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AGO 1951 No. 065 - June 07, 1951
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Smith Troy | 1941-1952 | Attorney General of Washington

UNAUTHORIZED ISSUES OF EVIDENCES OF INDEBTEDNESS BY PUBLIC SERVICE COMPANIES.

The Washington Public Service Commission may not retroactively approve evidences of indebtedness issued by a public service company, but may approve the issuance and execution of new evidences of indebtedness refunding the principal amount due.

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                                                                    June 7, 1951

Washington Public Service Commission
Insurance Building
Olympia, Washington                                                                                                           Cite as:  AGO 51-53 No. 65

Attention:  A. E. Rotchford, Secretary

Gentlemen:

            You have requested an opinion from this office on the following matters:

            1. Are a note and mortgage issued by a public service company void where such note and mortgage were issued without first obtaining an authorization from the Commission's predecessor, the Washington Department of Transportation?

            2. Can the Commission ratify or approve retroactively said note and mortgage?

            3. Does such issuance constitute a violation of section 10, chapter 151, Laws of 1933?

            4. Would it be legal and proper to require the public service company to apply for authority to refund the principal amount now due with a new note and mortgage or other evidence of indebtedness?

            Our conclusions may be summarized as follows:

             [[Orig. Op. Page 2]]

            1. Such a note and mortgage are void under the provisions of section 10, chapter 151, Laws of 1933 (Rem. Rev. Stat. Supp. 10439-10).

            2. The Commission may not ratify or approve retroactively a note and mortgage issued without the approval of the Commission or its predecessor.

            3. The issuance of such a note and mortgage constitutes a violation of section 10, chapter 151, Laws of 1933 (Rem. Rev. Stat. Supp. 10439-10).

            4. It would be legal and proper to require the public service company to apply for authority to refund the principal amount now due with a new note and mortgage or other evidence of indebtedness.

                                                                     ANALYSIS

            On June 1, 1946, the Standard Warehouse Company, Inc., of 1020 First Avenue South, Seattle, Washington, a public service company under a license issued by the Washington Public Service Commission or its predecessor, borrowed $60,000 from the People's National Bank of Washington to acquire a building, and to secure such loan executed a first real estate mortgage on the building.  The loan, of which $32,085.25 remains unpaid, was made and the mortgage executed without first obtaining from the Commission's predecessor, the Washington Department of Transportation, an order authorizing it to consummate the transaction as required by section 10, chapter 151, Laws of 1933 (Rem. Rev. Stat. Supp. 10439-10).  The statute provides in part:

            "All stocks and stock certificates or other evidence of interest or ownership, and bonds, notes and other evidences of indebtedness issued by any public service company after this act takes effect * * * shall be void unless an order of the department authorizing the issuance of such stocks or stock certificates or other evidence of interest or ownership, or bonds, notes, or other evidence of indebtedness shall have been obtained from the department prior to such issue * * *"

            Under the clear language of the statute the mortgage and note are void.  While the precise question has not been before the court, inInland Empire Etc. v. Department of Public Service, 199 Wash. 527 92 P. (2d) 258, the court discussed the regulatory and supervisory powers of the then Department of Public Service over public service operations, and stated in part as follows:

             [[Orig. Op. Page 3]]

            "* * * the department is vested with supervision over the issuance of stocks, bonds, notes, and other evidences of indebtedness of public service corporations, and unless the issuance of such evidences be permitted by the department, they are void."

            Although decisions of administrative bodies do not have the force of court adjudications, we note that one of your predecessors has previously decided, in the matter of the application of People's Water and Gas Company for an order approving issuance of bonds before the Department of Public Service of Washington, order No. 7069, that bonds issued by a public service corporation are void where issued without approval of the regulatory body.  This position has been uniformly maintained by the public service commissions of other states operating under similar statutes.  SeeRe K. Frank Henneken, decision of the California Railroad Commission, 40 P.U.R. (N.S.) 51;Re Southern Gas Corporation, order of Oregon Public Utilities Commissioner, 17 P.U.R. (N.S.) 225; Re Washington Water Company, order of New Jersey Board of Public Utility Commissioners, 12 P.U.R. (N.S.) 469; Re Willow River Power Company, order of Wisconsin Public Utility Commission, 10 P.U.R. (N.S.) 28; Re Doe Run ‑ Delassus Light and Power Company, order of Missouri Public Service Commission, P.U.R. 1932 D 212; and In Re Conway Electric Light and Power Company, order of the New Hampshire Public Service Commission, P.U.R. 1915E 931.

            The evidence of indebtedness being void by law an attempted retroactive authorization would, in our opinion, be entirely inconsistent with the intent of the law and would be a nullity.

            Section 11, chapter 151, Laws of 1933 (Rem. Rev. Stat. Supp. 10439-11) provides in part as follows:

            "Every public service company which, directly or indirectly, issues or causes to be issued, any stock or stock certificate or other evidence of interest or ownership, or bond, note or other evidence of indebtedness, * * * contrary to the provisions of this act, * * * shall be subject to a penalty of not more than one thousand dollars for each offense."

             [[Orig. Op. Page 4]]

            The Standard Warehouse Company, having issued a note and mortgage without authorization of the Department obtained prior to such issuance, violated the provisions of section 10, chapter 151, Laws of 1933, and is subject to the penalty prescribed by section 11 for such violation.

            Finally, you inquire whether it would be legal and proper to require the company to make application for authority to refund the principal amount now due with new evidence of indebtedness.  In thePeople's Water and Gas Company case, cited above, the then Department of Public Service found that the bonds issued by that company prior to departmental approval were issued for a lawful purpose and if the company had complied with the statutory requirements such issuance would have been consistent with the public interest, advantageous to the company and indicative of sound management; but because of the failure of the company to conform to such legal requirements the bonds were void, and as a precautionary measure recommended that the void bonds be reacquired, cancelled, and replaced with like bonds issued pursuant to statutory provisions.  The same disposition was made of notes, mortgages, and stock illegally issued in the California, Oregon, Missouri and New Hampshire cases cited above.  In our view such a procedure is sound.

            We are of the opinion that it would be legal and proper for the Commission to require the Standard Warehouse Company to make application for authority to refund the principal amount now due on its debt to the People's National Bank with a new note and mortgage or some other evidence of indebtedness or in the alternative to suffer the penalties provided by law.  Of course, the company would still be subject to the penalty provisions should the Commission, in its discretion, determine it appropriate to enforce the same.

Very truly yours,

SMITH TROY
Attorney General

LAWRENCE K. McDONELL
Assistant Attorney General

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