of business, but whether in each particular transaction the charge is an unreasonable exaction for the services rendered. He has a right to do business. He has a right to charge for each separate service that which is reasonable compensation therefor, and the legislature may not deny him such reasonable compensation, and may not interfere simply because out of the multitude of his transactions the amount of his profits is large. Such was the rule of the common law, even in respect to those engaged in a quasi-public service, independent of legislative action. In any action to recover for an excessive charge, prior to all legislative action, who ever knew of an inquiry as to the amount of the total profits of the party making the charge? Was not the inquiry always limited to the particular charge, and whether that charge was an unreasonable exaction for the services rendered?”

It is necessary to point out the dangers in the language used in this case. The idea is put forward that what a public service company is entitled to is a reasonable profit upon each transaction if it can get that by charging no more than the service is worth to the patron. Suppose it were granted that a railroad company could make seven per cent. profit upon each shipment handled by it over and above every cost apportionable to that shipment, it would have indefensible results. A great railroad system might make dividends of many hundreds of per cent. while a small road was losing money in its operations. What each railroad is properly entitled to is gross receipts from all traffic sufficient to pay a fair return upon its reasonable capitalization, provided it may do so without charging outrageous rates; to this extent the large system and the small system are alike before the law. Whatever economies there may be in large scale operation belong to the public which authorized the business upon that scale subject to the established law that those who conduct it should have no more than a fair return upon their invest

ment.

§ 521. Discussion of Canada Southern Railway v. International Bridge Company.

The same rule appears to have been the basis of decision of the Judicial Committee of the Privy Council in the case of Canada Southern Railway v. International Bridge Company.9 This was a suit in which the railroad claimed that the bridge company was charging it too high a toll for the transportation of passengers across the bridge, the toll charged being ten cents for each passenger. Lord Selborne said: "It certainly appears to their Lordships that the principle must be, when reasonableness comes in question, not what profit it may be reasonable for a company to make, but what it is reasonable to charge to the person who is charged. That is the only thing he is concerned with. They do not say that the case may not be imagined of the results to a company being so enormously disproportionate to the money laid out upon the undertaking as to make that of itself possibly some evidence that the charge is unreasonable, with reference to the person against whom it is charged. But that is merely imaginary. Here we have got a perfectly reasonable scale of charges in everything which is to be regarded as material to the person against whom the charge is made. One of their Lordships asked counsel at the bar to point out which of these charges were reasonable. It was not found possible to do so. In point of fact, every one of them seems to be, when examined with reference to the service rendered and the benefit to the person receiving that service, perfectly unexceptionable, according to any standard of reasonable ness which can be suggested."

In this case the court pointed out a necessary limitation of the rule; if the income of the company from the rates is so great as to give an unreasonably great profit to the company upon all its operations, it will be inferred that the rates, though prima facie reasonable, must be too high. Thus in the Niagara Gorge

28 App. Cas. 723, B. & W. 315 (1883).

case, while fifteen per cent. was not an unduly high rate of profit for so hazardous an investment, one hundred per cent. would doubtless have proved that the individual rate was too high, even though it was reduced neither by competition nor by the limit of desire of the traveller. So in the Kansas City Stockyards case. While eighteen and one-half cents seemed in itself reasonably cheap for the care and feeding of an animal, and was so where the net profit was less than five per cent., the finding might have been different if the seemingly reasonable individual rates had in the aggregate brought in a net profit of fifty per cent.

§ 522. Principles of usual rates peculiarly applicable to passenger fares.

The principle of permitting the railroads under ordinary circumstances to charge usual rates of fare is particularly useful in dealing with the validity of passenger fares. There are certain standards of what will constitute a not unreasonable charge per mile for a passenger in most communities which it can hardly be shown to be unreasonable to maintain. Thus in one proceeding 10 the Interstate Commerce Commission said: "We cannot find upon this record that $1.10 is an unreasonable charge from Niagara-on-the-Lake to Buffalo. This is a branch line of the defendant and the case does not show density of traffic, nor the circumstances under which the passenger service is performed. It simply appears that a rate of 3 cents per mile. is imposed. While lower rates are in force in many parts of the United States, it is also true that there is hardly any section of the country in which a rate as high as 3 cents per mile is not charged for a local service of this distance. The fact that a rate of 85 cents is made during the summer season to meet competition via Lewiston is not controlling, nor is the further fact that the New York Central under compulsion of law establishes a rate of 2 cents per mile from Lewiston to Buffalo. We do not

10 Cist v. Michigan Central Ry., 10 I. C. C. Rep. 217 (1904).

find that this rate is reasonable; we simply fail to find that it is unreasonable, as there is no evidence in the record upon which an intelligent judgment can be formed. This is a most unsatisfactory disposition of the question, and if the case were of wider application, or the subject of more general complaint, it would be our duty to proceed on our own motion to develop the necessary facts."

TOPIC D -RATES BASED UPON VALUE OF SERVICE TO THE

SHIPPER.

§ 523. What the traffic will bear.

It is sometimes suggested that the value of the service to the customer is "what the traffic will bear," 1 that is, what he will be willing to pay rather than lack the carrier's service. In one sense, the service is worth what one will pay for it. This is the rule which always appeals to the company as fair and just. And indeed this consideration has some place in every philosophy of rate making; although it is submitted that it is a dangerous principle which may often operate to the disadvantage of the public unless it is much modified in many cases. So necessary is some such principle felt to be by traffic managers that it will always be found to be continually employed in rate making; and this is one of the prime causes for the necessity of governmental revision, for the protection of the public, of the rates established by the carriers. The real truth of this matter seems to be that the policy of charging what will produce the largest volume of business is fundamental in private businesses, but often opposed to the law governing public businesses. "Another reason assigned by the carriers for these advances in grain rates was difference in traffic conditions. It was said that competition was less active, and that rates could therefore be maintained. We think that herein is found a substantial reason why these

1 Charging what the traffic will bear has been discussed to some extent elsewhere. See §§ 481-482, supra.

rates could be advanced and maintained; whether it be also a reason why they should be is another matter." 2

524. Legal limitations upon this principle necessary.

It is urged sometimes that this principle of charging what the traffic will bear contains its own safeguards; for if more is charged than the value of the service to the shipper shipments will cease, and traffic managers, realizing this, as they are in close touch with the situation, will never intentionally or permanently charge more than the transportation is worth to the goods carried. The answer to this seems to be that many shippers will pay for the transportation of most goods more than the true value of the transportation if that is necessary in order to get their goods to market. They will shift this undue burden upon the consumer if they can, and if not they will be obliged to forego a part, or in extreme cases all, of their legitimate profit in order to get their products sold at all. The quotation in the next sentences brings this out. "It is clear, therefore, that the mere fact of the need of additional revenue to meet increased expense does not justify the advance in the rate on lumber. It is said by the witness above referred to that lumber was selected because it was thought lumber would bear the advance. This excuse for selecting lumber is based upon the erroneous idea, hereinbefore alluded to, that any rate is justifiable under which 'the traffice will move.'

§ 525. Limit of value of service not necessarily limit of charge.

It is clear, at any rate, that the charge is not necessarily limited to the advantage which the customer derives from the service. Thus where farmers in the west were shipping their grain for sale to the eastern markets, and they complained of the

2 Re Proposed Advances in Freight Rates, 9 I. C. Rep. 382, 391 (1903). 3 Tift v. Southern Ry., 10 I. C. C. Rep. 548, 586 (1904).