Miles v. West

• Decision Date: 08 July 1926
• Docket Number: 54.
• Citation: 135 A. 579,151 Md. 337
• Parties: MILES v. WEST ET AL.
• Court: Maryland Court of Appeals

135 A. 579

151 Md. 337

MILES v. WEST ET AL.

No. 54.

Court of Appeals of Maryland

July 8, 1926

Motion for Modification of Opinion Overruled Jan. 28, 1927.

Appeal from Circuit Court of Baltimore City; Eli Frank, Judge.

Objection by Clarence W. Miles to an item of an order of Harold E. West and others, constituting the Public Service Commission of Maryland, determining the fair value for rate-making purposes of the property of the United Railways & Electric Company of Baltimore. An appeal was taken to the circuit court, which confirmed the order of the Commission, and plaintiff appeals. Remanded, without affirmance or reversal, for further proceedings in accordance with the opinion.

Adkins and Parke, JJ., dissenting.

Argued before BOND, C.J., and PATTISON, URNER, ADKINS, OFFUTT DIGGES, PARKE, and WALSH, JJ.

Thomas J. Tingley and Clarence W. Miles, both of Baltimore (Jackson R. Collins, of Baltimore, on the brief), for appellant.

Thomas H. Robinson, Joseph C. France, and Edwin G. Baetjer, all of Baltimore (John Hubner Rice, of Baltimore, on the brief), for appellees.

DIGGES J.

By order passed on the 30th day of December, 1912, the Public Service Commission of Maryland, under the authority contained in section 30 of the Public Service Commission Act, now codified as section 385 of article 23 of the Code of Public General Laws 1924, instituted proceedings to determine the value of the properties of the United Railways & Electric Company of Baltimore, a corporation. For this purpose the Public Service Commission began hearings in May, 1925, which hearings and the proceedings incident thereto, including argument of counsel for the respective parties, culminated in an opinion and order of the commission dated March 9, 1926. By this order the commission determined that the fair value for ratemaking purposes of the property of the Railways Company, as of December 31, 1923, was $77,000,000. Included in this valuation was the item of easements, at the sum of $7,000,000. Objection was made by the appellant to the allowance of this item, and from the order of the Public Service Commission an appeal was taken to the circuit court of Baltimore City; the basis of this appeal being the contention by the appellant that these easements in the streets and highways of Baltimore City were not property which should be included in a valuation of the Railways Company's property in forming a rate-making base, and that the inclusion of the value of the easements in the rate base was unreasonable and unlawful. Upon a hearing of the case in the circuit court of Baltimore City the chancellor passed a decree confirming the order of the Public Service Commission passed on the 9th day of March, 1926, and held that said order was neither unlawful nor unreasonable. The case is now here to be considered on appeal from that decree.

The authority, power, duties, and functions of the Public Service Commission are set forth in article 23 of the Code of 1924; sections 346 to 418, inclusive, having been originally enacted by chapter 180 of the Acts of 1910. It can be generally stated that the purpose of the Legislature in enacting the Public Service Commission statute was to provide for the creation of a commission with the power and duty of supervision and control over the corporations and individuals engaged in the operation of public utilities within the state. The commission has the power and authority to require safe and adequate service to the public and to fix such rates as, on the one hand, will be reasonable to the user of the utility and commensurate with the service rendered, and, on the other hand, will produce a fair and reasonable return upon the property or capital invested in the public service enterprise. Section 30 of the original act, now section 385 of article 23 of the Code, provides:

"The commission shall, whenever it may deem it desirable to do so, investigate and ascertain the fair value of property of any corporation subject to the provisions of this subtitle and used by it for the convenience of the public."

It is evident that the most important purpose in ascertaining the fair value of a public service corporation's property is to enable the commission to determine the rate to be allowed in order that the public may receive adequate and safe service at a reasonable price, and at the same time that the rate be not fixed so low as to constitute a confiscation of its property under the provisions of the Fourteenth Amendment to the federal Constitution, but will produce a reasonable and proper return upon the capital invested.

The present case presents the single question of whether the Public Service Commission, in ascertaining the fair value of the property of the Railways Company for ratemaking purposes should include as property of the Railways Company easements in the streets and highways of Baltimore City at their fair and just value. The appellant contends that the value of these easements is so dependent upon the earnings of the corporation, and the earnings being dependent upon the rate fixed by the commission, that, therefore, it is illegal and unreasonable to include the value of these easements in the sum upon which the corporation is entitled to a fair and reasonable return.

The case of Consolidated Gas Co. v. Baltimore City, 101 Md. 541, 61 A. 532, 1 L. R. A. (N. S.) 263, 109 Am. St. Rep. 584, definitely settles that the easement which a public service corporation, such as the Consolidated Gas Company or the United Railways & Electric Company, has in the streets of Baltimore City, is property; that it is an interest or estate in land; but it does not determine that the value of this easement or interest in land, for taxation purposes, is to be determined by its value as land, but must be determined by its use in conjunction with the franchise of the corporation, that is to say, the corporation's right to conduct the business in which it is engaged. In other words this court, in effect, said:

"Ascertain to what extent the use of this easement in the conduct of the corporation's business is responsible for its earnings, and then base the valuation for taxation purposes upon the earnings thus ascertained."

In the above-cited case this court said:

"The distinction is clear between a franchise, as such, and the property acquired for the use of the franchise. The naked, unused, slumbering franchise is property, but it is property concerning the assessment of which, in that condition for purposes of taxation, the statutes do not make provision, otherwise than by including it as an element which enhances the value of the shares of the capital stock. But when the franchise is brought into activity and is availed of to accomplish the ends it was designed to effect, the property acquired under it becomes amenable to the tax laws apart from the tax on the stock, and its value as an easement, if an easement it be, may be largely augmented by the use to which the franchise enables that property or easement to be put."

The court then quotes with approval the language used in People v. Tax Commissioners, 174 N.Y. 441, 67 N.E. 74, as follows:

"They (tangible chattels in public highway) have no assessable value worthy of notice, except through the actual and constant use made of them as incidental to the special franchises. The value of either resides in the union of both and can be practically ascertained only by treating them as a unit. Unless assessed together, both cannot be adequately assessed. * * *

We regard the tangible property as an inseparable part of the special franchises mentioned in the statute, constituting with them a new entity, which as a going concern can neither be assessed nor sold to advantage except as one thing, single and entire."

This court then continues:

"We cite this to show, if precedent be needed to support such a self-evident proposition, that the use to which a franchise permits an easement to be put, is an essential element to be considered in placing a valuation on that easement for purposes of taxation."

In the case of Appeal Tax Court v. Union R. Co., 50 Md. 274, the railroad company asked that the assessments of the roadbed in the tunnels be stricken from the property valued to it, the court below granted the relief asked, and the appeal tax court appealed. The specific contention was made in the argument in this court, as to the tracks located in the tunnel and on the streets, that the railroad company did not own the property, that is, the roadbed, and ought not to be assessed for it as though it was seized of it; it had only the right to make use of the streets and the soil beneath the streets, and to receive the tolls authorized by its charter. In disposing of that contention, it was said:

"We do not concur in the position of the appellee, that it should only be assessed with the superstructures on the bed of the road, irrespective of the roadbed itself, or any right or interest therein, because the road occupies a tunnel under a public street, or runs along the highways of the city. The appellee has an easement in the way occupied by its road, and whether that easement be under or over the public

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