Pennsylvania Railroad v. Philadelphia County

Opinion by Mr. Chief Justice Mitchell, It may be conceded that the legislature has a power of supervision over corporations exercising quasi public functions, — 111 — which in general includes the right to regulate the rates and charges of railroads as common carriers. The principles on which the right is based as well as its extent and limitations have, however, been very broadly assumed, and in many the recent cases without adequate consideration of the exceptional nature of this legislative power exercised in derogation of the fundamental principle that the management of property belongs to its owner. But it is not necessary to discuss this point. Attention has been called to it merely that the reasoning and conclusions of some of the more recent decisions may not be accepted without due consideration. The Pennsylvania Railroad was chartered by the Act-of April 13, 1846, P. L. 312, to construct and operate a railroad between what was then the borough — and is now the city — of Harrisburg and the city of Pittsburg. By section 21 of this act it is empowered, inter alia, from time to time to establish “ such rates of toll or other compensation for the use of the said road and of said motive power and for the conveyance of passengers .... as to the president and directors shall seem reasonable; provided, however, nevertheless, that .... in the transportation of passengers no charge shall be made to exceed three cents per mile for through passengers, and three and a half cents per mile for way passengers.” By the Act of April 5, 1907, P. L. 59, entitled “ An act to regulate the maximum rate and' minimum fare to be charged for transportation of passengers by railroad companies and prescribing the penalty for violation thereof,” it was enacted, “Section 1. That after the thirtieth day of September, one thousand nine hundred and seven, no company operating a railroad, in whole or in part, in this Commonwealth, shall demand or receive more than two cents fare per mile, or for a fraction thereof, contracted to be traveled or traveled by any passenger on such railroad in this Commonwealth; Provided, however, that the minimum fare charged by such company need not be less than five cents.” Sec. 2 imposes a penalty of $1,000 for each offense upon any railroad company that shall exact a higher rate of fare than is authorized by sec. 1, and it is provided that the penalty so incurred shall be payable to the county within whose limits the illegal charge is made. The present bill was filed by the Pennsylvania Rail — 112 — road to enjoin the enforcement of this act against it as unconstitutional. One of the contentions of the appellee sustained by the court below is that the right to fix rates given by the act of April 13, 1846, being in the nature of a contract between the railroad and the state cannot be impaired by subsequent legislation, and the Act of April 5, 1907, P. L. 59, is, therefore, not enforceable against it. On the same day, however, that the act incorporating the Pennsylvania Railroad Company was passed, a supplement to it was approved providing that nothing in the original act “ shall be so construed as in any wise to impair the right of the legislature to pass such additional laws as may be deemed expedient in furtherance of the objects contemplated by said act, and for the better enforcement of the provisions thereof: ” P. L. 326. This supplement and its effect upon the act incorporating the appellee, however, were not considered by the court below because not brought to its attention, nor have they been argued here except incidentally after attention was called to them by a member of the court. In view of our reasons for affirming the decree of the court below, it is not essential that we now pass upon this question. If it were, we would order a reargument and dispose of it. For the present we leave the immunity of the Pennsylvania Railroad Company proper from legislation fixing passenger rates at a maximum below that which its board of directors are authorized to fix by the act of 1846, that being the only point raised by this appeal, as an open question. The exact question to be determined on this appeal, therefore, is not the general constitutionality of the act of 1907, but the right to enforce it against the appellee. The same clause in the constitution that authorized its passage provides that such legislation shall do no injustice to the corporators of any company whose charter is thereby altered. The act is, therefore, to be read as if there was incorporated in it a clause that, “ This act shall not be enforced against any corporation'if its provisions shall do injustice to the corporators thereof.” Would the provisions of the act of 1907 do injustice to the corporators of the appellee ? There are not wanting strong judicial expressions, in this — 113 — state that whether a charter is injurious to the citizens is not a matter of arbitrary legislative opinion, and that there should at least be required the assignment of a valid ground for so declaring : Commonwealth v. Railroad Co., 58 Pa. 26 ; Hays v. Commonwealth, 82 Pa. 518 ; Williamsport Passenger Railway Co. v. Williamsport, 120 Pa. 1. The case of Wagner Free Institute v. Philadelphia, 132 Pa. 612, dealt with exemptions from taxation, which, as there said, is always and inherently a matter affecting public interests as to which the legislative control is paramount. The case does not close the general subject of the conclusiveness of legislative determination on the question of what is injurious to the citizens. There may arise cases where the legislative action would be so clearly capricious and unconstitutional as to require the courts to intervene, but for the present it is enough to say that, prima facie, it is a legislative question. But. while the legislature is permitted to alter or revoke, it is prohibited from doing so in such manner that injustice will be done to the corporators. Whether the legislature has' attempted to enact a measure prohibited by the constitution is for the courts ; whether injustice has been done in any particular case is inherently and necessarily a judicial question. The real question in the case is whether the act of 1907 transgresses the provisions of article XYI, section 10 that the legislative power to alter or annul shall be exercised only in such manner that no injustice shall be done to the corporators. It is argued by appellee that the penalties imposed by the act for any disregard of its provisions are so great, and so out of proportion to the fault as to be evidence that they were not, in good faith intended to secure observance of the law, but to force acceptance of its terms by deterring a resort to the courts. So regarded it would clearly be an injustice to the corporators and unconstitutional. We do not find it necessary to pass upon this point, however, and refer to it only to avoid the inference that it is meant to be decided. Whatever may be the law in other jurisdictions, the fundamental test in Pennsylvania is whether injustice in the constitutional sense has been done to the corporators. The direct question has so seldom arisen that it is quite bare of authorities. In other states, and in the absence of any cases of our own, it — 114 — has been sometimes assumed that to be held invalid the provisions of the statute must be unreasonable to the extent of being confiscatory of the corporation’s property or rights, and this phrase was used by the court below. But it is manifest that it is used in a special and qualified sense. The point of, injustice is reached long before that of confiscation, and to make the word confiscatory really appropriate it must be read, not in the sense of producing actual confiscation, but of having an inevitable tendency thereto. The court below after receiving much evidence and giving it a most painstaking and elaborate consideration found that the aet does injustice to the corporators in that it reduces the returns from their property to such an extent as to render it unremunerative. As this is a question of fact the findings of the court cannot be disturbed unless shown to be clearly erroneous, and as this has not been shown we might well abide by the general rule and rest the case on this finding, but as the method of reaching the- fact in a case of such complicated elements is complained of, it is proper to discuss some special objections. ' It is claimed by appellant that the presumption in favor of the prescribed rate is very strong, and the company must clearly show that it is so unjust as to be confiscatory. The sense in which confiscatory must be understood has been already discussed. The court below conceded the general rule and held that “ Any attempt by the legislature at the regulation of charges is presumptively reasonable. The burden of demonstrating its unreasonableness lies on him who objects to the regulation enacted.” And further “ Public service corporations in Pennsylvania are entitled to look for a rate of return, if their property will earn it, not less than the legal rate of interest, and a system of charges that yields no more income than is fairly requisite to maintain the plant, pay fixed charges and operating expenses, provide a suitable sinking fund for the payment of debts and pay a fair profit to the owners of the property cannot be said to be unreasonable : Brymer v. Butler Water Co., 179 Pa. 231.” In so holding the court committed no error of which the appellant can complain. The presumption in favor of the prescribed rate is no more than the ordinary presumption in favor of the constitutionality of the acts — 115 — of assembly. It has no special strength or sanctity, and in view of the public history of the passage of the act of 1907 without investigation and in obedience to a popular agitation for the same rate not only in Pennsylvania but over the whole country, it might well be said that very slight evidence would rebut the presumption in this case. What was said in Brymer v. Water Company, 179 Pa. 231, was that the company was entitled to a fair return, not less than the legal rate of interest. In naming the legal rate the court was naming a minimum not maximum rate. Six per cent is the legal estimate of the legitimate profit from the ordinary safe use of money. No business man in 1816, even if now, went into a new and extensive venture of uncertain outcome without the hope of more than common interest. Because his judgment or foresight was good is no reason that he should be shorn of his profits in the result. What is a fair profit is a complicated and difficult question, but there are certain elements that are plainly to be regarded to avoid injustice, such as the original investment, the risks assumed at that time, the returns as compared with other enterprises as nearly similar as may be, the cost of maintenance and improvement, the prospects of increase and the present value in view of the preceding elements. Injustice is done by anything that fails to consider these, and to deal equitably with the private as well as the public interests involved. It is not necessarily regulated by what others would now make the venture for, under the present circumstances and with present knowledge. The public having long reaped the incidental profits from the development of the country by the enterprise and venture of capital, in the increased value of land, the opening of new and wider markets for crops and manufactures and the facility of intercourse and exchange for persons and property, the courts should not now ignore this aspect of the subject in considering the question of injustice to the corporators. In view of the evidence before the court and the proper elements with which it must be considered the court below certainly did not err against the appellant in finding that the statutory rates of fare would do injustice to the corporators. Another objection to the method pursued in the investigation of this subject is that the court confined the inquiry to the — 116 — passenger traffic instead of taking into consideration the entire traffic of every kind as appellant claims should be done. This is the most urgently pressed of the appellant’s points, but it does not carry conviction. It would be sufficient answer to say that the legislature itself in the act of 1901 has treated the passenger traffic as a separate and independent subject of examination and regulation. If the legislature may do that in ascertaining whether the charter franchise is injurious to the citizens of the commonwealth why may not the courts do the same in ascertaining whether injustice has been done to the corporators? Both are elements to be considered, and both are powers exercised under the same section of the constitution. But independently of this, true business principles require that the passenger and freight traffic not only may, but should be separately considered. The intelligent business of the world is done in that way. Every merchant and manufacturer examines and ascertains the unprofitable branches of his business with a view to reducing or cutting them off entirely, and there is no reason why a railroad or other corporation should not be permitted to do the same thing as long as its substantial corporate duties under its franchise are performed. While the public has certain rights which in case of conflict must prevail, yet it must not be forgotten that even so-called public service corporations are private property organized and conducted for private corporate profit. And unless necessary for the fulfillment of their corporate duties they should not be required to do any part of their business in an unbusinesslike way with a resulting loss. If part is unprofitable it is neither good business nor justice to make it more so because the loss can be offset by profit on the rest. To concede that principle would, as the court below indicated, permit the legislature to compel the carriage of passengers practically for nothing though the inexorable result would be that freight must pay inequitable rates that passenger travel may be cheap. The corporation is entitled to make a fair profit on every branch of- its business subject to the limitation that its corporate duties must be performed even though at a loss. What is a fair profit is, as already said, a highly complicated and difficult question. The learned court below availed themselves of all — 117 — the best evidence that was offered or shown to be attainable, considered it with exemplary patience and care, and their conclusion that the enforcement of the act of 1907 against the complainant would do injustice to the corporators is beyond just criticism. Decree affirmed.