quoted case of Chicago and Northwestern Railroad v. Dey,34 Mr. Justice Brewer, then in the Circuit Court, said: "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."

§303. Rates fixed must not produce a deficit.

As soon as the power to regulate was once established, the point was urged that the power had its limitations, and this the court conceded in very guarded language. For example, in the Railroad Commission Cases, 35 Chief Justice Waite said: "From what has thus been said it is not to be inferred that this power of limitation or regulation is itself without limit. This power to regulate is not a power to destroy, and limitation is not the equivalent of confiscation." As late as the case of Reagan v. Farmers' Loan & Trust Company 36 this requisite was not stated unequivocally. In that case Mr. Justice Brewer said: "It is unnecessary to decide, and we do not wish to be understood as laying down an absolute rule that in every case a failure to produce some profit to those who have invested their money in the building of a road is conclusive that the tariff is unjust and unreasonable. And yet justice demands that every one should receive some compensation for the use of his money and property, if it be possible without prejudice to the rights of others." 37

confiscatory, were: Munn v. Illinois, 94 U. S. 113, 24 L. ed. 72; Peik v. Chicago & N. W. Ry. Co., 94 U. S. 164, 24 L. ed. 97; Chicago, B. & Q. Ry. Co. v. Iowa, 94 U. S. 155, 24 L. ed. 94; Chicago, M. & St. P. R. R. Co. v. Ackley, 94 U. S. 179, 24 L. ed. 99; Tilley v. Savannah,

F. & W. R. R. Co., 5 Fed. 641; Wells v. Oregon Ry. & Nav. Co., 15 Fed. 561.

34 35 Fed. 866, 1 L. R. A. 744. 35 116 U. S. 307, 29 L. ed. 636. 36 154 U. S. 362, 38 L. ed. 1014, 14 Sup. Ct. 180.

37 The Federal cases of this transi

§ 304. Adequate return must be left.

But in 1898, in the important case of Smyth v. Ames,38 a disposition was shown to give more protection to the owners of the railroads. It was proved 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 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." Ever since this case the doctrine has been well established that except in abnormal cases legislation reducing rates which does not leave a fair profit upon the capital involved is virtually confiscatory. It should be noted, as was pointed out not long ago in Missouri, Kansas & Texas Railway v. Interstate Commerce Commission 39 that these limitations apply to the Interstate Com

tion period when it was hoped that a profit would normally be left the public service company whose rates had been reduced by legislation were: Dow v. Beidelman, 125 U. S. 680, 31 L. ed. 841, 8 Sup. Ct. 1028; Chicago & G. T. Ry. v. Wellman, 143 U. S. 339, 36 L. ed. 176, 12 Sup. Ct. 400; Chicago N. W. R. R. v. Dey, 35 Fed. 866, 1 L. R. A. 744; Chicago & P. M. & O. R. R. Co. v. Becker, 35 Fed. 883.

38 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. 418. See also St. Louis & San Francisco Ry. Co. v. Gill, 156 U. S. 649, 39 L. ed. 567, 15 Sup. Ct. 484.

In the following federal cases, among others, the new rates imposed by governmental authority were held confiscatory by the above principles on the showing made by the evidence adduced. Cotting v. Kansas

City S. Y. Co., 183 U. S. 79, 46 L. ed. 92, 22 Sup. Ct. 30; Southern Pac. Ry. Co. v. Railroad Commission, 78 Fed. 236; Northern Pac. Ry. Co. v. Keyes, 91 Fed. 47; Milwaukee Electric Ry. Co. v. Milwaukee, 87 Fed. 577; Ozark Bell Telephone Co. v. Springfield, 140 Fed. 666; Southern R. R. Co. v. M'Neill, 155 Fed. 756; Seaboard Air Line Ry. Co. v. Railroad Comm., 155 Fed. 792.

39 164 Fed. 645. See Hooker v. Interstate Commerce Commission, 188 Fed. 484.

See the recent United States Supreme Court cases in which the propriety of the action of the Commission under its recent powers to fix rates has been brought in question such as: Interstate Commerce Commission v. Stickney, 215 U. S. 98, 30 Sup. Ct. 66; Interstate Commerce Commission v. Union P. Ry., 222

mission by virtue of the protection of property from invasion by the United States under the Fifth Amendment, just as much as these principles hold the hands of the State commissions by virtue of the Fourteenth Amendment.

§ 305. Reasonable return must be left.

The present doctrine of the United States Supreme Court, as seen in Stanislaus County v. San Joaquin Canal and Irrigation Company, 40 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 results 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 con

U. S. 541, 56 L. ed. 308, 31 Sup. Ct. 108; and also the latest cases in that court on appeal, pointing out that for the authorities of a State to attempt to require a carrier to serve for a rate less than what is truly reasonable is virtually confiscation:

Missouri Pacific Ry. v. Tucker, 230 U. S. 340, 57 L. ed. 1507, 33 Sup. Ct. 962; Louisville & N. Ry. v. Garrett, 231 U. S. 298, 57 L. ed. 1597, 33 Sup. Ct. 985.

40 192 U. S. 201, 48 L. ed. 406, 24 Sup. Ct. 241.

fiscation about it." 41 It should be noted that the State courts are limited by guarantees of similar tenor in their own constitutions, as well as by the Fourteenth Amendment to the Federal Constitution. One way or another, therefore, precedents as to the meaning of confiscation are significant generally in this connection.42

§ 306. Reasonableness of return a judicial question.

In a comparatively recent case, this elementary rule is stated in most emphatic language. It appeared in the case of Palatka Waterworks v. Palatka 43 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: "Conceding the legislative right to regulate the charges to be made by the complainant for water, such regulation must be within reasonable limits. It could not lawfully go to the extent of depriving the complainant of all income from its investment, and in effect confiscate its property. The power to regulate could not legally be used as the power to destroy. The question of the reasonableness of such regulations is one for judicial examination and determination. But the judiciary ought not to interfere with rates established under legislative sanction, where the legislature has the right to act, unless they are plainly and palpably so unreasonable as to make their enforce

41 To the same effect is Spring Valley Waterworks v. Schottler, 110 U. S. 347, 28 L. ed. 173, 4 Sup. Ct. 48.

42 In the following cases, among others, in the State courts the extent of these constitutional limitations was discussed generally: Spring Valley Waterworks v. San Francisco, 82 Cal. 286, 22 Pac. 910; Chicago v. Rogers Pk. Co., 214 Ill. 212, 73 N. E. 375; Maryland Tel. Co. v. Simons Sons Co., 103 Md. 137, 63 Atl. 314; Pennsylvania R. R. Co. v. Phila

delphia County, 220 Pa. St. 100, 68 Atl. 676, 15 L. R. A. (N. S.) 108; State v. Central Vt. Ry. Co., 81 Vt. 463, 71 Atl. 194, 130 Am. St. Rep. 1065.

43 127 Fed. 161. Citing Covington Road Co. v. Sandford, 164 U. S. 578, 17 Sup. Ct. 198, 41 L. ed. 560; San Diego Land Co. v. National City, 174 U. S. 739, 19 Sup. Ct. 804, 43 L. ed. 1154.

See also Farmers' Loan & T. Co. v. No. Pacific Ry., 83 Fed. 249; Ball v. Rutland R. R., 93 Fed. 513.

ment equivalent to depriving the complainant of reasonable returns on its investment; but judicial interference is proper when the case shows an attack upon the rights of property, under the guise of regulating, which will make the plaintiff's property valueless in his hands." Since reasonableness of return is a judicial question, any attempt to prevent access to the courts to test the validity of rates established by the authorities by imposing severe penalties as in Ex parte Young 44 makes the scheme of regulation void, unless provision is made for trying out the issue in some way.

§ 307. Reasonable profit upon each transaction.

It will be assumed throughout this discussion that all that the law secures to those who devote their capital to public business is the enjoyment of total receipts from that business, be it large or small, sufficient to show a fair per cent of profit upon that capital each year. This undoubtedly is the general rule with which the courts have been working. However, there are some decisions as to certain businesses, which must be reckoned with, that suggest a different basis. According to these dicta, in certain businesses, at least, the proprietors are entitled to a fair percentage of profit upon each service it renders, regardless of the total return this in the aggregate may show upon the capital that is employed. In deciding against legislation reducing the charges of a stock yard the Supreme Court 45 said: "The question is not how much he makes out of his volume of business, but whether in each

44 209 U. S. 123, 52 L. ed. 714, 28 Sup. Ct. 441. See also Missouri Pacific Ry. v. Tucker, 230 U. S. 340, 57 L. ed. 1507, 33 Sup. Ct. 961.

If, however, the statute imposing the penalty may be construed so as not to be applicable to one testing its validity in good faith the difficulty is obviated. Chesapeake & O. Ry. v. Conley, 230 U. S. 513, 57 L. ed. 1597,

33 Sup. Ct. 985. See also Louisville & N. v. Garrett, 231 U. S. 298, 34 Sup. Ct. 48, when the provisions were held to be separable.

45 Cotting v. Kansas City Stock Yards Co., 183 U. S. 79, 46 L. ed. 92, 22 Sup. Ct. 30.

Citing Canada So. R. R. Co. v. International Bridge Co., L. R. 8 App. Cas. 723.