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common carrier subject to the provisions of this Act. As a result of its investigations, the Commission shall make an inventory which shall list the property and that of every common carrier subject to the provisions of this Act in detail, and show the value thereof as hereinafter provided, and shall classify the physical property, as nearly as practicable, in conformity with the classification of expenditures for road and equipment, as prescribed by the Commission so that once made the figures can be kept current.

§ 951. Prohibition of intercorporate relationships.

As to pooling the original Act provided that it should be unlawful for any common carrier subject to its provisions to enter into any contract, agreement, or combination with any other common carrier or carriers for the pooling of freights of different and competing railroads, or to divide between them the aggregate or net proceeds of the earnings of such railroads, or any portion thereof; and in any case of an agreement for the pooling of freight as aforesaid, each day of its continuance shall be deemed a separate offense. Reference should also be made to the Sherman Anti-Trust Law declaring against all combinations in restraint of trade and conspiracies against commerce between the States. Of course, any such action if proved against carriers very obviously would constitute restraint of interstate commerce, a thing which it is difficult to prove in the case of merchants in manufacturing businesses of the times. Furthermore, as to intercorporate relations it has recently been provided in the Panama Act of 1912 that unless it appears to be in the interest of the public railroads cannot own competing water lines, the determination of that question being left to the Commission. And by the Clayton Act of 1914 it is provided that there shall be no substantial ownership by stock control in a competing railroad, that question being again left to the Commission. There are also provisions against

interlocking directorates, and especially against common control of carrier corporations and supply companies. These various provisions are too elaborate for inclusion in this preliminary section; and so a section is devoted to each later in this chapter.

Topic A. Supervision of Current Accounting

952. Who must file reports.

Generally speaking only those concerned with such carriage as the Act has constitutionally subjected to the jurisdiction of the Commission can be called upon to keep their accounts as prescribed by the Commission and report as required by the Act.80 Thus a railroad located altogether within a State which keeps itself without any entangling arrangements with other carriers is held not to be required by the Act to make any reports to the Commission.81 This is so because such companies are not considered as participating in the carriage of goods between the States. On the other hand, where a railroad takes part in the carriage of the traffic between states on any basis which may evidence its participation therein, it thereby becomes a carrier subject to the Act in this respect as in all others. This would plainly be in the case where a carrier issues through bills, or accepts a division of the through rate.82 But in many cases where the concern of the company is less obviously direct, it may still be found to be so far participating in the carriage as

80 United States ex rel. v. Kansas City & So. Ry., 81 Fed. 783.

A car ferry company connecting two interstate rail lines by which it is owned is a carrier subject to the Act although it has no direct dealings with the public, and must report to the Commission keeping its accounts as it prescribes. I. C. C. Conference Ruling No. 374.

81 Interstate Commerce Commis

sion v. Bellaire C. & Z. R. R., 77 Fed. 942.

A bridge company which performs no transportation but simply rents its bridge to an interstate carrier, need not report to the Commission as it is not a carrier subject to the Act. I. C. C. Conference Ruling No. 381.

82 Interstate Commerce Commission v. Seaboard A. L. Ry., 82 Fed. 563.

to be subject to the jurisdiction of the Commission. Thus a railroad which ostensibly is only the lessor in an involved arrangement may be obliged to report as provided in the Act.83

§ 953. Extent of powers over accounts.

It has lately been decided by the Supreme Court of the United States that the federal government can compel the keeping of the books of a company doing both an interstate and an intrastate business, so as to show the whole operations of the company in such way as the Commission may prescribe under the Act.84 The idea underlying this is that the knowledge as to all the doings of the company may be necessary to deal intelligently with its interstate business. Following this line of reasoning a Texas court has still more recently held that a State government may compel such carriers to keep its figures as to its interstate business in such ways as may be prescribed.85 This result may well be questioned as the analogy drawn ignores the paramount power of the Federal government to brush aside conflicting State rules, to which there is no corresponding power in the States. The extent to which the Commission can go in the exercise of this power over accounts has only very recently been established. But it is now well settled that leaving to the Commission the carrying out of details in the exercise of its discretion under section 20 to prescribe a uniform system of accounting and bookkeeping for the carriers subject to the Act, does not render this section invalid as a delegation of legislative authority.86 That the enforcing of such a course upon carriers subject to the Act with the disclosures it imposes, even when penalties may be imposed upon the corporation, largely as a result of the

83 United States v. Union S. Y. & T. Co., 226 U. S. 286, 33 Sup. Ct. 83. 84 Interstate Commerce Commission v. Goodrich Tr. Co., 224 U. S. 194, 56 L. ed. 729, 32 Sup. Ct. 436.

85 Railroad Commission of Texas v. Texas & P. Ry. (Tex.), 40 S. W. 829.

86 Kansas City So. Ry. v. United States, 231 U. S. 423, 34 Sup. Ct. 125.

information thereby imparted, is not an unreasonable search or seizure such as is defined in the Constitution, is also now clearly established.87

§ 954. Methods of amortization accounting.

As a matter of accounting, depreciation can be taken care of in different ways. There is the method of taking obsolescence from year to year to the amount of the wear for that year, considering that at the first the depreciation is slight; so this line of the depreciation sharply curves off as the effects of the wear accumulate. Then there is the method of equating the depreciation for the whole period of the life of the property, so that the setting aside of that sum each year would produce an amount at the end of the period equal to the amount of the original investment, which is known as the straight line method.88 How these sums in either case shall be handled constitutes another difference. They might actually be set aside in banks as accruing funds, or an equivalent amount in new equipment might be purchased for each year. There are arguments for each of these policies; but it will be noted that the latter is a saving to the public. The company should get its profit each year upon the investment which it is taking this method of keeping good; there should be no business profit upon the sums set aside, however. It follows that by the second method the public really gets additional equipment at its disposal without paying a profit upon it.89 Whether depreciation should invariably be charged against the operating expenses of the year, or whether if the company has a surplus at any time it may be taken out of that, is not a matter about which one can be dogmatic. But it would seem that it would be prefer

87 Baltimore & O. Ry. v. Interstate Commerce Commission, 221 U. S. 612, 55 L. ed. 678, 31 Sup. Ct. 621.

88 See the general discussion in the Minnesota Rate Cases, 230 U. S. 352, 33 Sup. Ct. 729.

89 If the requirements for depreciation are at any time abnormal, they may be projected over the operating expenses of several years. Kansas City So. Ry. v. United States, 231 U. S. 423, 34 Sup. Ct. 125.

able to charge it annually against the traffic which gets the benefit of the use instead of against shippers at some other period.

§ 955. Depreciation cannot be capitalized.

It is now well established that not only is it the right of the company to make such a provision, but it is its duty to its bond and stockholders, and, in the case of a public service corporation at least, its plain duty to the public. If a different course were pursued the only method of providing for replacement of property which has ceased to be useful would be the investment of new capital and the issue of new bonds or stocks. This course would lead to a constantly increasing variance between present value and bond and stock capitalization-a tendency which would inevitably lead to disaster, either to the stockholders or to the public, or both.90 If, however, a company fails to perform this plain duty and to exact sufficient returns to keep the investment unimpaired, whether this is the result of unwarranted dividends upon over-issues of securities, or of omission to exact proper prices for the output, the fault is its own; when, therefore, a public regulation of its prices comes under question the true value of the property then employed for the purpose of earning a return cannot be enhanced by a consideration of the errors in management which have been committed in the past. It is entirely consistent with this theory that where a public service corporation raises more money in a particular year than is required for actual depreciation it cannot carry the excess to capital for the purpose of estimating the amount on which it is entitled to pay dividends."1

§ 956. Writing off superseded property.

The theory upon which the Commission has acted in formulating its regulations is fully stated in its brief in

90 Knoxville v. Knoxville Water Co., 212 U. S. 1, 53 L. ed. 371, 29 Sup. Ct. 148.

91 Louisiana Railroad Comm. v. Cumberland Telephone Co., 212 U. S. 414, 53 L. ed. 577, 29 Sup. Ct. 357.

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