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Although a statute has been held to be unconstitutional which left it to the jury to determine whether or not a charge was excessive and unreasonable, in order to ascertain whether a penalty is recoverable, yet, where the action is merely for recovery of the illegal excess over reasonable rates, this is a question which is a proper one for a jury. (8 Am. and Eng. Ency. of Law, 935.)
The Iowa railroad commission act was attacked for uncertainty on the ground that it did not prescribe what should constitute a reasonable rate; but as the statute declared that the rate fixed by the commission should be prima facie evidence that it was reasonable, although the accused could show in defense that it was not reasonable, the supreme court of the State held that the statute was sufficiently definite, since the rate was fixed, although it was subject to attack in the courts. To the claim that the commissioners' rate would not secure the accused from conviction if it was excessive, the court declared that the State was precluded from denying that the commissioners' rate was a reasonable one. (Burlington, C. R. & N. R. Co. v. Dey, 82 Iowa, 312, 3 Inters. Com. Rep., 584, 12 L. R. A., 436.)
The same decision in substance was made on this question by Judge Brewer, then of the United States circuit court, in the case of Chicago & N. W. Ř. Co. v. Dey, 35 Fed. Rep., 866, 2 Inters. Com. Rep., 325, 1 L. R. A., 744.
The Illinois act providing that a charge by a railroad company of more than reasonable rates shall constitute extortion is held to be sufficiently definite when construed with another section which provides that the railroad commission shall make a schedule of reasonable maximum rates. (Chicago, B. & Q. R. Co. v. People, 77 Ill., 443.)
And the validity of this provision of the Illinois statute has been further established by the Illinois supreme court. (See Chicago B. & Q. R. Co. v. Jones, 149 Ill., 361, 4 Inters. Com. Rep., 683, 24 L. R. A., 141; Stone v. Farmers' Loan & T. Co., 116 U. S., 307, 29 L. ed., 636, deciding the same way the Mississippi statute.)
The Georgia statute is not violated unless the rates charged exceed those fixed by the Commission. (Sorrell v. Central R. Co., 75 Ga., 509.)
But, in order to constitute a crime, the act must be one which the party is able to know in advance whether it is criminal or not. The criminality of an act can not depend upon whether a jury may think it reasonable or unreasonable. ( (Tozer v. United States, 52 Fed. Rep., 917; 4 Inters. Com. Rep., 245.)
An inquiry whether rates of carriers are reasonable or not is a judicial act; but to prescribe rates for the future is a legislative act. That Congress has transferred to any administrative body the power to prescribe a tariff of rates for carriage by a common carrier is not to be presumed or implied from any doubtful and uncertain language. If Congress had intended to grant such a power to the Interstate Commerce Commission it can not be doubted that it would have used language open to no misconstruction, but clear and direct. (Interstate Commerce Commission v. Cincinnati, N. O. & T. P. R. Co., 167 U. S., 479; 42 L. ed., 243.)
In the case of Munn v. Illinois, 94 U. S., 113, 24 L. ed. 77, the Supreme Court of the United States, after a thorough review of the American and English authorities, has laid down the following fundamental principles governing public carriers and other quasi-public institutions:
1. Under the powers inherent in every sovereignty, a government may regulate the conduct of its citizens toward each other, and, when necessary for the public good, the manner in which each shall use his own property.
2. It has, in the exercise of these powers, been customary in England from time immemorial, and in this country from the first colonization, to regulate ferries, common carriers, hackmen, bakers, millers, wharfingers, auctioneers, innkeepers, and many other matters of like quality, and in so doing to fix a maximum charge to be made for services rendered, accommodations furnished, and articles sold.
3. The Fourteenth Amendment to the United States Constitution does not in anywise amend the law in this particular.
4. When the owner of property devotes it to a use in which the public has an interest, he in effect grants to the public an interest in such use, and must to the extent of that interest submit to be controlled by the public.
5. The limitation by legislative enactment of the rate of cha for services rendered in an employment of a public nature, or for the use of property in which the public has an interest, establishes no new principle in the law, but only gives a new effect to an old one.
Thus the highest court has permanently established the broad principle that the public have the right to regulate charges in all enterprises affected with a public use. To this doctrine all the courts have steadfastly adhered. In this leading case it was also held that the courts had no right to interfere with the rates fixed by the lawmaking power. This doctrine, however, has been since somewhat qualified in the case of Reagan v. Farmer's Loan and T. Co., 154 U. S., 412; 38 L. ed., 1028; 4 Inters. Com. Rep., 1028, and other cases there cited, where it is held that when rates are confiscatory the courts may so declare, and relegate the matter back to the lawmaking power for new rates, by which a reasonable profit is left to the carrier. But the principle that the legislative power, either directly or indirectly, through a commission, can fix rates of freight and passenger traffic within this constitutional limitation, has been uniformly upheld in all the decisions of the United States Supreme Court upon this subject.
ADDITIONAL STATEMENT OF E. P. BACON.
Mr. Bacon. I want to say a few words further in regard to a question that has been raised as to furnishing bond pending the determination of a case before the Interstate Commerce Commission. It must be borne in mind, in considering this question, that the party who pays the freight, as a general thing, is merely a middleman. He has no direct interest in it. He pays the freight and passes that additional cost along to the prices of the goods which he handles, and the total cost is finally borne by the consumer. Or, in the case of agricultural products, the freight rate that is charged is deducted primarily from the value of the property at the point of shipment, and in that case falls upon the producer.
The CHAIRMAN. It conies off of the one or the other.
Mr. Bacon. In either case the man who pays the freight has no interest in it. That statement will probably cover 99 per cent of the traffic of the country. So that while the case is pending and the rate continues to be charged, there is no possibe way of protecting the party who sustains the injury. He can not be reached. He can not be known, in the first place, and if he could be, such cases would be so numerous that it would be next to an impossibility to indemnify the loser.
That fact places the matter of freight charges in an entirely different position from all other questions that arise in litigation, and necessitates, consequently, entirely different treatment. One party or the other has got to suffer; the carrier will suffer if the decision of the Commission was wrong, and it is afterwards reversed, and the order is operative from the time of its issuance; and in the opposite case it will be the consumer or producer, as the case may be, wbo suffers. On the one hand it is the producer, and on the other it is the consumer who must suffer. So that it is a question of relieving the greatest sufferer-relieving the public, who are in fact the sufferers in case of excessive rates-relieving it from the necessity of bearing that burden throughout the long continuance of these cases in the courts.
I want to say one word further as to the necessity of this legislation at the present time, which necessity is increasing from year to year, arising from the fact of the enormous consolidation of railway interests during the past two years, and which is now going forward. The fact is that the greater proportion of the aggregate mileage of the railroads of this country, some 200,000 miles, is under the control of five or six syndicates, so called, controlled mainly by as many individuals; that is, five or six individuals have obtained the operating control of three-fifths of the railway mileage of the country; and that process is still going forward. It is stated that there is a scheme now under way for the consolidation of the four or five most important Western railroads, aggregating about 20,000 miles, which scheme is expected to be carried out. Another scheme is in progress in the South that
will take 10,000 or 12,000 miles more. So that we shall have 150,000 miles under the control of the very same individuals where they own a majority of the stock and control it in that way, or where the control is obtained by holding companies, as in the case of the Northern Securities Company, about which we have heard so much. This presents a phase that should commend itself to the serious consideration of legislators. Here is this vast railway traffic of the country coming into the control of five or six men.
And in connection with this process of consolidation I want to call attention also to the increase of capitalization. Where railroads have been purchased by other corporations, or consolidated, in almost every case the capitalization has been very largely increased. Take, for instance, the Chicago and Alton, which was purchased by a syndicate about two years ago. It was capitalized at $30,000,000, and it was purchased by the syndicate for $40,000,000, subject, however, to $8,000,000 of the underlying bonds. But it was capitalized by the new corporation at $94,000,000. The original capitalization was $30,000,000. The road evidently had a high value, for they paid $40,000,000 for it, and the new organization was capitalized at $94,000,000.
The Northern Securities Company very largely increased the capitalization of the two railroads which were included in that consolidation-some 60 per cent, I believe. I have the figures, but I will not take the time to look them up.
But in all those cases of reorganization and consolidation the capitalization has been immensely increased. There has been for the past year, and there seems to be now, almost a mania on the part of large capitalists to obtain possession of railroad property, get it under their control, by means of which they can force such rates as will afford them very large profits. All this extra capitalization is effected, of course, with the expectation that the returns from the operation of that property will be sufficient to pay proper dividends upon the increased capitalization. That must be evident.
Now, it seems to me that these facts render it evident that this subject is one that requires proper and prompt legislation on the part of Congress to protect the people from the improper exercise of this great power to increase charges upon the transportation of the property in which every individual in the country is interested.
Senator KEAN. Is it not a fact that after all these consolidations have been effected the rates have been reduced ?
Mr. Bacon. That is the general impression, but I have found from an examination of the figures that such is not the case. The rates on merchandise two years ago were increased by general agreement among the various railroad companies.
Senator KEAN. On account of the increased cost of handling.
Mr. Bacon. Nevertheless, the increase of business was far greater than the increase of capitalization. The statistics which have been procured by the Interstate Commerce Commission in regard to the results of these operations show that the average earnings per mile were greater during the year 1900 than during the ten previous years, and that the net earnings of the roads were also greater than the average of the preceding
ten years. Senator KEAN. They were better operated also than ever before.
Mr. Bacon. They were undoubtedly operated at a less cost. But that should tend to reduce rates, instead of increasing them. The
public should have the benefit of such decreased cost of operation as it is possible to effect.
Senator KEAN. Everything else has advanced in price. Not only have the rates advanced, but the commodities that the railroads carry have advanced in price in every way, have they not?
Mr. Bacon. The prices of materials have advanced, to be sure. But the increased volume of the traffic more than compensates for the increase in the value of the freight transported.
Senator KEAN. To what extent have wages advanced in that time?
Mr. Bacon. I can not tell you the percentage, but I have given you the result.
Senator KEAN. They have advanced.
Mr. BACON. They have advanced. One result of the operations of the railroads has been very largely increased profits, dividends, and surplus during that period of two years.
And, by the way, I will say right here that I have ascertained from figures furnished by the Interstate Commerce Commission that the amount carried to surplus accounts by the railroads of the country during the past two years, after paying interest and dividends, and after making large expenditures for permanent improvements, aggregates $165,000,000.
Senator KEAN. Is not the same true of nearly all other kinds of business in the United States-that they have had large surpluses in the last two years?
Mr. Bacon. There has undoubtedly been a large surplus earned. But railways perform a public service, and that service should be performed at a fairly remunerative rate, affording a fair return upon the capital invested.
I cite this matter in order to show the possibility that is before usin fact, the probability which confronts us-of a further increase of railroad rates in consequence of this extensive consolidation, and the necessity of providing some corrective, some supervisory control, to prevent abuses of that power at the expense of the people.
The committee adjourned.
EXTRACTS FROM THE PRESS.
New York Mail and Erpress.—The whole matter of regulating interstate commerce is in a state of chaos, though the power of Congress is unqualified, and so far as it is exercised excludes any State interference. Why should it not put an end to the confusion caused by the incorporation laws of different States, and tangling interstate commerce up in a jungle of constitutions and statutes that it will take the most astute lawyers and jurists years to make their way through? Why should not the powers and obligations of corporations engaged in interstate commerce be defined by one clear statute of national authority ?
New York Evening Post.—The Merchants' Association of New York indorse the Nelson-Corliss bill, because it restores to the Interstate Commerce Commission the powers originally intended to be conferred, of which it has been stripped by the courts. The decisions of the Commission now, the memorial states, amount to nothing more than mere propaganda, having no binding effect upon any person or corporation, either as shipper or carrier. 1. It is the big shippers who are in terror lest something should be done by Congress to rob them of their special privileges, and they are speading broadcast the stories of popular discontent with the course of the Administration in enforcing the laws. The railroad companies, those, at least, with progressive men at their heads-are making no fuss at all, but merely expressing their hope that in proceeding with its prosecutions and injunctions the Government will treat all offenders alike, so as not to cast an undeserved stigma upon any one road or group of roads, even for the purpose of getting a test decision.
New York Times.- With an effectual supervision by the Government, directed to the enforcement of publicity and reasonable equality of rates, the tendency would, we are confident, be toward progressively lower rates.
New York Railway News.-Some effective remedy for the intolerable conditions which prevail under the interstate-commerce law to-day must certainly be provided.
Wall Street (New York) Journal.-Our belief is that a permanent solution of the railroad question can only be reached on lines which place the ultimate control of rates in the hands of the public's representative and place in the hands of the railroads the machinery necessary for the maintenance of those rates and the avoidance of discrimi. nation.
The railroads at this moment stand in serried ranks, facing the law, and the settlement of the present dispute involves a settlement on first principles. Abuse of the railroad interests, on the one hand, and of the Interstate Commerce Commission, on the other, at this time is puerile. The former may have been guilty of imprudent action and the latter of dereliction of duty, but these are small matters when questions of first principles have to be settled, as they have at present. Looking at the situation as it exists to-day, we believe that the railroads must, sooner or later, surrender the rate-making power to the Government. By doing so now we believe that they can secure the right to protect themselves in the conduct of their business. Later it may be difficult, if not impossible, to do so.
Many people who are studying this matter are blind to one very important fact, which is that the people are taking alarm over recent events, and that they will demand some kind of protection from Congress. The wiser heads in the railroad world see that there is a chance now, by conceding Government control over rates, to secure Government protection for organization. They see that sooner or later the public will demand rate control, and they see that if that demand be refused it will eventually be enforced without corresponding protection being given.
The Interstate Commission is the natural and proper machinery for bringing about the necessary change in the law. It is absurd to say that an appointive commission can not be trusted to be honest, and it is equally absurd to say that it must necessarily act in a foolish manner, even if it be not actuated by corrupt motives. We fancy that it would be difficult to persuade the average shipper that the danger to him from corruption of public officials is necessarily greater than the danger arising from the self-interest of powerful financiers and corporations.