Edson v. Southern Pacific R.R. Co.

BEATTY, C. J. The defendants in this action are railway corporations and are respectively the owner and lessee and operator of a line of railway extending from San Francisco to Fresno, in this state. It is alleged that having lowered their rate for the transportation of passengers between said points for the purpose of competing with another railroad corporation, also engaged in transporting passengers between the same points, they afterwards raised said rate without the consent of the plaintiffs, in violation of that provision of section 20 of article XII of the state constitution, which reads as follows:— “And whenever a railroad corporation shall, for the purpose of competing with any other common carrier, lower its rates for transportation of passengers or freight from one point to another, such reduced rates shall not be again raised or increased from such standard without the consent of the governmental authority in which shall be vested the power to regulate fares and freights.” The object of the action is to compel the defendants to restore the lower rate, by enjoining them from collecting any higher rate. The defendants deny that they have ever lowered their rates for the transportation of passengers within the meaning of said provision of the constitution, and contend that even if their acts could be held to have transgressed ■its terms or intent, this action must nevertheless fail for the reason that the provision quoted is violative of the rights secured to them, and all other persons, by the fourteenth -amendment to the constitution of the United States. *185 Both of these defenses were sustained by the superior court. From the facts found by him the judge concluded that there had been no lowering of rates within the meaning of the provision in question, and he also held that the provision itself was void by reason of its conflict with the fourteenth amendment to the federal constitution. Judgment was accordingly entered in favor of the defendants, and the cause is now here on appeal from that judgment and from an order denying the motion of plaintiffs for a new trial. From the manner in which the case has been presented in the briefs and in the oral argument of counsel, we conclude that no importance is attached to the appeal from the order, since the discussion is based entirely upon the facts as admitted by the pleadings or found by the court, among which, however, are not included such general conclusions of fact as may be found inconsistent with the more specific findings. This being so, the findings themselves will clearly present the ease to be decided. They are as follows:— “1. “For some time prior to July 18th, 1898, the San Francisco and San Joaquin Valley Railroad Company owned and operated a line of railroad between Fresno and Stockton, this state. By arrangement with an independent line of steamers running from Stockton to San Francisco, said railroad company established a through first-class unlimited passenger rate between Fresno and San Francisco of $3.75, which was in effect upon said date (and continued until December 9th, 1898, when said rate was withdrawn). “2. “On July 18th, 1898, and for many years prior thereto, defendant Southern Pacific Railroad Company owned, and defendant Southern Pacific Company, as its lessee, operated, a line of railroad from Stockton to Fresno, and another all-rail line from San Francisco to Fresno. “3. “Prior to said date defendant Southern Pacific Company charged, as a first-class unlimited passenger rate, with all the incidents prescribed by law, on its all-rail line between San Francisco and Fresno, $5.90, which rate was regularly established by the board of railroad commissioners of this state, and has not been modified by said board. *186 “On said date defendant issued its circular 86 referred to in the complaint, hut said circular did not purport to modify or reduce the rate last aforementioned, or any rate on the first-mentioned line of railroad of said defendant between Stockton and Fresno, but purported to and did offer to the public over said last-mentioned all-rail line between San Francisco and Fresno, a rate of $3.75 for first-class passenger travel, subject to the following limitations and conditions, viz.: that the tickets issued thereunder should be good only on the day of sale, or upon such date as the agent selling the same should punch in the margin or stamp on the back thereof, that continuous passage must be made and no stop-over privileges be allowed thereon; that liability for baggage should be limited to the sum of one hundred dollars, and no baggage should be checked thereon to any point short of the ultimate destination named therein. “4. “That all of the tickets issued between San Francisco and Fresno by said defendant at the rate of $3.75 contained said limitations and conditions plainly printed upon their face, and said defendant at all times strictly insisted upon the observance of said limitations and conditions, and all passengers purchasing and using said 'tickets accepted and used the same subject thereto. “5. “That on the 20th day of March, 1900, said defendant withdrew and discontinued said rate of $3.75 and the issue of the special limited tickets aforesaid. “6. “That during the whole of said period between the 18th day of July, 1898, and the 20th day of March, 1900, the first-class unlimited passenger rate of $5.90 first hereinbefore mentioned was in force and effect, and was not withdrawn by said defendant, but unlimited first-class passenger tickets, at said rate, with all their legal incidents, were at all times kept for sale by said defendant, and were, in fact, during the whole of said period sold by it to such persons as desired to purchase the same. “7. “That the limitations and conditions contained as aforesaid in said tickets sold at the $3.75 rate constitute substantial *187 differences from the service rendered, and materially diminish the accommodations and privileges to which a passenger would be entitled, under the $5.90 rate. “8. “That the $3.75 rate, with its inferior accommodations and privileges, was put into effect for the purpose of competition with the San Francisco and San Joaquin Valley Railroad Company, but by reason of the difference in service, and the fact that the $5.90 rate was at all times kept in force and tickets sold and kept for sale thereunder, said $3.75 rate was not a reduction of or substitute for the $5.90 rate. “9. “That at no time during the whole of said period from July 18, 1898, to March 20, 1900, did the defendant lower its rates of transportation of passengers, nor has it since said period raised or increased said rates. “10. “That during all said period from July 18, 1898, to March 20, 1900, the unlimited passenger tickets mentioned in finding No. 6 were at all times in good faith kept for sale and sold by defendants and used by purchasers thereof in accordance with and with the full benefit of the privileges conferred thereby.” Nos. 7 and 9 of these findings and the latter part of No. 8 are not treated by plaintiffs as findings of fact, but as mere conclusions drawn from the specific facts found, which, according to the argument of counsel, involve an opposite conclusion. This contention raises the first question to be considered, for if we should agree with the judge of the superior court that there has been no infraction of the state constitution there would be no occasion to inquire whether there was a conflict between it and the federal constitution, for courts do not go out of their way to decide constitutional questions even when nothing more is involved than the validity of a clause of an act of the legislature, and still less will they go to the extent of declaring void an important provision of our fundamental law in a case which demands no consideration of the question. What, then, is a lowering of rates within the meaning of the constitution ? *188 To answer this question is must first be determined what are the rates to which the constitution refers. We think it clear that it refers to and comprehends all established rates for ascertained services, whether those prescribed by the railroad commissioners or fixed by the corporation themselves within the maximum so prescribed. We do not understand that the railroad commissioners do more than to prescribe the maximum charge allowable. Within that maximum a corporation may establish its own rates, but whether it charges the maximum or less, it must have some established rate of fare, upon tender of which a passenger may demand a ticket entitling the holder at any time within six months to ride from the place of purchase to the depot of destination or to any intermediate station with the right to stop over, and afterwards, within the six months, resume his journey. (Civ. Code, sec. 490; Robinson v. Southern Pacific Co., 105 Cal. 526.) Subject, however, to this strict obligation to provide and furnish what may be called an unlimited ticket—a ticket which secures to the passenger the stop-over, and other statutory privileges—it is conceded that a railroad corporation may issue a limited ticket if the passenger in consideration of some abatement of the regular rate is willing to contract for a curtailment of the statutory privileges. Such a rate, we suppose, if regularly established and offered to the public generally, would come within the meaning of the constitution. This, however, is a question which does not call for a decision in the present case. The defendants are not charged with having first lowered and- afterwards raised their rates on limited tickets; their offense, if any, consists solely in the fact that for the purpose of competing with another railroad they sold to all persons desiring them limited tickets for $3.75 when the regular fare for unlimited tickets was $5.90, and that afterwards they withdrew the limited tickets, with the necessary effect of compelling all "passengers to pay the higher rate. In form it must be conceded this was not a lowering of the established rate. It was merely the fixing of a different rate for a different service—a lower rate for an inferior service. But for the purpose of giving effect to a statute, and a fortiori for the purpose of enforcing a provision of the constitution, it is the substance, not the mere form, of a transaction *189 that must be regarded, and to determine whether there was in this instance a substantial reduction of the rate of passage between San Francisco and Fresno we must look beyond the terms of the limited tickets to the conditions affecting the traffic for which the rival companies were competing. The statutes of the state secure to the purchaser of an unlimited ticket the right to travel over the designated route at any time within six months. To a passenger who happens to be delayed in starting, this is a privilege of substantial value. An unlimited ticket is good during the six months in the hands of any holder, and to a purchaser who desires, or is compelled, to abandon his journey the privilege of transferring his ticket is of substantial value. A passenger bound to a distant station sometimes desires to stop over at an intermediate station, and if the through fare is less per mile than the local fares the privilege of stopping over and afterwards resuming his journey is of substantial value to him. A passenger carrying baggage of considerable value might prefer to pay the full price of an unlimited ticket rather than enter into a contract limiting his recovery in case of loss to one hundred dollars. In a legal sense, therefore, it cannot be denied that each of the privileges secured to the purchaser of an unlimited ticket, and relinquished by the purchaser of a limited ticket, was a substantial and valuable one. But we suppose a court may take judicial notice of facts of common knowledge, and, among others, of the fact that but a small percentage of those traveling between places of the relative situation of San Francisco and Fresno have any occasion to avail themselves of all or of any of the privileges which purchasers of limited tickets were compelled to stipulate away. The evidence in this case shows without contradiction that during the time both classes of tickets were kept on sale fully ninety-five per cent of the travel between San Francisco and Fresno was upon limited tickets at the $3.75 rate. This may not sustain the conclusion that to nineteen passengers out of twenty the privileges secured by the unlimited ticket were of no pecuniary value, but does clearly prove that they were to that number worth less than the difference between the two rates, and to many no doubt worth nothing at all. Assuming this to be so, it destroys the force of the proposition upon which respondents base their argument. They say that *190 “the only possible way to lower a rate is to charge less for the same service.” This may he conceded, but if it happens that the extra service demandable by the holder of an unlimited ticket is one which he seldom needs and rarely exacts, the limited ticket in fact secures to the principal portion of the traveling public the same service secured by the unlimited ticket, and the rate fixed for the limited ticket is practically, for all purposes of competition, the only rate for the services ordinarily rendered. In view, therefore, of the conditions actually prevailing, the defendants did make a lower rate for the same service, as to a portion, and it would appear, a very large portion—of the traveling public—a portion certainly important for purposes of competition—which is the controlling consideration in construing and applying this provision of the constitution. So far as that portion of the public which makes no use of the privileges attaching to the unlimited ticket is concerned, a lowering of the rate, coupled with the restriction of the privileges, is an absolute lowering of the rate, and even as to others it is a lowering of the rate unless the privileges withdrawn are the pecuniary equivalent of the reduction in the price. The fact that the old regular ticket was kept on sale at the old rate of $5.90 does not invalidate this conclusion. If I have been offering to perform a certain service for ten dollars, and afterwards offer to perform a nominally different but substantially identical service for five dollars, I cannot deny that I have lowered my rate merely because I have proclaimed my willingness to accept the old rate from those who are willing to pay it. If two rates are offered for what to nineteen men out of twenty is the same service, the lower rate as to the nineteen is the only rate. Now, the meaning of the constitutional -provision is sufficiently clear if its terms alone are considered. It was intended to secure legitimate competition by preventing railroad corporations from reducing fares below remunerative rates for the purpose of crushing weaker rivals, and thus securing a monopoly. To accomplish this object they are warned that if for the purpose of competition they establish a confiscatory rate they cannot raise it again without the consent of the state. This construction seems to assert itself in the very language of the provision and is fully confirmed *191 by the debates in the constitutional convention. If this view is correct it can hardly be denied that a rate has been lowered within the meaning of the constitution merely because it has been retained as to a fraction of the traveling public. For, obviously, if the rates and conditions are so arranged by the corporation that the privileges withdrawn are of very little value to any, and of no value to most passengers, the very thing can be accomplished which it was the evident intention of the constitution to prevent. The argument is, and of course must be, that the terms of the contract contained in the limited ticket are the subject of arrangement between the company and its patrons exclusively. It can give as large a reduction as it chooses for the relinquishment of all privileges beyond mere transportation, and it can give as large a reduction for the surrender of a single least valuable privilege as for all privileges, for in point of law the relinquishment of a single privilege is as good a consideration for a contract as the surrender of all privileges. The only alternative to this proposition is, that the courts may scrutinize the terms of the limited ticket and may inquire into the conditions surrounding the traffic for the purpose of determining whether what purports to be a special contract for inferior services is not in reality a lowered rate for the same, or substantially the same, service. If this cannot be done one of two things must follow: either that the constitutional provision in question is a . dead letter or else that all such contracts are forbidden. In the Robinson case it was assumed, and we think correctly assumed, that such contracts are lawful, but if the effect of holding such contracts lawful would make the law defeat the constitution we should feel constrained to modify the opinion then expressed, for a law, whether enacted by the legislature or evoked by construction of the courts, can never nullify the constitution. We do not, however, concede the existence of any conflict between the constitution and what was said in the Robinson case. Contracts for limited tickets are valid, but in a controversy of this complexion the courts will look behind the form of the transaction to determine whether such contract offered to the public generally amounts in fact to a lowering of rates. In so holding we do not question the legal principles for which the respondents contend. We concede that *192 the same principles and rules of construction are to be applied to the constitution as to a statute, that the power reserved to the state to interfere with the right of contract is not to be extended or enlarged by implication, and that the only case to which this provision of the constitution is to be applied is an actual lowering of rates. We do not, however, concede that the lowering of a rate for the purpose of competition, such as is found in this case, ceases to be such merely because it is coupled with restriction of privileges. Whether it does or not depends upon the value of the privilege as compared with the extent of the reduction in any case; and still more, it depends upon whether the privileges withdrawn are by any considerable number of passengers exercised or claimed; whether, in other words, the privileges so withdrawn represent any service actually rendered on one side or claimed on the other. The only difficulty in applying this doctrine to the present case arises from the fact that according to the findings of the superior court (No. 9) the defendant did not lower its rate. If this finding is to stand as a finding of fact, it ends the case so far as the appeal from the judgment is concerned, and the plaintiffs would be compelled to fall back upon their appeal from the order denying a new trial, regarding which, as-above stated, nothing has been said in the argument. But we think finding No. 9 is merely a conclusion drawn from the specific facts found and inconsistent with those facts if, as we have above assumed, we are authorized to take judicial notice of the notorious fact (fully proved, but not found in this case) that comparatively few persons exercise or claim the privileges, or any of them, denied to purchasers of limited tickets. The great majority of persons traveling back and forth between San Francisco and points in the interior of the state purchase their tickets at the time of starting and have no desire to transfer them or to stop over at intermediate stations. If their baggage sometimes exceeds one hundred dollars in value the risk of loss is so slight that the premium on insurance against loss would be a trifle. To save two dollars and fifteen cents on a fare to or from Fresno by taking a limited ticket would be a clear gain of that amount—not perhaps to nineteen out of twenty passengers, but certainly to so large a number as to count heavily in the matter of com *193 petition. If this is so the conclusion set forth in findings Nos. 7, 8, and 9 cannot stand. They depend necessarily, and are clearly made to depend, upon the assumption that the privileges demandable by the holder of an unlimited ticket stand for service rendered; but this is true only in the comparatively infrequent cases in which the service is required. In the great majority of cases the service is not rendered, and for all such eases the $3.75 rate was practically a substitute for the $5.90 rate. Counsel for respondents have not on the present appeal renewed their former contention, that the limited tickets sold for $3.75 were the “excursion or commutation” tickets referred to in section 21 of article XII of the constitution, and it "is perhaps unnecessary to make any reference to that provision. It is sufficient to say, that in our opinion the last clause of section 21 was not intended to modify section 20 in any respect, but is simply a qualification of the preceding clause of the same section. The two sections embrace distinct-subjects. The first deals with pooling and competition between independent transportation companies. The second with discriminations between persons and places by the same company. To prevent discrimination between places it is provided by section 21 that no greater charge shall be made for transportation over a shorter distance than is made for a longer distance, including the shorter. As a qualification to this provision, and for no other purpose, the proviso as to excursion and commutation tickets is added, leaving the provision of section 20 as to competition between rival lines entirely unaffected. For the reasons and upon the grounds stated, we hold that the defendant the Southern Pacific Company did lower its rate from $5.90 to $3.75, within the meaning of the constitution. But was the rate lowered for “the purpose of competing with any other common carrier” within the meaning and intent of that qualifying clause Í In the ordinary sense of the word, no doubt the rate was lowered for the purpose of competition, and the superior court has found as a fact that what we have held to have been, in substance though not in form, a lowering of rates was for the purpose of competition. But if we consider the evident intent of the provision in question, *194 and more especially if we consider the circumstances and history of its adoption, it is clear that the act of the defendants was not such as the framers of the constitution, or the people who adopted it, had in view, or intended to punish. The whole object of the provision was to foster legitimate competition by preventing destructive competition. Its framers evidently anticipated that a more powerful corporation for the purpose of securing a monopoly of traffic might sometimes be tempted to lower its rates to a point where they would cease to be remunerative, and keep them there until its weaker competitors were driven from the field, after which it would raise its rates above the point at which they could be sustained in the presence of legitimate competition. It was no part of their design to punish a corporation for merely lowering its rates in self-defense to meet a lower rate inaugurated by a rival carrier, and that is all that the Southern Pacific Company is found to have done in this instance. It is the corporation which lowers its rates for the purpose of destroying a rival, not the one which for the mere purpose of self-preservation meets the rate which the act of the other constrains it to adopt, that is the proper subject of the penalty imposed by the constitution, and this case is itself an illustration of the injustice and evil which might result from' adhering to the literal terms of the constitution in disregard of the broad policy it was designed to promote. Or take this illustration: There is an operating line of railway between two points with established rates of fare. A parallel and competing line is constructed and at the start its rates are made so much lower as to be unremunerative. If it is backed by sufficient capital it may by this means drive the rival company out of the field, and after securing the monopoly may, without incurring any penalty, immediately raise its rates to the maximum allowed by the railroad commission. But if the attempt to destroy the old line has failed—if by lowering its rate to meet the rate established by its rival the old line has secured enough of the traffic to preserve its existence, it cannot without the consent of the railroad commission restore a remunerative rate .although the real transgressor of the policy of the constitution may. We do not think the constitution should be given a construction which would allow it to operate so unjustly and so contrary to its spirit and in *195 tention. Properly construed and limited in its operation, it subserves a policy which the people of the state approve, but by adhering too strictly to its literal terms it may be reduced to a dead letter by regarding merely the form of the limited ticket, while- shutting our eyes to the conditions of railroad traffic, or, on the other hand, it may be made to defeat the very policy it was designed to promote. The same principle of construction should be applied to the phrase “for the purpose of competing” that is applied to lowering of rates. Each should be construed. with reference and in subordination to the main purpose and policy of the constitution. A substantial lowering of the rates should not be allowed to pass unchallenged under the disguise of limited tickets, and, on the other hand, a corporation which merely meets a lower rate previously established by a competing carrier should not be held to have lowered its rates for the purpose of competition within the true meaning of that expression. We think the judgment and order of the superior' court should be affirmed, not because the rate was not lowered, but because it was not lowered for the purpose' of competition within the proper construction of the constitution. It is so ordered. Angellotti, J., Shaw, J., and Van Dyke, J., concurred.