however, the betterment is to be made at the expense of the leased road, or where the expense of it diminishes by so much the rent, the betterment is not a proper annual charge of the operating road. It is true that betterments are usually proper annual charges; but in this case it is a betterment of the leased and not of the operating road, and can no more be charged against the receipts of the latter road than the official salaries of the leased road.

66

It is clear, therefore, that, if the railroad was added to or bettered, it was to be out of the income which the Central Pacific Company was entitled, and which would, if not so expended, be paid to it. It is true that the lease provides for the contingency of the payment of such expense by the Southern Pacific Company, but it also provides for its repayment, so that it is not, in any case, a deduction from its revenue. If it be said that the Regan case makes such expenses proper as operating expenses, the answer is, it was competent for the parties to stipulate otherwise; and now to hold it a charge on the Southern Pacific Company would be to restore the liability of the lease as it stood in 1888, and which was altered as far as omissions. and explicit enumeration could alter it. Hence it follows that the item of $111,786.71, for betterments and additions to the Central Pacific Company, should not be allowed as an expenditure of the Southern Pacific Company."

6 McKenna, J., in Southern Pacific Co. v. Railroad Comrs., 78 Fed. 236, 268 (1896).

TOPIC DPECULIAR EXPENSE OF THE PARTICULAR SERVICE.

§ 457. 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 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."

458. Divisions built through a difficult territory.

When a road or part of a road is built through a mountainous country or other country which requires expensive construction, the charge may be greater than on other portions of the road or other roads where the cost of construction per mile is less. So where different rates were prescribed for railroads on the lower and on the upper peninsula of Michigan, this difference was held proper. "The distinction between the roads of the upper and lower peninsulas must be considered, in the absence of any showing to the contrary to be a reasonable one. We are authorized to take judicial knowledge, for it is a matter of general knowledge, that the cost of building and running railroads in

783 Mich. 592, 47 N. W. 489 (1890).

the upper peninsula is much greater than that in the lower, owing to the marked, physical difference between them in the character and face of the country."

459. Divisions in sparsely populated territory.

It is clear that where a division of a railroad runs through a sparsely populated country, so that the amount of business done upon it is comparatively small, and the net earnings are therefore much below the average of the whole road, the charges may be greater than the charges on the other parts of the road. This was discussed in the case of Ames v. Union Pacific Railway2 by Mr. Justice Brewer: "It is, however, urged by the defendants that, in the general tariffs of these companies, there is an inequality; that the rates in Nebraska are higher than those in adjoining States, and that the reduction by House Roll 33 simply establishes an equality between Nebraska and the other States through which the roads run. The question is asked, Are not the people of Nebraska entitled to as cheap rates as the people of Iowa? Of course, relatively they are. That is, the roads may not discriminate against the people of any one State, but they are not necessarily bound to give absolutely the same rates to the people of all the States; for the kind and amount of business and the cost thereof are factors which determine largely the question of rates, and these vary in the several States. The volume of business in one State may be greater per mile, while the cost of construction and of maintenance is less. Hence, to enforce the same rates in both States might result in one in great injustice, while in the other it would only be reasonable and fair. Comparisons, therefore, between the rates of two States are of little value, unless all the elements that enter into the problem are presented. It may be

1 Morse, J., in Wellman v. Chicago & G. T. Ry., 83 Mich. 592, 47 N. W. 489 (1890).

2 64 Fed. 165, 188 (1894), cited and approved by Harlan, J., on appeal; Smyth v. Ames, 169 U. S. 466, 42 L. Ed. 819, 18 Sup. Ct. 418 (1898).

true, as testified by some of the witnesses, that the existing local rates in Nebraska are forty per cent. higher than similar rates in the State of Iowa. But it is also true that the mileage earnings in Iowa are greater than in Nebraska. In Iowa there are 230 people to each mile of railroad, while in Nebraska there are but 190; and, as a general rule, the more people there are the more business there is. Hence, a mere difference between the rates in two States is of comparatively little significance."

This same line of argument was pithily put by Mr. Justice Canty in Steenerson v. Great Northern Railway, when he asked, "Why should the people of Minnesota and Eastern Dakota be made to pay an income on this idle railroad property further west?" And in Wellman v. Chicago & Grand Trunk Railway Mr. Justice Morse said: "A classification according to the amount of business done per mile seems to me to be the fairest and the most reasonable classification, if railroads are to be classed at all, in the fixing of the maximum rates."

460. Way stations.

Local shipments are more expensive to handle in proportion to the mileage than long distance shipments, and a greater proportionate charge is therefore justified. "The operating expenses of a railroad consist of two principal items: (1) Cost of maintenance of plant; (2) cost of conducting transportation. The former item is constant, and can justly be divided between the different kinds of traffic in proportion to their volume. As to the second item, however, such a division cannot properly be made; for it is agreed, by all who have had occasion to consider the subject, railroad commissioners as well as railroad officials, that the cost of conducting transportation is, relative to income, much higher for local business than for the general business of a road. The causes of this added cost are chiefly

369 Minn. 353, 72 N. W. 713 (1897).

4 83 Mich. 592, 47 N. W. 489 (1890).

three: (1) The shortness of the haul; (2) the lightness of the train loads; (3) expense of billing and handling the traffic."5

Because a greater charge is made on local than on through business, it by no means follows that all the charge of maintaining a station can be laid upon the business done at that station. If, for instance, a small amount of business is done at a station the rates cannot be made much greater at that station than at a neighboring way station, where three or four times as much business is done.

§ 461. General requirements may produce particular losses. Consistent with this general conception is the contention supported by some cases that transportation for particular transits may be required to be made according to some general system of rates, producing a fair return for the system as a whole, although it is alleged that in a particular instance loss will result. Such were, perhaps, the facts in Missouri Pacific Railway v. Smith, and the court in the majority opinion written. by Mr. Justice Battle said: "Appellants further allege that the act of April 4th was unreasonable in fixing the rate for the carriage of a passenger at three cents a mile in this: that the actual cost and expenses of transporting each passenger and his baggage over the Little Rock & Ft. Smith Railway are more than three cents a mile, and that by reason thereof the company operating the road is compelled to transport passengers at a loss. To dispose of this defense, it is sufficient to quote from the opinion in Railway Co. v. Gill, as follows: It [railway company] can only claim a profit from the operation of its entire line, and attack as unjust an act that denies it the right

5 Amidon, J., in Northern Pac. Ry. v. Keyes, 91 Fed. 47 (1898). Though the decision was reversed on appeal, this point was approved and reinforced by the Supreme Court.

660 Ark. 221, 29 S. W. 752, 5 I. C. C. Rep. 348. 754 Ark. 112, 15 S. W. 18.