willing to consummate the transaction if we find otherwise. The rights to be leased are over routes traversing the territory within which the heavy machinery may be moved, and numerous off-route points may be served in connection with the regular routes. Union's authority covering the transportation of general commodities over those regular routes excepts, among others, "commodities requiring special equipment, other than equipment used for transporting heavy machinery." It would lease to Hayes its right to transport general commodities, with certain exceptions, over irregular routes in the same territory within which the heavy machinery may be transported. Further consideration of this question is unnecessary in view of our denial of the application.

The evidence in general shows that a unification of the operations of the lessors with those of Hayes on a permanent basis might be desirable. However, we are not persuaded that Hayes should be permitted to lease these properties as proposed. For all practical purposes, the three lessors have been operated as a single unit since prior to the passage of the Motor Carrier Act, 1935. There are substantial duplications in operating authority of the three lessors, and there are also duplications between the operating rights of Hayes and Union (and also CL & L, except between Versailles and Lawrenceburg), between Cincinnati and Louisville via Lexington, about 172 miles, and between Versailles and Lawrenceburg, 10 miles, although Hayes may serve only the termini, Lexington, and points in the Cincinnati commercial zone, while Union serves all intermediate points and numerous off-route points. Union also has intrastate rights in Kentucky, which Hayes does not have, and approximately 50 percent of the traffic of the three lessors moves in intrastate commerce. Except under special circumstances, and during and immediately after the war for the economic reasons generally stated in Southeast Ark. Frt. Lines, Inc.-Lease-Herrin M. Lines, Inc., 38 M. C. C. 334, it has been our policy not to sanction the lease of substantially duplicating operating rights. See Patz-Lease-Huckabee, 35 M. C. C. 113, herein called the Patz case. We have recently reaffirmed this policy in our report on reconsideration in Fleet Carrier Corp.-Lease— George F. Burnett Co., Inc., 50 M. C. C. 489, which involved a 5-year lease of substantially duplicating rights. We discussed the question of the lease of duplicate rights in the Patz case, supra, as follows:

Applicant's confirmed rights are entirely duplicated by those claimed by lessor, although the latter's are considerably more extensive, both as to territory and

The routes of C L & L are almost entirely duplicated by the routes of Union, although the latter serves more intermediate and off-route points. The routes of Bell and C L & L coincide between Lexington and Stamford, over U. S. Highway 27, 44 miles.

commodities. While the record indicates the desirability of unifying certain of the considered operating rights, the evidence is not convincing, notwithstanding the irregular-route nature of these operations, that applicant should be permitted to preserve lessor's claimed rights and his own duplicated confirmed rights by one operation through the medium of a lease. Temporary unification and preservation in existence of two operating rights, duplicating each other to a substantial degree, with resumption of separate competitive operations upon termination of the lease, when conditions may have materially changed, would tend to create an unstable situation and would not foster sound economic conditions in the motor-carrier industry. The proposed lease of duplicate operating rights, whether such rights have been confirmed or are claimed under the "grandfather" clause, has been disapproved in a number of section 213 cases as inconsistent with the public interest. Consolidated Freightways, Inc.-Lease-Mont. Transport, 25 M. C. C. 428, and cases therein cited. As illustrative of the principle involved, we quote from the case cited: "In our opinion, what would be in effect the removal of operating authority from active use for long periods by means of lease, with the accompanying increase in lessee's fixed expenses in the form of rental, is, generally, an undesirable device. That is to say, such preservation in existence of rights which might otherwise be unified with rights of such lessee by means of a purchase, or disposed of to an operator without duplicating routes, in which latter event the existing competitive situation in a given territory would be preserved, is an objectionable result which should not be countenanced."

See also M&R Transp. Co., Inc.-Lease-Malkin Motor Freight Co., 25 M. C. C. 798. The instant transaction would create an even less desirable result, in that, not only would Hayes operate over leased routes which duplicate its own for about 182 miles, but there are substantial duplications in the operating authority of the three lessors herein. Hence, one of the principal objections mentioned in the cases cited, i. e., the removal of operating authority from active use and the subsequent possible resumption of separate operations under changed competitive conditions, is here more apparent.

As previously indicated, Hayes would have considered purchasing, rather than leasing these properties, except for the immediate added obligations a purchase might entail. However, the parties agreed on a value for the operating rights and personal property to be leased, and then provided in their agreement that the rental should be paid monthly for 50 months, in total amount which equals the agreed value of the rights and personal property. To that amount ($175,000), would be added $30,000, for which Hayes could effect purchase of the personal property and operating rights upon expiration of the lease. The parties do not represent that any part of the $30,000 would represent payment for the vehicles. It is inconceivable that Hayes would not exercise the option to purchase, after having paid an amount equal to the value of the property in rental over a period of more than 4 years, and our approval of the attendant fixed charges

in the form of rental, clearly would not be warranted. However, what is really involved here is purchase, rather than lease, of the personal property and operating rights of lessors, with the payments spread over the lease period, plus $30,000 at the end of the period, or a total consideration of $205,000. There appears to be no compelling reason why the proposed unification may not be presented for our consideration in the form of a purchase. Such a purchase would result in unifying permanently the operating authority involved, would remove the objectionable lease of duplicating authority by eliminating all duplications, and would permit Hayes to place into effect, on a permanent basis, the operating economies and other benefits which are anticipated under the temporary lease proposal. It is also apparent that the lessors and their owners are not now, and will probably not be, in position to resume the extensive operations covered by these rights. We are not convinced that we should sanction the preservation of ownership, and realization of revenue from that ownership, by means of a lease transaction such as here proposed, which has the elements of purchase described.

The properties of which Hayes would acquire control are substantial. They represent an important motor operation radiating from Lexington. The agreements covering the instant transaction are complicated and resulted from negotiations conducted over a long period. They cover the leasing of strategically situated real property in addition to the operating rights and personal property of lessors, and the basic lease has numerous provisions, hereinbefore described, which contemplate adjustment of the rental in the event of disposal or destruction of any of the leased properties or operating rights during the lease term. While we may not properly approve the proposed transaction on the basis of the terms presented, the parties may revise the transaction upon terms mutually agreeable to them, which will cover a purchase, or other form of permanent unification of these operations, and resubmit the proposal. Our action in withholding authority for the lease is without prejudice to the filing of such a revised unification proposal as the parties may see fit to arrange, upon terms and conditions conforming to the views expressed herein.

We find that the proposed transaction has not been shown to be consistent with the public interest, and that the application accordingly should be denied.

An appropriate order will be entered.

COMMISSIONER BARNARD did not participate in the disposition of this proceeding.

776209-49-vol. 50- 52

No. MC-F-3696

ANTON P. NELSON, ET AL.-CONTROL; PRINCE WAREHOUSE CO., INC.-PURCHASE-LARSON SEED HOUSE

Submitted March 10, 1948. Decided July 6, 1948

Application of Prince Warehouse Co. Inc., for authority to purchase the operating rights and certain property of Axel M. Larson, Martin A. Larson and Harry G. Johnson, partners, doing business as Larson Seed House, and of Anton P. Nelson, Robert Nelson, and Gary Warehouse Company, Inc., to acquire control of the operating rights and property through the purchase, denied.

Dale C. Dillon for applicants.

REPORT OF THE COMMISSION

DIVISION 4, COMMISSIONERS MAHAFFIE, MILLER, AND ROGERS BY DIVISION 4:

Prince Warehouse Co., Inc., and Axel M. Larson, Martin A. Larson, and Harry G. Johnson, partners, doing business as Larson Seed House, all of Princeton, Ill.,1 herein called Prince Warehouse and the partnership, respectively, by a joint application filed December 11, 1947, seek authority under section 5 of the Interstate Commerce Act for the purchase by the former of the operating rights and certain property of the latter for $47,500. By a supplemental application filed concurrently therewith, Anton P. Nelson, of Chicago, Robert Nelson, of Gary, Ind., and Gary Warehouse Company, Inc., herein called Gary Warehouse, also of Gary, seek authority under the same section for Gary Warehouse and, in turn, for Anton and Robert Nelson to acquire control of the operating rights and property through the proposed purchase. A hearing has been held at which no one opposed the application. The parties agreed to the omission of an examiner's proposed report. The motor carriers controlled by applicants operate more than 20 motor vehicles.

Prince Warehouse, an Illinois corporation, was organized October 20, 1947, for the purpose of effectuating the proposed purchase. It is not a motor carrier. It has an authorized capital stock of 5,000 shares, par value $10 each, of which 150 shares are at present outstand

1 Unless otherwise indicated, all points mentioned are in Illinois.

ing and owned by Gary Warehouse. In the event the transaction is approved and consummated, Gary Warehouse would acquire an additional 1,500 shares and Arthur Nelson would acquire 1,000 shares of the capital stock of Prince Warehouse. Its officers are Anton Nelson, president and treasurer, Robert Nelson, vice president, and Arthur Nelson, secretary. They and George Nelson constitute its board of directors.

Anton, Robert, Arthur, and George Nelson are brothers. They are affiliated with three motor carriers, namely, Gary Warehouse, and Star West Cartage Company, Inc., and Jefferson Park Warehouse Company, Inc., both of Chicago, herein called Star West and Jefferson Park Warehouse, respectively. As hereafter indicated, these companies, with minor variations, have common officers, directors, and stockholders. Robert, Arthur, and George each manages one of the companies under the general supervision of Anton. The three carriers and the partnership are authorized, under special and individual contracts or agreements with persons who operate retail stores, the business of which is the sale of food, or who are also engaged in the processing, manufacture, sale or distribution of food products, to operate over irregular routes, in interstate or foreign commerce, as contract carriers of such merchandise as is dealt in by wholesale, retail, and chain grocery and food business houses, and, in connection therewith, equipment, materials, and supplies used in the conduct of such business. Each carrier operates exclusively for The Great Atlantic & Pacific Tea Company, herein called the A & P.

Gary Warehouse, an Indiana corporation, formed November 6, 1931, has outstanding 1,971 shares of common capital stock, par value $10 each, owned 329 shares (16.70 percent) by Anton, 328 shares (16.64 percent) by George, and 657 shares (33.33 percent) each by Robert and the Edgewood Trust Company, herein called Edgewood Trust. The shares owned by Edgewood Trust are held in trust for the employees of the Gary Warehouse, pursuant to a profit-sharing agreement. Anton is president and treasurer, Robert is vice president, and Edward J. Jahns is secretary. Its board of directors is composed of Anton, Robert, George, and Jahns. Pursuant to a permit issued Nóvember 25, 1946, in No. MC-2310, Gary Warehouse operates between points in a territory bounded by a line beginning at Winthrop Harbor and extending west to South Beloit, thence southwesterly to Freeport, thence south to Galesburg, thence southeasterly to Decatur, thence east through Indianapolis, Ind., to Richmond, Ind., thence northerly through Angola, Ind., to Jackson, Mich., thence north to Lansing, Mich., thence northwesterly to Muskegon, Mich., thence