INDEX DIGEST

ABANDONMENT. See BANKRUPTCY ACT; BRANCH LINES; CONVENIENCE AND
NECESSITY; COST OF SERVICE; DEPRECIATION; EMPLOYEES; LEASE; OPERATING
RATIOS; RATES, FARES, AND CHARGES; REORGANIZATION (Applications and
Petitions); RIGHTS-OF-WAY.

ADDITIONS AND BETTERMENTS. Provision of lease agreement that at ter-
mination all improvements, or equipment procured during lease, would be sur-
rendered "at the cost of" lessor was found, for purpose of evaluating lessor's
common stock in merger by lessee, to pertain to all improvements made to the
leased property and did not warrant a higher valuation of the stock on basis of
a reversionary interest in such improvements. Bessemer & L. E. R. Co. Merger,
167 (178).

ADEQUACY OF SERVICE. See BRANCH LINES (Abandonment); CONVENIENCE
AND NECESSITY; GOVERNMENT TRAFFIC; MOTOR AND RAIL; PUBLIC INTEREST.
ADMINISTRATIVE PROCEDURE ACT. See PROPOSED REPORTS.
ADVANTAGES. See TRACKAGE RIGHTS (Acquisition); YARDS.

AGENTS. See COMPETITION (Undue Restraint); POOLING; TERMINAL RAIL-
ROADS.

AGREEMENTS. See EMPLOYEES.

ANTITRUST ACTS. COMMISSION'S PLENARY POWERS: Approval, as a pooling
of traffic and service, of uniform express contract granting exclusive agency to
Railway Exp. Agency did not contravene legislative policy of antitrust acts, as
Congress in sec. 5 (11) of Interstate Commerce Act expressly relieve partici-
pants in pooling transactions from requirements of those laws where it could
be shown that the pooling was in interest of better service or operating economy
and would not unduly restrain competition. Express Contract, 1929, 739 (743).
APPLICATIONS. See REORGANIZATION.

ASSETS. See CAPITALIZATION.

ASSUMPTION OF LIABILITY. See SECURITIES (Trust Certificates).
ATOMIC ENERGY COMMISSION. See GOVERNMENT TRAFFIC.
ATTORNEYS. See FEES.

BANKRUPTCY. See REORGANIZATION; TRUSTEES.

BANKRUPTCY ACT. See also REORGANIZATION; SECURITIES (Classification);
STATES. Commission's jurisdiction to conduct abandonment proceedings under
sec. 1 (18)-(20) simultaneously with proceedings under Bankruptcy Act is
implicit in latter act, which specifically provides in sec. 77 (c) (6) for continued
operation of a previously leased line until abandonment is authorized by Com-
mission under sec. 1 of Interstate Commerce Act, and in sec. 77 (0) that an
abandonment may occur only with approval of Commission when required by
Interstate Commerce Act. Boston & P. R. Corp. Reorganization, 320 (330).

Unrestricted use in sec. 77 (c) (1) of Bankruptcy Act, as amended in 1935, of
"ratification," defined in dictionary as meaning "sanction," without any language
limiting or qualifying Commission's powers in that respect, conferred jurisdic-
tion to review the number of trustees appointed by the court in reorganization
proceedings, as well as their qualifications. Long Island R. Co. Reorganization,
625 (626).

When provisions of sec. 77 (c) (6) of Bankruptcy Act have been invoked in
respect of a leased line during a reorganization, operation of the line is to be
governed by those provisions, and sec. 5 (2) of Interstate Commerce Act is inap-
plicable. Boston & P. R. Corp. Reorganization, 320 (326); 617 (618, 619).
BONDHOLDERS. See also INTEREST; RECONSTRUCTION FINANCE CORPORATION;
REORGANIZATION. Proposed modification of rights of applicant's adjustment-
mortgage bondholders by issuance of debentures in amounts of accrued and
unpaid interest was not in their best interest when it would practically preclude
payment in full prior to maturity of the bonds, though under applicant's own
estimates its prospective earnings would cover such payment by a large margin
in next 4 years, and it would result in some bondholders selling and applicant
purchasing their rights to the accumulations at less than the full amount regard-
less of earnings. Missouri-K.-T. R. Co. Securities Modification, 499 (511).

Treatment accorded bondholders under applicant's prior exchange offer had
little if any bearing on determination of just compensation for rights surrendered
under its present modification proposal. Maryland & P. R. Co. Securities Modifi-
cation, 695 (716).

BONDS. See BONDHOLDERS; INTEREST; REORGANIZATION.

BRANCH LINES. See also CONVENIENCE AND NECESSITY (Construction of Tracks
or Other Facilities; Rehabilitation of Lines).

ABANDONMENT: Abandonment of narrow-gage branch line was authorized when
safe operation was impossible in its present condition and even if rehabilitated
it could not be operated profitably. Shippers would not be deprived of trans-
portation service, as the entire branch was paralleled by an improved highway
over which at least three motor carriers, including applicant's parent company,
which already handled all its 1. c. 1. traffic, were authorized to serve all points on
the line. East Tennessee & W. N. C. R. Co. Abandonment, 547 (548).

It is contrary to abandonment provisions of the act to require drains on revenue
of an interstate carrier from operation of an unnecessary and unprofitable branch
merely because system operations as a whole are profitable. Id. (552).

Abandonment of carrier's Scribner-Oakdale, Nebr., branch denied when it had
definite feeder value for the rest of the system and there was no foreseeable
rehabilitation cost that might cause a harmful drain on applicant's resources.
Moreover, abandonment would have a destructive effect on elevators and lumber
yards served by the line, which would redound adversely on communities in
which they were located. Chicago & N. W. Ry. Co. Abandonment, 759 (790).
COST OF SERVICE: To charge roadway depreciation against operation of branch
line which was physically adequate to handle the business moving over it and,
with normal maintenance, would not require extensive rehabilitation for several
years, would be unrealistic and would bias rights of the using public. Chicago &
N. W. Ry. Co. Abandonment, 759 (774).

Out-of-pocket ratios developed by applicant for computing cost of handling
branch-line traffic beyond the branch could be accepted only on approval of
formulas used in their preparation, which were not put in evidence. That a
formula was developed by a bureau of Commission for use in other proceedings
had no weight, since no formula had been adopted for determining out-of-pocket
costs in abandonment proceedings. Cost theories appropriate in a rate proceeding
would not necessarily be applicable to determination of whether cost of handling
such traffic imposed an undue burden on interstate commerce. Id. (769, 774);
-Out-of-pocket basis 50 percent of revenues remaining after assignment of the
line's portion of the revenue, which had been accepted as reasonable in earlier
proceeding involving same branch line, was about 65 percent of operating ratio,

whereas bases computed on the bureau's formula were about 80 percent of current
operating ratios. The 50-percent basis was used for determining results of
operating the branch. Id. (769, 775).
BRIDGES. See also CONVENIENCE AND NECESSITY (Abandonment of Line or
Operation); TERMINAL RAILROADS; TRACKAGE RIGHTS (Acquisition; Compensa-
tion). As bridge Act of 1906 specifically provides that all railroad companies
are entitled to equal rights and privileges for passage of trains and cars over
any railroad bridge built subject thereto, and special act under which bridge
across Rio Grande River at Laredo, Tex., was built authorized its construction
"in accordance with the provisions of" that act, International G. N. R. had a
statutory right to operate over that bridge and properly sought authority under
sec. 5 (2) (a) (ii) to do so over track of Texas Mexican Ry., notwithstanding
latter's opposition. International-G. N. R. Co. Trustee Trackage Rights, 27
(33, 35);

-As the bridge statute gave applicant a right to use the bridge for passage of
its railway "trains" and cars, and as "train" is almost invariably defined as con-
sisting of both motive power and cars, a reasonable construction gave applicant
a right to move its trains or cars with its own motive power. Id. (36).
BRIDGE TRAFFIC. See EARNINGS (Earning Power).

BURDEN OF PROOF. See also EVIDENCE (Weight). When an intervener chal-
lenges applicability of statutes establishing a prima facie right on behalf of an
applicant, burden is on it to show facts making such statutes inapplicable. The
party asserting a negative ordinarily has the burden of proof. International-
G. N. R. Co. Trustee Trackage Rights, 27 (35).

CAPITAL FUNDS. See DEPRECIATION.

CAPITALIZATION. See also PRICES; REORGANIZATION (Securities).

IN GENERAL: Capitalization consisting of only $150,000 of stock and $269,844
equipment obligations was not commensurate with carrier's road and equip-
ment investment of $1,471,899.36 and capitalizable assets totaling $1,455,897.
Recapitalization on basis of $850,000 common stock, leaving uncapitalized bal-
ance equivalent to about 23 percent of its investment, was therefore approved.
Trona Ry. Co. Stock, 610 (614).

It is necessary for proper performance of a carrier's function to serve the
public that its capitalization be such that it will not be in danger of failing
either to meet its approaching debt maturities or, periodically, to earn its inter-
est charges, or of being able to do so only through such economy measures as
will result in detriment to its service. Maryland & P. R. Co. Securities Modi-
fication, 695 (711).

EARNING POWER: While a separate capitalization approved for Texas & N. O. R.
was less than on basis of normal year earnings alone, such capitalization should
have reasonable relation to value of its property, and no carrier would increase
its investment account on basis of a few years' favorable earnings, regardless
of prospects for their continuation in immediate future. Capitalization ap-
proved for Missouri Pacific system and allocation of system securities reflected
any additional earning power of New Orleans for which the system should
compensate New Orleans security holders. Missouri Pac. R. Co. Reorganiza-
tion, 59 (111).

Question of proper total capitalization affects not only interests of stock-
holders but more importantly the public interest, and earning power as a basis
of permissible capitalization was equally appropriate in sec. 20b proceeding
involving recasting of applicant's capital-stock structure as an integral part of
its total capitalization, rather than book value. A capital structure bearing

a reasonable relation to earning power, and which therefore would not set divi-
dend requirements impossible to meet, would best serve the interests of all seg-
ments of the public. Boston & M. R. Securities Modification, 397 (431); 527
(544);

-In determining proper limit of applicant's new capital-stock structure, total
permissible capitalization should be about $180,000,000, based on application of
a rate of 5 percent to estimated future normal income of $9,000,000. Use of
that rate did not produce an unreasonably low capitalization, since applicant's
revenues and income had shown a downward trend since the war years. Boston
& M. R. Securities Modification, 397 (436, 437); 527 (535);

-And average rate of return for class I railroads had little application in a
securities modification proceeding; nor had relation of capitalization to earn-
ings in other sec. 20b proceedings unless there was substantial similarity of
circumstances. Boston & M. R. Securities Modification, 397 (436).

REORGANIZED CARRIERS: In a system reorganization of physical value of the
several debtors as determined by Bureau of Valuation, their assets and liabilities
as reported by their trustee, record of their earnings, and book and estimated
values of their investments in affiliated companies and other investments, were
all important in determining permissible capitalization for the reorganized sys-
tem company. Missouri Pac. R. Co. Reorganization, 59 (106).

Nature of "free assets" of Missouri Pac. R., consisting mostly of investments
in stock, notes, and advances to affiliated companies, did not warrant their
capitalization except in minor degree in other than common stock of the re-
organized system company. Missouri Pac. R. Co. Reorganization, 59 (87, 128);
203 (222).

Because Missouri Pac. R. owned obligations and stock of Texas & N. O. R.
and obligations of International-G. N. R., value thereof must be considered in
fixing its permissible capitalization as a separate company. Though in system
reorganization publicly held or pledged New Orleans stock was assigned value
of $175 a share, in separate capitalization such stock held by Missouri Pacific
should be valued at $150, since reorganization plan fully satisfied claims of all
Missouri Pacific's creditors. That valuation was based on value which in system
reorganization should be used in allocation of new securities. Missouri Pac. R.
Co. Reorganization, 59 (109, 130); 203 (215).

Permissible capitalization for carriers in reorganization, determined: Mis-
souri Pacific system: Considering future normal-year earnings, value of physical
property and investments, extensive improvements which had resulted in more
economical operation, and advantages and economies expected from consolida-
tion or merger of the three principal system companies, reorganization plan
should be modified to provide system capitalization not exceeding approximately
$612,000,000, inclusive of outstanding equipment obligations, but exclusive of
certain noncarrier mortgage bonds and any new securities issuable to general
unsecured creditors: 59 (108); 203 (212, 218); International-G. N. R.: Based
on physical value of the properties and their value to Missouri Pacific system,
and on possibility that past divisions of through rates had been inadequate,
new capitalization as a separate company of not over $57,000,000 including equip-
ment obligations was justified. Should International be reorganized separately,
capitalization should consist of outstanding equipment obligations, about $37,-
000,000 new first-mortgage income bonds, and not over $20,000,000 new common
stock: 59 (109, 119); 203 (223) ; Missouri Pac. R.: New capitalization as a sepa-
rate company should not exceed $509,700,000, inclusive of outstanding equip-
ment obligations but exclusive of noncarrier mortgage bonds and any new se-
curities issuable to general unsecured creditors: 59 (113); Texas & N. O. R.:

Considering all elements of value, including past, present, and prospective earn-
ings, recently developed sources of traffic, development of territory served, value
of the physical property and investments in other companies, and excellent con-
dition of the property, which should result in future operating economies, capi-
talization as a separate company should not exceed $83,700,000, inclusive of
equipment obligations but exclusive of any securities issuable to unsecured
general creditors: 59 (112); 203 (213, 218).

STOCK DIVIDENDS: While issuance of capital stock for distribution to stock-
holders as dividends is proper, if otherwise compatible with public interest,
where a large surplus has been created by diverting funds available for dividends
to development and improvement of the property, issue of preference stock as a
dividend should not be authorized when it would create stock priorities which
would impair applicant's ability to effect future financing through issue of addi-
tional common stock. Trona Ry. Co. Stock, 610 (615).

CERTIFICATES.

See SECURITIES (Equipment-Trust Certificates).
CLAIMS. See EMPLOYEES; INTEREST; REORGANIZATION; SECURITIES (Value).
COMMODITIES CLAUSE. Following decision in 333 U. S. 771, relation of
Bethlehem and its subsidiaries after its acquisition of control of Cambria & I. R.
would not violate commodities clause under sec. 1 (8) so long as neither Bethle-
hem nor any of its noncarrier subsidiaries had any directors in common with
acquired carrier. Cambria & I. R. Co. Control, 360 (366).

COMPENSATION. See BONDHOLDERS; COST OF SERVICE; REORGANIZATION (Ap-
plications and Petitions); SWITCHING; TRACKAGE RIGHTS.

COMPETITION. See also CONTROL; POOLING; TRACKAGE RIGHTS (Acquisition).
DESTRUCTIVE OR UNFAIR: Transactions under sec. 5 have been approved,
notwithstanding, prospective loss of some revenue by competing carriers, where
latter's operations would not be endangered or impaired, contrary to public
interest. It could not be found that control of Detroit, T. & I. R. by Pennsyl-
vania R. and Wabash R. would seriously affect ability of New York Central R.
and New York, C. & St. L. R. to provide adequate service when the only probable
traffic diversion would result from reestablishment by Ironton and Pennsylvania
of through train service between Cincinnati and Detroit via Springfield, Ohio,
over a route already in existence. It was significant that Pennsylvania's con-
trol of Wabash had not been seriously detrimental to protestants. Detroit,
T. & I. R. Co. Control, 455 (473, 489, 490).

ELIMINATION: Control of Detroit, T. & I. R. by Pennsylvania R. and Wabash
R. would not eliminate competition inimically to public interest when Wabash's
line was east-west, while Ironton operated due north and south, and there was
no real competition between Ironton and Pennsylvania for Detroit traffic,
especially that of Ford Motor Co., which constituted over half of Ironton's
traffic. Detroit, T. & I. R. Co. Control, 455 (491).

TERRITORIAL RIGHTS: A carrier has no legal right to exclusive occupancy of
a territory, and additional service should be permitted wherever it appears that
interests of shippers require it. Erie R. Co. Acquisition, 679 (687). '.

When territory in which Government plant was to be located was already
served by two railroads, it should not be invaded by a competing railroad with-
out a showing of present and future public need for additional rail service which
could not be rendered by those carriers. Southern Ry. Co. Construction, 792
(796).

UNDUE RESTRAINT: Exclusive-agency provisions of railroads' uniform con-
tract with Railway Exp. Agency were an essential ingredient of pooling arrange-
ment under sec. 5 (1) and did not unduly restrain competition. Express Con-
tract, 1929, 739 (744, 745);