1. The power of a state to abrogate private contracts touching
the rates of public utilities exists only as an incident to the
regulation of such utilities and their rates in the public
interest. P. 261 U. S.
2. A statute will be construed if possible to uphold it as
constitutional. P. 261 U. S.
3. A statute of Arkansas transferring to the Railroad Commission
jurisdiction formerly possessed by the Corporation Commission,
including pending cases, but denying power to modify or impair
existing contracts for supplying natural gas, construed
not singling out a particular gas company whose claim, that
divisional rates fixed by contract between it and distributors were
inadequate, was pending before the latter Commission.
4. An exception in a statute will not be taken as intended and
operating to work an arbitrary discrimination against a particular
party when it may be construed as a general one and nothing appears
to prove either that there are not other cases within its purview
or that it is based on arbitrary classification. P. 261 U. S.
Appeal from a decree of the district court denying in part an
application for a preliminary injunction.
Page 261 U. S. 380
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
The appellant brought suit in the district court, alleging that
an order of the Arkansas Railroad Commission was invalid as
establishing confiscatory rates for natural gas furnished to its
consuming customers and as maintaining certain divisional rates
(alleged to be wholly inadequate) fixed by contracts between
appellant and the Little Rock Gas & Fuel Company and the
Consumers' Gas Company. An interlocutory injunction was sought
under § 266 of the Judicial Code. The court granted the injunction
in respect of the rates to consumers, but denied it as to the
divisional rates. The appeal brings here for review only the action
of the lower court in the later respect.
By the divisional contracts referred to, appellant, in
consideration of the payment to it of a stated proportion of the
rates collected, agreed to furnish gas to the two companies named,
to be by them distributed to their customers in the Cities of
Little Rock and Hot Springs, respectively. The gas was to be
delivered at the intake of the distributing systems for these
cities. Appellant asserts that the income afforded by the rates
prescribed by these contracts is so inadequate as to have the
effect of a virtual confiscation of its property, and that this
result is in large part due to improper and wasteful methods of
distribution on the part of the two distributing companies.
The commission was asked to fix a flat rate, called a city gate
rate, for the gas delivered at the city borders, the effect of
which, of course, would have been to abrogate the contract rates
based upon a percentage of the collections. Appellant's application
was made to the Arkansas Corporation Commission, but was decided by
Page 261 U. S. 381
Commission, to whom the legislature in the meantime had
transferred jurisdiction. There is no claim that rates to consumers
were affected by these contracts, nor does it appear that the
public interest is involved in the action which the commission was
asked to take.
The Railroad Commission denied the application primarily upon
the ground that the power to grant it had been expressly withheld
by the act of the legislature, known as Act 443, passed on March
25, 1921 (Acts Ark.1921, p. 429), transferring to it the
jurisdiction theretofore possessed by the Corporation Commission
and providing that the Railroad Commission
"shall have no jurisdiction or power to modify or impair any
existing contracts for supplying gas to persons, firms,
corporations, municipalities, or distributing companies, and such
contracts shall not be affected by this act or the act or which
this is an amendment."
The act is copied in the margin. *
Page 261 U. S. 382
The question whether, in the absence of the statute -- it being
made to appear that the stipulated consideration was grossly
inadequate -- the commission, under the circumstances disclosed by
the record, would have been under a duty to fix gas rates in
contravention of the contracts, may be put aside with brief
consideration. While a state may exercise its legislative power to
regulate public utilities and fix rates notwithstanding the effect
may be to modify or abrogate private contracts (Union Dry Goods
Co. v. Georgia Public Service Corp., 248 U.
, 248 U. S. 375
Producers' Transp. Co. v. R. Co. Comm'n, 251 U.
, 251 U. S.
), there is, quite clearly, no principle
Page 261 U. S. 383
which imposes an obligation to do so merely to relieve a
contracting party from the burdens of an improvident undertaking.
The power to fix rates, when exerted, is for the public welfare, to
which private contracts must yield, but it is not an independent
legislative function to vary or set aside such contracts, however
unwise and unprofitable they may be. Indeed, the exertion of
legislative power solely to that end is precluded by the contract
impairment clause of the Constitution. The power does not exist
It is the intervention of the public interest
which justifies and at the same time conditions its exercise.
But the appellant contends that the statute violates the
Fourteenth Amendment because it imposes restrictions upon the
ratemaking power of the commission in respect of the particular
contracts of appellant here involved, which, it is said, are not
imposed in the case of contracts of other utility corporations. In
others words, it is urged that the act singles out the appellant
for special restrain in this respect, and is therefore unequal.
While its meaning is not free from doubt, we do not so construe the
act. The rule is fundamental that, if a statute admits of two
constructions, the effect of one being to render the statute
unconstitutional and of the other to establish its validity, the
courts will adopt the latter. Railway Co. v. Arkansas,
235 U. S. 350
235 U. S. 369
The language of this act is general. By its terms, jurisdiction
over all proceedings and hearings then pending before the
Corporation Commission is transferred to the Railroad Commission.
There follows a provision particularizing certain petitions
numbered 417, 418, and 423, being the cases of appellant, as to
which the Railroad Commission is directed to consider the testimony
theretofore taken by the Corporation Commission and to hear such
further testimony as may be appropriate to fully present such
cases. The paragraph then concludes with
Page 261 U. S. 384
the exception, already quoted, to the effect that the Railroad
Commission shall have no power to modify or impair existing
contracts for supplying gas, etc. Considering the several
provisions of the act together, its terms fairly justify the
conclusion that the exception was meant to apply to all proceedings
pending before the Corporation Commission transferred to the
Railroad Commission, and not alone to the three specified cases.
The record contains nothing to indicate the character or number of
these proceedings, and nothing to suggest that their grouping or
subjection to the rule of the exception constitutes an unreasonable
or arbitrary classification. The reasons which influenced the
classification are not disclosed on the face of the act, but the
mere absence of such disclosure will not justify the Court in
assuming that appropriate reasons did not in fact exist. The
presumption is that the action of the legislature -- which applies
alike to all falling within the class -- was with full knowledge of
the conditions, and that no arbitrary selection of persons for
subjection to the prescribed rule was intended. See Atchison,
Topeka, & Santa Fe R. Co. v. Matthews, 174 U. S.
, 174 U. S.
The state legislature is vested with a wide discretion in the
matter, and interference by this Court may not be had merely
because its exercise has produced inequality -- every selection of
subjects or persons for governmental regulation does that -- but
only where it has produced an inequality which is actually and
palpably unreasonable and arbitrary. See Bachtel v.
Wilson, 204 U. S. 36
204 U. S. 41
Orient Insurance Co. v. Daggs, 172 U.
, 172 U. S. 563
Erb v. Morasch, 177 U. S. 584
177 U. S. 586
Missouri, Kansas & Texas Railway Co. v. May,
194 U. S. 267
194 U. S. 269
Magoun v. Illinois Trust & Savings Bank, 170 U.
, 170 U. S. 293
Heisler v. Thomas Colliery Co., 260 U.
Applying the rule established by these and other decisions of
this Court, the decree below is
"All records, papers, furniture and stationery under the control
of the Arkansas Corporation Commission at the time of the passage
of the act of which this is an amendment shall be turned over to
the Arkansas Railroad Commission and remain in its custody, and all
investigations, proceedings, and hearings that were pending before
the Arkansas Corporation Commission at the time of the passage of
the act of which this is an amendment, and the hearings of which
are embraced within the powers conferred on the Arkansas Railroad
Commission, shall be transferred to the Arkansas Railroad
Commission for such consideration, orders, and determination as may
be made by it under the terms of the act of which this is an
amendment, and the petitions pending before the Arkansas
Corporation Commission at the time of the passage of the act of
which this is an amendment, involving regulations of service and
rates for natural gas, and numbered 417, 418 and 423 on the records
of said Arkansas Corporation Commission, are transferred to the
Arkansas Railroad Commission for decision and the making of such
orders and rates as may be appropriate, and the Arkansas Railroad
Commission shall consider the testimony that has heretofore been
taken in said cases and hear such further testimony as may be
appropriate to fully present such cases, and such orders and rates
as may be made by the Arkansas Railroad Commission in the said gas
cases shall apply not only to the service outside of
municipalities, but also to the service and rates for supplying
natural gas within municipalities or to distributing companies
operating within such municipalities, except that the Arkansas
Railroad Commission shall have no jurisdiction or power to modify
or impair any existing contracts or supplying gas to persons,
firms, corporations, municipalities or distributing companies, and
such contracts shall not be affected by this act or the act of
which this is an amendment."
"From the decisions of the Arkansas Railroad Commission in such
cases, appeals may be prosecuted to the circuit court and supreme
court, and such appeals shall be taken, proceeded in, heard, and
disposed of as provided in sections 20 and 21 of the act of which
this is an amendment: provided, however,
that, on the
determination of such natural gas cases by the Arkansas Railroad
Commission and the decision on any appeals therefrom and the making
of orders by the Commission in pursuance to orders of the court
made on such appeals, the powers and jurisdiction of the Arkansas
Railroad Commission to regulate these particular utilities and fix
their rates shall be such only as is conferred by other sections of
the act of which this is an amendment. In all cases where the
Arkansas Corporation Commission made a final decision or order
before the act of which this is an amendment became effective and
the time for an appeal has not elapsed, any party to said
proceedings shall have the right to have the matter heard on appeal
as is provided in sections 20 and 21 of the act of which this is an