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PART I.-EARLY RAILWAY CHARTERS.
General characteristics.-A railway charter may be defined as a special act of a legislative body authorizing a person or persons duly organized to construct and operate a railway or railways in a certain territory under certain conditions. Such a legislative act is a private law. With the exception of a few of the Western States-Arizona (Territory), California, Colorado, Idaho, and Montanawhich began with general laws, special charters have been granted by every State and Territory in the United States. The charters have numerous resemblances and differences which will be noted more in detail later on, but at the outset it is well to notice certain features which charters in all parts of the United States have in common. In spite of numerous striking differences which exist, we may speak of a typical railway charter.
The leading features which are common to railway charters of the different States may be associated with the following points, every charter having one or more provisions relating to some or all of these points: Name of company; number of commissioners; number of board of directors; the amount of capital stock: size and number of shares; the amount of the payment per share at the time of subscription, and the maximum assessment per share, together with the number of days' notice required; systems of voting; the time limit as to beginning and completing construction; junctions, branches, and extensions; route; expropriation and methods of valuation, together with the manner in which disputes are settled; the amount of land which may be held; the number of miles to be constructed before traffic may be opened; the power to borrow money and the rate of interest; the distribution of dividends, liability of stockholders, annual reports, passenger and freight rates. In every State charters may be found which contain provisions on only a few of these points, while in most States charters were granted containing provisions on all of them, and perhaps others not here indicated.
Following an old English custom, a few charters in a number of States contain a preamble. Where a preamble is found, it usually sets forth the reasons why the proposed railway should be constructed, the public service which it can be made to perform, and the manner in which the project is to be carried out. Preambles of this kind can be found in charters of States so far apart as Wisconsin, Pennsylvania, and Georgia. Similarly, charters in some North Atlantic States declare the public use of the projected railways. Both the preamble and the declaration of public utility serve the same purpose, namely, to bring before the legislative body before the franchise is granted the social and economic conditions which make the project desirable, if not necessary.
While there is no general order in which the different provisions of a typical railway charter are incorporated, in the individual charters of the different States, it is very common for a charter to enumerate first of all a number of persons, designated commissioners, under whose direction the proposed railway is to be organized. These commissioners are authorized to open subscription books in specified localities on a certain date, and to continue to receive subscriptions during a certain period of time. The charter further specifies that after a certain minimum sum has been subscribed, and a certain payment on each subscription, varying greatly in its amount, has been made, the subscribers shall hold a meeting and elect a board of directors. The size of the board to be elected, like the number of commissioners, varies very greatly in the different charters, although 9 and 13 are perhaps the most common numbers. In a few States, like Connecticut, Maryland, and Kentucky, charters were granted making it obligatory on the part of the elective officers to bind themselves to the performance of their respective duties by an oath.
The board of directors having been elected, the company has obtained legal status and is prepared to carry out the provisions of the charter in its possession.
The powers granted to the company, acting through the board of directors, include powers common to corporate bodies, such as purchasing, holding, selling, and leasing property; to have perpetual succession; to sue and be sued; to use a common seal, and in general to exercise those powers, rights, and privileges which other corporate bodies exercise, in order to carry out the provisions of the charter.
One power which is invariably given to the board of directors, with or without restrictions, relates to rates; and, considering the great importance which has always been attached to the question of rates, it may be well to bring together typical features of charters of different States on this important question.
Charter provisions as to rates.-A charter granted by Connecticut in 1832 provides that the company may charge "such rates per mile as may be agreed upon and established from time to time by the directors of said corporation." This, in substance, is the provision on rates which is more frequently found in railway charters in the United States than any other. The Connecticut charter just referred to names 3 "commissioners," who shall be sworn to a faithful discharge of the trust imposed upon them by virtue of the act, and who shall not be interested in any way whatsoever in the company.
A Colorado charter of 1865 provides as follows: They (the board of directors) shall have power to establish such rates for the transportation of persons and property in all matters and things respecting the use of said road and the transportation of property as may be necessary: Provided, That the legislative assembly of this Territory, or any legislative body, having legislative authority over the county in which said road is located, may, after the expiration of 25 years from the passage of this act, and at the expiration of each period of 20 years thereafter, prescribe rates to be charged and collected by said corporation for transporting passengers and freight over said road and the branches thereof."
One of the earliest Florida charters grants the company "the right to demand and receive such prices and sums for transportation as may be from time to time authorized and fixed by the by-laws of said company or companies: Provided, That such prices and sums shall not be increased without at least 60 days' previous notice thereof being given." This charter further provided that the "tolls' should not yield more to the company than 20 per cent per annum on its stock, and any excess ver 20 per cent should be paid into the internal improvement fund. Maximum rates are prescribed in a charter granted by Georgia in 1837, as follows: Provided, That the charge of transportation or conveyance shall not exceed 25 cents per 100 pounds on heavy articles, and 10 cents per cubic foot on articles of measurement for every hundred miles, and 5 cents a mile for every passenger." Similar provisions were incorporated in Georgia charters during succeeding years.
An Indiana charter of 1832 empowers the company to "change, lower, or raise rates at pleasure: Provided, That the rates established from time to time shall be posted in some conspicuous place or places."
A provision similar to that found in the Florida charter above quoted is found in a Connecticut charter of 1829. "It shall be lawful for them (board of directors) to charge for every hundred pounds transported 60 miles or upwards, 24 mills per hundred pounds weight for each mile; for ever hundred pounds weight transported over 20 miles and under 60 miles, 3 mills for each mile; for every hundred pounds below 20 miles, 34 mills per mile." Passengers were to pay 4 cents per mile.
A charter granted by Maryland in 1827 prescribed different rates for different directions. From north to south the freight charges were not to exceed 1 cent per ton-mile for toll and 3 cents per ton-mile for transportion; south to north the charges were not to exceed 3 cents per ton-mile for tolls and 3 cents per ton-mile for transportation. The maximum rate for the transportation of passengers was fixed at 3 cents per mile. The same State granted a charter in 1831 which fixed the maximum rate for freight at 3 cents per ton-mile for both toll and transportation, and for passengers not exceeding 3 cents per mile, provided the passenger does not carry baggage exceeding 50 pounds in weight and occupying space not exceeding 2 cubic feet.
The early Massachusetts charters, like the charters of other New England States, are the most complete of any that can be found in the legislation of other States. One of the earliest charters, granted in 1829, refers to a general law enacted by Massachusetts in 1808, thus subjecting the corporation created by the charter to the provisions of a general law. That is perhaps the earliest instance of its kind. While this charter fixes a maximum freight rate it does not mention passenger rates at all; but another charter granted by the same State during the same year provides that the company may impose charges not exceeding 3 cents, and for every passenger passing and repassing not exceeding 2 cents per mile,
which shall be conveyed upon said railroad, exclusive of the expense of transportation, payable at such time and in such manner as may be described in the by-laws. It will be noticed that this charter, like the Maryland charter already referred to, makes at least a theoretical division of the aggregate charge into "toll" and "transportation."
The early charters granted by Michigan are essentially like those granted by Ohio, Illinois, and Wisconsin. Many of them are quite complete and contain leading features of typical charters. Those which are more carefully drawn contain provisions relating to maximum rates for both freight and passengers. The amount which the company may charge varies, however, very materially, not only in charters granted during succeeding years, but also in those enacted during the same year. For all of the Western States the statement holds true that among earlier charters we find more numerous examples of maximum rates, even though the same charters give the board of directors wide discretionary powers over rates. Following the period during which charters of this kind were granted, it was more common to omit the maximum-rate feature and to incorporate the power over rates in the board of directors, giving this body the right to charge such rates as it may from time to time think expedient. It may be noticed that an early Ohio charter (1838) makes a distinction in charges upon ordinary and "pleasure carriages.'
There is no essential difference among the early charters of Pennsylvania and Maryland, except perhaps that in Pennsylvania a distinction was sometimes made between "through" and "way" passengers. Nor is the difference between the charters in these States and those granted by North and South Carolina a striking one, except that the systems of voting rather common in the Carolinas do not appear in the Atlantic States farther north. In 1837 North Carolina granted a charter which provided for maximum rates as follows: "On persons, not exceeding 6 cents per mile for each, unless the distances to which any person be transported be less than 10 miles, in which case the president and board of directors may be entitled to make an extra charge of 50 cents for taking up and putting down each person so transported; for transportation of goods, * * * not exceeding an average of 10 cents per ton mile; and for the transportation of mails, such sums as they may agree upon." In a similar manner later charters in both North and South Carolina prescribe maximum rates. These rates frequently bear a direct relation to distance and space occupied.
These quotations suffice to indicate the manner in which early charters in different parts of the United States attempted to control rates. The variety existing among provisions of this kind is no greater than among provisions on other subjects, and in nearly all instances the maximum rates prescribed appear to have been much above what railway companies would in ordinary circumstances be inclined to charge.
As a matter of interest, rather than of importance, it may be noted that in a few States several charters prescribe rates by reference to another charter previously granted by the same legislature. Thus a Michigan charter of 1848 refers to rates charged by the Michigan Central Railway; a Georgia charter of 1838 specifies that the company may charge as much as the Georgia Railroad and Banking Company; in 1831 Mississippi adopted a charter granted by Louisiana; and a Tennessee charter of 1851 grants the same provisions which have previously been granted to the Nashville and Chattanooga road.
Publicity of rates.-Publicity of rates is not generally provided for, although provisions on this subject are found in some of the charters granted by Indiana, Louisiana, Maine, New Hampshire, Vermont, New Jersey, South Carolina, Georgia, Missouri, and in occasional charters granted in the Northwestern States, all of which are fairly well illustrated by the clause of an Indiana charter quoted above. A Louisiana charter of 1831, after providing that such rates may be charged as shall have been previously fixed by the resolution of the board of directors, stipulates that "rates shall be published in some newspaper, * * * and it shall be unlawful to increase such rates, after the same shall have been established, during the period for which they have been established." The same charter further provides that every new board of directors shall publish a schedule of rates within 10 days after its election. Another charter granted 2 years later specifies the number of newspapers in which the schedule of rates shall be published, and that such rates "shall not be changed during the year in which they are established." Publicity of a different kind, and quite unique in railway legislation, is provided for by joint resolution of the South Carolina legislature of 1836: "That no charter for the incorporation of railroad companies, or in extension thereof, shall be granted by the legislature unless 3 months' public notice of the application for same be previously given by advertising in one of the papers of
the city of Charleston, and also in the paper of one of the counties in which said road may be situated, or, if there be no newspaper in such county, then by publication of such notice as the court-house or some conspicuous place in the county." The South Carolina resolution evidently aimed to accomplish the same thing as the declaration of utility in some of the other States, namely, to give interested parties an opportunity to be heard and to demonstrate to the public the necessity of incorporating the projected company.
Another, but a much more restricted, kind of publicity is that provided for in some charters granted in all parts of the country, by giving stockholders the right to inspect the books of the company at any time. This, however, is not publicity as we now understand it, for it simply gives the persons directly interested in the financial success of the enterprise access to the books, while the real and essential publicity suggested to-day is of a very different kind. It is therefore more a matter of curiosity than of vital importance that notice is taken of a New Hampshire charter of 1836, which provides that the books of the company shall be open for inspection by a committee of the legislature. Analogous provisions are occasionally met with in charters of Rhode Island and the Northwestern States, but to what extent legislative committees ever exercised this privilege does not appear. Discriminations.-Relatively few early charters contain any reference to the matter of discrimination, which figures so largely in later railway legislation. Among the States which granted charters containing clauses on discrimination are North Carolina, Rhode Island, Vermont, and Wisconsin. A North Carolina charter of 1837 says: "They shall give no undue preference to the property of one person over that of another, but as far as practicable shall carry each in the order of time in which it shall be delivered or offered for transportation with the tolls paid or tendered." An early Wisconsin charter contains a much more elaborate provision on discriminations.
Administrative agents. So far as internal evidence is concerned, early charters were granted upon the assumption that the companies organized under them would voluntarily fulfill the obligations imposed by the franchise. The assumption which underlies early as well as later railway charters is that they execute themselves. It is consequently doubly interesting to observe that the small State of Rhode Island apparently took the initiative in establishing commissions, for in 1836 the legislature of that State passed "An act to establish railroad commissioners." After providing for the appointment of three commissioners by the general assembly, the act specifies that it shall be the duty of said board of commissioners, upon complaint or otherwise, whenever a majority of them shall deem it expedient, personally to examine into any or all of the transactions or proceedings of any railroad corporation that now is, or hereafter may be, authorized and established in this State, in order to secure to all the citizens and inhabitants of the same the full and equal privileges of the transportation of passengers and property at all times that may be granted, either directly or indirectly, by any such corporation to the citizens of any other State or States, and ratably in proportion to the distance any such persons or property may be transported on any railroad as aforesaid; and to inquire into any contract, understanding, or agreement by which any railroad company shall attempt to transfer or give to any steamboat company any favor or preference over any other such company or boat, either as to freight or passage, contrary to the true intent and meaning of this act and the several acts hereafter passed in relation to railroads."
The commissioners in the Connecticut charter quoted before may here be recalled, together with the boards of internal improvement of Tennessee and Florida, which had some, although much more restricted, administrative powers over certain railways. Analogous functions were performed under a Vermont charter of 1843, by which "the supreme court at any stated session thereof, * * * upon application of ten freeholders in any town or towns through which said road may pass, may alter or establish the rates of toll upon said road for any term not exceeding ten years at any one time." It is evident that the Rhode Island commission is the only one of these bodies that could exercise, under the law, fairly comprehensive administrative functions. The Vermont court is here alluded to simply because it is another illustration of the introduction into the management of railway affairs of persons other than those directly interested in the corporation.
Powers reserved to the legislature. Considered numerically, a majority of the charters granted in the different States do not reserve to the legislature either specified or general powers. It is very common, however, for charters to contain provisions reserving to the legislature the right to regulate, with more or less latitude, the charges of transportation. In the New England States this power could generally be exercised under charter rights as long as the net income of the
railway in question exceeded a certain per cent, usually 10. Thus a Massachusetts charter of 1829 reserves to the legislature the right to revise the schedule of rates every 4 years if the net income exceeds 10 per cent. A contemporary New Hampshire charter gives the board of directors full power over rates, and permits the legislature to reduce them after 10 per cent net on the investment has been realized. A clause typical of provisions of this kind is found in an early Maryland charter: "That nothing in this act shall be construed so as to prevent the legislature of this State from legislating upon the subject of the tolls reserved in this act at any time after the expiration of 20 years after the passage of the act: Provided, That at no time shall the toll be so regulated or reduced as to yield less than 6 per cent per annum." Other Maryland as well as Pennsylvania charters embody analogous provisions. Ten per cent net income is by far the most common limit placed upon the discretionary powers of legislatures over railway rates in all the States in which such chartered provisions are found. In a few instances the rate of net profits permitted under the law is very much larger. For instance, in Indiana charters were granted permitting the legislature to regulate rates whenever the profits exceeded 15 per cent, and any excess above 15 per cent was to be paid into the common-school fund.
Another right reserved to the State in a considerable number of charters is the power to purchase the railway after a certain number of years. This power was frequently reserved in the charters of the New England States, the significance of which was perhaps illustrated in the agitation accompanying the recent leasing of the Boston and Albany Railway. Early Massachusetts charters reserved to the State the power to purchase after a period of 20 years. In Vermont this period of discretionary power of the State varied from 20 to 50 years. New Hampshire followed Massachusetts, fixing it at 20. An Illinois charter of 1850 gives the State the right to purchase, after 25 years, by refunding to the company the cost of the entire plant, with interest at the rate of 6 per cent per annum. In New Jersey similar right was reserved after 30 years. An early Michigan charter contains a provision which is typical of isolated charters in all of the Northwestern States: The State shall have the right, at any time after the expiration of 15 years from the completion of said road, to purchase and hold the same for the use of the State at a price not exceeding the original cost of said road, exclusive of repairs thereof, and 14 per cent thereon, of which cost an accurate account shall be kept and submitted annually, on the first Monday in January, to the legislature, duly attested by the oath of the officers of said company, and at such other times as the legislature shall require the same. In Missouri a charter granted in 1837 reserved to the general assembly the right to purchase the railway after 4 years by giving notice in writing. This charter also provided for the appointment of valuers, whose function it was to fix the price of the transfer.
Limitations on the life of charters.-The preceding paragraph illustrates one class of limitations placed upon some charters in all parts of the United States. While a majority of the charters are silent upon this point, now and then charters were granted which were limited in their existence to a certain period of years, varying all the way from 10 and 20 to 99 or more years. One of the powers granted in the charters which do not contain provisions directly limiting their life was that which gave to the board of directors "perpetual succession," which means, of course, a franchise unlimited in the period of its existence. In the Northwestern States a few charters were granted limiting the life of the corporation to 50 and 60 years. Florida granted a few which were to lapse after a period of 20 years; Louisiana, after 40 and 50, and, in one instance, 25. In one charter, a provision is found that after a certain number of years the same shall expire, and the assets of the corporation shall be distributed among the stockholders. The session laws of the different States contain numerous acts extending the charter period in those cases where the original act contained time limits; and it is obvious that in all those instances in which the charter reserved to the legislature the right to purchase, no time limit whatever was necessary.
Limitations on the power of taxation.-After the country at large had begun to realize the necessity and importance of railway transportation, various means were resorted to to encourage the construction of railways. American manufacturers were unable to provide the necessary material. This had to be imported from abroad, hence it was but natural that legislators should have resorted to the expediency of exempting from import duties materials to be used in the construction of railways. But the railways, after they had been constructed, represented valuable property, and to that extent increased the taxable resources of the territory in which they lay. To provide against the imposition of taxes, which might become burdensome or even discourage the construction of railways, legislatures of States in all parts of the Union incorporated, in some charters, a provision