Texas, Nebraska,2 Michigan, South Dakota and Minne

sota.5

In the Texas rate case the Supreme Court reversed the decree of the circuit court in so far as it restrained the railroad commission from discharging the duties imposed by the legis lative act and from proceeding to establish reasonable rates, but affirmed the decree in so far as it restrained the commission from enforcing the rates already established. The enforcement of the state rates was also enjoined in the Nebraska rate case, and in the South Dakota case the decree of the circuit court refusing to enjoin and dismissing the bill of the railroad company was reversed with directions to the circuit court. to determine the reasonableness of the rates. In the other cases it was ruled that the railroad company failed to overcome the presumption of the reasonableness of the rates fixed by the state authority.

In these cases in the federal courts, however, the standard of reasonableness considered by the court is not the same as that involved in the determination of what is reasonable between a carrier and its patrons, whether raised under the Interstate Commerce Act or otherwise. It is not what the carrier can charge under the common law rule of reasonableness, but what limit the state can lawfully impose upon his contractual power in making rates without violating the federal constitutional guaranty against the taking of property without due process of law.

In all such cases where the federal power is invoked to prevent the enforcement of rates imposed by the states, the presumption is that the rates thus imposed are reasonable, and it devolves upon the carrier to show that the enforcement of such rates would involve a confiscation of property rights, that is, the taking of property without due process of law. This involves the determination of what is a reasonable profit upon

inal cost of the road did not show a taking of property without due process of law.

4 Chicago, M. & St. P. R. Co. v. Tompkins, supra.

5 Chicago, etc. R. Co. v. Minnesota,

1 Reagan v. Farmers' Loan & Trust 134 U. S. 418, 33 L. Ed. 970; Minne

Co.. supra.

2 Smyth v. Ames, supra.

3 Chicago Grand Trunk R. Co. v. Wellman, 143 U. S. 339 (1892), 36 L. Ed. 176.

apolis & St. Louis R. Co. v. Minnesota, 186 U. S. 257 (1902), 46 L. Ed. 1151.

his investment, to which a carrier is entitled. As to the different elements to be considered in determining the limits of this right to reasonable profits, see § 126, infra, "Capitalization of Railroads as a Basis for Rates."

On the other hand, in actions against the carrier, whether under the Interstate Commerce Act or otherwise, the party complaining must make proof of unreasonableness, as he is the 1 actor and is bound to prove his case. See § 133, infra.1

Another distinction is to be observed between the two classes of cases wherein the federal authority is invoked in the supervision of railway rates, in that in proceedings under the fourteenth amendment the entire schedule of maximum rates imposed by state authority is usually challenged while in the cases under the Interstate Commerce Act, as will be hereafter seen, it is, as a rule, the reasonableness of the rates on specific commodities or to or from specified localities, or more usually the relation of rates as between competing communities or kinds of traffic which is brought under review.

§ 98. What is reasonableness in the limitation of state authority. It was said by Justice Brewer in the Circuit Court in the Nebraska Rate case, subsequently affirmed by the Supreme Court, that the test to determine the reasonableness of rates was not well settled, and that it was doubtful whether any single rule could be laid down applicable to all cases; and in another case it was said by the Supreme Court that few if any questions were more difficult and perplexing than those involving the validity of the rates prescribed for carriers by a state legislature.

In the Texas Rate case the Court based its decision, enjoining the enforcement of the rates, on the facts established in the case as to the cost and present value of the railroad, the voluntary steady decrease of its rates and the proof adduced

1 The burden is upon the complaining shipper in proceedings before the Commission. But in judicial proceedings to enforce the ruling of the Commission, the findings of fact of the Commission are made prima facie evidence as to every fact found. Under the proposed amendment of the Interstate Commerce Act (see

§ 48, supra), the rulings of the Commission, in the absence of judicial proceedings, would be self-enforcing, subject to review in the court of transportation, and in such judicial proceedings the findings of fact made by the Commission are to be received as prima facie evidence.

that the proposed tariff would prevent the road paying interest on its bonds, nothing being shown to justify such a result.

In the Nebraska Rate case it was definitely ruled that the reasonableness of local rates must be determined without reference to interstate rates, over which the state had no control. The state, it was said, could not justify uureasonably low rates for domestic transportation on the ground that the carrier was earning large profits on its interstate business, nor, on the other hand, could the carrier justify unreasonably high rates. on domestic business on the ground that only in that way could it meet the losses on its interstate business.

In the South Dakota Rate case the Court said that the circuit court erred in making a comparison between the gross receipts from local business, under the existing and proposed rates, without considering also the cost of doing the local business and ascertaining the net earnings and determining therefrom the true effect of the reduction.1

A definite rule has not been laid down in any of these cases as to what is the reasonable rate which a carrier will be protected by the federal authority in charging within a state. The carrier is entitled to charge a reasonable profit in his domestic business as in its interstate business, and the state cannot enforce rates unreasonably low within the state because the carrier is charging unreasonable rates on its interstate business. In ascertaining the value of the property upon which income is to be earned, it is not the cost, but the present value, which is to be considered. But in ascertaining value the original cost, the amount expended for permanent improvements, the present as compared with the original cost, are all facts to be considered. It has also been said that in determining the reasonableness of rates, the betterments and replacements made necessary by the growth of traffic, and also the permanent establishment and good will should be considered, and that the mere valuation of the physical structure of a road is too narrow a basis when a road is constructed and the property invested with a view to the future, and the original investment is made at a time when the conditions of the country are such as to give no expectation of reasonably profitable earnings.1

1 For disposition of this case in circuit court, after remanding, see 110 Fed. Rep. 473, infra, sec. 127.

2 See cases, supra, and also Metropolitan Trust Co. v. Railroad Co., 90 Fed. Rep. 683. For further discus

99. No definite standard of reasonableness in railroad rates. The subject of the reasonableness of railroad rates and the factors to be considered in the determination of such reasonableness have thus been considered by the federal courts in two classes of cases. That is, in cases arising under the Interstate Commerce Act, where the shipper complains that he is charged by the carrier more than a reasonable rate, and in cases arising under state laws, where the carrier complains that he is prohibited by the state law or order of a state commission having the force of law from charging a reasonable rate.

While the Interstate Commerce Act reaffirms the common law in the requirement of reasonableness, neither the statute nor the common law furnishes any definite standard for the determination of what is reasonable. In ordinary business transactions a reasonable charge for a personal service is the resultant of the free economic forces of supply and demand. It is obvious that under the complicated conditions. of railway transportation this free play of the economic forces of supply and demand does not ordinarily exist. When competition does act in determining railway rates, it is only at certain points, as terminal centers, where the rate may be made unreasonable from the carrier's point of view, while at local points on the same line it may not exist at all. The standard of reasonableness, therefore, is one thing for the railroad manager who wishes to secure at all times a reasonable profit upon the cost of service, and a very different thing for the shipper who wishes to secure at all times a reasonable profit for his own business as against his competitors in other communities.

In the Trans-Missouri Freight Association case1 the court, referring to the argument that the Anti-Trust Act of 1890 should not be construed as applying to agreements resulting in only the reasonable regulation of rates, said: “What is a proper standard by which to judge the fact of reasonable rates?" And after commenting upon the different factors to be considered said: "That it it is quite apparent that it is exceedingly difficult to formulate even the terms of the rule itself which should govern in the matter of determining what would be reasonable rates for transportation, and that there was such sion of this subject see secs. 125 and 126, infra.

1 166 U. S. 1, c. 331, 41 L. Ed. 1025Sec. 1 of Interstate Commerce Act.

an infinite variety of facts entering into the question of what is a reasonable rate, no matter what standard is adopted, that the individual shipper would be practically remedy less. It is also true that the complexity of the problem requires for its solution the largest experience, and the fullest knowledge of the details of the cost of service, and all the conditions of traffic."1

§ 100. Protection of the carrier against discriminating state legislation.-The Fourteenth Amendment protects the carrier not only against unreasonable state limitation of rates, but also against any state legislation which unreasonably interferes with the carrier's right to carry on and manage its concerns. This federal guaranty may be invoked irrespective of whether there is any contract between the state and the company exempting it in any measure from state control. While the carrier is subject to the general police power of the state in the general conduct of its affairs, the running of its trains and providing for the proper accommodation of the public, it cannot be subjected to discriminating or class legislation. Thus, a statute of Michigan which provided that the railroads should keep for sale one-thousand mile tickets good for two years at a reduced rate, such ticket to be issued in the name of the purchaser's wife and children when desired, and redeemable by the company if not used, was held violative of due process of law and the equal protection of the laws. The Court said that such legislation was not included in the power to fix maximum rates and that the company had the right to insist that all persons should be compelled to pay alike and that no discrimination against it in favor of certain classes of married men with families, excursionists or others should be made by the legislature.2

1"The rates of freight must be sufficiently low to result in the development of the largest amount of traffic, and at the same time they must be high enough to produce sufficient revenue to pay for the cost of maintenance and operation of the roads and if possible, interest on the investment. The rates must in no case exceed the value to the public of the services rendered, which is determined by the commercial laws by competition with all rail lines, with

rail and water lines, by competition between markets, by competition of products with products, by the value of the articles of freight at the places of production and manufacture, and the places of consumption, by other circumstances and conditions." Fink on Railway Rates.

Lake Shore & M. So. R. Co. v. Smith, 173 U. S. 684 (1899), 43 L Ed. 858. Three justices dissenting.