Petitioners Brief — Broad River Power Co. v. South Carolina Ex Rel. Daniel

Supreme Court brief1930

Ask Donna

What actually matters in this document.

Text

FILE COPY ei

CHARLES ELMORE

Supreme Court of the United States

OCTOBER TERM, 1929; No. 528.

BROAD RIVER POWER CO., ETAL, ~- Petitioners,

STATE OF SOUTH CAROLINA, ET AL.

On Writ of Certiorari to the Szpreme Court

of South Carolina.

BRIEF FOR PETITIONERS.

A street railway company having operated for years at

a ‘devastating loss’’ can abandon its entire business and

franchise; and the State cau not compel it to operate and

pay its losses out of its electric light franchise business.

| ©. EDWARD PAXSON,

\\ GEORGE M. Le PINE,

| W. 0. McLAIN,

WM. MARSHALL BULLITT,

Of Counsel.

j Counze! for Petitioners.

WESTERFIELD-BONTE COMPANY, INCORPORATED, LOUISVILLE, KY.

e eee eeeeonweeeeoereeesesieoesecee

1. In 1882, the Columbia Street Railway Co. was

iii bs eins bivvens demas cdo’ 3

2. 1886 Ordinance of the City of Columbia SUH Ss CEN 3

3. In 1887, — Gas & Electric Co. was incor-

porated . LESESWA Ob Ah aWns o8s dwede ete Fb00 uk 3

4. In 1890, Original Electric Railway Co. was in-

SINE 574 sive Nok ob Bcd cho o.08s b4a vocoee ce 4

5. Consolidation Act of 1891 .................... 4

6. 1892 Ordinance consenting to use of streets.... 6

7. Consolidated Co.’s operation (1892-1925), of

Railway and Electric Systems ............... 6

8. Consolidated Co.’s heavy street railway losses

PARE & oaks asa h yen bedwcetas s cage ives s 7

9. Broad River Power Co.’s organization |....... 8-11

(a) Broad River’s acquisition of Electric light

EEE. SCs cc inns bbcan¥eesesen habaanes 8-10

(6) Consolidated Co.’s retention of street rail-

SOONG bolas on b epine enn dawns 10-11

10. Consolidated Co.’s continued street railway

CRUE CANT) yon Ak oN COR SC RNs 11-12

11. Consolidated Co.’s ces of street rail-

way operation March 11, 1927 ................ 13

. History of the Litigation ....................

PAGES

First Point: The Street Railway System in Colum-

bia has for years been operated at a ‘‘devastating

loss,’’ and it can never be operated otherwise than at

a heavy loss.

South Carolina cannot compel the Consolidated

Oo. to operate this Street Railway System at such a

loss—for to do so would take the Company's property

without ‘‘due process’’ of law. ...............5005: 17-23

1. Undisputed and ‘‘devastating’’ losses ........ 17-20

2. Consolidated Co. can abandon entire Street Rail-

way Bystem . .......ccccccccccceesccccseees 21-22

Brooks-Scanion Co. v. R. R. Comm., 251 U. 8. 396.

H. R. Comm. v. Eastern Tez. R. R., 264 U. 8. 79.

Bullock v. R. R. Comm., 254 U. 8. 513.

Fort Smith Traction Co. v. Bourland, 267 U. 8. 330.

3. Analysis of the opinion of the Supreme Court of

Reet CUGTEED . occcccccccccccccvccccccecece 23

eo eeeeeeeeeeeeeeeeeereereeeereeeeeeeee

Brooks-Scanion Co. v. R. R. Comm., 251 U. 8. 369.

oe ee o v. Ben Avon Borough, 253 U. 8.

Operation Co. v. Love, 252 U. 8. 331.

Bluefield Weter Whe Co. v. Pub. Serv. Comm., 262

Third Point: None of the charters, city ordinances

granting permission to use the streets, private con-

tracts for line extensions, or right-of-way grants, con-

stituted any contract which obligated the Consoli-

dated Co. to operate the street railway regardless of

MOSS cate cccouvénddouchst cvahkbiiceI LL. 26-48

L, Fie Sabebory Chaveere . . éb i ccddccicdccsecsce 26-30

(a) The 1890 Charter of Original Electric Rail-

Ee TI « & onnaweudeis hibbbitineelnnctiad 26

Bullock vy. R. R. Comm., 254 U. 8. 513.

R. R. Comm, v. Eastern Tez. R. R. Co., 264 U. 8. 79.

(b) 1891 Consolidation Act .................. 27-29

(d) No contract to operate at loss............ 29

R. R. Comm. v. Texas R. R. Co., 264 U. 8. 79.

Be Se I @ 6 nc eocvoesbescorsvemiveas 30-40

Potter Matlock Trust Co. v. Warren County, 182

Ky. 840. .

Mt. Carmel Pub. Ut. Co. v. Pub. Utilities Comm.,

297 Til. 303.

Northern Ill. L. & T. Co. v. Ill. Commerce Comm.,

302 1. 8. 11.

Charleston-Isle of Palms Traction Co. v. Shealy,

266 Fed. 406.

Columbus Ry. & Power Co. v. Columbus, 249 U. 8.

399; Cleveland v. Cleveland City Ry. Co., 194

U. 8. 517 Distinguished.

hv. Ames, 169 U. 8. 466.

R. R. Comm. v. Eastern Tex. R. R. Co., 264 U. 8.

3. Private Contracts for line extensions, etc...... 40-48

(a) Columbia Land & Investment Co......... 40-42

(b) North Columbia Land Co................ 42-47

Tez. Ry. Co. v. Marshall, 136 U. 8. 393.

Jones v. N. N. & M. V. Co., 65 Fed. 736.

Bryan v. Lowisville R. Co., 244 Fed. 650.

Lucas v. N. Y. R. Co., 140 Fed. 438.

Scheller v. Tacoma R. Co., 108 Wash. 348.

L. & N. BR. Co. v. Johnson, 207 Ky. 813.

Little Rock R. Co. v. Birnie, 59 Ark. 66.

Jefferson R. Co. v. Barbour, 89 Ind. 375.

Md. R. Co. v. Silder, 110 Md. 510.

Oldham v. Southern R. Co., 210 Tenn. C. C. A. 644.

Childs v.-City of Columbia, 87 8. C. 566.

Franklin Telegraph Co. v. Harrison, 145 U. S. 459,

Distinguished.

German Alliance Ins. Co. v. Home Water Co., 226

U. 8. 220.

Ancrum v. Camden Water Co., 82 8. C. 284.

(2) Bighte-of-Way .... ..cccccccccccccccccces 48

Bryan v. L. & N. R. Co., 244 Fed. 650.

Fourth Point: The Consolidated Co. possessed two

separate and independent franchises—one for electric

light and power derived from the Congaree Co. and

the other for an electric street railway derived from

the Original Electric Ry. Co.

If either franchise could not be operated, except at

a loss, the company could abandon such franchise,

while retaining and operating its other independent

oe eee eee eee ee eee eee ee ee ee ee ee ee ee

L The franchises of the constituent companies re-

mained separate and independent ............ 49

Louisville vy. Cumberland Telephone Co., 224 U. 8.

649.

New — Gas Co. v. Louisiana Gas Co., 115 U.

8. 650.

Green County v. Conness, 109 U. 8. 104.

BD TN BE. nn secede eve cccenrecperes 50

Original Electric Ry. Co.’s Charter ........... 51

Railroad Co. v. Georgia, 98 U. 8. 359; and Roches-

ter Railway Co. v. Rochester, 205 U. S. 236, Dis-

tinguished

PAGE

Il. Street railway franchise could be abandoned,

and electric light franchise retained

Brooks-Scanion Co. v. R. R. Comm., 251 U. 8. 396.

Norf. &@ Wes. Ry. Co. v. West Virginia, 236 U. 8.

605

Northern Ill. L. & T. Co. v. Ill. Com. Comm., 302 Il.

11.

Mt. Carmel Public Utility Co. v. Public Utility

Comm., 297 Ill. 303.

Illinois Trust & Sv. Bk. v. Doud, 105 Fed. 123.

Fifth Point: The Broad River Power Co. purchased

the electric light and power franchise from the Con-

solidated Co. pursuant to express statutory authority;

and it cannot now be compelled to operate a street

railway system which it never purchased........... 62

1925 Enabling Act.

LIST OF AUTHORITIES.

Ancrum v. Camden Water Co., 82 S. C. 284.......... 47

Atlantic @ Gulf R. R. Co. v. Ga., 98 U. 8. 359........ 52

Bluefield Water Wks. Co. v. Pub. Ser. Comm., 262 U.

Ns PSEC See ihe Sevens chi reden es bocodeios 25

Broad River Power Co. v. South Carolina, 280 U. S

ROP ae CURGEC Lic dk KRARWAA REL o Osho donee’ 2-15

Brooks-Scanlon Co. v. R. R. Comm., 251 U. 8. 396

21-24-53-67

Bryan v. Louisville R. R. Co., 244 Fed. 650......... 45-48

Bullock v. R. R. Comm., 254 U.S. 513.............. 22-27

Charleston-Isle Co. v. Shealy, 266 Fed. 406.......... 32

Chicago R. R. Co. v. Minn. Civic Ass’n, 247 U. 8.490. 66

Childs v. Columbia, 87 S. C. 566................000. 46

Cleveland v. Cleveland Ry. Co., 194 U. S. 517........ 33

Columbus R. R. Co. v. Columbus, 249 U. 8. 399...... 33-35

Fort Smith Traction Co. v. Bourland, 267 U. 8. 330.. 22

Franklin Telegraph Co. v. Harrison, 145 U.S. 459.... 46

Ga. Ry. é Power Co. v. Decatur, 262 U. S. 432....... 26

German Alliance Co. v. Home Water Co., 226 U. S.

SL ees NURS a dd CORES eka ks eA SEN Geb beste 47

Greene Couty v. Conness, 109 U. S. 104............ 50

Ill. Trust & Savings Bk. v. Doud, 105 Fed. 123...... 58-60

Jefferson R. R. Co. v. Barbour, 89 Ind. 375 .......... 46

Jones v. Newport News, 65 Fed. 736................ 45

Little Rock R. R. Co. v. Birnie, 59 Ark. 66........... 46

Louisville v. Cumberland Tel. Co., 224 U.S. 649...... 50

Louisville R. R. Co. v. Johnson’s Admrz., 270 8. W.

Vii

Maryland v. Silder, 110 Md. 510 .................. 46

Mt. Carmel Service Co. v. Utilities Comm., 297 Tl.

303 . e Mes ebURb ean rave swh esa sre habvdss spans 32-57-58

New Orleans Gas Co. v. La. Light Co., 115 U.S. 650.. 50

Norfolk & W. R. R. Co. v. Conley, 236 U.S. 605...... 57

Northern Ill. L. & T. Co. v. Ill. Comm., 302 Ml. 11. .32-57-59

Northern Pac. R. R. Co. v. North Ralieia 236 U. S.

WO sis Unbunes cuvanesus ive ele oe 55-56

Ohio Paley Co. v. Ben Avon Borough, 253 U. 8. 287.. 25

Okla. Operating Co. v. Love, 262 U. S. 331.......... 25

Oldham v. Southern R. R. Co., 210 Tenn. C. C. A. 644. 46

Paducah v. Paducah R. Co., 261 U. 8. 267............ 38

Potter-Matlock Co. v. Warren County, 182 Ky. 840. . 42

Railroad Comm. v. Eastern Tex. R. R., 264 U. 8.

MPR wheels win pede Weed inde DL ox oe ek 21-26-27-29-39 |

Railroad Co. v. teeorgen, 26 UB B00. So os 53

Rochester R. Co. v. Rochester, 205 U. 8. 236 ........ 52-53

Scheller v. Tacoma R. R. Co., 108 Wash. 348 ........ 45

Smyth v. Ames, 169 U.S. 466 ..................... 39

South Carolina v. Broad River, —~— 8. C, ——...... 1

Texas R. Co. v. Marshall, 136 U.S. 393 ............ 44

STaTuTes.

Act Feb. 13, 1925, c. 229, §1; 43 Stat. 987 ............

pnts TM BROT) 6 os ik iri eS

South Carolina Acts 1882, p. 876 ........... ‘Sea ed

South Carolina Acts 1887, p. 1103 ..................

South Carolina Acts 1890, p. 959 ..................

South Carolina Acts 1891, p. 1453..................

eR Rs NS ech onda ba cic knoe ve ecbe sectres

to Pk Rh & DO DOD

Supreme Court of the United States

OCTOBER TERM, 1929; No. 528.

Broad River Power Co. Er Au, - - Petitioners,

v8. [ORALLY ARGUED MAY 2, 1930.]

Strate or SourH Caroina Er At.,

On Writ of Certiorari to the Supreme Court

of South Carolina.

BRIEF FOR PETITIONERS.

(REFERENCES REQUIRED BY RULE 25.]

(1) The opinion below [South Carolina v. Broad

River Power Co., S. C. (unreported as yet)

R. 203-251; dissenting opinion R. 251-265] and the

judgment thereon (R. 251) were both rendered J uly 9,

1929, directing the Broad River Power Co. (hereafter

called Broad River) and the Columbia Railway Gas &

Electric Co. (hereafter called Consolidated Co.) to re-

sume permanent operation of an electric street railway

system in Columbia, S. C.; permanently enjoining

them from abandoning it; and holding both companies

jointly responsible for its future operation (R. 8).

(2) The jurisdiction of this Court was invoked by

a writ of certiorari, granted January 27, 1930, to re-

view the above cause (280 U. S. 96A; Act Feb. 13, 1925,

ce. 229, §1, 43 Stat. 937; Jud. Code 237(b); 28 U. S.

C. A. §344).

THE QUESTION INVOLVED.

The question involved here is whether, under the

‘*due process’’ clause, South Carolina can compel one

or both of those two public utility corporations to re-

sume permanent operation of a street railway system

in Columbia, S. C., operation of which had been aban-

doned in 1927, because during the last seven years of its

operation, it had been run at an actual loss of over

$675,000, before making provision for either deprecia-

tion or for return on the investment.

The State contends that by the Consolidated Co.’s

Charter, by City ordinances permitting the use of the

streets, and by certain private contracts with land de-

velopment companies, the company contracted to oper-

ate the street railway, regardless of whether its opera-

tion could only be had at an enormous financial loss.

The company contends that, despite economical and

efficient management, the street railway has not been,

and cannot be, operated, except at a tremendous finan-

cial loss, averaging nearly $100,000 cash loss per year,

without any provision for depreciation or return on the

investment; that for the State to compel it to continue

operation under such circumstances constitutes a tak-

ing of its property without due process of law; and

that it had the right to abandon operations and with-

draw its property from the public service, and realize

what it could from its salvage value.

STATEMENT OF THE CASE.

1. In 1882 the Columbia Street Railway Co. was

incorporated. In 1882, South Carolina chartered the

Columbia Street Railway Co. (hereafter called the

Horse Car Co.),* with power to construct street car

tracks through the City of Columbia and five miles

beyond the city limits, and to operate a street railway

for thirty years (Acts 1882, p. 876; R. 817).

Neither the State Constitution nor Statute required

any consent from the city of Columbia. Nothing was

done until 1886.

2. The 1886 Ordinance of City of Columbia. In

1886, Columbia passed an Ordinance authorizing the

Horse Car Co. to lay its tracks on the city streets

(which had already been fully authorized by the State

Legislature, regardless of the City’s consent) ; and pre-

scribed how the tracks should be laid and the cars oper-

ated, with various penalties by fine or imprisonment

for vioiations thereof (R. 833-837).

3. In 1887 Congaree Gas & Electric Co. was incor-

porated. In 1887, South Carolina chartered the Con-

*On account of the confusing similarity in the names of nu-

merous companies each beginning with the word ‘‘Columbia,”’

they will be designated herein by short titles expressive of their

nature.

AER emcees:

garee Gas & Electric Co. (hereafter called Congaree

Co.) with

‘full power and authority to manufacture,

make and sell gas, . . . and... tocarryon

and conduct the business of using electricity for

any purpose, and of manufacturing light, heat

and power, . . . byelectricity . . . for light-

ing and heating the streets, roads, [ete.] . . .”

(Acts 1887, p. 1103; R. 813).

The Congaree Co. conducted its electric lighting

business until 1891.

4. In 1890 the original Electric Street Railway

Company was incorporated. In 1890, the Columbia

Electric Street & Suburban Railway and Electric

Power Co. (hereafter called Original Electric Ry. Co.)

was incorporated, but never engaged in any operations

(Acts 1890, p. 959; R. 811).

5. The Consolidation Act of 1891. In 1891, South

Carolina passed a Consolidation Act, which authorized

the consolidation of the Original Electric Ry. Co. with

the Congaree Co., into a consolidated corporation, to be

called Columbia Electric Street Railway, Light &

Power Co.* (hereafter called the Consolidated Co.),

and authorized such Consolidated Co. to purchase the

original Horse Car Co. (Acts 1891, p. 1453; R. 809).

This Consolidation Act provided that the Original

Electric Ry. Co. and the Congaree Co.

*The Consolidated Co. later changed its name to Col

umbia Railway,

Gao-& Miestric Go., which ls one of the petitioners on thie Writ of Core

tiorari; and it will continue to be ref to as the Congolidated Co.

“‘be, and they hereby are, authorized to con-

sclidate their property, franchises and privileges

into one company, under the name of ‘The Co-

lumbia Electric Street Railway Light and Power:

Company,’ such consolidation to be effected by a

deed of indenture, to be executed by the two con-

solidating companies, declaring their intention so

to consolidate, and transferring to said consoli-

dated company all of the property, franchises,

rights and privileges owned or held by each of

them respectively.

‘Section 2. That upon such consolidation ‘The

Columbia Electric Street Railway Light and

Power Company’ shall be vested with all the rights,

franchises, powers and privileges conferred upon

the consolidating companies [by the charters]. . .

and that said consolidated company be subject to

all of the debts and liabilities of the two consoli-

dating companies; and that said consolidated com-

pany be authorized and empowered to purchaze

and acquire the property, franchise, and privileges

of ‘The Columbia Street Railway Company’ [orig-

inal Horse Car Co.], and upon such purchase said

consolidated company be vested with all the rights,

powers, franchises, and privileges conferred by

[the 1882 Act incorporating the original Horse

Car Co.].”’

Pursuant to the Consolidation Act, (1) the Orig-

inal Electric Ry. Co, and the Congaree Co., by proper

indenture, were consolidated into the Consolidated Co. ;

and (2) the Consolidated Co. thereupon purchased the

property, franchise and privileges of the original Horse

Gein, ana renee raven coe

Car Co. and became vested with all of the iatter’s

“rights, powers, franchises and privileges conferred

by’’ the 1882 Act incorporating such Horse Car Co.

6. The 1892 Ordinance of Columbia, giving its con-

sent to the construction of the Electric Street Railway

in its streets. By an 1892 Ordinance, Columbia gave

its consent to the Consolidated Co. to use electricity as

a motive power for its cars on the City streets (§562;

R. 838; Cf. R. 812, §5).

7. Consolidated Co.’s operation (1892-1925) of the

respective Railway and Electric Systems. The Con-

solidated Co. having, as above explained, acquired the

three separate franchises, to-wit: (1) electric railway

from one constituent, (2) electric light and power from

the other constituent, and (3) the original Horse Car

franchise by purchase, it abandoned the horse car oper-

ations, continued for 33 years (1892-1925) to operate

(a) an electric railway in Columbia, and for several

miles beyond the city limits, and (b) an electric light

and power system in that City and vicinity.

Private extension contracts. In 1900-1910, the Con-

solidated Co. made contracts with three suburban land

development companies, under which it built certain

extensions of its lines, the cost of two of which the Con-

solidated Co. bore. South Carolina claims that by

those contracts the Consolidated Co. became obligated

to the public to maintain its street railway system in

perpetuity in connection with those extensions and re-

gardless of losses. (See pages 40-48, infra.)

selene) peumpecsmnsaassnanpesenenmaamnessieeesiiillh

8. Consolidated Co.’s heavy losses in the operation

of the electric railway system during 1920-1925. Be-

ginning about 1912, the increasing use of private auto-

mobiles caused a country-wide decline in the profitable-

ness of electric railways; and during the years 1920-

1924, the Consolidated Co.’s electric street railway sys-

tem showed an enormous out-of-pocket cash loss. Its

actual operating expenses exceeded its receipts by

$528,803.91 (R. 1119; 1125; 426):

Actual cash losses in

Year operation

PRS pane $ 94,533.64

MES % eecncaee vices Rue. 49,232.73

as er Ee baer. 144,513.21

ENE nates ene ag apt ie 102,477.28

SPA ES apa 138,047.05

$528,803.91

The above losses included no charge for deprecia-

tion. If $25,000 a year be allowed for depreciation

(which is only half of that proved (R. 59, 539, 606), the

deficit for those five years would be $653,803.91—with-

out any provision for a return on the $1,750,000 invest-

ment, estimated on reproduction cost (R. 154, 539).

These inevitable losses in street railway operation,

were, in the case of the City of Columbia, further ag-

gravated by a strike in 1922; followed by continuous

and practically unrestrained “«jitney’’ competition

largely conducted by discharged strikers, which com-

petition was countenanced by the City authorities who

licensed approximately 200 jitneys a year (R, 522), in

addition to a number of taxicabs (R. 521-2).

Rae ee ek ie rs ce tat]

9. Organization of the Broad River Power Com-

pany, and its subsequent expansion and development,

including its acquisition of the Consolidated Co.’s elec-

tric and gas properties—the Consolidated Co. retaim-

ing its electric street railway. In July, 1924, the Broad

River Power Company was incorporated as a South

Carolina corporation, with a nominal capitalization, for

the purpose of conducting a gas and electric business.

In the latter part of 1924, its nominal capitalization

was increased to 22,000 shares of Common Stock and

12,500 shares of Preferred Stock, of which $1,250,000

of Preferred Stock and $2,199,300 of Common Stock,

with $449,000 cash, were used by Broad River to ac-

quire common and preferred stock of the Consolidated

Co. and the preferred stock of one of the latter’s sub-

sidiaries (R. 672). The details of Broad River’s ac-

quisition in June, 1925, of the Consolidated Co.’s elec-

tric and gas properties and subsidiaries, will be noticed

presently (pages 9-11, infra).

From time to time, Broad River issued (and sold

through investment bankers) its preferred stock and

bonds, with the proceeds of which, it erected a $4,-

000,000 power plant at Parr Shoals, and made many

additions, extensions, improvements and betterments,

at an aggregated cost of around $10,000,000 (R. 666),

until at the time of the trial below, its outstanding cap-

italization [exclusive of the funded debt of the Con-

solidated Co. the payment of which Broad River as-

sumed], was as follows (R. 673; 611):

pemtewet Wee. 2.5 ks $3,810,500

NN SONI ioe i sieve a3 4,329,400

First mortgage bonds. ........... 5,764,070

Sinking fund bonds............... 1,385,625

$15,289,595

All of the bonds and preferred stock are held by the

general public (R. 611). The total value of its proper-

ties is about $20,000,000.

The Enabling Act of March 19, 1925.

On March 19, 1925, South Carolina passed an Act

(for brevity called the Enabling Act) by which the

Consolidated Co. and six of its subsidiaries were sev-

erally (R. 806):

“‘authorized to merge or consolidate with or to

sell, transfer and convey to any one or more of

them or to the Broad River Power Company all

or any part of their respective properties, assets,

franchises and charter or other rights, and each

and every of said companies and the Broad River

Power Company are hereby authorized to merge

or consolidate with or to purchase and to receive

and hold all or any part of the properties, assets,

franchises and charter or other rights of any other

of said companies so sold, transferred and con-

veyed toit . . . and each and every company so

merging or consolidating with or becoming the

purchaser of any of such property, assets, fran-

chises, charter or other rights is hereby declared

to be vested with the same and all such merger:,

consolidations, sales, transfers and conveyances

are hereby validated and confirmed: PrRovipED

That all such mergers, consolidations, sales, trans-

fers and conveyancvs shall be made without preju-

dice to any claim for taxes or any rights of any

creditors of the companies so selling.

‘‘Section 2. That in furtherance of the pur-

poses of Section 1 of this act, it is hereby declared

that all franchises heretofore granted by the State

to any of the said companies ma~ be transferred

and assigned in pursuance of the provisions of

Section 1 of this Act, and that said franchises are

hereby ratified, confirmed and continued in full

force and effect in the company, to which the same

shull be so transferred and assigned and tnat such

company shall hold the same with all the rights,

powers and privileges granted to the original

holder thereof, subject only to the restrictions, re-

quirements and conditions in said franchises con-

tained.”’

On June 15, 1925, the Consolidated Co.’s several

gas and electric subsidiary corporations first conveyed

their properties to the Consolidated Co., and simul- -

taneously therewith, the Consolidated Co. conveyed,

in turn, all of its properties (including those just ac-

quired from its subsidiaries) to Broad River; except,

that the Consolidated Co. expressly retained its street

railway franchises, easements, rights of way, rolling

stock and railway equipment, by the following express

reservation (R. 1116):

“Columbia Railway, Gas and Electric Com-

pany expressly retains the following:

(a) Its franchises to operate and maintain

its street railway in the County of Richland

State of South Carolina, within and without the

City of Columbia and other municipal corpora-

tions in said County.

(b) All easements, rights of way, rights and

privileges necessary fc» operation of said street

railway.

conductors, bracket, spans, tools, repair equip-

ment, material and supplies used or useful ex-

clusively for street railway purposes.

(d) All that lot or parcel of land situate in

the County of Richland, State of South Caro-

lina, and more particularly described and

bounded as follows: [A strip 30 feet wide 1115

feet long, running from the Harper lands to

the State A. & M. Society].”’

The effect of the Enabling Act, and the action tak-

en thereunder, was that Broad River acquired by deed

all of the Consolidated Co.’s gas and electric properties ;

while the Consolidated Co. retained its electric street

railway franchises, tracks, rights of way, rolling stock

and equipment.

10. The Consolidated Co.’s continued losses in the

operation of its street railway system (1925-1927). The

Consolidated Co. and the State Railroad Commission,

by a series of measures [such as raising fares, adopting

a zoning system, eliminating unprofitable lines, giving

free transfers, selling tickets at reduced rates, and de-

creasing expenses in various ways], endeavored to put

the railway on a paying basis, so that the street car

system might continue in operation (R. 541-544); but

heavy losses continue“ until March 11, 1927, when the

street railway operation was abandoned (R. 541).

The actual cash losses in the operation for 1925-

1927 were as follows (R. 1119):

SE FSR IS i ends rv ewakodeds $87,812.13

ME 6s hea Vewavhcecaveveseuienes 47,630.35

1927 (2 months) . ........s0c00005 10,953.08

$147,395.56

This was an actual $147,395.56 operating cash loss

in a little over two years, without any provision for

depreciation or return on the investment.

The $675,199.47 losses for the 7 years and 2 months

(January 1, 1920-March 1, 1927) may be thus sum-

marized (R. 1119):

ME FA Views shad tucpnuudoniacen $ 94,533.64

ss Seber e iv ccine tenes bene 49,232.73

MRS es Ata ve ethics <ceuncackads 144,513.21

on pe en ee Pe pera? 102,477.28

Ba a sab beens Sae sks ceanede 138,047.05

PE agin ees Shc woe Ns wd Up esens * 87,812.13

BOE 6 Ss kdb on ck ocseetineus 47,630.35

1927 [2 months only]............ 10,953.08

Total of cash operating loss Jan-

uary 1, 1920-March 1, 1927. .$675,199.47

If to this be added $25,000 annual depreciation

charge [which is only 50% of what was proved to be a

proper depreciation charge, R. 159], aggregating

$179,166.66, the actual operating loss reached the enor-

mous sum of $854,366.13, without any return whatever

upon the $1,750,000 investment (valued at reprodue-

tion cost) which at 7% over a period of seven years

amounts to $875,000.

In iess than two years (July 1925-March 1927,

Broad River made $115,000 advances to its subsidiary

(Consolidated Co.) to enable the latter to continue op-

erating the street railway in the face of these heavy

losses (R. 1126; Fol. 1408).

11. The Consolidated Co. abandoned street car

operation on March 11, 1927. Finally Broad River

decided to make no more advances to aid the Consol-

idated Co. in keeping the railway system in operation;

and on March 11, 1927, the Consolidated Co. (having

no other means of obtaining funds, and having ex-.

hausted its entire resources, stopped operation of its

street car system, which has not been operated since

that date (R. 541). :

The State Railroad Commission investigated this

discontinuance of the street railway service in Co-

lumbia; and after full proceedings it. found that ‘the

unregulated, unrestricted system of jitney transporta-

tion has utterly destroyed the street railway system

of Columbia’’; ‘‘that the Company’s losses from 1922

to 1927, amounted to more than $500,000, not including

interest aiid depreciation;’’ that continued street car

operation could only be had if Broad River would stand

the losses of operation, which it could not do without

hampering its other utility services and damaging the

community in other respects. Thereupon, on April 7,

1927, the State Railroad Commission ordered that the

Consolidated Co.’s request to discontinue its entire

street railway service be granted (R. 819-825).

12. History of the litigation. On July 19, 1927, the

Attorney General of South Carolina filed a petition for

mandamus in the Supreme Court of South Carolina

(as a court of original jurisdiction), seeking to hold

the Consolidated Co. and Broad River, jointly respon-

sible for the permanent operation of the street car sys-

tem in Columbia, to require them to resume such opera-

tion, and to permanently enjoin them from abandoning

it in the future (R. 2-8).

A few days later, the State Railroad Commission

(a change in personel having occurred), delivered a

new opinion and ordered the Consolidated Co. to re-

sume its street car service (R. 825-831).

The State Railroad Commission, one individual,

and certain private corporations and public bodies,

were permitted to intervene (R. 39-94). The case was

referred to a Special Referee, who took a large amount

of oral and documentary testimony, and filed an elabo-

rate Report recommending that all the petitions be dis-

missed, upon the ground that to compel the Consoli-

dated Co. and Broad River to operate the street rail-

way at an enormous loss would violate the Fourteenth

Amendment (R. 130-196).

On exceptions to the Repori, the Supreme Court of

South Carolina adjudged that the writ of mandamus

should issue as prayed for (R. 204-251), Cormran, J.

diszenting, in a careful opinion (R. 251-265).

The Consolidated Co. and Broad River filed a Pe-

tition for Rehearing, pointing out many errors in the

Court’s opinion (R. 266-271), but it was overruled (R.

272).

A writ of certiorari was granted, 280 U. S. 96A.

SPECIFICATION OF ERRORS.

The Supreme Court of South Carolina erred in

holding :

1. That the Consolidated Co.’s street railway busi-

ness, if properly managed, could be conducted at a

profit (R. 250; 242, 244-250).

2. That the Consolidated Co.’s charter, the City Or-

dinances granting the use of its streets, and private

contracts for line extensions, constituted contracts re-

quiring the Consolidated Co. to operate its street rail-

way, regardless of losses (R. 221, 237, 239-241).

3. That the Consolidated Act of 1891 constituted a

grant of a combined franchise for street railway, elec-

tric and gas services, no part of which could be aban-

doned so long as any other part was exercised (R. 221,

222, 214-215, 218).

4. That the electric and gas business operated by

the Broad River Power Co. was conducted at a profit,

and, therefore, prevented the Consolidated Co. from

abandoning its street railway service on account of

losses in operation (R. 218).

5. That the Broad River Power Co. was jointly re-

sponsible for the operation of the street railway sys-

tem (R. 13).

SUMMARY OF POINTS DISCUSSED.

1. The street railway system in Columbia has for years

been operated at a ‘‘devastating loss,’’ and it can never

be operated otherwise than at a heavy loss.

South Carolina cannot compel the Consolidated Co. to

operate this street railway system at such a loss—for to do

so would take the Company’s property without ‘‘due proc-

ess’’ of law (page 17, infra).

2. The Consoliriated Co.’s street railway system was

properly managed; and if, cannot under any circumstances

be operated otherwise thzn at a heavy loss (page 24, infra).

3. None of the Charters, City Ordinances granting per-

mission to use the straets, private contracts for line ex-

tensions, or right of way grants, constitute any contract

which obligated the Consolidated Co. to operate the street

railway system, regardless of losses (page 26, infra).

4 The Consolidated Co. possessed two separate and

independent franchises—one for electric light and power

derived from the Congaree Co. and the other for an electric

street railway system derived from the Original Electric

Ry. Co. —

If either franchise could not be operated, except at a

loss, the Company could abandon such franchise, while re-

taining and operating its other independent franchise (page

49, infra).

5. The Broad River Power Co. purchased the electric

light and power franchise from the Consolidated Oo. pur-

suant to express statutory authority; and it cannot be com-

pelled to operate a street railway system which it never

purchased (page 62, infra).

FIRST POINT.

The street railway system in Columbia has for years

been operated at a ‘‘devastating loss,’’ and it can never be

operated otherwise than at a heavy loss.

South Carolina cannot compel the Consolidated Co. to

operate this street railway system at such a loss,—for to do

so would take the company’s property without ‘‘due proc-

ess’’ of law.

1, From January 1, 1920, to March 1, 1927, the ac-

tual cash operating loss of the Consolidated Co. in the

operation of the railway system, was $675,199.47, with-

_ out making any provision for depreciation or for a re-

turn on the company’s investment (R. 1119), During

the last two years of operation, the Consolidated Co.

had to borrow $115,000 in order to take care of the cash

deficit in operation, and only suspended operations

when it could survive no longer (R. 1126, 554). If it

had made even the very moderate charge of $25,000 a

year for depreciation (which is only 50% of what was

proved to be a proper depreciation charge R. 159), such

depreciation charges would have amounted to $179,-

166.66, thus bringing up the actual operating loss in

seven years to $854,366.17—=still without any provision

for a return on the investment.

The Special Referee thus summarized the evidence

regarding the losses (R. 158):

‘*The evidence clearly shows that for a number of

years the street railway business in the City of Colum-

bia has been operated at a heavy loss. Exhibit A-19

[R. 1118-1119], which is a summary from the books of

the railway company, indicates that the operating loss

before depreciation or interest from January, 1920, to

February, 1927, inclusive, amount to $675,199.47. This

statement includes charges for ‘power purchased,’

which is an interdepartment or intercompany charge,

and petitioners [South Carolina] contend that this

charge should be eliminated or at least greatly re-

duced. There was also testimony that the power com-

pany charged the railway compaay a much higher

rate than it did the Pacific Mills. The Referee does not

consider it necessary to discuss the testimony pro and

con in regard to this rate. Even at the minimum rate

the losses run into very high figures. This statement

also includes for the period since the conveyance to

Broad River Power Company a charge for pole rental.

The following is a statement by years compiled from

Exhibit A-19 showing the losses, including ‘power

purchased’ and excluding ‘power purchased’; and de-

ducting the entire amount for pole rental:

sé z

$ 9,510.96

J any. and

Feby. 1927. ......

ME Ss Sachin $675,199.47

Less gains 1920 and 1921

Less pole rental

Total losses, excluding ‘‘power

purchased’’ and pole rental . $252,832.36

“*Of course, it would not be proper to eliminate the

power charge entirely, because the actual cost of the

power would in any view of the case be a proper

charge. This also might apply to some charge for

pole maintenance.

“It will be borne in mind that the foregoing state-

ment covers operating losses only without any provi-

sion whatsoever for depreciation and without any al-

lowance whatsoever for interests or earnings on the in-

vestment. The testimony on behalf of respondents

[Consolidated Co.], was that at least $50,000 a year

would be a proper charge for depreciation. Even if

this charge for depreciation is reduced by half, the

total of such charge over the period of years would

amount to about $175,000, which would raise the entire

loss on the basis of the above minimum statement to

ee ee ae

over $400,000, with no provision for any return on the

investment. It will be noted that the losses appear to

have commenced in 1920, although the strike above re-

ferred to was not until 1922. It is true that the above

statement shows that eliminating the power pur-

chased there were small gains in 1920 and 1921, but

this would be entirely wiped out by a minimum charge

on account of depreciation.

The Referee is constrained to the conclusion as a

matter of fact that after taking into consideration all

of the evidence the street car system in the City of Co-

lumbia has been running at a devastating loss over a

period of years, and that this loss commenced some

time before the intervention of the Barstow interests.

Not only were the investors receiving no return from

the railway system, but without allowance for depre-

ciation, the ‘out of pocket’ loss was running up into

high figures. It was testified on behalf of respondents

[Consolidated Co.], that it would cost from $550,000

to $600,000 expended over a period of two or three

years to put the system in operation, and that of this

amount $125,000 would have to be expended in a very

short period in order to operate a few cars; and that

_ about $65,000 would be necessary to make repairs on

the tracks.’’*

The testimony as to these losses was absolutely un-

contradicted (R. 541-547, 557, 558, 579, 598, 601, 602,

743, 1119, 1125. See also detailed Exuzsrrs folded in

after R. 1118).

2. The law is well settled that where a street rail-

way business is run at a constant loss, it may surrender

its franchise to do such business and abandon its lines

(unless -it has, by contract, bound itself to operate,

regardless of losses).

In Brooks-Scanlon Co. v. R. R. Comm., 251 U. 8.

396, 399, it is said:

“*A carrier cannot be compelled to carry on even

a branch of business at a loss, much less the whole

business of carriage. On this point it is enough

to refer to Northern Pacific Ry. Co. v. North Da-

kota, 236 U. 8. 585, 595, 599, 600, 604, and Norfolk

& Western Ry. Co. v. West Virginia, 236 U. 8. 605,

609,614. . . . If the plaintiff be taken to have

granted to the public an interest in the use of the

railroad, it may withdraw its grant by discontinu-

ing the use when that use can be kept up only at a

loss. Mumm v. Illinois, 94 U. 8. 113, 126.”

In Railroad Comm. v. Eastern Tea. R. R., 264 U. 8.

79,,85, it is said:

“The usual permissive charter of a railroad

company does not give rise to any obligation on

the part of the company to operate its road at ai

loss. No contract that it will do so can be elicited

from the acceptance of the charter or from putting

the road in operation. The company, although de-

voting its property to the use of the public, does

not do so irrevocably or absolutely, but on condi-

tion that the public shall supply sufficient traffic on

a reasonable rate basis to yield a fair return. And

if at any time it develops with reasonable certainty

that future operation must be at a loss, the com-

pany may discontinue operation and get what it

can out of the property by dismantling the road.

To compel it to go on at a loss or to give up the

salvage value would be to take its property with-

out the just compensation which is a part of due

process of law. The controlling principle is the

same that is applied in the many cases in which the

constitutionality of a rate is held to depend upon

whether it yields a fair return. Brooks-Scanlon

Co. v. Railroad Commission of Louisiana, 251 U. 8.

396, 399; Bullock v. Railroad Commission of Flor-

ida, 254 U. 8. 513, 520; State, ex rel. Cunningham

v. Jack, 113 Fed. 823; s. c. 145 Fed. 281; Iowa v.

Old Colony Trust Co., 215 Fed. 307, 312; Northern

Pacific R. R. Co. v. Dustin, 142 U. 8. 492, 499;

Commonwealth v. Fitchburg R. R. Co., 12 Gray,

180, 190; State v. Dodge City, etc., Ry. Co., 53 Kan.

329, 336.’’

In Bullock v. R. R. Comm., 254 U. 8. 513, 520, it is

said:

‘‘ Apart from statute or express contract people

who have put their money into a railroad are not

bound to go on with it at a loss, if there is no rea-

sonable prospect of profitable operation in the fu-

ture. Brooks-Scanlon Co. v. R. R. Comm. of Lous-

tama, 251 U. 8. 396. No implied contract that they

will do so can be elicited from the mere fact that

they have accepted a charter from the State and

have been allowed to exercise the power of eminent

domain.”’

See also Fort Smith Traction Co. v. Bourland, 267

U. 8. 330, 333.

8. It is plain, therefore, that the Consolidated Co.

was entitled to abandon its street railway in Columbia,

and salvage what it could from the wreck, by junking it

or otherwise, unless the case falls within one or the

other of two recognized exceptions to the general rule,

to be noticed hereafter (p. —, infra).

ANALYSIS OF THE SOUTH CAROLINA COURT’S OPINION.

The State Court endeavored to avoid the above

well recognized rule by holding that:

1. The street railway system, if properly man-

aged, could be operated at a profit, instead of at a

loss (R. 242-250).

2. The charter, City Ordinances, private con-

tracts for line extensions and right of way grants,

constitute contracts obligating the street railway

company to operate, regardless of losses (R. 214 et

seq. as to charters; R. 236 as to City Ordinances; R.

239-241 as to extension line contracts and rights of

way). ‘

3. The Consolidated Co.’s franchise was a com-

bined and inseparable franchise for electric light,

power and street railway service jointly, no portion

of which could be abandoned so long as any other por-

tion was exercised (R. 218 et seq.); and the Broad

River’s purchase of the electric light power franchise

from the Consolidated Co. [notwithstanding express

statutory authority Enabling Act R. 806], was wholly

ineffective to keep the electric light and power fran-

chise separate from a surrendered street railway fran-

chise (R. 213).

These contentions will be considered in order.

SECOND POINT.

The Consolidated Co.’s street railway system was prop-

erly managed, and cannot under any circumstances be op-

erated otherwise than at a heavy loss.

In response to the South Carolina Court’s sugges-

tion that the Columbia street car system, if properly

managed, could be operated at a profit, it is sufficient to

observe:

1. In response to a similar suggestion advanced in

the Brooks-Scanlon Co. case, 251 U. S. at 400, this

Court said:

‘‘This is merely the language of hope. We can-

not take it to be a finding of fact, for we perceive

nothing in the evidence that would warrant such a

finding.”’

2. There is no evidence by anyone experienced in

street car operations, either that the system could be

operated at a profit or that anything could be done to

improve the methods of operation with the funds avail-

able—all funds having been more than exhausted in

the effort to keep the system going in face of a heavy

loss.

The only witness on this point for the State was

a City Councilman, who said that if competition were

removed and the road improved he thought they might

be able to make a little money (R. 438, 442). Such

testimony cannot over-balance the testimony of ex-

perienced operators (R. 545, 502, 536, 537, 541, 543-

547, 570, 731, 732, 735) and the hard fact that the Com-

pany lost hundreds of thousands of dollars for seven

years and had to borrow large sums to continue oper-

ation. Common sense and business experience prove

that corporations do not deliberately lose $100,000 a

year for a long series of years if it can possibly be

avoided. pa ee |

3. Similarly, the Railroad Commission’s opinion

(during the pendency of this case), that by proper

management the street railway could be made to yield a

fair return, was a mere expression of opinion, without

any basis in fact to support it (R. 829); and in any

event, its opinion pendente lite is not competent evi-

dence and can be given no probative effect in this liti-

gation (Ohio Valley Co. v. Ben Avon Borough, 253 U.

S. 287; Okla. Operating Co. v. Love, 252 U. 8S. 331;

Bluefield Water Wks. Co. v. Pub. Ser. Comm., 262 U.

S. 679).

The question here involved is not as to the en-

forcibility of any order of the Railroad Commission,

but is whether its expression of opinion pendente lite,

can be given any evidentiary effect in a pending judi-

cial proceeding where the same question is being sub-

jected to judicial review. Such a statement by the

Railroad Commission was pure hear-say, not under

oath and not subject to cross-examination.

RII IVER LOT ne

THIRD POINT.

None of the charters, city ordinances granting permis-

sion to use-the streets, private contracts for line extensions,

or right of way grants, constituted any contract which ob-

ligated the Consolidated Co. to operate the street railway

regardless of losses.*

1. The statutory charters. (a) The 1890 charter of

the Original Electric Ry. Co. was purely permissive in

character, contained no rate provision whatever, and

imposed no special obligation of any kind on the Com-

pany to operate, other than exists under the general

corporate rule. The 1890 charter language was as

follows (R. 812) :

“‘Section 5. That the said company shall have

power to construct or acquire single or double rail-

way tracks, or such gauge as they may elect, through

any street or streets of the City of Columbia, with

consent of City Council, and to extend the same five

miles into the country, in any direction or directions

they may wish, from the State Capitol. And the said

company is authorized and empowered to contract for

and provide electric power for any other purpose or

purposes.

Section 6. That said company shall have power to

operate their cars in the transportation of passengers

and freight over the tracks they may construct or ac-

quire, in said city, with electric power, in suitable car-

riages, and at such rates as may be fixed upon in the

by-laws of the same.’’

*Whether ntract existed and its terms are questions which

this Court smiacs ter teat (idarete te. & Power Co. v. Decatur,

262 U. S. 432; R. R. Comm. v. Eastern Tex. R. R. Co., 264 U. 8. 79).

No argument is necessary to show that such gen-

eral permissive language did not impose any obligation

on the Company to operate regardless of losses (Bul-

lock v. R. R. Comm. of Fla., 254 U. S. 513, 520, 521;

R. R. Comm. v. Eastern Texas R. R. Co., 264 U. S. 79,

85).

(b) The Consolidation Act of 1891 (R. 809) au-

thorized the Congaree Co. [which had an electric light

and power franchise R. 813], to consolidate with the

Original Electric Ry. Co. for the purpose of forming

a new Consolidated Co. The Consolidation Act pro-

vided (R. 809, Section 2) :

‘Section 1. Be rr enacten by the Senate and

House of Representatives of the State of South Caro-

lina, now met and sitting in General Assembly, and by

the authority of the same, That the ‘Columbia Electric

Street and Suburban Railway and Electric Power

Company’ [Original Electric Ry. Co.] and the ‘Con-

garee Gas and Electric Company’ [Congaree Co.] be,

and they hereby are, authorized to consolidate their

property, franchises and privileges into one company,

under the name of ‘The Columbia Electric Street

Railway, Light and Power Company’ [Consolidated

Co.], such consolidation to be effected by a deed of in-

denture, to be executed by .he two consolidating com-

panies, declaring their intention so to consolidate, and

transferring to said consolidated company all of the

property, franchises, rights and privileges owned or

held by each of them respectively.

“Section 2. That upon such consolidation ‘The

Columbia Electric Street Railway, Light, and Power

Company’ [Consolidated Co.] shall be vested with all

the rights, franchises, powers and privileges conferred

upon the consolidating companies by an act entitled

‘An Act to incorporate the Congaree Gas and Electric

Company,’ approved December 24, A. D. 1887, and by

an Act entitled ‘An Act to incorporate the Columbia

Electric Street and Suburban Railway and Electric

Power Company,’ approved December 24, A. D. 1890,

or any Acts amendatory thereof, and that said con-

solidated company be subject to all of the debts and

liabilities of the two consolidating companies; and

that said consolidated company be authorized and em-

powered to purchase and acquire the property, fran-

chise and privileges of ‘The Columbia Street Railway

Company,’ [Horse Car Co.] and upon such purchase

said consolidated company be vested with all the

rights, powers, franchises, and privileges conferred by

an Act entiled ‘An Act to incorporate the Columbia

Street Railway Company,’ approved February 9th, A.

D. 1882; but such purchase to be without prejudice to

creditors of The Columbia Street Railway Company

{Horse Car Co.] to enforce their rights against said

Columbia Street Railway Company’’ [Horse Car Co.].

The two companies were consolidated under that

authority. There is certainly nothing in that Consoli-

dation Act which imposes upon the new Consolidated

Co. anything more than that which already existed

with respect to the constituent Original Electric Ry.

Co. There is certainly nothing in the Consolidation

Act which can be strained or twisted into creating a

contract to operate the street railway system regardless

of losses. It is a simple example of the consolidation

of two companies into a new consolidated company,

which does not impose or grant to the new company

anything more than or different from that formerly

possessed by the constituents.

It follows, therefore, that the Consolidated Co. ac-

quired nothing more than the pre-existing permissive

franchises belonging to its two constituents. As they

did not impose any contract to operate at a loss (p. 26,

supra), it necessarily follows that the Consolidated Co.

was under no contract to operate at a loss.

Consolidated Co. and certain of its subsidiaries to sell

in whole or in part to Broad River (R. 806), did not

purport to do anything more than to give statutory au-

thority for such sale, transfer, merger or consolidation,

which prior statutory authority was essential to any

of those transfers, ete. No one claims that such au-

thority constituted in any sense a contract obligation

upon any company to operate regardless of losses.

(d) With respect to each of the foregoing statutes,

it must be borne in mind that it prescribed no rates of

fare, and used no language whatsoever indicating any

obligation upon the corporation which it created, to

operate for any specific length of time, or indeed to

operate under any conditious other than those imposed

by general corporate law. There is nothing in any of

the foregoing statutes which creates any special con-

tract or does anything to take it out of the general rule

laid down in R. R. Comm. v. Texas R. R. Co., 264 U. 8.

79, 85, that,

‘“‘The company, although devoting its property

to the use of the public, does not do so irrevocably

or absolutely, but on condition that the public

shall supply sufficient traffic on a reasonable rate

basis to yield a fair return. And if at any time it

develops with reasonable certainty that future op-

eration must be at a loss, the company may discon-

tinue operation and get what it can out of the prop-

erty by dismantling the road.”’

2. The city ordinances. After South Carolina had

granted to the Original Electric Ry. Co. a charter to

use the streets of Columbia ‘“‘with consent of City

Council”? [which company consolidated with the Con-

garee Co. into the Consolidated Co., which in turn, by

proper statutory authority acquired the Horse Car

Company]; the City of Columbia, by an Ordinance of

1892 (R. 838), provided that,

‘‘the powers and privileges heretofore granted to

the Columbia Street Railway Co. [Horse Car Co.] are

hereby conferred upon the former company [Consoli-

dated Co.] and the said company shall be subject to all

the duties, liabilities, restrictions and regulations now

or hereafter prescribed for said Columbia Street Rail-

way Company [Horse Car Co.].’’

Section 562. ‘‘The Columbia Electric Street Rail-

way, Light and Power Company [Consolidated Co.]

shall have the privilege of using electricity as a motive

power for its cars, and the further privilege of laying

two tracks . . . ; and in all other respects said com-

pany is to have the rights and privileges conferred

upon the Columbia Street Railway Company [Horse

Pee es

NEE TS

Car Co.], and be subject to the restrictions and con-

ditions hereinbefore prescribed for said company.’’

The ordinances with respect to the Horse Car Co.,

which were thus, by reference, applied to the Consoli-

dated Co. merely ‘‘authorized”’ the Horse Car Co. to

lay its tracks on certain streets (R. 833); prescribed

the gauge of the tracks, and that they should be laid as

prescribed by the city surveyors; made stipulations as

to how the tracks should be laid and the streets kept in

repair; and prescribed the duties of the drivers, how

the cars should be numbered and lighted, and that they

should be run every hour from 7 A. M. to 9 P. M. with

various penalties for violation of the ordinance pro-

visions.

South Carolina insists that as the terms of this 1886

ordinance were adopted, by reference, as one of the

conditions on which the Consolidated Co. was given

permission to use the city streets, it constitutes an ob-

ligation on the part of the Consolidated Co. to operate

its street railway system (a) in perpetuity and (b) re-

gardless of losses in operation. : 7

The provisions of these city ordinances are merely

the usual regulatory provisions with penalties of fine

or imprisonment for violations thereof, which are cus-

tomarily imposed in this country as police regulations

of public service companies. They do not constitute

contracts binding the corporation to operate its cars

regardless of losses. The ordinances do not supersede

the establishment rule that a public service corporation

LITT ee

is not required to devote its property to the public use

upon unremunerative conditions.

The 1886 and 1892 Ordinances just reviewed, as

‘well as the similar Ordinances of 1895, 1896, 1903, 1904,

1907, 1921 [providing for extensions of the lines of rail-

way and miscellaneous regulations of operation, such

as separate accommodations for whites and blacks, pro-

hibiting disorderly conduct, providing for smoking

cars, fenders, etc. (R. 839-845) ], contaim no rate pro-

visions or time requirement for operation. Such Ordi-

nances can stand on no higher plane than the ordinary

permissive franchise granted by Statute, which as here-

tofore shown, this Court has held does not require con-

tinued operation at 2 ioss (p. 21, supra).

If we assume that such City Ordinances created

contractual rights in a sense (to-wit: that having ac-

cepted permission to use the streets upon the terms of

such Ordinances, the street railway will be deemed by

contract to have agreed to comply therewith so long as

it continues to operate), still it is clear that such Ordi-

nances do not impose any obligation to operate at a

loss. That ordinances of this character are not con-

tracts which require continued operation at a loss, has

been the uniform holding of the State Courts (Potter

Matlock Trust Co. v. Warren County, 182 Ky. 840; Mt.

Carmel Public Utility Co. v. Public Utihties Comm.,

297 Ill. 303; Northern Illinois L. & T. Co. v. IWinois

Commerce Com., 302 Ill. 11; Charleston-Isle of Palms

Traction Co. v. Shealy, 266 Fed. 406).

South Carolina relies upon Columbus Ry. & Power

Co. v. Columbus, 249 U. 8. 399, as authority for holding .

that the Consolidated Co. had contracted with the City

of Columbia to operate im perpetuity, regardless of

losses.

In order to understand exactly what the Columbus

ease decided, it will be uséful first to review Cleveland

v. Cleveland City Ry. Co., 194 U. 8. 517, on which the

Columbus case is largely rested.

In the Cleveland case, an ordinance permitted the

Kinsman Street Company to charge, over its limited

lines, not more than 5c. The West Side Company had

a 25-year franchise that would expire February 10,

1908. By Ordinances of 1885, 1887, 1892, and 1893, the

City consented to the consolilation of these roads and

authorized an extension of line (194 U. S., at 526),

“‘but on the express condition that no increase

of fare shall be charged by said Railroad Company

on any part of its main line or on said extension,

and so that but one fare, not to exceed 5e, shall be

charged between any points on said Company’s

main line or extension, including the extension

herein granted, and said Company shall sell tickets

on its cars as follows: 11 for 50¢ and 22 for $1; and

the right herein granted shall terminate with the

present grant of the main line, to-wit: on the 10th

day of February, 1908.”

As the result of the various ordinances and consoli-

dations, the corporations ceased to charge a 5c fare for

riding over the limited lines covered by the Kinsman

Street Ordinance of 1879, and charged a 5e fare for

riding over the entire system, with the tickets and trans-

fers as provided in the other ordinances.

. Qleveland passed an 1898 Ordinance, seeking to re-

duce the fare over the Kinsman Strcet line to four

cents. The question involved was whether the 1885

and subsequent Ordinances constituted a contract be-

tween the Railroad Company and the City for a five

cent fare over all parts of the consolidated lines for

the period terminating February 10, 1908.

The Court held that a binding contract existed be-

tween the City and the Railroad, for a five cent fare,

which could not be modified until February 10, 1908;

and in reaching that conclusion it relied upon the fol-

lowing elements:

(a) That the Ordinance specifically provided for a

rate of fare;

(b) That the Ordinance was required to be ac-

cepted in writing by the Railroad Companies, and such

acceptance filed with the City;

with the present grant of the main line, to-wit: on the

10th day of February, 1908’’;

‘ (d) That no reservation was made of a right to

ter;

(e) That certain existing rights of the corpora-

tions were surrendered and benefits conferred upon

the public, i. e., the Companies ceased to charge 5c for

the limited Kinsman Street route, but charged only 5c

for a ride over the entire system;

(f) That obligations were imposed upon the cor-

porations to continue such benefits during the stipu-

lated time.

On account of those elements, this Court held that

the Ordinances (194 U. S. at 536)—

“‘were intended to be agreements binding upon

both parties definitely fixing the rates of fare

which might be thereafter charged.”’

In the Columbus case (249 U. 8. 399), the City of

Columbus, in 1901, passed two ordinances, each for a

term of 25 years, granting the right to operate over

certain specified streets for 25 years, and fixing certain

specific rates of fare. The ordinances obligated the

Company, during the 25 year life of the franchise, to

furnish adequate service, to run cars on certain streets,

limited the fares to specific amounts, and under one

ordinance required the company to remove the tracks

and leave the streets in good condition at the expira-

tion of the period; and under the other ordinance gave

the City an option to purchase at the expiration of the

term.

In 1918, the Company surrendered its 1901 fran-

chises, and attempted to enjoin the City from forcing

the Company to operate on the streets covered by the

1901 franchise at the rates specified therein, claiming

that such rates were confiscatory.

This Court pointed out that in the Cleveland case,

it had held that the acceptance of the ordinances gov-

erning rates of fare constituted a binding contract

upon both the City and the Company, quoting from

its former opinion as follows (249 U.S. at 408) :

“In reason, the conclusion that contracts were en-

gendered, would seem to result from the fact that the

provisions as to rates of fare were fixed in ordinances

for a stated time and no reservation was made of a

right to alter, that by those ordinances existing rights

. of the corporations were surrendered, benefits were

- eonferred upon the public, and obligations were im-

posed upon the corporations to continue those benefits

during the stipulated time. When, in addition, we con-

_ gider the specific reference to limitations of time which

_ the ordinances contained, and the fact that a written

acceptance by the corporations of the ordinances was

required, we can see no escape from the conclusion,

that the ordinances were intended to be agreements

binding upon both parties definitely fixing the rates of

fare which might be thereafter charged (194 U. §.

536).’?

Applying that rule to the Columbus situation, the

Court pointed out that the Columbus ordinances were

specific in their terms, obligated the Company during

the life of the franchise to do certain things, to charge

certain fares and no more, and that the grant was

expressly limited to 25 years, with the right in the

City to purchase at the expiration of that time. It

thus announced its conclusion (249 U. 8. at 409):

‘“We can have no doubt that under the author-

ity of the laws referred to and in view of the

terms of the ordinances in question and the ac-

ceptances by the grantees, the City of Columbus

- made valid and binding contracts with the Com-

panies, binding for the term of 25 years. By

these contracts, obligatory alike upon the City

and the Company, the City granted the right to

use the streets and the Company bound itself to

furnish the contemplated service at the rates of

- fare fixed in the ordinance. We cannot agree

87:

with the contention of the appellant that these

were permissive franchises, granted and accepted

with the right upon the part of the Company to

abandon the uses and purposes for which the fran-

chises were granted, because the rates fixed be-

came unremunerative as alleged in the amended

bill. The authority under which the City acted

came from the State and was granted by proper

statutes passed for that purpose. The contracts

were made between the City and the Company

and became mutually binding for the period named

in the ordinances. . . . Nor is there any al-

legation establishing the fact that taking the

whole term together the contracts will be neces-

sarily unprofitable. . . . In the present case

the terms of the contract are not doubtful. The

term for which the Company was given the right

to use the streets of the City was definitely stated,

and the terms, including the rates of fare which

the Company might charge, were explicitly laid

down.”’ ;

The differences between the Cleveland and Co-.

lumbus cases on the one hand, and the case at bar, on

the other hand, may be thus briefly summarized.

1. In the Cleveland and Colwmbus cases, the fran-

chises were for a fixed, definite term; whereas, in the

m3 at bar, there was a mere permission, with no term

2. In the Cleveland and Columbus cases, a specific

rate of fare was fixed, to last for a definite stated time;

whereas, in the case at bar, no rate of fare is fixed.

3. In the Cleveland case the Company surrendered

its existing right to charge 5c for the limited Kinsman

Street line, and obligated itself to continue that benefit

during a fixed term of 25 years; whereas, in the case

at bar, the Company surrendered nothing that it al-

sence pnmenend and made no promise with respect

ereto.

4. In both the Cleveland and Columbus cases, the

Company was required to make a specific and formal

written acceptance of the ordinances; whereas, in the

case at bar, there was no acceptance, but merely the

permissive use of the right conferred.

5. Inthe Columbus case, the Company did not seek

to surrender and abandon its entire street railway fran-

chise; whereas, in the case at Lar, the Company has

abandoned its entire street railway business.

6. In the Columbus case, the Company sought to

hold on to its street railway business and to prevent

any interference with it heres a higher rate of fare;

whereas, in the case at bar, the Company is not seeking

a higher rate of fare, but has abandoned its entire busi-

ness, because it can only be operated at a heavy loss.

Where a rate of fare is fixed by a franchise ordi-

nance (which in the particular case is held to constitute

a contract between the parties), then the fact that such

rate of fare does not provide a proper rate of return

on the investment is immaterial and furnishes no basis

for a claim that it is confiscatory under the Federal

Constitution (Paducah v. Paducah R. Co., 261 U. S.

267). This rule was the basis of the decision in the

Columbus case, which refused an increase of fare under

a contract ordinance.

Where no rate of fare is fixed, a different rule ap-

plies. Here, no rate of fare was fixed by any statute

or ordinance ; and consequently there was no contract to

operate at any specific rate of fare, as was the case in

the Cleveland and Columbus cases. Therefore, in the

ease at bar, the general rule applies that a public util-

ity (not having contracted to operate at a specific rate

of fare) is not required to continue in the public service

at a loss; and this is because if a public service cor-

poration should be required to operate at a loss, its

property would be taken for public use without just

compensation, to-wit: without due process of law

(Smyth v. Ames, 169 U.S. 466; R. R. Comm. v. Eastern

Tea. R. R. Co., 264 U. 8. 79, 85).

An illustration of a converse situation will be illum-

inating.

Suppose the City of Columbia were seeking to pre-

vent the Consolidated Co. from increasing its fare;

and on final hearing it appeared that the existing rate

of fare was confiscatory. Certainly the 1892 Ordi-

nances of the City of Columbia would not prevent such

an increase. That Ordinance, and the subsequent or-

dinances along the same line, would constitute no justi-

fication for such confiscation. Those Ordinances did

not specify a fixed rate of fare; and, therefore, the

Company would be entitled to have a compensatory

rate under the general rule laid down by this Court,

If it appears that there is no rate of fare which will

secure an adequate return, or any return (but would

result in an operating Joss), it necessarily follows that

such Ordinances would constitute no justification for

requiring continued operation. This is what the Court

had in mind when, in the Zastern Texas R. R. Co. case,

it said (264 U. S., at 85):

‘The company, although devoting its property

to the use of the public, does not do so irrevocably

or absolutely, but on condition that the public shall

_ aupply sufficient traffic.on a reasonable rate basis

~ to yield a fair return. And if at any time it de-

velops with reasonable certainty that future opera-

tion must be at a loss, the company may discontinue

operation and get what it can out of the property

by dismantling the road. To compel it to go on at

a loss or to give up the salvage value would be to

take its property without the just compensation

which is a part of due process of law.’’

That is the principle on which the Consolidated Co.

has acted. The South Carolina public would not supply

@ sufficient traffic which, at a reasonable rate basis,

- would yield a fair return on the investment. Indeed,

as has been repeatedly emphasized in this Brief, the

traffic was not even sufficient to pay operating expenses,

but imposed an enormous annual loss upon the owners

of the property. Seven years’ experience developed,

not only with reasonable certainty, but with apodictic

certainty that future operation would be at a loss; and,

therefore, the Consolidated Co. discontinued opera-

tions, in order that it might get out of the property by

salvage what was left—as this Court has held it had the

right to do.

3. Private contracts for line extensions, etc. As

the facts are slightly different with respect to the dif-

ferent contracts, they will be dealt with separately.

(a) Columbia Land & Investment Co. By a con-

tract of April 16, 1900, the Land Co. agreed (1) to pay

for an extension of the railway line to the Land Co.’s

development, with an option in the Consolidated Co.

(after two years), to purchase the line at cost; and (2)

if it did not purchase it, then to lease it for 99 years;

and the Consolidated Co. agreed (R. 1063)

‘to operate the said extension with its electric

trolley cars, running at least one car per hour over said

extension each way between the hours of 7:30'A. M.

and 8 P. M. daily such operation to begin as soon as

said line is constructed and to continue for two years

thereafter, and during said period the : arty of the first

part [Consolidated Co.] agrees to maintain the said

extension in thoroughly good order. . . . [And

at the expiration of the two year period, if it did not

buy the line], then it covenants and agrees to take’a

lease of such extension for the period of 99 years, bind-

ing itself to operate the said line in the manner pre-

scribed for the operation thereof during the period-of

two years above stipulated for, and binding itself to

maintain in thorough repair the said line and to pay

therefor, semi-annually, as a rental for said line, a sum

equivalent to the interest at the rate of 6% per an-

num upon the cost of construction of said line: Pro-

vided, however, that the party of the first part shall

have the option to purchase the said line at any time

during the term of said lease at a price equivalent to

the cost of the construction thereof, as above stipu-

lated, together with interest thereon.”’

On September 6, 1902, at the end of the two-year .

period, the Consolidated Co. leased the line for 99

years, agreeing to maintain the railway during the pe-

riod of the lease (R. 864-868), with the option of pur-

- chasing the line for $7,409.57 at any time during the

lease (R. 868).

On June 30, 1909, the Consolidated Co. exercised

its option to purchase the line for $7,409.57, paid that

consideration, and received an absolute warranty deed

from the Land Co. for the railway line, but without

any undertaking or covenant on the part of the Con-

solidated Co. (R. 1066-1067).

The effect of the whole transaction was that the

Land Co. first paid for the cost of the line extension;

the Consolidated Co. leased the line for 99 years, agree-

ing in the lease to maintain and operate it “during the

continuance of this lease and to the end thereof’’ (R.

867), but with a reserved option to purchase the line.

It purchased the line, obtained an absolute deed there-

for, with no obligation on its own part. Thereupon,

the lease, with all of its obligations, terminated and be-

came merged in the Consolidated Co.

(b) North Columbia Land Co. By contract dated

August 24, 1906 (R. 851), it was agreed (1) that the

Land Co. would cause to be conveyed to the Consoli-

dated Co. a short existing railway line of a certain In-

provement company; (2) that the Consolidated Co.

would extend such line to the Land Co.’s development;

(3) that the Land Co. would reimburse the Consoli-

dated Co. for the cost of such extension; (4) that the

Consolidated Co. would deliver its own bonds to the

Land Co. at par to reimburse it, which bonds were sub-

sequently paid off so that the Land Co. was entirely re-

imbursed for its expenditures; and (5) that the Con-

solidated Co.

**Will thenceforth maintain and keep the same

in good condition and repair, and will likewise af-

ter the proposed extension is completed as herein

provided thenceforth maintain and keep it in good

condition and repair, and run and operate street

railway cars over the said line and extension in

connection with its lines of street railway in and

near the said City of Columbia on convenient and

reasonable schedules of not less than one car for

every hour from 8 o’clock in the morning to 8

o’clock at night, and as much later and oftener as

travel will warrant, of each day, at one fare of not

more than 5c for each passenger from and to any

of the usual stopping places on any of its lines

including the line of the said Improvement Co. and

the proposed extension; it being expressly un-

derstood that one of the chief purposes moving

the said Land Co. to make this proposition is that

it may secure one fare of not more than 5e for each

passenger going to and from its land through a

part of which the proposed extension is to run.”’

The Consolidated Co. operated the railroad for

twenty-one years, to wit, from 1906 to 1927 (R. 302,

371, 382).

The Consolidated Co. contends:

First: By the contract with the Land Co., the Con-

solidated Co. did not agree to operate and maintain

its entire line, but only (a) to operate and maintain

the line acquired from the Improvement Co. and the

newly built extension thereof to the Land Co.’s prop-

erty; and (b) even as to that, only that it would be so

run “‘in connection with its lines of street ratlway in

and near the said City of Columbia’’; and when its

Columbia lines were abandoned the obligation to run

ears on the extensions automatically terminated.

‘Second: The contract did not require a perpetual

operation of the road. The Consolidated Co. operated

the road for twenty-one years (1906-1927), and the

contract has been fully performed by the operation for

that length of time.

In. Texas Railway Co. v. Marshall, 136 U. S. 393, a

city gave to a railroad $300,000 in county bonds and 66

acres of land within the city limits, in consideration of

which, the railroad agreed to “permanently establish

its eastern terminus and Texas office at the City of

Marshall’’ and to ‘‘establish and construct at said City

the main machine shops and car works of said Railway

Company.’’ Eight years later, the railroad abandoned

the city as its terminus and moved its machine shops

and offices elsewhere. On a bill to enforce the agree-

ment, the lower court (while not requiring the restora-

tion of anything that had been actually abandoned),

enjoined the railroad from removing any more offices

from the City, and required it to continue those which

remained there, and otherwise to perform the contract.

The decree was reversed on both original and cross-

appeals, and it was held that the contract had been

performed by keeping the shops going for eight years;

that even an agreement to ‘‘permanently establish’”’

the offices in that City was complied with by main-

taining them for eight years; and that the contract.

should not be construed to require the perpetual main-:

tenance of the offices and shops. me

The Court said, at page 402: 0

“Tf, however, the City desired something more

than this, if it desired to make sure that these es-

tablishments should forever remain within the

limits of the City of Marshall, and that the Rail-

road Company should be bound to keep them there

forever, such an extraordinary obligation should

have been acknowledged in words which admitted

of no controversy. It would have been very easy

to have inserted into this contract language which

forbade the Company from ever removing the ter-

minus of the road to some other point, or from:

_ ever removing or ceasing to use the depot, or the

car and machine shops, and thus have made the

obligation perpetual. . . . The word ‘perma-

nent’ does not mean forever, or lasting forever,

or existing forever. The language used is to he

considered according to its nature and its rela-

tion to the subject matter of the contract. . . .”

When the Consolidated Co. operated the line ac-

quired from the Improvement Co. as well as the exten-

sion, for twenty-one years in connection with its prin-

cipal lines in the City of Columbia, it did all that it was

required to do under its contract. (See also Jones v.

N.N. & M. V. Co., 65 Fed. 736; Bryon v. Louisville,

Btc., R. Co., 244 Fed. 650; Lucas v. New York, N. H. &

H. R. Co., 140 Fed. 438; Scheller v. Tacoma R. Co., 108.

Wash. 348; L. & N. R. Co. v. Johnson, 207 Ky. 813;

Little Rock, Etc., R. Co. v. Birnie, 59 Ark. 66; J effer-

son, Etc., R. Co. v. Barbour, 89 Ind. 375; Maryland &

P. R. Co. v. Silder, 110 Md. 510; Oldham v. Southern

R. Co., 210 Tenn. C. OC. A. 644; Childs v. City of Co-

2umbia, 87 S. C. 566.)

Franklin Telegraph Co. v. Harrison, 145 U. 8. 459,

is not inconsistent with this conclusion. In that case

the Court, after a consideration of the terms of the con-

tract in question, found that the circumstances showed

that there was no intention that the contract in issue

might be terminated by the Telegraph Co. The deci-

sion in that case must be confined to its particular facts.

The Court was not laying down any general principle of

law but was endeavoring to carry out the intention of

the parties as disclosed by the facts.

Courts will give a reasonable construction to the lan-

guage of parties to a contract. It is entirely unreason-

able to suppose that the parties intended that for the

mere temporary loan of the cost of construction by the

Land Co., the Consolidated Co. undertook to operate

its entire system perpetually, involving a loss in excess

of $100,000 per year.

This is not a suit in equity for the specific perform-

ance of any contract which the North Columbia Land

Co. might be entitled to enforce. Although it was al-

lowed to intervene in the mandamus suit, it merely

joined in a prayer for the relief prayed for in the

State’s petition for mandamus; and consequently its

rights cannot here be tested by the same rules as might

apply in a suit in equity for the specific performance

of a private contract. The contract, if enforced in

this proceeding, must be enforced as imposing public

obligations, which are enforceable at the instance of the

State. That such agreements do not inure to the bene-

fit of the public is well settled. (German Alliance Ins.

Co. v. Home Water Supply Co., 226 U. 8. 220; Ancrum

v. Camden Water Co., 82S. C. 284.) In this connection,

the consequences of a contrary holding must be con-

sidered. If the contract is to be treated as one to which

the public was a party, the parties to the contract could

not in any respect alter the obligation. That the parties

did not so consider the contract is evidence from the

fact that such amendments were made (R. 854).

The purpose of these agreements is evident. They

were made for the benefit of the Land Companies, who

were benefitted thereby, in that the accessibility of their

lands made them more saleable; and it is obvious that

they were intended solely for the benefit of the parties

to the contract.

(¢) Shandon Annex Co. By contract dated May

30, 1910, it was agreed that the Consolidated Co. would

build an extension for the Shandon Co. at the latter’s

expense; that when completed, the Shandon Co. would

deliver to the Consolidated Co. an “absolute and un-

qualified transfer and conveyance’’ of the railroad and

right-of-way, and that the Consolidated Co. would oper-

ate the railway on a schedule therein set out at a 5¢e

fare (R. 855).

The Town of Shandon passed an Ordinance giving

its consent for the Shandon Co. to operate through its

streets (R. 862), but it contained such onerous obliga-

tions that the Consolidated Co. was never willing to

accept a conveyance of the railway burdened with these

obligations (R. 516, 517). The conveyance was never

made to the Consolidated Co.

The Shandon Co. later went into bankruptcy and is

not a party to this proceeding. The Special Referee

held that the testimony was incomplete; that the deed

tendered by the Shandon Co. was not before him; and

that he could not definitely determine the extent of the

rights and obligations of the parties (R. 182). The

Shandon Co. has never performed its contract. The

operation of the road by the Consolidated Co. for so

many years was a sufficient compliance with its obli-

gations, if any, under the contract. The same rules

apply here as in the case of the North Columbia Land

Co. (p. 44, supra).

(d) Rights-of-Way. There are two grants of

rights-of-way (R. 845-847) ; but as they contained no

covenants on the part of the Consolidated Co., they

cannot be held to create a contract by which the Con-

solidated Co. agreed to operate its road in perpetuity

regardless of losses. If a simple right-of-way deed

creates a contract by which the railroad must in per-

petuity operate its road, then no railway line could ever

be abandoned (Bryan v. L. & N. R. Co., 244 Fed. 650).

FOURTH POINT.

The Consolidated Co. possessed two separate and inde-

pendent franchises—one for electric light and power de-

rived from the Congaree Oo. and the other for an electric

street railway derived from the Original Electric Ry. Oo.

If either franchise could not be operated, except at a

loss, the company could abandon such franchise, while re-

taining and operating its other independent franchise.

Upon the consolidation of the Congaree Co. (R.

813) with the Original Electric Ry. Co. (R. 811), the

respective separate franchises of those two constit-

uent companies continued to exist separately after

the consolidation (R. 809). The separate franchises

became vested in the Consolidated Co., which there-

after was entitled to exercise them with respect to

the property to which they respectively applied, to

the same extent, and no more, that the respective con-

stituents exercised such franchises before the con-

solidation. There is nothing in the Consolidated Act

which purports in the slightest degree, to grant to the

Consolidated Co. any new or additional powers, or

indeed anything in the way of a franchise other than

the right ‘‘to be” and to receive the franchises of the

constituent companies which were consolidated into

the Consolidated Co.

The Consolidation Act (R. 809) is a mere authority

to two corporations to consolidate, thereby creating a

new consolidated corporation, with a franchise “to be,”

in which is vested the property and franchises cf the

two constituents. It created no new franchise (ex-

cept the power ‘‘to be’’), and it did not purport to

grant a combined franchise to the new company to

oceupy streets with structures for the street railway,

gas or electric business. It merely authorized the new

corporation to become the owner of the pre-existing,

independent and separate franchises of the two con-

stituent corporations, subject as to each to all the

provisions of such franchises (Louisville Vv. Cumber-

land Telephone Co., 224 U. S. 649, 661; New Orleans

Gas. Co. v. Louisiana Gas Co., 115 U. 8. 650).

In Green County v. Conness, 109 U. S. 104, 106, it

was said, with reference to the transfer by consolida-

tion of the franchises of one company to a consolidated

company,

“Tf only a sale of the road to another com-

pany had been authorized and made, then it might

very plausibly have been contended that the pur-

chasing company took and held it under its own

charter only, without the franchises and priv-

ileges connected with it in the hands of the vendor

company ; but ‘consolidation’ is not sale, and when

two companies are authorized to consolidate their

road it is to be presumed that the franchises and

privileges of each continue to exist in respect to

the several roads so consolidated.’’

The 1925 Enabling Act (R. 806), shows a legislative

recognition of the separateness of the franchises, in

that it authorizes the Consolidated Co. to sell to any

of its subsidiaries or to Broad River,

“all or any part of their respective properties,

assets, franchises and charter or other rights ;’’

and authorizes each company ‘‘to purchase and to

receive and hold all, or any part, of the properties,

assets, franchises and charter, or other rights’’;

and authorizes any company which becomes ‘‘the

purchaser of any of such property, assets, fran-

chises and charter or other rights . . . to be

vested with the same.”’’

There is nothing in that Consolidation Act which

imposes upon the Consolidated Co. any special or pecu-

liar contractual obligation to operate a public service

business at a loss.

The charter of the constituent Original Electric Ry.

Co. was purely permissive. It provided (R. 812, §5):

Section 5. ‘That the said company shall have

power to construct or acquire single or double rail-

way tracks, of such gauge as they may elect,

through any street or streets of the City of Colum-

bia, with consent of City Council, and to extend

the same five miles into the country, in any direc-

tion or directions they may wish, from the State

Capitol. And the said company is authorized and

empowered to contract for and provide electric

power for any other purpose or purposes.

Section 6. That said company shall have

power to operate their cars in the transportation

of passengers and freight over the tracks they may

construct or acquire, in said City, with electric

power, in suitable carriages, and at such rates as

may be fixed upon in the by-laws of the same.”

.- The charter of the Original Electric Ry. Co. was

thus purely permissive. It imposed no special or con-

tractual obligation upon it to continue to operate at a

loss. Similarly the Consolidation Act did nothing more

than vest in the Consolidated Co. such permissive fran-

chise or rights as the constituent company already pos-

sessed.

-It.is too plain for argument that the Consolidated

Co. did not, by virtue of any transfer or acquisition

from the Original Electric Ry. Co., succeed to, or as-

sume, any contractual obligation with the State to op-

erate the street car system at a loss—for the obvious

reason that the constituent company itself had no such

obligation.

_ On the other hand, the South Carolina Court held

(R. 214, 215, 218), that the Consolidation Act,

‘‘not only created a corporation but conferred

a franchise and the right to do all of the things set

forth therein . . . the powers and privileges

held by this new corporation were derived from

this Act of incorporation, and were not the mere

continuation of the powers formerly granted to

the consolidating corporations. ‘It was the cre-

ation de novo of a new corporation with new pow-

ers and privileges,’ ’’ citing Atlantic & Gulf R. R.

Co. v. Georgia, 98 U. S. 359, and Rochester R. R.

-, Co. vy. City of Rochester, 205 U. 8. 236.

In attempting to state the terms of the Consoli-

dation Act, the Court erroneously incorporated into it,

§2 of the 1887 Congaree Co. charter, §§5, 6 of the 1890

Original Electric Ry. Co. charter, and §§5, 6 of the 1882

Horse Car Co. charter, which creates a totally erro-

neous idea of what is actually contained in the Cone

dation Act.*

Railroad Co. v. Georgia, 98 U. 8. 359, and Rochester

Ratlway Co. v. Rochester, 205 U. S. 236, are not-in

point, as the charter provisions there involved relate to

immunity from taxation, which is not a franchise or

privilege that passes by consolidation to the meee

dated company.

The Consolidated Co. was engaged in two separate

businesses; one was the electric light and power busi-

ness, the franchise for which it had derived from the

Congaree Co.; the other was the electric street railway

business, the franchise for which it had oad from

the Original Electric Ry. Co.

The Consolidated Co. could not be compelled to

spend the money it made from the light and power

business upon its street railway business. If it could

be compelled to do that, the result would be that pa-

trons of light and power would be required to pay ex-

orbitant rates for that service, in order to enable other

persons to have a street railway service.

In Brooks-Scanlon Co. v. R. R. Comm., 251 U. 8.

396, the Brooks-Scanlon Co. purchased a narrow gauge

logging railroad, and then leased it to a railway com-

pany which it caused to be a Later it termi-

nated the lease and the railway company went out of

business and sold its rolling stock.

Subsequently, the Louisiana Railroad Commission

issued an order requiring the Brooks-Scanlon Co. to

continue the operation of the railroad, either directly

or through the railway company, which it controlled.

The State Court held that although the railroad

showed a loss, the proper test was ‘‘the net result of the

whole enterprise—the entire business of the corpora-

tion.’? This Court reversed the State Court, and held

that the Brooks-Scanlon Co. could not be compelled to

obey the Railroad Commission’s order, saying:

‘¢ A carrier cannot be compelled to carry on even

a branch of business at a loss, much less the whole

business of carriage. On this point it is enough

to refer to Northern Pacific ‘Ry. Co. v. North Da-

kota, 236 U.S. 585, 595, 599, 600, 604, and Norfolk

& Western Ry. Co. v. West Virginia, 236 U. S. 605,

609, 614. It is true that if a railroad continues to

exercise the power conferred upon it by a charter

from a State, the State may require it to fulfill an

obligation imposed by the charter even though

fulfillment in that particular may cause a loss.

Missouri Pacific Ry. Co. v. Kansas, 216 U. 8. 262,

276, 278. But that special rule is far from throw-

ing any doubt upon a general principle too well es-

tablished to need further argument here. The

plaintiff may be making money from its sawmill

and lumber business but it no more can be com-

pelled to spend that, than it can be compelled to

spend any other money to maintain a railroad for

the benefit of others who do not care to pay for it.

If the plaintiff be taken to have granted to the

public an interest in the use of the railroad it may

withdraw its grant by discontinuing the use when

that use can be kept up only at a loss. Munn v.

Illinois, 94 U. 8. 113, 126. The principle is illus-

trated by the many cases in which the constitution-

ality of a rate is shown to depend upon whether it

yields to the parties concerned a fair return.’?

In Northern Pacific Ry. Co. v. North Dakota, 236

U. 8. 585, the State fixed maximum intrastate rates on

coal in carload lots. This Court held that those rates

could not be enforced against the carriers, because

they did not provide proper compensation to the car-

rier for the use of its property in the public service.

The Court said:

“The fact that the property is devoted to a

public use on certain terms does not justify the

requirement that it shall be devoted to other pub-

lic purposes, or to the same use on other terms,

or the imposition of restrictions that are not rea-

sonably concerned with the proper conduct of the

business according to the undertaking which the

carrier has expressly or impliedly assumed. If it

has held itself out as a carrier of passengers only,

it cannot be compelled to carry freight. As a

carrier for hire, it cannot be required to carry

persons or goods gratuitously. The case would

not be altered by the assertion that the public in-

terest demanded such carriage. The public in-

terest cannot be invoked as a justification for

demands which pass the limits of reasonable pro-

tection and seek to impose upon the carrier and its

»*> property burdens that are not incident to its en-

gagement.”’

»» he Congaree franchise for electric light and pow-

er gave to the Consolidated Co. the right to carry on

a lighi: and power business. That franchise was lim-

ited to that business only. The public interest cannot

impose upon the business operated under that fran-

chise, the additional burden of paying losses incurred

in carrying on an entirely different business, the fran-

chise for which the Consolidated Co. derived from the

Original Electric Ry. Co.

This idea is well illustrated by Mr. Justice HuGHEs’

language in Northern Pacific Ry. Co. v. North Dakota,

at page 596:

“The State cannot estimate the cost of carry-

ing coal by throwing the expense incident to the

maintenance of the roadbed, and the general ex-

_ penses, upon the carriage of wheat; or the cost of

_ earrying wheat by throwing the burden of the up-

keep of the property upon coal and other commod-

ities. . . . But, while local interests serve as

a motive for enforcing reasonable rates, it would

be a very different matter to say that the State

may compel the carrier to maintain a rate upon

a particular commodity that is less than reason-

able, or—as might equally well be asserted—to

earry gratuitously, in order to build up a local en-

terprise. That would be to go outside the carrier’s

undertaking, and outside the field of reasonable

supervision of the conduct of its business, and

would be equivalent to an appropriation of the

property to public uses upon terms to which the

carrier had in no way agreed.”’ .

The Consolidated Co. agreed, by its acceptance of

the Congaree franchise, that it would carry on a light

and power business at reasonable rates that would pro-

vide a fair compensation to it, based upon the reason-

able value of the property devoted to that public use.

It did not agree that it would devote that property not

only to the furnishing of light and power to patrons,

but also to the furnishing of street railway service,

telephone service, or any other service. &

In Norf. & West. Ry. v. West Virginia, 236 U. 8.

605, it was held that a 2c rate for passenger traffic af-

forded such a small margin of profit that the railroad

could not be compelled, by the State, to carry passen-

gers at that low rate. In the course of the opinion,

Mr. Justice Hucues said (p. 609) :

“Thus, it would not be contended that the State

might require passengers to be carried for noth-

ing, or that it could justify such action by placing

upon the shippers of goods the burden of excessive

charges in order to supply an adequate return for

the carrier’s entire service.”’

The rule that a company owning two or more utili-

ties cannot be compelled to operate one at a loss, be-

cause its total business shows no loss, is sustained by

well reasoned decisions ‘of various courts (Northern

Ill. L. & T. Co. v. Tl. Commerce Comm., 302 Ill. 11;

Mt. Carmel Public U tility & Service Co. v. Public Util-

ities Comm., 297 Ill. 303; Ill. Trust & Sav. Bank v.

Doud, 105 Fed. 123).

In Mt. Carmel Public Utility &c. Co. v. Public U.

Comm., 297 Ill. 303, the Mt. Carmel Co. was engaged

in the business of furnishing gas, electricity, water and

heat—the heat being furnished under a 1906 Ordi-

nance.

The heating business proving unprofitable, the

Company petitioned the Public Utilities Commission

for permission to abandon its heating service and to

surrender its franchise. The Public Utilities Commis-

sion directed the Mt. Carmel Co. to resume the render-

ing of heat service immediately. The Court held that

it could not be required to do so, saying:

‘‘The state has no power to compel a corpora-

tion engaged in operating a public utility to serve

the public without a reasonable compensation.

If the corporation is required by any act

or proceeding to devote to the public the use of its

property without compensation or without any

reasonable. compensation, it has been deprived of

its property and of the equal protection of the law.

Where a public utility corporation is engaged in

furnishing to the public through various depart-

ments of its business, different kinds of service, it

cannot be compelled to carry on a branch of its

business which furnishes one kind of such service

at a loss, even though at the same time its whole

business may be conducted at a profit. .Brooks-

Scanlon Co. v. Railroad Com., 251 U. 8S. 396;

Northern Pacific Railroad Co. v. North Dakota, 236

U. 8S. 585; Norfolk & Western Ratlroad Co. v.

West Virginia, 236 U.S. 605. . . . The evidence

taken indicated that the heating plant was prac- |

tically worthless; that to enable it to render satis-

factory service during the season would require

substantially its entire reconstruction, and would

require an expenditure of $100,000—an amount

equal to the value of the plant—and that the plant

would not then pay for its operation and any re-

turn on the investment. This was the condition

as shown prima facie by the evidence, and such a

condition would justify the petition of the com-

pany to abandon the service. . . . An order

without investigation—with any finding of facts

on which it was based—requiring practically the

construction, at great expense, of a new plant

which could not be expected to earn a reasonable

return on the investment, was not reasonable but

amounted to requiring the appellant to devote its

property to the public use without regard to com-

pensation.”’

In Northern Ill. Light & T. Co. v: Tl. Com. Com’n,

302 Ill. 11, a traction company petitioned for leave to

discontinue its street railway service on certain streets

in the Town of Ottumwa. In reversing the order of the

Commerce Commission, which had permitted discon-

tinuance of service on only one of the streets, the Court

said:

“*It was also held in that case [Mt. Carmel Utii-

ity Co. v. Public U. Comm.] that, where a public

utility is engaged in furnishing to the public,

through various departments of its business, dif-

ferent kinds of Service, it cannot be compelled to

ERT ae

«.--earry on a branch of its business which furnishes

.. one kind of such service at a loss, although at the

.» ‘same time its whole business may be conducted at a

+ »profit, The question whether or not appellant in

“pi this case is making a profit in its other utility is

not proper for consideration in this case. :

_ The question in this case is not one of rate making,

:.. but of the right to abandon a part of the utility on

_. the ground that the operation of such part will

_. amount toa confiscatory rate on the whole, or a rate

upon the whole that yields such a small return that

_.. the owner of the utility would substantially suffer

--, @ loss it it were required to continue, or a rate that

.. returns so small a profit that no reasonable busi-

-- mess man would accept and continue such opera-

> tion,”? citing and quoting Brooks-Scanlon Co. v.

. Ratlroad Comm., 251 U. S. 396, and Bullock v.

- Florida, 254 U. 8. 514.

_ In Minois Trust & Savings Bank v. Doud, 105 Fed.

123,. the Circuit Court of Appeals for the Eighth Cir-

cenit (Sanborn, J.) said:

“The proof is conclusive that the railway was

conducting three classes of business,—operating a

street railway by electricity, furnishing steam heat

‘and power, and furnishing electric light; that it

could conduct either one or two of these occupa-

_ tions without the others or the other, and that it

s had ample power, without the new building and

-. machinery, to operate its street railway, to furnish

"its customers with steam heat and power, and to

furnish some of its customers with electric light.

. . .« It eould have abandoned the business of

furnishing electric light entirely, and have con-

tinued to operate its street railway, and to furnish

steam heat and power to its customers, or it could

have abandoned all its business but the operation

of its street railway, and it would still have been

a going concern. . . . Under its articles of in-

corporation the railway derived from the state

power (1) to buy, construct, sell, lease, and operate

street railways in Ottumwa; (2) to buy, construct,

sell, lease, and operate a plant for furnishing steam

heat and power; and (3) to buy, construct, sell,

lease, and operate a plant to supply and furnish

electric light to the city of Ottumwa and its in-

habitants. This corporation derived the privilege

of erecting its poles and stringing its wires along

the streets of Ottumwa to furnish electric light

from a set of ordinances entirely distinct from

those which permitted the use of the streets of the

city for its street railway and for its pipes to fur-

nish steam heat and power. The ordinances rela-

tive to its electric lighting imposed no conditions

upon its business of furnishing steam heat and-

power, or upon its business of operating the street.

railway. Now, conceding that the franchises of a

public or guasi public corporation may be forfeited

for misuse or renunciation, still the entire failure

of this corporation to exercise its power to furnish

electric light would have furnished no ground for

the forfeiture of its franchises to furnish steam

heat and power and to operate its street railway.

Another of the franchises granted to this corpora-

tion under its articles was the power to buy, hold,

use, and sell the corporate stock of any competing

corporations in the city of Ottumwa. None of the

franchises to operate a street railway, to furnish

electricity, or to furnish steam heat and power

could have been forfeited because the corporation

had not exercised its power to purchase the stock

of rival corporations. No corporation is required

to exercise all the powers granted to it by its or-

ganic law as a condition of the exercise of some of

them unless that requirement is expressly made by

some statute or ordinance under which it derives

some of its powers or privileges, or the powers are

inseparably connected with each other.”’

FIFTH POINT.

The Broad River Power Co. purchased the electric light

and power franchiss from the Consolidated Co. pursuant

to express statutory authority; and it cannot be compelled

to operate a street railway system which it never pur-

chased.

Before the passage of the 1925 Enabling Act, the

Consolidated Co. owned and was operating under (1)

the street railway franchise which it had derived on

consolidation from the Original Electric Ry. Co., and

(2) the electric light and power franchise which it had

derived on consolidation from the Congaree Co.

The Broad River Power Co. was an independent

corporation, having ample corporate powers to operate

an electric light and power business in Columbia; but

there was no existing statutory authority which would

authorize the Consolidated Co. to sell any of its fran-

chises to Broad River. At that time (1924), the stock

of the Consolidated Co. had been purchased by the so-

called Barstow interests, which also controlled Broad

River.

The Consolidated Co.’s electric properties were in

bad condition, and there was an acute shortage of

power in the City of Columbia and its vicinity. In or-

der to finance the necessary improvements and exten-

sions of the electric light and power plant, it was essen-

tial that the electric and gas properties be conveyed to a

new company totally disassociated from the street rail-

way operations, which for years had been operated at a

tremendous loss. No investors or financial houses

would furnish money to a company operating an elec-

tric light and power business in this condition, which

was at the same time operating a street railway bv *-

ness whose huge losses in operation would be sad¢:al

on the electric light and power business (R. 526, 547,

663, 669, 670, 696).

Thereupon, the South Carolina Legislature adopted

the 1925 Enabling Act, which expressly authorized the

Consolidated Co. and its subsidiaries (R. 806).

“‘to merge or consolidate with or to sell, trans-

ferand convey . . . to the Broad River Power

Company all or any part of their respective prop-

erties, assets, franchises and charter or other

rights,and . . . the Broad River Power Com-

pany are hereby authorized to merge or consoli-

date with or to purchase and to receive and hold

all or any part of the properties, assets, franchises

and charter or other rights of any other of said

companies so sold, transferred and conveyed to

eS ap and each and every company so merging

or consolidating with or becoming the purchaser

of any of such property, assets, franchises and

charter or other rights is hereby declared to be

vested with the same and all such . . . sales,

transfers and conveyances are hereby validated

and confirmed.

Section 2. Franchises.—That in furtherance

of the purposes of Section 1 of this act, it is hereby

declared that all franchises heretofore granted by

the State to any of the said companies may be

transferred and assigned in pursuance of the pro-

visions of Section 1 of this Act, and that said fran-

chises are hereby ratified, confirmed and continued

in full force and effect in the company, to which

the same shall be so transferred and assigned and

that such company shall hold, the same with all the

rights, powers and privileges granted to the origi-

nal holder thereof, subject only to the restrictions,

requirements and conditions in said franchises

contained.”’

Pursuant to that express statutory authority, the

Consolidated Co. sold; transferred and conveyed to

Broad River its light /and power properties and fran-

chises (Deed, R. 1070; 1118). The Broad River as-

sumed the mortgage indebtedness of the Consolidated

Co., as well as the obligations of certain subsidiaries

aggregating over $7,000,000 (R. 687), and surrendered

for cancellation a large amount of stock of the Con-

solidated Co. and ts subsidiaries (R. 687).

The Consolidated Co. expressly reserved to itself

its street railway franchises, easements, rights of way

and property (R. 1116).

After the conveyance the Consolidated Oo. had

about $75,000 current assets, $99,000 of current lia-

bilities, and also possessed its entire physical street

railway property (R. 608), which had a reproduction

value of $1,750,000 (R. 134), and was assessed for tax-

ation at $250,000 for 1926 (R. 1120) and at $357,142

for 1927 (R. 1121).

The effect of the Enabling Act and the deed made

puruant thereto, was to vest in Broad River the elec-

trie light and power franchise originally granted to

the Congaree Co. :

As Broad River never purchased the street railway

system (which was expressly excepted from the con-

veyance), it is impossible to see how Broad River can

be compelled to operate, or to be jointly responsible for

the operation of, a property which it never acquired.

Nevertheless, the South Carolina Court held that

the conveyaince by the Consolidated Co. to Broad River

constituted a practical merger of the two companies,

and made Broad River liable, to the same extent as the

Consolidated Co., for the future operation of the street

railway system.

It is difficult to see how a corporation which buys

one property from the seller, who expressly reserves

to himself another property, can be held to have been

merged with the seller, so as to make such corporation

liable for a property which he has expréssly declined

to buy.

The fact that one corporation owns stock in an-

other does not create an identity between the two com-

panies, nor render the stockholding company the own-

er of the property of the other, or liable for its obli-

gations, or create the relation of principal and agent

or representative between the two (Chicago M. & St.

P. R. R. v. Minn. Civic Assn., 247 U. 8. 490, 500), ex-

cept in those exceptional cases, where in order to pre-

vent fraud or other flagrant wrong, one company is

held to be not an independent corporation but a mere

agent of the other.

No such situation exists here. The Consolidated

Co. and Broad River, pursuant to express legislative

authority, separated the ownership of the street rail-

way system from that of the light and power business.

This was done for a purpose. It was done because

the light and power business needed financial assist-

ance in order to supply light and power to Columbia

and vicinity at reasonable rates. This could not be

done unless money could be raised. Money could not

be raised so long as the losses of the street railway

system were saddled upon the company seeking to bor-

row money for its light and power business. This was

the occasion of the separation of interests.

Millions of dollars belonging to investors, and

which never belonged to the Consolidated Co., were

invested in Broad River, upon the faith of its sepa-

rate identity, and upon its ownership pursuant to

statutory authority, of the light and power business

(R. 806; p. 9, supra).

The Supreme Court of South Carolina, by its deci-

sion in this case, seriously jeopardizes the rights of

the bondholders and preferred stockholders of Broad

River, whose money has been used to build an enor-

mous $4,000,000 power plant and to provide for neces-

sary extensions, additions and betterments in order to

furnish power at reasonable rates to the people of

South Carolina. The decision of the South Carolina .

Court goes far beyond the rule which is sometimes ap-

plied to acts which are actually or constructively fraud-

ulent, as between two corporations, one of which owns

the other.

By the decision below, the investments of many per-

sons in Broad River are now subordinated to a prior

lien for the operation of a street railway with a deficit

of about $150,000 per year in perpetuity.

The decision below impresses this burdehsome lien

for the operation of a street railway company, not only

upon the property which Broad River acquired from

the Consolidated Co., but upon millions of dollars of

additional property, which it has acquired since, by

the use of the funds of investors who would never have

thought of putting any money into a street railway

enterprise.

If, as held in Brooks-Scanlon Co. v. Railroad

Comm., 251 U. 8. 396, a lumber company could not be

compelled to use the assets employed in the lumbering

business to operate a railroad owned by it at a loss, a

fortiori, a gas and electric company cannot be compelled

to exhaust its assets in operating a street railway sys-

tem owned by another company. A decision imposing

such an obligation of itself is so contrary to funda-

mental principles of justice as to constitute a violation :

* the Fourteenth Amendment. 4

CONCLUSION.

~The judgment of the ro Court of South Car.

C. EDWARD PAXSON,

GEORGE M. Le PINE,

W. C. McLAIN, 2

| Counsel for Petitioners,

_ MarsHALL BULLITT, ?

Of Counsel.

Louisville, Ky.,

28 April, 1980.

mental principles of justice as to constitute a violation

7” the Fourteenth Amendment.

Se Ss CONCLUSION.

= “Phe judgment of the Supreme Court of South Ce

olina should be reversed.

C. EDWARD PAXSON,

GEORGE M. Le PINE,

_W. O. McLAIN,

Woe. MarsHALL BULLITT,

; Of Counsel.

Louisville, Ky.,

28 April, 1980.

Counsel for Petitione ‘i

See.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.