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particular transaction the charge is an unreasonable transaction for the service rendered." What the Privy Council had previously said in regard to bridge tolls was approved. "The principle must be, when reasonableness comes in question, not what profit it may be reasonable for a company to make, but what it is reasonable to charge to the person who is charged." These dicta as will be seen when the cases are examined more closely by one, are by the context confined to that small class of public services which receive no public aid either by way of grant or of privilege; thus confined it should not affect the general law. 46 But, certainly, were it to be held a proper principle for all cases, it would subvert the whole basis of the established law. Those businesses in which there are naturally but few transactions comparatively, would be ruined, while those in which a great number of transactions are carried on would profit enormously.

§ 308. Jurisdiction of the Commission.

It should be noted that the Commission has disclaimed jurisdiction to deal with the question of the rate of return, which the carriers are getting, as such. It declared in the Rate Advance cases of 1910 that it had no authority to say that a railroad ought to earn, either as a matter of right or as a matter of public policy, any given per cent upon its value; but, in discharging its duty to say whether the particular rates which the carriers propose to establish, are just and reasonable, it must determine in a general way what a fair return would be. 47 It has, until recently, taken the attitude that, strictly speaking, it has no jurisdiction to say defendants are justified in advancing rates for purpose of obtaining greater net rev

46 It was held in one proceeding that 10% of gross express earnings in the express business being profit is liberal, because the capital involved is so small. Kendel v. Adams Express Co., 13 I. C. C. 475.

See also to the same effect, In re Express Rates, 24 I. C. C. 380.

47 In re Advance in Rates-Eastern Case, 20 I. C. C. 243.

enues; but in the Five Per Cent Rate cases of 1914 this policy has apparently been abandoned by the majority of the Commission, to judge from the language of the minority.48 The fact that net earnings may be large does not of itself justify the Commission in fixing rates less than are reasonable for service; likewise whether the Commission has power to reduce rates for sole reason that revenues are excessive is not decided.49 At the same time, in reducing rates, the Commission feels bound to consider whether a contemplated readjustment of rates will result in undue impairment of the revenues of the railroad. 50 And it will be much swayed by the contention, if supported by the evidence, that a decrease in rates would be ruinous to the business of the protestants.

§ 309. Status of the companies affected.

Unreasonable rates cannot be permitted simply because the entire result of company's operations might not be as favorable as would otherwise be proper.51 51 The mere fact that the road in question is being operated at a loss, does not justify rates unreasonably high for service performed.52 It follows that the unfavorable financial condition of the defendant railroad cannot lawfully be remedied by imposing unreasonable rates. 53 The Commission has taken the attitude that an increase made solely for the purpose of obtaining more revenue cannot be justified.54 And it has said that the capitalization of a corporation is not a measure of the reasonableness of its rates.55 And in one opinion, at least, the Commission went so far as

48 The Five Per Cent Cases. Opinions of Dec. 18, 1914.

49 Railroad Commissioners of Iowa v. I. C. C. R. Co., 20 I. C. C. 181. See also city of Spokane v. N. P. Ry., 19 I. C. C. 162.

50 Black Mountain C. L. Co. v. Southern Ry., 15 I. C. C. 286.

51 In re Express Rates, 24 I. C. C. 380.

52 In re Advance on Coal to Lake Ports, 22 I. C. C. R. 604.

53 Hitchman Coal & Coke Co. v. B. & O. R. R. Co., 16 I. C. C. 512.

54 Demer Son & Co. v. A. T. & N. R. R., 19 I. C. C. 575.

55 Commercial Club of Salt Lake City v. A., T. & S. F. Ry., 19 I. C. C. 218.

to say that a definite and uniform allotment of funds from
the charge imposed for the movement of each character
of traffic, to provide for interest, dividends and surplus is
not proper.56
Of course, the fact that all concerned have
been prosperous, although a matter to be considered, does
not conclusively show that rates are not right.57 But dur-
ing the time it is being operated without assurance of profit,
a new line would not be required to establish as low a rate
as a more firmly established road. 58

Topic B. Fair Rate of Return

§ 310. Interest upon bonds protected.

It was generally agreed from the very first that, whatever might be the right to earn a dividend upon stock, the interest upon the outstanding bonds must be protected. Thus in Chicago and Northwestern Railway v. Dey, 59 Mr. Justice Brewer was apparently ready to protect the interest upon outstanding bonds in all contingencies, although he left the question of whether any surplus should be left for dividends to the discretion of the legislature. But, certainly, as the United States Supreme Court said some years later, bond issues which have no actual values behind them have no protection.60 And if the interest in the bonds is fixed unduly high at the outset, it will not be protected against legislation reducing rates, as the California courts hold.61 Indeed, it has been questioned whether more than the current rate of interest upon borrowings, in an enterprise of similar character, can be secured to bondholders. In the case of Steenerson

of

56 Railroad Commissioners of Iowa v. I. C. R. R., 20 I. C. C. 181. 57 Railroad Commissioners Florida v. S. A. L. Ry., 16 I. C. C. 1. 58 Collingwood Brick Co. v. P. M. R. R., 26 I. C. C. 572.

59 35 Fed. 866. See also Brymer v. Butler Water Co., 179 Pa. St. 231, 36 Atl. 249, 36 L. R. A. 260.

60 Smyth v. Ames, 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. 418. See also: Spring Valley Waterworks v. San Francisco, 124 Fed. 574.

61 Spring Valley Waterworks v. San Francisco, 124 Fed. 574. And compare Redlands L. & C. D. Water Co. v. Redlands, 121 Cal. 365, 53 Pac. 843.

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v. Great Northern Railway Company, the court answered the question in the negative, Mr. Justice Canty saying: "If a railway company has made what turns out to be a bad bargain by issuing its bonds for six per cent or seven per cent interest per annum that should be its misfortune and not the misfortune of the public." 63

§ 311. Rates at which governments can borrow no criterion. The Commission has been accustomed to repeat with approval the language of the courts to the effect that compensation implies payment of cost of service, interest on bonds, and then some dividend. The rates at which governmental bodies can borrow is obviously no criterion in itself. The standard is what the current rate of return is on securities of private companies conducting other businesses of similar character. This has been pointed out by the Commission, very clearly:64 "In many countries the conduct of transportation by railways is undertaken by the government at public expense. The government of the United States could probably borrow what money would be needed to buy or build the railways of this country at from 2 1-2 to 3 per cent. Ought the public to be taxed for the service rendered beyond this rate of interest? Plainly, no such test ought to be applied. This government does not undertake that duty, nor does it guarantee any rate of return upon the money invested. It would be clearly unjust to impose upon the private capital which performs this quasi-government function all the hazard without allowing it some participation in whatever profit may accrue.

99 65

62 69 Minn. 353, 72 N. W. 713. But see Pennsylvania R. R. Co. v. Philadelphia County, 220 Pa. St. 100, 68 Atl. 676, 15 L. R. A. (N. S.) 108.

63 See contra, Norwich Gas & E.

Co. v. City of Norwich, 76 Conn. 565, 57 Atl. 746.

64 Morgan Grain Co. v. A. C. L. R. R., 19 I. C. C. 460.

65 Re Advance Freight Rates, 9 I. C. C. Rep. 382.

to say that a definite and uniform allotment of funds from the charge imposed for the movement of each character of traffic, to provide for interest, dividends and surplus is not proper.56 Of course, the fact that all concerned have been prosperous, although a matter to be considered, does not conclusively show that rates are not right.57 But during the time it is being operated without assurance of profit, a new line would not be required to establish as low a rate as a more firmly established road. 58

Topic B. Fair Rate of Return

§ 310. Interest upon bonds protected.

It was generally agreed from the very first that, whatever might be the right to earn a dividend upon stock, the interest upon the outstanding bonds must be protected. Thus in Chicago and Northwestern Railway v. Dey, 59 Mr. Justice Brewer was apparently ready to protect the interest upon outstanding bonds in all contingencies, although he left the question of whether any surplus should be left for dividends to the discretion of the legislature. But, certainly, as the United States Supreme Court said some years later, bond issues which have no actual values behind them have no protection.60 And if the interest in the bonds is fixed unduly high at the outset, it will not be protected against legislation reducing rates, as the California courts hold.61 Indeed, it has been questioned whether more than the current rate of interest upon borrowings, in an enterprise of similar character, can be secured to bondholders. In the case of Steenerson

of

56 Railroad Commissioners of Iowa v. I. C. R. R., 20 I. C. C. 181. 57 Railroad Commissioners Florida v. S. A. L. Ry., 16 I. C. C. 1. 58 Collingwood Brick Co. v. P. M. R. R., 26 I. C. C. 572.

59 35 Fed. 866. See also Brymer v. Butler Water Co., 179 Pa. St. 231, 36 Atl. 249, 36 L. R. A. 260.

60 Smyth v. Ames, 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. 418. See also: Spring Valley Waterworks v. San Francisco, 124 Fed. 574.

61 Spring Valley Waterworks v. San Francisco, 124 Fed. 574. And compare Redlands L. & C. D. Water Co. v. Redlands, 121 Cal. 365, 53 Pac. 843.

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