mation, as could jurors in primitive days. All parties must be fully apprised of the evidence submitted or to be considered and must be given opportunity to cross-examine witnesses, to inspect documents, and to offer evidence in explanation or rebuttal. In no other way can a party maintain its rights or make its defense. In no other way can it test the sufficiency of the facts to support the finding, for otherwise, even though it appeared that the order was without evidence, the manifest deficiency could always be explained on the theory that the Commission had before it extraneous, unknown, but presumptively sufficient information to support the finding. (Id., 93–94.)

Counsel for the Commission insisted that the order was fully supported by the evidence contained in the record before the Commission, and in this connection the Supreme Court, after calling attention to many circumstances and conditions and findings of the Commission relating thereto, which the Commerce Court had held to be irrelevant and immaterial, said:

The order of the Commission, restoring a local rate that had been in force for many years, and making a corresponding reduction in the through rate, was not arbitrary but sustained by substantial though conflicting evidence. The courts can not settle the conflict nor put their judgment against that of the ratemaking body, and the decree is reversed. (Id., 100.)

OMAHA BRIDGE CASE.

Omaha & Council Bluffs Street Railway Co. et al v. Interstate Commerce Commission et al. (230 U. S., 324.)

This case involved an order of the Commission reducing rates for the transportation of passengers from Council Bluffs to Omaha on a street railway operated between said points.

In deciding that the order of the Commission was void for want of jurisdiction the Supreme Court held that the act to regulate commerce does not apply to street railways, even though they cross State lines, where passengers are the only traffic carried and the railway serves but one community.

LEMON CASE.

Atchison, Topeka & Santa Fe Railway Co. et al. v. United States et al. (Decided November 3, 1913.)

This case involved an order of the Commission prescribing rates on lemons, in carloads, from points in southern California to various markets in the United States east of the Rocky Mountains.

In affirming a decree of the Commerce Court dismissing the petition of the carriers the Supreme Court, in a per curiam opinion, rejected the contention of counsel for the carriers that the reasonableness of a rate complained of before the Commission is a judicial question which must be finally determined by the courts.

LIGHTERAGE CASE.

United States et al. v. Baltimore & Ohio Railroad Co. et al. (Decided Dec. 1, 1913.)

This case involved an order of the Commission requiring certain carriers to cease and desist from a discrimination which results from the payment by them of lighterage allowances to Arbuckle Bros. on their shipments of sugar which originate at Brooklyn, N. Y., and are lightered by them therefrom to the New Jersey shore of New York Harbor, whence they are transported by the carriers over their lines of railway to western points of destination, and a refusal to pay like allowances to the Federal Sugar Refining Co. on its shipments of sugar which originate at Yonkers, N. Y., and are lightered by it to said New Jersey shore, whence they are transported by the carriers over their lines of railway to said western points of destination.

It appeared that Brooklyn was within the lighterage limits to which the carriers applied the New Jersey shore rate while Yonkers was not, and that the allowances paid to Arbuckle Bros. were covered by a contract which provided also for the payment of other allowances to them and obligated them to perform for the carriers services in connection with the receipt, delivery, and lighterage of traffic shipped to and from Brooklyn from and to points on the carriers' lines, while there was no such contract in effect between the carriers and the Federal Sugar Refining Co., and for these reasons the Supreme Court held that by paying the allowances to Arbuckle Bros. and refusing to pay like allowances to the Federal Sugar Refining Co. the carriers did not violate the prohibitions against unjust discrimination, undue preference, and undue prejudice, contained in sections 2 and 3 of the act to regulate commerce, since the record did not contain any evidence tending to show that the contract between the carriers and Arbuckle Bros. had not been entered into in good faith, and the Commission had not found that the allowances paid to Arbuckle Bros., when compared with the services to which they were by the contract made to apply, were unreasonable per se. In this connection the court said that the lighterage services performed by Arbuckle Bros. under the contract were transportation services, within the meaning of section 15 of the act, for which they could, under the circumstances, compel the carriers to pay a reasonable compensation, while the lighterage services performed by the Federal Sugar Refining Co. were accessorial services for which a like payment could not be required.

In lightering its shipments of sugar from Yonkers to the New Jersey shore the Federal Sugar Refining Co. forwarded the shipments in the first instance to itself at Pier 24, a point within the lighterage limits, and afterwards sent them to the terminals of the

carriers on the New Jersey shore for transportation to said western points of destination, but in connection with this matter the court said:

*

*

* The sugar had been sold before it was loaded at Yonkers, and the stopping at this pier and the receipt of unsigned bills of lading showing the consignees and destinations was, as the Commerce Court held, not a break in the continuity of the transportation, but a plain subterfuge to give the transaction the appearance of a shipment from Pier 24.

In the Supreme Court the Solicitor General of the United States contended that the services performed as aforesaid by Arbuckle Bros., under the name of "Jay Street Terminal," constituted a violation of the commodity clause of the act, and the court's reply to that contention was as follows:

The contention to which we have hitherto referred that the arrangement made by the Terminal Co. violates the commodity clause of the act to regulate commerce is not necessary to be considered. There is nothing in the record showing that such a contention was pressed upon the Commission, considered by that body, or that the order rendered was in any respect based upon the commodity clause. Indeed, the order permitted the continuance of the Jay Street Terminal and the business there conducted, providing only that like rights and allowances were made to the Federal Sugar Refining Co. The order, therefore, can not be assumed to have contemplated that the Jay Street Terminal business was a violation of the commodity clause, since under that hypothesis the conclusion would be inevitable that the Commission by its order gave sanction to and permitted the continuance of the wrong which its powers were exerted to suppress. As we do not consider the contentions concerning the commodity clause as properly arising for decision, and hence do not pass on them, they are not foreclosed, and hence our action in this case will be without prejudice to the right to assert them in the future if those having the right to do so are so advised.

KANSAS CITY SOUTHERN ACCOUNTING CASE.

The Kansas City Southern Railway Company v. United States and Interstate Commerce Commission. (Decided Dec. 1, 1913.)

This case involved an order of the Commission, made under section 20 of the act, requiring carriers, where, in making improvements, they abandon property, to charge replacement cost thereof, less salvage, to operating expenses.

After calling attention to the fact that the constitutional validity of the section was sustained in the case of Interstate Commerce Commission v. Goodrich Transit Co. (224 U. S., 194, 211, 214), the court, speaking through Mr. Justice Pitney, and affirming a decree of the Commerce Court, upheld the validity of the Commission's order, and held to be unsound contentions of counsel for the Kansas City Southern which may be summarized as follows:

1. That the Congress, in conferring upon the Commission power to prescribe the forms of accounts, records, and memoranda, to be kept

by carriers, recognized a distinction between form and substance, and did not authorize the Commission to interfere with the internal affairs of the carriers.

2. That in amending section 20 in 1906, the Congress adopted a well-defined meaning of the term "operating expenses," which precluded the view that abandoned property could be included therein.

3. That property originally acquired because necessary in the construction of a road and afterwards abandoned only because rendered unnecessary by the improvement and development of the property should remain in the property account as a part of the stockholders' investment.

4. That compliance with the Commission's order will render impossible an accurate report of either the cost of the carrier's property or the cost of its improvements or its operating expenses.

5. That the order was arbitrary, because not founded upon a reasonable basis.

In replying to the contention that, while the theory of the Commission might justify a charge to profit and loss, it did not justify a charge to operating expenses of the replacement cost of the property abandoned less salvage, the court, after pointing out that this involved a question of policy, said:

But did we agree with appellant that the abandonment ought to be charged to surplus or to profit and loss, rather than to operating expenses, we still should not deem this a sufficient ground to declare that the Commission had abused its power. So long as it acts fairly and reasonably within the grant of power constitutionally conferred by Congress its orders are not open to judicial review.

CASES IN THE COMMERCE COURT.

Since the date of our last report to the Congress only 5 suits, known as the Tap Line cases, have been filed in the Commerce Court to annul orders of the Commission.

During the year no application for a preliminary injunction was made, but preliminary injunctions were granted in 6 cases, known as the Pipe Line cases, upon applications which had been made. previously.

During the year 17 cases were disposed of by the Commerce Court. In 7 the orders of the Commission were upheld, 1 (a fourth-section case) was dismissed for want of jurisdiction, 2 were dismissed in accordance with stipulations of the parties, 2 were dismissed because the members of the court (4 judges) were divided in opinion, and in 5 the orders of the Commission were enjoined.

There are 12 cases now pending in the Commerce Court. In 1 of these final hearing has been had but decision has not been rendered, 8 more are awaiting decisions of the Supreme Court upon

appeals from preliminary injunctions issued by the Commerce Court, and none of the remaining 3 will probably come on for trial until after the Supreme Court has handed down decisions in what are known as the Inter-Mountain and Pipe Line cases.

A brief statement of all the cases decided, together with the import of each decision, is given in the appendix.

DIVISION OF CARRIERS' ACCOUNTS.

The Commission continues to receive, and in increasing measure, the cooperation and assistance of the different classes of carriers in formulating accounting systems which will furnish the Commission the largest possible measure of information, while recognizing the practical limitations of the carriers. There is manifested a growing appreciation of the importance of exact and theoretically correct accounting. At the same time there is a corresponding decline in the opinion, once too prevalent, that accounting may properly be governed by the policy or by the financial situation or needs of the accounting carriers. That such a subversion of the true purpose of accounting can be of no ultimate advantage to the carriers and is utterly incompatible with the statistical needs of a public-utility regulating body must be apparent.

A matter of great importance and growing recognition in nearly all lines of business is the proper accounting for depreciation. The Commission's Classification of Operating Expenses for Steam Roads, issued in 1907, provided accounts for depreciation of the equipment of such carriers. The amount of such depreciation, measured in money value, was left to the determination of the carriers, the rules, however, plainly requiring that such determined amount should represent the actual depreciation as nearly as it can be estimated. This latitude has resulted in widely different practices, the rates used by different carriers varying from nothing up to 7 per cent or more per annum upon equipment operated under substantially similar conditions. It seems evident that this variance is in some cases due to differences in policy rather than differences in actual depreciation or in the estimates thereof. The effect upon the accounts may be best understood from an illustration: Assuming that a railway company has equipment valued at $25,000,000 and that the correct average rate of depreciation is 4 per cent, the resulting charge to operating expenses would be $1,000,000 for the year. The railway company elects to charge only 1 per cent, or $250,000. The income for the year is thereby inflated $750,000, the asset in equipment is overstated by a like amount, and a fictitious surplus is built up. On the other hand, a charge of 7 per cent would result in a corresponding overstatement of operating expenses, understatement of income, and writing down of assets, creating what is known as a secret reserve." That the

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