as a whole, especially as the reasonableness of one rate may be judged with reference to other rates in the same schedule. An example of the way in which such problems are worked out, considering all factors and then giving most weight to one held to be controlling in the particular case, may be seen in various cases before the Interstate Commerce Commission." "To inquire whether the revenues of this railway company might be or ought to be reduced below the present point would raise several interesting and important questions, for the consideration of which we have not before us in this case the necessary data. We are furnished with a statement of the funded debt and capitalization of the road, and also with a statement of its financial operations for the last year. We are not informed how this debt was created, what it would cost at the present time to replace the property represented by this capitalization, nor what that property is fairly worth, if indeed there be any standard by which its value can be measured."

§ 224. Conclusion as to proportionate rate.

As a result of these considerations, the conclusion may be drawn that a proportionate rate must be established for each article of traffic. This rate will be fixed according to the share of the entire burden of charge which ought reasonably to be borne by that particular article. In determining the reasonable share of the burden to be borne by an article, various considerations must be weighed, and the rate when finally established will be determined as a result of all such considerations. It must be clear, therefore, that the establishment of the particular rate is not, like the establishment of the general schedule of charges, a matter which can be tested by a mathematical

Reduction opposed because it would mean serious reduction in the revenues, and statement offered to show that roads in the southwest are

not prospering. Texarkana Freight Bureau v. St. L., I. M. & S. Ry. Co., 28 I. C. C. 569.

formula. The division of rates among the particular commodities involves judgment and experience; it is not an exact division, but only the closest possible approximation to fairness. Thus in speaking of the requirement of the Federal Interstate Commerce Act of 1887, section 1, that rates should be reasonable and just, the Interstate Commerce Commission has said: 97 "The words 'reasonable' and 'just' as used in the Statute, as applied to rates, are each relative terms. They do not mean to imply that the rates upon every railroad engaged in interstate commerce shall be the same or even about the same. The conditions and circumstances of each road surrounding the traffic and which enter into and control the nature and character of the service performed by the carrier in the transportation of property, such as the cost of transportation, which involves volume or lightness of traffic, expenses of construction and of operation, competition in some respects of carriers not subject to the Law, rates made by shorter and competing lines to the same points of destination, space occupied by freight, value of freight and risk of carriage to carrier, all have to be considered in determining whether a given rate is 'reasonable' and 'just.'"' 98

§ 225. Company cannot make unreasonable rates.

The requirement that no person may be charged more than a reasonable rate may be insisted upon although the result is that the company does not get a fair return from its schedule as a whole. Those who undertake a public employment enter upon a business affected with a public interest, which justifies the State in demanding that the rates charged shall be reasonable to the public. A test

"The quotation is from New Orleans Cotton Exchange v. Illinois Cent. R. R., 2 Int. Com. Rep. 777, 3 I. C. C. Rep. 534.

The difference in the character of testimony required to test the reasonableness of an entire schedule

of rates covering the whole traffic of a particular carrier and that required to test the reasonableness of a rate on a particular commodity between two definite points considered and discussed. Frye & Bruhn v. Northern P. R. Co., 11 I. C. C. 501.

case upon this point was Missouri Pacific Railway v. Smith," where maximum rates were fixed by the Legislature which the plaintiff railway company claimed would cut off all the profits of their business. The court held that this was not fatal to the constitutionality of the legislation; Mr. Justice Thomason saying: "Rates of transportation sufficient to enable the road to realize a sum large enough to defray current repairs and expenses and pay a profit on the reasonable cost of building the road and equipping it, ought to be reasonable. The earnings of a road might be sufficient for this purpose, and yet not large enough to pay expenses and interest on its debts. Large and unnecessary debts might have been contracted through extravagance, enormous salaries, and mismanagement, exceeding the cost of building and equipping the road, and bearing a rate of interest amounting to more than a reasonable profit on the capital necessary, when judiciously expended, to construct and equip the road. Like some individuals as to their business, railway companies can reach a point through extravagance, losses and mismanagement, when no reasonable rate of profit will enable them to maintain their roads and pay the interest upon their debts, and when failure and a sale of the road to other parties become inevitable." 1

§ 226. Company cannot justify exorbitant profits.

On the other hand, it is certain upon fundamental principles that the company cannot justify exorbitant profits by urging that the rates are reasonable in themselves. At first impression this has seemed to some persons unjust to the company; but it should be remembered that the company is still allowed a fair return upon its reasonable capitalization, which is all the right that those who have entered upon these enterprises have by established law. If it is found that rates may be reduced to a point which seems below the reasonable standard and yet produce a

"60 Ark. 221, 29 S. W. 752.

1 See Cary v. Eureka Springs Ry., 7 I. C. C. 286.

fair return, the company has no legal grievance if it is not permitted to charge higher rates. To quote a specific illustration: 2 "The rate per ton mile, while often instructive, is not by any means a fair index of a reasonable rate. The cheapest traffic is frequently the most profitable to the carrier. For the year ending June 30, 1901, the average receipts per ton mile upon all kinds of traffic over the Chesapeake & Ohio System, embracing about 1,500 miles, was 3.88 mills. The percentage of operating expenses was 62.87-much below the average of the whole United States and among the very lowest. Its net earnings were $3,656 per mile, equivalent to 6 per cent. interest on $60,000 per mile-just about the average capitalization of all our railroads. This example is referred to as showing that business may be profitably done at astonishingly low rates. Indeed, it is usually a question, not of the absolute rate, but of the conditions under which the traffic is handled." 3

§ 227. Special circumstances affecting the particular rate. There may be special circumstances connected with a particular transaction which increases or decreases the cost of service; and the effect of such circumstances on the rate must be considered. For instance, the expense of constructing a mountain branch may be very much greater than that of building the main line; or the population served by the company may in places be so sparse as to make the cost of operation very great in proportion to the service demanded. All these circumstances may properly affect the rate charged in those portions of the territory

* Re Proposed Advances in Freight Rates, 9 I. C. C. Rep. 382.

In fixing rates an express company should not be allowed to charge more than a railroad company for the same service. In re Express Rates, 24 I. C. C. 380.

'While earnings may be considered

in fixing a reasonable rate, rates cannot be fixed on this basis alone; sometimes what is a fair rate will not leave sufficient earnings, sometimes it will result in large earnings. Hooker v. Interstate Com. Comm., 188 Fed. 242.

served by the company; yet it appears unjust to place the whole burden upon such territory, thus accentuate its poverty, and place another handicap upon it in the effort to become prosperous. Not all the extra cost of service should be placed upon the particular customers. At the same time, many things besides the mere mileage run must be considered in fixing the rates. A uniform mileage rate imposed upon all railroads would be in reality unequal and unjust. As Mr. Justice Morse said in Wellman v. Chicago & Grand Trunk Railway: "If no classification can be made, and the maximum rate must be fixed the same for all, then the law is admitted to operate unequally and unjustly, because some companies are to less expense than others in the same length of road by reason of the nature of the country through which they run; some have costly terminal facilities, and some have not; some owe large amounts, and some do not; and some do a large amount of business, and some do not."

5

Topic C. The Particular Rates Considered Separately

§ 228. Reasonableness of the separate rates.

The question of the reasonableness of any separate rate is a much more complex one. The individual shipper ought not to pay more than his fair share of the whole amount received by the carrier; and what his fair share may be depends upon the nature of the goods carried, the expense of carrying them as compared with the carriage of other goods, and other similar considerations. On the other hand, fairness to the shipper requires that under no circumstances should he be forced to pay a rate greater than the value of the service rendered to him by the carrier, and this involves a determination of the value to him individually of the carriage, and also of the cost to the

583 Mich. 592, 47 N. W. 489.

It is fallacious to place reliance upon ton-mile earnings as basis of rate-making; much of profitable

freight carried is that which yields lowest rate per ton per mile. In re Advances on Coal to Lake Ports, 22 I. C. C. 604.