The appellant, commonly known as the Nickel Plate Road, was organized in 1923 as a consolidated corporation under the laws of five states: New York, Pennsylvania, Ohio, Indiana, and Illinois. The agreements and articles of consolidation provided that it should succeed to all of the properties and franchises, contracts, and obligations owned by its constituent companies. Section 143 of the New York Railroad Law, Consol.Laws, c. 49, under which the new corporation came into being, provided that 'all debts and liabilities incurred by either of such corporations shall thenceforth attach to such new corporation, and be enforced against it and its property to the same extent as if incurred or contracted by it.' Among the constituent companies was the Lake Erie & Western Railroad. In connection with a lease of certain properties from the Northern Ohio Railway it had guaranteed payment of principal and interest upon the latter's bonds secured by mortgage on the leased property. Because of the contention that the state law 'attached' the obligations of this guaranty to the Nickel Plate, it has now been held liable upon defaulted coupons by a Municipal Court of the City of New York.
The appellant defended on two grounds: First, that the original guaranty by the Lake Erie was ultra vires. This defense was overruled by the state court and nothing of that issue survives for our consideration. Second, that approval by the Interstate Commerce Commission was necessary under § 20a of the Interstate Commerce Act, 49 U.S.C.A. § 20a, before appellant legally could 'assume' the obligation and that such approval had not been given. This defense, too, was overruled by the state court, and this federal question comes here by appeal.
In support of this defense the appellant set forth a letter, dated November 25, 1939, from the Secretary of the Interstate Commerce Commission which advised 'that the New York, Chicago & St. Louis Railroad Company has never applied for, nor received authorization pursuant to section 20a of the Interstate Commerce Act to assume any obligation or liability as lessor, lessee, guarantor, endorser, surety, or otherwise in respect of bonds of the Northern Ohio Railway Company.' But it added that 'for further information I would refer' to a reported case in which the Commission had said: 'That the consolidation had the effect of transferring the guaranty of the Lake Erie to the Nickel Plate appears to be generally assumed by the parties to the reorganization proceeding * * *.'
This reference suggests an examination of the administrative history of the Nickel Plate consolidation and financing to learn what administrative application has been made of the statutes in question to the debt structure of this particular appellant.
Shortly after its consolidation the appellant asked the Interstate Commerce Commission to certify under § 1 of the Interstate Commerce Act, 49 U.S.C.A. § 1, that public convenience and necessity required the acquisition and operation by it of the railroad lines owned by the constituent companies. It also asked authority under § 20a to issue preferred and common capital stocks in the amounts fixed by the agreements and articles of consolidation. It did not, however, ask under § 5 of the Act, 49 U.S.C.A. § 5, for approval of its consolidation. Acquisition and Stock Issue by New York, C. & St. L.R.R., 79 I.C.C. 581.
This application required the Commission to construe the Transportation Act of 1920, which had recently introduced a wide range of innovations into the Interstate Commerce Act. Section 5 of the Interstate Commerce Act, as amended by the Transportation Act of 1920 directed the Commission to formulate 'as soon as practicable' a complete plan for the consolidation of the railways into a limited number of systems. As so amended, § 5 also subjected voluntary consolidations to the approval of the Commission and required that they be approved if found, among other things, to be in harmony with such complete plan for general consolidation and if it appeared that the bonds of the consolidated corporations at par together with the outstanding capital stock at par would not exceed the value of the consolidated properties as determined by the Commission. By adding § 20a the Transportation Act placed the issue of new securities and the assumption of obligations under the control of the Commission. The Act did not, however, provide for federal incorporation or for federal consolidation of carriers, but left the creation of new or consolidated corporations to state laws.