nerative. Having contracted, it must bear the loss, even though "it may be that the efficiency of the service and fairness in dealing with the company which performs such important and necessary service ought to require an advance in rates." 15

The chief distinction in the facts of the two cases is that in the Union Dry Goods case the increased rates were approved and put into effect by order of the state commission, while in the Columbus case the increase was made by the utility without any commission action;16 and, further, the former had to do with a contract between a public utility and its patrons, the latter with a municipal franchise granted to and accepted by a public utility.17

The court in the Columbus case' quite properly treated the franchise fixing rates on the same basis as any public service rate-contract, for, as the Supreme Court of Pennsylvania well said recently, "There seems to be no difference in principle between the case of a contract indeterminate and one that is determinate, nor is there any difference in principle between a contract with a borough, a corporation, or with an individual." " 18

The ratio decidendi of the Columbus decision is not based upon the procedural rule that in general the United States Supreme Court adopts the prior interpretations of state statutes by the highest court of the state,19 nor on the line of precedents represented by the Vicksburg case cited,20 both of which merely establish the power of this municipality to enter into such a contract, but rather upon general principles of the law of private contracts relating to impossibility as an excuse for non-performance, thus completely ignoring the public service character of the subject matter of said contract.

In the Union Dry Goods case we have state action increasing the rates, and the court meets the constitutional objections by falling

15

249 U. S. 399, 414 (1919).

16 The Ohio Public Utilities Commission Act (1913) (PAGE AND ADAMS, OHIO GEN'L Code, §§ 614-616 et seq.) does not require prior consent of the commission to the establishment of increased rates by a public utility.

It should be noted in passing that where the utility proprietor increases rates above the maximum fixed by contract with a patron, no constitutional question is raised, but simply whether there has been a breach of contract which the law will redress; whereas, when the rate is thus increased by state action the question is whether that constitutes a violation of the federal or state constitutions against the impairment of obligations of contracts, and the taking of private property without due process of law. United States v. Stanley (Civil Rights Cases), 108 U. S. 3 (1883).

17 In general, a franchise is treated as a contract and within the protection of the contract clause of the U. S. Constitution. Dartmouth College v. Woodward, 4 Wheat. (U. S.) 518 (1819).

That the state may withdraw the power of regulation of the charges and service of public utilities from the municipality and transfer that authority to a state commission, since a grant of governmental or political authority by the state to cities, counties, and the like, does not constitute a contract within the meaning of the Federal Constitution. Pawhuska v. Pawhuska Oil and Gas Co., 250 U. S. 394, 39 Sup. Ct. Rep. 526 (1919).

18 Leiper v. Baltimore & Philadelphia R. Co., 262 Pa. St. 328, 334, 105 Atl. 551 (1918).

19 See 2 FOSTER, FEDERAL PRACTICE, 5 ed., 1573; HUGHES, FEDERAL PROCEDURE, 2 ed., 13.

20 Vicksburg v. Vicksburg Waterworks Co., 206 U. S. 496, 508 (1907).

back upon the doctrine of the police power in the sense of that great unclassified residuum of the sovereign power of the state to promote the general welfare of its citizens.21 Although the weight of authority in the state courts has resorted to the same plausible reasoning to avoid the constitutional difficulties of the question, it is submitted that this is not only unnecessary in order to reach the obviously just result in sustaining such state action, but it is an evasion of the realities of the situation, and imposes an unwarranted limitation on the functioning of a well-recognized branch of the law directly applicable to this subject, the law of public utilities.

The very nature of the subject matter with which it deals demands that the law of public utilities be a living law. No field of human activity is more directly influenced by the progress of science and invention, and by the economic and social conditions of the day. It is, and must continue, flexible and elastic enough to protect the public necessity as developed by the actual situation prevailing at that time and place.

Especially with regard to the service to be rendered, and the rates to be charged therefor by those engaged in public service enterprises, it is impossible in the nature of things to attain that just regulation essential to the ultimate protection of the public interest by the application of rigid rules based on dogmatic, presupposed principles, or by adherence to the iron-bound doctrine of stare decisis. In short, the reasonableness of public utility rates must be determined by the facts as they exist when it is sought to put such rates into operation, or when established rates are challenged.22

The common law in the experience of ages learned this truth, and formulated practical, flexible legal standards, automatically adjusting themselves to the realities of the situation by requiring from public utilities reasonable service at reasonable rates under the circumstances,23 - the question of reasonableness being a relative matter of time, place, and character of the undertaking.2

It must follow, therefore, that when a public utility rate ceases to be reasonable under actual conditions then and there existing it ipso facto becomes unlawful, as either too high and extortionate, or too low and endangering the maintenance of a reasonably adequate service to meet the public necessity.25 Under these circumstances it becomes

21 JAMES BRADLEY THAYER, LEGAL ESSAYS, 27.

Smyth v. Ames, 171 U. S. 361 (1898) (second case).

23 See address, "Administrative Application of Legal Standards," by Roscoe Pound, before the Public Utility Law Section of the American Bar Association, Boston, Massachusetts, September 2, 1919.

24 Cumberland Tel. & Tel. Co. v. Kelly, 160 Fed. 316 (1908).

25 "What was lawful in 1897 was just and reasonable rates and practices. . . . We must assume that the rates and practices then fixed were at the time just and reasonable. But it can hardly be that with changing circumstances those rates and practices would forever remain just and reasonable. We are admonished by present-day conditions that the higher level of prices and wages may have made old rates unreasonably low. . . . And if the rates become unreasonable and the practices unjust, they would cease to be lawful. Unchangeable rates and practices are almost certain to become unlawful. The legislature did not in this respect change the law by the Public Utilities Act of 1911. That act only authorizes just and reasonable rates and practices. It puts into statutory form what was in 1897 and always has been lawful." Per Swayze, J., in Atlantic

the legal duty of the utility itself, or of the state commission, to raise or lower the rates so that they are again reasonable, and as such applicable to all members of the public receiving a like or substantially similar service.26 Although the law of public utilities recognizes the right of the utility to establish reasonable rate differentials corresponding to a real difference in the service rendered,27 that is of no avail here, for the service to the contract patron and non-contract patron is the same, and there can be no legal justification for a more favorable rate to the contract patron. In substance, then, the long-term rate contract or franchise between the public utility proprietor and the patron, irrespective of whether that patron is a municipality or a person, is simply an attempt to subject to contractual control a subject which is peculiarly a matter of law as affected by overpowering external influences, which in the nature of things cannot be bound down to a priori agreements or enactments.2 To enforce these long-term fixed rates under the changed conditions of the present day would result in the anomaly of the law defeating the law.

28

It is submitted that the solution of this problem, applicable to both cases discussed and supporting the legal right to increase the rates in each, is to be found in the well-recognized legal category of the law of public utilities; that the very nature of the subject matter of these longterm rate contracts and franchises, and the necessary operation of the common-law standards requiring reasonable service at reasonable rates, make such contracts unlawful as dealing with that which is primarily a matter of law, and not only beyond the scope of the doctrine of liberty of contract, and hence outside the class of legally enforceable obligations, but, a fortiori, without the protection of the contract clause or the due process clause of the federal or state constitutions.

FEDERAL REVIEW OF DECISIONS OF STATE COURTS INVOLVING FEDERAL QUESTIONS UNDER THE JUDICIAL CODE, § 237, AS AMENDED. The extent to which the federal judiciary should control the state judiciary

Coast Electric Ry. Co. v. Board of Public Utility Commissioners, 104 Atl. (N. J. L.) 218, 220 (1918).

Of course, in order that the rates could be classed as unreasonable under the circumstances the prevailing conditions must be such as to substantially affect the ability of the utility to earn a fair return on its investment, and to maintain the necessary standard of service properly to fulfill its duty to the public, for the courts recognize the business fact that in such undertakings there is a certain extent of "missionary' effort required in order to build up the plant and introduce its product more widely; and again, the law does not undertake to guarantee even public service enterprises against any and all losses, since they should prepare to meet temporarily unfavorable conditions, and to render incidental services which may not in themselves be profitable. People of the State of New York v. McCall, 245 U.S. 345 (1917); Atlantic Coast Line R. R. Co. v. North Carolina Corporation Commission, 206 U. S. 1 (1907). Cf. Northern Pacific Ry. Co. v. State of North Dakota, 236 U. S. 585 (1915). 26 See 32 HARV. L. REV. 74, 78.

27 Interstate Commerce Commission v. Baltimore & Ohio R. Co., 145 U. S. 263 (1892). 28 The power of the legislature to fix public utility rates is limited to reasonable rates. Chicago & Grand Trunk Ry. v. Wellman, 143 U. S. 339 (1892); Reagan v. Farmers' Loan & Trust Co., 154 U. S. 362 (1894); Smyth v. Ames, 169 U. S. 466, 526 (1898); Covington & L. Turnpike Road Co. v. Sandford, 164 U. S. 578 (1896); San Diego Land and Town Co. v. National City, 174 U. S. 739 (1899).

has always been a delicate problem. That the federal judiciary should finally determine federal questions regardless of the court of origin is, however, undisputed. A proper balance between federal and state sovereignty in this matter was at first sought by subjecting final proceedings in a state court to review, on writ of error or appeal, by the federal Supreme Court, broadly, when a federal right was claimed and denied, or when a state right asserted to be inconsistent with a federal right was upheld. Thus were the authority of the United States, and the rights claimed thereunder, protected, while the state was left supreme in its own field. By such legislation the existence of the federal authority was preserved, but its scope could not be defined by the federal judiciary, for the federal issue was still determined in the state court whenever the questioned right, if federal, was sustained, or if state, was denied. Thus individual rights involving federal questions were unprotected from the point of view of the party who unsuccessfully asserted a state right; moreover, so long as the state court held state laws invalid under the Federal Constitution, the state was unable to get an authoritative determination of the issue of constitutionality. In addition, federal statutes were subjected to divers constructions so long as the different state courts sustained the federal right claimed thereunder.3

In response to a demand by the bench and bar for reform, jurisdiction was conferred on the United States Supreme Court in 1914 to review by writ of certiorari federal questions finally determined in state courts regardless of the course of decision.5 In 1916 a restrictive amendment established the present system. Instead of both writ of error and certiorari, certiorari alone now lies where, in the highest state court, a federal right, title, or immunity was denied; with this exception, review by certiorari is restricted to cases in which the court below has sustained the federal claim. Accordingly, writs of error now issue to state courts where the decision below (1) denied the validity of a treaty, statute, or authority exercised under the United States, or (2) affirmed the validity of a state statute or authority claimed to be repugnant to the Constitution, treaties, or laws of the United States; while writs of certiorari issue to state courts when the decision below (1) affirmed the validity of a treaty, statute, or authority exercised under the United States, or (2) denied the validity of a state statute or authority claimed to be repugnant to the Constitution, treaties, or laws of the United States, or (3) affirmed or denied the validity of a title, right, privilege, or immunity claimed under the Constitution, treaties, or statutes of, or commission held or authority exercised under the United States. Since the exercise of such jurisdiction is a discretionary matter," the Supreme Court is thus

1 U. S. REV. STAT. § 709; JUD. CODE, § 237; Commonwealth Bank of Ky. v. Griffith, 14 Pet. (U. S.) 56, 58; Gordon v. Caldcleugh, 3 Cranch (U. S.), 268; Missouri v. Andriano, 138 U. S. 496.

2 Commonwealth Bank of Ky. v. Griffith, supra; Martin v. Hunter's Lessee, 1 Wheat. (U. S.) 304, 344, 348. See Dodd, "The U. S. Supreme Court as the Final Interpreter of the Federal Constitution," 6 Ill. L. REV. 289.

$ See 28 HARV. L. REV. 408.

436 AM. BAR Assoc. REP. 462, 469.

5 38 STAT. AT L. 790 (Dec. 23, 1914). See 28 HARV. L. REV. 408.

6 39 STAT. AT L. 726 (Sept. 6, 1916); JUD. CODE, § 237.

7 Ireland v. Woods, 246 U. S. 323.

enabled to widen its scope of review and yet control the natural increase in causes demanding its consideration.

Unfortunately, it seems impossible to determine whether the purpose of the amendments has been effected. The numerical results are of course ascertainable. Under the 1914 amendment but three petitions for writs of certiorari to state courts were filed. All were denied. Under the 1916 amendment, up to the October (1919) term, one hundred and thirty-five petitions for such writs had been considered by the court." In only twenty-nine cases did the writ issue. Of the latter, eight could not, prior to 1914, have properly come before the court, for in the case below the state court had sustained the validity of the federal right claimed.10 Seventeen cases, in which the state court had denied the validity of such right, were formerly reviewable by writ of error." Only three of these twenty-nine cases have, up to the present time, been finally determined by the court. Of these, two were not formerly reviewable, having sustained the federal claim; 12 the remaining case denying that claim was formerly reviewable by writ of error only.13 The state court was

8 Stowe v. Taylor, 241 U. S. 658; Callaghan v. Commonwealth of Mass., 241 U. S. 667 (223 Mass. 150, 111 N. E. 773); Baltimore v. United Ry. Co., 241 Ù. S. 671 (127 Md. 660, 96 Atl. 880). The lower court decisions are given where obtainable. An examination of the proceedings in the lower court affords the best means of ascertaining the issue involved, since the Supreme Court renders memorandum decisions only.

In the October term, 1916, seventeen were denied and five granted; in the October term, 1917, forty-one were denied and seven granted; in the October term, 1918, forty-eight were denied and seventeen granted.

10 Macleod v. N. E. Tel., etc. Co., 39 Sup. Ct. Rep. 389 (122 N. E. (Mass.) 547); Seaboard Air Line R. Co. v. Horton, 39 Sup. Ct. Rep. 8 (175 N. C. 472); Calhoun v. Massie, 39 Sup. Ct. Rep. 289 (97 S. E. (Va.) 576); Southern Pacific R. Co. v. Berkshire, 39 Sup. Ct. Rep. 494 (207 S. W. (Texas) 323); Philadelphia, etc. R. Co. v. Smith, 39 Sup. Ct. Rep. 6 (103 Atl. (Md.) 945); Northern Pacific R. Co. v. McComas, 243 U. S. 653 (82 Ore. 639); Gratiot County Bank v. Johnson, 243 U. S. 645 (193 Mich. 452).

11 See Hull v. Philadelphia, etc. R. Co., 39 Sup. Ct. Rep. 7 (104 Atl. (Md.) 274); Ward v. Commissioners, 39 Sup. Ct. Rep. 12 (173 Pac. (Okla.) 1050); Chicago, etc. R. Co. v. Ward, 39 Sup. Ct. Rep. 10 (173 Pac. (Okla.) 212); Tyrell v. Shaffer, 39 Sup. Ct. Rep. 19 (174 Pac. (Okla.) 1074); Broadwell v. Commissioners, 39 Sup. Ct. Rep. 259 (175 Pac. (Okla.) 828); Lee v. C. of Georgia R. Co., 39 Sup. Ct. Rep. 7 (95 S. E. (Ga.) 718); Hartford Life Ins. Co. v. Johnson, 245 U. S. 664 (197 S. W. (Mo.) 132); Postal Tel. Co. v. Dickenson, 39 Sup. Ct. Rep. 11 (79 So. (Miss.) 719); Pere Marquette R. Co. v. French, 39 Sup. Ct. Rep. 494 (204 Mich. 578); Brooks Scanlon Co. v. Commissioner, 39 Sup. Ct. Rep. 494 (81 So. (La.) 727); Kenney v. Lodge, 39 Sup. Ct. Rep. 390 (285 Ill. 188); N. Y., etc. R. Co. v. Goldberg, 245 U. S. 655 (149 N. Y. Supp. 629).

12 Gratiot County Bank v. Johnson, 39 Sup. Ct. Rep. 263 (certiorari granted, 243 U. S. 645; lower court decision, 193 Mich. 452, 160 N. W. 544). In this case the defendant in error claimed, under the Federal Bankruptcy Act, that as all creditors could intervene in bankruptcy proceedings, it must be assumed that they had, and therefore all creditors would be bound as to all subsidiary facts upon which the adjudication was based. The state court decision upholding this contention was reversed by the Supreme Court.

In Northern Pacific R. Co. v. McComas, 39 Sup. Ct. Rep. 546 (certiorari granted, 243 U. S. 653; lower court decision, 82 Ore. 639, 161 Pac. 562), the defendant in error claimed title by adverse possession of lands which it alleged had been granted to the plaintiff in error under a federal statute. The state court decision, holding that this land had passed to the railroad under the statute and was held by the company during the period of adverse possession relied on, was reversed by the Supreme Court.

13 Baltimore & Ohio R. Co. v. Leach, 39 Sup. Ct. Rep. 254 (certiorari granted, 243 U. S. 639; lower court decision, 173 Ky. 452, 191 S. W. 310). In this case the state court gave judgment for the defendant in error, for damages based on injury to his