1 of rates shall leave a fair return by way of profit is without exception. There are decisions which show that this is not an inviolable right. A recent Florida case 1 will bring this out, where Mr. Justice Carter said of a plea that at the rates imposed by the commission the company would not make a fair return above operating expenses: "The vice in this method of pleading lies in the fact that the question of reasonableness is made to depend upon the capacity of the rates to yield a net income over and above the cost of constructing and maintaining the road and the payment of fixed charges, whereas circumstances may exist under which rates are reasonable which do not afford a net income above the cost of operation and taxes, or the cost of operation, taxes and fixed charges. The returns set forth a few elements entering into the question as to what constitutes a reasonable rate, and attempt to make these elements controlling; whereas the conditions surrounding the operation of the road may deprive them of controlling force." 2 § 1128. Reduction ruinous only to certain companies. A difficult question arises where although there has been a drastic reduction of rates, certain companies are in so strong a position that their earnings are not cut below the minimum of fair profit, while with other companies the reductions will not only wipe out all profits whatsoever, but compel them to conduct their business at a loss. 1 State v. Seaboard Air Line, 48 Fla. 129, 37 So. 314 (1904). 2 See to the same effect: United States.—In re Arkansas R. R. Rates, 168 Fed. 720 (1909). Arkansas. St. Louis & S. F. Ry. v. Gill, 54 Ark. 101, 15 S. W. 18, 11 L. R. A. 452 (1891). Florida.-Pensacola & A. R. R. v. Florida, 25 Fla. 310, 5 So. 833 (1889). Indiana. Southern Indiana R. R. Co. v. Railroad Commission, 172 Ind. 113, 87 N. E. 966 (1909) Adams Exp. Co., 85 Neb. 25, 122 N. W. 691 (1909) West Virginia.-Coal & Coke R. Co. v. Conley (W. Va.), 67 S. E. 613 (1910). Whenever this is brought to the attention of the court their attitude must be that they are dealing only with the case in hand, their sole function being to determine in the particular case before them whether this legislation will virtually confiscate the business property of this complainant.' The consequence follows inevitably that while the rates imposed may be found unreasonable, and therefore not enforceable as to some of the roads in the State, this does not necessarily render them unreasonable and unenforceable as to other roads doing business in the State.2 § 1129. Possibility of increase of business at the lowered rates. The point is urged from time to time that the reduction ordered in existing rates should not be questioned at the outset, but the company should be compelled to give the new rates a fair trial. It may turn out that there will be no reduction in earnings after all, since the increased business consequent upon the lower rate might more than make good that loss. Although this has much force from a theoretical point of view, it must obviously be acted upon in an actual case with the greatest caution. This was one of the many matters discussed in the important case of Chicago & Northwestern Railway v. Dey, when 1 Pennsylvania R. R. Co. V. Philadelphia County, 220 Pa. St. 100, 68 Atl. 676, 15 L. R. A. (N. S.) 108 (1908). See also Nebraska Tel. Co. v. Cornell, 59 Neb. 737, 82 N. W. 1 (1900). 2 St. Louis & S. F. R. R. v. Hadley, 168 Fed. 317 (1909). Legislation applying only to railroads of a certain class should therefore be held constitutional. Coal & Coke Ry. Co. v. Conley (W. Va.), 67 S. E. 613 (1910). But in a leading case the United States Supreme Court held legislation applying only to stock yards of a certain size outrageous. Cotting v. Kansas City S. Y. Co., 183 U. S. 79, 46 L. ed. 92, 22 Sup. Ct. 30 (1901). 3 35 Fed. 883, 1. L. R. A. 744, and note (1888). Southern Ry. Co. v. Tift, 206 U. S. 428, 51 L. ed. 1124, 27 Sup. Ct. 1124 (1906), the court will enjoin threatened rates without allowing Mr. Justice Brewer disposed of it in this wise: "The only fair judicial test is to apply the rates to the business that has been done in the past, and see whether, upon that basis such rates will be remunerative, or compel the transaction of business at a loss." However within a few years some of the Federal judges have shown a disposition to refuse to grant a preliminary injunction against the present enforcement of the new rates imposed by the governmental authorities until the outcome may be seen.1 Of course the issuance of a preliminary injunction lies within the discretion of the judge; and it may be that it should not be granted, unless the court feels that there is high probability of irreparable injury. And indeed the United States Supreme Court in Willcox v. Consolidated Gas Co.3 seems to have committed itself to the doctrine that it should be considered in the final disposition of the case whether increased consumption at the lower rate might not result in increased earnings—“as the cost of furnishing the gas would not increase in proportion to the increased amount of gas furnished." It was conceded, however, that a company should not be put to this practical test unless it trial of them if it feels that the probabilities are that the parties concerned will be injured. Macon Grocery Co. v. Atlantic Coast Line, 163 Fed. 738 (1908), the court will enjoin outrageous rates put in force by the carriers pending passing upon by commission. 1 See In re Arkansas Railroad Rates, 168 Fed. 720 (1909); Central of Ga. Ry. R. Co. v. McLendon, 157 Fed. 961 (1907). 2 See Seaboard A. L. Ry. Co. v. Railroad Commission, 155 Fed. 793 (1907). And see St. Louis & S. F. R. R. Co. v. Hadley, 168 Fed. 317 (1909). 212 U. S. 19, 53 L. ed. 382, 29 Sup. Ct. 192 (1909). 3 In the extraordinary case of the telephone, as increased business means increased cost, this doctrine has no application. Louisiana R. R. Commission V. Cumberland Telephone Co., 212 U. S. 414, 53 L. ed. 577, 29 Sup. Ct. 357 (1909). But in a business such as common carriage where increasing business means increasing returns the court will not grant an injunction where it feels confident that this result will follow. State v. Adams Exp. Co., 85 Neb. 25, 122 N. W. 691 (1909). was plain in a particular case that such a result was distinctly probable. And of course in the event of loss actually resulting from the new rates the complainant originally dismissed may file a new bill without prejudice. § 1130. 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. There are dicta which seem to go to this extent in the highest courts of both the United States and the British Empire. In deciding against legislation reducing the charges of a stock yard the Supreme Court 1 said: "The question is not how much he makes out of his volume of business, but whether in each 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 discussed more fully later on, are by the con 1 Cotting v. Kansas City Stock Yards Co., 183 U. S. 79, 46 L. ed. 92, 22 Sup. Ct. 30 (1901). 2 Canada So. R. R. Co. v. International Bridge Co., L. R. 8 App. Cas. 723 (1883). text 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. 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. Topic C. Fair Rate of Return § 1131. 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,1 Mr. Justice Brewer would 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. 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. 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 v. Great 135 Fed. 866 (1888). See also Brymer v. Butler Water Co., 179 Pa. St. 231, 36 Atl. 249, 36 L. R. A. 260 (1897). 'Smyth v. Ames, 169 U. S. 466, 42 L. ed. 819, 18 Sup. Ct. 418 (1897). See also: Spring Valley Waterworks v. San Francisco, 124 'Spring Valley Waterworks v. San Francisco, 124 Fed. 574 (1903). And compare Redlands L. & C. D. Water Co. v. Redlands, 121 Cal. 365, 53 Pac. 843 (1898). |