Source: https://supreme.justia.com/cases/federal/us/231/423/
Timestamp: 2019-04-22 04:32:02+00:00

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The constitutional validity of the provisions in § 20 of the Act to Regulate Commerce of February 4, 1887, c. 104, 24 Stat. 379, as amended by the Hepburn Act of June 29, 1906, c. 3591, 34 Stat. 584, giving the Interstate Commerce Commission authority to prescribe the methods by which interstate carriers shall keep accounts, has already been sustained by this Court. Interstate Commerce Commission v. Goodrich Transit Co., 224 U. S. 194.
The authority conferred upon the Commerce Court by the Act of June 18, 1910, c. 309, 36 Stat. 539 (Judicial Code, § 207), with respect to enjoining or setting aside the order of the Interstate Commerce Commission, like the authority previously exercised by the federal circuit courts, was confined to determining whether there had been violations of the Constitution, or of the power conferred by statute, or an exercise of power so arbitrary as virtually to transcend the authority conferred.
In enacting the Hepburn Act amending § 20 of the Act to Regulate Commerce, Congress recognized the essential distinctions between property accounts and operating accounts, and between capital and earnings, and that, while prior to that time the practice of different carriers varied, uniformity in regard to the keeping of accounts was essential in the future for proper supervision and regulation.
Interstate Commerce Commission v. Goodrich Transit Co., 224 U. S. 194, followed to the effect that there is no unconstitutional delegation of legislative power by Congress to the Commission in giving it authority to establish methods of accounts by the provisions of the Hepburn Act amending § 20 of the Act to Regulate Commerce in that respect.
The classification of accounts adopted by the Interstate Commerce Commission in regard to additions and betterments and to property and operating accounts are not so arbitrary or so entirely at odds with fundamental principles of correct accounting as to amount to an unconstitutional abuse of power.
In this case, the carrier was not deprived of any of its property without due process of law because, under the Commission's system of accounting, it was permitted to carry into its property account only the excess of the full cost of improvements made off the line after deducting the estimated replacement cost of the abandoned portions of the track or because it was required to charge to operating expenses the estimated cost of replacing the abandoned sections.
Where, as in this case, all classes of stockholders of a carrier whose dividends are affected by the method of charging betterments and repairs are not before the Court, their rights cannot be determined in a suit between the carrier and the Commission in regard to such methods of accounts.
Semble that requiring stockholders to forego dividends for a period so that the amount not divided be spent in bettering the condition of the property, thus giving them greater security for dividends in the future, does not amount to an unlawful taking of property within the meaning of the Fifth Amendment.
made by the Interstate Commerce Commission because of agreements previously entered into; whatever had been done was subject to being displaced by the Commission under the powers conferred upon it by Congress.
The power given to the Commission by § 20 of the Act to Regulate Commerce, as amended by the Hepburn Act, to require the carrier to keep accounts as prescribed by the Commission, does not impose obligations upon the carrier as to the use of the proceeds of bonds, but simply prevents such proceeds from being used in any manner without the fact's appearing in the accounts.
Although the contention of the carrier that abandonments ought to be charged to profit and loss, rather than to operating expenses, may have weight, this Court will not reverse the order of the Commission requiring them to be otherwise charged on the ground that it was an abuse of power.
Where it appears that the Commission has acted fairly within the grant of power constitutionally conferred upon it by Congress its orders are not open to judicial review.
This is an appeal from a decree of the Commerce Court dismissing appellant's petition in an action brought to have certain, regulations of the Interstate Commerce Commission relative to the method of keeping the accounts of carriers declared invalid, and to enjoin the enforcement thereof. 204 F. 641. The regulations are contained in the "Classification of Expenditures for Additions and Betterments of Steam Roads," effective July 1, 1909, and the First Revised Issue thereof, effective July 1, 1910.
then support, nor could capital be obtained for, an expensively constructed road, and in consonance with the general practice in the development of the country, the road was built with rather heavy ruling grades. But it was not defectively or improperly constructed or located; it had substantially the same grades as other roads then constructed in the West, and it was adequate to serve the then-existing needs of the country. A railroad with heavy grades is, of course, more cheaply constructed than a road of low grades. And a road of heavy grades is generally adequate in a new country, where the volume of traffic offered is small, the train loads light, and the trains few.
The ruling maximum grade of appellant's line as originally constructed was 1 percent, and in the mountain district as high as 1.35 percent. The evidence is undisputed that it was properly located, well constructed, and ample for the needs of the country. In the course of time, with the development of the country and the resultant increase in traffic, whereby the limit of the road's capacity was being approached, the conditions warranted and rendered desirable such additions or improvements as would enlarge the road's capacity and permit traffic to be moved more rapidly and economically.
per mile being lower than those of any of its competitors above named.
Under these conditions, the management found that the most desirable plan was to lower the grades of the road, and thus to increase its capacity, procure economy in operation, and render better service to the public. Two methods of reducing the grades at various points along the line were presented: one by raising or lowering the roadbed on the existing right of way, the other by the construction of short sections of new road in substitution for portions of the road in instances where the same result could be thus obtained at less cost. The program of improvement contemplated, therefore, not only many changes on the original right of way, but also a number of changes by the substitution of short sections of road on new ground where that method was more economical.
The first six sections of the road where new locations were utilized are covered by the petition herein. Other similar changes are being made as the work proceeds, which will cover several years, and is estimated to cost $3,000,000. The road at these six points was in no way worn out, was fully maintained, and was capable of performing for an indefinite term the function for which it was originally constructed. All of these changes are being made for the purpose of increasing the capacity of the line, of securing economy in operation, and of rendering improved service to the public.
At the six sections of the road in question, it was found by the estimates of the engineers that the cost of securing the required gradient upon the original roadbed would be $1,230,318.99, but that the same result could be obtained by means of relocations upon adjacent land for a net expenditure of $629,399.74.
that, had the work been done on the original roadbed, the cost would have been increased over the estimates in an equal or greater proportion, the variation being due to increase in the cost of labor, materials, etc. For present purposes, the figures set forth in the petition are adopted.
The grade revisions at the six sections of line involved herein having been completed by removing the tracks to adjacent parcels of ground, which were procured and substituted for the original parcels, the use of the latter parcels was, of course, discontinued.
The expenditure required to improve the property by bringing it to the desired grade of five-tenths of one percent being deemed a capital expenditure, appellant's directors determined to finance the work by applying to it the proceeds of a bond issue. It is claimed to have been necessary to finance the improvements in this way if they were to be made at all, because the appellant did not have current earnings available for these improvements, and could not have financed its program, involving the revision of about forty-one percent of the entire line and an ultimate expenditure of several million dollars, in any other way than by raising capital for that purpose through the issuance of bonds.
Appellant, in order to raise funds for this and certain other purposes, made an issue of bonds secured by a second mortgage on its property. This way duly authorized by the directors and stockholders in the month of June, 1909; a portion of the bonds was sold and an initial sum of $1,250,000 thus obtained became applicable to the improvements referred to in the petition and other improvements in the grade. Additional bonds have since been issued as the work has proceeded.
In 1907, appellant began the payment of dividends at the rate of 4% per annum upon its preferred stock, the total amount of which was $21,000,000, and has continued to pay such dividends each year until the present time.
These dividends are noncumulative, and are payable only out of the earnings of the current year. The fact that appellant had paid its dividends for several years was a factor in its credit. Preferred dividends having been established, it is claimed that their discontinuance would have affected the credit of the road so seriously that it would have been unable except on prohibitive terms to dispose of additional bonds as further money was required from time to time during the progress of the work. It is further claimed that appellant was able to finance its improvements only out of the proceeds of a bond issue, and that it could not have financed them at all except by adopting the economical method of making a considerable part of the grade reductions by means of changes off the line of the right of way.
Appellant, having paid the cost of the six improvements out of its issue of bonds, was confronted with the regulations of the Commission bearing on the method of recording the transaction in its books of account. Except for those regulations, it is said that the full cost of the improvements would have been charged to the account of "Additions and Betterments," -- a subdivision of the property accounts -- and credited to the proceeds of the bonds, because that sum had been expended for additions and betterments, and because the bonds had supplied the funds. In the balance sheet, the "Assets" would have shown an increment of approximately $629,399 under the subdivision of Additions and Betterments, and, per contra, the "Liabilities" would have shown a corresponding increase under the subdivision of "Bonds."
accounts the full cost of the improvement, but was required first to deduct from the cost thereof the estimated replacement cost of the portions of track no longer used, the difference only being carried into the property accounts, and a sum equal to the estimated cost of replacing the old sections of track being charged to the operating expenses of that year.
"Grade Revisions. -- (Reducing of grades by cutting down summits and raising sags without materially changing the alinement). -- The amount to be charged to this account is the cost of additional grading done, including as a portion of such cost the rent and cost of operation of steam shovels and work trains, building temporary tracks for steam shovels and grading outfits, tools, etc., used in the work, raising or lowering existing bridges, increasing the length of culverts and replacing riprap at culvert ends, changing grade crossings for farm or country roads, highways, and streets, including crossing gates, highway crossing alarms, and watch houses."
"Changes of Line. -- (Construction of new lines for the purpose of improving grade or alignment). -- The amount to be charged to this account is the difference between the cost of the new line and the cost of replacing in kind the line abandoned, exclusive of right of way."
chargeable is large, and its inclusion in a carrier's operating expenses for a single year would unduly burden the operating expense accounts for that year, the carrier may, if so authorized upon application to the Interstate Commerce Commission, charge such cost to the Property Abandoned account provided in the Form of General Balance Sheet statement, or to the reserve account mentioned in paragraph 6."
"6. When property is abandoned and not replaced, the original cost (estimated if not known) should be credited to the appropriate Additions and Betterments Accounts and charged, less salvage, to Profit and Loss Account, to which should also be charged all incidental expenses directly connected with the abandonment. If so authorized upon application to the Interstate Commerce Commission, however, a carrier may set up depreciation accounts under 'Maintenance of Way and Structures' for the purpose of creating a reserve to which (instead of Profit and Loss) should be charged the original cost, less salvage, of the property (other than land or equipment) abandoned, and all incidental expenses directly connected with the abandonment."
These are the regulations as they appeared in the Classification of 1909. In the First Revised Issue (1910), there were some slight changes, but none now important.
To restrain the enforcement of the regulations so far as they required or tended to require appellant to charge against its earnings the estimated replacement value (less salvage) of the six parcels of railroad line that was abandoned as an incident to grade reduction as above set forth was the principal object of the suit.
which latter are incidentally to be abandoned. It is claimed that the present shop and equipment are not worn out or obsolete, but are in good condition, and capable, with ordinary running repairs, of performing for an indefinite time the functions for which they were originally constructed. Appellant desires to charge the estimated value of the abandoned shop and terminal plant, amounting approximately to $100,000, against its accumulated surplus as represented in its Profit and Loss Account. The regulations of the Interstate Commerce Commission relative to accounting, however, prohibit this charge, and require that the estimated replacement cost (less salvage) of the existing shop and terminal plant shall be charged to the Operating Expense Account. An injunction against the enforcement of the regulations in this regard also was prayed.
preferred stockholders, whose dividends are noncumulative, and payable only out of the income of the current year; that the property accounts become inaccurate because, while appellant has actually expended something more than $600,000 in the improvement of its property, and its bonded indebtedness has been in fact increased by the like amount, the accounts will declare that for this expenditure the company has obtained a net accretion to its property of only a little over $200,000 ($629,399.74 less $386,484, or $234,747.74); that the Operating Expense Accounts will be improperly swollen by the inclusion therein of the sum of $386,484, to the deception of the stockholders and the investing public and the impairment of the financial credit of the company, and that, under the requirements of the Commission, this sum of $386,484, cannot be charged to and finally taken out of the proceeds of the bonds, but must be charged to operating expenses, and thus taken from operating revenue, because of which (as is claimed) this amount, which has already been paid out of the proceeds of bonds, must ultimately be restored in cash to the bond account, and returned to the trustee or otherwise accounted for to the bondholders. As to the Shreveport shop and terminal plant that are to be abandoned, it is contended that it is unreasonable to require the cost of abandonment to be charged to operating expenses, and that this is a proper charge against the accumulated surplus, as represented in the Profit and Loss Account.
validity of this legislation was sustained in Interstate Commerce Commission v. Goodrich Transit Co., 224 U. S. 194, 224 U. S. 211, 224 U. S. 214.
Judicial Code, § 207) with respect to enjoining or setting aside the orders of the Commission, like the authority previously exercised by the federal circuit courts, was confined to determining whether there had been violations of the Constitution, or of the power conferred by statute, or an exercise of power so arbitrary as virtually to transcend the authority conferred. Interstate Com. Comm. v. Illinois Central R. Co., 215 U. S. 452, 215 U. S. 470; Interstate Com. Comm. v. Union Pacific R. Co., 222 U. S. 541, 222 U. S. 547; Proctor & Gamble v. United States, 225 U. S. 282, 225 U. S. 297; Interstate Com. Comm. v. Baltimore & Ohio R. Co., 225 U. S. 326, 225 U. S. 340.
it is necessary that the accounts of the several carriers shall be arranged under like headings or titles, and it is obviously essential that charges and credits shall be allocated under the proper headings -- the same with one carrier as with another. Unless "Additions and Betterments," on the one hand, and "Operating Expenses," on the other, are to indicate the same class of entries upon the books of one carrier that they indicate upon the books of other carriers, there is no possibility of standardization. So far as such uniformity requirements control or tend to control the conduct of the carrier in its capacity as a public servant engaged in interstate commerce, they are within the authority constitutionally conferred by Congress upon the Commission. There is no direct interference with the internal affairs of the corporation, and if any such interference indirectly results, it is only such as is incidental to the lawful control of the carrier by the federal authority, and to this the rights of stockholders and bondholders alike are necessarily subject.
[to] prescribe . . . a period of time within which all common carriers subject to the provisions of this act shall have, as near as may be, a uniform system of accounts, and the manner in which such accounts shall be kept."
Congress, when it enacted the Hepburn Act in 1906, must have known that the Commission had not as yet found occasion to enforce this provision, and at the same time may be deemed to have contemplated that the authority then for the first time conferred upon the Commission to determine and prescribe the maximum rates to be charged by the carriers for the services to be performed by them furnished a new and more cogent reason for establishing a uniform system of accounts.
debts, . . . the cost and value of the carrier's property, franchises, and equipments; . . . the amounts expended for improvements each year, how expended, and the character of such improvements; the earnings and receipts from each branch of business and from all sources; the operating and other expenses; the balances of profit and loss, and a complete exhibit of the financial operations of the carrier each year, including an annual balance sheet."
By the same section, the Commission was authorized to require these annual reports from all carriers subject to the act, and to prescribe the manner in which the reports should be made, and for this and other purposes to require carriers to have "as near as may be, a uniform system of accounts, and [to prescribe] the manner in which such accounts shall be kept."
Plainly the lawmaking body recognized the essential distinctions between property accounts and operating accounts, between capital and earnings; it recognized that the practice of different carriers varied in respect to these matters, and that no system of supervision and regulation would be complete without requiring the accounts of all the carriers to speak a common language.
There is here no unconstitutional delegation of legislative powers. The reasoning adopted in Interstate Com. Comm. v. Goodrich Transit Co., 224 U. S. 194, 224 U. S. 210, etc., is controlling. And since, as just shown, uniformity in accounting is dependent upon the adoption and enforcement of precise classification, the authority to define the terms of the classification necessarily follows. It amounts, after all, to no more than laying down the general rules of action under which the Commission shall proceed, and leaving it to the Commission to apply those rules to particular situations and circumstances by the establishment and enforcement of administrative regulations.
so unreasonable and arbitrary as to constitute an abuse, rather than an exercise, of the powers conferred by § 20, and consequently that they ought to be set aside by judicial action. This is not on the ground that the Commission did not proceed with due deliberation and after proper inquiry. Respecting this, the record abundantly shows that, in the year 1906 and shortly after the passage of the Hepburn Act, the Commission undertook, and for nearly three years prosecuted, a most thorough investigation into the current practice of the principal railroad lines, procuring reports and recommendations from experts and submitting tentative plans for the classification of accounts to the executives of the railroad lines and to a committee of accounts created by the Association of American Railway Accounting Officers, which association was made up of members representing practically every important railroad in the country.
The present attack upon the classification as adopted is, and must be, rested at bottom upon the contention that the regulations embodied in it are so entirely at odds with fundamental principles of correct accounting as intrinsically to manifest an abuse of power.
There is evidence in the record that substantially the same method of distributing charges for so-called "Additions and Betterments" between the Property Accounts and the Operating Accounts is and has long been pursued by important railroad carriers, and has received the sanction of at least one recent textbook writer -- Whitten, Valuation of Public Service Corporations, §§ 450, 451, 458, etc. Nevertheless, it is insisted with emphasis that property abandoned as an incident to permanent improvements is not an operating expense, and, in effect, that no matter what practice may be pursued by railroad accounting officers, it cannot properly be treated as such.
to represent the investment of the stockholders, and to show the cost of the property as originally acquired, with subsequent additions and improvements, these assets being balanced by the liabilities, including the amount of the capital stock and of bonded and other indebtedness, with net profits or surplus, whether carried under the head of "profit and loss" or otherwise, and (b) the operating accounts, designed to show, on the one side, gross receipts or gross earnings for the year, and on the other side the expenditures involved in producing those gross earnings and in maintaining the property, the balance being the net earnings.
Since the regulation of the railroad carrier by the public authority, and especially the fixing of the rates to be charged, depend primarily upon two fundamental considerations, (a) the value of the property that is employed in the public service and (b) the current cost of carrying on that service, it is clear that the maintenance of a proper line of distinction between property accounts and operating accounts is essential to the execution by the Interstate Commerce Commission of the supervisory and regulatory powers conferred upon it by Congress.
Appellant contends, inter alia, that, since the original locations were necessary in the development of its railroad line, and were abandoned only as an incident to the improvement and development of the property, the cost thereof, being, as it is termed, a part of the "cost of progress," should remain in the property account, as representing a part of the stockholders' present investment.
in producing them, aside from, and exclusive of, the expenditure of capital laid out in constructing and equipping the works themselves. It may often be difficult to draw a precise line between expenditures for construction and the ordinary expenses incident to operating and maintaining the road and works of a railroad company. Theoretically, the expenses chargeable to earnings include the general expenses of keeping up the organization of the company, and all expenses incurred in operating the works and keeping them in good condition and repair, whilst expenses chargeable to capital include those which are incurred in the original construction of the works, and in the subsequent enlargement and improvement thereof."
"should not be taxed as part of the current or operating expenses of a single year, but should be, so far as practicable and so far as rates exacted from the public are concerned, projected proportionately over the future."
"It would seem as if expenditures for additions to construction and equipment, as expenditures for original construction and equipment, should be reimbursed by all of the traffic they accommodate during the period of their duration, and that improvements that will last many years should not be charged wholly against the revenue of a single year."
"His right is immediate. He may demand a service. He must pay a toll, but a toll measured by the reasonable value of the service. The elements of that value may be many and complex, not always determinable, as we have seen, with mathematical accuracy; but, we think, it is clear that instrumentalities which are to be used for years should not be paid for by the revenues of a day or year, and this is the principle of returns upon capital which exists in durable shape."
The expressions quoted were properly employed with respect to the questions then presented for decision. As expressions of the general principle, we see no occasion now to qualify them. In both cases, it was recognized that, in so complicated a matter as the construction, maintenance, and operation of a railroad line, it is difficult to define, and perhaps more difficult to consistently apply, a precise distinction between capital and expense accounts, and, while the propriety of distributing improvement costs over a series of years was recognized, the impossibility of scientific accuracy in that regard was acknowledged. The question now is whether the regulations of the Commission under attack do violence to these general principles -- rather, it is whether those regulations are so clearly contrary to these and other applicable principles that they should be set aside as being in excess of the powers conferred by Congress upon the Commission.
property of the company. This in effect ignores depreciation -- an inevitable fact which no system of accounts can properly ignore. A more complete depreciation than that which is represented by a part of the original plant that through destruction or obsolescence has actually perished as useful property it would be difficult to imagine. The fact that the original investment was necessary in order that the second investment might be made is not a conclusive test. Reference is made to the cost of the scaffolding used in the erection of a house, and discarded when the house is completed, and to the cost of the paper that goes to the wastebasket rather than to the printer, in the preparation of a literary composition; but these are fanciful analogies, and do not assist us here, where the real question is not how shall original cost be ascertained, but, how shall subsequent depreciation in value be reckoned and accounted for?
"If, however, a company fails to perform this plain duty and to exact sufficient returns to keep the investment unimpaired, whether this is the result of unwarranted dividends upon overissues of securities or of omission to exact proper prices for the output, the fault is its own. When, therefore, a public regulation of its prices comes under question, the true value of the property then employed for the purpose of earning a return cannot be enhanced by a consideration of the errors in management which have been committed in the past. "
And since one of the manifest objects of Congress in authorizing the supervision and standardization of carriers' accounts, as is done in § 20 of the Interstate Commerce Act, was to enable the Commissioners to intelligently perform their duties respecting the regulation of carriers' rates for the services performed, and since it is settled that the property investment which is to be taken into consideration as one of the elements in fixing such rates is the property then in use (Smyth v. Ames, 169 U. S. 466, 169 U. S. 546; San Diego Land & Town Co. v. National City, 174 U. S. 739, 174 U. S. 757; San Diego Land & Town Co. v. Jasper, 189 U. S. 439, 189 U. S. 442; Willcox v. Consolidated Gas Co., 212 U. S. 19, 212 U. S. 41; Minnesota Rate Cases, 230 U. S. 352, 230 U. S. 434, 230 U. S. 454, 230 U. S. 458), it is obvious that, so far as the regulations of the Commission now under consideration discard the "cost of progress" theory, they need no further vindication.
in enforcing a prescribed distinction between capital expense and operating expense. It does not require that the record of the expenditure be obliterated, but it does, of course, affect the results as they work out upon the balance sheet. If this be fairly done, there is no transmutation of new property into operating expenses, but only an insistence upon the requirement that new property added shall not alone be the measure of the accretion to the property account, and that the depletion attributable to contemporaneous abandonment of other property shall likewise be reflected upon the books.
Stress is laid upon the fact that, if the grade reductions in question had been made upon the line of the original right of way, even though made at double the expense, the cost would have gone into "additions and betterments," and would have stood as a permanent increment of assets in the property account, while, with respect to similar improvements made off the line of the original right of way, appellant is not permitted to carry into the property account the full cost of the improvement, but must first deduct therefrom the estimated replacement cost (less salvage) of the portions of track no longer used, charging this to the account of operating expenses.
So far as the comparative expense of the different modes of improvement is concerned, little need be said. The accounting regulations do not seek to control railroad companies in the exercise of their discretion respecting what shall be done and how it shall be done, but only to systematize their accounts with respect to whatever is done. It is to be presumed that boards of directors will select that method of accomplishing a needed grade revision that shall be preferable from the engineering standpoint and suited to the financial condition and prospects of the company, not that they will adopt an inferior or more costly method of improvement because of the accounting requirements.
occasioned by changes of this character are therefore chargeable to future earnings for the reason that the improved condition of the road is not only designed to meet the demands of the future, but presumably will result in economics of operation, and so the resulting benefits will be reaped by those who hold the stock of the company in the present and in the future. The railroad company may, if it sees fit, anticipate general depreciations and make provision for them by establishing a reserve for the purpose; but if no such provision has been made, the abandonment should be taken care of by charging them to present or future operating expense. In case, however, the amount is so large that its inclusion in a carrier's operating expenses for a single year would unduly burden the operating expense account for that year, the carrier may, if so authorized by the Commission, distribute the cost throughout a series of years.
A statement of the theory is sufficient to show that the regulation is not arbitrary in the sense of being without reasonable basis. And there is evidence to show that the Commission was warranted in adopting it, as sustained by expert opinion and approved by experience.
inequalities of surface; if any undue grades are permitted to remain, it is usually because, for reasons of economy, cuts have been made less deep and fills less high than otherwise they would have been made. Therefore grade revisions upon the line of the original right of way are normally required for the purpose of removing summits in cuts and raising sags in fills, not vice versa.
It is said that the effect of the regulations, if complied with, is to deprive the preferred stockholders of a considerable part of the noncumulative dividends from the net earnings of the company to which they would otherwise be entitled. The preferred stockholders, as such, are not before the court, and this is not a proper occasion for determining their rights. Supposing, however, that the enforcement of the accounting system does require them to forego their current dividends, we do not concede that this amounts to an unlawful taking of their property. Assuming (as, of course, we must) that the management of the company has acted prudently in making these extensive improvements within a short time, instead of distributing them throughout a series of years, and without providing in advance any fund applicable to them, still it must be presumed that the improvements are necessary to the general welfare of the company, and will result in its increased prosperity, and therefore make better the assurance of dividends for the preferred stockholders in the future.
other class of stockholders. To admit this might materially hamper the federal control over interstate carriers, and evidently would tend to render impracticable the standardization of methods of accounting.
Much stress is laid upon the situation that results from the circumstance that (as is claimed) these regulations were promulgated after appellant had mortgaged its property and issued bonds for financing the improvements in question. It is not contended that the regulations impair the rights of either party under the mortgage. The contention is that the company had the right to finance the full cost of the improvements out of the proceeds of a bond issue, and that the regulations amount in effect to a veto upon the action of the directors in this respect. Supposing this to be true, we are unable to perceive that the appellant is thereby relieved from compliance with the regulations. Whatever was done about authorizing the improvements and financing the cost from the bond issue was done subject to being displaced by the exercise of the powers conferred upon the Interstate Commerce Commission by the Act of 1906. The regulations do not affect the administration of the borrowed money. It was borrowed inter alia specifically for use in "reducing grades to one-half of one percent on three full operating divisions, aggregating 41 percent of the total length of the line." And, by the mortgage, appellant covenanted to use the bonds and the proceeds thereof in calling in and redeeming an outstanding loan, "and for the general improvement of its property." In short, so far as appears, there is nothing in the regulations to prevent the appellant from devoting the money strictly to the purposes for which it was borrowed, although they do prevent the keeping of the accounts in such manner as to make it appear that the book value of the company's assets is enhanced to the full extent of the moneys disbursed in the improvements.
When it is said that the amount of $386,484, which, under the requirements of the Commission, must be charged to operating expenses must for that reason be ultimately restored in cash to the bond account and returned to the trustee, or otherwise accounted for to the bondholders, this does not mean that any obligation of that kind is imposed upon appellant by the classification. We are not referred to anything in the classification, in the provisions of the mortgage, or in the law that imposes any such duty. What is meant (as we presume) is that, if the operating expenses are increased and the operating revenue decreased by the amount mentioned, in accordance with the regulations, and the payment of dividends should nevertheless continue, the books would make it appear that the dividends were paid not from earnings, but from the proceeds of the bonds. In other words, the regulations of the Commission prevent the proceeds of the bond issue from being used, in whole or in part, to maintain dividend payments without that fact's appearing upon the accounts, and, since it is improbable that appellant would be willing to have the accounts bear such an interpretation, it is probable that the proceeds of the bonds will not be employed for dividend purposes, and unless required for further improvements, may as well be returned to the trustee for the bondholders. Since one of the very purposes of establishing the accounting system is to deter the payment of dividends out of capital, the criticism, upon analysis, bears its own refutation.
objects at which Congress aimed in the enactment of § 20 of the Interstate Commerce Act.
It is further insisted that even the theory upon which the accounting regulations rest does not, when analyzed, justify a charge of abandoned property to operating expenses, but at most a charge to profit and loss. The suggestion apparently has force; but, upon consideration, we are unable to see that it furnishes ground for judicial interference with the course pursued by the Commission. Except for the contention (already disposed of) that the value of the abandoned parcels should be permanently carried in the property account as part of the cost of progress, it is and must be conceded that, sooner or later, it must be charged against the operating revenue, either past or future, if the integrity of the property accounts is to be maintained, and it becomes a question of policy whether it should be charged in solido to profit and loss (an account presumptively representative of past accumulations) or to the operating accounts of the present and future. If abandoned property is not charged off in one way or the other, it remains as a permanent inflation of the property accounts, and tends to produce, directly or indirectly, a declaration of dividends out of capital. If it be charged off to the surplus account, it tends to prevent the declaration of dividends based upon a supposed accumulation of past earnings. If charged to operating expenses of the current and future years, it has a tendency to prevent the declaration of dividends from current earnings until the amount of the depreciation shall have been made up out of the earnings.
by Congress, its orders are not open to judicial review.
What has been said respecting the enforced disposition of the charges for property abandoned in grade revision applies as well to the abandonment of the present shop and terminal plant at Shreveport.
"SEC. 20. That the Commission is hereby authorized to require annual reports from all common carriers subject to the provisions of this Act, and from the owners of all railroads engaged in interstate commerce as defined in this Act, to prescribe the manner in which such reports shall be made, and to require from such carriers specific answers to all question upon which the Commission may need information. Such annual reports shall show in detail the amount of capital stock issued, the amounts paid therefor, and the manner of payment for the same; the dividends paid, the surplus fund, if any, and the number of stockholders; the funded and floating debts and the interest paid thereon; the cost and value of the carrier's property, franchises, and equipments; . . . the amounts expended for improvements each year, how expended, and the character of such improvements; the earnings and receipts from each branch of business and from all sources; the operating and other expenses; the balances of profit and loss, and a complete exhibit of the financial operations of the carrier each year, including an annual balance sheet. Such reports shall also contain such information in relation to rates or regulations concerning fares or freights, or agreements, arrangements, or contracts affecting the same as the Commission may require, and the Commission may, in its discretion, for the purpose of enabling it the better to carry out the purposes of this Act, prescribe a period of time within which all common carriers subject to the provisions of this Act shall have, as near as may be, a uniform system of accounts, and the manner in which such accounts shall be kept."
The Commission may, in its discretion, prescribe the forms of any and all accounts, records, and memoranda to be kept by carriers subject to the provisions of this Act, including the accounts, records, and memoranda of the movement of traffic as well as the receipts and expenditures of moneys. The Commission shall at all times have access to all accounts, records, and memoranda kept by carriers subject to this Act, and it shall be unlawful for such carriers to keep any other accounts, records, or memoranda than those prescribed or approved by the Commission, and it may employ special agents or examiners, who shall have authority under the order of the Commission to inspect and examine any and all accounts, records, and memoranda kept by such carriers. This provision shall apply to receivers of carriers and operating trustees.

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