Without passing upon the validity of the 5th and 14th sections
of the Act of the Legislature of Texas of April 3, 1891,
establishing a railroad commission with power to classify and
regulate rates, the remainder of the act is a valid and
constitutional exercise of the state sovereignty, and the
commission created thereby is an administrative board, created for
carrying into effect the will of the state as expressed by its
legislation.
A citizen of another state who feels himself aggrieved and
injured by the rates prescribed by that commission may seek his
remedy in equity against the commissioners in the circuit court of
the United states in Texas, and the circuit court has jurisdiction
over such a suit under the statutes regulating its general
jurisdiction, with the assent of Texas, expressed in the act
creating the commission.
Such a suit is not a suit against the State of Texas.
It is within the power of a court of equity in such case to
decree that the rates so established by the commission are
unreasonable and unjust and to restrain their enforcement, but it
is not within its power to establish rates itself or to restrain
the commission from again establishing rates.
On April 3, 1891, the Legislature of the State of Texas passed
an act to establish a railroad commission. The first section
provides for the appointment and qualification of three persons to
constitute the commission; the second for the organization of the
commission, while the third defines the powers and duties of the
commission, and is as follows:
"SEC. 3. The power and authority is hereby vested in the
Railroad Commission of Texas and it is hereby made its duty, to
adopt all necessary rates, charges, and regulations to govern and
regulate railroad freight and passenger tariffs, the power to
correct abuses and prevent unjust discrimination and extortion in
the rates of freight and passenger tariffs on the different
railroads in this state and to enforce the same by having the
penalties inflicted as by this act prescribed through proper courts
having jurisdiction. "
Page 154 U. S. 363
"(a) The said commission shall have power, and it shall be its
duty, to fairly and justly classify and subdivide all freight and
property of whatsoever character that may be transported over the
railroads of this state into such general and special classes or
subdivisions as may be found necessary and expedient."
"(b) The commission shall have power, and it shall be its duty,
to fix to each class or subdivision of freight a reasonable rate
for each railroad subject to this act for the transportation of
each of said classes and subdivisions."
"(c) The classifications herein provided for shall apply to and
be the same for all railroads subject to the provisions of this
act."
"(d) The said commission may fix different rates for different
railroads and for different lines under the same management, or for
different parts of the same lines if found necessary to do justice,
and may make rates for express companies different from the rates
fixed for railroads."
"(e) The said commission shall have power, and it shall be its
duty, to fix and establish for all or any connecting lines of
railroad in this state reasonable joint rates of freight charges
for the various classes of freight and cars that may pass over two
or more lines of such railroads."
"(f) If any two or more connecting railroads shall fail to agree
upon a fair and just division of the charges arising from the
transportation of freights, passengers or cars over their lines,
the commission shall fix the
pro rata part of such charges
to be received by each of said connecting lines."
"(g) Until the commission shall make the classifications and
schedules of rates as herein provided for, and afterwards if they
deem it advisable, they may make partial or special classifications
for all or any of the railroads subject hereto, and fix the rates
to be charged by such roads therefor, and such classifications and
rates shall be put into effect in the manner provided for general
classifications and schedules of rates."
"(h) The commission shall have power, and it shall be its duty
from time to time, to alter, change, amend, or abolish
Page 154 U. S. 364
any classification or rate established by it when deemed
necessary, and such amended, altered, or new classifications or
rates shall be put into effect in the same manner as the
originals."
"(i) The commission may adopt and enforce such rules,
regulations, and modes of procedure as it may deem proper to hear
and determine complaints that may be made against the
classifications or the rates, the rules, regulations, and
determinations of the commission."
"(j) The commission shall make reasonable and just rates of
charges for each railroad subject hereto for the use or
transportation of loaded or empty cars on its road, and may
establish for each railroad or for all railroads alike reasonable
rates for the storing and handling of freight and for the use of
cars not unloaded after forty-eight hours' notice to the consignee,
not to include Sundays."
"(k) The commission shall make and establish reasonable rates
for the transportation of passengers over each or all of the
railroads subject hereto, which rates shall not exceed the rates
fixed by law. The commission shall have power to prescribe
reasonable rates, tolls, or charges for all other services
performed by any railroad subject hereto."
The first paragraph of the fourth section is in these words:
"SEC. 4. Before any rates shall be established under this act,
the commission shall give the railroad company to be affected
thereby ten days' notice of the time and place when and where the
rates shall be fixed, and said railroad company shall be entitled
to be heard at such time and place, to the end that justice may be
done, and it shall have process to enforce the attendance of its
witnesses. All process herein provided for shall be served as in
civil cases."
The remaining paragraphs give power to adopt rules of procedure.
The fifth, sixth, and seventh sections are as follows:
"SEC. 5. In all actions between private parties and railway
companies brought under this law, the rates, charges, orders,
rules, regulations, and classifications prescribed by said
commission before the institution of such action shall be held
conclusive, and deemed and accepted to be reasonable, fair,
Page 154 U. S. 365
and just, and in such respects shall not be controverted therein
until finally found otherwise in a direct action brought for that
purpose in the manner prescribed by sections 6 and 7 hereof."
"SEC. 6. If any railroad company or other party at interest be
dissatisfied with the decision of any rate, classification, rule,
charge, order, act, or regulation adopted by the commission, such
dissatisfied company or party may file a petition setting forth the
particular cause or causes of objection to such decision, act,
rate, rule, charge, classification, or order, or to either or all
of them, in a court of competent jurisdiction in Travis County,
Texas, against said commission as defendant. Said action shall have
precedence over all other causes on the docket of a different
nature, and shall be tried and determined as other civil causes in
said court. Either party to said action may appeal to the appellate
court having jurisdiction of said cause, and said appeal shall be
at once returnable to said appellate court at either of its terms,
and said action so appealed shall have precedence in said appellate
court of all causes of a different character therein pending,
provided that if the court be in session at the time such
right of action accrues, the suit may be filed during such term and
stand ready for trial after ten days' notice."
"SEC. 7. In all trials under the foregoing section, the burden
of proof shall rest upon the plaintiff, who must show by clear and
satisfactory evidence that the rates, regulations, orders,
classifications, acts, or charges complained of are unreasonable
and unjust to it or them."
Sections 8, 9, 10, 11, 12, and 13 contain special provisions
which are not material to the consideration of any question
presented in this case.
Section 14 reads:
"SEC. 14. If any railroad company subject to this act or its
agent or officer shall hereafter charge, collect, demand or receive
from any person, company, firm or corporation a greater rate,
charge, or compensation than that fixed and established by the
railroad commission for the transportation of freight, passengers,
or cars, or for the use of any car on
Page 154 U. S. 366
the line of its railroad or any line operated by it, or for
receiving, forwarding, handling, or storing any such freight or
cars, or for any other service performed or to be performed by it,
such railroad company and its said agent and officer shall be
deemed guilty of extortion, and shall forfeit and pay to the State
of Texas a sum not less than $100 nor more than $5,000."
Section 15 defines "unjust discrimination," and imposes a
penalty of not less than $500 nor more than $5,000 upon any
railroad company violating any provision of the section.
Section 16 is leveled against officers and agents of railroads,
and imposes a penalty of not less than $100 nor more than $1,000
for certain offenses denounced therein.
Section 17 declares that any railroad company violating the
provisions of the act shall be liable to the persons injured
thereby for the damages sustained in consequence of such violation,
and in case it is guilty of extortion or discrimination, as defined
in the act, shall pay, in addition to such damages, to the person
injured, a penalty of not less than $125 nor more than $500.
In sections 18 and 19 are further provisions as to penalties.
The remaining sections, 20 to 24, inclusive, contain matter of
detail which is unimportant in this case.
Three of the plaintiffs in error, Reagan, McLean, and Foster,
were duly appointed and qualified as members of said railroad
commission, and organized it on the 10th day of June, 1891. The
other plaintiff in error, Culberson, is the Attorney General of the
state, who, by section 19 of the act, was charged with the duty of
instituting suits in the name of the state for the recovery of all
the penalties prescribed by the act excepting those recoverable by
individuals under the authority of section 17.
After the commission had organized, on June 10 it proceeded to
establish certain rates for the transportation of goods over the
railroads in the state and also certain regulations for the
management of such transportation. Thereafter, on April 30, 1892,
the Farmers' Loan and Trust Company filed its bill in the Circuit
Court of the United States for the Western District
Page 154 U. S. 367
of Texas, making as defendants the railroad commissioners, the
Attorney General, the International and Great Northern Railroad
Company, and Thomas M. Campbell, the receiver thereof, duly
appointed by the District Court of Smith County, Texas. That bill,
which is too long to be copied in full, alleged that the plaintiff
was the trustee in a trust deed executed by the railroad company on
the 15th day of June, 1881, to secure a second series of bonds,
aggregating $7,054.000, bearing interest at the rate of 6 percent
per annum, and that there was a prior issue of bonds, to the amount
of $7,954,000, secured by a conveyance to John S. Kennedy and
Samuel Sloan, as trustees. It then set forth the railroad
commission act, heretofore referred to, or so much thereof as was
deemed material, the proceedings of the commission, and the notices
that were given to the railroad company, and attached as exhibits
the several orders prescribing rates and regulations. It also
averred generally that such rates were unreasonable and unjust, set
forth certain specific facts which it claimed established the
injustice and unreasonableness of those rates, and prayed a decree
restraining the commission from enforcing those rates or any other
rates, and also restraining the Attorney General from instituting
any suits to recover penalties for failing to conform to such rates
and obey such regulations. The International and Great Northern
Railroad Company appeared, filed an answer and also a cross-bill
similar in its scope and effect to the bill filed by the plaintiff
and praying substantially the same relief. The railroad commission
and the Attorney General at first filed answers, but, after a
certain amount of testimony had been taken, of the nature and
extent of which we are not advised inasmuch as it is not preserved
in the record, they withdrew their answers and filed demurrers,
leave being given at the same time to the complainant and
cross-complainant to amend the bill and cross-bill before the
filing of the demurrer. The amendments to the bill and cross-bill
were similar, and contained allegations more in detail of the
losses in revenue sustained by the company through the enforcement
of the tariffs and the average reduction caused by such tariffs in
the rate theretofore existing,
Page 154 U. S. 368
and also setting forth certain contract rights under an act of
the Legislature of the State of Texas passed on February 7, 1853.
Thereafter the cause was submitted to the court on the bills and
cross-bills and demurrers, and on March 23, 1893, a decree was
entered in favor of the plaintiff, as follows:
"This cause having been set down for final hearing on the
pleadings and evidence, and being called for hearing thereon, the
defendants John H. Reagan, William P. McLean, L. L. Foster, and
Charles A. Culberson presented their motion, on file herein, for
leave to withdraw their answers and file demurrers, which motion
was granted, conditioned upon the said defendants' paying all costs
of taking depositions and evidence herein against them to be taxed
and for which execution may issue, and on condition that the
complainant and cross-complainant have leave to amend before the
filing of the demurrers of the said defendants, which leave was
granted, and whereupon said amendments were filed, and the
demurrers of the said defendants were filed to the original bill of
complaint and cross-bill in this cause, as also to all amendments
thereto, and were by complainant and cross-complainant set down for
argument, by consent, and were by all parties forthwith submitted.
And thereupon, in consideration thereof, it was ordered, adjudged,
and decreed that said demurrers be, and the same are hereby,
overruled. And the defendants John H. Reagan, William P. McLean, L.
L. Foster, and Charles A. Culberson having entered of record their
refusal to make further answer, and the fact that they stood upon
their demurrers, and all parties submitting the cause for final
decree, it is now, upon consideration thereof, ordered, adjudged,
and decreed that the bill of complaint, as amended, and the
cross-bill of complaint, as amended, in the above-entitled cause,
be, and the same are hereby, sustained and taken for confessed. And
the said cause coming on further to be heard upon the bill of
complaint herein, as amended, and upon the answer of the defendant
railroad company thereto confessing the same, it is further
ordered, adjudged, and decreed as follows, to-wit:"
"First. That the injunctions heretofore issued in this
Page 154 U. S. 369
cause be, and the same are hereby, made perpetual, and
accordingly."
"Second. That defendant, the International and Great Northern
Railroad Company be, and it is hereby, perpetually enjoined,
restrained, and prohibited from putting or continuing in effect the
rates, tariffs, circulars, or orders of the Railroad Commission of
Texas, or either or any of them, as described in the bill of
complaint herein, and in Exhibit C, thereto and therewith filed,
and from charging, or continuing to charge, the rates specified in
said tariffs, circulars, or orders, or either or any of them."
"Third. It is further ordered, adjudged, and decreed that the
defendants the Railroad Commission of Texas and the defendants John
H. Reagan, William P. McLean, and L. L. Foster, acting as the
Railroad Commission of Texas, and their successors in office, and
the defendant Charles A. Culberson, acting as Attorney General of
the State of Texas, and his successors in office, be, and they are
hereby, perpetually enjoined, restrained, and prohibited from
instituting or authorizing or directing any suit or suits, action
or actions, against the defendant railroad company for the recovery
of any penalties under and by virtue of the provisions of the act
of the Legislature of the State of Texas approved April 3, 1891,
and fully described in the bill of complaint, or under or by virtue
of any of the said tariffs, orders, or circulars of the said
Railroad Commission of Texas, or any or either of them, or under or
by virtue of the said act and the said tariffs, orders, or
circulars of said railroad commission, or any or either of them
combined, and said defendants Reagan, McLean, and Foster, and the
Railroad Commission of Texas are further perpetually restrained
from certifying any copy or copies of any of said orders, tariffs,
or circulars, or from delivering, or causing or permitting to be
delivered, certified copies of any of said orders, tariffs, or
circulars to the said Culberson or any other party and from
furnishing the said Culberson or any other party any information of
any character for the purpose of inducing, enabling, or aiding him
or any other party to institute or prosecute any suit or suits
against the said defendant
Page 154 U. S. 370
railroad company for the recovery of any penalty or penalties
under the said act."
"Fourth. It is further ordered, adjudged, and decreed that the
said Railroad Commission of Texas and the said Reagan, McLean, and
Foster be perpetually enjoined, restrained, and prohibited from
making, issuing, or delivering to the said railroad company, or
causing to be made, issued, or delivered to it, any further tariff
or tariffs, circular or circulars, order or orders."
"Fifth. It is further ordered, adjudged, and decreed that all
other individuals, persons, or corporations be, and they are
hereby, perpetually enjoined, restrained, and prohibited from
instituting or prosecuting any suit or suits against the said
railroad company for the recovery of any damages, overcharges,
penalty, or penalties, under or by virtue of the said act or any of
its provisions or under and by virtue of the said tariffs, orders,
or circulars of the said Railroad Commission of Texas, or any or
either of them, or under and by virtue of the said act and the said
tariffs, orders, and circulars, or any or either of them
combined."
"Sixth. If is further ordered, adjudged, and decreed that all
rates, tariffs, circulars, and orders heretofore made and issued by
said commission, and fully described in Exhibit C to the bill of
complaint herein, be, and they are hereby, declared to be
unreasonable, unfair, and unjust as to complainant and
cross-complainant, and they are hereby cancelled, and declared to
be null, void, and of no effect."
"Seventh. It is further ordered, adjudged, and decreed that all
costs herein be taxed against said defendants Reagan, McLean,
Culberson, and Foster, and the Railroad Commission of Texas, and
that execution may issue therefor."
From that decree the railroad commission and the Attorney
General have appealed to this Court.
Page 154 U. S. 388
MR. JUSTICE BREWER, after stating the facts in the foregoing
language, delivered the opinion of the Court.
The questions in this case are of great importance, and have
been most ably and satisfactorily discussed by counsel for the
respective parties.
We are met at the threshold with an objection that this is in
effect a suit against the State of Texas, brought by a citizen of
another state, and therefore, under the Eleventh Amendment to the
Constitution, beyond the jurisdiction of the federal court. The
question as to when an action against officers of a state is to be
treated as an action against the state has been, of late, several
times carefully considered by this Court, especially in the cases
of
In re Ayers, 123 U. S. 443, by
Mr. Justice Matthews, and
Pennoyer v. McConnaughy,
140 U. S. 1, by Mr.
Justice Lamar. In the former of these cases, it was said (p.
123 U. S.
505):
"To secure the manifest purposes of the constitutional exemption
guarantied by the Eleventh Amendment requires that it should be
interpreted not literally and too narrowly, but fairly and with
such breadth and largeness as effectually to accomplish the
substance of its purpose. In this spirit, it must be held to cover
not only suits brought against a state by name, but those also
against its officers, agents, and representatives where the state,
though not named as such, is nevertheless the only real party
against which alone, in fact, the relief is asked and against which
the judgment or decree effectively operates."
And in the latter (p.
140 U. S. 9):
"It is well settled that no action can be maintained in any
federal court by the citizens of one of the states against a state
without its consent, even though the sole object of such suit be to
bring the state within the operation of the constitutional
provision which provides that 'no state shall pass any law
impairing the obligation of contracts.' This immunity
Page 154 U. S. 389
of a state from suit is absolute and unqualified, and the
constitutional provision securing it is not to be so construed as
to place the state within the reach of the process of the court.
Accordingly, it is equally well settled that a suit against the
officers of a state to compel them to do the acts which constitute
a performance by it of its contracts is in effect a suit against
the state itself."
"In the application of this latter principle, two classes of
cases have appeared in the decisions of this Court, and it is in
determining to which class a particular case belongs that differing
views have been presented."
"The first class is where the suit is brought against the
officers of the state, as representing the state's action and
liability, and thus making it, though not a party to the record,
the real party against which the judgment will so operate as to
compel it to specifically perform its contracts.
In re
Ayers, 123 U. S. 443;
Louisiana v.
Junel, 107 U. S. 711;
Antoni v.
Greenhow, 107 U. S. 769;
Cunningham v.
Macon & Brunswick Railroad, 109 U. S.
446;
Hagood v. Southern, 117 U. S.
52."
"The other class is where a suit is brought against defendants
who, claiming to act as officers of the state and under the color
of an unconstitutional statute, commit acts of wrong and injury to
the rights and property of the plaintiff acquired under a contract
with the state. Such suit, whether brought to recover money or
property in the hands of such defendants, unlawfully taken by them
in behalf of the state, or for compensation in damages, or, in a
proper case where the remedy at law is inadequate, for an
injunction to prevent such wrong and injury, or for a mandamus, in
a like case, to enforce upon the defendant the performance of a
plain, legal duty, purely ministerial, is not, within the meaning
of the Eleventh Amendment, an action against the state.
Osborn
v. Bank of the United States, 9 Wheat. 738;
Davis v.
Gray, 16 Wall. 203;
Tomlinson v.
Branch, 15 Wall. 460;
Litchfield v. Webster
County, 101 U. S. 773;
Allen v.
Baltimore & Ohio Railroad, 114 U. S.
311;
Board of Liquidation v. McComb,
92 U. S.
531;
Poindexter v. Greenhow, 114 U. S.
270. "
Page 154 U. S. 390
Appellants invoke the doctrines laid down in these two
quotations, and insist that this action cannot be maintained
because the real party against which alone in fact the relief is
asked, and against which the judgment or decree effectively
operates, is the state, and also because the statute under which
the defendants acted and proposed to act is constitutional, and
that the action of the state officers under a constitutional
statute is not subject to challenge in the federal court. We are
unable to yield our assent to this argument. So far from the
state's being the only real party in interest, and upon whom alone
the judgment effectively operates, it has, in a pecuniary sense, no
interest at all. Going back of all matters of form, the only
parties pecuniarily affected are the shippers and the carriers, and
the only direct pecuniary interest which the state can have arises
when it abandons its governmental character, and, as an individual,
employs the railroad company to carry its property. There is a
sense, doubtless, in which it may be said that the state is
interested in the question, but only a governmental sense. It is
interested in the wellbeing of its citizens, in the just and equal
enforcement of all its laws, but such governmental interest is not
the pecuniary interest which causes it to bear the burden of an
adverse judgment. Not a dollar will be taken from the treasury of
the state, no pecuniary obligation of it will be enforced, none of
its property affected by any decree which may be rendered. It is
not nearly so much affected by the decree in this case as it would
be by an injunction against officers staying the collection of
taxes, and yet a frequent and unquestioned exercise of jurisdiction
of courts, state and federal, is in restraining the collection of
taxes, illegal in whole or in part.
Neither will the constitutionality of the statute, if that be
conceded, avail to oust the federal court of jurisdiction. A valid
law may be wrongfully administered by officers of the state, and so
as to make such administration an illegal burden and exaction upon
the individual. A tax law, as it leaves the legislative hands, may
not be obnoxious to any challenge and yet the officers charged with
the administration of that valid tax law may so act under it, in
the matter of assessment or
Page 154 U. S. 391
collection, as to work an illegal trespass upon the property
rights of the individual. They may go beyond the powers thereby
conferred, and when they do so, the fact that they are assuming to
act under a valid law will not oust the courts of jurisdiction to
restrain their excessive and illegal acts. In
Cunningham v.
Macon & Brunswick Railroad, 109 U.
S. 446,
109 U. S. 452,
it was said:
"Another class of cases is where an individual is sued in tort
for some act injurious to another in regard to person or property,
to which his defense is that he has acted under the orders of the
government."
"In these cases, he is not sued as, or because he is, the
officer of the government, but as an individual, and the court is
not ousted of jurisdiction because he asserts authority as such
officer. To make out his defense, he must show that his authority
was sufficient in law to protect him.
See
Mitchell v. Harmony,
13 How. 115;
Bates v. Clark, 95 U. S.
204;
Meigs v. McClung, 9 Cranch
11;
Wilcox v. Jackson, 13 Pet.
498;
Brown v. Huger, 21 How. 305;
Grisar v. McDowell, 6
Wall. 364."
Nor can it be said in such a case that relief is obtainable only
in the courts of the state, for it may be laid down as a general
proposition that whenever a citizen of a state can go into the
courts of the state to defend his property against the illegal acts
of its officers, a citizen of another state may invoke the
jurisdiction of the federal courts to maintain a like defense. A
state cannot tie up a citizen of another state, having property
rights within its territory invaded by unauthorized acts of its own
officers, to suits for redress in its own courts. Given a case
where a suit can be maintained in the courts of the state to
protect property rights, a citizen of another state may invoke the
jurisdiction of the federal courts.
Cowles v.
Mercer County, 7 Wall. 118;
Lincoln County v.
Luning, 133 U. S. 529;
Chicot County v. Sherwood, 148 U.
S. 529.
We need not, however, rest on the general powers of a federal
court in this respect, for, in the act before us, express authority
is given for a suit against the commission to accomplish
Page 154 U. S. 392
that which was the specific object of the present suit. Section
6 provides that any dissatisfied
"railroad company, or other party at interest, may file a
petition . . . in a court of competent jurisdiction in Travis
County, Texas, against said commission as defendant."
The language of this provision is significant. It does not name
the court in which the suit may be brought. It is not a court of
Travis County, but in Travis County. The language, differing from
that which ordinarily would be used to describe a court of the
state, was selected, apparently, in order to avoid the objection of
an attempt to prevent the jurisdiction of the federal courts. The
Circuit Court for the Western District of Texas is "a court of
competent jurisdiction in Travis County." Not only is Travis County
within the territorial limits of its jurisdiction, but also Austin,
in that county, is one of the places at which the court is held.
Act of June 3, 1884, c. 64, 23 Stat. 35. It comes, therefore,
within the very terms of the act. It cannot be doubted that a
state, like any other government, can waive exemption from suit.
Were this in terms a suit against the state, if by express statute
the state had waived its exemption, and consented that suit might
be brought against it, by name, in any court of competent
jurisdiction in Travis County, it might well be argued that thereby
it consented to a suit brought by a citizen of another state in the
Circuit Court of the United States for the Western District of
Texas, sitting in Travis County, on the ground that the limitations
of the Eleventh Amendment to the federal Constitution simply create
a personal privilege, which can at any time be waived by the state.
However, it is unnecessary to go so far as that, for this cannot,
for the reasons heretofore indicated, in any fair sense be
considered a suit against the state.
Still another matter is worthy of note in this direction. In the
famous
Dartmouth College
Case, 4 Wheat. 518, it was held that the charter of
a corporation is a contract protected by that clause of the
national Constitution which prohibits a state from passing any law
impairing the obligation of contracts. The International and Great
Northern Railroad Company is a corporation created by the State of
Texas. The
Page 154 U. S. 393
charter which created it is a contract whose obligations neither
party can repudiate without the consent of the other. All that is
within the scope of this contract need not be determined.
Obviously, one obligation assumed by the corporation was to
construct and operate a railroad between the termini named, and, on
the other hand, one obligation assumed by the state was that it
would not prevent the company from so constructing and operating
the road. If the charter had, in terms, granted to the corporation
power to charge and collect a definite sum per mile for the
transportation of persons or of property, it would not be doubted
that that express stipulation formed a part of the obligation of
the state which it could not repudiate. Whether, in the absence of
an express stipulation of that character, there is not implied, in
the grant of the right to construct and operate, the grant of a
right to charge and collect such tolls as will enable the company
to successfully operate the road and return some profit to those
who have invested their money in the construction is a question not
as yet determined. It is at least a question which arises as to the
extent to which that contract goes, and one in which the
corporation has a right to invoke the judgment of the courts, and
if the corporation, a citizen of the state, has the right to
maintain a suit for the determination of that question, clearly a
citizen of another state, who has, under authority of the laws of
the State of Texas, become pecuniarily interested in -- equitably,
indeed, the beneficial owner of the property of -- the corporation
may invoke the judgment of the federal courts as to whether the
contract rights created by the charter, and of which it is thus the
beneficial owner, are violated by subsequent acts of the state in
limitation of the right to collect tolls. Our conclusion from these
considerations is that the objection to the jurisdiction of the
circuit court is not tenable, and this whether we rest upon the
provisions of the statute or upon the general jurisdiction of the
court existing by virtue of the statutes of Congress under the
sanction of the Constitution of the United States.
Passing from the question of jurisdiction to the act itself,
there can be no doubt of the general power of a state to
regulate
Page 154 U. S. 394
the fares and freights which may be charged and received by
railroad or other carriers, and that this regulation can be carried
on by means of a commission. Such a commission is merely an
administrative board created by the state for carrying into effect
the will of the state, as expressed by its legislation.
Railroad Commission Cases, 116 U.
S. 307. No valid objection therefore can be made on
account of the general features of this act, those by which the
state has created the railroad commission and entrusted it with the
duty of prescribing rates of fares and freights as well as other
regulations for the management of the railroads of the state.
Specific objections are made to the act on the ground that, by
section 5, the rates and regulations made by the commission are
declared conclusive in all actions between private individuals and
the companies, and that, by section 14, excessive penalties are
imposed upon railroad corporations for any violation of the
provisions of the act, and thus, as claimed, there is not only a
limitation, but a practical denial, to railroad companies of the
right of a judicial inquiry into the reasonableness of the rates
prescribed by the commission. The argument is, in substance, that
railroad companies are bound to submit to the rates prescribed
until, in a direct proceeding, there has been a final adjudication
that the rates are unreasonable, which final adjudication, in the
nature of things, cannot be reached for a length of time; that
meanwhile a failure to obey those regulations exposes the company,
for each separate fare or freight exacted in excess of the
prescribed rates, to a penalty so enormous as in a few days to roll
up a sum far above the entire value of the property; that even if,
in a direct proceeding, the rates should be adjudged unreasonable,
there is nothing to prevent the commission from reestablishing
rates but slightly changed, and still unreasonable, to set aside
which requires a new suit, with its length of delay, and thus, as
is claimed, the railroad companies are tied hand and foot, and
bound to submit to whatever illegal, unreasonable, and oppressive
regulations may be prescribed by the commission.
It is enough to say in respect to these matters -- at least
so
Page 154 U. S. 395
far as this case is concerned -- that it is not to be supposed
that the legislature of any state or a commission appointed under
the authority of any state will ever engage in a deliberate attempt
to cripple or destroy institutions of such great value to the
community as the railroads, but will always act with the sincere
purpose of doing justice to the owners of railroad property as well
as to other individuals, and also that no legislation of a state as
to the mode of proceeding in its own courts can abridge or modify
the powers existing in the federal courts, sitting as courts of
equity, so that if in any case there should be any mistaken action
on the part of a state or its commission injurious to the rights of
a railroad corporation, any citizen of another state interested
directly therein can find in the federal court all the relief which
a court of equity is justified in giving. We do not deem it
necessary to pass upon these specific objections because the
fourteenth section, or any other section prescribing penalties, may
be dropped from the statute without affecting the validity of the
remaining portions, and if the rates established by the commission
are not conclusive, they are at least
prima facie evidence
of what is reasonable and just. For the purpose of this case, it
may be conceded that both the clauses are unconstitutional, and
still the great body of the act remains unchallenged -- that which
establishes the commission and empowers it to make reasonable rates
and regulations for the control of railroads. It is familiar law
that one section or part of an act may be invalid without affecting
the validity of the remaining portion of the statute. Any
independent provision may be thus dropped out if that which is left
is fully operative as a law, unless it is evident from a
consideration of all the sections that the legislature would not
have enacted that which is within, independently of that beyond,
its power.
Applying this rule, the invalidity of these two provisions may
be conceded without impairing the force of the rest of the act. The
creation of a commission with power to establish rules for the
operation of railroads and to regulate rates was the prime object
of the legislation. This is fully accomplished whether any
penalties are imposed for a violation
Page 154 U. S. 396
of the rules prescribed, or whether the rates shall be
conclusive or simply
prima facie evidence of what is just
and reasonable. The matters of penalty, and the effect, as
evidence, of the rates, are wholly independent of the rest of the
statute. Neither can it be supposed that the legislature would not
have established the commission and given it power over railroads
without these independent matters. In other words, it is not to be
presumed that the legislature was legislating for the mere sake of
imposing penalties, but the penalties, and the provision as to
evidence, were simply in aid of the main purpose of the statute.
They may fail and still the great body of the statute have
operative force, and the force contemplated by the legislature in
its enactment. Take a similar body of legislation -- a tax law.
There may be incorporated into such a law a provision giving
conclusive effect to tax deeds, and also a provision as to the
penalties incurred by nonpayment of taxes. These two provisions may
for one reason or another be obnoxious to constitutional
objections. If so, they may be dropped out and the balance of the
statute exist. It would not for a moment be presumed that the whole
tax system of the state depended for its validity upon the
penalties for nonpayment of taxes or the effect to be given to the
tax deed. We therefore, for the purposes of this case, assume that
these two provisions of the statute are open to the constitutional
objections made against them. We do not mean by this to imply that
they are so in fact, but simply that it is unnecessary to consider
and determine the matter, and we leave it open for future
consideration.
It appears from the bill that in pursuance of the powers given
to it by this act, the state commission has made a body of rates
for fares and freights. This body of rates, as a whole, is
challenged by the plaintiff as unreasonable, unjust, and working a
destruction of its rights of property. The defendant denies the
power of the court to entertain an inquiry into that matter,
insisting that the fixing of rates for carriage by a public carrier
is a matter wholly within the power of the legislative department
of the government, and beyond examination by the courts.
Page 154 U. S. 397
It is doubtless true as a general proposition that the formation
of a tariff of charges for the transportation by a common carrier
of persons or property is a legislative or administrative, rather
than a judicial, function. Yet it has always been recognized that
if a carrier attempted to charge a shipper an unreasonable sum, the
courts had jurisdiction to inquire into that matter and to award to
the shipper any amount exacted from him in excess of a reasonable
rate, and also, in a reverse case, to render judgment in favor of
the carrier for the amount found to be a reasonable charge. The
province of the courts is not changed, nor the limit of judicial
inquiry altered, because the legislature, instead of the carrier,
prescribes the rates. The courts are not authorized to revise or
change the body of rates imposed by a legislature or a commission.
They do not determine whether one rate is preferable to another, or
what, under all circumstances, would be fair and reasonable, as
between the carriers and the shippers. They do not engage in any
mere administrative work. But still there can be no doubt of their
power and duty to inquire whether a body of rates prescribed by a
legislature or a commission is unjust and unreasonable and such as
to work a practical destruction to rights of property, and, if
found so to be, to restrain its operation. In
Chicago,
Burlington & Quincy Railroad v. Iowa, 94 U. S.
155, and
Peik v. Chicago & Northwestern
Railway, 94 U. S. 164, the
question of legislative control over railroads was presented, and
it was held that the fixing of rates was not a matter within the
absolute discretion of the carriers, but was subject to legislative
control. As stated by Mr. Justice Miller in
Wabash &c.
Railway v. Illinois, 118 U. S. 557,
118 U. S. 569,
in respect to those cases:
"The great question to be decided and which was decided and
which was argued in all those cases was the right of the state
within which a railroad company did business to regulate or limit
the amount of any of these traffic charges."
There was in those cases no decision as to the extent of
control, but only as to the right of control. This question came
again before this Court in
Railroad Commission Cases,
116 U. S. 307,
116 U. S. 331,
and, while the right of control was reaffirmed,
Page 154 U. S. 398
a limitation on that right was plainly intimated in the
following words of the Chief Justice:
"From what has thus been said, it is not to be inferred that
this power of limitation or regulation is itself without limit.
This power to regulate is not a power to destroy, and limitation is
not the equivalent of confiscation. Under pretense of regulating
fares and freights, the state cannot require a railroad corporation
to carry persons or property without reward. Neither can it do that
which in law amounts to a taking of private property for public use
without just compensation or without due process of law."
This language was quoted in the subsequent case of
Dow v.
Beidelman, 125 U. S. 680,
125 U. S. 689.
Again, in
Chicago & St. Paul Railway v. Minnesota,
134 U. S. 418,
134 U. S. 458,
it was said by Mr. Justice Blatchford, speaking for the majority of
the Court:
"The question of the reasonableness of a rate of charge for
transportation by a railroad company, involving as it does the
element of reasonableness both as regards the company and as
regards the public, is eminently a question for judicial
investigation, requiring the process of law for its
determination."
And in
Chicago & Grand Trunk Railway v. Wellman,
143 U. S. 339,
143 U. S. 344,
is this declaration of the law:
"The legislature has power to fix rates, and the extent of
judicial interference is protection against unreasonable
rates."
Budd v. New York, 143 U. S. 517,
announces nothing to the contrary. The question there was not
whether the rates were reasonable, but whether the business, that
of elevating grain, was within legislative control as to the matter
of rates. It was said in the opinion: "In the cases before us, the
records do not show that the charges fixed by the statute are
unreasonable." Hence there was no occasion for saying anything as
to the power or duty of the courts in case the rates, as
established, had been found to be unreasonable. It was enough that
upon examination it appeared that there was no evidence upon which
it could be adjudged that the rates were in fact open to objection
on that ground.
Page 154 U. S. 399
These cases all support the proposition that while it is not the
province of the courts to enter upon the merely administrative duty
of framing a tariff of rates for carriage, it is within the scope
of judicial power, and a part of judicial duty, to restrain
anything which, in the form of a regulation of rates, operates to
deny to the owners of property invested in the business of
transportation that equal protection which is the constitutional
right of all owners of other property. There is nothing new or
strange in this. It has always been a part of the judicial function
to determine whether the act of one party (whether that party be a
single individual, an organized body, or the public as a whole)
operates to divest the other party of any rights of person or
property. In every Constitution is the guaranty against the taking
of private property for public purposes without just compensation.
The equal protection of the laws, which, by the Fourteenth
Amendment, no state can deny to the individual, forbids
legislation, in whatever form it may be enacted, by which the
property of one individual is, without compensation, wrested from
him for the benefit of another or of the public. This, as has been
often observed, is a government of law, and not a government of
men, and it must never be forgotten that under such a government,
with its constitutional limitations and guaranties, the forms of
law and the machinery of government, with all their reach and
power, must, in their actual workings, stop on the hither side of
the unnecessary and uncompensated taking or destruction of any
private property, legally acquired and legally held. It was
therefore within the competency of the Circuit Court of the United
States for the Western District of Texas, at the instance of the
plaintiff, a citizen of another state, to enter upon an inquiry as
to the reasonableness and justice of the rates prescribed by the
railroad commission. Indeed, it was, in so doing, only exercising a
power expressly named in the act creating the commission.
A classification was made by the commission, and different rates
established for different kinds of goods. These rates were
prescribed by successive circulars. Classification of rates is
based on several considerations, such as bulk, value, facility
Page 154 U. S. 400
of handling, etc. It is recognized in the management of all
railroads, and no complaint is here made of the fact of
classification, or the way in which it was made by the commission.
By these circulars, rates all along the line of classification were
reduced from those theretofore charged on the road. The challenge
in this case is of the tariff as a whole, and not of any particular
rate upon any single class of goods. As we have seen, it is not the
function of the courts to establish a schedule of rates. It is not,
therefore, within out power to prepare a new schedule or rearrange
this. Our inquiry is limited to the effect of the tariff as a
whole, including therein the rates prescribed for all the several
classes of goods, and the decree must either condemn or sustain
this act of
quasi-legislation. If a law be adjudged
invalid, the court may not, in the decree, attempt to enact a law
upon the same subject which shall be obnoxious to no legal
objections. It stops with simply passing its judgment on the
validity of the act before it. The same rule obtains in a case like
this.
We pass then to the remaining question, were the rates, as
prescribed by the commission, unjust and unreasonable? The bill, it
will be remembered, was filed by a second mortgagee. The railroad
company was made a defendant, and filed a cross-bill. Each of these
bills contains a general averment that the rates are unjust and
unreasonable. That the original bill, which was filed April 30,
1892, or some six or seven months after the action of the
commission, is in these words:
"Eighth. That the classifications and schedules of rates and
charges so announced and promulgated in and by said commodity
tariffs and circulars of said commission, or sought so to be, as
hereinbefore shown, are unfair, unjust, and unreasonable, and that
the same cannot be adopted or put or continued in effect by the
defendant company or defendant receiver without serious and
irreparable loss to it and serious and irreparable injury to and
destruction of the property, rights, and interests of your orator
and the beneficiaries of its trust, as hereinafter more fully set
forth; that the rates so charged and announced by said commission
are not compensatory, and
Page 154 U. S. 401
are unreasonably low, and that the adoption and enforcement
thereof would result, as nearly as can be estimated, in a
diminution of revenues derived from the operation of said
International and Great Northern Railroad, aggregating more than
$200,000 per annum, and that the revenues from said railroad, so
reduced and diminished, would be inadequate and insufficient to
provide for the payment of the interest upon the prior obligations
of the defendant railroad company, recited in paragraph 4 hereof,
and the interest upon the second mortgage bonds secured by said
mortgage to your orator as trustee, after providing for the
expenses of operating said lines of railroad and property and
maintaining the same in proper order and good working condition, so
that the traffic and business of said road, and of every part
thereof, shall at all times be conducted with safety to person and
property, and with due expedition."
It may not be just to take this as an allegation of a mere
matter of fact, the truthfulness of which is admitted by the
demurrer, and which, as thus admitted, eliminates from
consideration all questions as to the true character and effect of
the rates. Yet it is not to be ignored. There are often, in
pleadings, general allegations of mixed law and fact, such as of
the ownership of property and the like, which, standing alone, are
held to be sufficient to sustain judgments and decrees, and yet are
always regarded as qualified, limited, or even controlled by
particular facts stated therein. It would not, of course, be
tolerable for a court administering equity to seize upon a
technicality for the purpose, or with the result, of entrapping
either of the parties before it. Hence we should hesitate to take
the filing of the demurrers to these bills as a direct and explicit
admission on the part of the defendants that the rates established
by the commission are unjust and unreasonable. Yet it must be
noticed that at first answers were filed tendering issue upon the
matters of fact, and testimony was taken, the extent of which,
however, is not disclosed by the record. After that, the defendants
applied for leave to withdraw their answers and file demurrers. It
is not to be supposed that this was done thoughtlessly. But one
conclusion
Page 154 U. S. 402
can be drawn from that action, and that is that upon the taking
of their testimony, defendants became satisfied that the particular
facts were as stated in the bills and that the conclusions to be
drawn from such facts could not be overthrown by any other matters.
Hence, if it appears that the facts stated in detail tend to prove
that the rates are unreasonable and unjust, we must assume, as
against the demurrers, that the general allegation heretofore
quoted is true and that there are no other and different facts
which, if proved, might induce a different conclusion and compel a
different result.
What, then, are the special facts disclosed in the several
bills? It appears that there is a bonded indebtedness of over
$15,000,000 and, in addition, capital stock to the amount of
$9,755,000; that the bonds and stock were issued for and represent
value, and that the rates theretofore existing on the road were not
sufficient to enable the company to pay all the interest on the
bonds. At the time suit was commenced, the first mortgage bonds
outstanding amounted to $7,054,000, drawing 6 percent interest; the
second mortgage bonds, to $7,954,000, drawing also 6 percent
interest. The stockholders had never received any dividends
whatever upon their investment, but, on the contrary, as appears
from the cross-bill filed subsequently to the commencement of the
suit, they had been forced to pay a cash assessment of over a
million of dollars, or about 12 percent of the face value of the
stock, for the purpose of providing in part for the interest upon
the first mortgage bonds. The holders of those bonds had been
compelled to accept, and had accepted, in payment of one-half of
the accrued and defaulted interest -- a sum exceeding $750,000 --
deferred certificates of indebtedness bearing interest at the rate
of 5 percent. The holders of the second mortgage bonds had been
called upon to fund, and substantially all had consented to fund,
past-due interest amounting to upwards of $1,250,000 in third
mortgage bonds, bearing 4 percent interest, and they had also been
required to reduce, and substantially all had agreed to reduce, the
interest on their bonds to 4 1/2 percent per annum for the period
of six
Page 154 U. S. 403
years, and thereafter to 5 percent per annum. For about three
years, the road had been in the hands of a receiver appointed on
account of the default of the company in the payment of its
obligations. A statement in detail was incorporated in the bill of
the earnings and operating expenses of the road during the years
1889 and 1890 and the first nine months of 1891, which was
supplemented by a like statement in the cross-bill subsequently
filed of the earnings and expenses for the entire year 1891 and the
first three months of 1892. These statements show the following
figures:
1889: Earnings . . . . . . . . . . . . . . . . .
$3,488,185.14
Operating expenses, exclusive of taxes . . 2,629,452.90
Surplus. . . . . . . . . . . . . . . . . . 858,732.24
1890: Earnings . . . . . . . . . . . . . . . . . 3,646,422
33
Operating expenses, exclusive of taxes . . 3,148,245.09
Surplus. . . . . . . . . . . . . . . . . . 498,177.24
1891: Earnings . . . . . . . . . . . . . . . . .
3,648,641.79
Operating expenses, exclusive of taxes. . 3,093,550.20
Surplus 555,091 59
Three months of 1892:
Earnings . . . . . . . . . . . . . . . . . 759,176.18
Operating expenses, exclusive of taxes . . 829,074.87
Deficit. . . . . . . . . . . . . . . . . . 69,898 69
The bill also contains a tabular statement of the revenue per
ton per mile derived from the operation of the road during the
years 1883 to 1893, inclusive, as follows:
Revenue per ton per mile for 1883 . . . (in cents) . . . . .
2.03
" " " 1884 . . . . . . . . . . . . . . 1.90
" " " 1885 . . . . . . . . . . . . . . 1.71
" " " 1886 . . . . . . . . . . . . . . 1.65
" " " 1887 . . . . . . . . . . . . . . 1.38
" " " 1888 . . . . . . . . . . . . . . 1.33
" " " 1889 . . . . . . . . . . . . . . 1.44
" " " 1890 . . . . . . . . . . . . . . 1.38
" " " 1891 (first nine months) . . . . 1.30
Page 154 U. S. 404
The mileage owned and operated by the company within the State
of Texas amounts to 825 miles. There had been necessarily expended,
in cash, in the construction and equipment of its road, more than
$50,000 per mile, and it could not be replaced for less than
$30,000 per mile. There is also this allegation in the
cross-bill:
"That the lines of railway of your orator's company have at all
times been operated as economically as practicable, and that its
operating expenses have at all times been as reasonable and low in
amount as they could be made by economical and judicious
management, and that it has not been possible for your orator to
operate said road for less than it has been operated; that for the
year ending June 30, 1892, there were employed by your orator's
company seventeen general officers, who received during said year
an average daily compensation of $12.64, and, exclusive of its
general officers, all of its employees, during and for the year
ending June 30, 1892, received an average daily compensation of
$2.01, and that at all times your orator has secured the service of
its officers and employees as cheaply as practicable, and has
employed no more than necessary, and that the above were fair and
reasonable rates of pay; that at all times the International and
Great Northern Railroad Company has secured all supplies, material,
and property, of whatever character, for the operation of its road
at the cheapest market price, and at as low rates as the same could
be secured, and has secured and used no more than actually
necessary in the operation of the road."
In the amendment to the cross-bill, filed in March, 1893, is
given a table showing the actual reductions in amounts received by
the railroad company for the transportation of the different
classes of goods under the operation of the new tariffs up to
August 31, 1892, and amounting to $159,694.51, and also a table
showing the percent of reductions as to different articles --
varying from 5 percent on cement, to 54.90 percent on grain in car
loads. The bill also, in general terms, negatives the probability
of any increase in amount of business to compensate for the
reduction in rates, a negation sustained by the figures given in
the amended bill as to the
Page 154 U. S. 405
actual effect upon the receipts. It also contains a general
averment that the rates on interstate business would be injuriously
affected to an equal amount by reason of the reduction of rates on
business within the state.
As against these facts the Attorney General presses these
matters: in the table in the bill heretofore referred to, showing
earnings and expenses during the years 1889 and 1890 and the first
nine months of 1891, there is this item, several times repeated,
"Balance of income account," and this on September 30, 1891, is
stated at $3,795,785.68. Of what this account is composed we are
not informed. Possibly there was included within it the proceeds of
the land grant, which, as we are told, was made by the state to the
corporation. But whatever it includes, it was on January 1, 1889,
as stated, $2,612,118.68, which would make the increase of that
account during the two years and nine months to be $1,183.667.
Confessedly no interest was paid during those years, and that
amounted each year to something like $900,000, or nearly two
millions and a half for the two years and nine months. It is
obvious that no matter what may have been in the bookkeeping of the
company included in this account, or how much, or from what
sources, in prior years, the road had accumulated this balance, the
increase during the time stated did not equal the accruing
interest. The Attorney General also notices the report for the year
ending June 30, 1892, made by the company to the railroad
commission, a copy of which is attached as an exhibit to the
amendment to the cross-bill, and from that he tabulates a statement
which, as he contends, shows that the earnings during that year
were sufficient to pay the operating expenses and fixed charges. We
give the table as he has prepared it:
Page 154 U. S. 406
Gross earnings from operation . . . . . . . . . . . . . . .
$3,568,690.26
Less operating expenses . . . . . . . . . . . . . . . . . .
2,986,204.12
-------------
Income from operation . . . . . . . . . . . . . . $
582,486.14
To which should be added amounts expended for "cost of
road, equipment, and permanent improvements," admitted
to have been included in operating expenses . . . . . . .
302,085.77
Dividends on (compress) stocks owned. . . . . . . . . . . .
8,020.00
-------------
Total income. . . . . . . . . . . . . . . . . . . $
892,591.91
Deductions from Income
Interest on funded debt accrued during the year, viz.:
On $7,954,000 first mortgage bonds at 6%. . . $477,240.00
On $7,054,000 second mortgage bonds, one
month at 6% . . . . . . . . . . . . . . . . 35,270.00
On $7,054.00 second mortgage bonds, eleven
months at 4 1/2%. . . . . . . . . . . . . . 290,977.50
-----------
Total interest accrued. . . . . . . . . . $803,487.50
Rental paid Colorado River Bridge Company . . 14,583.32
Taxes . . . . . . . . . . . . . . . . . . . . 28,951.35
-------------
Total deductions . . . . . . . . . . $ 847,022.17
Surplus after paying operating expenses proper,
interest accrued on bonds, taxes, etc. . . $ 45,569.74
But this table ignores that which is disclosed in the
cross-bill, to-wit, $750,000 in certificates of indebtedness,
bearing interest at 5 percent, and $1,250,000 third mortgage bonds,
bearing 4 percent interest, the interest on which sums would exceed
all the apparent surplus. These items
Page 154 U. S. 407
also appear in the report under the head of "Current
Liabilities," the total balance of which on July 1, 1892, is given
as $3,772,062.94, which sum may not unreasonably be taken as
showing by how much the company has fallen short of paying its
operating expenses and fixed charges. Again, the sum of $302,085.77
appears in that table, under the description "Cost of road,
equipment, and permanent improvements, admitted to have been
included in operating expenses," and is added to the income, as
though it had been improperly included in operating expenses. But
before this change can be held to be proper, it is well to see what
further light is thrown on the matter by other portions of the
report. That states that there were no extensions of the road
during that year, so that all of this sum was expended upon the
road as it was. Among the items going to make up this sum of
$302,085.77 is one of $113,212.09 for rails, and it appears from
the same report that there was not a dollar expended for rails,
except as included within this amount. Now it goes without saying
that in the operation of every road there is a constant wearing out
of the rails and a constant necessity for replacing old with new.
The purchase of these rails may be called "permanent improvements"
or by any other name, but they are what is necessary for keeping
the road in serviceable condition. Indeed, in another part of the
report, under the head of "Renewals of Rails and Ties," is stated
the number of tons of "new rails laid" on the main line. Other
items therein are for fencing, grading, bridging, and culvert
masonry, bridges and trestles, buildings, furniture, fixtures, etc.
It being shown affirmatively that there were no extensions, it is
obvious that these expenditures were those necessary for a proper
carrying on of the business required of the company. Certainly the
mere title under which these expenditures are once stated is not
sufficient to overthrow the facts -- so fully and clearly shown --
that the stockholders have never received any dividends; that in
order to meet the accumulating interest on the bonds, they have had
to put their hands in their pockets and advance a million and over
of dollars. Those are facts whose significance cannot be
Page 154 U. S. 408
destroyed by any mere manner of bookkeeping or classification of
expenditures.
Further, the Attorney General asserts that there are five trunk
lines, of which the International and Great Northern road is one,
paralleling each other, and thus dividing the business of the
territory through which they pass; that the State of Texas had made
large donations of land to railroad companies, and that, as appears
from its executive documents, this railroad company had received a
donation of 3,352,320 acres to aid in its construction, as well as
exemption of all its property from taxation for twenty-five years.
He also calls attention to the financial depression which has of
late years pervaded every avenue of trade, and adds a table from
the report of the Commissioner of Agriculture of Texas showing, as
to different articles produced in that state, an increase in the
amount of product and a decrease in the prices received therefor,
all of which considerations, he earnestly insists, affect the
question of the reasonableness of the rates prescribed.
None of the matters mentioned in the foregoing paragraph appears
in the pleadings or elsewhere in the record, and it is therefore
doubtful to what extent they may be taken into consideration. If we
may take judicial notice of the five parallel roads, must we also
assume that the existence of the other four diminishes the business
of the International and Great Northern, and that, if they had
never been built, all the business which now passes over the five
would have been carried by the one? May not the topography of the
country be such as to prevent any of the business of the other
roads from ever coming to the International and Great Northern even
if, without them, it was obliged to seek water or wagon
transportation? May not the building of those other roads have
increased the population and business to such an extent that the
overflow has, so far from diminishing, really resulted in an
increase of, the business of the International and Great Northern?
If there has been a division of business, has there not also been a
competition by which the rates have been reduced, and reduced to
such an extent as to forbid the propriety of any further reduction?
If we may take judicial
Page 154 U. S. 409
notice that the state made a grant of three million and odd
acres to the company, must we also take notice of the value of that
land, of its sale, and the amount realized therefrom? While
undoubtedly there has been lately a period of financial depression,
can we take judicial notice of the extent to which that depression
has reduced the prices of the products of the state? And is the
report of the commissioner of agriculture of the state to be
considered as evidence before us and accepted as substantially
correct both as to product and prices? And if the depreciation of
prices, as stated in said report, be accepted as correct, will such
depreciation uphold a compulsory reduction of the rates of
transportation to such an extent that some of those who have
invested their money in railroad transportation receive no
compensation therefrom? Is it just to deprive one party of all
compensation in order that another may make some profit? They who
invest their money in railroads take the same chances that men
engaged in other business do of making profit from the carrying on
of their business, and, as appears from other cases submitted to us
with this, some of the railroads in the State of Texas have been
operated at a constant loss. But such possibilities of loss are
simply the natural results of all business freely carried on,
against which the law is powerless to afford protection. Very
different are the considerations which arise when the strong arm of
the law is invoked to compel parties engaged in legitimate
business, and business which cannot be abandoned at will, to so
reduce their charges for service as to make the carrying on of that
business result in a continued loss. In the one case, the law is
powerless to prevent injury. In the other, it is used to work
injury. Counsel suggest that the state itself may construct and
operate railroads, and then may properly make rates so low that the
business is done at a loss. They refer to the postal system of the
United States, which, carried on for the common welfare, not
infrequently results in a loss which is made good out of the public
treasury. But the parallel is not good. In the case suggested the
loss is cast, through taxation, upon the general public, and all
bear their proportionate share of that loss which is incurred
in
Page 154 U. S. 410
securing a common benefit, while the scope of this legislation
is to secure such common benefit at the expense of a single class.
The equal protection of the laws -- the spirit of common justice --
forbids that one class should by law be compelled to suffer loss
that others may make gain. If the state were to seek to acquire the
title to these roads under its power of eminent domain, is there
any doubt that constitutional provisions would require the payment
to the corporation of just compensation, that compensation being
the value of the property as it stood in the markets of the world,
and not as prescribed by an act of the legislature? Is it any less
a departure from the obligations of justice to seek to take not the
title, but the use, for the public benefit at less than its market
value?
The act of 1853, to which reference has already been made,
contained a section looking to the acquisition by the State of the
title to railroad property. Section 17 of the Act of February 7,
1853, c. 46, General Laws of Texas, 1853, page 58, is as
follows:
"If the legislature of this state shall at any time make a
provision by law for the repayment to any such company of the
amount expended by them in the construction of said road, together
with all moneys for permanent fixtures, cars, engines, machinery,
chattels, and real property then in use for the said road, with all
moneys expended for repairs or otherwise, and interest on such sums
at the rate of twelve percentum per annum, after deducting the
amount of tolls, freights, passage money, and all moneys received
from the sale of lands donated by the state to said company, with
twelve percentum per annum interest on all such sums, then the
road, with all its fixtures and appurtenances aforesaid, and all
the lands donated to the same by the state and remaining unsold,
shall vest in and revert to the state,
provided that the
state shall not be required to pay or allow a greater rate of
interest on any amount of the money so expended by any company
which shall have been borrowed from this state than the state shall
have received for the same from such company."
This section, as will be perceived, provides for the payment
Page 154 U. S. 411
of interest at the high rate of 12 percent on the difference
between what the company has paid out and what it has taken in, and
to that extent evidences the thought of the state that justice
required the return to the builders of railroads of something more
than the actual cost as the condition of depriving them of the
title. It is only significant, however, as an expression of the
thought of the state at the time; for, were the provision ever so
unjust, every corporation which, after the passage of the act,
invested its money in building a road, would do so with the
knowledge that that was the condition upon which the investment was
made, and could not therefore challenge its validity.
And now what deductions are fairly to be drawn from all the
facts before us? Is there anything which detracts from the force of
the general allegation that these rates are unjust and
unreasonable? This clearly appears. The cost of this railroad
property was $40,000,000. It cannot be replaced today for less than
$25,000,000. There are $15,000,000 of mortgage bonds outstanding
against it, and nearly $10,000,000 of stock. These bonds and stock
represent money invested in the construction of this road. The
owners of the stock have never received a dollar's worth of
dividends in return for their investment. The road was thrown into
the hands of a receiver for default in payment of the interest on
the bonds. The earnings for the last three years prior to the
establishment of these rates was insufficient to pay the operating
expenses and the interest on the bonds. In order to make good the
deficiency in interest, the stockholders have put their hands in
their pockets and advanced over a million of dollars. The supplies
for the road have been purchased at as cheap a rate as possible.
The officers and employees have been paid no more than is necessary
to secure men of the skill and knowledge requisite to suitable
operation of the road. By the voluntary action of the company, the
rate, in cents, per ton per mile, has decreased in ten years from
2.03 to 1.30. The actual reduction by virtue of this tariff in the
receipts during the six or eight months that it has been enforced
amounts to over $150,000. Can it be that a tariff which, under
these circumstances,
Page 154 U. S. 412
has worked such results to the parties whose money built this
road, is other than unjust and unreasonable? Would any investment
ever be made of private capital in railroad enterprises with such
as the proffered results?
It is unnecessary to decide, and we do not wish to be understood
as laying down as an absolute rule, that in every case a failure to
produce some profit to those who have invested their money in the
building of a road is conclusive that the tariff is unjust and
unreasonable. And yet justice demands that everyone should receive
some compensation for the use of his money or property if it be
possible without prejudice to the rights of others. There may be
circumstances which would justify such a tariff. There may have
been extravagance and a needless expenditure of money. There may be
waste in the management of the road -- enormous salaries, unjust
discrimination as between individual shippers, resulting in general
loss. The construction may have been at a time when material and
labor were at the highest price, so that the actual cost far
exceeds the present value. The road may have been unwisely built,
in localities where there is no sufficient business to sustain a
road. Doubtless too, there are many other matters affecting the
rights of the community in which the road is built, as well as the
rights of those who have built the road. But we do hold that a
general averment in a bill that a tariff, as established, is unjust
and unreasonable is supported by the admitted facts that the road
cost far more than the amount of the stock and bonds outstanding;
that such stock and bonds represent money invested in its
construction; that there has been no waste or mismanagement in the
construction or operation; that supplies and labor have been
purchased at the lowest possible price consistent with the
successful operation of the road; that the rates voluntarily fixed
by the company have been for ten years steadily decreasing, until
the aggregate decrease has been more than fifty percent; that under
the rates thus voluntarily established, the stock, which represents
two-fifths of the value, has never received anything in the way of
dividends, and that for the last three years, the earnings above
operating expenses have been insufficient to
Page 154 U. S. 413
pay the interest on the bonded debt, and that the proposed
tariff, as enforced, will so diminish the earnings that they will
not be able to pay one-half the interest on the bonded debt above
the operating expenses, and that such an averment, so supported,
will, in the absence of any satisfactory showing to the contrary,
sustain a finding that the proposed tariff is unjust and
unreasonable, and a decree restraining it being put in force.
It follows from these considerations that the decree as
entered must be reversed insofar as it restrains the railroad
commission from discharging the duties imposed by this act and from
proceeding to establish reasonable rates and regulations, but must
be affirmed so far only as it restrains the defendants from
enforcing the rates already established. The costs in this Court
will be divided.
