Havre De Grace & Perryville Bridge Co. v. Towers

Stockbridge, J., .delivered the opinion of the Court. There is presented by the record in this ease a question of ratemaking by the Public Service Commission of a somewhat unusual nature, and with regard to> which no conclusion is entirely satisfactory. The rates involved are those to be charged the users of a toll .bridge across the Susquehanna River from Havre de Grace, in Harford County, to Perryville, in Cec.il County, in this State. The length of the bridge is 3,210 feet, in the neighborhood of three-fifths of a mile.

The power of the Public Service Commission to- regulate such rates of toll is derived from the provisions of an Act of Assembly (1916, Chapter 272), by which certain bridges which were authorized by their charters to collect toll were classified as' common carriers and made subject to the provisions of law relating to such corporations, and to the same extent, under the provisions and control of the Public Service Commission. There are, therefore, no new principles involved in this case, but there is considerable difficulty in the application of those principles to the facts. A very concise statement of the more salient points out of which the case arises will help, to clarify the issue, and probably facilitate arriving at a correct conclusion. A little over forty years ago the P., W. & B. R. R. Co. constructed a single-track railroad bridge across the Susquehanna River, for the passage of its trains between the points ¹⁹ of Havre de Grace and Perryville.

The bridge was the type then in vogue, namely, of wooden-truss construction, supported by a series of piers built up from the bed of the river. Some years later, in order to give greater stability to the structure, the wooden trusses were replaced by wroughtirou ones, and the bridge continued to be used by the P., W. V B. R. R. and its successor, the P., B. & W. R. R. Co., as a railroad bridge down to about ten years ago. At that time this bridge, which had been originally built at a cost in excess of $2,000,000, was found to be inadequate to the needs of the railroad company, both by reason of the fact that it was a single-track bridge only and that, with the growth of travel, the greater weight of the locomotives and freight continually passing over it brought a strain upon the construction of the bridge greater than it had been designed to carry when it was originally built. Assent was thereupon obtained from the Legislature of the State and the War Department for the construction of a double-track railroad bridge, paralleling at a distance of about 150 feet the bridge theretofore used.

The grant of the right to construct a new bridge was coupled with a requirement for the removal of the earlier bridge. There was at that time no highway bridge crossing the Susquehanna River at this point, nor at any point nearer than Conowingo, some ten or twelve miles further up the river, and it was felt that it would be a great advantage to persons residing in Havre de Grace and Perryville, when the original bridge should be abandoned as a railroad bridge to have it converted into a highway bridge. An endeavor was made to interest both county and municipal authorities on each side of the river to undertake the conversion and maintenance of the bridge, which they declined to do, apparently because apprehensive that the revenues which would bo derived from tolls would be inadequate, both to effect the necessary adaptation of the railroad ²⁰ bridge for use as a highway bridge and the upkeep of it after it had been so adapted. In this condition, a charter was granted by the Legislature to certain gentlemen resident in Harford and Cecil Counties creating a bridge company, authorizing the acquisition by the company of the bridge, and its administration, with the right to charge tolls for the use thereof, conditioned only that the rates of toll should not be in excess of those charged by the company owning and operating the Conowingo Bridge and which was a much shorter structure.

The seven gentlemen named in the charter effected a corporate organization, each subscribing and paying for one share of stock of the par value of $100, and after negotiating with the railroad company, the railroad company, at a cost of $89,000 adapted the bridge for use as a highway bridge, and turned the same over to the bridge corporation, which thereupon issued its stock to the several incorporators in an aggregate amount of $50,000. The bridge company expended a small sum of money, approximately $1,700, in the erection of toll houses, bridge approaches and some other items, none of which were very large in amount. It also established rates of toll for the various classes of traffic over the bridge, from foot passengers to motor trucks, and at rates less than those in force at the Conowingo Bridge, which by its charter were the maximum the new bridge company was authorized to> charge. For the first two years after the structure had been thrown open to travel as a highway bridge the revenues were inconsiderable, the gross revenue being from six to seven thousand dollars per annum.

Two factors then combined to cause thereafter a great increase in the gross revenue of the bridge, amounting for the year 1916 to somewhere between $58,000 and $60,000. These two factors were the sudden development and use, for both pleasure and business, of automobiles, the tolls from which constituted about 90 per cent, of the gross revenues of the bridge, and, second, the gross receipts ²¹ were augmented to a considerable degree by the development of the state system of good roads, which brought this bridge directly upon the line of travel from Baltimore to Philadelphia and points north. It was this sudden increase in revenue, entirely unforeseen at the time that the bridge company was formed, which seems to have suggested to certain persons, residents of Harford and Cecil Counties, that the rates of toll which were charged were excessive, and called for an investigation of the bridge company by the Public Service Commission, and a reduction of the rates of toll. This litigation is the outgrowth of that investigation which resulted in a reduction of the rates of toll to be charged, for the period of five years from October, 1916, of fully one-half, the idea of the Commission being that it had reduced the income of the company about 48 per cent., while the company’s contention is that the reduction amounts to 72 per cent.

Upon the entry of the Commission’s order making the reduction, application was made to the Circuit Court Ho. 2 of Baltimore City to declare the action of the Commission void, as being unlawful, unreasonable and confiscatory. That Court, after full hearing and with a large amount of expert testimony before it, dismissed the bill of the bridge company, and it is from that action that this appeal has been taken. At the threshold of this case is the consideration whether the order of the Commission comes within the scope of the powers granted to it by the Legislature, or whether it exceeds those powers, and for that reason is null and void. So far as the power to fix rates is concerned, there can be no question, under the language of the Act, that such power was granted to the Commission.

The order as made by the Commission goes further than this, and requires the bridge company to establish and maintain a “main depreciation reserve account,” and annually to make a deposit of a specified sum to the credit of such account, which fund is required ²² to- “be deposited in some safe depository paying not less than 3 per cent, per annum, compounded not less than annually, or by said directors invested in some safe investment paying an equal or higher rate of interest, the investment in either event to be subject to- the prior approval of the Commission.” In corporations which have a bonded indebtedness it is frequently a stipulation of the contract that a similar course shall be followed, the fund so to be accumulated being ordinarily called a sinking fund, but that is a matter arising out of contract stipulations or agreement, not because of any mandate of public authority. Other corporations maintain under various designations reserve accounts, created by the corporation as a matter of corporate policy merely. With, the wisdom of the creation and maintenance of such reserve there is no concern in this case. The bridge company has no bonded indebtedness.

The only question is, is the Commission invested by the Legislature with the power to direct and control the financial policy of this company ? The same question whs presented to this Oourt in Laird v. B. & O. R. R. Co., 121 Md. 179 , and it was there held that extensive as were the powers granted to the Commission, they did not take away from the corporation its power of control upon a question of financial policy. The same question was raised in Binghampton L. H. & P. Co. v. Stevens, 203 N. Y. 7 , where the grant of power to the Public Service Commission was very similar to- that contained in our Act of 1910 (Oh. 180), and the Court in that case said: “The discretion of a Public Service Commission can not override the discretion of the officers of a corporation in the management of its affairs.”- . In the earlier case of the D. & H. Co. v. Stevens, 197 N. Y. 1 , the Court had said: “We do not think the legislation alluded to was designed to make the commissioners the financial managers of the corporation, or that it empowered them ²³ 1o substitute tlieir judgment for that of the 'directors or stockholders of the corporation.” In P. S. C. v. Un.

Ry. & El. Co., 126 Md. 495 , this Court, speaking through Juixík Bukkk, says: “If an order complained of is not within the scope of the authority conferred by law upon the Commission, it is unlawful, and it is the duty of the Court, when applied to, to restrain its enforcement.” That portion of the’ order of the Commission, therefore, which required the Bridge Company to set up and maintain a main depreciation reserve account, and deposit to the credit of it a fixed annual amount, was clearly without warrant of law, and void. The Commission was given the power to direct, how the accounts of the company should be kept, but suck power does not include tbe power to prescribe a fixed sum to be charged or credited to a particular account annually. That is either a subject of contract or a matter of the fiscal policy of the company.

While the order is silent upon the question of the payment of certain salaries, it is dear from the opinion filed by the Public Service Commission, and upon which its order is based, that the Commission intended in effect to limit the amount of salaries to be paid to certain officials of the Bridge Company. It is true that the opinion does not say that these, officers shall not receive any greater compensation than that referred to in the opinion, but intimates that if a higher compensation is paid to them, it can not be regarded as a proper charge against the receipts of the Bridge Company, hut should be paid apparently by the individual stockholders. Inasmuch as the services for which the salaries are paid are to he rendered to the corporation, as a corporation, it is hard to understand why the salaries for the performance of the services should not be. paid by the corporation. Indirectly, of course, the question of salaries enters into the question of rate making, since the larger the aggregate amount of salaries ²⁴ paid, the less will be the net revenue derived from tolls, applicable to dividends for the stockholders.

Therefore, in this regard the Public Service Commission by its order undertook by indirection to direct the financial management of the company. It is not intended in what has been said to intimate that under no circumstances have the Public Service Commission the right to treat an allowance of salary as an improper charge by the corporation; undoubtedly where there has been a flagrant abuse of such power the Public Service Commission may intervene, but the record in this case is entirely devoid of anything to show that the power of the directors to fix the salaries of the officers of the company has been in any way abused. In this regard, therefore, the effect of the order of the Commission is undoubtedly to interfere with the financial management of the company, and what was said with regard to the main depreciation reserve account, is equally applicable here. The next question which presents itself is as to the scope and nature of the power of the Court in dealing with cases of this character.

There have been numerous decisions with regard to this, but nowhere is the proper rule of law better or more clearly stated than in the Public Service Commission v. No. Cent. Ry. Co., 122 Md. 388 . In a very comprehensive and painstaking opinion prepared by Judge Thomas, this aspect was disposed of as follows: “The power of the Commission to fix reasonable rates is legislative, the functions of the Court in reviewing the actions of the Commission are distinctly judicial and are exercised only for the purpose of determining whether such action of the Commission is unreasonable or unlawful.” Under section 1-60, Code Art. 23, the burden of proof is imposed upon the parties adverse to the Commission to show by .(quoting from the same opinion), “clear and satisfactory evidence that the determination, requirements, direction or order of the Commission complained of is unreasonable or ²⁵ unlawful as the case may he.

Upon an application to the Court for an injunction restraining the execution of an order of the Commission, the Court has no authority to determine what would be a reasonable rate for the service required, or to establish rates, hut its power is limited to the deteimination of the question whether the rates fixed by the Commission are unreasonable or unlawful, and until it is made to appear by clear and satisfactory evidence that the action of the Commission is unreasonable or unlawful, the Court is without power to impose any restriction upon the execution of the Commission’s order.” There remains but the single question, whether the rates fixed by the Commission have been shown to be unreasonable. The original petitioners to the Commission seem to have proceeded on the theory that as the bridge cost the incorporators but a very small sum, and as its receipts had been more than sufficient to defray the operating expenses, and repay the original outlay, that because it was a public highway, they were entitled to have the use of it for merely a nominal sum. The statement of so extreme a proposition is a sufficient refutation, and was so regarded by the Commission. A different view was that held by Lord Chancellor Selbounre in Canada Southern R. R. v. Int.

Bridge Co., L. R. A. App. Cas. 723, where he took the ground that for the establishment of a rate the proper measure was the value of the service rendered to the individual who might avail himself of it. While to' some extent this is true, unqualified assent, cam not he given to it, because the value of the service, though identical in character, may be far greater to one individual than to another. There have been many cases dealing with the reasonableness of rates, and that is the vital question in this case. In these various cases a few have attempted to lay down a rule of what was, and what was not, a reasonable rate, but all such cases are in some respects unsatisfactory, because, as ²⁶ was well said in Kennebec Water District v. Waterrille, 97 Maine, 185: “The conditions surrounding properties are so variant that it is difficult, and in some particulars impossible, to lay down rules of value which will apply