Laurel Cotton Mills v. Gulf & Ship Island Railroad

Truly, J., delivered the opinion of the court. On the 7th day of February, 1900, the Laurel Cotton Mills, a domestic corporation, intending to construct and operate a cotton mill at the city of Laurel, on the line of the Grulf & Ship Island Railroad Company, entered into a contract with said railroad company by which it agreed and obligated itself to locate and build its said cotton mill and warehouses on certain grounds previously staked out and agreed upon, accessible from said railway, and to furnish the right of way for all — 359 — necessary switches from both directions to connect the track of said railroad company with the cotton-mill grounds and buildings. In consideration of the performance of this covenant, the Gulf & Ship Island Railroad Company agreed on its part, by said contract, “to maintain in effect rates on manufactured goods produced by the said Laurel Cotton Mills, not exceeding, to competitive points, the rates effective from Stonewall and Meridian, Mississippi, on the dates,” and “to maintain in effect a milling-in-transit arrangement for the cotton to be manufactured at the said Laurel Cotton Mills — that is to say, any freight charges that may be paid on cotton shipped from stations between Hattiesburg and Jackson, or on the Laurel Branch, shall be allowed and credited, pound for pound, as part payment of freight charges on the manufactured goods or products when shipped to market over the line of the said Gulf & Ship Island Railroad Company. This arrangement to continue for a period of ten years.” This contract was duly signed by both the contracting parties. After its execution the Laurel Cotton Mills proceeded with the construction of its factory, and on April 1, 1901, began business; its said mill having been fully completed, and being then in full operation. From this date until the 1st of March, 1902, the Gulf & Ship Island Railroad Company observed on its part the stipulation of the contract in reference to the “milling-in-transit arrangement,” as therein agreed upon. After that time it refused further to credit the freight charges paid on raw cotton on the shipment of manufactured goods made over its line by the appellant, as provided by the terms of the contract. At the date of the contract, and at all times subsequent thereto, there were established and in operation at Stonewall and Meridian, in this state, cotton mills manufacturing the same class of goods and being engaged in exactly the same line of business as the appellant. The Gulf & Ship Island Railroad Company ignored that provision of the contract by which it had obligated itself to grant to appellant rates on manufactured goods “not ex360 eeeding, to competitive points, the rates effective from Stonewall and Meridian” on the date of shipment, but imposed on the shipments made by appellant greater rates to competitive points than the mills located at the two places mentioned were required to pay on shipments made by them to the same points. This condition of affairs continued until January, 1903, when the appellant filed its declaration setting out the above facts. It filed therewith a bill of particulars showing the amount of freight paid on raw cotton, and which it was entitled to have had credited on the freight charges on its shipment of manufactured goods under the milling-in-transit arrangement set out in the contract, and also a bill of particulars showing the amount of freight which it had been required to pay on shipments made to competitive points over and above the freight rates in force at the date of such shipments from Stonewall and Meridian to the same points. The bill of particulars showed that of the shipments under the milling-in-transit arrangement, many were interstate shipments from Laurel, in this state, to sundry points beyond this state. To this declaration the appellee filed demurrers, three in number, but presenting substantially but two points — viz., that the contract is void because (1) contrary to the law regulating interstate commerce; (2) contrary to the provisions of Code 1892, governing the supervision of common carriers. These demurrers were by the circuit court sustained, and from that judgment the Laurel Cotton Mills prosecutes this appeal. The proposition upon which appellee relies may be broadly stated as follows: The contract sued on is void on its face, because it has the necessary effect of creating a discrimination forbidden both by the federal interstate commérce act and our own state statute dealing with the same subject-matter, and for the further reason that this milling-in-transit arrangement which is set out in the contract is the granting of a rebate, the allowance of which is unlawful, under § § 4292, 4293, Code — 361 — 1892, and sec. 6 of the interstate commerce act (Act Feb. 4, 1887, ch. 104, 24 Stat., 380 [U. S. Comp. St. 1901, p. 3156]). “Before we consider the phraseology of the statute, it may be well to advert to the causes which induced the enactment. They chiefly grew out of the use of railroads as the principal modern instrumentality of commerce. While shippers of commerce are under no legal necessity to use railroads, practically they are. The demand for speedy and prompt movement virtually forbids the employment of slow and old-fashioned methods of transportation, at least in the case of the more valuable articles of trafile. At the same time the immense outlay of money required to build and maintain railroads, and the necessity of resorting, in the securing of the rights of way, to the power of eminent domain, in effect disable individual merchants and shippers from themselves providing such means of carriage. From the very nature of the case, therefore, railroads are monopolies, and the evils that usually accompany monopolies soon began to show themselves, and were the cause of loud complaints. The companies owning tbe railroads were charged, and sometimes truthfully, with making unjust discriminations between shippers and localities, with making secret agreements with some to tbe detriment of other patrons, and with making pools or combinations with each other, leading to oppression of entire communities.” We quote this language from the decision of the supreme court of the United States in Texas & Pacific R. R. Co. v. Interstate Commerce Commission, 162 U. S., 211 (16 Sup. Ct., 666; 40 L. ed., 940), as being as applicable to our own as to tbe federal legislation for the regulation of commerce and tbe supervision of carriers. In dealing with the subject of the supervision of railroads and common carriers generally, the object of the legislation was to benefit and regulate commerce by preventing railroad corporations and all other common carriers from unduly favoring one shipper or class of shippers, or one special place, to the injury of other persons and places similarly situate. The — 362 — first material inquiry, then, is whether or no the .contract under review, in express terms or by necessary implication, presents a case of discrimination, within the meaning and intent of secs. 2 and 3 of the interstate commerce act (U. S. Comp. St., 1901, p. 3155), and §§ 4287, 4290, Code 1892. The object which both statutes referred to had in view was practically the same, and as stated — i. e., to prevent unjust discrimination being made in transportation against any person, locality, or corporation. It must be noted that this discrimination must be unjust between shippers, persons, localities, or corporations, by granting undue preference to one or subjecting another to unreasonable disadvantage. The evident meaning of the federal statute — and we think the same is true of our own — is that the discrimination condemned must have the effect of unduly favoring some individual, class, or place at the expense and to the prejudice and disadvantage of some other shipper or place, where the services rendered were “like and contemporaneous,” and where the transportation was effected under “substantially similar circumstances and conditions.” Texas & Pacific R. R. Co. v. Interstate Commerce Commission, supra. All special contracts or traffic arrangements between carrier and shipper are not forbidden or condemned, but only such as operate unfairly and evidence undue favoritism toward one, or deprive another of his just rights. As said in a recent case where the policy, effect, and intent of the 'interstate commerce act was under review: “Subject to the two leading prohibitions that their charges shall not be unjust and unreasonable, and that they shall not unjustly discriminate, so as to give undue preference or advantage, or subject to undue prejudice or disadvantage, persons or traffic similarly circumstanced, the act to regulate commerce leaves common carriers as they were at common law — free to make special contracts looking to the increase of their business, to classify- their traffic, to adjust and apportion their rates so as to meet the necessities of commerce, and generally to manage their important interests upon the — 363 — same principles which are regarded as sound and adopted in other trades and pursuits.” Cincinnati, N. O. Ry. Co. v. Interstate Commerce Commission, 162 U. S., 184 (16 Sup. Ct., 700; 40 L. ed., 935). “It is not all discriminations or preferences that fall within the inhibition of the statute — only such as are unjust or unreasonable.” Interstate Commerce Commission v. Baltimore & Ohio R. R. Co., 145 U. S., 263 (12 Sup. Ct., 844; 36 L. ed., 699). We accept the construction placed on secs. 2 and 3 of the interstate commerce act by the Supreme Court of the United States in the cases cit^d, and, adopting that construction as applicable to the corresponding provisions of our own statute (§ § 4287-4290, Code 1892), it is made manifest to our minds that all discriminations are not forbidden by either statute, but only “discrimination in transportation against some person, locality, or corporation,” made for the advantage of the carrier, or by receiving greater or less compensation from one class'of persons than from another for similar services contemporaneously rendered. The contract under consideration obligates the railroad company to maintain on manufactured goods shipped from Laurel, Miss., rates not exceeding, to competitive points, the rates effective on the dates of the shipments from Stonewall and Meridian, where similar factories were located. We are unable to see that this stipulation is, in its terms, or by necessary effect, a discrimination against any other person or place. It is not a stipulation that other shippers similarly situated should not enjoy the same rates. This provision was simply an effort on the part of the Laurel Cotton Mills whereby it sought to protect itself against the imposition of greater rates than were charged by other carriers on similar shipments of manufactured products made by other cotton mills located at the places mentioned. We are unable to see how a provision in a contract which merely limits the freight rate to be imposed to the amount imposed upon others engaged in similar business — 364 — can be construed to be a discrimination, within the meaning of that term or under the interpretation placed upon it by the supreme court of the United States. This was not an effort to secure an undue advantage to itself, but was a precaution to guard against future imposition by advancing rates — a measure the wisdom of which was demonstrated by subsequent events, culminating in the present litigation. It is not suggested anywhere in this record that at the date of this contract there was any other shipper over the line of the Gulf & Ship Island Kailroad Company then engaged in a business similar to that in which appellant was about to embark, and it does not appear that all other shippers, if any such there were, located on appellee’s line of railway, where the services rendered would be “like and contemporaneous,” and where the transportation would be effected under “substantially similar circumstances and conditions,” did not in fact enjoy the same rate which was stipulated for on behalf of appellant in the contract in question. And assuredly there is no express inhibition in the contract which precludes the railroad company from granting a'similar rate to any other of its patrons who might thereafter engage in a like business with appellant. An unjust discrimination, within the purview of laws for the regulation of commerce, operates to the undue advantage of one person, and prejudicially to the interest of some other person. The contract under review does not have that effect. An agreement that one shall not be charged more than a certain stated rate, but which does not stipulate against or forbid the granting of the same rate to all other persons, is not within the condemnation of the law prohibiting discrimination. Again, it is urged that this contract is void because the “milling-in-transit arrangement” which is therein recognized, constitutes the granting of a rebate, -which is unlawful, under § 4292, Code 1892, and is also violative of sec. 6 of the interstate commerce law. It is no longer open to question that milling-in-transit arrangements are recognized as valid agree365 meats, which may be lawfully entered into between shippers and carriers. In the very recent case of Central Yellow Pine Ass’n. v. V. S. & P. R. R. Co. et al., before the Interstate Commerce Commission, where the legality of milling-in-transit arrangements was considered in its various phases, it is said: “It is well understood that at the present time this principle is applied to the movement of many commodities. Generally, in its application, the raw material pays the local rate into the point of manufacture. When afterwards the manufactured product goes forward, it is transported upon a rate which would be applicable to the product had it originated in its manufactured state at the point where the raw material was received for transportation, whatever has been paid into the mill being accounted for in this final adjustment. Under this or some equivalent arrangement at the present time grain of all kind is milled and otherwise treated in transit; flour is blended; cotton is compressed; lumber is dressed, and perhaps otherwise manufactured; live stock is stopped off to test the market. It may be urged with much force that the act to regulate commerce does not sanction arrangements of this kind, and the commission, early in its history, intimated that such might finally be its conclusion. Crews v. Richmond & D. R. Co., 1 Inters. Commerce Com. Rep., 401 (1 Inters. Com. Rep., 703). Such practices were, however, in use to a considerable extent at the time of the passage of the act, and since then they have become universal. To abrogate these privileges would be to confiscate thousands, and probably millions, of dollars in value, by rendering worthless industrial plants which have been constructed upon the faith of their continuation. Nor is it a forced construction of the statute to hold that, when the product goes forward to the point of consumption, it but completes the journey upon which it entered when the raw material was taken up. There can be no doubt that the application of this principle has cheapened the cost of transportation, and probably of manufacture.” — 366 — The legality of the principle of milling-in-transit arrangements being recognized, whether each special -agreement will be upheld depends upon the varying circumstances attendant upon its making; but it cannot be affirmed that such an agreement as is here under consideration can be declared to be, by its very terms, violative of the laws prohibiting unlawful rebates. There is no difference in principle between the plan agreed upon by the contract and other milling-in-transit arrangements which have been sanctioned and enforced by the interstate commerce commission in the transportation of many different commodities. In the instant case the fact that the entire freight paid upon the raw cotton is credited upon subsequent shipments of manufactured product does not vary the principle which controls and on which the validity of such contracts is based, and the arrangement is as valid and as binding as if it was simply an agreement such as is customarily in force. Whether the raw material pays the local rate into the point of manufacture and afterwards the manufactured product pays a’ lower rate, calculated from point of original shipment, or whether the raw material pays the local rate, and this is credited in whole or in part upon the transportation of the manufactured products subsequently shipped, result is the same in principle ; the one being, in the language of the interstate commerce commission, “an equivalent arrangement” of the other, and neither contravening the mandate of the law devised to protect shippers from unjust discrimination, whether the same arises from extortion or from unlawful rebates granted to a favored few. So long as there is no unjust discrimination, and no stipulation in the contract forbidding the carrier extending similar rates to all other shippers similarly situated, there is no express provision of law, and no sound reason arising out of public policy, which prohibits a carrier entering into a fair and equitable milling-in-transit arrangement with any of the numerous industries now operating under such plans. “If there is no unjust discrimination, an agreement by a railroad — 367 — company that it will carry goods at a certain rate, and repay the shipper a part thereof as a rebate after the shipment, is not illegal, and the rebate may be recovered by the shipper in a proper case.” Elliot on Railroads, sec. 1565; Rorer on Railroads, sec. 1375. The clause in the contract by which a milling-in-transit arrangement is established between appellant and appellee does not seek to prevent the appellee effecting similar arrangements with all other patrons who may be or may hereafter be engaged in the same line of business. Nor does this contract, by any reasonable construction of its terms, necessarily work any unjust discrimination against any other cotton mills or dealers in cotton who may be located on appellee’s line of railroad. It must be noted that the raw material pays full local rates into the place of manufacture, and the subsequent credit of such freight is only made upon shipments of manufactured product. If the raw material coming into the city of Laurel consigned to appellant should there be disposed of, either in its unmanufactured state or after it becomes the finished. product of the mill, no portion of the local freight charges which have been paid upon such shipments at full tariff rates is credited to the appellant. The crediting of the freight paid is dependent upon whether the cotton is again shipped as manufactured product; so that, as to all shipments of raw cotton, the appellant fares neither better nor worse than do all others similarly engaged. Before passing to the consideration of the next argument advanced by appellee in its assault upon the validity of this contract, it should be noted that sec. 6 of the interstate commerce act (U. S. Comp. St., 1901, p. 3156) and § 1292, Code 1892, do not deal with discriminations, as hereinbefore discussed. They were devised to secure uniformity of charges, by requiring all rates to be made public in a certain specified way, and then forbidding any change or deviation from the tariff so established. Sec. 6 of the interstate commerce act is fully complied with when the rates have been filed with the commission — 368 — and tbe tariff of charges has been duly published. When once established and promulgated, the tariff cannot be deviated from, either by increase or reduction of rates, until another schedule of rates has been legally adopted in the manner prescribed in said section. The interstate commerce commission is without power to fix rates, but any person considering a rate unjust or discriminatory may attack same as provided by law. The power to pass upon the reasonableness of existing rates which is vested in the interstate commerce commission does not necessarily imply the right to prescribe rates. Cincinnati, Etc., Ry. Co. v. Interstate Com. Com., supra. Under sec. 6 of the interstate commerce act rates may be changed at any time upon compliance with its provisions, when the carrier “shall promptly notify said commission of all charges made in the same;” but under § 4292, Code 1892, a schedule, once approved, established, and promulgated as therein provided, can be varied only when “such change or deviation be first allowed by the commission.” The statutes, both state and federal, now under review, were designed to insure publicity of established schedules of rates, so that every patron might easily protect himself against extortion or discrimination by seeing that the carrier did not collect any greater compensation for the transportation of passengers or property “than is specified in such published schedule of rates, fares, and charges as may at the time be in force.” With these preliminary observations as to the purpose and scope of the statutes requiring promulgation of rates, and viewing them in the light of their intent, we pass to the next contention presented on behalf of appellee. It is urged that the contract in question is void because in direct violation of sec. 6 of the interstate commerce act and § 4292, Code 1892, in that it allows a rebate or reduction from the tariff of charges fixed or approved by the commission by a change in or deviation therefrom. There are two plain answers to this argument: (1) It does not appear from anything — 369 — in the contract or in the declaration that, either by fixing the rates so as not to exceed those effective from Stonewall and Meridian or by entering into the millin-in-transit arrangement therein set ont, were the rates fixed and approved by the interstate commerce commission or by the railroad commission of the state of Mississippi changed or deviated from in any particular. On the contrary, as the stipulations of the contract as to both the rates mentioned are valid in themselves, it may well be that these are the identical rates which have been filed with and published by the two commissions. Certain it is that in considering a contract legal in its terms, and violating no express statutory provision, and repugnant to no fundamental principle of public policy, a court is not authorized to indulge in the presumption that one party has ignored or violated the law, and thereby render the contract illegal and nonenforceable. If presumptions are to be indulged at all, they must be invoked in favor of the validity of a contract, and that the contracting parties have performed all legal obligations incumbent upon them, or necessary to effectuate the object which the contract had in view. Therefore, in the instant case, as the contract is, in its terms, valid and enforceable, provided the rates thereby fixed were submitted to the commissions as required by law, the presumption of law, if resort to presumptions was neces-. sary, would be that such rates had been fixed and approved, and that the contract was no deviation therefrom, and consequently no violation of the law prohibiting all deviations. (2) Again, it does not appear that any rates governing this subject-matter had been submitted by the appellant to either commission at the date of the contract; and as the contract, as to rates, did not go into effect until the mill began the operating and shipment of manufactured product made, it does not follow that these rates, even if not in force at the date of the contract, were not subsequently submitted to the interstate commerce commission, or that the change in rates, if change it was, had not first been allowed by the Mississippi railroad commission before — 370 — the rates were actually put iu effect. This contract does not fall within that class expressly forbidden, except under certain exceptional circumstances, when it is incumbent upon the plaintiff to show that his contract falls within the exception. That character of contract is specially forbidden either by approved public policy or by express statute. This contract is not of that kind, for the reason that its terms in no wise transgress any provision of law; and if the appellee has itself complied with the legal duty imposed upon it in reference to the publication of its established schedule of rates, it is enforceable in all its terms. The argument that the demurrers were properly sustained because the declaration failed to allege that the rates fixed in the contract sued on had been filed with the commission, or because it was not affirmatively shown that the consent of the Mississippi railroad commission had been first obtained, is unsound. The logical conclusion of the argument would be that as all rates are required to be filed with the proper commission, and then made public as its order may direct, a suit could be maintained on no contract for transportation of freight, without regard to the rates charged thereby, unless the plaintiff should allege that the carrier had discharged its duty in filing its schedule of charges, and then promulgating the same. The result of this would be to impose upon the plaintiff the burden of proving, in order to sustain a recovery, that the carrier had not violated the law or the order of the commission; the result being that the carrier would be enabled to defeat a valid contract by proof of its own sins of omission — a position manifestly untenable. It follows, therefore, that, in our judgment, the' contract under review does not violate, by its terms or by any reasonable construction, any of the provisions of law invoked by the demurrers of appellee. It does not operate as a “discrimination” against any person or place, because it does not prevent the same rate being accorded to all. It does not unjustly discriminate in favor of appellant, because it grants it — 371 — no lower rate than is or may be granted to other shippers. It does not grant any unlawful rebate, because a milling-in-transit arrangement is in itself legal, and sanctioned by the interstate commerce commission as the legitimate outgrowth of the building of new enterprises. It does not violate the provision of law prohibiting deviation from published rates, because it does not appear that it is such a deviation. It does not violate the prohibition against altering the published rates without the permission of the Mississippi railroad commission first obtained, because it does not appear that it is any alteration, or that said permission, if necessary, was not obtained. It might be further said in this connection, as strongly persuasive of the view here announced as to the validity and enforceability of the milling-in-transit arrangement agreed upon by the contract between appellant and appellee, that the appellee itself for nearly a year recognized the validity of this arrangement, and complied with the terms of the contract in this respect. Yet, if the argument now pressed upon us be sound, and if this arrangement was the allowance of an unlawful rebate prohibited by law, the Gulf & Ship Island Railroad Company is liable, by its own argument, to all the penalties imposed for a violation of the statutes in this regard. Here is a contract which, according to the facts admitted by the demurrer, the Gulf & Ship Island Railroad Company for eleven months complied with, at least in part; granting, so the declaration avers, this crediting of freight upon subsequent shipments of manufactured products, when such action on its part was, if the argument be sound, a flagrant violation of the law. This is a peculiar attitude for a litigant to occupy — to seek to annul as illegal a contract of its own making, and of which it has reaped the full benefit, by pleading guilty to repeated and long-continued violation of the law, thereby endeavoring to escape liability for its own breach of contract. The contract, upon its face, is valid and susceptible of enforcement. It may be that, in its practical effect, it works unfairly and constitutes an un — 372 — just discrimination. If so, it falls within the condemnation of the law. But whether or not this be its effect is a question, not of law, but purely of fact. Texas & Pacific R. R. Co. v. Interstate Commerce Commission, supra. It may be that the contract is non-enforceable because an unauthorized deviation from established rates, but this is also a question of fact. We decide that the contract is not void upon its face, and decide nothing more. The judgment of the circuit court is reversed, the demurrer overruled, and the cause remanded.