company only receives $100,000. The total receipts for interstate and local business being then $600,000, the valuation of $10,000,000, divided between the two, would give to the property engaged in earning interstate receipts in round numbers $8,333,000, and to that engaged in earning local receipts $1,667,000. But if $1,667,000 worth of property earns $100,000 it earns six per cent. In other words, although the actual receipts from local business are only one fifth of what they were, the earning capacity is three fifths of what it was. And turning to the other side of the problem, it appears that if the value of the property engaged in interstate business is to be taken as $8,333,000, and it earned $500,000, its earning capacity was the same as that employed in local businesssix per cent. So that although the rates for interstate business be undisturbed, the process by which the trial court reached its conclusion discloses the same reduction in the earning capacity of the property employed in interstate business as in that employed in local business, in which the rates are reduced.2 . .

Section 6

WHAT RATE OF RETURN SHOULD BE ALLOWED.

WEAVER, J., IN CEDAR RAPIDS WATER CO. v. CITY OF CEDAR RAPIDS.

118 Ia. 234. 1902.1

We shall not attempt to go into any minute statement or analysis of the figures and computations relied upon by

2 In Minnesota Rate Cases (1913), 230 U. S. 352, 461, after quoting from the last paragraph reprinted above, MR. JUSTICE HUGHES said:

"The value of the use, as measured by return, cannot be made the criterion when the return itself is in question. If the return, as formerly allowed, be taken as the basis, then the validity of the State's reduction would have to be tested by the very rates which the State denounced as exorbitant. And, if the return as permitted under the new rates be taken, then the State's action itself reduces the amount of value upon which the fairness of the return is to be computed.

"When rates are in controversy, it would seem to be necessary to find a basis for a division of the total value of the property independently of revenue, and this must be found in the use that is made of the property. That is, there should be assigned to each business, that proportion of the total value of the property which will correspond to the extent of its employment in that business. It is said that this is extremely difficult; in particular, because of the necessity for making a division between the passenger and freight business and the obvious lack of correspondence between ton-miles and passenger-miles. It does not appear, however, that these are the only units available for such a division; and it would seem that, after assigning to the passenger and freight departments respectively, the property exclusively used in each, comparable use-units might be found which would afford the basis for a reasonable division with respect to property used in common. It is suggested that other methods of calculation would be equally unfavorable to the State rates, but this we cannot assume."

1 Only an extract from the opinion is here reprinted.— ED.

counsel. Some of the items by which plaintiff increases the alleged value of the works and reduces the showing of net earnings, as well as other items by which the defendant decreased the former and increased the latter, we think are unwarranted. The testimony, when taken as a whole, and considered in the light of all the proved and admitted circumstances, indicates the present fair value of the company's property to be somewhere from $400,000 to $500,000. The total earnings of the works, as charged upon

plaintiff's books, for the year preceding the trial in the district Rates are to court, were, in round numbers, $59,000, subject, however, to some he reduced discounts for advance payments. Of this income about one-third is charged to the city, and is not affected by the ordinance in controversy. The other two-thirds are collected from private consumers, and the charges for such service are reduced by the ordinance in varying proportions. Just the extent which this reduction will affect the company's earnings it is impossible to prove or predict with certainty, but we see no reason to believe that the total revenue, after making all due allowance for discounts, will be reduced below $50,000. The operating expenses charged for the year preceding the trial (being largely in excess of the average in its experience) were $23,000, or, including taxes, $28,000. On this basis the net earnings are 52 per cent. on a valuation of $400,000, or 4 per cent. on a valuation of $500,000, or 62 per cent. on the total amount of capital stock and bonds. Stated otherwise, this will enable the company to pay its interest charge of $7,500, make a dividend of 5 per cent. on its capital stock (including stock issued as dividends), and leave a margin of over $3,000 for contingencies. This estimate of earnings may be very materially reduced, or the estimate of the value of the plant be very materially increased, before the court will be justified in saying that the plaintiff's property is being exposed to destruction or confiscation by an unprofitable schedule of rates.

We have pursued this subject far enough to demonstrate that, even taking the high estimate of value which plaintiff places upon its property, and its own showing of earnings, there is nothing in the ordinance sought to be nullified which calls for judicial interference. The net earnings upon this showing, if not large, are substantial. The court cannot undertake to guarantee the company any fixed or certain return upon its investment. The exercise of such a power would work an utter destruction of the legislative right to regulate rates of water companies and other corporations operating works of public utility. We think the decisions have already gone to the verge of safety in nullifying legislative acts of this character; and to go farther, and say that the courts will not

only preserve property from confiscation and destruction by legislative power, but will also assure to its owners a definite and fixed rate of profit upon their investment, would be an act of judicial usurpation.2

COTTING v. KANSAS CITY STOCK YARDS CO.

183 U. S. 79. 1901.1

MR. JUSTICE BREWER after making the above statement, delivered the following opinion, and announced the conclusion and judgment of the court.

In the light of these quotations, this may be affirmed to be the present scope of the decisions of this court in respect to the power of the legislature in regulating rates: As to those individuals and corporations who have devoted their property to a use in which the public has an interest, although not engaged in a work of a confessedly public character, there has been no further ruling than that the State may prescribe and enforce reasonable charges. What shall be the test of reasonableness in those charges is absolutely undisclosed.

As to parties engaged in performing a public service, while the power to regulate has been sustained, negatively the court has held that the legislature may not prescribe rates which if enforced would amount to a confiscation of property. But it has not held affirmatively that the legislature may enforce rates which stop only this side of confiscation, and leave the property in the hands and under the care of the owners without any remuneration for its use. It has declared that the present value of the property is the basis by which the test of reasonableness is to be determined, although the actual cost is to be considered, and that the value of the services rendered to each individual is also to be considered. . . .

...

If the rates prescribed by the Kansas statute for yarding and feeding stock had been in force during the year 1896 the income of the stock-yards company would have been reduced that year $300,651.77, leaving a net income of $289,916.96. This would have

2 See Chicago & N. W. Ry. Co. v. Dey (1888), 35 Fed. 866, 879.

1 The statement of facts is omitted and only a part of the opinion is reprinted.-ED.

2 From Munn v. Illinois, 94 U. S. 113, 125; Spring V. W. W. Co. v. Schottler, 110 U. S. 347, 354; Railroad Commission Cases, 116 U. S. 307, 331; Chicago M. & St. P. Ry. Co. v. Minnesota, 134 U. S. 418, 458; Chicago & G. T. Ry. v. Wellman, 143 U. S. 339, 344; Reagan v. Farmers' L. & T. Co., 154 U. S. 362, 399; St. Louis & S. F. Ry. Co. v. Gill, 156 U. S. 649, 657: Covington, etc., T. Co. v. Sandford, 164 U. S. 578, 596; Smyth v. Ames, 169 U. S. 466, 546; San Diego L. Co. v. National City, 174 U. S. 739. 757.- ED.

yielded a return of 5.3 per cent on the value of property used for stock-yard purposes, as fixed by the master. Or if the capital stock be taken after deducting therefrom such portion thereof which represents property not used for stock-yard purposes, the return would be 4.6 per cent.

Iwo classes the same rule as to the limit of judicial interference must apply in of public cases in which a public service is distinctly intended and rendered service and in those in which, without any intent of public service, the Cos. owners have placed their property in such a position that the public has an interest in its use. Obviously there is a difference in the conditions of these cases. In the one the owner has intentionally devoted his property to the discharge of a public service. In the other he has placed his property in such a position that, willingly or unwillingly, the public has acquired an interest in its use. In the one he deliberately undertakes to do that which is a proper work for the state. In the other, in pursuit of merely private gain, he has placed his property in such a position that the public has become interested in its use. In the one it may be said that he voluntarily accepts all the conditions of public service which attach to like service performed by the State itself. In the other, that he submits to only those necessary interferences and regulations which the public interests require. In the one he expresses his willingness to do the work of the State, aware that the State in the discharge of its public duties is not guided solely by a question of profit. It may rightfully determine that the particular service is of such importance to the public that it may be conducted at a pecuniary loss, having in view a larger general interest. At any rate, it does not perform its services with the single idea of profit. Its thought is the general public welfare. If in such a case an individual is willing to undertake the work of the State, may it not be urged that he in a measure subjects himself to the same rules of action, and that if the body which expresses the judgment of the State believes that the particular services should be rendered without profit he is not at liberty to complain? While we have said again and again that one volunteering to do such services cannot be compelled to expose his property to confiscation, that he cannot be as to one compelled to submit its use to such rates as do not pay the expenses doing expenses doinublic of the work, and therefore create a constantly increasing debt which true public ultimately works its appropriation, still is there not force in the suggestion that as the State may do the work without profit, if he voluntarily undertakes to act for the State he must submit to a like determination as to the paramount interests of the public?

Now, in the light of these decisions and facts, it is insisted that

Again, wherever a purely public use is contemplated, the State

Decision

may and generally does bestow upon the party intending such use some of its governmental powers. It grants the right of eminent domain, by which property can be taken, and taken, not at the price fixed by the owner, but at the market value. It thus enables him to exercise the powers of the State, and, exercising those powers and doing the work of the State, is it wholly unfair to rule that he must submit to the same conditions which the State may place upon its own exercise of the same powers and the doing of the same work? It is unnecessary in this case to determine this question. We simply notice the arguments which are claimed to justify a difference in the rule as to property devoted to public uses from that in respect to property used solely for purposes of private gain, and which only by virtue of the conditions of its use becomes such as the public has an interest in.

In reference to this latter class of cases, which is alone the subject of present inquiry, it must be noticed that the individual is not doing the work of the state. He is not using his property in the discharge of a purely public service. He acquires from the state none of its governmental powers. His business in all matters of purchase and sale is subject to the ordinary conditions of the market and the freedom of contract. He can force no one to sell to him, he cannot prescribe the price which he shall pay. He must deal in the market as others deal, buying only when he can buy and at the price at which the owner is willing to sell, and selling only when he can find a purchaser and at the price which the latter is willing to pay. If under such circumstances he is bound by all the conditions of ordinary mercantile transactions he may justly claim some of the privileges which attach to those engaged in such transactions. And while by the decisions heretofore referred to he cannot claim immunity from all state regulation he may rightfully say that such regulation shall not operate to deprive him of the ordinary privileges of others engaged in mercantile business.

Pursuing this thought, we add that the state's regulation of his charges is not to be measured by the aggregate of his profits, determined by the volume of business, but by the question whether any particular charge to an individual dealing with him is, considering the service rendered, an unreasonable exaction. In other words, if he has a thousand transactions a day, and his charges in each are but a reasonable compensation for the benefit received by the party dealing with him, such charges do not become unreasonable because by reason of the multitude the aggregate of his profits is large. The question is not how much he makes out of his volume of business, but whether in each particular transac