sults of operation in 1924 under these rates as found by the Board and as estimated by the company. And, in opposition to the motion for the temporary injunction, the Board submitted an affidavit containing a statement 2

2 Estimated Rate of Return During Year 1925 under Present Rate Schedule.

Total Telephone Expense $21, 065, 974 $20, 354, 811 $18, 052, 436

Allowing a return of 6% on value of property depreciation and amortiza

tion expense will be $2,163.471.

Opinion of the Court.

271 U.S.

which set forth in detail the estimated results for 1925 based on the same rates. The affidavit shows net additions to the company's property in New Jersey in 1924, amounting to more than $13,000,000; and the Board calculates the return on $88,417,448 as the reasonable value of the property. The calculation is made on three bases: (1) depreciation taken at the company's figure, $4,128,000, (2) depreciation as found by the Board, $3,314,716, and (3) depreciation allowed by the Board's order, $683,430. The effect of the order is to deduct $2,631,286 from operating expenses found by the Board properly chargeable for depreciation in 1925. This deduction is made at the expense of the property of the company paid for out of depreciation reserves built up in prior years. And it has the same effect on net earnings as would the addition of the same amount of revenue received for service. On the basis of the company's estimate of depreciation expense, the return is 4.12 per cent.; on the Board's estimate it is 4.93 per cent.; and by increasing net earnings $2,631,286, as directed by the order, it is made 7.53 per cent. It is conceded that unless, as directed by the Board, depreciation expense is reduced below what the Board itself found necessary, and net earnings are correspondingly increased, the rates cannot be sustained against attack on the ground that they are unreasonably low and confiscatory. Appellants do not contend that the rate of return from the intrastate business is or will be higher than that resulting from the company's business as a whole in New Jersey. And the record supports the claim of the company that the intrastate business, or that covered by the exchange rates complained of, is not relatively more profitable than the other business of the company.

It may be assumed, as found by the Board, that in prior years the company charged excessive amounts to depreciation expense and so created in the reserve account

23

Opinion of the Court.

balances greater than required adequately to maintain the property. It remains to be considered whether the company may be compelled to apply any part of the property or money represented by such balances to overcome deficits in present or future earnings and to sustain rates which otherwise could not be sustained.

The just compensation safeguarded to the utility by the Fourteenth Amendment is a reasonable return on the value of the property used at the time that it is being used for the public service. And rates not sufficient to yield that return are confiscatory. Willcox v. Consolidated Gas Co., 212 U. S. 19, 41; Bluefield Co. v. Public Service Commission, 262 U. S. 679, 692. Constitutional protection against confiscation does not depend on the source of the money used to purchase the property. It is enough that it is used to render the service. San Joaquin Co. v. Stanislaus County, 233 U. S. 454, 459; Gas Light Co. v. Cedar Rapids, 144 Ia. 426, 434, affirmed, 223 U. S. 655; Consolidated Gas Co. v. New York, 157 Fed. 849, 858, affirmed 212 U. S. 19; Ames v. Union Pacific Railway Co., 64 Fed. 165, 176. The customers are entitled to demand service and the company must comply. The company is entitled to just compensation and, to have the service, the customers must pay for it. The relation between the company and its customers is not that of partners, agent and principal, or trustee and beneficiary. Cf. Fall River Gas Works v. Gas & Electric Light Com'rs, 214 Mass. 529, 538. The revenue paid by the customers for service belongs to the company. The amount, if any, remaining after paying taxes and operating expenses, including the expense of depreciation, is the company's compensation for the use of its property. If there is no return, or if the amount is less than a reasonable return, the company must bear the loss. Past losses cannot be used to enhance the value of the property or to support a claim that rates for the future are confiscatory. Galveston Electric Co. v. Galveston,

Opinion of the Court.

271 U.S.

258 U. S. 388, 395; Georgia Ry. v. R. R. Comm., 262 U. S. 625, 632. And the law does not require the company to give up for the benefit of future subscribers any part of its accumulations from past operations. Profits of the past cannot be used to sustain confiscatory rates for the future. Newton v. Consolidated Gas Co., 258 U. S. 165, 175; Galveston Electric Co. v. Galveston, supra, 396; Monroe Gaslight & Fuel Co. v. Michigan Public Utilities Commission, 292 Fed. 139, 147; City of Minneapolis v. Rand, 285 Fed. 818, 823; Georgia Ry. & Power Co. v. Railroad Commission, 278 Fed. 242, 247, affirmed 262 U. S. 625; Chicago Rys. Co. v. Illinois Commerce Commission, 277 Fed. 970, 980; Garden City v. Telephone Company, 236 Fed. 693, 696.

Customers pay for service, not for the property used to render it. Their payments are not contributions to depreciation or other operating expenses, or to capital of the company. By paying bills for service they do not acquire any interest, legal or equitable, in the property used for their convenience or in the funds of the company. Property paid for out of moneys received for service belongs to the company, just as does that purchased out of proceeds of its bonds and stock. It is conceded that the exchange rates complained of are not sufficient to yield a just return after paying taxes and operating expenses, including a proper allowance for current depreciation. The property or money of the company represented by the credit balance in the reserve for depreciation cannot be used to make up the deficiency.

Decree affirmed.

MR. JUSTICE STONE took no part in the consideration of this case.

Counsel for Parties.

ENGEL v. DAVENPORT ET AL.

CERTIORARI TO THE SUPREME COURT OF THE STATE OF

CALIFORNIA.

No. 189. Submitted January 26, 1926. Decided April 12, 1926. 1. A complaint by a seaman against a ship owner for damages for injuries alleged to have resulted from the owner's negligence in furnishing a defective appliance, held an action under the Merchant Marine Act as supplemented by the Employers' Liability Act, in which the plaintiff must prove negligence and subject himself to reduction of damages in proportion to any contributory negligence on his part. P. 36.

2. The state courts have jurisdiction, concurrently with the federal courts, to enforce the right of action established by the Merchant Marine Act as a part of the maritime law. P. 37.

3. The provision of the Employers' Liability Act that "no action shall be maintained under this Act unless commenced within two years from the day the cause of action accrued," is one of substantive right, both setting a limit and necessarily implying that the action may be maintained, as a substantive right, within that period. P. 38.

4. This provision was incorporated by adoption in the Merchant Marine Act, and controls in actions brought under that Act in state courts, regardless of the statutes of limitations of the States. P. 38.

194 Cal. 344, reversed.

CERTIORARI to a judgment of the Supreme Court of California which affirmed a judgment dismissing, on demurrer, a complaint in an action for damages, brought by Engel against Davenport.

Mr. H. W. Hutton for petitioner.

Messrs. Edward J. McCutchen and Farnham P. Griffiths for respondents.