Railroads has power to fix intrastate rates. It was likewise decided, in Dakota Central Telephone Co. et al. v. South Dakota 3 that under other but similar legislation the Postmaster General can regulate intrastate telephone and telegraph rates.5 That such powers could be exercised by the United States under appropriate legislation by Congress was not seriously disputed on the part of the states. The question principally agitated was whether, in view of the peace-time power of the states to control these rates and in view of expressions in the acts of Congress that nothing therein should be construed to impair or affect the existing police regulations of the several states, the federal executives had Congressional sanction for their interference."

7

It has been held that where there is a federal incorporation of a railroad company under the interstate commerce power it is to be presumed, in the absence of express enactment to the contrary, that the corporation is intentionally left subject to state control in matters of taxation, rates, and police regulation. Where a new entity is created which must, in the nature of things, be subject to some control as to rates, etc., and Congress has provided none, this presumption is sound. When, however, the federal government itself takes possession of property and undertakes to manage it, there is no room for such a rule of construction. Congress gave the President extended powers in order that the war emergency might be handled with dispatch. When the provisos saving "the lawful police regulations" of the several states are read in the light of this fact, "police regulations" can only mean the police power of the states in the limited sense of the phrase which designates the power to regulate concerning the safety, health, and morals of the public. On the question of the true construction of the acts of Congress the cases consequently appear to have been well decided.9

8

In the joint resolution of the 16th of July, 1918, by which Congress authorized the President to take possession and assume control of the telephone and telegraph systems, no express authority to fix rates is found.10 The railroad legislation in terms gave the President this power, U. S. Sup. Ct. No. 967, October Term, 1918. See RECENT CASES, p. 115. Mr. Justice Brandeis dissented. 40 STAT. AT L. 904.

4

* Similar cases originating in other states and disposed of on the same principles are: Burleson v. Dempsey, U. S. Sup. Ct. No. 1006, October Term, 1918; Macleod et al. 7. New England Telephone and Telegraph Co., U. S. Sup. Ct. No. 957, October Term, 1918.

In the legislation concerning both the railroads and the telephone and telegraph systems the language saving the police regulations of the states is substantially the same: In the first case it reads: "... nothing in this act shall be construed to amend, repeal, impair, or affect the existing laws or powers of the States in relation to taxation or the lawful police regulations of the several States, except wherein such laws, powers, or regulations may affect the transportation of troops, war materials, Government supplies, or the issue of stocks and bonds." The telephone legislation only substitutes "transmission of Government communications" in place of "transportation of troops, war materials, Government supplies."

Reagan v. Mercantile Trust Co., 154 U. S. 413 (1894).

8 State v. Wisconsin Telephone Co., 172 N. W. (Wis.) 225. See FREUND, POLICE POWER, IO.

9 See Henry Wolf Biklé, "State Power over Intrastate Railroad Rates During Federal Control," 32 HARV. L. REV. 299. The writer interprets the act of Congress of March 21, 1918 (40 STAT. AT L. 451), and forecasts correctly the result of cases arising thereunder.

10 40 STAT. AT L. 904.

and by implication gave him the power to exclude rate-making by the states. In the Dakota Central Telephone case the states were not so deprived of their authority to fix intrastate rates unless by necessary implication arising from the fact that the federal government took possession and control. Chief Justice White expressed the problem in these words: "Conceding that it was within the power of Congress, . . . to transplant the state power as to intrastate rates into a sphere where it, Congress, had complete control over telephone lines because it had taken possession of them and was operating them as a governmental agency, it must follow that in such sphere there would be nothing upon which the state power could be exerted except upon the power of the United States. . . ." If political developments are to be in the direction of government ownership or operation of the instrumentalities of interstate commerce, this suggestion that the relation of the states to interstate commerce will be determined by different principles from those heretofore applied when such commerce was exclusively carried on by private persons and corporations is of considerable interest. As in the past, there will be two principal points of contact: (1) state taxation; (2) state police power.

It has been argued with force that Congress has the power to enjoin all state taxation and control of property engaged in interstate commerce." But in the absence of plain words from Congress the states have enjoyed a limited power to tax and control.12 This has been so, even though the legal entity engaged in commerce between the states was itself created by Congress.13 Without attempting to bound this state power meticulously, we may say that two general rules have been followed: (1) the property as distinguished from the operation of persons in interstate commerce may be taxed; (2) such persons are subject to reasonable local control, i. e. reasonable state regulations concerning the public safety, health, and morals. If we accept the suggestion of the Chief Justice, what are to be the governing principles when the vehicle of interstate commerce is the United States?

It is fundamental that property owned by the federal government is not taxable by the states.14 Taxation of privately owned property in the possession of the federal government is found in the case of property in the hands of receivers appointed by the federal courts and therefore regarded as in the possession of the court. In such case, however, federal possession is had on behalf of private litigants, not to secure the execution of public functions. Moreover, the tax cannot be enforced against the property in the receiver's custody without the consent of the court. 15 So far as the difficulty of enforcing state taxes is concerned it would be as great in the case of federal possession as in the case of

11 See 2 TIEDEMAN, STATE AND FEDERAL CONTROL OF PERSONS AND PROPERTY, § 217. See also Victor Morawetz, "The Power of Congress to Enact Incorporation Laws and to Regulate Corporations," 26 HARV. L. REV. 667, 678.

12 See M'Culloch v. Maryland, 4 Wheat. (U. S.) 316, 436 (1819). See also 22 HARV. L. REV. 437; 26 HARV. L. REV. 78; 28 HARV. L. REV. 93; 23 HARV. L. REV. 643. 13 Railroad Company . Peniston, 18 Wall. (U. S.) 5 (1873). See Frederick H. Cooke, "State and Federal Control of Corporations," 23 HARV. L. REV. 456.

14 Van Brocklin v. State of Tennessee, 117 U. S. 151 (1886); Wisconsin Railroad Co. v. Price County, 133 U. S. 496, 504 (1889). See JUDSON ON TAXATION, § 21. 15 See HIGH ON RECEIVERS, 4 ed., § 59.

federal title. Consequently, unless the states are expressly authorized to tax, possession alone by the United States should remove interstate commerce from local taxation.16

On the other hand, the federal government's ownership of lands within the states does not ipso facto withdraw such property from the local police power.17 It seems to be the rule that the police power persists until the state cedes its jurisdiction to the central government.18 This power of police, however, is brought to bear only on private persons; it seems never to have circumscribed the power of the United States. As in the case of interstate commerce privately carried on, the state has police powers incidental to its territorial jurisdiction. When these powers reach the point of interfering with the means used by the United States to attain the ends of its government, they cease.19 When the United States elects to operate the agencies necessary to obtain these ends with its own hands, it is arguable that the property taken over becomes more of a means of governmental operation than it was under private control. At all events, local regulation of the property now becomes a direct interference with the governmental operation of the United States, whereas before the interference was only indirect. This is as incompatible with the supremacy of the federal government within its sphere as is taxation of its property.20 To require a sovereign to fence his right of way or to forbid him to carry freight on Sunday is to impose a restraint as inconsistent with his character as a tax on his assets within a given radius. This leads to the conclusion that the states cannot, without the express consent of Congress, tax or regulate property in the possession of the United States when engaged in interstate commerce.

RIGHT OF PUBLIC SERVICE COMPANY OR STATE COMMISSION TO ALTER RATES FIXED BY CONTRACT. — II. The recent unprecedented increase in the costs of labor, materials, and capital has brought before the public utilities of the country the difficult legal question whether they may lawfully increase the prevailing low utility rates above a maximum fixed in unexpired long-term rate contracts with their patrons, or in municipal franchises under which they are oper

16 But see Henry Hall, "Federal Control of Railways," 31 HARV. L. REV. 860, 867. The writer seems not to distinguish between taxation of instrumentalities of the federal government which are private persons, and taxation of private property operated by and in the possession of the federal authorities. In either case he thinks express exemption from state taxation necessary.

17 United States v. Sutton et al., 165 Fed. 253 (1908). See 22 HARV. L. REV. 456. 18 See FREUND, POLICE POWER, § 85. See also 31 HARV. L. Rev. 1164.

19 M'Cullough v. Maryland, supra.

* The United States Supreme Court has upheld the imposition of internal revenue taxes on a state engaged in the liquor business on the grounds that this was not a governmental function and that state socialism should not be permitted to deprive the United States of its sources of income. South Carolina v. United States, 199 U. S. 437 (1905). These arguments will probably not prove so persuasive when the shoe is on the other foot. See I WILLOUGHBY ON THE CONSTITUTION, § 59; 19 HARV. L. Rev. 286.

1 Discussed in 32 HARV. L. REV. 74.

ating, so that the increased rates, reasonable under the new conditions, should apply equally to all members of the public receiving a like or substantially similar service.

In some states the law permitted the public utility proprietor to establish the increased rates, subject to the common-law power of the courts to pass upon their reasonableness, or subject to regulation by a statutory public service commission empowered to declare reasonable rates; but in the majority of states which have enacted modern public utility statutes no change in rates may be made by the utility without first obtaining an order of the state public service commission authorizing the new rate.4

A mass of litigation ensued upon this question before the state commissions and in the state courts, and the problem has recently been presented to the United States Supreme Court in a number of cases, many of which are still pending. Among those decided two especially deserve notice.

5

The first, Union Dry Goods Company v. Georgia Public Service Corporation, involved the legality of an order of a state commission, declaring certain increased rates for electric light and power to be reasonable and requiring the utility to enforce them, as applied to a patron who held an unexpired long-term rate contract fixing a lower maximum charge for the service. This contract had been made, however, subsequently to the effective date of the act creating the commission and empowering it to regulate such utilities. The decision of the Supreme Court of Georgia, upholding the order of the commission and denying specific performance of the contract, was affirmed by the United States Supreme Court on the ground that the regulation of public utility rates is a lawful exercise of the police power of the state not subject to control by any person or persons by contract or otherwise. A fortiori, where made while the regulating act was in force, such contract is not within the protec

6

2 See 2 WYMAN, PUBLIC SERVICE CORPORATIONS, § 1406.

3 Leiper v. Balt. & Phila. R. Co., 262 Pa. St. 328, 105 Atl. 551 (1918); Cincinnati v. The Public Utilities Com., 96 Ohio St. 270, 276, 117 N. E. 381 (1917). See 32 HARV. L. REV. 74. Under some state public utility acts, as under the federal Interstate Commerce Act, it is held that while the utility may initiate an original schedule of rates, increased rates may not be put into effect without the approval of the commission. State Public Utilities Com. v. Chicago & West Towns Ry. Co., 275 Ill. 555, 114 N. E. 325 (1916). Advances in Rates Western Case, 20 I. Č. C. R. 307 (1911).

4 Manitowoc v. Manitowoc & Northern Traction Co., 145 Wis. 13, 28, 129 N. W. 925 (1911); Sultan Timber Co. v. Great Northern R. Co., 58 Wash. 604, 109 Pac. 320 (1910). In a number of states such permission is expressly required by the public service statute, and in at least one state, even as to rates in existence prior to the date when the act became effective. Washington Public Service Commission Law, 1911, § 34 (GEN. STAT. 1915, §§ 8626-34). See 32 HARV. L. REV. 74, 77,

note II.

5248 U. S. 372 (1919).

6142 Ga. 841 (1914).

7 In V. & S. Bottle Co. v. Mountain Gas Co., 261 Pa. St. 523, 104 Atl. 667 (1918), discussed in 32 HARV. L. REV. 74, the contract was made prior to the effective date of the Public Service Act, and although treated by the court as valid when made, was held to have become inoperative and void when that statute went into effect, since by reason of the fixed rate it contravened the provisions of the act against discrimination. It would seem that the same principles are involved irrespective of whether the contract is entered into before or after the regulating act is in force.

8

tion of the contract clause, or the Fourteenth Amendment of the Federal Constitution.

In the second case, Columbus Railway, Power & Light Co. v. City of Columbus,10 the utility not being able under present-day, conditions to make a fair return on its investment " at the rates fixed by the unexpired long-term franchise which it had accepted as a condition of its right to operate within the municipality, and having in vain sought the city's consent to increased rates, declared that it surrendered the franchise, raised its rates, and brought suit to enjoin the continued enforcement of the street railway franchise ordinances fixing rates. The ground taken was that these ordinances constituted a deprivation of its property without due process of law. The United States Supreme Court, in affirming the decree of the federal district court dismissing the bill,12 held that as the Supreme Court of Ohio had construed the state statute 13 to expressly confer upon the municipality the power of making binding contracts of that character, both the city and the utility became bound thereby for the franchise period; 14 that the utility was not excused from the obligation of rendering service at the fixed rate by the unprecedented increase in costs, nor by the fact that the federal government through the National War Labor Board had greatly increased the wage scale, where the utility was still solvent, and, taking the franchise term as a whole, was unable to show that the contract would prove unremu8 "No state shall pass any . . . law impairing the obligation of contracts. . . ." Art. I, § 10, U. S. Constitution.

"Nor shall any state deprive any person of life, liberty or property, without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws." Art. XIV, Amendments U. S. Constitution.

10 249 U. S. 399 (1919).

11 Smyth v. Ames, 169 U. S. 466 (1898), upheld the right of a public utility to earn a fair return on its investment.

12 253 Fed. 499 (1918).

13 PAGE AND ADAMS, OHIO GEN'L CODE, §§ 3768, 3771.

14 Citing Interurban Ry. & Terminal Co. v. Public Utilities Com., 98 Ohio St. 287, 120 N. E. 831 (1918). In support of this interpretation of the Ohio statute the United States Supreme Court also referred to Cleveland v. Cleveland City Ry. Co., 194 U. S. 517 (1904), which construed similar Ohio statutes to have authorized the municipality to enter into binding contracts with a public utility company fixing rates for a definite period, and, therefore, the city could not subsequently reduce said rates within said term without violating the constitutional prohibition against the impairment of the obligation of contracts. To the same effect: Vicksburg v. Vicksburg Waterworks Co., 206 U. S. 496 (1907); also see Detroit v. Detroit St. Ry. Co., 184 U. S. 368 (1902); Georgia Ry. & Power Co. v. R. Com. of Georgia (Ga.), 98 S. E. 696 (1919); Milwaukee Electric Ry. & Light Co. v. Railroad Com., 238 U. S. 174 (1915); Home Tel. & Tel. Co. v. City of Los Angeles, 211 U. S. 265 (1908).

On the other hand, it has been held that a statute empowering the municipality to contract with public utilities for the privilege of operating therein, so far as authorizing the regulation of rates and service, is a delegation of the police power which the city has no right to contract away. City of Chicago v. O'Connell, 278 Ill. 591, 116 N. É. 210 (1917). In Portland v. Public Service Com., 89 Ore. 325, 173 Pac. 1178 (1918), the order of the State Public Service Commission increasing rates above the maximum specified in a street railway franchise was upheld upon the ground that the state, having exercised its police power in granting the franchise through the city as its agent, could withdraw that authority and vest it in the Public Service Commission, which as the state's representative in the exercise of said power could agree with the utility company to such a change in the contract without violating any constitutional rights of the city or its inhabitants. Acc. Robertson v. Wilmington & Pa. Traction Co., 104 Atl. (Del.) 839 (1918).