ing fund for the payment of debts, and pay a fair profit to the owners of the property, cannot be said to be unreasonable." 1

§ 1063. Reduction of particular rates leaving sufficient total earnings.

It should be admitted at the outset that there are several decisions which rely too much upon this conception,-holding that the legislature may reduce the rates for a particular service below its cost provided that the total earnings from all business will still constitute a fair return upon the capital invested. The leading case to this effect is Minneapolis & St. Louis Railroad v. Minnesota 2 in which the plaintiff railroad attacked as unconstitutional a rate fixed by the railroad commission for the carriage of coal. The railroad did not claim that the reduction of this rate alone would deprive it of a fair return, but only that if the reduced rate were applied to all freights the income of the road would be insufficient. The United States Supreme Court held the rate legal, notwithstanding this fact, Mr. Justice Brown saying: "Notwithstanding the evidence of the defendant that if the rates upon all merchandise were fixed at the amount imposed by the commission upon coal in carload lots, the road would not pay its operating expenses, it may well be that the existing rates upon other merchandise, which are not disturbed by the commission, may be sufficient to earn a large profit to the company, though it may earn little or nothing upon coal in carload lots." 3

1 See particularly Smyth v. Ames 169, U. S. 466, 42 L. ed. 819, 18 Sup. Ct. 418 (1898), among the many cases containing similar generalizations.

2186 U. S. 257, 46 L. ed. 1151, 22 Sup. Ct. 901 (1902). The court had already committed itself to

this doctrine in St. Louis & S. F. R. R. Co. v. Gill, 156 U. S. 649, 39 L. ed. 567, 15 Sup. Ct. 484 (1895).

3 See further, much to the same effect:

United States.-Interstate Consolidated St. Ry. Co. v. Massachusetts, 207 U. S. 79, 28 Sup. Ct. 26

§ 1064. Rule of proportionality in sharing costs.

There is however dissent from this doctrine, as may be seen in those cases which go so far as to hold the imposition of disproportionate rates improper. As an abstract matter the fairest way to determine the cost of any particular service would be to apportion ratably the total disbursements of every sort to the various items of traffic and so to arrive at proportionate rates. Theoretically, perhaps, any other method is less just to all concerned. In determining what is a reasonable rate for services rendered, it is hardly proper to take the road as existing and as maintained, with its track and terminal equipments, salaries and all other expenses, and to regard as the total cost of any particular service merely the increased expense necessary to add to its business the service in question; truly the cost of that service ought to include its fair share of the interest on investments and of the general expenses.1 Theoretically therefore a proportionate rate should be established for each article of traffic. This rate will be fixed according to the share of the entire burden of charge which ought reasonably to be borne by that particular article. In determining the reasonable share of the burden to be borne by an article, various considerations

(1908); Willcox v. Consolidated Gas Co., 212 U. S. 19, 53 L. ed. 382, 29 Sup. Ct. 192 (1909); Southern R. R. Co. v. McNeill, 155 Fed. 756 (1907); Central of Ga. Ry. Co. v. McLendon, 157 Fed. 961 (1907).

Arkansas.-Missouri Pacific R. R. Co. v. Smith, 60 Ark. 221, 29 S. W. 752 (1895).

Florida.-Pensacola & A. R. R. Co. v. Florida, 25 Fla. 310, 5 So. 833 (1889).

Georgia.-Southern Ry. Co. v. Atlanta Stove Wks., 128 Ga. 207, 57 S. E. 429 (1907).

Minnesota.-State v. Minneapolis & St. L. Ry. Co., 80 Minn. 191, 83 N. W. 60 (1900).

North Dakota.-State ex. rel. v. Northern Pacific Ry. Co., N. D. 120 N. W. 869, 25 L. R. A. (N. S.) 1001 (1909).

1 See particularly Pennsylvania Ry. Co. v. Philadelphia County, 220 Pa. St. 100, 68 Atl. 676, 15 L. R. A. (N. S.) 108 (1908).

2 See particularly Gulf C. & S. F. R. R. Co. v. Railroad Commission (Tex.), 116 S. W. 795 (1909).

must be weighed, and the rate when finally established will be determined as a result of all such considerations. $1065. Rates must be fair to all concerned.

The fundamental principle as to the reasonableness of a particular rate is that it should be fair compensation for the service rendered. There are, therefore, limits within which the railroad company must act in fixing its rates. The company must have reasonable compensation; but the customer must not be charged more than a reasonable price. The compensation, in order to be reasonable, must be fair to both parties. It is not enough that the whole schedule shall bring in a fair return to the company; the particular rate fixed for carriage must be in itself no more than a reasonable amount for the customer to pay under the circumstances for the service rendered him. The question of reasonableness involves the element of reasonableness both as regards the company and as regards the public.2 Stated in more accurate terms, the law requiring fair compensation has two distinct sides. It is desirable that the carrier should receive the full cost to it of performing the service. It is desirable, also, that the shipper should not pay more than the value of the service to him. These two limitations are diverse, but their reconciliation upon the basis of compromise is not altogether impossible.

§ 1066. Interests of the companies to be considered. As a general rule therefore it will be unjustifiable for the government to reduce the total net returns from the

1 See the language of Harlan, J., in San Diego L. & T. Co. v. National City, 174 U. S. 739, 43 L. ed. 1154, 19 Sup. Ct. 804 (1899); and of Brewer, J., in Cotting v. Kansas City S. Y. Co., 183 U. S. 79, 46 L. ed. 92, 22 Sup. Ct. 30 (1901).

2 See the language of Savage, J., in Kennebec Water Dist. v. Waterville, 97 Me. 185, 54 Atl. 6, 60 L. R. A. 856 (1902); and Canty, J., in Steenerson v. Gt. Northern Ry. Co., 69 Minn. 353, 72 N. W. 713 (1897).

schedule as a whole below what will produce a fair return. upon a proper capitalization. However desirable it may be to provide lower rates for the public which is receiving the service, it is equally necessary to leave a reasonable return to the company that is performing the service. According to modern views upon the constitutional guaranties an adequate return upon the true value of the property devoted to the public use by those who conduct a public service ought in all normal cases to be left; otherwise it is said that they are in effect deprived of their property without due process of law, if their rates are so reduced by public authority as to leave no such adequate return. And this is based upon sound public policy. It ought always to be plain that those who invest their funds in some public employment are going to get a fair per cent upon their investment. For unless they are well assured of this they will employ their money elsewhere, and many enterprises necessary for the public convenience will not be undertaken, nor will existing plants be extended. "As popularly expressed, the rights of the people -the rights of shippers who use it as a carrier-have to be regarded; but, as judicially expressed, these last have to be so regarded as not to disregard the inherent and reasonable rights of the projectors, proprietors, and operators of these carriers."

1

§ 1067. Interests of the public to be considered.

But that there are in reality two tests, not one, is pointed out by the most discriminating judges in the more recent cases, and it is the avowed policy of the United States Supreme Court that both parties to the service,

1 Paraphrased from the language of Mitchell, C. J., in Pennsylvania R. R. Co. v. Philadelphia County, 220 Pa. St. 100, 68 Atl. 676, 15 L. R. A. (N. S.) 108 (1908).

2 Quoted from McCormick, J., in Metropolitan T. Co. v. Houston & T. C. R. R. Co., 90 Fed. 683 (1898).

the carrier and the shipper, should be considered in deciding all cases. Thus, in the leading case of Smyth v. Ames,1 the court, in declaring the Nebraska maximum freight law unconstitutional, guarded itself against being understood as taking an extreme position in favor of the carrier by saying: "It cannot therefore be admitted that a railroad corporation maintaining a highway under authority of the state may fix its rates with a view solely to its own interests and ignore the rights of the public. But the rights of the public would be ignored if rates for transportation of persons or property on a railroad are exacted without reference to the fair value of the property used for the public and the fair value of the services rendered, but in order simply that the corporation may meet operating expenses, pay the interest on its obligations, and declare a dividend to its stockholders." And in Covington & Lexington Turnpike Road Company v. Sandford, that court, in considering legislation, reducing rates said: "A corporation is not entitled as of right and without reference to the interests of the public, to realize a given per cent upon its capital stock. Stockholders are not the only persons whose rights or interests are to be considered. The rights of the public are not to be ignored. The public cannot properly be subjected to unreasonable rates in order simply that stockholders may earn dividends.

§ 1068. Accommodation of both sought.

So many considerations must be taken into account in passing upon rates that the problem is always a complex one. The difficulties, many of them, arise from the desire to give scope to a variety of principles which must inevitably come into a more or less irreconcilable conflict.

1 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. 418 (1898).

2164 U. S. 596, 41 L. ed. 566, 17 Sup. Ct. 198 (1896).