Case Name: The State ex rel. v. The C. N. O. & T. P. Ry. Co.; The State ex rel. v. The C. W. & B. Ry. Co.
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1890-03-04
Citations: 47 Ohio St. 130
Docket Number: 
Parties: The State ex rel. v. The C. N. O. & T. P. Ry. Co. The State ex rel. v. The C. W. & B. Ry. Co.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 47
Pages: 130–141

Head Matter:
The State ex rel. v. The C. N. O. & T. P. Ry. Co. The State ex rel. v. The C. W. & B. Ry. Co.
Corporations — Misuse of franchise by — How Corrected — Discrimination m freight rates may be prohibited — Interstate Commerce.
1. Where a railway company, incorporated under the laws of this state, misuses a franchise, privilege or right conferred upon it, or claims the right to exercise, or has exercised “ a franchise, privilege or right in contravention of law,” this court has jurisdiction to inquire into and correct the mischief, though the corporation may be engaged in inter-state commerce, and the misuser or usurpation to be corrected relates to and concerns that traffic.
2. A corporation, created by this state, and engaged in carrying goods for hire as a common carrier, has no franchise, privilege or right to discriminate in its freight rales in favor of one shipper, even when it is necessary to do so to secure his custom, if the discriminating rate will tend to create a monopoly by excluding from their proper markets the products of the competitors of the favored shipper:
3. Where such corporation fixes a rate of freight per hundred pounds, for carrying petroleum oil in iron tank cars, substantially lower than its rate for transporting it in barrels in car load lots, it is exercising “ a franchise, privileged' right in contravention of law,” within the meaning of the fourth clause of section 6761, Revised Statutes.
(Decided March 4, 1890.)
Quo Waebanto.
The pleadings, together with the report of the referee, Hon. Channing Richards, disclose that the cities of Marietta, Ohio, and Parkersburg, West Virginia, are situated on opposite sides of the Ohio river, about twelve miles - apart; that one of the defendants, The Cincinnati, Washington & Baltimore Railway Company, owns and operates a railway that connects Marietta directly, and, by means of a railway bridge across the Ohio river at Parkersburg, the latter place, also, with the city of Cincinnati, Ohio, where it has connections wit'h an extensive system of railways operated by the other defendant, The Cincinnati, New Orleans & Texas Pacific Railway Company, both which railway companies are corporations created by and under the laws of this state; and that the entire line of the first named company lies within the state, while only about one mile of the extensive system operated by the last named company is so located, the remainder thereof extending through the states south of the Ohio river; that The Camden Consolidated Oil Company, a branch of The Standard Oil Company, owns and operates an extensive establishment at Parkersburg, West Virginia, for refining petroleum oil; and that there are a number of smaller establishments at Marietta, Ohio, engaged in the same business, not connected, however, with The Standard Oil Company, one of which, owned and operated by George Rice, is of considerable magnitude, though much less extensive than The Camden Consolidated Oil Company; that the several owners of these oil refineries mainly depend for transporting their finished product to its principal market, the towns and cities south of the Ohio river, upon the railways owned or operated by the defendants, both of whom are common carriers of freight and passengers; that there are two methods of transporting oil to market, in use by refiners and wholesale dealers, one in barrels shipped in car load lots, in cars furnished by the carrier, the other in iron tank-cars owned and furnished by shippers; and that defendants furnished no tank-cars, and did not hold themselves out as prepared to transport oil in that way; and that the tank-cars on the road of The Cincinnati, Washington & Baltimore Railway Company were owned and controlled by The Camden Consolidated Oil Company, while those on the road of The Cincinnati, New Orleans & Texas Pacific Railway Company, were owned and controlled by The Chess-Carly Company, a branch of The Standard Oil Company, located in Kentucky, and that The Camden Consolidated Oil Company and The Chess-Carly Company usually adopted the iron tank-car method of shipment, all other refiners using the barrel method only. That for some years prior to the bringing of this action, the freight rates established by defendants for transporting oil in tank-ears were made much lower than those for .transporting it in barrel packages in car load lots, and that the rates charged George Rice and other refiners and wholesale shippers, over these railroads by the barrel method, were much higher than the rates charged The Camden Consolidated Oil Company and The Chess-Carly Company respectively, for similar services by the barrel method; so that, whatever method was adopted, a marked discrimination was made in favor of these two companies. Any further statement of facts necessary to understand the decision will be found in the opinion.
J. A. Kohler, Att’y Gen’l, W. B. Loomis, A. J). Follett and George K. Wash, for plaintiff.
The defendant possesses the powers granted by section 3838, Revised Statutes, and cannot use those powers in a mode clearly against public policy and seriously to the public injury. It cannot discriminate between freights and customers, and furnish transportation to one at a less rate than to others, in a case where such discrimination is injurious to, and destructive of, the legitimate business of others. Schofield et al. v. The L. S. & M. S. Ry. Co., 43 Ohio St. 571; Mor. on Corp., sec. 1117.
The defendant having organized as a corporation under the laws of Ohio, with all the privileges and powers conferred, it is fully subject to judicial control in the exercise of those functions. Beekman v. Saratoga & Schenectady R. R., 3 Paige, 45; Bonaparte v. Camden & Amboy R. R. Co., 1 Baldwin 202; Talcott v. The Township of Pine Grove, 1 Flippen, 120 (U. S. C. C.)
We are met with the proposition that the matters complained of are affairs of inter-state commerce, of which the state has no control. Our position is this; that while our legislature, nor our courts, may not undertake the regulation of inter-state commerce, our courts may deprive a corporation — -an artificial creature of the state — of its continued existence and power to do mischief, when it violates the law of its creation, and “ ceases to fulfill the design and purpose of its organization,” whether such misuse or abuse of its powers occurs in a domes tic or inter-state transaction. While the state may not interfere to control inter-state commerce, it may decline to create, and to continue the existence of corporations to violate the-law and conduct their business in utter disregard and contempt of the public policy of the state.
Harmon, Colston, Goldsmith Hoadly, for defendant,
The Cincinnati, New Orleans & Texas Pacific Railway Company.
We claim there is no ground shown for any relief whatever, because all the breaches of duty complained of by the plaintiff were in the transportation of property, in what is called inter-state commerce, and the settled law of the land as expounded by the decisions of the highest courts is, that, any attempt by any state to control traffic by railways, within its own limits, which traverses its boundary, line into other states, is permitted only to congress and denied to state legislation. W. St. L. &. P. Ry. Co. v. Ilinois, 118 U. S. 557; Commonwealth v. Housatonic Ry. Co., 1 R. C. L. J. 79.
Courts proceed with extreme caution in proceedings which have for their object the forfeiture of corporate franchises. High on Extraordinary Remedies, sec. 649; State v. Commercial Bank, 10 Ohio 535; Schofield v. R. R. Co., 43 Ohio St. 571; Knoup v. Bank, 1 Ohio St. 620; State v. Farmers, 32 Ohio St. 489; State v. Building Asso'n, 35 Ohio St. 258, 264; State v. Standard Life Asso'n, 38 Ohio St. 299; State v. People’s Asso’n, 42 Ohio St. 584; Mor. on Corp., sec. 1024.
MeClinticlc $ Smith end. Edward W. Strong, for defendant, The Cincinnati, Washington & Baltimore Railway Company.
We shall not comment on the question of inter-state commerce, but rely on the able brief presented by Judge Hoadly in behalf of the C. N. O. &. T. P. Ry. Co. on this subject.
It is well settled that the acts of misuser must relate to matters which are of the essence of the contract between the state and the corporation, and they must be wilful and repeated. Harris v. Ry. Co, 51 Mass. 602; Com. v. Bank of Pa., 28 Pa. St. 383; State v. Gas Light & Banking Co., 2 La. 529.
Mere mistake in the mode of exercising a power will not be such a misuser as to constitute a ground of forfeiture. There must be, in order to justify such result, a persistent non-performance of the conditions of a charter or of duties imposed by the statutes applicable thereto. People v. Kingston, etc. T. Co., 23 Wend. 193. The party aggrieved may have his action to recover the over-charges. Scofield v. L. S. &. M. S. Ry. Co., 43 Ohio St. 571; Peters, Richer & Co. v. Ry. Co., 42 Ohio St. 275.
A judgment of forfeiture will not be ordered if there be any other remedy for the grievance complained of. High on Extraordinary Remedies, 649; State v. Bank, 10 Ohio 539; State v. Farmers College, 32 Ohio St. 489.
This court in.the case of Scofield v. Ry. Co. supra, distinctly recognizes the right to make lower charges to one person than to another, if it be to the advantage of the company and not inconsistent with the public interest, and based on a sufficient reason; and cites from the case of Ragan v. Aiken, 42 Am. Rep, which presents, a collection of authorities in support of that proposition.
It is well settled that the corporation does not incur the forfeiture of its franchises by reason of an intention merely to do unauthorized acts, although such intention be manifested by acts. Commonwealth v. P. C. Ry. Co., 58 Pa. St. 26.

Opinion:
Bradbury, J.
These actions are brought under the fourth clause of sec. 6761, Revised Statutes, which authorizes an action of quo warranto to be brought against a corporation " when it has misued a franchise, privilege or right conferred upon it by law, or when it claims or holds by contract or otherwise, or has exercised a franchise, privilege or right in contravention of law."
The petitions charge, among .oth iv things, that the defendants misused their corporate powers and franchises by dis-criminating in their rates of freight in favor of certain refiners of petroleum oil connected with, the Standard Oil Company, by charging other shippers of like products unreasonable rates, by arbitrarily and suddenly changing the same, and, finally, by confederating with the favored shippern to create and foster a monopoly in refined oil, to the injury of other refiners and the public; and farther, that the defendants claimed and exercised, in contravention of law, the right to charge, for shipping oil in tank cars, a lower rate of freight per hundred pounds than they charged for shipping the same in barrels, in carload lots. The defendants by answer, among other matters, denied charging any shippers unreasonable rates of freight, or that they arbitrarily or suddenly changed such rates, and denied any confederacy with any one to establish a monopoly.
The actions were referred to a .referee to take the evidence and to report to this court his findings of fact and conclusions of law therefrom; all which has been done and the cases are before us upon this report.
To the report of the referee exceptions were filed by all parties. The defendants, however, do not now insist upon their exceptions to the finding of the referee in so far as it relates to the facts; indeed, it is difficult to conceive any grounds for their doing so, for these findings are mainly based upon the testimony of the officers and agents of the railroad companies.
On the other hand, however, counsel for the relators urge upon us with much force their exceptions to the facts as they were found by the referee; four of which findings at least — the eighth, ninth, twenty-second and twenty-third— deserve consideration. The eighth was, that the open rate of freight made for the public for oil was not excessive, and the ninth, that those open rates were not frequently or arbitrarily changed. Without absolutely committing ourselves to the correctness of these findings, we think they are made immaterial by other findings that require the rendition of the same judgment tháh- should have been rendered had these two findings been the reverse of what they are.
The twenty-second and twenty-third findings of fact should be considered together. The first of the two nega tives the existence of a conspiracy, or confederation, between either of the defendants and The Camden Consolidated Oil Company on the one hand, or Tire Chess-Carly Company on the other, to foster or create a monopoly in the traffic in petroleum oil, while the other one rests the action of the railroad companies, in giving rebates and special rates to these favored shippers, upon the necessity they were under of doing so to secure large shipments of oil over their roads, which would otherwise have been lost to them.
It is contended in this connection, that as the evidence shows, and the referee in. another part of his report found, that this action of the railroad companies tended to create a monopoly and to injure the business of George Rice in all the markets reached by their lines, and in some instances did in fact create a monopoly, they, (especially as their officers were men of large capacity and wide experience in the affairs of the commercial world,) must be held to have contemplated and intended these natural results. It is true that in relation to many matters, both civil and criminal, one must be held to intend the natural and probable consequences of an acjt and cannot be heard to deny it. We think the principle hardly applicable here, and that the charge of an actual conspiracy by the defendants with others, to misuse the franchises conferred on them by the state, to injure the. public, is not necessarily sustained by proof that a course was pursued beneficial to their interests, though it tended to, and in fact did, produce that result. The inference thus arising is to be given due force, but is not conclusive; and the fact of conspiracy is to be established, if at all, from a consideration of all the circumstances in the case; and we cannot say, in view of all those circumstances, that the finding of the referee in this respect is not supported by the evidence. The exceptions to the report. are, therefore, overruled.
All of the oil of The Camden Consolidated Oil Company that was transported over The Cincinnati, Washington & Baltimore Railway, all of that which was refined by George Rice and other refiners operating at Marietta, Ohio, which was carried south of the Ohio river, and all of that belonging to any of those parties which was transported over 'the Cincinnati, New Orleans & Texas Pacific Railway, was commerce between the states, the regulation of which, by the constitution of the United States, is denied to the several states; and as the discrimination, of which complaint is made in this action, relates to this traffic, defendant's counsel contend that this court has no jurisdiction of the subject. No doubt the regulation of inter-state commerce belongs exclusively to the national government. But does the controversy now before us, in any proper sense of the term, relate to a regulation of commerce between the states ? Does this exclusive right in congress to regulate inter-state commerce, preclude any action by a state upon any subject that may incidentally affect such commerce ? Certainly a state cannot be compelled to create corporations in aid of, or to facilitate, commerce between the states; but if it does create one capable of engaging in such commerce, and the corporation in fact so engages, is that an emancipation of the corporation from the control of the state ? That the power to regulate commerce between the states, cannot safely be pressed to such extreme consequences is, we think, recognized by the Supreme Court in Robbins v. Shelby County Taxing District, 120 U. S. 489. The corporation has received vitality from the state; -it continues during its existence to be the creature of the state; must live subservient to its laws, and has such powers and franchises as those laws have bestowed upon it, and none others. As the state was not bound to create it in the first place, it is not bound to maintain it, after having done so, if it violates the laws or public policy of the state, or misuses its franchises to oppress the citizens thereof.
For such offenses the state, acting through its legislature and courts, and in the exercise of a sound discretion, may either destroy the corporation entirely, by forfeiting its charter, or oust it from the wrongful exercise of its powers. And if, instead of, or in addition to misusing the franchises actually conferred, it usurps others, the circumstance that the usurped franchises relate to and concern commerce between the states, ought not to deprive the state of its visitorial power. If the state creating the corporation is deprived of this power, none exists elsewhere. " The government creating the corporation can alone institute such a proceeding; " (quo warranto to adjudge forfeiture of a corporate franchise;) " since it may waive a broken condition of a compact made with, it." Angel & Ames on Corp., sec. 777, and cases cited. See note 6.
That The Cincinnati, Washington & Baltimore Railway Company did discriminate in its rates for freight on petroleum oil in favor of The Camden Consolidated Oil Company, and that The Cincinnati, New Orleans & Texas Pacific Railway Company did the same in favor of The Chess-Carly Company, is shown by the finding of the referee, which is clearly sustained by the evidence. That these discriminating rates were in some instances strikingly excessive, tended to foster a monopoly, tended to injure the competitors of the favored shippers and were in many instances prohibitory, actually excluding these competitors from extensive and valuable markets for their oil, giving to the favored shippers absolute control thereof, is established beyond any serious controversy. The justification interposed is that this was not done pursuant to any confederacy with the favored shipper or with any purpose to inflict injury on their competitors, but in order that the railroad companies might secure freight that would oth&swise have been lost to them. This we do not think sufficient. We are not unmindful of the difficulties that stand in the way of prescribing a line of duty to a railway company, nor do we undertake to say they may not pursue their legitimate objects, and shape their policy to secure benefits to themselves, though it may press severely upon the interests of others; but we do hold that they cannot be permitted to foster or create a monopoly, by giving to a favored shipper a discriminating rate of freight. As common carriers, their duty is to jcarry indifferently for all who may apply, and in the order in which the application is made and upon the same terms; and the assumption of a right to make discriminations in rates for freight, such as was claimed and exercised by the defend ants in this case, on the ground that it thereby secured» freight that it would otherwise lose, is a misuse of the rights j and privileges conferred upon it by law. A full and complete discussion of the principles and a thorough collection of the authorities, bearing upon the duties of railroad companies toward their customers, is to be found in the opinion of Atherton, J., in the case of Scofield v. Railway, 43 Ohio St. 571, to which nothing need be now added.
It appears that of the two methods of shipping oil, that by the barrel in car load lots and that in tank ears, the first o»rly was available to George Rice and the other refiners of petroleum oil at Marietta, Ohio, as they owned no tank cars, nor did the defendants own or undertake to provide any; but that both methods were open to The Camden Consolidated Oil Company and The Chess-Carly Company, by reason of their ownership of tank cars, and that the rate per barrel in tank cars was very much lower than in barrel packages in box ears; that in fact The Cincinnati, Washington & Baltimore Railway Company after allowing The Camden Consolidated Oil Company a rebate, and allowing The Baltimore & Ohio Railway Company for switching cars, received from The Camden Consolidated Oil Company only about one half the open rates it charged the Marietta refiners, and that both railroad companies claimed the right to make different rates, based upon the different methods of shipping oil, and the fact of the ownership by shippers of the tank ears used by them. It was the duty of the defendants to furnish suitable vehicles for transporting freight offered to them for that purpose, and to offer equal terms to all shippers. A railroad is an improved highway; the public are equally entitled to its use; it must provide equal accommodation for all upon the same terms. The fact that one shipper may be provided with vehicles of his own, entitles him to no advantage over his competitor not so provided. The true rule is announced by the Interstate Commerce Commission, in the report of the case of George Rice v. The Louisville & Nashville Railroad Company et al.
" The fact that the owner supplies the rolling stock when his " oil is shipped in tanks, in our opinion, is entitled to little weight when rates are under consideration. It is properly the business of railroad companies to supply to tlieir customers suitable vehicles of transportation (Railroad Co. v. Bratt, 32 Wall. 123), and then offer their use to everybody impartially." Page 50 of the report of the case. No doubt a shipper who owns cars may be paid a reasonable compensation for the use, so that the compensation is not made a cover for discriminating rates, or other advantages to such owner as a shipper. Nor is there any valid objection to such owner using them exclusively, as long as the carrier provides equal accommodations to its other customers. It may be claimed that if a railroad company permit all shippers indifferently, and upon equal terms, to provide cars suitable for their business, and to use them exclusively, no discrimination is made. This may be theoretically true, but is not so in its application to the actual state of the business of the country; for a very large portion of the customers of a railroad have not a volume of business large enough to warrant equipping themselves with cars, and might be put at a ruinous disadvantage in the attempt to compete with more extensive establishments. Aside from this, however, a shipper is not bound to provide a car; the duty of providing suitable facilities for its customers rests upon the railroad company, and if, instead of providing sufficient and suitable cars itself, this is done by certain of its customers, even for their own convenience, yet, the cars thus provided are to be regarded as part of the equipment of the road. If being the duty of a railroad company to transport freight for all persons indifferently and in the order in which its transportation is applied for, it cannot be permitted to suffer freight cars to be placed upon its track by any customer for ! his private use, except upon the condition that, if -it does not .provide other cars sufficient to transport the freight of other [customers in the order that application is made, they may be used for that purpose. .Were this not so, a mode of discrimination, fatal to all successful competition by small establishments and operators with large and more opulent ones, could be successfully adopted and practiced at the will of the railroad company and the favored shipper.
The advantages, if any, to the carrier, presented by the tank car method of transporting oil, over that by barrels in box cars in car load lots, are not sufficient to justify any substantial difference in the rate of freight for oil transported in that way; but if there were any such advantages, as it is the duty of the carrier to furnish proper vehicles for transporting it, if it failed in this duty it could not in justice avail itself of its own neglect as a ground of discrimination. It must either provide tank cars for all of its customers alike, or give such rates of freight in barrel packages, by the car load, as will place its customers using that method, on an equal footing with its customers adopting the other method.
Judgment ousting defendants from the right to make or charge a rate of freight per hundred pounds for transporting oil in iron tank ears, substantially lower than for transporting it in barrels, in car load lots.