1. Owners of a minority of the preferred shares, with voting
power, in a corporation have standing to sue in its right to
prevent the carrying out of a contract executed in its name by the
directors with an agency of the United States, upon the grounds
that the contract is unconstitutional, and that its performance
will cause irreparable injury to the interests of the corporation.
P.
297 U. S.
318.
In order to establish the stockholders' right of suit, it is not
necessary to show that, in executing the contract, the directors
acted with fraudulent intent or under legal duress or
ultra
vires of the corporation. In the absence of an adequate legal
remedy, it is enough to show the breach of duty involved in the
injurious, illegal action. This may consist in yielding to illegal
government demands. The fact that the directors, in the exercise of
their judgment, resolved to comply with such demands is not an
adequate ground for denying to the stockholders an opportunity to
contest their validity.
2. The opportunity to resort to equity, in the absence of an
adequate legal remedy, in order to prevent illegal transactions by
those in control of corporate properties should not be curtailed
because of reluctance to decide constitutional questions. P.
297 U. S.
321.
3. Estoppel in equity must rest on substantial grounds of
prejudice or change of position -- not on technicalities. P.
297 U. S.
322.
4. Where a contract between an electric power corporation and
the Tennessee Valley Authority, a federal agency, for the sale by
the former to the latter of transmission lines leading from a
government dam where electricity was generated, was attacked in
behalf of the corporation upon the ground that legislation by
Congress purporting to empower the federal agency was
unconstitutional --
held that the corporation was not
estopped by having bought electricity of the Government at the dam
before and after the passage of the legislation, or by having
applied to a state public service commission for approval of the
contract, or by a delay of some months in the bringing of a
stockholders' suit to set the contract aside. P.
297 U. S.
323.
Page 297 U. S. 289
The principle that one who accepts the benefit of a statute may
not question its constitutionality
held inapplicable.
5. The judicial power does not extend to the determination of
abstract questions. P.
297 U. S.
324.
6. The Act providing for declaratory judgments does not attempt
to change the essential requisites for the exercise of judicial
power. By its terms, it applies to "cases of actual controversy,"
meaning a controversy of a justiciable nature, thus excluding
advisory decrees upon hypothetical states of fact. P.
297 U. S.
325.
7. The dam across the Tennessee River at Muscle Shoals, known as
the Wilson Dam, was constructed pursuant to the National Defense
Act of June 3, 1916, in the exercise of constitutional functions of
the Federal Government, (a) as a means of assuring abundant
electric energy for the manufacture of munitions in the event of
war; (b) to improve the navigability of the river. P.
297 U. S.
326.
8. Judicial notice is taken of the international situation
existing when the Act of 1916 was passed. Indisputably, the Wilson
Dam and its auxiliary plants, including a hydroelectric power
plant, are, and were intended to be, adapted to the purposes of
national defense. P.
297 U. S.
327.
9. The power to regulate interstate commerce includes the power
to remove obstructions to navigation from the navigable rivers of
the United States. P.
297 U. S.
328.
10. In the execution of the Wilson Dam project for the
constitutional purposes above stated, the United States acquired
full title to the dam site, with all riparian rights. Water power,
an inevitable incident of the construction of the dam, came into
the exclusive control of the Federal Government, and was
convertible into electric energy.
Held:
(1) That the water power, the right to convert it into electric
energy, and the electric energy thus produced, constitute property
belonging to the United States. P.
297 U. S.
330.
(2) That this electric energy so produced at the Wilson Dam is
property of which Congress may dispose pursuant to the authority
expressly granted by § 3, Art. IV, of the Constitution. P.
297 U. S.
330.
(3) The Ninth and Tenth Amendments do not apply to rights which
are expressly granted by the Constitution to the Federal
Government. P.
297 U. S.
330.
(4) The authority of Congress to dispose of electric energy
generated at the Wilson Dam is not limited to a surplus necessarily
created in the course of making munition of war or operating
Page 297 U. S. 290
the works for navigation purposes, but extends to the remainder
of the available energy, which would otherwise be lost or wasted.
P.
297 U. S.
335.
(5) The method of disposing of government property under the
constitutional provision (§ 3, Art. IV) must be appropriate to the
nature of the property, and be adopted in the public interest, as
distinguished from private or personal ends, and, the Court
assumes, it must be consistent with the foundation principles of
our dual system of Government, and must not be contrived to govern
the concerns reserved to the States. P.
297 U. S.
338.
11. The Government, acting through its agency, the Tennessee
Valley Authority, undertook to dispose of electric energy generated
at the Wilson Dam by sale to a power company by interchange of
energy with the company, and by purchase from the company of
certain transmission lines leading from the dam and providing the
means of distributing such energy to a large population within
fifty miles. The power company had theretofore been buying energy
from the Government at the dam, and was apparently the only
customer to whom it could be sold there. The purchase of the lines
was to enable the Government to seek a wider market.
Held:
(1) That there was no basis for concluding that the contract
exceeded the federal power to dispose of property, and invaded
rights reserved to the State or to the people. P.
297 U. S.
338.
(2) The power company had no constitutional right to insist that
the energy should be sold to it at the dam or go to waste. P.
297 U. S.
339.
The decision on the constitutional question is strictly limited
to the right of the Government to dispose of the energy itself --
which is simply the mechanical energy, incidental to falling water
at this dam, converted into electric energy, susceptible of
transmission -- and the right to acquire these transmission lines
as a facility for disposing of that energy. The Government rightly
conceded at the bar that it was without constitutional authority to
acquire or dispose of electric energy except as it comes into being
in the operation of works constructed in the exercise of some power
delegated to the United States. The question whether it might
constitutionally use the energy generated at Wilson Dam in carrying
on manufacturing or commercial enterprises not related to the
purposes for which the Government was established, is not involved
in this case; nor is the question whether, for disposing of the
energy, the Government could acquire or operate local or urban
Page 297 U. S. 291
distribution systems. The Court expresses no opinion as to such
questions, nor as to the status of any other dam or power
development in the Tennessee Valley, whether connected with or
apart from the Wilson Dam, nor as to the validity of the Tennessee
Valley Authority Act or of the claims made in the pronouncements
and program of that Authority, apart from the questions discussed
in relation to the particular provisions of the contract above
mentioned affecting the Power Company. P.
297 U. S.
339.
78 F.2d 578, affirmed.
CERTIORARI, 296 U.S. 562, to review a decree reversing a decree
of the District Court, by which that court, at the suit of
preferred stockholders of the Alabama Power Company, set aside a
contract that had been entered into by the Company and the
Tennessee Valley Authority involving the sale and exchange of
electric power generated at a government dam, and the acquisition
by the Authority of certain transmission lines from the Power
Company.
Page 297 U. S. 315
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.
On January 4, 1934, the Tennessee Valley Authority, an agency of
the Federal Government, [
Footnote
1] entered into a contract with the Alabama Power Company
providing (1) for the purchase by the Authority from the Power
Company of certain transmission lines, substations, and auxiliary
properties for $1,000,000, (2) for the purchase by the Authority
from the Power Company of certain real property for $150,000, (3)
for an interchange of hydroelectric energy, and in addition for the
sale by the Authority to the Power Company of its "surplus power,"
on stated terms, and (4) for mutual restrictions as to the areas to
be served in the sale of power. The contract was amended and
supplemented in minor particulars on February 13 and May 24, 1934.
[
Footnote 2]
The Alabama Power Company is a corporation organized under the
laws of Alabama, and is engaged in the generation of electric
energy and its distribution generally throughout that State, its
lines reaching 66 counties. The transmission lines to be purchased
by the Authority extend from Wilson Dam, at the Muscle Shoals plant
owned by the United States on the Tennessee River in
Page 297 U. S. 316
northern Alabama, into seven counties in that State within a
radius of about 50 miles. These lines serve a population of
approximately 190,000, including about 10,000 individual customers,
or about one-tenth of the total number served directly by the Power
Company. The real property to be acquired by the Authority (apart
from the transmission lines above mentioned and related properties)
is adjacent to the area known as the "Joe Wheeler dam site," upon
which the Authority is constructing the Wheeler Dam.
The contract of January 4, 1934, also provided for cooperation
between the Alabama Power Company and the Electric Home and Farm
Authority, Inc., a subsidiary of the Tennessee Valley Authority, to
promote the sale of electrical appliances, and, to that end, the
Power Company, on May 21, 1934, entered into an agency contract
with the Electric Home and Farm Authority, Inc. It is not necessary
to detail or discuss the proceedings in relation to that
transaction, as it is understood that the latter corporation has
been dissolved.
There was a further agreement on August 9, 1934, by which the
Alabama Power Company gave an option to the Tennessee Valley
Authority to acquire urban distribution systems which had been
retained by the Power Company in municipalities within the area
served by the transmission lines above mentioned. It appears that
this option has not been exercised, and that the agreement has been
terminated.
Plaintiffs are holders of preferred stock of the Alabama Power
Company. Conceiving the contract with the Tennessee Valley
Authority to be injurious to the corporate interests and also
invalid, because beyond the constitutional power of the Federal
Government, they submitted their protest to the board of directors
of the Power Company and demanded that steps should be taken to
have the contract annulled. The board refused, and the
Page 297 U. S. 317
Commonwealth & Southern Corporation, the holder of all the
common stock of the Power Company, declined to call a meeting of
the stockholders to take action. As the protest was unavailing,
plaintiffs brought this suit to have the invalidity of the contract
determined and its performance enjoined. Going beyond that
particular challenge, and setting forth the pronouncements,
policies and programs of the Authority, plaintiffs sought a decree
restraining these activities as repugnant to the Constitution, and
also asked a general declaratory decree with respect to the rights
of the Authority in various relations.
The defendants, including the Authority and its directors, the
Power Company and its mortgage trustee, and the municipalities
within the described area, filed answers, and the case was heard
upon evidence. The District Court made elaborate findings and
entered a final decree annulling the contract of January 4, 1934,
and enjoining the transfer of the transmission lines and auxiliary
properties. The court also enjoined the defendant municipalities
from making or performing any contracts with the Authority for the
purchase of power and from accepting or expending any funds
received from the Authority or the Public Works Administration for
the purpose of constructing a public distribution system to
distribute power which the Authority supplied. The court gave no
consideration to plaintiffs' request for a general declaratory
decree.
The Authority, its directors, and the city of Florence appealed
from the decree, and the case was severed as to the other
defendants. Plaintiffs took a cross-appeal.
The Circuit Court of Appeals limited its discussion to the
precise issue with respect to the effect and validity of the
contract of January 4, 1934. The District Court had found that the
electric energy required for the territory served by the
transmission lines to be purchased
Page 297 U. S. 318
under that contract is available at Wilson Dam without the
necessity for any interconnection with any other dam or power
plant. The Circuit Court of Appeals accordingly considered the
constitutional authority for the construction of Wilson Dam and for
the disposition of the electric energy there created. In the view
that the Wilson Dam had been constructed in the exercise of the war
and commerce powers of the Congress and that the electric energy
there available was the property of the United States and subject
to its disposition, the Circuit Court of Appeals decided that the
decree of the District Court was erroneous, and should be reversed.
The court also held that plaintiffs should take nothing by their
cross-appeal. 78 F.2d 578. On plaintiffs' application, we granted
writs of certiorari.
First. The right of plaintiffs to bring this suit.
Plaintiffs sue in the right of the Alabama Power Company. They
sought unsuccessfully to have that right asserted by the Power
Company itself, and, upon showing their demand and its refusal,
they complied with the applicable rule. [
Footnote 3] While their stock holdings are small, they
have a real interest, and there is no question that the suit was
brought in good faith. [
Footnote
4] If otherwise entitled, they should not be denied the relief
which would be accorded to one who owned more shares.
Plaintiffs did not simply challenge the contract of January 4,
1934, as improvidently made -- as an unwise exercise of the
discretion vested in the board of directors. They challenged the
contract both as injurious to the
Page 297 U. S. 319
interests of the corporation and as an illegal transaction --
violating the fundamental law. In seeking to prevent the carrying
out of the contract, the suit was directed not only against the
Power Company, but against the Authority and its directors upon the
ground that the latter, under color of the statute, were acting
beyond the powers which the Congress could validly confer. In such
a case, it is not necessary for stockholders -- when their
corporation refuses to take suitable measures for its protection --
to show that the managing board or trustees have acted with
fraudulent intent or under legal duress. To entitle the
complainants to equitable relief in the absence of an adequate
legal remedy, it is enough for them to show the breach of trust or
duty involved in the injurious and illegal action. Nor is it
necessary to show that the transaction was
ultra vires of
the corporation. The illegality may be found in the lack of lawful
authority on the part of those with whom the corporation is
attempting to deal. Thus, the breach of duty may consist in
yielding, without appropriate resistance, to governmental demands
which are without warrant of law or are in violation of
constitutional restrictions. The right of stockholders to seek
equitable relief has been recognized when the managing board or
trustees of the corporation have refused to take legal measures to
resist the collection of taxes or other exactions alleged to be
unconstitutional (
Dodge v.
Woolsey, 18 How. 331,
59 U. S. 339,
59 U. S. 340,
59 U. S. 345;
Pollock v. Farmers' Loan & Trust Co., 157 U.
S. 429,
157 U. S. 433,
157 U. S. 553,
157 U. S. 554;
Brushaber v. Union Pacific R. Co., 240 U. S.
1,
240 U. S. 10); or
because of the failure to assert the rights and franchises of the
corporation against an unwarranted interference through legislative
or administrative action (
Greenwood v. Freight Co.,
105 U. S. 13,
105 U. S. 15,
105 U. S. 16;
Cotting v. Kansas City Stockyards Co., 183 U. S.
79,
183 U. S. 114).
The remedy has been accorded to stockholders of public service
corporations with respect to rates alleged to be confiscatory
Page 297 U. S. 320
(
Smyth v. Ames, 169 U. S. 466,
169 U. S. 469,
169 U. S. 517;
Ex parte Young, 209 U. S. 123,
209 U. S. 129,
209 U. S. 130,
209 U. S.
143). The fact that the directors, in the exercise of
their judgment, either because they were disinclined to undertake a
burdensome litigation or for other reasons which they regarded as
substantial, resolved to comply with the legislative or
administrative demands has not been deemed an adequate ground for
denying to the stockholders an opportunity to contest the validity
of the governmental requirements to which the directors were
submitting.
See Dodge v. Woolsey, supra, at pp.
59 U. S. 340,
59 U. S. 345;
Greenwood v. Freight Co., supra, at p.
105 U. S. 15;
Pollock v. Farmers' Loan & Trust Co., supra, at pp.
157 U. S. 433,
157 U. S. 553,
157 U. S. 554;
Brushaber v. Union Pacific R. Co., supra, at p.
240 U. S. 10.
In
Smith v. Kansas City Title Co., 255 U.
S. 180, a shareholder of the Title Company sought to
enjoin the directors from investing its funds in the bonds of
Federal Land Banks and Joint Stock Land Banks upon the ground that
the Act of Congress authorizing the creation of these banks and the
issue of bonds was unconstitutional, and hence that the bonds were
not legal securities in which the corporate funds could lawfully be
invested. The proposed investment was not large -- only $10,000 in
each of the classes of bonds described.
Id. pp.
255 U. S. 195,
255 U. S. 196.
And it appeared that the directors of the Title Company maintained
that the Federal Farm Loan Act was constitutional, and that the
bonds were "valid and desirable investments."
Id., p.
255 U. S. 201.
But neither the conceded fact as to the judgment of the directors
nor the small amount to be invested -- shown by the averments of
the complaint -- availed to defeat the jurisdiction of the court to
decide the question as to the validity of the Act and of the bonds
which it authorized. The Court held that the validity of the Act
was directly drawn in question, and that the shareholder was
entitled to maintain the suit. The Court said:
"The general allegations as to the interest of the
Page 297 U. S. 321
shareholder, and his right to have an injunction to prevent the
purchase of the alleged unconstitutional securities by
misapplication of the funds of the corporation, give jurisdiction
under the principles settled in
Pollock v. Farmers' Loan &
Trust Co. and
Brushaber v. Union Pacific R. Co.,
supra."
Id., pp.
255 U. S. 201,
255 U. S. 202.
The Court then proceeded to examine the constitutional question,
and sustained the legislation under attack. A similar result was
reached in
Brushaber v. Union Pacific R. Co., supra. A
close examination of these decisions leads inevitably to the
conclusion that they should either be followed or be frankly
overruled. We think that they should be followed, and that the
opportunity to resort to equity, in the absence of an adequate
legal remedy, in order to prevent illegal transactions by those in
control of corporate properties should not be curtailed because of
reluctance to decide constitutional questions.
We find no distinctions which would justify us in refusing to
entertain the present controversy. It is urged that plaintiffs hold
preferred shares, and that, for the present purpose, they are
virtually in the position of bondholders. The rights of
bondholders, in case of injury to their interests through
unconstitutional demands upon, or transactions with, their
corporate debtor are not before us.
Compare Reagan v. Farmers'
Loan & Trust Co., 154 U. S. 362,
154 U. S. 367,
368. Plaintiffs are not creditors, but shareholders (with equal
voting power share for share with the common stockholders,
according to the findings), and thus they have a proprietary
interest in the corporate enterprise which is subject to injury
through breaches of trust or duty on the part of the directors who
are not less the representatives of the plaintiffs because their
shares have certain preferences.
See Ball v. Rutland R.
Co., 93 Fed. 513, 514, 515. It may be, as in this case, that
the owner of all the common stock has participated in the
transaction in question, and the owners of preferred
Page 297 U. S. 322
stock may be the only persons having a proprietary interest in
the corporation who are in a position to protect its interests
against what is asserted to be an illegal disposition of its
property. [
Footnote 5] A court
of equity should not shut its door against them.
It is said that here, instead of parting with money, as in the
case of illegal or unconstitutional taxes or exactions, the Power
Company is to receive a substantial consideration under the
contract in suit. But the Power Company is to part with
transmission lines which supply a large area, and plaintiffs allege
that the consideration is inadequate, and that the transaction
entails a disruption of services and a loss of business and
franchises. If, as plaintiffs contend, those purporting to act as a
governmental agency had no constitutional authority to make the
agreement, its execution would leave the Power Company with
doubtful remedy, either against the governmental agency, which
might not be able, or against the Government, which might not be
willing, to respond to a demand for the restoration of conditions
as they now exist. In what circumstances and with what result such
an effort at restoration might be made is unpredictable. If, as was
decided in
Smith v. Kansas City Title Co., supra,
stockholders had the right to sue to test the validity of a
proposed investment in the bonds of land banks, we can see no
reason for denying to these plaintiffs a similar resort to equity
in order to challenge, on the ground of unconstitutionality, a
contract involving such a dislocation and misapplication of
corporate property as are charged in the instant case.
The Government urges that the Power Company is estopped to
question the validity of the Act creating the Tennessee Valley
Authority, and hence that the stockholders, suing in the right of
the corporation, cannot
Page 297 U. S. 323
maintain this suit. It is said that the Power Company, in 1925,
installed its own transformers and connections at Wilson Dam, and
has ever since purchased large quantities of electric energy there
generated, and that the Power Company continued its purchases after
the passage of the Act of 1933 constituting the Authority. The
principle is invoked that one who accepts the benefit of a statute
cannot be heard to question its constitutionality.
Great Falls
Manufacturing Co. v. Attorney General, 124 U.
S. 581;
Wall v. Parrot Silver & Copper Co.,
244 U. S. 407;
St. Louis Casting Co. v. Prendergast Construction Co.,
260 U. S. 469. We
think that the principle is not applicable here. The prior purchase
of power in the circumstances disclosed may have a bearing upon the
question before us, but it is by no means controlling. The contract
in suit manifestly has a broader range, and we find nothing in the
earlier transactions which preclude the contention that this
contract goes beyond the constitutional power of the Authority.
Reference is also made to a proceeding instituted by the Power
Company to obtain the approval of the contract by the Alabama
Public Service Commission and to the delay in the bringing of this
suit. It was brought on October 8, 1934, following plaintiffs'
demand upon the board of directors in the preceding August.
Estoppel in equity must rest on substantial grounds of prejudice or
change of position, not on technicalities. We see no reason for
concluding that the delay or the proceeding before the Commission
caused any prejudice to either the Power Company or the Authority,
so far as the subject matter of the contract between them is
concerned, or that there is any basis for the claim of
estoppel.
We think that plaintiffs have made a sufficient showing to
entitle them to bring suit, and that a constitutional question is
properly presented and should be decided.
Page 297 U. S. 324
Second. The scope of the issue. We agree with the
Circuit Court of Appeals that the question to be determined is
limited to the validity of the contract of January 4, 1934. The
pronouncements, policies and program of the Tennessee Valley
Authority and its directors, their motives and desires, did not
give rise to a justiciable controversy save as they had fruition in
action of a definite and concrete character constituting an actual
or threatened interference with the rights of the persons
complaining. The judicial power does not extend to the
determination of abstract questions.
Muskrat v. United
States, 219 U. S. 346,
219 U. S. 361;
Liberty Warehouse Co. v. Grannis, 273 U. S.
70,
273 U. S. 74;
Willing v. Chicago Auditorium Assn., 277 U.
S. 274,
277 U. S. 289;
Nashville, C. & St.L. Ry. Co. v. Wallace, 288 U.
S. 249,
288 U. S. 262,
288 U. S. 264.
It was for this reason that the Court dismissed the bill of the
State of New Jersey which sought to obtain a judicial declaration
that, in certain features, the Federal Water Power Act [
Footnote 6] exceeded the authority of
the Congress and encroached upon that of the State.
New Jersey
v. Sargent, 269 U. S. 328. For
the same reason, the State of New York, in her suit against the
State of Illinois, failed in her effort to obtain a decision of
abstract questions as to the possible effect of the diversion of
water from Lake Michigan upon hypothetical water power developments
in the indefinite future.
New York v. Illinois,
274 U. S. 488. At
the last term, the Court held, in dismissing the bill of the United
States against the State of West Virginia, that general allegations
that the State challenged the claim of the United States that the
rivers in question were navigable, and asserted a right superior to
that of the United States to license their use for power
production, raised an issue "too vague and ill-defined to admit of
judicial determination."
United States v. West Virginia,
295 U. S. 463,
295 U. S. 474.
Claims based merely upon "assumed potential invasions"
Page 297 U. S. 325
of rights are not enough to warrant judicial intervention.
Arizona v. California, 283 U. S. 423,
283 U. S.
462.
The Act of June 14, 1934, [
Footnote 7] providing for declaratory judgments, does not
attempt to change the essential requisites for the exercise of
judicial power. By its terms, it applies to "cases of actual
controversy," a phrase which must be taken to connote a controversy
of a justiciable nature, thus excluding an advisory decree upon a
hypothetical state of facts.
See Nashville, C. & St.L. Ry.
Co. v. Wallace, supra. While plaintiffs, as stockholders,
might insist that the board of directors should take appropriate
legal measures to extricate the corporation from particular
transactions and agreements alleged to be invalid, plaintiffs had
no right to demand that the directors should start a litigation to
obtain a general declaration of the unconstitutionality of the
Tennessee Valley Authority Act in all its bearings, or a decision
of abstract questions as to the right of the Authority and of the
Alabama Power Company in possible contingencies.
Examining the present record, we find no ground for a demand by
plaintiffs except as it related to the contracts between the
Authority and the Alabama Power Company. And as the contract of May
21, 1934, with the Electric Home and Farm Authority, Inc., and that
of August 9, 1934, for an option to the Authority to acquire urban
distribution systems, are understood to be inoperative
(
ante, p.
297 U. S.
316), the only remaining questions that plaintiffs are
entitled to raise concern the contract of January 4, 1934,
providing for the purchase of transmission lines and the
disposition of power.
There is a further limitation upon our inquiry. As it appears
that the transmission lines in question run from the Wilson Dam,
and that the electric energy generated at that dam is more than
sufficient to supply all the requirements
Page 297 U. S. 326
of the contract, the questions that are properly before us
relate to the constitutional authority for the construction of the
Wilson Dam and for the disposition, as provided in the contract, of
the electric energy there generated.
Third. The constitutional authority for the construction of
the Wilson Dam. The Congress may not, "under the pretext of
executing its powers, pass laws for the accomplishment of objects
not entrusted to the government." Chief Justice Marshall, in
McCulloch v.
Maryland, 4 Wheat. 316,
17 U. S. 423;
Linder v. United States, 268 U. S. 5,
268 U. S. 17. The
Government's argument recognizes this essential limitation. The
Government's contention is that the Wilson Dam was constructed, and
the power plant connected with it was installed, in the exercise by
the Congress of its war and commerce powers, that is, for the
purposes of national defense and the improvement of navigation.
Wilson Dam is described as a concrete monolith one hundred feet
high and almost a mile long, containing two locks for navigation
and eight installed generators. Construction was begun in 1917, and
completed in 1926. Authority for its construction is found in § 124
of the National Defense Act of June 3, 1916. [
Footnote 8] It authorized the President to cause
an investigation to be made in order to determine "the best,
cheapest, and most available means for the production of nitrates
and other products for munitions of war"; to designate for the
exclusive use of the United States
"such site or sites upon any navigable or nonnavigable river or
rivers or upon the public lands as in his opinion will be necessary
for carrying out the purposes of this Act"
and "to construct, maintain and operate" on any such site
"dams, locks, improvements to navigation, power houses, and
other plants and equipment or other
Page 297 U. S. 327
means than water power as in his judgment is the best and
cheapest, necessary or convenient for the generation of electrical
or other power and for the production of nitrates or other products
needed for munitions of war and useful in the manufacture of
fertilizers and other useful products."
The President was authorized to lease, or acquire by
condemnation or otherwise, such lands as might be necessary, and
there was further provision that
"The products of such plants shall be used by the President for
military and naval purposes to the extent that he may deem
necessary, and any surplus which he shall determine is not required
shall be sold and disposed of by him under such regulations as he
may prescribe."
Id.
We may take judicial notice of the international situation at
the time the Act of 1916 was passed, and it cannot be successfully
disputed that the Wilson Dam and its auxiliary plants, including
the hydroelectric power plant, are and were intended to be adapted
to the purposes of national defense. [
Footnote 9] While the District Court found that there is
no intention to use the nitrate plants or the hydroelectric units
installed at Wilson Dam for the production
Page 297 U. S. 328
of war materials in time of peace,
"the maintenance of said properties in operating condition and
the assurance of an abundant supply of electric energy in the event
of war, constitute national defense assets."
This finding has ample support.
The Act of 1916 also had in view "improvements to navigation."
Commerce includes navigation. "All America understands, and has
uniformly understood," said Chief Justice Marshall in
Gibbons v.
Ogden, 9 Wheat. 1,
22 U. S. 190,
"the word
commerce,' to comprehend navigation." The power to
regulate interstate commerce embraces the power to keep the
navigable rivers of the United States free from obstructions to
navigation, and to remove such obstructions when they exist. "For
these purposes," said the Court in Gilman v.
Philadelphia, 3 Wall. 713, 725,
"Congress possesses all the powers which existed in the States
before the adoption of the national Constitution, and which have
always existed in the Parliament in England."
See also Philadelphia Company v. Stimson, 223 U.
S. 605,
223 U. S.
634.
The Tennessee River is a navigable stream, although there are
obstructions at various points because of shoals, reefs and rapids.
The improvement of navigation on this river has been a matter of
national concern for over a century. Recommendation that provision
be made for
Page 297 U. S. 329
navigation around Muscle Shoals was made by the Secretary of
War, John C. Calhoun, in his report transmitted to the Congress by
President Monroe in 1824, [
Footnote 10] and, from 1852, the Congress has repeatedly
authorized protects to develop navigation on that and other
portions of the river, both by open channel improvements and by
canalization. [
Footnote 11]
The Wilson Dam project, adopted in 1918, gave a nine-foot slack
water development, for fifteen miles above Florence, over the
Muscle Shoals rapids and, as the District Court found, "flooded out
the then existing canal and locks, which were inadequate." The
District Court also found that a "high dam of this type was the
only feasible means of eliminating this most serious obstruction to
navigation." By the Act of 1930, after a protracted study by the
Corps of Engineers of the United States Army, the Congress adopted
a project for a permanent improvement of the main stream "for a
navigable depth of nine feet." [
Footnote 12]
While, in its present condition, the Tennessee River is not
adequately improved for commercial navigation, and traffic is
small, we are not at liberty to conclude either that the river is
not susceptible of development as an important waterway or that
Congress has not undertaken
Page 297 U. S. 330
that development, or that the construction of the Wilson Dam was
not an appropriate mean to accomplish a legitimate end.
The Wilson Dam and its power plant must be taken to have been
constructed in the exercise of the constitutional functions of the
Federal Government.
Fourth. The constitutional authority to dispose of electric
energy generated at the Wilson Dam. The Government acquired
full title to the dam site, with all riparian rights. The power of
falling water was an inevitable incident of the construction of the
dam. That water power came into the exclusive control of the
Federal Government. The mechanical energy was convertible into
electric energy, and the water power, the right to convert it into
electric energy, and the electric energy thus produced, constitute
property belonging to the United States.
See Green Bay Canal
Co. v. Patten Paper Co., 172 U. S. 58,
172 U. S. 80;
United States v. Chandler-Dunbar Co., 229 U. S.
53,
229 U. S. 72,
229 U. S. 73;
Utah, Power & Light Co. v. Pfost, 286 U.
S. 165, 170.
Authority to dispose of property constitutionally acquired by
the United States is expressly granted to the Congress by § 3 of
Article IV of the Constitution. This section provides:
"The Congress shall have Power to dispose of and make all
needful Rules and Regulations respecting the Territory or other
Property belonging to the United States, and nothing in this
Constitution shall be so construed as to Prejudice any Claims of
the United States, or of any particular State."
To the extent that the power of disposition is thus expressly
conferred, it is manifest that the Tenth Amendment is not
applicable. And the Ninth Amendment (which petitioners also invoke)
in insuring the maintenance of the rights retained by the people
does not withdraw the rights which are expressly granted to the
Page 297 U. S. 331
Federal Government. The question is as to the scope of the
grant, and whether there are inherent limitations which render
invalid the disposition of property with which we are now
concerned.
The occasion for the grant was the obvious necessity of making
provision for the government of the vast territory acquired by the
United States. The power to govern and to dispose of that territory
was deemed to be indispensable to the purposes of the cessions made
by the States. And yet it was a matter of grave concern because of
the fear that "the sale and disposal" might become "a source of
such immense revenue to the national government as to make it
independent of and formidable to the people." Story on the
Constitution, §§ 1325, 1326. The grant was made in broad terms, and
the power of regulation and disposition was not confined to
territory, but extended to "other property belonging to the United
States," so that the power may be applied, as Story says, "to the
due regulation of all other personal and real property rightfully
belonging to the United States." And so, he adds, "it has been
constantly understood and acted upon."
Id.
This power of disposal was early construed to embrace leases,
thus enabling the Government to derive profit through royalties.
The question arose with respect to a government lease of lead mines
on public lands, under the Act of March 3, 1807. The contention was
advanced that "disposal is not letting or leasing"; that Congress
had no power "to give or authorize leases" and "to obtain profits
from the working of the mines." The Court overruled the contention,
saying:
"The disposal must be left to the discretion of Congress. And
there can be no apprehensions of any encroachments upon state
rights, by the creation of a numerous tenantry within their
borders, as has been so strenuously urged in the argument."
United States v.
Gratiot, 14 Pet. 526, 533 [argument of counsel --
omitted],
39 U. S. 538.
The policy, early
Page 297 U. S. 332
adopted and steadily pursued, of segregating mineral lands from
other public lands and providing for leases pointed to the
recognition both of the full power of disposal and of the necessity
of suitably adapting the methods of disposal to different sorts of
property. The policy received particular emphasis following the
discovery of gold in California in 1848. [
Footnote 13] For example, an Act of 1866, dealing with
grants to Nevada, declared that, "in all cases, lands valuable for
mines of gold, silver, quicksilver, or copper shall be reserved
from sale." [
Footnote 14]
And Congress, from the outset, adopted a similar practice in
reserving salt springs.
Morton v.
Nebraska, 21 Wall. 660, 667 [argument of counsel --
omitted];
Montello Salt Co. v. Utah, 221 U.
S. 452. It was in the light of this historic policy that
the Court held that the school grant to Utah by the Enabling Act of
1894 [
Footnote 15] was not
intended to embrace land known to be valuable for coal.
United
States v. Sweet, 245 U. S. 563,
245 U. S. 57.
See also, as to the reservation and leases of oil lands,
Pan American Petroleum Co. v. United States, 273 U.
S. 456,
273 U. S.
487.
But when Congress thus reserved mineral lands for special
disposal, can it be doubted that Congress could have provided for
mining directly by its own agents, instead of giving that right to
lessees on the payment of royalties? [
Footnote 16] Upon what ground could it be said that the
Government could not mine its own gold, silver, coal, lead, or
phosphates in the public domain, and dispose of them as property
belonging to the United States? That it could dispose
Page 297 U. S. 333
of its land, but not of what the land contained? It would seem
to be clear that, under the same power of disposition which enabled
the Government to lease and obtain profit from sales by its
lessees, it could mine and obtain profit from its own sales.
The question is whether a more limited power of disposal should
be applied to the water power, convertible into electric energy,
and to the electric energy thus produced at the Wilson Dam
constructed by the Government in the exercise of its constitutional
functions. If so, it must be by reason either of (1) the nature of
the particular property, or (2) the character of the "surplus"
disposed of, or (3) the manner of disposition.
(1) That the water power and the electric energy generated at
the dam are susceptible of disposition as property belonging to the
United States is well established. In the case of
Green Bay
Canal Co. v. Patten Paper Co., supra, the question was
"whether the water power, incidentally created by the erection
and maintenance of the dam and canal for the purpose of navigation
in Fox River"
was
"subject to control and appropriation by the United States,
owning and operating those public works, or by the State of
Wisconsin, within whose limits Fox River lies."
Id. pp.
172 U. S. 68,
172 U. S. 69. It
appeared that, under the authority of the Congress, the United
States had acquired, by purchase from a Canal Company, title to its
improvement works, lands and water powers, on the Fox River, and
that the United States had consented to the retention by the Canal
Company of the water powers with appurtenances. We held that
the
"substantial meaning of the transaction was that the United
States granted to the Canal Company the right to continue in the
possession and enjoyment of the water powers and the lots
appurtenant thereto, subject to the rights and control of the
United States as owning and operating the public works,"
and that the method by which the arrangement was
Page 297 U. S. 334
effected was
"as efficacious as if the entire property had been conveyed to
the United States by one deed, and the reserved properties had been
reconveyed to the Canal Company by another."
Id., p.
172 U. S. 80. We
thought it clear that the Canal Company was "possessed of whatever
rights to the use of this incidental water power that could be
validly granted by the United States."
Id., p.
172 U. S. 69.
And, in this view, it was decided that, so far as the "water powers
and appurtenant lots are regarded as property," the title of the
Canal Company could not be controverted, and that it was "equally
plain that the mode and extent of the use and enjoyment of such
property by the Canal Company" fell within the sole control of the
United States.
See Kaukauna Walter Power Co. v. Green Bay Canal
Co., 142 U. S. 254;
Green Bay Canal Co. v. Patten Paper Co., 173 U.
S. 179.
In
United States v. Chandler-Dunbar Co., 229 U. S.
53, the United States had condemned land in Michigan,
lying between the St. Marys River and the ship canal strip of the
Government, in order to improve navigation. The riparian owner,
under revocable permits from the Secretary of War, had placed in
the rapids "the necessary dams, dykes and forebays for the purpose
of controlling the current and using its power for commercial
purposes."
Id., p.
229 U. S. 68.
The Act of March 3, 1909, [
Footnote 17] authorizing the improvement, had revoked the
permit. We said that the Government "had dominion over the water
power of the rapids and falls," and could not be required to pay
"any hypothetical additional value to a riparian owner who had no
right to appropriate the current to his own commercial use."
Id., p.
229 U. S. 76.
The Act of 1909 also authorized the Secretary of War to lease
"any excess of water power which results from the conservation
of the flow of the river, and the works which the Government may
construct. "
Page 297 U. S. 335
"If the primary purpose is legitimate," said the Court,
"we can see no sound objection to leasing any excess of power
over the needs of the Government. The practice is not unusual in
respect to similar public works constructed by state
governments."
Id., p.
229 U. S. 73.
Reference was made to the case of
Kaukauna Water Power Co. v.
Green Bay Canal Co., supra, where the Court had observed in
relation to a Wisconsin statute of 1848, which had reserved to the
State the water power created by the dam over the Fox River:
"As there is no need of the surplus running to waste, there was
nothing objectionable in permitting the State to let out the use of
it to private parties, and thus reimburse itself for the expenses
of the improvement."
In
International Paper Co. v. United States,
282 U. S. 399, the
Government made a wartime requisition of electrical power, and was
held bound to make compensation to a lessee who thereby had lost
the use of the water to which he was entitled. The Court brushed
aside attempted "distinctions between the taking of power and the
taking of water rights," saying that the Government intended "to
take and did take the use of all the water power," and had
exercised its power of eminent domain to that end.
Id. pp.
282 U. S. 407,
282 U. S.
408.
(2) The argument is stressed that, assuming that electric energy
generated at the dam belongs to the United States, the Congress has
authority to dispose of this energy only to the extent that it is a
surplus necessarily created in the course of making munitions of
war or operating the works for navigation purposes; that is, that
the remainder of the available energy must be lost or go to waste.
We find nothing in the Constitution which imposes such a
limitation. It is not to be deduced from the mere fact that the
electric energy is only potentially available until the generators
are operated. The Government has no less right to the energy thus
available by letting the water course over its turbines than it
has
Page 297 U. S. 336
to use the appropriate processes to reduce to possession other
property within its control, as, for example, oil which it may
recover from a pool beneath its lands, and which is reduced to
possession by boring oil wells and otherwise might escape its
grasp.
See Ohio Oil Co. v. Indiana, 177 U.
S. 190,
177 U. S. 208.
And it would hardly be contended that, when the Government reserves
coal on its lands, it can mine the coal and dispose of it only for
the purpose of heating public buildings or for other governmental
operations. Or, if the Government owns a silver mine, that it can
obtain the silver only for the purpose of storage or coinage. Or
that, when the Government extracts the oil it has reserved, it has
no constitutional power to sell it. Our decisions recognize no such
restriction.
United States v.
Gratiot, 14 Pet. 526;
Kansas v. Colorado,
206 U. S. 46,
206 U. S. 88,
206 U. S. 89;
Light v. United States, 220 U. S. 523,
220 U. S. 536,
220 U. S. 537;
Ruddy v. Rossi, 248 U. S. 104,
248 U. S. 106.
The United States owns the coal, or the silver, or the lead, or the
oil it obtains from its lands, and it lies in the discretion of the
Congress, acting in the public interest, to determine of how much
of the property it shall dispose. We think that the same principle
is applicable to electric energy. The argument pressed upon us
leads to absurd consequences in the denial, despite the broad terms
of the constitutional provision, of a power of disposal which the
public interest may imperatively require. Suppose, for example,
that, in the erection of a dam for the improvement of navigation,
it became necessary to destroy a dam and power plant which had
previously been erected by a private corporation engaged in the
generation and distribution of energy which supplied the needs of
neighboring communities and business enterprises. Would anyone say
that, because the United States had built its own dam and plant in
the exercise of its constitutional functions, and had complete
ownership and dominion over both, no power could be supplied to the
communities and enterprises dependent on it, not because of
Page 297 U. S. 337
any unwillingness of the Congress to supply it, or of any
overriding governmental need, but because there was no
constitutional authority to furnish the supply? Or that, with
abundant power available which must otherwise be wasted, the supply
to the communities and enterprises whose very life may be at stake
must be limited to the slender amount of surplus unavoidably
involved in the operation of the navigation works because the
Constitution does not permit any more energy to be generated and
distributed? In the case of the
Green Bay Canal Co., above
cited, where the government works supplanted those of the Canal
Company, the Court found no difficulty in sustaining the
Government's authority to grant to the Canal Company the water
powers which it had previously enjoyed, subject, of course, to the
dominant control of the Government. And in the case of
United
States v. Chandler-Dunbar Co., supra, the statutory provision,
to which the Court referred, was
"that any excess of water in the St. Marys River at Sault Sainte
Marie over and above the amount now or hereafter required for the
uses of navigation shall be leased for power purposes by the
Secretary of War upon such terms and conditions as shall be best
calculated in his judgment to insure the development thereof."
It was to the leasing, under this provision, "of any excess of
power over the needs of the Government" that the Court saw no valid
objection.
Id., p.
229 U. S.
73.
The decisions which petitioners cite give no support to their
contention.
Pollard v.
Hagan, 3 How. 212,
Shively v. Bowlby,
152 U. S. 1, and
Port of Seattle v. Oregon-Washington R. Co., 255 U. S.
56, dealt with the title of the States to tidelands and
the soil under navigable waters within their borders.
See Borax
Consolidated v. Los Angeles, 296 U. S. 10,
296 U. S. 15.
Those cases did not concern the dominant authority of the Federal
Government in the interest of navigation to erect dams and avail
itself of the incidental water power. We emphasized the dominant
character of that authority in the case of
Page 297 U. S. 338
the
Green Bay Canal Co., supra, by this statement, at
p.
172 U. S.
80:
"At what points in the dam and canal the water for power may be
withdrawn, and the quantity which can be treated as surplus with
due regard to navigation, must be determined by the authority which
owns and controls that navigation. In such matters, there can be no
divided empire."
The case of
Wisconsin v. Illinois, 278 U.
S. 367, related to the diversion by the State of
Illinois of water from Lake Michigan through the drainage canal at
Chicago, and the questions now before us with respect to the
disposition of surplus energy created at a dam erected by the
Federal Government in the performance of its constitutional
functions were in no way involved.
(3) We come then to the question as to the validity of the
method which has been adopted in disposing of the surplus energy
generated at the Wilson Dam. The constitutional provision is silent
as to the method of disposing of property belonging to the United
States. That method, of course, must be an appropriate means of
disposition according to the nature of the property, it must be one
adopted in the public interest, as distinguished from private or
personal ends, and we may assume that it must be consistent with
the foundation principles of our dual system of government, and
must not be contrived to govern the concerns reserved to the
States.
See Kansas v. Colorado, supra. In this instance,
the method of disposal embraces the sale of surplus energy by the
Tennessee Valley Authority to the Alabama Power Company, the
interchange of energy between the Authority and the Power Company,
and the purchase by the Authority from the Power Company of certain
transmission lines.
As to the mere sale of surplus energy, nothing need be added to
what we have said as to the constitutional authority to dispose.
The Government could lease or sell and fix the terms. Sales of
surplus energy to the Power Company by the Authority continued a
practice begun by the Government several years before. The
contemplated
Page 297 U. S. 339
interchange of energy is a form of disposition, and presents no
questions which are essentially different from those that are
pertinent to sales.
The transmission lines which the Authority undertakes to
purchase from the Power Company lead from the Wilson Dam to a large
area within about fifty miles of the dam. These lines provide the
means of distributing the electric energy generated at the dam to a
large population. They furnish a method of reaching a market. The
alternative method is to sell the surplus energy at the dam, and
the market there appears to be limited to one purchaser, the
Alabama Power Company, and its affiliated interests. We know of no
constitutional ground upon which the Federal Government can be
denied the right to seek a wider market. We suppose that, in the
early days of mining in the West, if the Government had undertaken
to operate a silver mine on its domain, it could have acquired the
mules or horses and equipment to carry its silver to market. And
the transmission lines for electric energy are but a facility for
conveying to market that particular sort of property, and the
acquisition of these lines raises no different constitutional
question, unless in some way there is an invasion of the rights
reserved to the State or to the people. We find no basis for
concluding that the limited undertaking with the Alabama Power
Company amounts to such an invasion. Certainly, the Alabama Power
Company has no constitutional right to insist that it shall be the
sole purchaser of the energy generated at the Wilson Dam -- that
the energy shall be sold to it or go to waste.
We limit our decision to the case before us as we have defined
it. The argument is earnestly presented that the Government, by
virtue of its ownership of the dam and power plant, could not
establish a steel mill and make and sell steel products, or a
factory to manufacture clothing or shoes for the public, and thus
attempt to make its
Page 297 U. S. 340
ownership of energy, generated at its dam, a means of carrying
on competitive commercial enterprises, and thus drawing to the
Federal Government the conduct and management of business having no
relation to the purposes for which the Federal Government was
established. The picture is eloquently drawn, but we deem it to be
irrelevant to the issue here. The Government is not using the water
power at the Wilson Dam to establish any industry or business. It
is not using the energy generated at the dam to manufacture
commodities of any sort for the public. The Government is disposing
of the energy itself, which simply is the mechanical energy,
incidental to falling water at the dam, converted into the electric
energy which is susceptible of transmission. The question here is
simply as to the acquisition of the transmission lines as a
facility for the disposal of that energy. And the Government
rightly conceded at the bar, in substance, that it was without
constitutional authority to acquire or dispose of such energy
except as it comes into being in the operation of works constructed
in the exercise of some power delegated to the United States. As we
have said, these transmission lines lead directly from the dam,
which has been lawfully constructed, and the question of the
constitutional right of the Government to acquire or operate local
or urban distribution systems is not involved. We express no
opinion as to the validity of such an effort, as to the status of
any other dam or power development in the Tennessee Valley, whether
connected with or apart from the Wilson Dam, or as to the validity
of the Tennessee Valley Authority Act or of the claims made in the
pronouncements and program of the Authority apart from the
questions we have discussed in relation to the particular
provisions of the contract of January 4, 1934, affecting the
Alabama Power Company.
The decree of the Circuit Court of Appeals is
Affirmed.
Page 297 U. S. 341
[
Footnote 1]
The Tennessee Valley Authority is a body corporate created by
the Act of Congress of May 18, 1933, amended by the Act of Congress
of August 31, 1935. 48 Stat. 58; 49 Stat. 1075.
[
Footnote 2]
The Commonwealth & Southern Corporation, organized under the
laws of Delaware, and the owner of the common stock of the Alabama
Power Company, was a party to the contract, which also contained
agreements with other subsidiaries of the Commonwealth &
Southern Corporation,
viz: Tennessee Electric Power
Company, Georgia Power Company, and Mississippi Power Company. The
agreements with these companies are not involved in this suit.
[
Footnote 3]
Equity Rule 27.
[
Footnote 4]
The District Court found that
"Approximately 1900 preferred stockholders of the Alabama
Company, holding over 40,000 shares of the preferred stock thereof,
have associated themselves with a preferred stockholders'
protective committee and authorized their names to be joined with
the plaintiffs of record in this case as parties plaintiff."
[
Footnote 5]
See note 2
[
Footnote 6]
41 Stat. 1063.
[
Footnote 7]
48 Stat. 955.
[
Footnote 8]
39 Stat. 166, 215.
[
Footnote 9]
Among the findings of the District Court on this point are the
following:
"38. The Muscle Shoals plants, including the Sheffield steam
plant and the 8 hydroelectric units installed at Wilson Dam, were
authorized for war purposes by Section 124 of the National Defense
Act of 1916 in anticipation of participation in the great war. The
original conception was for the use of Nitrate Plant No. 1,
employing the Haber process, and Plant No. 2, employing the
cyanamide process, for the fixation or manufacture of nitrogen and
its subsequent conversion into ammonium nitrate for explosives.
Plant No. 1 was completed, but was never practicable, due to the
lack of knowledge of the Haber process. Plant No. 2 successfully
developed calcium cyanamide from a manufacturing standpoint, but,
due to the availability of ammonium nitrate as a result of
commercial development of byproduct or synthetic processes, the
commercial or peacetime manufacture of calcium cyanamide at Nitrate
Plant No. 2 is considered uneconomical and undesirable, and is not
proposed or suggested by either the War Department or the TVA. The
Court further finds, however, that the plant, with the aid of
electric power furnished by Wilson Dam and the Sheffield steam
plant, can be operated to produce annually 110,000 tons of ammonium
nitrate by the cyanamide process, and that the present plans of the
War Department count upon that plant to supply that amount annually
in the event of a major war. . . ."
"40. The existence of these facilities, which make available
large quantities of nitrogenous war materials by use of either the
nitrogen fixing process or the oxidation of synthetic ammonia, is a
valuable national defense asset."
[
Footnote 10]
Sen.Doc. No. 1, 18th Cong., 2d sess.; H.R.Doc. No. 119, 69th
Cong., 1st sess., 11, 12.
[
Footnote 11]
See Rivers and Harbors Acts of August 30, 1852, c. 104,
10 Stat. 56, 60; July 25, 1868, c. 233, 15 Stat. 171, 174; March 3,
1871, c. 118, 16 Stat. 538, 542; June 10, 1872, c. 416, 17 Stat.
370, 372; September 19, 1890, c. 907, 26 Stat. 426, 445, 446;
August 18, 1894, c. 299, 28 Stat. 338, 354; April 26, 1904, c.
1605, 33 Stat. 309; March 2, 1907, c. 2509, 34 Stat. 1073, 1093;
June 25, 1910, c. 382, 36 Stat. 630, 652; July 25, 1912, c. 253, 37
Stat. 201, 215; July 27, 1916, c. 260, 39 Stat. 391, 399; March 3,
1925, c. 467, 43 Stat. 1186, 1188; July 3, 1930, c. 847, 46 Stat.
918, 927, 928.
See also H.R.Docs. No. 319, 67th Cong., 2d
sess.; No. 43, 69th Cong., 1st sess.; No. 185, 70th Cong., 1st
sess.; No. 328, 71st Cong., 2d sess.
[
Footnote 12]
Act of July 3, 1930, c. 847, 46 Stat. 918, 927, 928.
[
Footnote 13]
See citations of numerous statutes in
United States
v. Sweet, 245 U. S. 563,
245 U. S. 568,
245 U. S.
569.
[
Footnote 14]
Act of July 4, 1866, c. 16, § 5, 14 Stat. 85, 86.
[
Footnote 15]
Act of July 16, 1894, c. 138, 28 Stat. 107.
[
Footnote 16]
See, as to royalties under leases "to promote the
mining of coal, phosphate, oil, oil shale, gas, and sodium on the
public domain," the Act of February 25, 1920, c. 85, 41 Stat. 437.
Also, as to leases of public lands containing potassium
deposits, the Act of October 2, 1917, c. 62, 40 Stat. 297.
[
Footnote 17]
35 Stat. c. 264, 815, 820, 821.
MR. JUSTICE BRANDEIS, concurring.
"Considerations of propriety, as well as long-established
practice, demand that we refrain from passing upon the
constitutionality of an act of Congress unless obliged to do so in
the proper performance of our judicial function, when the question
is raised by a party whose interests entitle him to raise it."
Blair v. United States, 250 U.
S. 273,
250 U. S.
279.
I do not disagree with the conclusion on the constitutional
question announced by the Chief Justice; but, in my opinion, the
judgment of the Circuit Court of Appeals should be affirmed without
passing upon it. The Government has insisted throughout the
litigation that the plaintiffs have no standing to challenge the
validity of the legislation. This objection to the maintenance of
the suit is not overcome by presenting the claim in the form of a
bill in equity and complying with formal prerequisites required by
Equity Rule 27. The obstacle is not procedural. It inheres in the
substantive law, in well settled rules of equity, and in the
practice in cases involving the constitutionality of legislation.
Upon the findings made by the District Court, it should have
dismissed the bill.
From these it appears: the Alabama Power Company, a corporation
of that State with transmission lines located there, has
outstanding large issues of bonds, preferred stock, and common
stock. Its officers agreed, with the approval of the board of
directors, to sell to the Tennessee Valley Authority a part of
these lines and incidental property. The management thought that
the transaction was in the interest of the company. It acted in the
exercise of its business judgment, with the utmost good faith.
[
Footnote 2/1]
Page 297 U. S. 342
There was no showing of fraud, oppression, or gross negligence.
There was no showing of legal duress. There was no showing that the
management believed that to sell to the Tennessee Valley Authority
was in excess of the Company's corporate powers, or that it was
illegal because entered into for a forbidden purpose.
Nor is there any basis in law for the assertion that the
contract was
ultra vires of the Company. Under the law of
Alabama, a public utility corporation may ordinarily sell a part of
its transmission lines and incidental property to another such
corporation if the approval of the Public Service Commission is
obtained. The contract provided for securing such approval.
Moreover, before the motion to dissolve the restraining order was
denied, and before the hearing on the merits was concluded, the
Legislature, by Act No. 1, approved January 24, 1935, and effective
immediately, provided that a utility of the State may sell all or
any of its property to the Tennessee Valley Authority without the
approval of the Public Service Commission or of any other state
agency.
First. The substantive law. The plaintiffs who object
own about one three hundred and fortieth of the preferred stock.
They claimed at the hearing to represent about one-ninth of the
preferred stock -- that is, less than one forty-fifth in amount of
all the securities outstanding. Their rights are not enlarged
because the Tennessee Valley Authority entered into the transaction
pursuant to
Page 297 U. S. 343
an act of Congress. The fact that the bill calls for an enquiry
into the legality of the transaction does not overcome the obstacle
that ordinarily stockholders have no standing to interfere with the
management. Mere belief that corporate action, taken or
contemplated, is illegal gives the stockholder no greater right to
interfere than is possessed by any other citizen. Stockholders are
not guardians of the public. The function of guarding the public
against acts deemed illegal rests with the public officials.
Within recognized limits, stockholders may invoke the judicial
remedy to enjoin acts of the management which threaten their
property interest. But they cannot secure the aid of a court to
correct what appear to them to be mistakes of judgment on the part
of the officers. Courts may not interfere with the management of
the corporation unless there is bad faith, disregard of the
relative rights of its members, or other action seriously
threatening their property rights. This rule applies whether the
mistake is due to error of fact or of law or merely to bad business
judgment. It applies, among other things, where the mistake alleged
is the refusal to assert a seemingly clear cause of action, or the
compromise of it.
United Copper Securities Co. v. Amalgamated
Copper Co., 244 U. S. 261,
244 U. S.
263-264. If a stockholder could compel the officers to
enforce every legal right, courts, instead of chosen officers,
would be the arbiters of the corporation's fate.
In
Hawes v. Oakland, 104 U. S. 450,
104 U. S. 462, a
common stockholder sought to enjoin the Contra Costa Waterworks
Company from permitting the City of Oakland to take without
compensation water in excess of that to which it was legally
entitled. This Court, in affirming dismissal of the bill, said:
"It may be the exercise of the highest wisdom to let the city
use the water in the manner complained of. The directors are better
able to act
Page 297 U. S. 344
understandingly on this subject than a stockholder residing in
New York. The great body of the stockholders residing in Oakland or
other places in California may take this view of it, and be content
to abide by the action of their directors. If this be so, is a
bitter litigation with the city to be conducted by one stockholder
for the corporation and all other stockholders, because the amount
of his dividends is diminished?"
In Corbus v. Alaska Treadwell Gold Mining Co.,
187 U. S. 455,
187 U. S. 463,
a suit by a common stockholder to enjoin payment of an Alaska
license tax alleged to be illegal, the Court said:
"The directors represent all the stockholders, and are presumed
to act honestly and according to their best judgment for the
interests of all. Their judgment as to any matter lawfully confided
to their discretion may not lightly be challenged by any
stockholder, or at his instance submitted for review to a court of
equity. The directors may sometimes properly waive a legal right
vested in the corporation in the belief that its best interests
will be promoted by not insisting on such right. They may regard
the expense of enforcing the right or the furtherance of the
general business of the corporation in determining whether to waive
or insist upon the right. And a court of equity may not be called
upon at the appeal of any single stockholder to compel the
directors or the corporation to enforce every right which it may
possess, irrespective of other considerations. It is not a trifling
thing for a stockholder to attempt to coerce the directors of a
corporation to all act which their judgment does not approve, or to
substitute his judgment for theirs. [
Footnote 2/2]"
Second. The equity practice. Even where property rights
of stockholders are alleged to be violated by the management,
stockholders seeking an injunction must
Page 297 U. S. 345
bear the burden of showing danger of irreparable injury, as do
others who seek that equitable relief. In the case at bar, the
burden of making such proof was a peculiarly heavy one. The
plaintiffs, being preferred stockholders, have but a limited
interest in the enterprise, resembling, in this respect, that of a
bondholder, in contradistinction to that of a common stockholder.
Acts may be innocuous to the preferred which conceivably might
injure common stockholders. There was no finding that the property
interests of the plaintiffs were imperiled by the transaction in
question, and the record is barren of evidence on which any such
finding could have been made.
Third. The practice in constitutional cases. The fact
that it would be convenient for the parties and the public to have
promptly decided whether the legislation assailed is valid cannot
justify a departure from these settled rules of corporate law and
established principles of equity practice. On the contrary, the
fact that such is the nature of the enquiry proposed should deepen
the reluctance of courts to entertain the stockholder's suit.
"It must be evident to any one that the power to declare a
legislative enactment void is one which the judge, conscious of the
fallibility of the human judgment, will shrink from exercising in
any case where he can conscientiously and with due regard to duty
and official oath decline the responsibility."
1 Cooley, Constitutional Limitations (8th ed.), p. 332.
The Court has frequently called attention to the "great gravity
and delicacy" of its function in passing upon the validity of an
act of Congress, [
Footnote 2/3] and
has restricted exercise of this function by rigid insistence that
the jurisdiction of federal courts is limited to actual cases and
controversies, and that they have no power to give advisory
Page 297 U. S. 346
opinions. [
Footnote 2/4] On this
ground, it has in recent years ordered the dismissal of several
suits challenging the constitutionality of important acts of
Congress. In
Texas v. Interstate Commerce Comm'n,
258 U. S. 158,
258 U. S. 162,
the validity of Titles III and IV of the Transportation Act of
1920. In
New Jersey v. Sargent, 269 U.
S. 328, the validity of parts of the Federal Water Power
Act. In
Arizona v. California, 283 U.
S. 423, the validity of the Boulder Canyon Project Act.
Compare United States v. West Virginia, 295 U.
S. 463, involving the Federal Water Power Act,
and
Liberty Warehouse Co. v. Grannis, 273 U. S.
70, where this Court affirmed the dismissal of a suit to
test the validity of a Kentucky statute concerning the sale of
tobacco;
also Massachusetts State Grange v. Benton,
272 U. S. 525.
The Court developed, for its own governance in the cases
confessedly within its jurisdiction, a series of rules under which
it has avoided passing upon a large part of all the constitutional
questions pressed upon it for decision. They are:
1. The Court will not pass upon the constitutionality of
legislation in a friendly, nonadversary, proceeding, declining
because to decide such questions
"is legitimate only in the last resort, and as a necessity in
the determination of real, earnest and vital controversy between
individuals. It never was the thought that, by means of a friendly
suit, a party beaten in the legislature could transfer to the
courts an inquiry as to the constitutionality of the legislative
act."
Chicago & Grand Trunk Ry. v. Wellman, 143 U.
S. 339,
143 U. S. 345.
Compare 49 U. S.
Veazie, 8 How. 251;
Atherton Mills v. Johnston,
259 U. S. 13,
259 U. S.
15.
2. The Court will not "anticipate a question of constitutional
law in advance of the necessity of deciding it."
Page 297 U. S. 347
Liverpool, N.Y. & P. S.S. Co. v. Emigration
Commissioners, 113 U. S. 33,
113 U. S. 39;
[
Footnote 2/5]
Abrams v. Van
Schaick, 293 U. S. 188;
Wilshire Oil Co. v. United States, 295 U.
S. 100. "It is not the habit of the Court to decide
questions of a constitutional nature unless absolutely necessary to
a decision of the case."
Burton v. United States,
196 U. S. 283,
196 U. S.
295.
3. The Court will not "formulate a rule of constitutional law
broader than is required by the precise facts to which it is to be
applied."
Liverpool, N.Y. & P. S.S. Co. v. Emigration
Commissioners, supra; compare Hammond v. Schapp Bus Line,
275 U. S. 164,
275 U. S.
169-172.
4. The Court will not pass upon a constitutional question,
although properly presented by the record, if there is also present
some other ground upon which the case may be disposed of. This rule
has found most varied application. Thus, if a case can be decided
on either of two grounds, one involving a constitutional question,
the other a question of statutory construction or general law, the
Court will decide only the latter.
Siler v. Louisville &
Nashville R. Co., 213 U. S. 175,
213 U. S. 191;
Light v. United States, 220 U. S. 523,
220 U. S. 538.
Appeals from the highest court of a state challenging its decision
of a question under the Federal Constitution are frequently
dismissed because the judgment can be sustained on an independent
state ground.
Berea College v. Kentucky, 211 U. S.
45,
211 U. S.
53.
5. The Court will not pass upon the validity of a statute upon
complaint of one who fails to show that he is injured by its
operation. [
Footnote 2/6]
Tyler v. The
Judges, 179 U.S.
Page 297 U. S. 348
405;
Hendrick v. Maryland, 235 U.
S. 610,
235 U. S. 621.
Among the many applications of this rule, none is more striking
than the denial of the right of challenge to one who lacks a
personal or property right. Thus, the challenge by a public
official interested only in the performance of his official duty
will not be entertained.
Columbus & Greenville Ry. v.
Miller, 283 U. S. 96,
283 U. S.
99-100. In
Fairchild v. Hughes, 258 U.
S. 126, the Court affirmed the dismissal of a suit
brought by a citizen who sought to have the Nineteenth Amendment
declared unconstitutional. In
Massachusetts v. Mellon,
262 U. S. 447, the
challenge of the federal Maternity Act was not entertained,
although made by the Commonwealth on behalf of all its
citizens.
6. The Court will not pass upon the constitutionality of a
statute at the instance of one who has availed himself of its
benefits. [
Footnote 2/7]
Great
Falls Mfg. Co. v. Attorney General, 124 U.
S. 581;
Wall v. Parrot Silver & Copper Co.,
244 U. S. 407,
244 U. S.
411-412;
St. Louis Malleable Casting Co. v.
Prendergast Construction Co., 260 U.
S. 469.
7.
"When the validity of an act of the Congress is drawn in
question, and even if a serious doubt of constitutionality is
raised, it is a cardinal principle that this Court will first
ascertain whether a construction of the statute is fairly possible
by which the question may be avoided."
Crowell v. Benson, 285 U. S. 22,
285 U. S. 62.
[
Footnote 2/8]
Page 297 U. S. 349
Fourth. I am aware that, on several occasions, this
Court passed upon important constitutional questions which were
presented in stockholders' suits bearing a superficial resemblance
to that now before us. But in none of those cases was the question
presented under circumstances similar to those at bar. In none were
the plaintiffs preferred stockholders. In some, the Court dealt
largely with questions of federal jurisdiction and collusion. In
most, the propriety of considering the constitutional question was
not challenged by any party. In most, the statute challenged
imposed a burden upon the corporation and penalties for failure to
discharge it, whereas the Tennessee Valley Authority Act imposed no
obligation upon the Alabama Power Company, and, under the contract,
it received a valuable consideration. Among other things, the
Authority agreed not to sell outside the area covered by the
contract, and thus preserved the corporation against possible
serious competition. The effect of this agreement was equivalent to
a compromise of a doubtful cause of action. Certainly the alleged
invalidity of the Tennessee Valley Authority Act was not a matter
so clear as to make compromise illegitimate. These circumstances
present features differentiating the case at bar from all the cases
in which stockholders have been held entitled to have this Court
pass upon the constitutionality of a statute which the directors
had refused to challenge. The cases commonly cited are these:
[
Footnote 2/9]
Dodge v.
Woolsey, 18 How. 331,
59 U. S.
341-346, was a suit brought by a common stockholder to
enjoin a breach of trust by the directors which, if submitted to,
would seriously injure the plaintiff. The Court drew clearly the
distinction between "an error of judgment" and a breach
Page 297 U. S. 350
of duty; declared that it could not interfere if there was only
an error of judgment; held that, on the facts, the threatened
action of the directors would be a breach of trust, and pointed to
the serious injury necessarily resulting therefrom to the
plaintiff. [
Footnote 2/10]
Grenwood v. Freight Co., 105 U. S.
13,
105 U. S. 116,
was a suit brought by a common stockholder to enjoin the
enforcement of a statute alleged to be unconstitutional as
repealing the corporation's charter. The Court said:
"It is sufficient to say that this bill presents so strong a
case of the total destruction of the corporate existence . . . that
we think the complainant as a stockholder comes within the rule . .
. which authorizes a shareholder to maintain a suit to prevent such
a disaster where the corporation peremptorily refuses to move in
the matter."
Pollock v. Farmers' Loan & Trust Co., 157 U.
S. 429,
157 U. S.
553-554, was a suit brought by a common stockholder to
enjoin a breach of trust by paying voluntarily a tax which was said
to be illegal. The stockholder's substantive right to object was
not challenged. The question raised was that of equity
jurisdiction. The allegation of threatened irreparable damage to
the corporation and
Page 297 U. S. 351
to the plaintiff was admitted. The Court said:
"The objection of adequate remedy at law was not raised below,
nor is it now raised by appellees, if it could be entertained at
all at this stage of the proceedings; and, so far as it was within
the power of the government to do so, the question of jurisdiction,
for the purposes of the case, was explicitly waived on the
argument. . . . Under these circumstances, we should not be
justified in declining to proceed to judgment upon the merits."
The jurisdictional issue discussed in the dissent (157 U.S. at
157 U. S.
608-612) was the effect of R.S. § 3224.
Cotting v. Kansas City Stock Yards Co., 183 U. S.
79,
183 U. S. 113,
was a suit brought by a common stockholder to enjoin enforcement of
a rate statute alleged to be unconstitutional against which the
directors refused to protect the corporation. It was alleged and
found that its enforcement would subject the company to great and
irreparable loss. The serious contention concerning jurisdiction
was, as stated by Mr. Justice Brewer, whether a suit lay against
the Attorney General of the State. Of the jurisdiction of the suit
"as one involving a controversy between the stockholders and the
corporation and its officers, no serious question is made."
Chicago v. Mills, 204 U. S. 321, was
a suit brought by a common stockholder of the People's Gas, Light
and Coke Company to enjoin enforcement of an ordinance alleged to
be illegal. The sole question before this Court was whether the
federal court had jurisdiction. That question raised an issue of
fact. This Court, in affirming the judgment below, said (p.
204 U. S.
331):
"Upon the whole record, we agree with the Circuit Court that the
testimony does not disclose that the jurisdiction of the Federal
court was collusively and fraudulently invoked. . . ."
Brushaber v. Union Pacific R. Co., 240 U. S.
1,
240 U. S. 9-10,
was a suit brought by a common stockholder to restrain the
corporation from voluntarily paying a tax alleged to
Page 297 U. S. 352
be invalid. As stated by plaintiff's counsel:
"The contention -- and this is the only objection that is made
to the suit -- that it seeks to do indirectly what the Revised
Statutes [§ 3224] have said shall not be done -- namely, enjoin the
collection of a tax."
The Court, assuming that the averments were identical with those
in the
Pollock case, declared that the right of the
stockholder to sue was clear.
Smith v. Kansas City Title & Trust Co.,
255 U. S. 180,
255 U. S.
199-202, was a suit brought by a common stockholder to
enjoin investment by the company in bonds issued under the Federal
Farm Loan Act. Neither the parties nor the government, which filed
briefs as
amicus, made any objection to the jurisdiction.
But, as both parties were citizens of Missouri, the Court raised,
and considered fully, the question whether there was federal
jurisdiction under § 24 of the Judicial Code. It was on this
question that Mr. Justice Holmes and Mr. Justice McReynolds
dissented. The Court held that there was federal jurisdiction, and
upon averments of the bill, assumed to be adequate, sustained the
right of the stockholder to invoke the equitable remedy on the
authority of the
Brushaber and
Pollock cases.
Hill v. Wallace, 259 U. S. 44,
259 U. S. 60-63,
was a suit by members of the Board of Trade of Chicago to restrain
enforcement of the Future Trading Act, alleged to be
unconstitutional. The Court held that the averments of the bill,
which included allegations of irreparable injury, stated
"sufficient equitable grounds to justify granting the relief" on
the cases above cited.
If, or insofar as, any of the cases discussed may be deemed
authority for sustaining this bill, they should now be disapproved.
This Court, while recognizing the soundness of the rule of
stare decisis where appropriate, has not hesitated to
overrule earlier decisions shown, upon fuller
Page 297 U. S. 353
consideration, to be erroneous. [
Footnote 2/11] Our present keener appreciation of the
wisdom of limiting our decisions rigidly to questions essential to
the disposition of the case before the court is evidenced by
United States v. Hastings, 296 U.
S. 188, decided at this term. There, we overruled
United States v. Stevenson, 215 U.
S. 190,
215 U. S. 195,
long a controlling authority on the Criminal Appeals Act.
Fifth. If the Company ever had a right to challenge the
transaction with the Tennessee Valley Authority, its right had been
lost by estoppel before this suit was begun, and, as it is the
Company's right which plaintiffs seek to enforce, they also are
necessarily estopped. The Tennessee Valley Authority Act became a
law on May 18, 1933. Between that date and January, 1934, the
Company and its associates purchased approximately 230,000,000 kwh
electric energy at Wilson Dam. Under the contract of January 4,
1934, which is here assailed, continued purchase of Wilson Dam
power was provided for and made, and the Authority has acted in
other matters in reliance on the contract. In May, 1934, the
Company applied to the Alabama Public Service Commission for
approval of the transfers provided for in the contract, and, on
June 1, 1934, the Commission made, in general terms, its finding
that the proposed sale of the properties was consistent with the
public interest. Moreover, the plaintiffs, in their own right, are
estopped by their long inaction. Although widespread publicity was
given to the negotiations for the contract and to these later
proceedings,
Page 297 U. S. 354
the plaintiffs made no protest until August 7, 1934, and did not
begin this suit until more than eight months after the execution of
the contract. Others -- certain ice and coal companies who thought
they would suffer as competitors -- appeared before the Commission
in opposition to the action of the Authority, and apparently they
are now contributing to the expenses of this litigation.
Sixth. Even where by the substantive law stockholders
have a standing to challenge the validity of legislation under
which the management of a corporation is acting, courts should, in
the exercise of their discretion, refuse an injunction unless the
alleged invalidity is clear. This would seem to follow as a
corollary of the long established presumption in favor of the
constitutionality of a statute.
Mr. Justice Iredell said as early as 1798, in
Calder v.
Bull, 3 Dall. 386,
3 U. S. 399:
"If any act of Congress, or of the Legislature of a state,
violates those constitutional provisions, it is unquestionably
void, though I admit that, as the authority to declare it void is
of a delicate and awful nature, the Court will never resort to that
authority but in a clear and urgent case."
Mr. Chief Justice Marshall said, in
Dartmouth
College v. Woodward, 4 Wheat. 518,
17 U. S.
625:
"On more than one occasion, this Court has expressed the
cautious circumspection with which it approaches the consideration
of such questions, and has declared that in no doubtful case would
it pronounce a legislative act to be contrary to the constitution.
[
Footnote 2/12] "
Page 297 U. S. 355
Mr. Justice Washington said, in
Ogden v.
Saunders, 12 Wheat. 213,
25 U. S.
270:
"But if I could rest my opinion in favor of the
constitutionality of the law on which the question arises on no
other ground than this doubt so felt and acknowledged, that alone
would, in my estimation, be a satisfactory vindication of it. It is
but a decent respect due to the wisdom, the integrity, and the
patriotism of the legislative body by which any law is passed to
presume in favor of its validity until it violation of the
constitution is proved beyond all reasonable doubt. This has always
been the language of this Court when that subject has called for
its decision, and I know that it expresses the honest sentiments of
each and every member of this bench."
Mr. Chief Justice Waite said in the
Sinking-Fund Case,
99 U. S. 700,
99 U. S.
718:
"This declaration [that an act of Congress is unconstitutional]
should never be made except in a clear case. Every possible
presumption is in favor of the validity of a statute, and this
continues until the contrary is shown beyond a rational doubt. One
branch of the government cannot encroach on the domain of another
without danger. The safety of our institutions depends in no small
degree on a strict observance of this salutary rule."
The challenge of the power of the Tennessee Valley Authority
rests wholly upon the claim that the act of
Page 297 U. S. 356
Congress which authorized the contract is unconstitutional. As
the opinions of this Court and of the Circuit Court of Appeals
show, that claim was not a matter "beyond peradventure clear." The
challenge of the validity of the Act is made on an application for
an injunction -- a proceeding in which the court is required to
exercise its judicial discretion. In proceedings for a mandamus,
where, also, the remedy is granted not as a matter of right but in
the exercise of a sound judicial discretion,
Duncan Townsite
Co. v. Lane, 245 U. S. 308,
245 U. S.
311-312, courts decline to enter upon the enquiry when
there is a serious doubt as to the existence of the right or duty
sought to be enforced. As was said in
United States v.
Interstate Commerce Comm'n, 294 U. S. 50,
294 U. S. 63:
"Where the matter is not beyond peradventure clear, we have
invariably refused the writ [of mandamus] even though the question
were one of law as to the extent of the statutory power of an
administrative officer or body."
A fortiori, this rule should have been applied here,
where the power challenged is that of Congress under the
Constitution.
MR. JUSTICE STONE, MR. JUSTICE ROBERTS, and MR. JUSTICE CARDOZO
join in this opinion.
[
Footnote 2/1]
The management explained that it was in the best interest of the
Company to accept the offer of the Authority for the purchase of
the transmission lines in a limited area, coupled with an agreement
on the part of the Authority not to sell outside of that area
during the life of the contract. It protected the Company against
possible entrance of the Authority into the territory in which were
located nine-tenths of the Company's customers, including the
largest, and it assured the Company that, so long as the latter
retained its urban distribution systems within the territory served
by the transmission lines, those systems would be serviced by power
from Wilson Dam. Upon delivery of the transmission lines, the
Authority agreed to pay the Company $1,150,000.
[
Footnote 2/2]
See also Samuel v. Holladay, 21 Fed.Cas. No. 12,288,
pp. 306, 311-312.
[
Footnote 2/3]
E.g., Miller, J., in
Ex parte
Garland, 4 Wall. 333,
71 U. S. 382;
Hepburn v.
Griswold, 8 Wall. 603,
75 U. S. 610;
Adkins v. Children's Hospital, 261 U.
S. 525,
261 U. S. 544;
Holmes, J., in
Blodgett v. Holden, 275 U.
S. 142,
275 U. S.
147-148.
[
Footnote 2/4]
E.g., 2 U. S. 2 Dall.
409;
United States v.
Ferreira, 13 How. 40;
Gordon v.
United States, 2 Wall. 561, 117 U.S. 697;
Muskrat v. United States, 219 U.
S. 346;
Willing v. Chicago Auditorium Assn.,
277 U. S. 274.
[
Footnote 2/5]
E.g., Ex parte Randolph, 20 Fed.Cas. No. 11,558, pp.
242, 254;
Charles River Bridge v. Warren
Bridge, 11 Pet. 420,
36 U. S. 553;
Trade-Mark Cases, 100 U. S. 82,
100 U. S. 96;
Arizona v. California, 283 U. S. 423,
283 U. S.
462-464.
[
Footnote 2/6]
E.g., Hatch v. Reardon, 204 U.
S. 152,
204 U. S.
160-161;
Corporation Commission v. Lowe,
281 U. S. 431,
281 U. S. 438;
Heald v. District of Columbia, 259 U.
S. 114,
259 U. S. 123;
Sprout v. South Bend, 277 U. S. 163,
277 U. S. 167;
Concordia Fire Insurance Co. v. Illinois, 292 U.
S. 535,
292 U. S.
547.
[
Footnote 2/7]
Compare Electric Co. v. Dow, 166 U.
S. 489;
Pierce v. Somerset Ry., 171 U.
S. 641,
171 U. S. 648;
Leonard v. Vicksburg, S. & P. R. Co., 198 U.
S. 416,
198 U. S.
422.
[
Footnote 2/8]
E.g., United States v. Delaware & Hudson Co.,
213 U. S. 366,
213 U. S.
407-408;
United States v. Jin Fuey Moy,
241 U. S. 394,
241 U. S. 401;
Baender v. Barnett, 255 U. S. 224;
Texas v. Eastern Texas R. Co., 258 U.
S. 204,
258 U. S. 217;
Panama R. Co. v. Johnson, 264 U.
S. 375,
264 U. S. 390;
Linder v. United States, 268 U. S. 5,
268 U. S. 17-18;
Missouri Pacific R. Co. v. Boone, 270 U.
S. 466,
270 U. S.
471-472;
Richmond Screw Anchor Co. v. United
States, 275 U. S. 331,
275 U. S. 346;
Blodgett v. Holden, 275 U. S. 142,
275 U. S. 148;
Lucas v. Alexander, 279 U. S. 573,
279 U. S. 577;
Interstate Commerce Comm'n v. Oregon-Washington R. & N.
Co., 288 U. S. 14,
288 U. S.
40.
[
Footnote 2/9]
Others are
Memphis v.
Dean, 8 Wall. 64,
75 U. S. 73;
Smyth v. Ames, 169 U. S. 466,
169 U. S.
515-518;
Corbus v. Alaska Treadwell Gold Mining
Co., 187 U. S. 455;
Ex parte Young, 209 U. S. 123,
209 U. S. 143;
Delaware & Hudson Co. v. Albany & Susquehanna R.
Co., 213 U. S. 435;
Wathen v. Jackson Oil & Refining Co., 235 U.
S. 635.
[
Footnote 2/10]
The resolution of the directors (p.
59 U. S. 340)
was this:
"Resolved, that we fully concur in the views expressed in said
letter as to the illegality of the tax therein named, and believe
it to be in no way binding upon the bank; but, in consideration of
the many obstacles in the way of testing the law in the courts of
the State, we cannot consent to take the action which we are called
upon to take, but must leave the said Kleman to pursue such
measures as he may deem best in the premises."
Referring to
Dodge v. Woolsey, the Court pointed out,
in
Hawes v. Oakland, 104 U. S. 450,
104 U. S.
459:
"As the law then stood, there was no means by which the bank,
being a citizen of the same State with Dodge, the tax collector,
could bring into a court of the United States the right which it
asserted under the Constitution to be relieved of the tax in
question, except by writ of error to a State court from the Supreme
Court of the United States."
[
Footnote 2/11]
A notable recent example is
Humphrey's Executor v. United
States, 295 U. S. 602,
which limited (p.
295 U. S. 626
et seq.)
Myers v. United States, 272 U. S.
52, disapproving important statements in the opinion.
For lists of decisions of this Court later overruled,
see
Burnet v. Cormado Oil & Gas Co., 285 U.
S. 393,
285 U. S.
406-409; Malcolm Sharp, Movement in Supreme Court
Adjudication -- A Study of Modified and Overruled Decisions, 46
Harv.L.Rev. 361, 593, 795.
[
Footnote 2/12]
In 1811, Chief Justice Tilghman of the Supreme Court of
Pennsylvania, while asserting the power of the court to hold laws
unconstitutional but declining to exercise it in a particular case,
stated the practice as follows:
"For weighty reasons, it has been assumed as a principle in
constitutional construction by the Supreme Court of the United
States, by this court, and every other court of reputation in the
United States, that an Act of the legislature is not to be declared
void unless the violation of the constitution is so manifest as to
leave no room for reasonable doubt."
James B. Thayer, after quoting the passage in The Origin and
Scope of the American Doctrine of Constitutional Law, 7 Harv.Law
Review 129, 140, called attention (p. 144) to
"a remark of Judge Cooley to the effect that one who is a member
of a legislature may vote against a measure as being, in his
judgment, unconstitutional, and, being subsequently placed on the
bench, when this measure having been passed by the legislature in
spite of his opposition, comes before him judicially, may there
find it his duty, although he has in no degree changed his opinion,
to declare it constitutional."
Separate opinion of MR. JUSTICE McREYNOLDS.
Considering the consistent rulings of this court through many
years, it is not difficult for me to conclude that petitioners have
presented a justiciable controversy which we must decide. In
Smith v. Kansas City Title Co., 255 U.
S. 180, the grounds for jurisdiction were far less
substantial than those here disclosed. We may not with propriety
avoid disagreeable duties by lightly forsaking long respected
precedents and established practice.
Nor do I find serious difficulty with the notion that the United
States, by proper means and for legitimate ends,
Page 297 U. S. 357
may dispose of water power or electricity honestly developed in
connection with permissible improvement of navigable waters. But
the means employed to that end must be reasonably appropriate in
the circumstances. Under pretense of exercising granted power, they
may not, in fact, undertake something not intrusted to them. Their
mere ownership,
e.g., of an iron mine, would hardly permit
the construction of smelting works followed by entry into the
business of manufacturing and selling hardware, albeit the ore
could thus be disposed of, private dealers discomfited, and
artificial prices publicized. Here, therefore, we should consider
the truth of petitioners' charge that, while pretending to act
within their powers to improve navigation, the United States,
through corporate agencies, are really seeking to accomplish what
they have no right to undertake the business of developing,
distributing and selling electric power. If the record sustains
this charge, we ought so to declare and decree accordingly.
The Circuit Court of Appeals took too narrow a view of the
purpose and effect of the contract of January 4, 1934. That went
far beyond the mere acquisition of transmission lines for proper
use in disposing of power legitimately developed. Like all
contracts, it must be considered as a whole, illumined by
surrounding circumstances. Especial attention should be given to
the deliberately announced purpose of Directors, clothed with
extraordinary discretion and supplied with enormous sums of money.
With $50,000,000 at their command, they started out to gain control
of the electrical business in large areas, and to dictate sale
prices. The power at Wilson Dam was the instrumentality seized upon
for carrying the plan into effect.
While our primary concern is with this contract, it cannot be
regarded as a mere isolated effort to dispose of property. And
certainly to consider only those provisions
Page 297 U. S. 358
which directly relate to Alabama Power Company is not
permissible. We must give attention to the whole transaction -- its
antecedents, purpose and effect -- as well as the terms
employed.
No abstract question is before us; on the contrary, the matter
is of enormous practical importance to petitioners -- their whole
investment is at stake. Properly understood, the pronouncements,
policies and program of the Authority illuminate the action taken.
They help to reveal the serious interference with the petitioners'
rights. Their property was in danger of complete destruction under
a considered program commenced by an agency of the National
Government with vast resources subject to its discretion and backed
by other agencies likewise intrusted with discretionary use of huge
sums. The threat of competition by such an opponent was appalling.
The will to prevail was evident. No private concern could
reasonably hope to withstand such force.
The Tennessee River, with headwaters in West Virginia and North
Carolina, crosses Tennessee on a southwesterly course, enters
Alabama near Chattanooga, and flows westerly across the northern
part of that State to the northeast corner of Mississippi. There it
turns northward, passes through Tennessee and Kentucky, and empties
into the Ohio forty miles above Cairo. The total length is nine
hundred miles; the drainage basin approximates forty thousand
square miles. The volume of water is extremely variable; commercial
navigation is of moderate importance.
At Muscle Shoals, near Florence, Alabama (twenty miles east of
the Mississippi line and fifteen south of Tennessee), a succession
of falls constitutes serious interference with navigation, also
presents possibilities for development of power on a large scale.
During and immediately after the World War, a great dam was
constructed there by the United States, intended primarily for
generation
Page 297 U. S. 359
of power. Production of electricity soon commenced. Some of this
was devoted to governmental purposes; much was sold, delivery being
made at or near the dam.
During the last thirty years, several corporations have been
engaged in the growing business of developing electric energy and
distributing this to customers over a network of interconnected
lines extending throughout Tennessee, Georgia, Alabama and
Mississippi. At great expense, they gradually built up extensive
businesses and acquired properties of very large value. All
operated under state supervision. Through stock ownership or
otherwise, they came under general control of the Commonwealth
& Southern Corporation. Among the associates were the Alabama
Power Company, which serviced Alabama, the Mississippi Company,
which serviced Mississippi, and the Tennessee Company, which
operated in eastern Tennessee. Huge sums were invested in these
enterprises by thousands of persons in many states. Apparently, the
companies were diligently developing their several systems and
responding to the demands of the territories which they
covered.
In 1933, operations began under an imposing program for somewhat
improving Tennessee River navigation, and especially for developing
the water power along its whole course at public expense. This plan
involved conversion of water power into electricity for wide
distribution throughout the valley and adjacent territory. Its
development was intrusted to the Tennessee Valley Authority, a
federal corporation wholly controlled by the United States. This
promptly took over the Wilson Dam and began work upon the Wheeler
Dam, twenty miles up the River, and the Pickwick Dam, some forty
miles lower down. Also it commenced construction of Norris Dam
across Clinch River, a branch of the Tennessee, two hundred miles
above the Wilson Dam. All these, with probable additions, were to
be connected by transmission wires,
Page 297 U. S. 360
and electric energy distributed from them to millions of people
in many states. Public service corporations were to be brought to
terms or put out of business. At least $75,000,000 of public funds
was early appropriated for expenditure by the Directors, and other
governmental agencies in control of vast sums were ready to lend
aid.
Readily to understand the issues now before us, one must be
mindful of these circumstances.
The trial court made findings of fact which fill more than sixty
printed pages. They are not controverted, and, for present
purposes, are accepted; upon them the cause stands for decision.
They are much quoted below. Plainly they indicate, and that court,
in effect, declared, the contract of January 4th was a deliberate
step into a forbidden field, taken with definite purpose to
continue the trespass.
Nothing suggests either necessity or desirability of entering
into this agreement solely to obtain solvent customers willing to
pay full value for all surplus power generated at Wilson Dam.
Apparently there was ample opportunity for such sales, deliveries
to be made at or near the dam. No attempt was made to show
otherwise. The definite end in view was something other than
orderly disposition.
The Authority's Answer to the Complaint is little more than a
series of denials. It does not even allege that the contract of
January 4th was necessary for ready disposal of power; or that
thereby better prices could be obtained; or that no buyer was
ready, able and willing to take at the dam for full value; or that
the Board expected to derive adequate return from the business to
be acquired. No sort of explanation of the contract is presented --
why it was entered into, or whether profitable use probably could
be made of the property. And I find in the Authority's brief no
serious attempt to justify the purchases because necessary. or, in
fact, an advantageous method, for disposing
Page 297 U. S. 361
of property. Nothing in the findings lends support to any such
view.
The record leaves no room for reasonable doubt that the primary
purpose was to put the Federal Government into the business of
distributing and selling electric power throughout certain large
districts, to expel the power companies which had long serviced
them, and to control the market therein. A government
instrumentality had entered upon a pretentious scheme to provide a
"yardstick" of the fairness of rates charged by private owners, and
to attain "no less a goal than the electrification of America."
"When we carry this program into every town and city and
village, and every farm throughout the country, we will have
written the greatest chapter in the economic, industrial and social
development of America."
Any reasonable doubt concerning the purpose and result of the
contract of January 4th or of the design of the Authority should be
dispelled by examination of its Reports for 1934 and 1935.
*
Page 297 U. S. 362
"The conception was to establish an independent network
comparable in all respects with the electric utility system serving
the area, with which TVA sought to establish interchange
arrangements, both as outlets for its
Page 297 U. S. 363
own power and to use existing systems as a standby or backup
service."
"The TVA plan as conceived and in process of execution
contemplates complete and exclusive control and jurisdiction over
all power sites on the Tennessee River
Page 297 U. S. 364
and tributaries."
"The TVA policy contemplates full corporate discretion by TVA in
developing, executing and extending its electric system and service
within transmission limits."
"This policy contemplated service utility in type and covered
not only generation, but transmission and distribution (preferably
through public or nonprofit agencies, if available), both wholesale
and retail. That is,
Page 297 U. S. 365
moreover, implicit in both the January 4 contract and the now
terminated August 9th contract."
The challenged contract is defended upon the theory that the
"Federal Government may dispose of the surplus water power
necessarily created by Wilson Dam, and may authorize generation of
electric energy and acquisition of transmission lines as means of
facilitating this disposal."
But to facilitate disposal was not the real purpose; obviously
the thing to be facilitated was carrying on business by use of the
purchased property. Under the guise of disposition, something
wholly different was to be accomplished -- devotion of electric
power to purposes beyond the sphere of proper federal action, an
unlawful goal. There is no plausible claim that such a contract was
either necessary or desirable merely to bring about the sale of
property. This Court has often affirmed that facts, not artifice,
control its conclusions. The Agency has stated quite clearly the
end in view: "This public operation is to serve as a yardstick by
which to measure the fairness of electric rates." "The TVA power
policy was not designed or limited with a view to the marketing of
the power produced and available at Muscle Shoals."
"In formulating and going forward with the power policy, the
Board was considering that policy as a permanent and independent
commercial function."
For present purposes, a complete survey of relevant
circumstances preceding the contract of January 4th and all its
consequences is not essential. The pleadings and findings fairly
outline the situation. What follows is mainly quoted or derived
from them.
The Act of May 18, 1933, created the Tennessee Valley Authority
as a body corporate
"for the purpose of maintaining and operating the properties now
owned by the United States in the vicinity of Muscle Shoals,
Alabama, in the interest of the national defense and for
agricultural
Page 297 U. S. 366
and industrial development, and to improve navigation in the
Tennessee River and to control the destructive floodwaters in the
Tennessee River and Mississippi River Basins."
It provided, a board of three directors "shall direct the
exercise of all the powers of the Corporation," and "is authorized
to make alterations, modifications or improvements in existing
plants and facilities, and to construct new plants", and to
"produce, distribute, and sell electric power as herein
particularly specified." The Corporation
"shall have such powers as may be necessary or appropriate for
the exercise of the powers herein specifically conferred upon the
Corporation;"
"to acquire real estate for the construction of dams,
reservoirs, transmission lines, power houses, and other structures,
and navigation projects at any point along the Tennessee River, or
any of its tributaries."
Also, the Board is
"hereby empowered and authorized to sell the surplus power not
used in its operations, and for operation of locks and other works
generated by it, to States, counties, municipalities, corporations,
partnerships, or individuals, according to the policies hereinafter
set forth, and to carry out said authority, the board is authorized
to enter into contracts for such sale for a term not exceeding
twenty years."
"In order to promote and encourage the fullest possible use of
electric light and power on farms within reasonable distance of any
of its transmission lines, the board, in its discretion, shall have
power to construct transmission lines to farms and small villages
that are not otherwise supplied with electricity at reasonable
rates, and to make such rules and regulations governing such sale
and distribution of such electric power as in its judgment may be
just and equitable."
"One of the first corporate acts of TVA after its organization
was to formulate and announce a power policy to govern the
commercial distribution of electric power by TVA. The evidence
establishes the fact that the Board,
Page 297 U. S. 367
from the outset, has considered that it has general corporate
discretion as to the establishment and extension of its electric
power policy. In establishing a power policy, the Board was not
primarily considering merely the question of disposal of power
produced at Muscle Shoals no longer required for governmental
purposes as a result of overbuilding, obsolescence of plants, or
termination of war purpose. Nor was it considering disposal of
prospective increases in electric power to be unavoidably created
in excess of some governmental requirement. It was considering the
matter from the standpoint of the successful establishment and
permanent operation of an independent and well rounded
government-owned electric distribution system and the general
civic, social, and industrial planning and development of the
Tennessee Valley region as a whole."
"Under date of August 25, 1933, TVA announced its power policy,
indicating both the initial stage of its development and certain
later steps originally determined upon. . . . This power policy had
not been rescinded or abandoned or modified at the time of
submission of this cause."
"In September, 1933, the Authority announced its wholesale and
retail rate schedules, which are shown by the evidence to be
materially lower than corresponding schedules of the existing
utilities in the area. Following this action, numerous
municipalities in the area began to make efforts to construct
municipal systems with which to distribute TVA current, and Public
Works Administration (called PWA) gave assurances of favorable
consideration of applications for loans to that end."
Under such circumstances, Commonwealth & Southern
Corporation negotiated the January 4th contract for its operating
subsidiaries -- Alabama Power Company, Georgia Power Company,
Mississippi Power Company, and Tennessee Electric Power
Company.
Page 297 U. S. 368
This recited that the Alabama Company, the Mississippi Company,
and the Tennessee Company desired to sell, and the Authority
desired to purchase, certain land, buildings and physical
properties devoted to the generation, transmission and distribution
of electricity, together with certain franchises, contracts and
going business.
The Alabama Company agreed to sell for $1,000,000 all of its low
tension (44 KV or lower) transmission lines, substations (including
the high tension station at Decatur and the Sheffield Steam Plant
Station) and all rural lines and rural distribution systems in five
Alabama counties and parts of two others. [These counties are
northwestern Alabama, and lie on both sides of the Tennessee River
for eighty miles or more.]
The Mississippi Company, in consideration of $850,000, agreed to
transfer all of its transmission and distribution lines,
substations, generating plants and other property in Pontotoc, Lee,
Itawamba, Union, Benton, Tippah, Prentiss, Tishomingo and Alcorn
counties (except one dam site in Tishomingo County) State of
Mississippi, used in connection with the generation, transmission,
distribution or sale of electrical energy. [These counties are the
northeastern section of the state, a territory sixty miles
square.]
For $900,000, the Tennessee Company agreed to convey its
transmission and distribution lines, substations, distribution
systems and other properties used in connection with the
transmission, distribution and sale of electrical energy in
Anderson, Campbell, Morgan and Scott counties, East Tennessee, and
"all of the 66 KV transmission line from Cove Creek to Knoxville."
[These counties are in the mountains northward from Knoxville
within a radius of about sixty miles. They lie northeast of Muscle
Shoals, and some points therein are much more than a hundred miles
from Wilson Dam. They have a population of 86,000.]
Page 297 U. S. 369
The power companies agreed, that
"any conveyance of property shall include not only the physical
property, easements and rights-of-way, but shall also include all
machinery, equipment, tools and working supplies set forth in the
respective exhibits, and all franchises, contracts and going
business relating to the use of any of said properties."
Also,
"to transfer or secure the transfer of said franchises,
contracts and going business, and to transfer said properties with
all present customers attached, so far as they are able."
Also,
"that, during the period of this contract, none of said
companies will sell electric energy to any municipality,
corporation, partnership, association or individual in any portion
of the above-described counties or parts thereof in Alabama,
Tennessee and Mississippi,"
etc. The Authority agreed not to sell electric energy outside of
the specified counties to the customers of non-utilities supplied
by the power companies.
Other covenants provided for interchange of electric energy
between the contracting parties and for cooperation in the sale of
electric appliances throughout the entire territory served by the
power companies.
"Power Companies covenant and agree that, after the expiration
of this agreement, the interchange arrangement then in effect will
be maintained by Power Companies for an additional period (not
exceeding eighteen months) sufficient to permit Authority to
construct its own transmission facilities for serving all of the
territory which it is then serving in whole or in part with power
obtained at such interchange points."
"Power Companies agree to have available at all times for
exchange, at each point of exchange, energy and capacity to supply
the entire demands of the customers served by Authority from such
points of exchange, subject to the limitations as to transmission
capacity set forth in Section 10(h) hereof; Provided, that the
maximum
Page 297 U. S. 370
amount which Authority shall be entitled to demand at all points
of exchange shall be 70,000 k.v."
Prior to the agreement for sale, The Alabama Company had derived
$750,000 gross annual revenue from its properties located within
the "ceded area." This district had a population of 190,000, and
the Company had therein 10,000 individual customers --
approximately 1/10 of all those directly served by it. The lines
transferred by the Mississippi Power Company served directly 4,000
customers in 9 counties, having total population of 184,000. When
this cause began, the Mississippi properties were being operated by
TVA, and rural lines were in process of extension by it in both
Mississippi and Alabama.
"All of the electric properties and facilities covered by the
contract of January 4, 1934, . . . were contracted for by TVA for
the purpose of continuing and enlarging the utility service for
which they were used by the respective power companies."
"The operation of a commercial utility service by TVA and the
wholesaling and retailing by TVA of electricity in the area served
by the Alabama Power Company is not and will not be in aid of the
regulation of navigation or national defense or other governmental
function insofar as any plan, purpose or activity of the TVA or of
the United States disclosed on this record would indicate."
Answering the Petitioners' Complaint, Alabama Company
admitted
"that the public statements of TVA indicated the program therein
alleged, and the directors of respondent company considered that to
vest such an agency as therein alleged with unlimited power and
access to public funds in a program of business competition and
public ownership promotion in the area served by respondent company
would in effect destroy this respondent's property, and such
conclusion on its part was the
Page 297 U. S. 371
principal inducement for it to enter into the contracts of
January 4 and August 9, 1934, and respondent company thereby was
and will be enabled to salvage a larger amount of its property than
it could have done by competition."
Also,
"that, under the circumstances of threatened competition,
directed or controlled by TVA as averred therein, this respondent
agreed to the sale of certain of its transmission lines and
property, and entered into the contract dated January 4, 1934. . .
. Respondent company admits that, at and before the execution of
the contract, the threat was made to use federal funds to duplicate
the facilities of respondent, which would result in competition
with rates not attainable by or permissible to this respondent, and
such rates would be stipulated, controlled and regulated by
TVA."
As matter of law, the trial court found --
"The function intended by TVA under the evidence in relation to
service, utility in type, in the area ceded by the contract of
January 4, 1934, transcends the function of conservation or
disposition of government property, involves continuing service and
commercial functions by the government to fill contracts not
governmental in origin or character."
"Performance of the contract of January 4th, 1934, would involve
substantial loss and injury to the Alabama Power Company,
including,
inter alia, the loss or abandonment of
franchises, licenses, going business and service area supporting
its general system and power facilities, and, unless resisted,
would tend to invite a progressive encroachment on its service area
by the Tennessee Valley Authority."
"Congress has no constitutional authority to authorize Tennessee
Valley Authority or any other federal agency to undertake the
operation, essentially permanent in character, of a utility system,
for profit, involving the
Page 297 U. S. 372
generation, transmission and commercial distribution of
electricity within State domain, having no reasonable relation to a
lawful governmental use."
"The contract of January 4, 1934, expressly provided for the
transfer of all or substantially all of the lines and properties of
the Alabama Power Company for the service of the ceded area,
included transmission lines, rural distribution systems and certain
urban distribution systems, and contemplated the eventual transfer
of fourteen urban distribution systems. This contract, expressly
contemplating service of the ceded area by the Tennessee Valley
Authority with electricity to be generated or purchased by the
Tennessee Valley Authority for that purpose, was in furtherance of
illegal proprietary operations by the Tennessee Valley Authority in
violation of the Federal Constitution, and void. The contract was
accordingly
ultra vires and void as to the Alabama Power
Company."
Having made exhaustive findings of fact and law, the trial court
entered a decree annulling the January 4th contract and enjoining
the Alabama Power Company from performing it. The Circuit Court of
Appeals reversed, upon the theory that the Authority was making
proper arrangements for sale of surplus power from the Wilson dam.
The injunction was continued.
I think the trial court reached the correct conclusion, and that
its decree should be approved. If, under the thin mask of disposing
of property, the United States can enter the business of
generating, transmitting and selling power as, when, and wherever
some board may specify, with the definite design to accomplish ends
wholly beyond the sphere marked out for them by the Constitution,
an easy way has been found for breaking down the limitations
heretofore supposed to guarantee protection against aggression.
* From the Annual Report, TVA Board, for 1934, pp. 23, 24, 25,
26, 27, and 28.
"To provide a workable and economic basis of operations, the
Authority plans initially to serve certain definite regions, and to
develop its program in those areas before going outside."
"The initial areas selected by the Authority may be roughly
described as (a) the region immediately proximate to the route of
the transmission line soon to be constructed by the Authority
between Muscle Shoals and the site of Norris Dam; (b) the region in
proximity to Muscle Shoals, including northern Alabama and
northeastern Mississippi, and (c) the region in the proximity of
Norris Dam (the new source of power to be constructed by the
Authority on the Clinch River in northeast Tennessee)."
"At a later stage in the development, it is contemplated to
include, roughly, the drainage area of the Tennessee River in
Kentucky, Alabama, Georgia, and North Carolina, and that part of
Tennessee which lies east of the west margin of the Tennessee
drainage area."
"To make the area a workable one and a fair measure of public
ownership, it should include several cities of substantial size
(such as Chattanooga and Knoxville) and, ultimately, at least one
city of more than a quarter million, within transmission distance,
such as Birmingham, Memphis, Atlanta, or Louisville."
"While it is the Authority's present intention to develop its
power program in the above-described territory before considering
going outside, the Authority may go outside the area if there are
substantial changes in general conditions, facts, or governmental
policy which would necessarily require a change in this policy of
regional development, or if the privately owned utilities in the
area do not cooperate in the working out of the program."
"The Authority entered into a 5-year contract on January 4,
1934, with the Commonwealth & Southern Corporation and its
Alabama, Tennessee, Georgia, and Mississippi subsidiaries. The
contract covered options to purchase electric properties in certain
counties of Alabama, Mississippi, and Tennessee, the sale of
distribution systems to municipalities in these counties,
restrictions on territorial expansion by the contracting parties,
the interchange of power, and other matters."
"
Alabama properties. -- All of the low-tension (44,000
volts or lower) transmission lines, substations, rural lines, and
rural distribution systems of the Alabama Power Co., in the
counties of Lauderdale, Colbert, Lawrence, Limestone, and Morgan
(except the Hulaco area) were included in the contract; also those
in the north half of Franklin County, including the town of Red
Bay, and the territory in the northern part of Cullman County
served by a line of the Alabama Power Co. extending south from
Decatur. The price of these properties was set at $1,101,256. The
purchase had not been completed at the end of the fiscal year."
"The power company agreed to attempt to sell the local
distribution systems in the above counties to the respective
municipalities, the Authority reserving the right to serve them if
sales were not consummated within 3 months of
bona fide
negotiation and effort. Because of the failure of any [many] of the
municipalities in northern Alabama to consummate negotiations for
the purchase of the distribution systems serving them, the
Authority entered into negotiations for the direct purchase of
these distribution systems, but a purchase contract had not been
completed on June 30."
"
Mississippi properties. -- The contract covered all of
the properties of the Mississippi Power Co. in the counties of
Pontotoc, Lee, Itawamba, Union, Benton, Tippah, Prentiss,
Tishomingo, and Alcorn, except a dam site on the Tennessee River in
Tishomingo County. The purchase price was $850,000. The purchase
was completed, and delivery was accepted on June 1, 1934."
"The transmission and generation facilities acquired in
Mississippi and to be retained as part of the Authority's system
include the following:"
bwm:
44,000-volt transmission lines. . . . . . . . . . . . miles
63
44,000-volt substations . . . . . . . . . . . . . . . 6
22,000-volt transmission lines. . . . . . . . . . . . miles
45
22,000-volt substations . . . . . . . . . . . . . . . 4
Tupelo steam stand-by generating plant. . Kilovolt-amperes
4,374
Corinth steam stand-by generating plant. . . . . . do 2,225
Blue Mountain Diesel generating plant. . . . . . . do 150
Myrtle Diesel generating plant . . . . . . . . . . do 75
ewm:
"Part of the local distribution facilities acquired in
Mississippi were sold prior to the end of the fiscal year, and it
is expected that all will be sold eventually, as noted
hereafter."
"
Tennessee properties. -- The contract covered all of
the properties of the Tennessee Electric Power Co. in the counties
of Anderson, Campbell, Morgan (except the lines extending into
Morgan County from Harriman), and Scott; also those in the west
portion of Claiborne County, and the 66,000-volt transmission line
from Anderson County to Knoxville. The price of these properties
was set at $900,000. The purchase had not been completed at the end
of the fiscal year."
"Negotiations were carried on diligently for several months with
the National Power & Light Co., an affiliate of the Electric
Bond & Share Co., in an endeavor to acquire the eastern
Tennessee electric properties of the Tennessee Public Service Co.,
a subsidiary of the National Power & Light Co. The electric
distribution system in the city of Knoxville is included in these
properties. The negotiations resulted in a contract after the end
of the fiscal year."
"Construction of rural electric lines in northern Alabama and
northeastern Mississippi was commenced in the latter part of 1933
with relief labor, the Authority furnishing supervision and
materials. Relief labor was withdrawn on February 15, 1934, after
which date the work was continued by the Authority with its own
forces. Approximately 93.5 miles of rural electric lines were under
construction in Lauderdale and Colbert Counties, Ala. on June 30,
and approximately 127 miles in Lee, Pontotoc, Alcorn, Itawamba,
Prentiss, Monroe, and Tishomingo Counties, Miss."
"A standard form of 20-year contract was devised to govern the
sale of power at wholesale to municipal distribution systems, and
was first used in a contract with the city of Tupelo, Miss. The
Tupelo contract has been published by the Authority, and is
available for distribution."
Annual Report, TVA 1935, pp. 29, 30 --
"The Authority has devoted special attention during the year to
the problems of rural electrification, as required by section 10 of
the act. By the close of the fiscal year, 200 miles of rural
electric line had been built, and 181 additional miles were in
process of construction. These lines are divided among the various
counties as follows:"
Miles Miles in
Alabama: completed progress
Colbert . . . . . . . . . . 19 15
Lauderdale. . . . . . . . . 72 __
Mississippi:
Alcorn. . . . . . . . . . . 41 29
Lee and Itawamba. . . . . . 41 26
Pontotoc. . . . . . . . . . 27
Prentiss. . . . . . . . . . __ 7
Tennessee:
Lincoln . . . . . . . . . . __ 104
--- ---
Total. . . . . . . . . . . . . 200 181
In addition to the above, a number of the rural lines purchased
from the Mississippi Power Co. were rehabilitated in order to
improve operating and safety conditions, and to provide for
increases in load. Also, additional customers were connected to all
existing rural lines.