CHAPTER XVII. LEGAL LIMITATIONS UPON MAKING PARTICULAR RATES. TOPIC A- -CERTAIN LIMITATIONS FUNDAMENTAL. § 500. Rates must be fair to the company and to the public. 501. Limitations within which rates must be made. 502. Unreasonable regulation forbidden. 503. Value of the services constitutes maximum limit of charge. 504. Company cannot make unreasonable rates. 505. Reasonable rates not necessarily profitable. 506. Company cannot justify exorbitant profits. 507. Application of these principles to passenger fares. TOPIC B- -BASING RATES UPON COST OF SERVICE. § 508. Difficulties in dividing joint costs. 509. Cost of service different for different railroad systems. 510. Cost of service different for different parts of the same system. 511. Cost of service estimated from special expenditures in moving goods. 512. Rule of proportionality in sharing costs. 513. Law of decreasing costs. 514. Cost of service a principle applicable to passenger fares. TOPIC C-RATES REASONABLE IN THEMSELVES. § 515. External standards of reasonableness. 516. The carrier is entitled to reasonable compensation. 517. Current rates for other transportation. 518. Evidence inadmissible unless conditions are similar. 519. Comparison of rates between different localities unjustifiable. 520. Discussion of Cotting v. Kansas City Stock Yard Company. 521. Discussion of Canada Southern Railway v. International Bridge Company. 522. Principles of usual rates peculiarly applicable to passenger fares. TOPIC D-RATES BASED UPON VALUE OF SERVICE ΤΟ SHIPPER. THE § 523. What the traffic will bear. 524. Legal limitations upon this principle necessary. 525. Limit of value of service not necessarily limit of charge. 526. Traffic will continue to move at unfair rates. 527. Worth of the service to the individuals served taken as a whole. 528. Cost of obtaining a substitute for the service furnished. 529. Charging what the traffic will bear hardly applicable to passenger fares. TOPIC E-RATES DICTATED BY COMPETITION. § 530. Rates may be made to meet competition. 531. Policy for permitting competitive rates. 532. Competitive rates may be made low enough to hold business. 533. Rates must not be reduced by competition below a remunerative basis. 534. Standard rate among competing lines. 535. Competition not a ground for raising rates. 536. Absence of competition does not justify increase in rates. 537. Competition justifies differences in passenger fares only to a certain extent. TOPIC F-RATES DESIGNED TO EQUALIZE ADVANTAGES. § 538. Limited operation of the principle of equalization at law. 539. Relative rates need not be adjusted from a commercial standpoint. 540. Business situation should not be ignored altogether. 541. Rates should not equalize differences in value. 542. Passenger fares slightly affected by the principle. TOPIC A-CERTAIN LIMITATIONS FUNDAMENTAL. § 500. Rates must be fair to the company and to the public. 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 shipper must not be charged more than a reasonable price. The compensation, It is in order to be reasonable, must be fair to both parties. 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 § 501. Limitations within which rates must be made. 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 1 Harlan, J., in San Diego L. & T. Co. v. National City, 174 U. S. 739, 43 L. Ed. 1154, 19 Sup. Ct. 804 (1899); 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 §§ 281, 289, 291, 292, 295, 441, 455, supra, and cases cited in the footnotes to those sections. The best discussion of the general principles is in: United States-Smyth v. Ames, 169 U. S. 466, 42 L. Ed. 819, 18 Sup. Ct. 418, B. & W. 347 (1898), affirming 64 Fed. 165; Minneapolis & St. L. R. R. v. Minnesota, 186 U. S. 257, 46 L. Ed. 1151, 22 Sup. Ct. 901 (1902), affirming 80 Minn. 191, 83 N. W. 60; Southern Pacific Ry. v. Railroad Commrs., 78 Fed. 236, B. & W. 322 (1896); Metropolitan Trust Co. v. Houston & T. C. R.. R., 90 Fed. 683, B. & W. 342 (1898); Matthews v. Board of Corp. Commrs., 106 Fed. 7 (1901); Interstate Com. Com. v. Louisville & N. R. R., 118 Fed. 613 (1902); Tift v. Southern Ry., 138 Fed. 753 (1905); Interstate Commerce Commission v. Chicago G. W. Ry., 141 Fed. 1003 (1905). Arkansas-Missouri Pac. Ry. v. Smith, 60 Ark. 221, 29 S. W. 752 (1895). Florida State v. Seaboard Air Line (Fla.), 37 So. 658 (1904). Massachusetts-Fitchburg Ry. v. Gage, 12 Gray (Mass.), 393, B. & W. 354 (1859). Mississippi-Alabama V. Ry. v. Railroad Commrs. (Miss.), 38 So. 356 (1905). Minnesota-Steenerson v. Gt. Northern Ry., 69 Minn. 353, 72 N. W. 713 (1897). North Carolina-Corporation Commission Railroad, 139 N. C. 126, 49 S. E. 191 (1905). obviously at the extremes within which in normal cases rates must be made. "The cost of service, while recognized as an important element in classification and rates, is not alone controlling. On that basis some articles, on account of relation of commercial value to cost of service, though furnishing a large volume of traffic, would not be carried at all, and others of high commercial value would have a very low rate without increasing tonnage. "Another element of the highest importance, and that cannot be disregarded, is the value of the service to the article. carried. This is a factor that largely determines the classification and rates the article will bear in the transactions of commerce, and necessarily qualifies the influence of other factors in the distribution of charges with the view to average reasonable revenue." 3 502. Unreasonable regulation forbidden. The company performing the service should be protected, as has been seen in former chapters, in getting as a reasonable return for its services, the cost of those services as a minimum. This, however, cannot always be done; in such a case the utmost protection possible must still be given to the company. The balance of interests was well stated by the Interstate Commerce Commission thus: "It is vitally important to the development of this country that the service performed by our railways should be efficient and complete. The wealth invested in these enterprises should be sacredly protected, and no unnecessary burden should be imposed in the way of public supervision. But it is equally important that the rates charged for the service. should be just; and, in view of the monopolistic conditions under 3 Schoonmaker, Commissioner in Thurber v. N. Y. C., 2 Int. Com. Rep 742, 3 I. C. C. Rep. 473 (1891). which these rates are now made, the public has no protection save by regulation by the Government." 4 § 503. Value of the services constitutes maximum limit of charge. The value of the services to the customer constitutes the limit of charge which the company is permitted to make. Considering all the circumstances, if the services have a certain value to the consumer and no more, the carrier must charge no more. "The elemental principles thus far noted may be summarized as, on the one hand, the right of the company to derive a fair income, based upon the fair value of the property at the time it is being used for the public, taking into account the cost of maintenance or depreciation, and current operating expenses; and, on the other hand, the right of the public to have no more exacted than the services in themselves are worth. "While the company is entitled, so far as this case shows, to a fair return upon the value of the property used for the public at the time it is being used, the public (that is, the customers) may demand that the rates shall be no higher than the services are worth to them, not in the aggregate, but as individuals. The value of the services in themselves is to be considered, and not exceeded. These views seem to be consonant with reason. They are also established by the highest judicial authority in our country." 5 4 Re Proposed Advances in Freight Rates, 9 I. C. C. Rep. 382, 437 (1903). 5 Savage, J., in Kennebec Water District v. Waterville, 97 Me. 185, 54 Atl. 6, 60 L. R. A. 856 (1902), citing Smyth v. Ames, 169 U. S. 466, 18 Sup. Ct. 418, 42 L. Ed. 819 (1898); San Diego Land & Town Co. v. National City, 174 U. S. 739, 19 Sup. Ct. 804, 43 L. Ed. 1154 (1899); Covington & L. T. R. Co. v. Sanford, 164 U. S. 578, 17 Sup. Ct. 198, 41 L. Ed. 560 (1896). |