The principles governing the right to classify railroads for the purpose of prescribing rates are somewhat similar to those applicable to their classification for levying taxes. In the exercise of this right, in either respect, however, the classification must have regard to and be based on "some real and substantial" distinction "bearing a reasonable and just relation to the things in respect to which such classification is imposed." 82 Whether the classification of corpora tions for rate purposes is the best that could be devised is not for the judiciary to determine.83 Thus, in fixing railroad rates, the railroads of the state are properly divided into classes, according to the amount of business, and a maximum rate established for each of the classes.84 So a statute, in fixing railroad fares, may classify railroads according to their length,85 or the time they have been organized.86 And it has been held proper to make a particular rate applicable only to roads less than fifty miles in length which are not under the control, management or operation of other railroads.87 So electric lines and street railways may be excepted from the rate regulation of railroads.88 And the fact that freight rates between two points are reduced by a commission as to complainant, but not as to a competing road, is immaterial, notwithstanding there is an identity of distance and similarity of service between the points, at least where the respective investments of the competing lines are not shown.89 So the fixing of different maximum rates, according to whether a railroad has been created by a special law or under a general law has been upheld.90 And in Michigan the allowing a

82 Louisville & N. R. Co. v. Railroad Commission of Alabama, 196 Fed. 800, 814.

83 Chicago, B. & Q. Ry. Co. v. Iowa, 94 U. S. 155, 164, 24 L. Ed. 94.

84 Chicago, B. & Q. Ry. Co. v. Iowa, 94 U. S. 155, 163, 24 L. Ed. 94. See also Illinois Cent. R. Co. v. People of Illinois, 108 U. S. 541, 27 L. Ed. 818; Ruggles v. Illinois, 108 U. S. 526, 27 L. Ed. 812.

ley, 230 U. S. 513, 522, 57 L. Ed. 1597; Dow v. Beidelman, 125 U. S. 680, 31 L. Ed. 841.

86 Ames v. Union Pac. Ry. Co., 64 Fed. 165, 171, holding classification proper on theory of "protection of infant industries."'

87 Chesapeake & O. R.. Co. v. Conley, 230 U. S. 513, 57 L. Ed. 1597.

88 Chesapeake & O. R. Co. v. Conley, 230 U. S. 513, 57 L. Ed. 1597.

89 Southern Pac. Co. v. Railroad Commission of California, 193 Fed. 699, 709, holding also that no complaint can be made by the company whose rates are reduced unless the new rates are unreasonable and confiscatory.

The state may divide the railroads therein into classes, according to business, and establish a maximum of rates for each of the classes, provided it operates uniformly on each class. Chicago, B. & Q. Ry. Co. v. Iowa, 94 U. S. 155, 163, 24 L. Ed. 94. 85 Chesapeake & O. R. Co. v. Con

90 Shelton v. Erie R. Co., 73 N. J.

higher maximum rate on railroads in the upper peninsula than in the rest of the state was upheld.91 Moreover, the fixing of different rates for different telephone companies in the same city does not necessarily deny the equal protection of the laws where it does not appear whether the two companies operated in the same territory, or afforded equal facilities for communication, or rendered the same services.92

However, a statute fixing charges of stock yards companies, but applicable only to companies doing over a certain amount of business, has been held to deny the equal protection of the laws where the rates of other similar corporations doing a smaller amount of business are not regulated, and the regulation is without regard to the character or value of the services rendered.93 And an order of a commission which prescribes an unreasonably low and confiscatory rate for one carrier, while other carriers, similarly situated, are permitted to charge a higher rate, denies to the former the equal protection of the laws.94

In regard to street railroads, as said in Indiana, it is not necessary "that a law concerning the fares to be collected by street railroad companies shall operate uniformly on all street railroads in the state," but "it is sufficient if it operates alike upon all such companies under the same circumstances and conditions." 95

In fixing the rates of elevator owners, a New York statute making the rates applicable only to places having a population of 130,000 or more was held not a denial of the equal protection of the laws.96

Whether statutes requiring railroads or street railroads to carry certain classes of persons, or on certain occasions, free or at a reduced rate, violates the guarantee of equal protection of the laws, is considered hereafter.97

§ 4488. Impairment of obligation of contract-In general. Whether a regulation of rates impairs the obligation of a contract

L. 558, 9 L. R. A. (N. S.) 727, 118 Am. St. Rep. 704, 9 Ann. Cas. 883, 66 Atl. 403.

91 Wellman v. Chicago & G. T. Ry. Co., 83 Mich. 592, 47 N. W. 489, aff'd 143 U. S. 339, 36 L. Ed. 176.

92 Home Telephone & Telegraph Co. v. Los Angeles, 211 U. S. 265, 53 L. Ed. 176.

93 Cotting v. Kansas City Stock Yards Co., 183 U. S. 79, 102-113, 46 L. Ed. 92.

94 Houston & T. C. R. Co. v. Storey, 149 Fed. 499, 504.

95 Indianapolis v. Navin, 151 Ind. 139, 145, 41 L. R. A. 337, 51 N. E. 80, 47 N. E. 525.

96 Budd v. New York, 143 U. S. 517, 36 L. Ed. 247, aff'g 117 N. Y. 1, 5 L. R. A. 559, 15 Am. St. Rep. 460, 22 N. E. 670.

97 See §§ 4506-4513, infra.

depends in the first place upon whether there is any valid existing contract as to rates to be impaired, and secondly upon whether, if there is such a contract, the regulation actually impairs the contract rate. As to the first question, which is the most important one, a valid contract as to rates may result either (1) from the terms of the charter of the corporation, or (2) from the terms of the municipal franchise granting the right to use the streets of the municipality. Whether the charter constitutes a contract and whether a regulation impairs the contract created thereby, including the question as to a reserved right to repeal or amend the charter, has been fully discussed in a preceding chapter,98 and the only question for consideration herein is whether the charter actually constitutes a contract fixing rates.99 It may be said, however, that very few charters are construed as fixing, or authorizing the corporation to itself fix, rates, so as to be beyond the power of subsequent rate regulation. The more important question is whether a contract rate is fixed by a municipal franchise and this again divides itself into two phases, viz.: (1) Did the municipality have delegated power to make a contract as to rates beyond the power of the state to interfere with? (2) Does the provision in the franchise as to rates, when properly construed, fix a rate beyond which the corporation cannot go? Restating what has been said, there are four things to be considered. First, does the statute, ordinance or charter actually fix the rates so as to constitute a contract? Second, in case of a municipality, did it have power to make a contract as to rates? Third, does the subsequent fixing of rates actually impair the contract? Fourth, conceding that there is a valid contract entered into with authority, as to rates, does a change of such rates constitute the impairment of a contract within the meaning of the Federal Constitution? All these matters will now be taken up for consideration.

If the state or a municipality has fixed the rates to be charged by a public service company, so as to constitute a contract with the company,1 and such a contract is within the powers of the state or municipality, and no authority to repeal, amend or change the rates has been reserved, either expressly or by virtue of existing constitutional or statutory provisions, such contract is protected by the contract clause of the Federal Constitution and cannot be im

98 Supra, Chap. 57.

99 See § 4492, infra.

1 See § 4492, infra, as to whether contract exists.

2 See 4490, infra, as to power of

municipality to make a binding con-
tract as to rates, with which the
state cannot interfere.

3 See § 4491, infra.
4 See 84491, infra.

paired by subsequently changing the rates. This rule has frequently been applied to the rates of street car companies, gas companies,7 water companies, and other public service corporations.

It is to be noted, however, that a binding contract as to rates will not be inferred from the language used unless clear and convincing, and it seems that the municipality may be precluded from

changing the rates agreed upon by it in some cases where the state would not be barred.10 In so far as impairing the obligation of a contract prohibiting the reduction of rates, is concerned, it is wholly immaterial whether the income of the company has been reduced thereby.11

§ 4489. As dependent upon power of state to make contract as to rates. It is generally held, although there is some authority to the contrary, that a state may make a contract as to rates which will preclude a change or reduction of rates during the life of the contract, unless there is a constitutional prohibition.12 Thus the state may confer upon a railroad company the right to regulate its rates for a certain time, so that it cannot reduce them or interfere with them during such time,13 although such a contract will be held to exist only where its terms are clear and unambiguous.14 So an ordinatice fixing rates, where ratified by the legislature, cannot be impaired by a subsequent ordinance reducing the rates.15

There is some authority, however, for the proposition that the regulation of rates is such an exercise of the police power that it

10 See § 4494, infra.

11 Los Angeles v. Los Angeles City Water Co., 177 U. S. 558, 44 L. Ed. 886.

12 See cases cited infra this section. 13 Pingree v. Michigan Cent. R. Co., 118 Mich. 314, 53 L. R. A. 274, 76 N. W. 635; Sloan v. Pacific R. R., 61 Mo. 24, 21 Am. Rep. 397; Iron R. Co. v. Lawrence Furnace Co., 29 Ohio St. 208.

14 See § 4492, infra.

15 Minneapolis v. Minneapolis St. R. Co., 215 U. S. 417, 54 L. Ed. 259.

The city of Los Angeles in 1868 leased its waterworks for thirty years and granted the right to lay pipes in the streets and to sell and distribute the water to the inhabitants and to take water from the Los Angeles River, and the city bound itself by the contract not to make any other lease, sale, grant or franchise to any other person or corporation for the sale or delivery of water to the inhabitants of the city for domestic purposes during the continuance of

VII Priv. Corp.-30

the contract. It also contracted that the city would not reduce the water rates lower than the rates that were being charged at the time the contract was entered into. It was held that under the Constitution and statutes of California, as the same had been construed by the Supreme Court of the state prior to the date the contract was entered into and the franchise was granted, the legislature had the right to grant a special franchise to persons and corporations, and that the legislature had by act of 1870 (St. 1869-70, p. 635) ratified and approved the contract which had been previously entered into by the city of Los Angeles, and that this became a valid and binding contract upon the city for the full period of thirty years. Los Angeles v. Los Angeles City Water Co., 177 U. S. 558, 44 L. Ed. 886, aff'g 88 Fed. 720. See comment of Mr. Justice White on Los Angeles case in dissenting opinion in Rogers Park Water Co. v. Fergus, 180 U. S. 624, 629, 45 L. Ed. 702, 706.