of both the owner of the property and the public must be taken into consideration in the regulation of rates. Although the purpose of the owner is to frame a schedule of rates which, as a whole, will yield the largest possible return, yet no such schedule can be successfully maintained unless the individual rates are such as will yield some return over the cost of the service. Viewing the situation from the standpoint of the public, its only interest is to secure reasonable individual rates, and the question of the gross profits is wholly immaterial. The favoritism resulting from regulation which compels the owner to furnish certain classes of service at less than cost and to charge the loss against the balance of the service, is wholly repugnant to the duty of public service. Although there may be some question about the rule at common law, yet statutory law in the United States and in most of the states compels such public service corporations as railroads to render service to all at reasonable rates and without unjust discrimination.2 Any discrimination by a public service company which consists in rendering a service below its cost is unjust discrimination and unlawful. It is inconceivable that a method or test would be adopted which would compel the company to do the very thing which the statutes forbid. Any fundamental rule, therefore, of rate regulation must preserve to the company both the right and the ability to render particular services at remunerative rates.

An action was brought to enforce an order of the Interstate Commerce Commission directing certain railroads to cease charging a greater rate from the seaboard to Chattanooga than was charged to Nashville. The complaint was made under the fourth section of the Interstate Commerce Act, forbidding a greater aggregate charge for the shorter than for the longer haul on the same line. The court, however, held that the competitive condi

1 Covington, etc., Co. v. Sandford, supra, 596, 597; Smyth v. Ames, supra, 544.

2 Interstate Commerce Act of 1887. Interstate Com. Com. v. B. & O. R. R., 145 U. S. 263; Western Union Tel. Co. v. Call Pub. Co., 181 U. S. 92, 100. Mr. Justice Brewer said: "As a consequence of this, all individuals have equal rights, both in respect to service and charges. Of course such equality of right does not prevent differences in the modes and kinds of service and different charges based thereon. There is no castiron line of uniformity which prevents a charge from being above or below a particular sum, or requires that the service shall be exactly along the same lines; but that principle of equality does forbid any difference in charge which is not based upon difference in service, and even when based upon difference in service it must have some reasonable relation to the amount of difference and cannot be so great as to produce unjust discrimination."

3 East Tennessee, etc., Ry. Co. v. Interstate Com. Com., 181 U. S. 1 (April 8, 1901).

tions at Nashville created the dissimilarity contemplated by the statute, and that the railroad companies were justified in making a lower rate to Nashville, provided such rate to Nashville was not less than the cost of service. Mr. Justice White said that “if rates charged to the shorter distance point are just and reasonable in and of themselves, and if it is also shown that the lesser rate charged for the longer haul is not wholly unremunerative and has been forced upon the carriers by competition at the longer distance point" a discrimination in favor of the more distant point is not forbidden by the Interstate Commerce Act. Continuing, he said: 2

"Take a case where the carrier cannot meet the competitive rate to a given point without transporting the merchandise at less. than the cost of transportation, and therefore without bringing about a deficiency which would have to be met by increased charges upon other business. Clearly, in such a case, the engaging in such competitive traffic would both bring about an unjust discrimination and a disregard of the public interest, since a tendency toward unreasonable rates on other business would arise from the carriage of traffic at less than the cost of transportation to particular places. . . .3 Applying the principle to which we have adverted to the condition as above stated, it is apparent that if the carrier was prevented under the circumstances from meeting the competitive rate at Nashville when it could be done at a margin of profit over the cost of transportation, it would produce the very discrimination which would spring from allowing the carrier to meet a competitive rate where the traffic must be carried at an actual loss. To compel the carriers to desist from all Nashville traffic under the circumstances stated would simply result in deflecting the traffic to Nashville to other routes, and thus entail upon the carriers who were inhibited from meeting the competition, although they could do so at a margin of profit, the loss which would arise from the disappearance of such business, without anywise benefiting the public."

The objection is urged that the public alone has the right to complain of discrimination which results in transferring the cost of rendering a certain class of service and placing the burden upon another class of service, and that the owner of the property affected has no constitutional rights which the courts will consider. This

1 P. 18.

2 P. 20.

The italics are the writer's.

In respect to the test laid down in Smyth v. Ames, Mr. Freund, in his work on Police Power, says, § 551: "It is true that under it unequal returns may be received

position fails to take into consideration the matters above considered. If the regulation compels a company to render a substantial, definitely ascertainable portion of its service at less than cost, it is inevitable that this loss must be distributed over the balance of the business, unless the owner can refuse to render the service. The latter alternative is impossible in case of public service companies. If the service carried at a loss results in burdening the balance of the service to any considerable amount, no court would sustain the reasonableness of the rates charged that portion of the business. In course of time all of the traffic carrying the unjust burden will by legal procedure or otherwise be relieved of the same. The question then arises, how can the company make good the deficit arising from the class of business which it is compelled to carry at a loss? Where the above state of facts exists the inevitable result is the impairment of the capital of the company. The judiciary should certainly not subscribe to the absurd contention that the railroad must wait until this burden has been shifted back before it can make the claim that such rates will result in impairing its property. So inevitable a result should and will be anticipated in the establishment of a proper test or rule for the determination of the constitutionality of specific rates.

A reasonable maximum rate, as used in a constitutional sense, therefore, cannot be determined without considering the rights of both the owner of the property and the public. These rights receive substantial protection by the rule laid down in Smyth v. Ames wherever the regulation consists of a schedule of rates based on the classification adopted by the owner. Where, however, this rule is wholly inappropriate for the determination of the reasonableness of the rate, the fundamental test must be the propriety of such maximum rate in respect to whether the rate will return to the owner the fair value, or at least the cost, of every substantial class of service demanded and rendered. This test affords ample protection to the public against unreasonable and extortionate rates of charge, and therein fulfils the only legitimate purpose of the police power in respect to purely economic interests. It encourages and permits individual effort and enterprise, and is thus in harmony

for equal services or equal returns for unequal services; but if the return on the whole business is fair, it must be that a too small return on some part of it is offset by a more than normal return on some other part; if, then, there is ground for complaint, it is on the part of a portion of the public and not on the part of the railroad company."

with that policy of government which grants to the individual the "utmost possible liberty and the fullest possible protection to him and his property." The Fourteenth Amendment not only forbids the confiscation of property by the exercise of a usurped power, but also is a constitutional restriction against the improper exercise of a conceded legislative power. The function of the "due process of law" clause is to confine legislation within its proper limits. A state enactment, therefore, although purporting to be a legitimate exercise of the police power, is in fact a usurpation of power when it imposes upon a person rendering public service the duty of furnishing, and at the same time confers upon the public the right to demand, a substantial and definitely ascertainable class of service at less than cost.

CLEVELAND.

1 Budd v. New York, 143 U. S. 517, 551.

Frank M. Cobb.

RIGHT OF A

STOCKHOLDER, SUING IN

BEHALF OF A CORPORATION, TO COM-
PLAIN OF MISDEEDS OCCURRING PRIOR
TO HIS ACQUISITION OF STOCK.

DURING the past thirty-five years there has grown up in this

country a considerable body of legal expression to the effect that, as a principle of equity, a stockholder suing in the right of a corporation to redress wrongs done the company, must have owned his stock at the time the wrongs were committed or must have had his shares devolve upon him thereafter by operation of law. The purpose of this article is to differ from such opinion.

It is difficult to suggest any sound theory whereby a stockholder suing in behalf of the corporation, and whose litigation if successful redounds to the benefit of all stockholders, should have an arbitrary limitation placed upon his right to sue. Corporate stock entitles the owner to share in all of the corporate assets, among which must be counted causes of action belonging to the corporation, and one of the most characteristic benefits of corporate organization is the continuing estate thereby created. The stockholder has no right to any specific part of the corporate assets: his rights are those ordinarily possessed by the holder of a chose in action,1 which in the end are litigious rights. Again, the transferable value of shares is impaired if once it be understood that a transfer operates to cut off rights which the transferor would have had, and wrongs are imposed on purchasers who only on becoming stockholders can inspect the books of the company or otherwise, as matter of right, examine into corporate transactions. This is an answer, also, to the suggestion that a person purchasing stock should take the corporate situation as he finds it: why should he do so when he buys in ignorance of wrong done, and why should wrongdoers be given a shield against attempts to right the wrongs?

1 Colonial Bank v. Whinney, 11 App. Cas. 426, 440, 447-8. See also the excellent opinions in the same cause in the Court of Appeal by Cotton, Lindley, and Fry, L. JJ., 30 Ch. D. 261, 275, 282, 286.