66

383. Some return requisite.

About fifteen years ago, therefore, the courts had gone no further than to enounce that some return must be left to owners of a railroad, but that any return, however small, was enough. In the much-quoted case of Chicago and Northwestern Railroad v. Dey, Mr. Justice Brewer, then in the Circuit Court, said: Counsel for complainant urge that the lowest rates the Legislature may establish must be such as will secure to the owners of the railroad property a profit on their investment at least equal to the lowest current rate of interest, say 3 per cent. Decisions of the Supreme Court seem to forbid such a limit to the power of the Legislature in respect to that which they apparently recognize as a right of the owners of the railroad property to some reward; and the right of judicial interference exists only when the schedule of rates established will fail to secure to the owners of the property some compensation or income from their investAs to the amount of such compensation, if some compensation or reward is in fact secured, the Legislature is the

L. Ed. 97 (1876), affirming 19 Fed. 625; Chicago, B. & A. Ry. v. Iowa, 94 U. S. 164, 24 L. Ed. 94 (1876), affirming 5 Fed. 594; Spring Valley Water Works v. Schottler, 110 U. S. 347, 28 L. Ed. 173, 4 Sup. Ct. 48 (1884), affirming 62 Cal. 69; Railroad Com. Cases, 116 U. S. 307, 29 L. Ed. 639 (1886), reversing Farmers' Loan & T. Co. v. Stone, 20 Fed. 270; Dow v. Beidelman, 125 U. S. 680, 31 L. Ed. 841, 8 Sup. Ct. 1028 (1888), affirming 49 Ark. 325; Chicago & G. T. Ry. v. Wellman, 143 U. S. 339, 36 L. Ed. 176, 12 Sup. Ct. 400 (1892), affirming s. c. 83 Mich. 592; Budd v. New York, 143 U. S. 517, 36 L. Ed. 384, 12 Sup. Ct. 468, B. & W. 79 (1891), affirming Budd v. People, 117 N. Y. 1, 22 N. E. 670 (1889). FEDERAL COURTS:

Wells v. Oregon Ry. & Nav. Co., 15 Fed. 561 (1883); Tilley v. Savannah F. & W. R. R., 5 Fed. 641 (1881); Chicago, N. W. R. R. v. Dey, 35 Fed. 866, 1 L. R. A. 744 (1888); Chicago & P. M. & O. v. Becker, 35 Fed. 883 (1888).

STATE COURTS:

Arkansas-St. Louis & S. F. Ry. v. Gill, 54 Ark. 101, 15 S. W. 18, 11 L. R. A. 452 (1891).

Florida-Pensacola & A. R. R. v. Fla., 27 Fla. 403, 5 So. 833 (1889).

5 35 Fed. 866, 1 L. R. A. 744 (1888).

sole judge. The question is then one alone of policy. Whether by reducing the compensation to a minimum, railroad enterprises shall be discouraged, or enlarging, encouraged, is a matter for legislative, not judicial determination. Take a kindred matter. It is within the power of the Legislature to prescribe the rate of interest and to punish by severe penalties the exaction of larger than the legal rate. Suppose the Legislature of Iowa should reduce the legal rate of interest to 1 per cent., although such legislation would prevent capital from coming into the State, would the courts have power to declare the law unconstitutional? In like manner, the rulings of the Supreme Court imply that the Legislature may reduce railroad rates until only a minimum of compensation is secured to the owner. The rule, therefore, to be laid down is this: That where the proposed rates will give some compensation, however small, to the owners of the railroad property the courts have no power to interfere. Appeal must then be made to the Legislature and the people. But where the rates prescribed will not pay some compensation to the owners, then it is the duty of the courts to interfere and protect the companies from such rates.” 6

§ 384. Adequate return ought to be left.

The Dey case accurately stated the doctrine of the United States Supreme Court at the time it was decided, and for fully ten years it remained practically unquestioned. But in 1898, in the important case of Smyth v. Ames, a disposition was shown to give more protection to the owners of the railroads. It was shown in that case that the regulation complained of might very probably leave some return above all proper charges. But this did not satisfy the court, Mr. Justice Harlan saying: "What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience. On

6 See cases cited in preceding section.

7 169 U. S. 466, 42 L. Ed. 819, 18 Sup. Ct. 418 (1898).

the other hand, what the public is entitled to demand is that no more be exacted from it for the use of a public highway than the services rendered by it are reasonably worth. But even upon this basis, and determining the probable effect of the Act of 1893 by ascertaining what could have been its effect if it had been in operation during the three years immediately preceding its passage, we perceive no ground on the record for reversing the decree of the Corcuit Court. On the contrary, we are of opinion that as to most of the companies in question there would have been, under such rates as were established by the Act of 1893, an actual loss in each of the years ending June 30, 1891, 1892 and 1893; and that, in the exceptional cases above stated, when two of the companies would have earned something above operating expenses, in particular years, the receipts or gains, above operating expenses, would have been too small to affect the general conclusion that the act, if enforced, would have deprived each of the railroad companies involved in these suits of the just compensation secured to them by the Constitution. Under the evidence there is no ground for saying that the operating expenses of any of the companies were greater than necessary." 8

8 See, also:

UNITED STATES SUPREME COURT:

San Diego L. & T. Co. v. National City, 174 U. S. 739, 43 L. Ed. 1154, 19 Sup. Ct. 804 (1899), affirming 74 Fed. 79; San Diego L. & T. Co. v. Jasper, 189 U. S. 439, 47 L. Ed. 892, 23 Sup. Ct. 571 (1903), affirming s. c. 110 Fed. 702.

FEDERAL COURTS:

Cleveland Gas Light Co. v. Cleveland, 71 Fed. 610 (1891); Memphis Gas Light Co. v. New Memphis, 72 Fed. 952 (1896); Southern Pac. Ry. & Railroad Com., 78 Fed. 236, B. & W. 322 (1896); Northern Pac. Ry. v. Keyes, 91 Fed. 47 (1898); Kimball v. Cedar Rapids, 99 Fed. 130 (1900); Louisville & N. Ry. v. M'Chord, 103 Fed. 216 (1900); Haverhill Gas Light Co. v. Barker, 109 Fed. 694 (1901); Interstate Com. Com. v. Louisville N. R. R., 118 Fed. 613 (1902); Spring Valley Water Works v. San Francisco, 124 Fed. 574 (1903); Palatka Water Works v. Palatka, 127 Fed. 161 (1903).

385. Rates may be reduced provided reasonable return is

left.

9

The present doctrine of the United States Supreme Court, as seen in Stanislaus County v. San Joaquin Canal and Irrigation Company, is that rates of a public service company may be reduced any amount provided that a reasonable return is left to the owners upon the value of the property devoted to the public use. In that case an ordinance adopted by a board of supervisors fixing water rates was objected to because the result would work a reduction of its rates from eighteen to six per cent. The reply of Mr. Justice Peckham, in the Supreme Court of the United States, to this contention was: "It is not confiscation, nor a taking of property without due process of law, nor a denial of the equal protection of the laws, to fix water rates so as to give an income of six per cent. upon the then value of the property actually used for the purpose of supplying water as provided by law, even though the company had prior thereto been allowed to fix rates that would secure to it one and one-half per cent. a month income upon the capital actually invested in the undertaking. If not hampered by an unalterable. contract, providing that a certain compensation should always. be received, we think that a law which reduces the compensation theretofore allowed to six per cent. upon the present value of the property used for the public is not unconstitutional.. There is nothing in the nature of confiscation about it."10

STATE COURTS:

California-Spring Valley Water Works v. San Francisco, 82 Cal. 286,. 22 Pac. 910 (1890).

Florida-Pensacola & A. R. R. v. Florida, 27 Fla. 403, 5 So. 833 (1899);. State v. Seaboard Air Line (Fla.), 37 So. 314 (1904).

9 192 U. S. 201, 48 L. Ed. 406, 24 Sup. Ct. 241 (1903).

10 To the same effect are:

UNITED STATES SUPREME COURT:

Spring Valley Water Works v. Schottler, 110 U S. 347, 28 L. Ed. 173,. 4 Sup. Ct. 48 (1884), affirming s. c. 62 Cal. 69; Railroad Com. Cases, 116 U. S. 307, 29 L. Ed. 636 (1886), reversing Farmers' Loan & T. Co. v.

§ 386. Reasonableness of return a judicial question.

In a late case this elementary rule is stated in most emphatic language. It appeared in the case of Palatka Water Works v. Palatka 11 that an ordinance of the city had reduced rates fifty per cent., and against the enforcement of these new rates an injunction was asked. In granting this Judge Shelby said: "We come to the averment in the bill that the regulation and reduction made by the new ordinance are unreasonable-so unreasonable as to destroy the value of the plaintiff's property. It is shown by the bill, as amended, that the complainant's plant cost about $100,000; that it is worth more than that sum; that its capital stock is $75,000; that its bonded indebtedness, bearing 6 per cent. interest, is $75,000; that the average cost of operating the plant is $4,732.86; that the average gross receipts for the past three years have been $11,824.20; and that its net income, if its charges are controlled by the ordinance of August 5, 1903, would be about $2,200. It is also alleged that the new ordinance fixes rates that are grossly unreasonable and unjust, and, if enforced, your orator will not be able to earn a

Stone, 20 Fed. 270; Chicago & G. T. Ry. v. Wellman, 143 U S. 339, 36 L. Ed. 176, 12 Sup. Ct. 400 (1892), affirming s. c. 83 Mich. 592; Reagan v. Farmers' Loan & T. Co., 154 U. S. 362, 38 L. Ed. 1014, 14 Sup. Ct. 1047 (1893); Covington & L. T. P. R. Co. v. Sanford, 164 U. S. 596, 41. L. Ed. 561, 17 Sup. Ct. 198 (1896), reversing s. c. 20 S. W. 1031; Smyth v. Ames, 169 U. S. 466, 42 L. Ed. 819, 18 Sup. Ct. 418, B. & W. 347 (1898), affirming s. c. 64 Fed. 165; San Diego L. & T. Co v. National City, 174 U. S. 739, 43 L. Ed. 1154, 19 Sup. Ct. 804 (1899), affirming s. c. 74 Fed. 79; San Diego L. & T. Co. v. Jasper, 189 U S. 439, 47 L. Ed. 892, 23 Sup. Ct. 571 (1903), affirming s. c. 110 Fed. 702.

FEDERAL COURTS:

Memphis Gas Light Co. v. New Memphis, 72 Fed. 952 (1896); Spring Valley Water Works v. San Francisco, 124 Fed. 574 (1903).

STATE COURTS:

Minnesota State v. Minneapolis & St. L. Ry., 186 U. S. 257, affirming 80 Minn. 191, 83 N. W. 60, 89 Am. St. Rep. 514 (1900).

Mississippi-Alabama & V. Ry. v. Railroad Com. (Miss.), 38 So. 350

(1905).

11 127 Fed. 161 (1903).