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Seeking to conform to the rule stated above in the quotation from the opinion in the Minnesota Rate cases, carriers serving the state of Arkansas have, from data carefully obtained, formulated rules which appear to be more nearly accurate than any previously published, and which rules were adopted by the trial court in an opinion holding that the Arkansas intrastate rates were confiscatory.287

The Interstate Commerce Commission requires carriers to make a separation of operating expense between freight and passenger service.288

§ 50. Testing a Rate by Use to Determine Whether or Not It Is Confiscatory.-Circuit Judge Woods, in 1881, first applied the test to a rate. What he there said applies with great force to a rate fixed by an administrative commission. He said:289

E. 292; Chicago Union Traction Co. v. Chicago, 199 Ill. 579, 65 N. E. 470; Reagan v. Farmer's L. & T. Co., 154 U. S. 362, 38 L. Ed. 1014, 14 Sup. Ct. 1047; San Diego Land Co. v. National City, 174 U. S. 739, 43 L. Ed. 1154, 19 Sup. Ct. 804; Covington & L. Turnpike Road Co. v. Sandford, 164 U. S. 578, 596, 597, 41 L. Ed. 560, 17 Sup. Ct. 198; Jerome Hill Cotton Co. v. Missouri, K. & T. Ry. Co., 6 I. C. C. 601; Southern Pac. Ry. Co., v. Bartine, 170 Fed. 725. Following the suggestion of the Supreme Court quoted in the text, the Commission has prescribed rules relating to the separation of expenses, Separation of Operating Expenses, 30 I. C. C. 676. For cases construing the powers of State Commissions generally, see, Steenerson v. Great N. Ry. Co., 69 Minn. 353, 375, 376, 67 N. W. 207; State v. Chicago, M. & St. P. Ry. Co., 38 Minn. 281, 298, 37 N. W. 782; Foreman v. Board, 64 Minn. 371, 67 N. W. 207; State v. Young, 29 Minn. 474, 9 N. W. 737; Southern Pac. Co. v. R. R. Com. of Oregon, 119 Pac. 727; Minneapolis, St. P. & S. Ste. M. R. Co. v. R. R.

Com. of Wisconsin, 136 Wis. 146, 116 N. W. 905; Chicago, R. I. & P. Ry. Co. v. Railway Com., 85 Neb. 818, 824-5, 124 N. W. 477; Spring Valley Water Works v. San Francisco, 82 Cal. 286, 306, 22 Pac. 910, 1046; Jacobson v. Wisconsin Ry. Co., 71 Minn. 519, 529, 74 N. W. 893; 40 L. R. A. 389, 70 Am. St. 358; Morgan's L. & T. R. & S. S. Co. v. R. R. Com. of Louisiana, 109 Ga. 247, 265, 33 So. 214; In Re Amsterdam, 33 N. Y. Supp. 1009; People v. Board of R. R. Com'rs, 53 App. Div. 61; Pensacola & A. R. Co. v. State, 25 Fla. 310, 5 So. 833; Storrs v. Pensacola Ry. Co., 29 Fla. 617, 11 So. 226; State v. Seaboard A. L. Ry. Co., 48 Fla. 114, 150, 152, 37 So. 652, 658.

287 Boyle v. St. Louis & S. F. R. Co., 222 Fed. 539; see also Sec. 47, ante, and Note 281, ante.

288 Separation of Operating Expenses, 30 I. C. C. 676 and rules adopted by the Commission June 15,

1915.

289 Tilley v. Railroad Co., 5 Fed. 641, 662, 4 Woods 427.

"The officers of the railroad company declare that the rates fixed by the commission will so reduce its income that it will not suffice to pay the running expenses of the road and the interest on its bonded debt, leaving nothing for dividends to its stockholders. The railroad commissioners assert that their schedule was framed to produce 8 per cent. income on the value of the road after paying cost of maintenance and running expenses. Which view is the correct one, it is impossible to decide from the evidence submitted. There is, however, a conclusive way, and it seems to me it is the only one, by which this controversy can be settled, and that is by experiment. A reduction of railroad charges is not always followed by a reduction of either gross or net income. It can soon be settled which is right-the railroad company's officers or the railroad commission-in their view of the effect of the commission's tariff of rates, by allowing the tariff to go into operation. If it turns out that the views of the railroad company are correct, and that the schedule fixed by the commission is too low to afford a fair return upon the value of the road, the remedy is plain; for the law makes it the duty of the commissioners 'from time to time, and as often as circumstances may require, to change and revise said schedules.'''

This test was followed by District Judges McPherson and Newman and commended by Circuit Judge Shelby and by the Interstate Commerce Commission,200 and the principle has been applied by the Supreme Court.291 The Supreme Court, in the 1913 North Dakota case, referred to in Note 291, ante, gave as a reason for a test, "the great difficulty in the attempt

290 St. Louis S. W. Ry. Co. v. Hadley, 155 Fed. 220; Cent. of Ga. Ry. Co. v. McLandon, 157 Fed. 961, 978; R. R. Com. of Alabama v. Cent. of Ga. Ry. Co., 170 Fed. 225, 232, 233; Loftis v. Pullman Co., 19 I. C. C. 102; City of Spokane v. Northern Pac. Ry. Co., 19 I. C. C. 162; see Shepard v. Northern Pac. Ry. Co., 184 Fed. 765, 807; Des Moines Gas case quoted, supra, sec. 46.

291 Ex Parte Young, 209 U. S. 123, 52 L. Ed. 714, 28 Sup. Ct. 441; Knoxville v. Knoxville Water Co., 212 U.

S. 1, 53 L. Ed. 371, 29 Sup. Ct. 148; Wilcox v. Consolidated Gas Co., 212 U. S. 19, 53 L. Ed. 382, 29 Sup. Ct. 192; Northern Pac. Ry. Co. v. North Dakota, 216 U. S. 579, 54 L. Ed. 624, 30 Sup. Ct. 423, affirming North Dakota v. Northern Pac. Ry. Co., 17 N. Dak. 223, 116 N. W. 92; Louisville & N. R. Co. v. Cumberland Tel. & Tel. Co., 225 U. S. 430, 56 L. Ed. 1151, 32 Sup. Ct. 741. The Supreme Court recognized the value of a two months test in Rowland v. Boyle 244 U. S. 106, 61 L. Ed. 1022, 37 Sup. Ct. 577.

to measure the reasonableness of charges by reference to the cost of transporting the particular class of freight concerned." On the second appeal of this case, the result of this test is shown.292

Another reason for the test and why great care should be observed in enjoining an order fixing a rate is that the shipper cannot be protected by a bond, should the lower rate.be finally held valid. This is clearly and unanswerably shown by Circuit Judge Shelby in the Alabama Rate cases,293 where he says:

"It is argued that the injunction should be issued because the rights of the defendants and all interested are secured by bonds. It is true that the courts have held that the fact that the defendants' rights may be secured by bond is sometimes a sound reason, in cases where the final result is doubtful, for exercising judicial discretion in favor of granting the preliminary injunction. But that rule is not always controlling, and clearly it should not be applied in cases where the bond does not afford adequate protection. Here the bonds given are intended to secure innumerable passengers and shippers or consignees. . It is not at all probable that the claims of the tenth of them, on breach of the bonds, would ever be presented, or, if presented, would be paid, and to enforce payment in the courts, unless those injured combined in their efforts, would cost more than the claim is worth. Those familiar with the Tift case know that the bond proved ineffectual as complete indemnity in that case, although the parties sought to be protected were large shippers of lumber.-Tift et al. v. Southern Railway Company et al. (C. C.) 123 Fed. 789; Id., 10 I. C. C. 548; Id. (C. C.) 138 Fed. 753; Southern Railroad Company et al. v. Tift et al. (C. C. A.) 148 Fed. 1021; Id. 206 U. S. 428, 27 Sup. Ct. 709; 51 L. Ed. 1124; Tift et al. v. Southern Railway Company et al. (C. C.) 159 Fed. 555. Where the injunction is granted, the bonds should, of course, be required, but the court cannot safely exercise its discretion upon the theory that the bond in a case like this gives complete indemnity."

292 Nor. Pac. R. Co. V. North Dakota, 236 U. S. 585, 59 L. Ed. 735, 35 Sup. Ct. 429.

293 R. R. Com. of Ala. v. Cen. of Ga. R. Co., 170 Fed. 225, 232, 233.

The fact that the railroad has voluntarily applied the test will not estop it from enjoining the rate where the test shows confiscation.294

§ 51. Issuance of Stocks and Bonds.-Because unfaithful financiers have caused to be issued stocks and bonds of publicservice corporations without adequate security and sometimes with the intention of using the proceeds for personal rather than corporate purposes, and because the amount of the corporate securities of such corporations is a fact to be considered in determining rates to be charged, a number of the states have passed laws regulating the issuance of stocks and bonds. Some of the reasons for such statutes are given by the Court of Appeals of Maryland in this language (case cited in Note 296):

"That issue of stocks and bonds have been made fraudulently and palmed off on a credulous public to their ultimate serious loss is matter of common knowledge. Facts in relation to such issues, especially with regard to local public utilities, have been difficult, if not impossible, to obtain, leaving it to the stimulated imagination of some broker or syndicate who, actuated by a heavy commission to be realized by creating a market until such stock or bonds could be unloaded, have reaped a reward in dollars and cents at the cost of those who were induced to give full faith and credit to their representations. The legislatures of many states have therefore, through the media of public service commissions seen fit to establish a quasi-guardianship over prospective investors."

These laws are valid in so far as they restrict the issuance of corporate securities to purposes authorized by the law of the corporation, and in so far as they restrict the issuance of such securities to the proper corporate purposes; but such laws do not empower the states or state commissions to assume the management of the business of the corporation to the exclusion of its directors. Such legislation, as was said by the Court of Appeals of New York, was not295 designed to make the commissioners the financial managers of the corporation,

294 Love v. Atchison, T. & S. F. Ry. Co., 185 Fed. 321, 107 C. C. A. 403, and Note 244, ante.

295 People ex rel. Delaware & H. Co. v. Stevens, 197 N. Y. 1, 90 N. E. 60.

or that it empowered them to substitute their judgment for that of the board of directors or stockholders of the corporation as to the wisdom of a transaction, but that it was designed to make the commissioners the guardians of the public by enabling them to prevent the issue of stock and bonds for other than the statutory purposes.'

No state can regulate or prohibit the issuance of stock and bonds by an interstate railroad, when the stocks or bonds are issued against lines extending beyond the limits thereof, the power of the state being limited to bonds and stocks on property situated in the state. It would seem, however, that even as to these, a state might require the interstate railroad to give information as to such issue.296

Acting on this principle and in accord with an able and exhaustive opinion of its special attorney, the Railroad Commission of Georgia refused to assume jurisdiction of the question of the issuance of bonds by the Atlantic Coast Line Railroad Company on its interstate lines.297

Section 20a added to the Interstate Commerce Act by Transportation Act, 1920, gives the Commission authority over the issuance of securities. This is an occupancy of the field by Congress and excludes any regulation by the states which may affect interstate carriers subject to the security provisions of such law in the issuance of their securities.

§ 52. Long and Short Haul.-The law of the state of Kentucky provided that it shall be unlawful for any person or corporation owning or operating a railroad in the state to charge or receive any greater compensation in the aggregate for the transportation of passengers or of property of like kind, under substantially similar circumstances and conditions, for a shorter than for a longer distance, over the same line, in the same direction, the shorter being included in the longer distance.

The Kentucky court298 having affirmed a judgment against the Louisville & Nashville Railroad Company for a violation

296 Laird v. Baltimore & O. R. Co.,

88 Atl. 348, 121 Md. 193.

297 Report of Railroad Com. of Ga. 1912, p. 222, et seq.

298 Louisville & N. R. Co. v. Kentucky, 21 Ky. Law Rep. 232, 51 S. W. 164, 1012, 106 Ky. 633.

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