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Federal Control Laws Railroads

( Originally Published 1918 )



As the corporations engaged in the transportation of passengers and merchandise between the different states and foreign countries grew and multiplied, both in number and in power and influence, it became recognized that if they were left to themselves and without the restraining hand of governmental regulation in the conduct of their business and affairs, they might, through their very greatness, become a menace to the principles of free government and to the interests of the people as a whole.

Government Ownership Versus Regulation.-Out of the discussion there grew on the one hand, the demand that as the transportation companies owed their very existence to the people, whom they were supposed to serve and from whom they derived their wealth, that they should, in turn, be owned by the people—that is, by the government —and administered by the people—that is, by the government, while on the other hand, this was strenuously opposed by those who saw in such a move the ultimate creation of a political machine of even a greater menace, and these, arguing for the right of capital to find employment in such activities, urged the government control of these instrumentalities of commerce, as the safer course.

Interstate Commerce Commission. — The country then, and not even now being ready for government ownership of the means of transportation, in February, 1887, took its first real step towards the control of such utilities, by the pas-sage of the Act to Regulate Commerce, creating, as the body through which such control should be exercised, the Interstate Commerce Commission. By subsequent legislation, the powers of the commission have been largely increased and the scope of their operations materially widened. Of these subsequent enactments, the more important ones were the acts of March 2, 1889; the Elkins Act, approved February 19, 1903; the Hepburn Act, approved June 29, 1906; the Mann-Elkins Act, approved June 18, 1910, the acts of August 24, 1912, May 29, 1917, August 9, 1917, and the Transportation Act, approved February 28, 1920.

Changes in the Commission.—Under the original act the number of the commissioners was five, and this was increased under the Hepburn Act of June 29, 1906, to seven. Later and under the Act of August 9, 1917, the number of the commissioner was increased to nine, and again and under the Transportation Act of February 28, 1920, the size of the commission was raised to eleven. The commission appoints a secretary, who acts as its general administrative and executive officer, an assistant secretary, chief counsel, and such attorneys, examiners, special agents and clerks as may be necessary for the proper performance of its duties.

Application of the Act.—The Act to Regulate Commerce and the powers of the Interstate Commerce Commission extend to all common carriers engaged in the transportation of oil or other commodities, except water and except natural or artificial gas, by means of pipe lines, or partly by pipe lines and partly by railroad, or partly by pipe lines and partly by water, and to telegraph, telephone, and cable companies, wire or wireless, engaged in sending messages from one State, Territory or District of the United States, to any other State, Territory or District of the United States, or to any foreign country, and to common carriers engaged in interstate transportation of passengers or property wholly by railroad, or partly by railroad and partly by water, when both are used under a common control, management or arrangement for a continuous carriage or shipment; also to express companies and sleeping-car companies; to bridges, ferries, car floats and lighters, and all terminal and transportation facilities used or necessary in the interstate transportation of persons and property, and all instrumentalities and facilities used in connection with the transmission of intelligence and messages by the use of electric energy.

Control Over Rates.—The act requires that all rates be just and reasonable and prohibits unjust discrimination and undue or unreasonable preference or advantage in transportation rates or facilities.

Discriminating Intrastate Rates.—Under the amendment of 1920 (Transportation Act), it is provided that whenever in any investigation, including one instituted upon the petition of the carriers concerned, there shall be brought in issue any rate, fare, charge, classification, regulation or practice, made or imposed by any State authority, the authorities of the State or States interested must be notified of the hearings in such cases, and the commission may confer and hold joint hearings with the authorities of the interested States.

Power of Commission to Change.—The act further provides that if, after such hearing, the commission finds such rate, fare, charge, classification, regulation or practice causes undue or unreasonable advantage, preference or prejudice as between persons or localities in intrastate commerce on the one hand and interstate or foreign commerce on the other hand, or any undue, un-reasonable or unjust discrimination against interstate or foreign commerce which is forbidden, then the commission is authorized and empowered to prescribe the rate, fare or charge, or the maximum or minimum, or maximum and minimum thereafter to be charged, and the classification, regulation or practice thereafter to be observed in such manner as in the judgment of the commission will remove such advantage, preference, prejudice or discrimination.

Long and Short Haul Rates.—The amended act prohibits carriers charging a higher rate for a shorter than a longer haul, over the same line, in the same direction, the shorter being included within the longer haul, or the charging of any greater compensation as a through route than the aggregate of the intermediate rates subject to the act.

Relief to Circuitous Lines.—The commission is empowered, after investigation, in special cases to grant relief to circuitous rail lines in order to meet the rates of more direct lines and to permit the establishment of higher rates between inter-mediate points on such longer lines than those charged between such competitive ones.

Through Routes and Joint Rates.—The commission is authorized to require that carriers establish through routes and joint rates, and it may also act summarily on its own initiative in establishing, temporarily, through routes, when, in its opinion, shortage of equipment, congestion of traffic or other emergency exists.

Division of Joint Rates.—The act as amended, requires that divisions of joint rates shall be just, reasonable and equitable, and authorizes the commission upon complaint, or upon its own initiative, after hearing, to prescribe the just, reason-able and equitable divisions of such rates, and it may require readjustment of such divisions as it finds have been unjust, unreasonable or inequitable in the past.

Switch Connections and Side Tracks.—The commission is also authorized to require carriers subject to the act to construct switch connections with lateral branch lines of railroads and private side tracks.

Routing Freight.—It is also provided that where two or more through routes and through rates shall have been established, shippers shall have the right to designate in writing via which of such through routes their property shall be transported to destination.

When Shipper Does Not Route.—The commission is given authority under the amendment of February 28, 1920, over the routing of traffic after it arrives at the terminus or a junction point of a carrier and is to be there delivered to another carrier, in cases where routing instructions have not been given by the shipper.

Liability for Improperly Diverted Traffic.—It is also provided that where diversion of routed freight occurs which is not in compliance with an order, rule or regulation of the commission, the carrier or carriers so diverting the traffic are jointly and severally liable to the carrier deprived of its right to participate in the haul of the property.

Pooling of Freight.—Under the amendment of February 28, 1920, the commission is authorized, under certain circumstances, and upon such terms and conditions and subject to such rules and regulations as it may think just and reasonable, to permit the pooling of freights of different and competing railroads, and to divide the aggregate or net proceeds of the earnings of such railroads, and to permit the acquisition by one carrier of the control of another carrier in any manner not involving the consolidation of such carriers into a single system for ownership and operation.

Creation of Railroad Systems.—The amended act also requires the commission to prepare and adopt, as soon as practicable, a plan for the consolidation of railway properties of the continental United States into a limited number of systems. It also authorizes the carriers, with the approval of the commission, and subject to certain restrictions, to consolidate their properties or any part thereof.

Consolidation of Express Companies.—The amended act also authorizes the consolidation of four express companies, and relieves carriers, when such permission to consolidate is given, from the restraints and operation of the anti-trust laws so far as may be necessary to effect such consolidation.

Rates and Valuations.—The commission is directed to make and fix such rates as will yield the carriers as a whole, or as a whole in each group or territory designated by the commission, a fair return upon the aggregate value of the property used by them in serving the public, and to fix such aggregate values from time to time as may be necessary.

Return.—The act fixes the rate of return to the carriers at 51/2 per cent, to which may be added, in the discretion of the commission, not exceeding one-half of one per cent for improvements, betterments or equipment for the two years beginning March 1, 1920.

Disposition of Surplus Earnings.—The act makes provision for the disposition of any earnings in excess thereof by distributing one-half of them to a reserve fund to be established and maintained by the carrier, the remaining one-half to be paid to the commission for the purpose of establishing and creating a contingent fund.

Use of Reserve and Contingent Funds.—The carriers are authorized to make certain uses of their reserve funds, while the contingent fund created by the commission and augmented as above provided, is to be used as a revolving fund to be administered by the commission, out of which loans may be made to the carriers, or transportation equipment and facilities purchased by the commission and leased to the carriers, in accordance with prescribed terms and conditions.

Rates To and From Ports.—The commission is given jurisdiction, upon complaint, or in a proceeding instituted upon its own initiative, and after full hearing, to determine and prescribe reasonable rates, regulations and practices, including minimum, and maximum and minimum rates; and also minimum, and maximum and minimum proportional rates to and from ports, and to award reparation to injured shippers.

Limitation of Actions.—In the act of February 28, 1920, it is also provided that actions at law by carriers, to recover their charges, shall be begun within three years from the time the cause of action accrues and not thereafter, and that complaints seeking reparation shall be instituted within two years from the time the cause of action accrues, except that where the carrier begins an action after the expiration of the two years from accrual of the cause of action for the recovery of charges in respect of the same service, or within ninety days before such expiration, the proceedings before the commission may be begun within ninety days after such action by the carrier is begun.

When Cause of Action Accrues.—The act provides that a cause of action against a carrier shall be deemed to accrue upon delivery or tender of delivery by the carrier of the property involved.

Preferences Forbidden. The commission is given authority to require carriers to cease and desist from unjust discrimination or undue or unreasonable preferences.

Duration of Commission's Orders.—By the amendment of February 28, 1920, it is provided that an order of the commission shall continue in force until the further order of the commission, or for a specified period of time, according as shall be prescribed in the order, unless modified or set aside by the commission, or set aside by a court of competent jurisdiction.

Publication of Rates.—The act requires carriers to publish and file rates, rules and regulations applying to interstate traffic, and are prohibited from engaging in interstate transportation unless such are published and filed.

Penalties.—The act makes the carriers liable to severe penalties for failure to observe the rates and regulations as shown in their published tariffs.

Control of Equipment.-As amended, the commission is given wide jurisdiction over the use, control, supply, movement, distribution, ex-change, interchange and return of locomotives, cars and other vehicles, including special types of equipment and the supply of trains.

Supervision of Management.—The commission is empowered to inquire into the management of the business of all carriers subject to the provisions of the act to regulate commerce, and may prescribe the accounts, records and memoranda which shall be kept by the carriers, and which shall be open to the examination by the commission through its authorized agents or examiners.

Filing or Reports.—All common carriers subject to the provisions of the act are required to file annual reports with the commission and such other reports as the commission may from time to time require.

Suspension of Proposed Schedules.--Under the amendment of February 28, 1920, the maximum period during which the commission might suspend the operation of proposed schedules was fixed at 150 days, with the proviso that if the proceedings upon suspension are not concluded within that time, the proposed schedule shall go into effect, but the commission may require the carriers to keep detailed accounts of all amounts received by reason of any such increases in rates and charges and, if the decision of the commission be adverse, require the carrier or carriers to refund with interest such portions of such in-creases as shall be found by the decision to be not justified.

Carriers' Liability.—Under the act as amended, carriers are liable for all loss, damage or injury to property caused by them, and they are forbidden, with certain exceptions, from exacting limitations of liability or shortening the time for giving notice, filing claims and bringing suits against them as specified in the amended act.

Loss by Water Carrier. Under the amendment of February 28, 1920, it is provided that where the loss, damage or injury occurs while the property is in the custody of a carrier by water, the liability of such carrier shall be determined by and under the laws and regulations applicable to transportation by water, and that the liability of the initial carrier shall be the same as that of such carrier by water, except in connection with shipments to foreign destinations by water carriers whose vessels are registered under the laws of the United States, in which case it is made the duty of the carrier by rail to deliver such shipments to the vessel as a part of its undertaking as a common carrier, but it is provided in this connection that the rail carrier shall not be liable after its delivery to the vessel.

Control of Competing Rail and Water Routes. —Under the amendment of August 24, 1912, known as the Panama Canal Act, it was made unlawful for any carrier subject to the act to own, lease, operate, control, or have any interest in any competing carrier by water after July 1, 1914. This amendment had special reference to the Panama Railway and its ownership and operation as effecting competition in transportation to the Pacific Coast between the transcontinental rail lines and water routes through the Panama Canal.

Continuing Control.—The commission was, however, given jurisdiction to extend beyond July 1, 1914, the time during which such ownership or operation of vessels plying elsewhere than through the Panama Canal might continue, when it was found to be in the interest of the public and of advantage to commerce, and not in restraint of competition.

Control of Rail and Water Traffic.—The same amendment extended the jurisdiction of the commission over rail and water traffic from point to point within the United States, whether through the Panama Canal or otherwise, but not entirely within the limits of a single State, with the power to establish physical connections between rail and water carriers, to fix through routes and maxi-mum joint rates and classifications and to require rail carriers entering into through routing arrangements with any water carrier to extend like privileges to other water carriers.

Valuation of Carrier Properties.—Another amendment directed the commission to investigate, ascertain and report the value of all property owned or used by every common carrier subject to the provisions of the act.

Issues of Securities.—The amendment of February 28, 1920, makes it unlawful for any carrier subject to the act to issue securities or bonds or other evidences of indebtedness, or to assume any obligation as lessor, lessee, guarantor, indorser, surety or otherwise in respect of the securities of others after 120 days after the amendment takes effect, except upon and in strict accordance with the authorization of the commission, and prescribes the procedure to be had for the granting of such authorization.

Short Term Notes Excepted.—The authorization of the commission is not required for the is-sue of short term notes maturing not more than two years from date of issue, providing that such issue and other then outstanding notes with a maturity of two years or less are not more than five per cent of the par value of the securities of the carrier then outstanding.

Authorization Not Guaranty.—It is expressly provided in the act that no such authorization for the issue of any securities by any carrier shall imply any guarantee or obligation in respect thereof on the part of the United States.

Recovery on Unauthorized Issues.—Where unauthorized issues of securities have been purchased by the public and investors in good faith, and without notice that the same are void by reason of the lack of such authorization, a right of action is given to recover the damage thus sustained.

Liability for Unauthorized Issues. The act provides heavy penalties against any director, officer, attorney or agent of any carrier who knowingly assents to or concurs in the issuance or dis-position of any securities without or contrary to the authorization of the commission in respect to the same.

Interlocking Directorships.—The amendment of February 28, 1920, makes it unlawful, after December 31, 1921, for any person to hold the position of officer or director of more than one carrier, unless such holding shall have been authorized by order of the commission, upon due showing that neither public nor private interests will be adversely affected by the same.

Commissions to Directors. The same amend-ment makes it unlawful, from the time the same takes effect, for any officer or director of any carrier to receive for his own benefit, any money or thing of value, directly or indirectly, in connection with the sale or disposition of securities of the carrier or the improper payment of dividends, and subjects the wrongdoer to heavy penalties.

Foreign Commerce.---The amendment of February 28, 1920, requires every carrier by water in foreign commerce, whose vessels are registered under the laws of the United States, to file with the commission within thirty days after the amendment takes effect, and regularly thereafter as changes are made, a schedule or schedules showing for each of its steam vessels intended to load general cargo at ports in the United States for foreign destinations (a) the ports of loading, (h) the dates upon which such vessels will commence to receive freight and dates of sailing, (c) the route and itinerary such vessels will follow and the ports of call for which cargo will be carried.

Water Freights and Charges.—Upon application of any shipper, a rail carrier shall apply for and the water carrier shall state the specific rates on any designated commodities and for any scheduled sailing, together with any port charges not embraced in the railroad rate to the port of exportation.

Publication of Schedules. The commission is directed to publish in compact form for the information of shippers throughout the country, of the substance of such schedules and to furnish the same to the railroads for distribution in such communities as are important in the export trade and so specified by the commission.

Through Bills of Lading.—Provision is also made in the act for through export bills of lading, in connection with such water carriers, to the point of destination. Such bills of lading are required to state separately the charges to be paid for railroad transportation, water transportation and port charges, if any, not included in the rail or water transportation charge, and that the commission shall, in such manner as will preserve for the carrier by water the protection of limited liability provided by law, make such rules and regulations as will prescribe the form of such through bills of lading.

The "Safety Appliance Act" of March 2, 1893, provides that railroad cars used in interstate commerce must be equipped with automatic couplers and standard height drawbars for freight cars, and have grab irons or handles on the ends and sides of each car. A further provision is that loco-motive engines used in moving interstate traffic shall be fitted with a power-driving wheel brake and appliances for operating the train-brake system, and a sufficient number of cars in the train shall be equipped with power or train brakes. By act of April 14, 1910, all railroads are required to equip their cars with sill steps, hand brakes, ladders, running boards and grab irons, and the commission was authorized to designate the number, dimensions, location and manner of application of appliances.

Automatic Train Stop-Devices. — By the amendment of February 28, 1920, the commission was empowered to order any carrier subject to the provisions of the act, and after investigation, to install, within a period to be fixed by the commission, not less than two years from the date of the order, automatic train-stop or train-control devices on the whole or any part of the railroad, and provides penalties for a refusal to comply.

Other Powers of Commission.—By the various amendments of the original Act to Regulate Commerce, the commission is empowered to fix the standard time zones (Act of March 19, 1918) ; to compel the reporting of all accidents (Act of May 6, 1910) ; to regulate the hours of service (Act of March 4, 1907) to regulate the carrying of explosives (Act of May 30, 1908) to look after locomotives and their boilers (Acts of February 17, 1911, and March 14; 1915) ; to oversee block signal and automatic train-control devices (Acts of 1913-1918).

Offering, Soliciting, or Receiving of Rebates is made a misdemeanor by act of February 19,1903, commonly called the Elkins law.



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