defendant, with its allied companies, required for its service rolling stock of the value of about $30,000,000. This sum it was desired to pay in installments, running over a period of fifteen years. To issue bonds or notes would confessedly have required the consent of the Public Service Commission under the provision of law above quoted. The money, however, was raised in a different way. An agreement was entered into between four persons, who were the vice-presidents of five railway companies, calling themselves in combination "The New York Central Lines," as parties of the first part, the Guaranty Trust Company of New York, called the trustee, as party of the second part, and the said five railway companies as parties of the third part. The agreement recited that these railroad companies desired equipment additions and deemed it expedient to make provision therefor through the medium of an Third Department, May, 1910. App. Div.] equipment trust. It was then agreed on behalf of the parties of the first part that they would sell to the Guaranty Trust Company such rolling stock or equipment as should be requested by the presidents of the several railroad companies, parties of the third part. Ten per cent of the purchase price of said rolling stock was to be paid at once by the said railroad companies. The remaining ninety per cent was to be paid to said vendors by the delivery to them of equipment certificates to be known as the "New York Central Lines Equipment Trust Certificates of 1907." The Guaranty Trust Company then with legal title to this rolling stock rented the same to the several companies parties of the third part, upon the agreement of the companies to pay in rental therefor: "(1) The cost of administering its trust under this trust agreement, the expense incurred by it under the leases made pursuant hereto, and proper compensation for its services under said agreement and leases. (2) All taxes, assessments, licenses and dues, Federal, State and municipal, which may be levied upon or assessed against the equipment covered by the lease or against the trustee on account thereof. (3) The amount of the dividend warrants belonging to the certificates representing the cost of the equipment covered by the lease as such warrants severally fall due; and (4) An annual sum equal to one-fifteenth (1/15) of the principal of said certificates issued on account of the equipment covered by said lease." The trustee thereupon covenanted to apply the rentals so by it to be received to the payment of said expenses, taxes, dividend warrants and certificates as they shall respectively fall due. It was further provided that the trustee should in no event be liable upon these certificates. Provision was made in case of default that the trustee should proceed to collect the said rentals in behalf of the certificate holders, and should, if necessary, enforce any lien that it might hold uponsaid equipment by reason of the title thereto reserved in itself upon the giving of the leases, as security for the payment of these trust certificates. The railroad company indemnify the vendors against all expenses. These trust certificates were so drawn as to entitle the holder to so many shares of one thousand dollars each in the New York Central Lines Equipment Trust of 1907, payable in gold coin upon a date certain, and also to the dividends thereon, payable semi-annually on the first days of May and November ot |