the southern district of Texas, it was held that the provision of section 16 of the act to regulate commerce, making the expediting act of February 11, 1903, applicable to suits brought to enjoin, set aside, amend, or suspend orders of the Commission including the hearing on an application for a preliminary injunction, requires both the final hearing and a hearing on such an application to be held before three circuit judges; but in case of a division of opinion on an application for a preliminary injunction, where two judges concur in an order denying such injunction, the court is not required to certify the case to the Supreme Court. The court declared that to decide otherwise would "defeat the very object of the act, and change it from an expediting act into a hindering and delaying act." REASONABLENESS OF INTRASTATE RATES. The circuit court for the western district of Missouri on March 8 last, in St. Louis & San Francisco Railroad Company v. Hadley, 168 Fed. Rep., 317, decided the celebrated Missouri freight-rate cases, and entered decrees for the complainant railroad companies. The court held that in determining the reasonablness of freight and passenger rates established by a state on intrastate railroad traffic, as applied to a railroad during both interstate and intrastate business, a difference in the cost of handling each kind of business as related to the earnings from each should be taken into account, and in apportioning the total expenses between the two kinds of business the most logical and satisfactory method is to make the division on the basis of the relative earnings from each kind and class of business. Railroad property, declared the court, properly built and properly managed, is entitled to earn an annual income of 6 per cent on its fair valuation, and a statute fixing rates under which it can not make such income is confiscatory and unconstitutional. The court decided that the Missouri statutes establishing the 2-cent passenger fares on railroads within the state and establishing maximum freight rates were confiscatory on evidence showing that none of the railroads doing business thereunder can earn to exceed 3 per cent net income on its state business under such rates, while as to some the business must be done at a loss. In In re Arkanas Railroad Rates, referred to in another part hereof, the circuit court for the eastern district of Arkansas held that where large railroad corporations construct extensive branch lines within a state through new and unsettled sections at great expense, principally to serve as feeders for the main line, and also to enable the roads to obtain shorter lines for interstate traffic, such railroads are not entitled to charge rates on interstate traffic sufficiently high to earn a specified percentage on their investment in such lines. On April 6, 1909, the circuit court of appeals for the fifth circuit reversed the decrees of the court below and dissolved the injunctions issued against the interstate rates fixed by the railroad commission of Alabama. Railroad Commission of Alabama v. Central of Georgia Railway Company, 170 Fed. Rep., 225. It was there said that it is the duty of a court to refuse an injunction where it is sought to enjoin the operation of a state law fixing railroad rates alleged to be confiscatory but which has not yet gone into effect, when it is probable that a practical test of the law will be required to ascertain the truth. In such case an injunction should not be granted on ex parte affidavits alone merely stating opinions. In Southern Pacific Company v. Bartine, 170 Fed. Rep., 725, the circuit court for the district of Nevada, on March 3 last, declined to prevent the enforcement of the Nevada railroad commission law, and held that in determining the reasonableness of freight rates by a state on interstate business, as applied to a railroad doing both intrastate and interstate business, it must be recognized that the cost of handling local shipments is relatively greater than through shipments, and, it being impossible to determine the exact ratio of difference, the opinions of experts based upon the facts of each particular case are admissible on the question. The court further declared that it does not necessarily follow that a schedule of rates is confiscatory because it fails to yield to the carrier a reasonable return on the investment. Such rates must be reasonable not only to the company but also to the public, and the fact that they do not prove remunerative to a new road built through a sparsely settled country where there is at present little local business does not require the few people and the small business to pay such rates as will make the road immediately profitable to its stockholders. DIFFERENCE BETWEEN MAKING RATE ON SPECIFIC COMPLAINT AND MAKING A GENERAL TARIFF OF RATES. The Supreme Court of the United States on April 5, 1909, decided the case of the Railroad Commission of Kentucky v. Louisville & Nashville Railroad Company, 213 U. S., 175. It seemed that the Kentucky railroad commission assumed the power under a statute of that state of making what are termed "general maximum rates" for the transportation of all commodities, upon all railroads, to and from all points within the state. The Louisville & Nashville Railroad Company obtained a decree of the circuit court for the eastern district of Kentucky enjoining the enforcement of the order of the Kentucky commission. The Supreme Court affirmed the decision of the lower court and decided that the terms of the Kentucky statute did not include the power to make a general tariff. The Supreme Court then went on to say that the difference between the fixing of one rate or a few, upon specific complaint or information, and the adoption of a general scheme of rates applicable in all cases to all the roads is vast and important. The power is not to be taken by implication; it must be given by language which admits of no other reasonable construction. The Supreme Court held that while the Kentucky statute gave the commission of that state power to make a maximum rate upon a commodity on specific complaint or information in regard to each rate to be investigated, the statute does not grant to the commission any such great and extensive power as it had assumed to exercise in making the order in question. PORTLAND GATEWAY CASE. Northern Pacific Railway Company v. Interstate Commerce Commission, not yet reported. See page 36 of text of this annual report. VALUATION OF PROPERTY AS A FACTOR IN RATE MAKING. The Supreme Court of the United States on January 4, 1909, in Knoxville v. Knoxville Water Company, 212 U. S., 1, involving the constitutional validity of a city ordinance fixing maximum rates for water, considered the valuation of the property devoted to the public uses upon which the water company is entitled to earn a return. The court held that in estimating for rate-fixing purposes the value of a plant of this character the cost of reproduction is not a fair measure of value unless a substantial allowance is made for depreciation, but questioned whether anything can be allowed in the case of the plant of a public-service corporation for going concern above the value of the separate tangible elements. It also declared that in valuing for rate fixing the plant of a public-service corporation, bonds and stocks issued for its purchase and construction in excess of its cost and by and to parties interested in and controlling the company, afford neither measure nor guide. A sufficient amount should be allowed from the earnings of a public-service corporation for making good the depreciation of the plant and replacing deteriorated portions thereof; but amounts so expended can not be considered as additional to the original cost in valuing the plant for purposes of ascertaining whether a rate is confiscatory. Upon the question of confiscation the Supreme Court is of the opinion that courts, in clear cases, ought not to hesitate to arrest the operation of a confiscatory law, but they ought to refrain from interfering in cases of any other kind. Regulation of public-service corporations which perform their duties under conditions of necessary monopoly will occur with greater and greater frequency as time goes on. It is a delicate and dangerous function, and ought to be exercised with a keen sense of justice on the part of the regulating body, met by a frank disclosure on the part of the company to be regulated. In Willcox v. Consolidated Gas Company, 212 U. S., 19, decided January 12, 1909, involving the reasonableness of gas rates fixed by the state, the Supreme Court again discussed the value of the property employed as an essential element in determining whether the rates are or are not confiscatory. It was declared that where a state has by legislative enactment permitted publicservice corporations to capitalize franchises, their value at the time of such capitalization should be included in the value of the property as an element of fixing rates; but no increased value of such franchises should be allowed. Other important conclusions on this question in the decision are: In estimating the value of franchises for the purpose of fixing rates, it is immaterial that the corporation is taxed on a greater value than that allowed, if it charges its taxes as operating expenses in determining net income. Where a public-service corporation is a monopoly, good will can not be considered as an element of value of the property employed. For the purpose of fixing rates the value of the property employed should be determined as of the time when the inquiry is made, and, as a general rule, the corporation is entitled to the benefit of increased value since acquisition. A provision in a state statute, requiring a public-service corporation to perform its service in such a manner that its entire plant would have to be rebuilt at a cost on which no return could be obtained at the rate fixed, deprives the company of its ability to secure such return, and is unconstitutional and void. The circuit court for the district of Nevada, in Southern Pacific Company v. Bartine, above cited, said that in estimating the value of the property of a railroad company for the purpose of determining the reasonableness of rates fixed by a state, neither the market value of its stocks and bonds, the cost of construction, nor the cost of reproduction of the property is absolutely controlling. Each should be regarded as a fact tending to show fair value, but if one only of such facts is shown, it may be assumed that it represents such value. MANDAMUS TO COMPEL TRANSFER OF CARS. In Missouri Pacific Railway Company v. Larabee Flour Mills Company, 211 U. S., 612, decided January 11, 1909, the Supreme Court of the United States held that a common carrier can be compelled by mandamus to treat all shippers alike in regard to transfer and return of cars, irrespective of legislative action or specific mandate from any commission or other administrative board. The case involved transfer of cars between lines and the mill of a shipper at Stafford, Kans. The supreme court of Kansas allowed the mandamus, and was affirmed by the Supreme Court of the United States. The contention of the carrier was that as Congress had delegated control over interstate commerce to this Commission, all power in respect to regulations of a local character were necessarily withdrawn; but the Supreme Court of the United States refused to sustain this proposition. It held that the mere delegation by Congress to this Commission of certain national powers over interstate commerce is not the equivalent of the specific action by Congress in respect to the particular matters involved. The compelling of a carrier to discharge its common-law duty in regard to transfer of cars was declared not beyond the power of a state court, at least until Congress or this Commission takes specific action. It appeared in this case that both defendant carriers are engaged in interstate commerce, and that three-fifths of the output of the mill are shipped out of the state. DUTY OF CARRIERS TO FURNISH REFRIGERATOR CARS. The circuit court of appeals for the fourth circuit, in Atlantic Coast Line Railroad Company v. Geraty, 166 Fed. Rep., 10, on November 5, 1908, held that where a carrier, having facilities for furnishing shippers of vegetables with refrigerator cars in which to transport the same, which cars the carrier did not own as a part of its equipment, had led vegetable growers in the region to expect that, if they raised vegetables, refrigerator cars necessary for their proper transportation would be obtainable, such vegetable growers were entitled to recover damages sustained by the carrier's refusal to furnish refrigerator cars for the transportation of the grower's cabbages on reasonable demand. The court further declared that where a shipper, owning a farm in a truck region, was induced to plant a large quantity of cabbages by assurance of the carrier that refrigerator cars would be furnished to transport the cabbages to market, which the carrier refused to do on reasonable demand, the shipper was entitled to recover for the unharvested cabbages which spoiled because of the carrier's refusal to furnish refrigerator cars, and that the shipper after such refusal was not bound thereafter to tender the cabbages for shipment. INTERCHANGE OF CARS FOR THROUGH TRAFFIC. On January 25, 1909, the Supreme Court of the United States rendered decision in Louisville & Nashville Railroad Company v. Central Stock Yards, 212 U. S., 132. This was a proceeding in equity prosecuted in the courts of Kentucky, similar in the main to cases of the same title formerly decided by the Supreme Court of the United States and by this Commission. The Kentucky courts ordered the Louisville & Nashville Railroad Company to interchange cars and share its terminal facilities with a rival carrier. The Supreme Court of the United States reversed the state courts because the state statute under which the proceeding was instituted contains no adequate protection for the carrier from loss or undue detention of its cars, and for securing due compensation for their use. The court declared that the property of a railway company is taken without due process of law where such company may be compelled, upon payment simply for the service of carriage, to accept cars offered to it at an arbitrary connecting point near its terminus, by a competing road, for the purpose of reaching and using the former's terminal facilities. The duty of a carrier to accept goods tendered at its station does not extend to such cases. PREPAYMENT OF FREIGHT CHARGES. In Gamble-Robinson Commission Company v. Chicago & North Western Railway Company, 168 Fed. Rep., 161, decided March 22, 1909, the circuit court of appeals for the eighth circuit held that an interstate carrier does not subject a consignee to an undue or unreasonable prejudice or disadvantage under section 3 of the act to regulate commerce by exacting, after due notice to it, the prepayment of charges for transportation of all property consigned to it, even though at the same time the carrier does not require such charges to be paid in advance upon freight consigned to others similarly situated. The court was of the opinion that the common-law right of a carrier to demand the prepayment of charges for freight of one and to give credit for them to another similarly situated has not been made unlawful by the act to regulate commerce. The court further declared that the fact that a custom and usage exists not to require prepayment does not make the requirement of prepayment by the carrier in a particular case undue prejudice. The existence of the custom or usage can not make that prejudice or disadvantage undue or unreasonable if it would not be so if the custom or usage did not exist. The court further held that if a carrier requires prepayment of a particular shipper, in order to harass and annoy him, that does not constitute undue prejudice. If undue prejudice as a matter of fact exists, a noble purpose or a good motive constitutes no defense to the cause of action founded upon it. If it does not exist, a bad motive or an evil purpose creates no cause of action founded upon the exercise of a legal right. |