mencement of this suit, and owing further | Ct. Rep. 334, 388, 1191; *Dow v. Beidelman,[173] to the amount of the percentages which 125 U. S. 680, 31 L. ed. 841, 8 Sup. Ct. Rep. would have been earned during said four years under the commissioners' schedule, the court is unable to find beyond a reasonable doubt that the local earnings under said commissioners' schedule would not during the years aforesaid have earned the reasonable cost of earning said local earnings and some reward to the owner of the property over and above said cost of operation. "IX. That the court is unable to find from the testimony what the actual cost of earning the local earnings for the fiscal years ending June 30, 1894, 1895, 1896, and 1897 was. 1028; Georgia R. & Bkg. Co. v. Smith, 128 U. S. 174, 32 L. ed. 377, 9 Sup. Ct. Rep. 47; Chicago, M. & St. P. R. Co. v. Minnesota, 134 U. S. 418, 33 L. ed. 970, 10 Sup. Ct. Rep. 462, 702; Chicago & G. T. R. Co. v. Wellman, 143 U. S. 339, 36 L. ed. 176, 12 Sup. Ct. Rep. 400; Reagan v. Farmers' Loan & T. Co. 154 U. S. 362, 38 L. ed. 1014, 14 Sup. Ct. Rep. 1047; St. Louis & S. F. R. Co. v. Gill, 156 U. S. 649, 39 L. ed. 567, 15 Sup. Ct. Rep. 484; Covington & L. Turnp. Road Co. v. Sandford, 164 U. S. 578, 41 L. ed. 560, 17 Sup. Ct. Rep. 198; Smyth v. Ames, 169 Ú. S. 466, 42 L. ed. 819, 18 Sup. Ct. Rep. 418. It is often said that the legislature is pre "X. As a conclusion of law the court finds that the enforcement of the proposed sched-sumed to act with full knowledge of the facts [172]ule of reasonable maximum rates and fares will not deprive the complainant of its property without due process of law, or deprive it of the equal protection of the laws, or operate to take the property of complainant for public use without just compensation." From the decree thus entered the plaintiff took its appeal to this court. Messrs. A. B. Kittredge and George R. Peck argued the cause and filed a brief for appellant. Messrs. T. H. Null and John L. Pyle argued the cause and, with Mr. W. O. Temple, filed a brief for appellees. [172] *Mr. Justice Brewer delivered the opinion of the court: Few cases are more difficult or perplexing than those which involve an inquiry whether the rates prescribed by a state legislature for the carriage of passengers and freight are unreasonable. And yet this difficulty affords no excuse for a failure to examine and solve the questions involved. It has often been said that this is a government of laws, and not of men; and by this court, in Yick Wo v. Hopkins, 118 U. S. 356, 369, 30 L. ed. 220, 6 Sup. Ct. Rep. 1064: "When we consider the nature and the theory of our institutions of government, the principles upon which they are supposed to rest, and review the history of their development, we are constrained to conclude that they do not mean to leave room for the play and action of purely personal and arbitrary power." When we recall that, as estimated, over ten thousand millions of dollars are invested in railroad property, the proposition that such a vast amount of property is beyond the protecting clauses of the Constitution, that the owners may be deprived of it by the arbitrary enactment of any legislature, state, or nation, without any right of appeal to the courts, is one which cannot for a moment be tolerated. Difficult as are the questions involved in these cases, burdensome as the labor is which they cast upon the courts, no tribunal can hesitate to respond to the duty of inquiry and protection cast upon it by the Constitution. Railroad Commission Cases, 116 U. S. 307, sub nom. Stone v. Farmers' Loan & T. Co. 29 L. ed. 636, 6 Sup. upon which its legislation is based. This is In approaching the consideration of a case of this kind we start with the presumption that the act of the legislature is valid, and upon any company seeking to challenge its validity rests the burden of proving that it infringes the constitutional guaranty of protection to property. The case must be a clear one in behalf of the railroad company or the legislation of the state must be upheld. Such being unquestionably the law, it is obviously of the *utmost importance that the[174] facts shall be clearly and accurately found and distinctly stated by the trial court, and that those facts shall sustain the conclusion reached. We are of opinion that neither the findings made by the court, nor such facts as are stated in its opinion, are sufficient to warrant a conclusion upon the question whether the rates prescribed by the defendants were unreasonable or not, and we are also of opinion that the process by which the court came to its conclusion is not one which can be relied upon. The court proceeded upon the theory that a comparison of the actual gross | division it found that the value of the com- of the value of the property for the first year, 12.1 for the second, 15.3 for the third, and 16.2 for the last. Upon this it held that the difference between the per cent of receipts in the two cases was slight, and that there was no change in what may rightfully be called the earning capacity of the property sufficient to justify a declaration that the reduced rates prescribed were unreasonable. In other words, it was of the opinion that the earning capacity was so slightly reduced that it could not be affirmed that the new rates were unreasonable. In the light of these general and obvious year, $2,300,000; for the third year, $1,800,propositions we proceed to examine the com-000; and the last year, $1,600,000; and upon putations and reasoning of the court. For such basis that the gross receipts from local reasons which will be apparent hereafter we business would have amounted to 18 per cent do not stop to inquire whether its findings are correct deductions from the testimony, but take them as they are stated. It may be premised that the books of the plaintiff, showing its business for the four years, were examined, and so much as was deemed necessary admitted in evidence. From those books was disclosed with mathematical accuracy the gross receipts of the company on all its business in all the states during each of the four years and the actual cost of doing [175]that business *during each of those years; also the gross receipts from the business done in South Dakota, and separately the amount But that there was some fallacy in this which was received in that state from inter-reasoning would seem to be suggested by the state business and that from local. If the fact that although the defendants' schedule schedule of rates prescribed by the defend- would have reduced the actual receipts 15 ants had been in force during the four years, per cent on the passenger and 17 per cent on and the same amount of business had been the freight business, the earning capacity for done by the company, the reduction in gross the last year was diminished only receipts from the passenger business would per cent. Such a result indicates that there have been 15 per cent, and from the freight is something wrong in the process by which business 17 per cent. Of course, the cost of the conclusion is reached. That there was doing the business would be substantially can be made apparent by further computathe same. The court found the value of the tions, and in them we will take even numplaintiff's property in South Dakota to be bers as more easy of comprehension. $10,000,000, although, according to the testi- pose the total value of the property in South mony, it was bonded for over $19,000,000. Dakota was $10,000,000, and the total reIt held that it was not fair to consider that ceipts both from interstate and local busisum, $10,000,000, the value of the property ness were $1,000,000, one half from each. employed in doing local business, for it was Then, according to the method pursued by also used in doing interstate business; and the trial court, the value of the property that the true way to determine the value of used in earning local receipts would be $5,the property which could be regarded as em- 000,000, and the per cent of receipts to value ployed in local business was by dividing the would be 10 per cent. The interstate retotal value of $10,000,000 in the same pro-ceipts being unchanged, let the local receipts portion that existed between the amount of by a proposed schedule be reduced to one gross receipts from interstate business and fifth of what they had been, so that instead that from local business, each of which of receiving $500,000 the company only reamounts was, as we have seen, accurately ceives $100,000. The total receipts for inshown by the testimony. Upon that basis of terstate and local business being then $600, of 1 Sup of money paid out for doing such work, it is undoubtedly true, but there are many things that have to be determined by court and jury in respect to which mathematical accuracy is not possible. Take the ordinary case of condemnation of real estate, the value is to be determined by the trial tribunal, whether jury or court, and yet no one is able to state the exact value. In this very case the court fixed the value of the company's property in South Dakota at $10,000,000, and yet it is impossible from the testimony to say that this conclusion was absolutely accurate, that there was testimony tending to show to a dollar such value. Beyond the 000, the valuation of $10,000,000, divided between the two, would give to the property engaged in earning interstate receipts in round numbers $8,333,000, and to that engaged in earning local receipts $1,667,000. But if [177]$1,667,000 worth of property earns $100,000 it earns 6 per cent. In other words, although the actual receipts from local business are only one fifth of what they were, the earning capacity is three fifths of what it was. And turning to the other side of the problem, it appears that if the value of the property engaged in interstate business is to be taken as $8,333,000, and it earned $500,000, its earning capacity was the same as that employed in local business-6 per cent. So that although the rates for interstate busi-figures given from the books of the comness be undisturbed, the process by which the trial court reached its conclusion discloses the same reduction in the earning capacity of the property employed in interstate business as in that employed in local business, in which the rates are reduced. Again, in another way, the error of the court's computation is manifested. The testimony discloses that the operating expenses of the entire system during each of the four years were over 60 per cent of the gross receipts. If the cost of doing local business in South Dakota was the same as that of doing the total business of the company, then the net earnings of that local business would not exceed 40 per cent of the gross receipts. Reduce the gross receipts 15 per cent and the reduction by the defendants' rates was 15 per cent on passengers and 17 per cent on freight business-it would leave only 25 per cent of the gross receipts as what might be called net earnings, to be applied to the payment of interest on bonds and dividends on stock. But the testimony shows that the cost of doing local business is much greater than that of doing through business. If it should be 85 per cent of the gross receipts (and there was testimony tending to show that it was as much if not more) then a reduction of 15 per cent in the gross receipts would leave the property earning nothing more than expenses of operation. These computations show that the method which the court pursued was erroneous, and that without a finding as to the cost of doing the local business it is impossible to determine whether the reduced rates prescribed by the defendants were unreasonable or not. But here we are confronted by the ninth statement in the findings of fact, to wit, [178] that the court is unable to find from the testimony what the actual cost of earning the local earnings for the fiscal years ending June 30, 1894, 1895, 1896, and 1897 was." If the court meant by that to say that there was no testimony tending to show what was the cost of doing local business, we are constrained to say that the statement is erroneous, because there was abundance of testimony bearing upon that question. If it meant simply that it could not determine that fact with mathematical accuracy, basing it upon testimony of the exact amount pany of the actual cost of doing the total business of the company there was the testimony of several experts as to the relative cost of doing local and through business. Such testimony is not to be disregarded simply because it cannot demonstrate by figures the exact amount or per cent of the extra cost. It is obvious on a little reflection that the cost of moving local freight is greater than that of moving through freight, and equally obvious that it is almost if not quite impossible to determine the difference with mathematical accuracy. Take a single line of 100 miles, with ten stations. One train starts from one terminus with through freight and goes to the other without stop. A second train starts with freight for each intermediate station. The mileage is the same. The amount of freight hauled per mile may be the same, but the time taken by the one is greater than that taken by the other. Additional fuel is consumed at each station where there is a stop. The wear and tear of the locomotive and cars from the increased stops and in shifting cars from main to side tracks *is greater; there are the wages of the[179] employees at the intermediate stations, the cost of insurance, and these elements are so varying and uncertain that it would seem quite out of reach to make any accurate comparison of the relative cost. And if this is true when there are two separate trains, it is more so when the same train carries both local and through freight. It is impossible to distribute between the two the relative cost of carriage. Yet that there is a difference is manifest, and upon such difference the opinion of experts familiar with railroad business is competent testimony, and cannot be disregarded. We think, therefore, there was error in the failure to find the cost of doing the local business, and that only by a comparison between the gross receipts and the cost of doing the business, ascertaining thus the net earnings, can the true effect of the reduction of rates be determined. The question then arises, What disposition of the case shall this court make? Ought we to examine the testimony, find the facts, and from those facts deduce the proper conclusion? It would doubtless be within the compe It Petitioners, 2. NORTHERN TRUST COMPANY et al. (See S. C. Reporter's ed. 181-206.) Foreclosure of mortgage against corporation-collusive judgment as excuse fordeclaring whole debt due for default-negotiability of bonds redeemable by instalments determined by drawings-illegality of purpose of corporation as affecting validity of mortgage; bonus of stock given to bondholders-declaration that stock is fully paid-set-off against foreclosure of bondholders' liability for stock. 1. 2. A judgment against a corporation is not collusive in the legal sense, so as to prevent its nonpayment from constituting a default for which a mortgage debt may be declared due under a provision of the mortgage, merely because the action was undertaken for the purpose of creating such default, if it was brought for a debt that was due, and was properly conducted. An instant declaration by trustees that both principal and interest of a mortgage are due because of the nonpayment of an execution on a judgment against the mortgagor, which is a corporation, cannot be contested by stockholders, where the directors of the company do not make any objection, on the ground that the provision of the mortgage for such declaration if the execution was not paid "forthwith" allowed a reasonable time for such payment. tency of this court on an appeal in equity to | *HARRY W. DICKERMAN, Trustee, et al.,[181] do this, but we are constrained to think that it would not (particularly in a case like the present) be the proper course to pursue. This is an appellate court, and parties have a right to a determination of the facts in the first instance by the trial court. Doubtless if such determination is challenged on appeal it becomes our duty to examine the testimony and see if it sustains the findings, but if the facts found are not challenged by either party then this court need not go beyond its ordinary appellate duty of considering whether such facts justified the decree. We think this is one of those cases in which it is especially important that there should be a full and clear finding of the facts by the trial court. The questions are difficult, the interests are vast, and therefore the aid of the trial court should be had. The writer of this opinion appreciates the difficulties which attend a trial court in a case like this. In Smyth v. Ames, 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. Rep. 418, a similar case, he, as circuit justice presiding in the circuit court of Nebraska, undertook the [180]work of examining the testimony, making computations, and finding the facts. It was very laborious, and took several weeks. was a work which really ought to have been done by a master. Very likely the practice pursued by him induced the trial judge in this case to personally examine the testimony and make the findings. We are all of opinion that a better practice is to refer the testimony to some competent master, to make all needed computations, and find fully the facts. It is hardly necessary to observe that in view of the difficulties and importance of such a case it is imperative that the most competent and reliable master, general or special, should be selected, for it is not a light matter to interfere with the legisla tion of a state in respect to the prescribing of rates, nor a light matter to permit such legislation to wreck large property interests. We are aware that the findings made by the master may be challenged when presented to the trial court for consideration, and it may become its duty to examine the testimony to see whether those findings are sustained, as likewise if sustained by the trial court it may become our duty to examine the testimony for the same purpose. But before we are called upon to make such examination we think we are entitled to have the benefit of the services of a competent master and an approval of his findings by the trial court. As we have said, those findings may not be challenged by either party, and if so a large burden will be taken from the appellate court. For these reasons we not merely reverse the decree of the trial court, but also remand the case to that court with instruc tions to refer the case to some competent master to report fully the facts, and to proceed upon such report as equity shall require. NOTE. AS to set-off on mortgage foreclosure, see note to Brown v. Corriell (N. J.) 21 L. R. A. 321. Stock as bonus to purchaser of bonds. Existing creditors of a corporation cannot im- stock is increased and issued as a bonus to Although a railroad company in the exercise of good faith may use bonds and stock to pay for the construction of its road, it cannot rightholders, issue its stock to anyone as full paid fully, at least as against creditors or stockwithout getting some fair or reasonable equivalent for it. Fogg v. Blair, 139 U. S. 118, 35 L. ed. 104, 11 Sup. Ct. Rep. 476. Increased stock disposed of to purchasers of bonds in equal amount in order to induce them the actual value of both stock and bonds was to buy the bonds was held to be lawful where not more than the par value of the bonds which was paid to the company on the purchase. Handley v. Stutz, 139 U. S. 417, 35 L. ed. 227, 11 Sup. Ct. Rep. 530. The usual method of raising money to build railroads or for any legitimate corporate pur- 8. 4. ure of a mortgage. Affirmed. Bonds need not be produced in evidence | ing a decree of the Circuit Court on foreclosprior to a decree of foreclosure and sale, in a suit by trustees under a mortgage securing the bonds, where the evidence is sufficient to prove that the bonds were valid and were outstanding obligations. The negotiability of bonds due on or before a certain date is not defeated by a provision See same case below, 53 U. S. App. 270, 80 Statement by Mr. Justice Brown: making them redeemable by instalments de-court for the northern district of Illinois by termined by drawings. 5. The illegality of the purpose for which a corporation was originally organized cannot become a material inquiry in a suit to foreclose a mortgage upon the property of the concern, if the mortgage was made while the corporation had power to create it, and the illegality was wholly extrinsic to the mort 6. gage. A bonus in stock given to purchasers of the bonds of a corporation, simply as an inducement to take the bonds, if this is done in good faith, will not entitle dissenting stockholders to have a deduction of the par value of the stock made from the bonds. 7. A declaration that shares of stock issued as a bonus to purchasers of bonds are fully paid up and unassessable is conclusive in favor of the holders as against the corpora tion and its stockholders, when the rights of creditors are not involved. 8. The right to set off as against some individual bondholders their obligation for unpaid stock cannot be allowed in a suit by a trustee for all the bondholders to foreclose a mortgage, in which the bonds must be treated as an entirety. [No. 33.] Argued April 5, 6, 1899. 22, 1900. This was a bill in equity filed in the circuit the Northern Trust Company, *a corporation[182] organized under the laws of Illinois, having its principal office in Chicago, and Ovid B. Jameson, a citizen of the state of Indiana, as trustees, against the Columbia Straw-PaPer Company, a corporation organized under the laws of the state of New Jersey, to foreclose a trust deed of some thirty-nine papermill properties, leaseholds, and water powers, situated in thirty-two different counties and in nine different states. This deed, which was dated December 31, 1892, was given to secure the payment of one thousand bonds of the paper company of $1,000 each, with coupons bearing interest at 6 per cent per annum, payable half yearly. These bonds were issued and delivered to one Emanuel Stein, in part payment for the properties acquired by it from him. The bill, which was in the ordinary form of a foreclosure bill, averred that by the terms of the bonds it was agreed by the paper company that it would redeem, on the 1st day of December, 1893, one hundred of such bonds, and annually thereafter until December 1, 1901, a similar number, and that the principal of such bonds should become due if the paper company should make default for a period of three months in the payment Decided January of any interest, and an election so to do were N WRIT OF CERTIORARI to the United Circuit Court Appeals for Seventh Circuit to review a decision affirm nor except for money, labor, or property actually received and applied for corporate purposes, and declaring that all fictitious stock shall be void. The delivery of stock as a part of the contract by which bonds of the company are sold is not forbidden by this statute if the amount is not unreasonable or beyond the value actually received. Brown v. Duluth, M. & N. R. Co. 53 Fed. Rep. 889. See also note to Dummer v. Smedley (Mich.) 38 L. R. A. 490, on bonus stock of corporations. Other cases are to the contrary. In case of bonus stock given as an inducement to the purchase of bonds of a corporation it was held, in Hebberd v. Southwestern Land & Cattle Co. 55 N. J. Eq. 18, 36 Atl. 122, that while such transaction was valid as between the corporation and the purchaser, the holders of such bonus stock might be required to pay for it in satisfaction of the demands of creditors after the exhaustion of all other assets, upon the ground that its issuance was a fraud in law upon the creditors. This case seems to treat the issue of such bonds as a mere bonus, and not as a part of the consideration of the sale. given in writing; that, by the terms of the And an agreement by which a subscriber to the organization stock of a corporation is to have, on payment therefor, not only the stock, but an equal amount of the bonds of the comSo, where a large amount of stock was is- pany, was declared void, not only as to creditors, sued to accompany bonds of the corporation in but as to the corporation itself, since it order to induce the purchase of the latter, and amounts to a strategem or device by which the one of the directors of the company took some payment of the subscription is to be avoided. of these shares on which 40 per cent was Morow v. Nashville Iron. Steel, & Charcoal Co. credited but not paid, it was said that, as be- 87 Tenn. 262, 3 L. R. A. 37, 10 S. W. 495. |