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based was applied to the act to regulate commerce in the case of Van Patten v. C., M. & St. P. R. Co., 81 Fed. 545, decided by Shiras, J., in the circuit court of the northern district of Iowa, and in Kennedy v. Terminal Railroad Ass'n, 81 Fed. 802, by Adams, J., in the circuit court of eastern district of Missouri. These cases were decided in 1897 before the amendment of the act in 1903, wherein the published schedule was made conclusive against the carrier. It was held in both cases that in order to recover it must be shown that the rate was unreasonable according to the provision of the acts, and that it was a good defense to an action for damages for unreasonable charges that the carrier had adopted and posted a properly proportionate schedule of rates under section 6. These cases were both brought under the assumed election given by sections 8 and 9, without appealing to the commission to adjudge the rate unreasonable and for reparation. Prior to these cases in 1893 in Swift v. R. R. Co., 64 Fed. 59 (N. Dist. of Illinois) it had been held by Grosscup, J., that there was no common law of recovery in the federal court, and that under the act plaintiff could not recover without averring that no rates were published as required by the act.

Since the amendment of 1903, infra, § 422, the posted rate is the definite and conclusive standard of reasonableness subject to the finding of the commission that the rate so scheduled is unreasonable. As to the power to allow reparation in damages for unreasonable rates, see infra, sections of act 14 and 16; as to limitation of right of action under sections of act 8 and 9, see section 6 of act, infra.

There is no presumption, however, that a rate is reasonable in law, because it had been filed and published by the railroad with the commission. Illinois Central R. R. Co. v. Commission, 206 U. S. 441, 51 L. Ed. 1128 (1907.)

§ 165 (123). The power of the commission in fixing rates.During the first ten years of its existence, the commission claimed and exercised the power of fixing rates in futuro; that is, when a rate was adjudged unreasonable, to determine what rate was reasonable, and to direct the carrier to reduce the rate to the designated maximum. Illustrations of the decisions by the commission during this period will be found in their reports from 1887 to 1897. In 1896, it was decided by the supreme court, in

what is known as the Social Circle Case, 162 U. S. 184, 40 L. Ed. 935; and the following year in the Cincinnati Freight Bureau Case, 167 U. S. 479, 42 L. Ed. 243, that congress had not conferred upon the commission the power to prescribe rates, whether maximum, minimum or absolute, and in the latter case, it said that congress might have fixed the rate itself, or committed to some subordinate tribunal the duty, but that it had not done so. For statement by the commission of its powers under these decisions, see 7 I. C. C. R. 286, and report of the commission for 1898, pages 23 to 27.

As the effect of thesc decisions was to give the carriers the power to establish rates independent of the judgment of the commission, leaving the commission only the power to pass upon the reasonableness of specific rates, the amendatory act of 1906 conferred upon the commission in express terms the power to determine and prescribe what would be the just and reasonable rate or rates, charge or charges to be thereafter observed in such cases as the maximum to be charged. See sec. 15, infra. By the act of 1910, the power of the commission has been further enlarged so as to include the suspension of an increase of rate announced by the carrier before the same takes effect. See sec. 15, infra.

§ 166. No power in the courts to fix rates.-The fixing of rates for the future is a legislative or administrative, and not a judicial duty. This distinction and the limitations of judicial power in this matter were pointed out by the supreme court in the decision in the Virginia Rate Case, 211 U. S. 210, supra: "A judicial inquiry investigates, declares and enforces liabilities as they stand on present or past facts, and under laws supposed to exist. That is its purpose and end. Legislation, on the other hand, looks to the future and changes existing conditions by making a new rule, to be applied thereafter to all or some part of those subject to its power. The establishment of a rate is the making of a rule for the future, and therefore is an act legislative not judicial in kind."

It was ruled in this case that a corporation commission empowered by state constitution to fix rates in futuro was not a court in the proper sense of the term, as such a power was not a judicial power.

See also Southern Railway Co. v. Colorado Fuel & Iron Co., supra.

Thus, it was ruled in 1897 (when the commission was not empowered to fix rates), by the circuit court of Washington, in Farmers Loan & Trust Co. v. Northern Pacific Ry. Co., 83 Fed. 249, that an order of the commission (5 Interstate Commerce Rep. 478), that commodity rates must not be lower than necessary to meet competition nor to be applied to articles not subject thereto, was a mere general statement of the duty of the railway company as defined by the law, and was too indefinite to be the basis of a decree by the court to enforce obedience.

§ 167 (125). The federal courts on reasonableness of railroad rates. While it is not within the judicial power to fix rates for the future, it is a judicial duty to pass upon the reasonableness of rates when they are presented to the court. The question of reasonableness in railroad rates has been construed by the federal courts in two distinct classes of cases. Thus, in the judicial review of state imposed rates upon intrastate business, supra, §§ 95 to 97, the court determined whether carriers have been deprived of their right to make reasonable charges, that is, whether the state imposed rates are in any sense confiscatory, thus depriving them of their property without compensation; while in questions arising under the commerce act the question is raised whether the rates charged by the carrier or which he seeks to impose exceed what is reasonable. In the first class of cases the burden of proof is upon the carrier to show that the state has fixed unreasonable limitation upon his rates; while in the other class of cases, where the shipper complains of an existing rate, the burden is upon him to show that the carrier has exceeded a reasonable standard. Under the recent amendment to the act in 1910, when the carrier proposes an advance over existing rates and objection is made thereto, the burden is upon the carrier to show the reasonableness of the advance.

The supreme court said in the Maximum Rate Case, supra, that a rate may be unreasonable because it is too low as well as because it is too high. In the former case it is unreasonable and unjust to the stockholder, and in the latter to the shipper. In Turnpike Road, supra, 164 U. S. 578, 1. c. 597, 41 L. Ed. 560, the court said, in determining the question

of reasonableness, its duty was to take into consideration the interest both of the public and of the owner of the property.

In the Minnesota Rate Case, 186 U. S. 257, 46 L. Ed. 1151, involving a specific state imposed rate, the court said (p. 268) that each case must be determined by its own considerations, and while railroads were entitled to a fair return upon the capital invested they were not justified in charging exorbitant rates even in order to pay operating expenses if the conditions of the country do not permit it. It sometimes happens that, for purposes of ultimate profit and for building up a future trade, railways carry both freight and passengers at a positive loss; and while it may not be in the power of the commission to compel such a tariff, it could not upon the other hand be claimed that the railroads could in all cases be allowed to charge grossly exorbitant rates as compared with rates paid upon other roads, in order to pay dividends to stockholders.

The subject of valuation of property for rate making has been thoroughly discussed in the federal courts in cases concerning the alleged confiscatory character of state imposed rates. See supra, Part I, Chapter VII.

In the Turnpike Road Case, supra, the court said that a corporation performing public services was not entitled as a right and without reference to the interests of the public, to realize a given per cent. upon its capital stock; that stockholders were not the only persons whose rights or interests were considered, and that the rights of the public were not to be ignored.

In the San Diego Water Rate case, 174 U. S. 739, 43 L. Ed. 1155 (1899), the court said it was "the real value of the property which should be taken into consideration. What the company is entitled to demand in order that it may have just compensation, is a fair return upon the reasonable value of the property at the time it is being used for the public. The property may have cost more than it ought to have cost, and its outstanding bonds for money borrowed and which went into the plant may be in excess of the real value of the property."

On the general subject see also Kansas City Stock Yards case, 183 U. S. 79, 46 L. Ed. p. 92 (1901), involving the rates in the Kansas City Stock Yards, and the Metropolitan Trust Co. v. R. R. Co., 90 Fed. 683 (1898), United States circuit court of Texas, on Texas state rates.

§ 168 (126). The value of railroad property as a basis for rate regulation.-The value of the property devoted to the public service is recognized as a factor, but not the only factor, in rate making. It has been uniformly held, both by the commission and the courts, that it is the present cost or, as it is sometimes phrased, the cost of reproduction when the issue of the reasonableness of the rates is investigated, and not the original cost which is to be determined as a factor on the question of the reasonableness of rates. Evidence of the cost, however, may be admissible in determining the ultimate fact of present value; but where the cost is shown evidence is admissible to show the depreciation of the property values. It is for the purpose of determining this actual present value that the commission has urged a physical valuation of the interstate railroads.

It is in connection with this determination of the present value of the property that the matter of capitalization has been considered. The supreme court said, in the Nebraska Rate Case, supra, that in determining value as a basis for making rates, capitalization and the original cost of construction, the amount expended in permanent improvements, the market value of bonds and stocks, the probable earning capacity under the rates, and the sum required to operate the business, were all matters for consideration and should be given such weight as would be just and right in each case. The court concluded by saying that there may be other matters to be regarded in estimating the value.

In the Knoxville Water case, 212 U. S. p. 12, 53 L. Ed. 371, which was a case involving the validity of maximum rates for a local water company, the court said that the stock of the company which appeared to have been issued to a contractor for construction and in excess of the true value, was not the true measure or guide in determining valuation. The cost of the tangible property, it was said, must be diminished by depreciation; and it was intimated that the company should have the benefit of any appreciation of the tangible property.

In the Consolidated Gas case, 212 U. S. 19, 53 L. Ed. 382, decided at the same term (1909), involving the rates of gas companies in New York, the court said that the value of the property was to be determined as of the time when the inquiry was

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