AMENDMENT 14 (continued 2)

In dispensing with the necessity of observing any of the formulas for rate computation which previously had currency, the Court did not undertake to devise, by way of substitution, any discernible guide to aid it in ascertaining whether a so-called end result is unreasonable. It did intimate that rate-making "involves a balancing of the investor and consumer interests," which does not, however, "'insure that the business shall produce net revenues,' * * * From the investor or company point of view it is important that there be enough revenue not only for operating expenses but also for the capital costs of the business. These include service on the debt and dividends on the stock. * * * By that standard the return to the equity owner should be commensurate with returns on investments in other enterprises having corresponding risks. That return, moreover, should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital."[221] Nevertheless, in the light of the court's concentration on the reasonableness of the final result rather than on the correctness of the methods employed to reach that result, it is conceivable that methods or formulas, now discredited in whole or in part, might continue to be observed by State commissions in drafting rate orders that will prove to be justiciably sustainable.[222]

REGULATION OF PUBLIC UTILITIES (OTHER THAN RATES)

In General

By virtue of the nature of the business they carry on and the public's interest in it, public utilities are subject, as to their local business, to State regulation exerted either directly by legislature or by duly authorized administrative bodies.[223] But inasmuch as their property remains under the full protection of the Constitution, it follows that whenever this power of regulation is exerted in what the Court considers to be an "arbitrary" or "unreasonable" way and to be in effect an infringement upon the right of ownership, such exertion of power is void as repugnant to the due process clause.[224] Thus, a city cannot take possession of the equipment of a street railway company, the franchise of which has expired,[225] although it may subject said company to the alternative of accepting an inadequate price for its property or of ceasing operations and removing its property from the streets.[226] Likewise, a city, which is desirous of establishing a lighting system of its own, may not remove, without compensation, the fixtures of a lighting company already occupying the streets under a franchise;[227] but in erecting its own waterworks in competition with that of a company which has no exclusive charter, a municipality inflicts no unconstitutional deprivation.[228] Nor is the property of a telegraph company illegally taken by a municipal ordinance which demands, as a condition of the establishment of poles and conduits in the city streets, that positions be reserved for the city's wires, which shall be carried free of charge, and which provides for the moving of the conduits, when necessary, at company expense.[229] And, the fact that a State, by mere legislative or administrative fiat, cannot convert a private carrier into a common carrier will not protect a foreign corporation which has elected to enter a State, the Constitution and laws of which require that it operate its local private pipe line as a common carrier. Such foreign corporation is viewed as having waived its constitutional right to be secure against imposition of conditions which amount to a taking of property without due process of law.[230]

Compulsory Expenditures

The enforcement of uncompensated obedience to a regulation for the public health and safety is not an unconstitutional taking of property without due process of law.[231] Thus, where the applicable rule so required at the time of the granting of its charter, a water company may be compelled to furnish connections at its own expense to one residing on an ungraded street in which it voluntarily laid its lines.[232] However, if pipe and telephone lines are located on a right of way owned by a pipe line company, the latter cannot, without a denial of due process, be required to relocate such equipment at its own expense;[233] but if its pipes are laid under city streets, a gas company validly may be obligated to assume the cost of moving them to accommodate a municipal drainage system.[234]

To require a turnpike company, as a condition of its taking tolls, to keep its road in repair and to suspend collection thereof, conformably to a State statute, until the road is put in good order, does not take property without due process of law, notwithstanding the fact that present patronage does not yield revenue sufficient to maintain the road in proper condition.[235] Nor is a railroad bridge company unconstitutionally deprived of its property when, in the absence of proof that the addition will not yield a reasonable return, it is ordered to widen its bridge by inclusion of a pathway for pedestrians and a roadway for vehicles.[236]

Grade Crossings and Other Expenditures by Railroads.—When railroads are required to repair a viaduct under which they operate,[237] or to reconstruct a bridge or provide means for passing water for drainage through their embankment,[238] or to sprinkle that part of the street occupied by them,[239] their property is not taken without due process of law. But if an underground cattle-pass is to be constructed, not as a safety measure but as a means of sparing the farmer the inconvenience attendant upon the use of an existing and adequate grade crossing, collection of any part of the cost thereof from a railroad is a prohibited taking for private use.[240] As to grade crossing elimination, the rule is well established that the State may exact from railroads the whole, or such part, of the cost thereof as it deems appropriate, even though commercial highway users, who make no contribution whatsoever, benefit from such improvements. But, the power of the State in this respect is not unlimited. If its imposition is "arbitrary" and "unreasonable" it may be set aside; but to reach that conclusion, it may become necessary to consider certain relevant facts; e.g., whether a new highway on which an underpass is to be constructed is essential to the transportation needs of a community already well served by a crossing equipped with devices which are adequate for safety and convenience of a local traffic; whether the underpass is prescribed as part of a national system of federal aid highways for the furtherance of motor vehicle traffic, much of which is in direct competition with the railroad; whether the increase in such traffic will greatly decrease rail traffic and hence the revenue of the railroad; whether the amount of taxes paid by the railroads of the State, part of which is devoted to the upkeep of public highways used by motor carriers, is disproportionately higher than the amount paid by motor carriers.[241]

Compellable Services

The primary duty of a public utility being to serve on reasonable terms all those who desire the service it renders, it follows that a company cannot pick and choose and elect to serve only those portions of its territory which it finds most profitable, leaving the remainder to get along without the service which it alone is in a position to give. Compelling a gas company to continue serving specified cities as long as it continues to do business in other parts of the State entails therefore no unconstitutional deprivation.[242] Likewise a railway may be compelled to continue the service of a branch or part of a line although the operation involves a loss.[243] But even though a utility, as a condition of enjoyment of powers and privileges granted by the State, is under a continuing obligation to provide reasonably adequate service, and even though that obligation cannot be avoided merely because performance occasions financial loss, yet if a company is at liberty to surrender its franchise and discontinue operations, it cannot be compelled to continue at a loss.[244]

Pursuant to the principle that the State may require railroads to provide adequate facilities suitable for the convenience of the communities served by them,[245] such carriers have been obligated to establish stations at proper places for the convenience of patrons,[246] to stop all their intrastate trains at county seats,[247] to run a regular passenger train instead of a mixed passenger and freight train,[248] to furnish passenger service on a branch line previously devoted exclusively to carrying freight,[249] to restore a siding used principally by a particular plant but available generally as a public track, and to continue, even though not profitable by itself, a sidetrack[250] as well as the upkeep of a switch-track leading from its main line to industrial plants.[251] However, a statute requiring a railroad without indemnification to install switches on the application of owners of grain elevators erected on its right of way was held void.[252] Whether a State order requiring transportation service is to be viewed as reasonable may necessitate consideration of such facts as the likelihood that pecuniary loss will result to the carrier, the nature, extent and productiveness of the carrier's intrastate business, the character of the service required, the public need for it, and its effect upon service already being rendered.[253] If the service required has no substantial relation to transportation, it will be deemed arbitrary and void, as in the case of an order requiring railroads to maintain cattle scales to facilitate trading in cattle,[254] and of a prohibition against letting down an unengaged upper berth while the lower berth was occupied.[255]

Intercompany Railway Service.—"Since the decision in Wisconsin M. & P.R. Co. v. Jacobson, 179 U.S. 287 (1900), there can be no doubt of the power of a State, acting through an administrative body, to require railroad companies to make track connections. But manifestly that does not mean that a Commission may compel them to build branch lines, so as to connect roads lying at a distance from each other; nor does it mean that they may be required to make connections at every point where their tracks come close together in city, town and country, regardless of the amount of business to be done, or the number of persons who may utilize the connection if built. The question in each case must be determined in the light of all the facts, and with a just regard to the advantage to be derived by the public and the expense to be incurred by the carrier. * * * If the order involves the use of property needed in the discharge of those duties which the carrier is bound to perform, then, upon proof of the necessity, the order will be granted, even though 'the furnishing of such necessary facilities may occasion an incidental pecuniary loss.' * * * Where, however, the proceeding is brought to compel a carrier to furnish a facility not included within its absolute duties, the question of expense is of more controlling importance. In determining the reasonableness of such an order the Court must consider all the facts—the places and persons interested, the volume of business to be affected, the saving in time and expense to the shipper, as against the cost and loss to the carrier."[256]

Although a carrier is under a duty to accept goods tendered at its station, it cannot be required, upon payment simply for the service of carriage, to accept cars offered at an arbitrary connection point near its terminus by a competing road seeking to reach and use the former's terminal facilities. Nor may a carrier be required to deliver its cars to connecting carriers without adequate protection from loss or undue detention or compensation for their use.[257] But a carrier may be compelled to interchange its freight cars with other carriers under reasonable terms,[258] and to accept, for reshipment over its lines to points within the State, cars already loaded and in suitable condition.[259]

Intercompany Discriminatory Railroad Service Charges.—Due process is not denied when two carriers, who wholly own and dominate a small connecting railroad, are prohibited from exacting higher charges from shippers accepting delivery over said connecting road than are collected from shippers taking delivery at the terminals of said carriers.[260] Nor is it "unreasonable" or "arbitrary" to require a railroad to desist from demanding freight in advance on merchandise received from one carrier while it accepts merchandise of the same character at the same point from another carrier without such prepayment.[261]

Safety Regulations Applicable to Railroads

The following regulations with reference to railroads have been upheld: a prohibition against operation on certain streets,[262] restrictions on speed, operations, etc., in business sections,[263] requirement of construction of a sidewalk across a right of way,[264] or removal of a track crossing a thoroughfare,[265] compelling the presence of a flagman at a crossing notwithstanding that automatic device might be cheaper and better,[266] compulsory examination of employees for color blindness,[267] full crews on certain trains,[268] specification of a type of locomotive headlight,[269] safety appliance regulations,[270] and a prohibition on the heating of passenger cars from stoves or furnaces inside or suspended from the cars.[271]

Liabilities and Penalties

A statute making the initial carrier[272] or the connecting or delivering carrier,[273] liable to the shipper for the nondelivery of goods is not unconstitutional; nor is a law which provides that a railroad shall be responsible in damages to the owner of property injured by fire communicated by its locomotive engines and which grants the railroad an insurable interest in such property along its route and authority to procure insurance against such liability.[274] Equally consistent with the requirements of due process are the following two enactments; the first, imposing on all common carriers a penalty for failure to settle within a reasonable specified period claims for freight lost or damaged in shipment and conditioning payment of that penalty upon recovery by the claimant in subsequent suit of more than the amount tendered,[275] and the second, levying double damages and an attorney's fee upon a railroad for failure to pay within a reasonable time after demand the amount claimed by an owner for stock injured or killed. However, only in the event that the application of the latter statute is limited to cases where the plaintiff has not demanded more than he recovered in court will its constitutionality be upheld;[276] but when the penalty allowed thereunder is exacted in a case in which the plaintiff demanded more than he sued for and recovered, a defendant railroad is arbitrarily deprived of its property without due process.[277] The requirements of fair play are similarly violated by a statute which, by imposing double liability for failure to pay the full amount of damages within 60 days after notice, unless the claimant recovers less than the amount offered in settlement, in effect penalizes a carrier for guessing incorrectly what a jury would award.[278]

To penalize a carrier which has collected transportation charges in excess of established maximum rates by permitting a person wronged to sue for and collect as liquidated damages $500 plus a reasonable attorney's fee is to subject the carrier to a requirement so unreasonable as to be repugnant to the due process clause; for such liability is not only disproportionate to actual damages, but is being exacted under conditions which do not afford the carrier an adequate opportunity for safely testing the validity of the rates before any liability for the penalty attaches.[279] Where it appears, however, that the carrier had an opportunity to test the reasonableness of the rate, and that its deviation therefrom, by collection of an overcharge, did not proceed from any belief that the rate was invalid, the validity of the penalty imposed is not to be tested by comparison with the amount of the overcharge. Inasmuch as it is imposed as punishment for violation of a law, the legislature may adjust its amount to the public wrong rather than the private injury, and the only limitation which the Fourteenth Amendment imposes is that the penalty prescribed shall not be "so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable." In accordance with the latter standard, a statute granting an aggrieved passenger (who recovered $100 for an overcharge of 60 cents) the right to recover in a civil suit not less than $50 nor more than $300 plus costs and a reasonable attorney's fee is constitutional.[280]

For like reasons, a statute requiring railroads to erect and maintain fences and cattle guards, and making them liable in double amount of damages for their failure to so maintain them is not unconstitutional.[281] Nor is a Nebraska law which establishes a minimum rate of speed for delivery of livestock and which requires every carrier violating the same to pay the owner of such livestock the sum of $10 per car per hour.[282] On the other hand, when a telephone company, in accordance with its established and uncontested regulations, suspends the service of a patron in arrears, infliction upon it of penalties aggregating $3,600, levied pursuant to a statute imposing fines of $100 per day for alleged discrimination, is so plainly arbitrary and oppressive as to take property without due process.[283]

REGULATION OF CORPORATIONS, BUSINESS, PROFESSIONS, AND TRADES

Domestic Corporations

Although a corporation is the creation of a State which reserves the power to amend or repeal corporate charters, the retention of such power will not support the taking of the corporate property without due process of law. To terminate the life of a corporation by annulling its charter is not to confiscate its property but to turn it over to the stockholders after liquidation.[284] Conversely, unreasonable regulation, as by the imposition of confiscatory rates, although it ostensibly falls short of termination of the corporate existence, entails an invalid deprivation.[285]

Foreign Corporations

Foreign corporations also enjoy the protection which the due process clause affords; but such protection does not entitle them to enter another State or, once having been permitted to enter, to continue to do business therein.[286] The power of a State to exclude or to expel a foreign corporation being almost plenary as long as interstate commerce is not directly affected, it follows that a State may subject such entry or continued operation to conditions. Thus, a State law which requires the filing of articles with a local official as a condition prerequisite to the validity of conveyances of local realty to such corporations is not violative of due process.[287] Neither is a State statute which requires a foreign insurance company, as part of the price of entry, to maintain reserves computed by a specific percentage of premiums, including membership fees, received in all States.[288] Similarly a statute requiring corporations to dispose of farm land not necessary to the conduct of their business is not invalid as applied to a foreign hospital corporation, even though the latter, because of changed economic conditions, is unable to recoup its original investment from the sale which it is thus compelled to make.[289]

Business: In General

"The Constitution does not guarantee the unrestricted privilege to engage in a business or to conduct it as one pleases. Certain kinds of business may be prohibited; and the right to conduct a business, or to pursue a calling, may be conditioned. * * * Statutes prescribing the terms upon which those conducting certain businesses may contract, or imposing terms if they do enter into agreements, are within the State's competency."[290]

Laws Prohibiting Trusts, Discrimination, Restraint of Trade.—A State act prohibiting trusts, etc., is not in conflict with the Fourteenth Amendment as to a person combining with others to pool and fix prices, divide net earnings, and prevent competition in the purchase and sale of grain.[291] Nor does the Fourteenth Amendment preclude a State from adopting a policy against all combinations of competing corporations and enforcing it even against combinations which may have been induced by good intentions and from which benefit and not injury may have resulted.[292] Nor is freedom of contract unconstitutionally abridged by a statute which prohibits retail lumber dealers from uniting in an agreement not to purchase materials from wholesalers selling directly to consumers in the retailers' localities,[293] nor by a law punishing combinations for "maliciously" injuring a rival in his business profession or trade.[294] Similarly, a prohibition of unfair discrimination by any one engaged in the manufacture or distribution of a commodity in general use for the purpose of intentionally destroying competition of any regular dealer in such commodity by making sales thereof at a lower rate in one section of the State than in another, after equalization for distance, effects no invalid deprivation of property or interference with freedom of contract.[295] Liberty of contract is infringed, however, by a law punishing dealers in cream who pay higher prices in one locality than in another. Although high bidding by strong buyers tends toward monopoly, the statute has no reasonable relation to such bidding, but infringes private rights whose exercise is not shown to produce evil consequences.[296] A law sanctioning contracts requiring that commodities identified by trade mark will not be sold by the vendee or subsequent vendees except at prices stipulated by the original vendor does not violate the due process clause.[297]

Statutes Preventing Fraud in Sale of Goods.—Laws and ordinances tending to prevent frauds and requiring honest weights and measures in the sale of articles of general consumption have long been considered lawful exertions of the police power.[298] Thus, a prohibition on the issuance by other than an authorized weigher of any weight certificate for grain weighed at any warehouse or elevator where State weighers are stationed, or to charge for such weighing, is not unconstitutional.[299] Nor is a municipal ordinance requiring that commodities sold in load lots by weight be weighed by a public weigh-master within the city invalid as applied to one delivering coal from State-tested scales at a mine outside the city.[300] A statute requiring merchants to record sales in bulk not made in the regular course of business is also within the police power.[301]

Similarly, the power of a State to prescribe standard containers to protect buyers from deception as well as to facilitate trading and to preserve the condition of the merchandise is not open to question. Accordingly, an administrative order issued pursuant to an authorizing statute and prescribing the dimensions, form, and capacity of containers for strawberries and raspberries is not arbitrary inasmuch as the form and dimensions bore a reasonable relation to the protection of the buyers and the preservation in transit of the fruit.[302] Similarly, an ordinance fixing standard sizes of bread loaves and prohibiting the sale of other sizes is not unconstitutional.[303] However, by a case decided in 1924, a "tolerance" of only two ounces in excess of the minimum weight of a loaf of bread is unreasonable when it is impossible to manufacture good bread without frequently exceeding the prescribed tolerance and is consequently unconstitutional;[304] but by one decided ten years later, regulations issued in furtherance of a statutory authorization which impose a rate of tolerance not to exceed three ounces to a pound of bread and requiring that the bread maintain the statutory minimum weight for not less than 12 hours after cooling are constitutional.[305] Likewise a law requiring that lard not sold in bulk should be put upon in containers holding one, three, or five pounds weight, or some whole multiple of these numbers, does not deprive sellers of their property without the process of law.[306]

The right of a manufacturer to maintain secrecy as to his compounds and processes must be held subject to the right of the State, in the exercise of the police power and in the promotion of fair dealing, to require that the nature of the product be fairly set forth.[307] Nor does a statute providing that the purchaser of harvesting or threshing machinery for his own use shall have a reasonable time after delivery for inspecting and testing it, and permitting recission of the contract if the machinery does not prove reasonably adequate, and further declaring any agreement contrary to its provisions to be against public policy and void, does not violate the due process clause.[308]

Blue Sky Laws; Laws Regulating Boards of Trade, Etc.—In the exercise of its power to prevent fraud and imposition, a State may regulate trading in securities within its borders, require a license of those engaging in such dealing, make issuance of a license dependent on a public officer's being satisfied of the good repute of the applicants, and permit him, subject to judicial review of his findings, to revoke the same.[309] A State may forbid the giving of options to sell or buy at a future time any grain or other commodity.[310] It may also forbid sales on margin for future delivery;[311] and may prohibit the keeping of places where stocks, grain, etc., are sold but not paid for at the time, unless a record of the same be made and a stamp tax paid.[312] Making criminal any deduction by the purchaser from the actual weight of grain, hay, seed, or coal under a claim of right by reason of any custom or rule of a board of trade is a valid exercise of the police power and does not deprive the purchaser of his property without due process of law, nor interfere with his liberty of contract.[313]

Trading Stamps.—A prohibitive license fee upon the use of trading stamps is not unconstitutional.[314]

Banking

The Fourteenth Amendment does not deny to States the power to forbid a business simply because it was permitted at common law; and therefore, where public interests so demand, a State may place the banking business under legislative control and prohibit it except under prescribed conditions. Accordingly, a statute subjecting State banks to assessments for a depositors' guaranty fund is within the police power of the States and does not deprive the banks of property without due process of law.[315] Also, a law requiring savings banks to turn over to the State deposits inactive for thirty years (when the depositor cannot be found), with provision for payment to the depositor or his heirs on establishment of the right, does not effect an invalid taking of the property of said banks; nor does a Kentucky statute requiring banks to turn over to the protective custody of that State deposits that have been inactive ten or twenty-five years (depending on the nature of the deposit).[316]

The constitutional rights of creditors in an insolvent bank in the hands of liquidators are not violated by a later statute permitting reopening under a reorganization plan approved by the Court, the liquidating officer, and by three-fourths of the creditors.[317] Similarly, a Federal Reserve bank is not unlawfully deprived of business rights of liberty of contract by a law which allows State banks to pay checks in exchange when presented by or through a Federal Reserve bank, post office, or express company and when not made payable otherwise by a maker.[318]

Loans, Interest, Assignments

In fixing maximum rates of interest on money loaned within its borders, a State is acting clearly within its police power; and the details are within legislative discretion if not unreasonably or arbitrarily exercised.[319] Equally valid as an exercise of a State's police power is a requirement that assignments of future wages as security for debts of less than $200, to be valid, must be accepted in writing by the employer, consented to by the assignors, and filed in a public office. Such a requirement deprives neither the borrower nor the lender of his property without due process of law.[320]

Insurance

The relations generally of those engaged in the insurance business[321] as well as the business itself have been peculiarly subject to supervision and control.[322] The State may fix insurance rates and regulate the compensation of insurance agents.[323] It may impose a fine on "any person 'who shall act in any manner in the negotiation or transaction of unlawful insurance * * * with a foreign insurance company not admitted to do business [within said State].'"[324] It may forbid life insurance companies and their agents to engage in the undertaking business and undertakers to serve as life insurance agents.[325] Nor does a Virginia law which forbids the making of contracts of casualty or surety insurance, by companies authorized to do business therein, except through registered agents, which requires that such contracts applicable to persons or property in the State be countersigned by a registered local agent, and which prohibits such agents from sharing more than 50% of a commission with a nonresident broker, deprive authorized foreign casualty and surety insurers of due process.[326] And just as all banks may be required to contribute to a depositors' guaranty fund, so may all automobile liability insurers be required to submit to the equitable apportionment among them of applicants who are in good faith entitled to, but are financially unable to, procure such insurance through ordinary methods.[327]

However, a statute which prohibits the assured from contracting directly with a marine insurance company outside the State for coverage of property within the State is invalid as a deprivation of liberty without due process of law.[328] For the same reason, a State may not prevent a citizen from concluding with a foreign life insurance company at its home office a policy loan agreement whereby the policy of his life is pledged as collateral security for a cash loan to become due upon default in payment of premiums, in which case the entire policy reserve might be applied to discharge the indebtedness. Authority to subject such an agreement to the conflicting provisions of domestic law is not deducible from the power of a State to license a foreign insurance company as a condition of its doing business therein.[329]

A stipulation that policies of hail insurance shall take effect and become binding twenty-four hours after the hour in which an application is taken and further requiring notice by telegram of rejection of an application is not invalid.[330] Nor is any arbitrary restraint upon their liberty of contract imposed upon surety companies by a statute providing that any bond executed after its enactment for the faithful performance of a building contract shall inure to the benefit of materialmen and laborers, notwithstanding any provision of the bond to the contrary.[331] Likewise constitutional is a law requiring that a policy, indemnifying a motor vehicle owner against liability to persons injured through negligent operation, shall provide that bankruptcy of the insured shall not release the insurer from liability to an injured person.[332]

If fire insurance companies, in case of total loss, are compelled to pay the amount for which the property was insured, less depreciation between the time of issuing the policy and the time of the loss, such insurers are not deprived of their property without due process of law.[333] Moreover, even though it has its attorney-in-fact located in Illinois, signs all its contracts there, and forwards therefrom all checks in payment of losses, a reciprocal insurance association, if it covers real property located in New York, may be compelled to comply with New York regulations which require maintenance of an office in that State and the countersigning of policies by an agent resident therein.[334] Also, to discourage monopolies and to encourage competition in the matter of rates, a State constitutionally may impose on all fire insurance companies connected with a tariff association fixing rates a liability or penalty to be collected by the insured of 25% in excess of actual loss or damage, stipulations in the insurance contract to the contrary notwithstanding.[335]

A State statute by which a life insurance company, if it fails to pay upon demand the amount due under a policy after death of the insured, is made liable in addition for fixed damages, reasonable in amount, and for a reasonable attorney's fee is not unconstitutional even though payment is resisted in good faith and upon reasonable grounds.[336] It is also proper by law to cut off a defense by a life insurance company based on false and fraudulent statements in the application, unless the matter misrepresented actually contributed to the death of the insured.[337] A provision that suicide, unless contemplated when the application for a policy was made, shall be no defense is equally valid.[338] When a cooperative life insurance association is reorganized so as to permit it to do a life insurance business of every kind, policyholders are not deprived of their property without due process of law.[339] Similarly, when the method of liquidation provided by a plan of rehabilitation of a mutual life insurance company is as favorable to dissenting policyholders as would have been the sale of assets and pro rata distribution to all creditors, the dissenters are unable to show any taking without due process. Dissenters have no constitutional right to a particular form of remedy.[340]

Professions, Trades, Occupations

Employment Agencies.—An act imposing license fees for operating such agencies and prohibiting them from sending applicants to an employer who has not applied for labor does not deny due process of law.[341]

Pharmacies.—A Pennsylvania law forbidding a corporation to own therein any drug store, excepting those owned and operated at the time of the enactment, unless all its stockholders are licensed pharmacists, violates the due process clause as applied to a foreign corporation, all of whose stockholders are not pharmacists, which sought to extend its business in Pennsylvania by acquiring and operating therein two additional stores.[342]

Miscellaneous Business, Professions, Trades, and Occupations.—The practice of medicine, using this word in its most general sense, has long been the subject of regulation;[343] and in pursuance of its power a State may exclude osteopathic physicians from hospitals maintained by it or its municipalities;[344] and may regulate the practice of dentistry by prescribing qualifications that are reasonably necessary, requiring licenses, establishing a supervisory administrative board, and by prohibiting certain advertising regardless of its truthfulness.[345] But while statutes requiring pilots to be licensed[346] and railroad engineers to pass color blindness tests[347] have been sustained, an act making it a misdemeanor for a person to act as a railway passenger conductor without having had two years' experience as a freight conductor or brakeman is invalid.[348]

Legislation has been upheld which regulated or required licenses for admissions to places of amusement,[349] grain elevators,[350] detective agencies,[351] sale of cigarettes,[352] or cosmetics,[353] and the resale of theatre tickets;[354] or which absolutely forbade the advertising of cigarettes,[355] or the use of a representation of the United States flag on an advertising medium,[356] the solicitation by a layman of business of collecting and adjusting claims,[357] the keeping of private markets within six squares of a public market,[358] the keeping of billiard halls except in hotels,[359] or the purchase by junk dealers of wire, copper, etc., without ascertaining the sellers' right to sell.[360]

PROTECTION OF RESOURCES OF THE STATE

Oil and Gas

To prevent waste production may be prorated; the prohibition of wasteful conduct, whether primarily in behalf of the owners of gas in a common reservoir or because of the public interests involved is consistent with the Constitution.[361] Thus a statute which defines waste as including, in addition to its ordinary meaning, economic waste, surface waste, and waste incident to production in excess of transportation or marketing facilities or reasonable market demands, and which provides that whenever full production from a common source of supply can be obtained only under conditions constituting waste, a producer may take only such proportion of all that may be produced from such common source without waste, as the production of his wells bears to the total production of such common source, is not repugnant to the due process clause.[362] But whether a system of proration based on hourly potential is as fair as one based upon estimated recoverable reserves or some other combination of factors is a question for administrative and not judicial judgment. In a domain of knowledge still shifting and growing, and in a field where judgment is necessarily beset by the necessity of inferences bordering on the conjecture even for those learned in the art, it has been held to be presumptuous for courts, on the basis of conflicting expert testimony, to nullify an oil proration order, promulgated by an administrative commission in execution of a regulatory scheme intended to conserve a State's oil resources, as violative of due process.[363] On the other hand, where the evidence showed that an order, purporting to limit daily total production of a gas field and to prorate the allowed production among several wells, had for its real purpose, not the prevention of waste nor the undue drainage from the reserves of other well owners, but rather the compelling of pipe line owners to furnish a market to those who had no pipe line connections, the order was held void as a taking of private property for private benefit.[364] As authorized by statute the Oklahoma Corporation Commission, finding that existing low field prices for gas were resulting in economic and physical waste, issued orders fixing a minimum price for natural gas and requiring the Cities Service Company to take gas ratably from another producer in the same field at the dictated price. The orders were sustained by the Court as conservation measures.[365]

Even though carbon black is more valuable than the gas from which it is extracted, and notwithstanding a resulting loss of investment in a plant for the manufacture of carbon black, a State, in the exercise of its police power, may forbid the use of natural gas for products, such as carbon black, in the production of which such gas is burned without fully utilizing for other manufacturing or domestic purposes the heat therein contained.[366] Likewise, for the purpose of regulating and adjusting coexisting rights of surface owners to underlying oil and gas, it is within the power of a State to prohibit the operators of wells from allowing natural gas, not conveniently necessary for other purposes, to come to the surface without its lifting power having been utilized to produce the greatest quantity of oil in proportion.[367]

Protection of Property Damaged by Mining or Drilling of Wells

An ordinance conditioning the right to drill for oil and gas within the city limits upon the filing of a bond in the sum of $200,000 for each well, to secure payment of damages from injuries to any persons or property resulting from the drilling operation, or maintenance of any well or structures appurtenant thereto, is consistent with due process of law, and is not rendered unreasonable by the requirement that the bond be executed, not by personal sureties, but by a bonding company authorized to do business in the State.[368] On the other hand, a Pennsylvania statute, which forbade the mining of coal under private dwellings or streets or cities by a grantor that had reserved the right to mine, was viewed as restricting the use of private property too much, and hence as a "taking" without due process of law.[369]

Water

A statute making it unlawful for a riparian owner to divert water into another State does not deprive him of property without due process of law. "The constitutional power of the State to insist that its natural advantages shall remain unimpaired by its citizens is not dependent upon any nice estimate of the extent of present use or speculation as to future needs. * * * What it has it may keep and give no one a reason for its will."[370]

Apple and Citrus Fruit Industries

A statute requiring the destruction of cedar trees to avoid the infecting with cedar rust of apple orchards within the vicinity of two miles is not unreasonable, notwithstanding the absence of provision for compensation for the trees thus removed or the decrease in the market value of realty caused by their destruction. Apple growing being one of the principal agricultural pursuits in Virginia and the value of cedar trees throughout that State being small as compared with that of apple orchards, the State was constitutionally competent to decide upon the destruction of one class of property in order to save another which, in the judgment of its legislature, is of greater value to the public.[371] With a similar object in view; namely, to protect the reputation of one of its major industries, Florida was held to possess constitutional authority to penalize the delivery for shipment in interstate commerce of citrus fruits so immature as to be unfit for consumption.[372]

Fish and Game

Over fish found within its waters, and over wild game, the State has supreme control.[373] It may regulate or prohibit fishing and hunting within its limits;[374] and for the effective enforcement of such restrictions, it may forbid the possession within its borders of special instruments of violations, such as nets, traps, and seines, regardless of the time of acquisition or the protestations of lawful intentions on the part of a particular possessor.[375] To conserve for food fish found within its waters, a State constitutionally may provide that a reduction plant, processing fish for commercial purposes, may not accept more fish than can be used without deterioration, waste, or spoilage; and, as a shield against the covert depletion of its local supply, may render such restriction applicable to fish brought into the State from the outside.[376] Likewise, it is within the power of a State to forbid the transportation outside the State of game killed therein;[377] and to make illegal possession during the closed season even of game imported from abroad.[378]

LIMITATIONS ON OWNERSHIP

Zoning, Building Lines, Etc.

By virtue of their possession of the police power, States and their municipal subdivisions may declare that in particular circumstances and in particular localities specific businesses, which are not nuisances per se are to be deemed nuisances in fact and in law.[379] Consequently when, by an ordinance enacted in good faith, a municipality prohibited brickmaking in a designated area, the land of a brickmaker in said area was not taken without due process of law, although such land contained valuable clay deposits which could not profitably be removed for processing elsewhere, was far more valuable for brickmaking than for any other purpose, and had been acquired by him before it was annexed to the municipality, and had long been used as a brickyard.[380] On the same basis laws have been upheld which restricted the location of dairy or cow stables,[381] of livery stables,[382] of the grazing of sheep near habitations.[383] Also a State may declare the emission of dense smoke in cities or populous neighborhoods a nuisance and restrain it; and regulations to that effect are not invalid even though they affect the use of property or subject the owner to the expense of complying with their terms.[384]

Not only may the height of buildings be regulated;[385] but it also is permissible to create a residential district in a village and to exclude therefrom apartment houses, retail stores, and billboards. Before holding unconstitutional an ordinance establishing such a district, it must be shown to be clearly arbitrary and unreasonable and to have no substantial relation to the public health, safety, or general welfare.[386] On the other hand, erection of a home for the aged within a residential district cannot be made to depend upon the consent of owners of two-thirds of the property within 400 feet of the site thereof;[387] nor may the interests of nonassenting property owners be ignored by an ordinance which requires municipal officers to establish building lines in a block on request of owners of two-thirds of the property therein.[388] But ordinances requiring lot owners, when constructing new buildings, to set them back a certain distance from the street lines is constitutional unless clearly arbitrary or unreasonable.[389] However, colored persons cannot be forbidden to occupy houses in blocks where the greater number of houses are occupied by white persons, and vice versa. Such a prohibition, the practical effect of which is to prevent the sale of lots in such blocks to colored persons, violates the constitutional prohibitions against interference with property rights except by due process of laws; and cannot be sustained on the ground that it will promote public peace by preventing race conflicts.[390]

Safety Regulations

As a legitimate exercise of the police power calculated to promote public safety and diminish fire hazards, municipal ordinances have been sustained which prohibit the storage of gasoline within 300 feet of any dwelling,[391] or require that all tanks with a capacity of more than ten gallons, used for the storage of gasoline, be buried at least three feet under ground,[392] or which prohibit washing and ironing in public laundries and wash houses, within defined territorial limits, from 10 p.m. to 6 a.m.[393] Equally sanctioned by the Fourteenth Amendment is the demolition and removal by cities of wooden buildings erected within defined fire limits contrary to regulations in force at the time.[394] Nor does construction of property in full compliance with existing laws confer upon the owner an immunity against exercise of the police power. Thus, a 1944 amendment to a Multiple Dwelling Law, requiring installation of automatic sprinklers in lodginghouses of nonfireproof construction erected prior to said enactment, does not, as applied to a lodginghouse constructed in 1940 in conformity with all laws then applicable, deprive the owner thereof of due process, even though compliance entails an expenditure of $7,500 on a property worth only $25,000.[395]

THE POLICE POWER

General

According to settled principles, the police power of a State must be held to embrace the authority not only to enact directly quarantine[396] and health laws of every description but also to vest in municipal subdivisions a capacity to safeguard by appropriate means public health, safety and morals. The manner in which this objective is to be accomplished is within the discretion of the State and its localities, subject only to the condition that no regulation adopted by either shall contravene the Constitution or infringe any right granted or secured by that instrument.[397]

Health Measures

Protection of Water Supply.—A State may require the removal of timber refuse from the vicinity of a watershed for a municipal water supply to prevent the spread of fire and consequent damage to such watershed.[398]

Garbage.—An ordinance for cremation of garbage and refuse at a designated place as a means for the protection of the public health is not a taking of private property without just compensation even though such garbage and refuse may have some elements of value for certain purposes.[399]

Sewers.—Compelling property owners to connect with a publicly maintained system of sewers and enforcing that duty by criminal penalties does not violate the due process clause.[400]

Food and Drugs, Etc.—"The power of the State to * * * prevent the production within its borders of impure foods, unfit for use, and such articles as would spread disease and pestilence, is well established";[401] and statutes forbidding or regulating the manufacture of oleomargarine have been upheld as a valid exercise of such power.[402] For the same reasons, statutes ordering the destruction of unsafe and unwholesome food[403], prohibiting the sale and authorizing confiscation of impure milk[404] have been sustained, notwithstanding that such articles had a value for purposes other than food. There also can be no question of the authority of the State, in the interest of public health and welfare, to forbid the sale of drugs by itinerant vendors,[405] or the sale of spectacles by an establishment not in charge of a physician or optometrist.[406] Nor is it any longer possible to doubt the validity of State regulations pertaining to the administration, sale, prescription, and use of dangerous and habit-forming drugs.[407]

Milk.—Equally valid as police power regulations are laws forbidding the sale of ice cream not containing a reasonable proportion of butter fat,[408] or of condensed milk made from skimmed milk rather than whole milk,[409] or of food preservatives containing boric acid.[410] Similarly, a statute which prohibits the sale of milk to which has been added any fat or oil other than milk fat, and which has, as one of its purposes, the prevention of fraud and deception in the sale of milk products, does not, when applied to "filled milk" having the taste, consistency, and appearance of whole milk products, violate the due process clause. Filled milk is inferior to whole milk in its nutritional content; and cannot be served to children as a substitute for whole milk without producing a dietary deficiency.[411] However, a statute forbidding the use of shoddy, even when sterilized, was held to be arbitrary and therefore invalid.[412]

Protection of the Public Morals

Gambling and Lotteries.—Unless effecting a clear, unmistakable infringement of rights securely by fundamental law, legislation suppressing gambling will be upheld by the Court as concededly within the police power of a State.[413] Accordingly, a State may validly make a judgment against those winning money a lien upon the property in which gambling is conducted with the owner's knowledge and consent.[414] For the same reason, lotteries, including those operated under a legislative grant, may be forbidden, irrespective of any particular equities.[415]

Red Light Districts.—An ordinance prescribing limits in a city outside of which no woman of lewd character shall dwell does not deprive persons owning or occupying property in or adjacent to said limits of any rights protected by the Constitution.[416]

Sunday Blue Laws.—The Supreme Court has uniformly recognized State laws relating to the observance of Sunday as representing a legitimate exercise of the police power. Thus, a law forbidding the keeping open of barber shops on Sunday is constitutional.[417]

Intoxicating Liquor.—"* * * on account of their well-known noxious qualities and the extraordinary evils shown by experience to be consequent upon their use, a State * * * [is competent] to prohibit [absolutely the] manufacture, gift, purchase, sale, or transportation of intoxicating liquors within its borders * * *."[418] And to implement such prohibition, a State has the power to declare that places where liquor is manufactured or kept shall be deemed common nuisances;[419] and even to subject an innocent owner to the forfeiture of his property for the acts of a wrongdoer.[420]

Regulation of Motor Vehicles and Carriers

The highways of a State are public property, the primary and preferred use of which is for private purposes; their uses for purposes of gain may generally be prohibited by the legislature or conditioned as it sees fit.[421] In limiting the use of its highways for intrastate transportation for hire, a State reasonably may provide that carriers who have furnished adequate, responsible, and continuous service over a given route from a specified date in the past shall be entitled to licenses as a matter of right, but that the licensing of those whose service over the route began later than the date specified shall depend upon public convenience and necessity.[422] To require private contract carriers for hire to obtain a certificate of convenience and necessity, which is not granted if the service of common carriers is impaired thereby, and to fix minimum rates applicable thereto which are not less than those prescribed for common carriers is valid as a means of conserving highways;[423] but any attempt to convert private carriers into common carriers,[424] or to subject them to the burdens and regulations of common carriers, without expressly declaring them to be common carriers, is violative of due process.[425] In the absence of legislation by Congress a State may, in protection of the public safety, deny an interstate motor carrier the use of an already congested highway.[426]

In exercising its authority over its highways, on the other hand, a State is limited not merely to the raising of revenue for maintenance and reconstruction, or to regulations as to the manner in which vehicles shall be operated, but may also prevent the wear and hazards due to excessive size of vehicles and weight of load. Accordingly, a statute limiting to 7,000 pounds the net load permissible for trucks is not unreasonable.[427] No less constitutional is a municipal traffic regulation which forbids the operation in the streets of any advertising vehicle, excepting vehicles displaying business notices or advertisements of the products of the owner and not used mainly for advertising; and such regulation may be validly enforced to prevent an express company from selling advertising space on the outside of its trucks. Inasmuch as it is the judgment of local authorities that such advertising affects public safety by distracting drivers and pedestrians, courts are unable to hold otherwise in the absence of evidence refuting that conclusion.[428]

Any appropriate means adopted to insure compliance and care on the part of licensees and to protect other highway users being consonant with due process, a State may also provide that one, against whom a judgment is rendered for negligent operation and who fails to pay it within a designated time, shall have his license and registration suspended for three years, unless, in the meantime, the judgment is satisfied or discharged.[429] By the same token a nonresident owner who loaned his automobile in another State, by the law of which he was immune from liability for the borrower's negligence, and who was not in the State at the time of an accident, is not subjected to any unconstitutional deprivation by a law thereof, imposing liability on the owner for the negligence of one driving the car with the owner's permission.[430] Compulsory automobile insurance is so plainly valid as to present no federal question.[431]

Succession to Property

When a New York Decedent Estate Law, effective after 1930, grants for the first time to a surviving spouse a right of election to take as in intestacy, and the husband, by executing in 1934 a codicil to his will drafted in 1929, made this provision operative, his widow, notwithstanding her waiver in 1922 of any right in her husband's estate, may avail herself of such right of election. The deceased husband's heirs cannot contend that the impairment of the widow's waiver by subsequent legislation deprived his estate of property without due process of law. Rights of succession to property are of statutory creation. Accordingly, New York could have conditioned any further exercise of testamentary power upon the giving of right of election to the surviving spouse regardless of any waiver however formally executed.[432]

Administration of Estates.—Even after the creation of testamentary trust, a State retains the power to devise new and reasonable directions to the trustee to meet new conditions arising during its administration, especially such as the depression presented to trusts containing mortgages. Accordingly, no constitutional right is violated by the retroactive application to an estate on which administration had already begun of a statute which had the effect of taking away a remainderman's right to judicial examination of the trustee's computation of income. Judicial rules, promulgated prior to such statute and which were more favorable to the interests of remaindermen, can be relied upon by the latter only insofar as said rules were intended to operate retroactively; for the decedent, in whose estate the remaindermen had an interest, died even before such court rules were established. If a property right in a particular rule of income allotment in salvage proceedings vested at all, it would seem to have done so at the death of the decedent or testator.[433]

Abandoned Property.—As applied to insurance policies on the lives of New York residents issued by foreign corporations for delivery in New York, where the insured persons continued to be residents and the beneficiaries were resident at the maturity date of the policies, a New York Abandoned Property Law requiring payment to the State of money owing by life insurers and remaining unclaimed for seven years does not deprive such foreign companies of property without due process. The relationship between New York and its residents who abandon claims against foreign insurance companies, and between New York and foreign insurance companies doing business therein is sufficiently close to give New York jurisdiction.[434] In Standard Oil Co. v. New Jersey,[435] a sharply divided Court held recently that due process is not violated by a statute escheating to the State shares of stock in a domestic corporation and unpaid dividends declared thereon, even though the last-known owners were nonresidents and the stock was issued and the dividends were held in another State. The State's power over the debtor corporation gives it power to seize the debts or demands represented by the stock and dividends.

Vested Rights, Remedial Rights, Political Candidacy

Inasmuch as the right to become a candidate for State office is a privilege only of State citizenship, an unlawful denial of such right is not a denial of a right of "property."[436] However, an existing right of action to recover damages for an injury is property, which a legislature has no power to destroy.[437] Thus, the retroactive repeal of a provision which made directors liable for moneys embezzled by corporate officers, by preventing enforcement of a liability which already had arisen, deprived certain creditors of their property without due process of law.[438] But while a vested cause of action is property, a person has no property, in the constitutional sense, in any particular form of remedy; and is guaranteed only the preservation of a substantial right to redress by any effective procedure.[439] Accordingly, a statute creating an additional remedy for enforcing stockholders' liability is not, as applied to stockholders then holding stock, violative of due process.[440] Nor is a law which lifts a statute of limitations and make possible a suit, theretofore barred, for the value of certain securities. "The Fourteenth Amendment does not make an act of State legislation void merely because it has some retrospective operation. * * * Some rules of law probably could not be changed retroactively without hardship and oppression, * * *, certainly it cannot be said that lifting the bar of a statute of limitation so as to restore a remedy lost through mere lapse of time is per se an offense against the Fourteenth Amendment."[441]

Man's Best Friend

A statute providing that no dog shall be entitled to the protection of the law unless placed upon the assessment rolls, and that in a civil action for killing a dog the owner cannot recover beyond the value fixed by himself in the last assessment preceding the killing is within the police power of the State.[442]

Control of Local Units of Government

The Fourteenth Amendment does not deprive a State of the power to determine what duties may be performed by local officers, nor whether they shall be appointed or popularly elected.[443] Its power over the rights and property of cities held and used for governmental purposes was unaltered by the ratification thereof.[444] Thus, notwithstanding that it imposes liability irrespective of the power of a city to have prevented the violence, a statute requiring cities to indemnify owners of property damaged by mobs or during riots effects no unconstitutional deprivation of the property of such municipalities.[445] Likewise, a person obtaining a judgment against a municipality for damages resulting from a riot is not deprived of property without due process of law by an act which so limits the municipality's taxing power as to prevent collection of funds adequate to pay it. As long as the judgment continues as an existing liability unconstitutional deprivation is experienced.[446]

Local units of government obliged to surrender property to other units newly created out of the territory of the former cannot successfully invoke the due process clause,[447] nor may taxpayers allege any unconstitutional deprivation as the result of changes in their tax burden attendant upon the consolidation of contiguous municipalities.[448] Nor is a statute requiring counties to reimburse cities of the first class but not other classes for rebates allowed for prompt payment of taxes in conflict with the due process clause.[449]

TAXATION

In General

It was not contemplated that the adoption of the Fourteenth Amendment would restrain or cripple the taxing power of the States.[450] Rather, the purpose of the amendment was to extend to the residents of the States the same protection against arbitrary State legislation affecting life, liberty, and property as was afforded against Congress by the Fifth Amendment.[451]

Public Purpose

Inasmuch as public moneys cannot be expended for other than public purposes, it follows that an exercise of the taxing power for merely private purposes is beyond the authority of the States.[452] Whether a use is public or private is ultimately a judicial question, however, and in the determination thereof the Court will be influenced by local conditions and by the judgments of State tribunals as to what are to be deemed public uses in any State.[453] Taxes levied for each of the following listed purposes have been held to be for a public use: city coal and fuel yard,[454] State bank, warehouse, elevator, flour-mill system, and homebuilding projects,[455] society for preventing cruelty to animals (dog license tax),[456] railroad tunnel,[457] books for school children attending private as well as public schools,[458] and relief of unemployment.[459]

Other Considerations Affecting Validity: Excessive Burden; Ratio of Amount to Benefit Received

When the power to tax exists, the extent of the burden is a matter for the discretion of the lawmakers;[460] and the Court will refrain from condemning a tax solely on the ground that it is excessive.[461] Nor can the constitutionality of the power to levy taxes be made to depend upon the taxpayer's enjoyment of any special benefit from use of the funds raised by taxation.[462]

Estate, Gift, and Inheritance Taxes

The power of testamentary disposition and the privilege of inheritance being legitimate subjects of taxation, a State may apply its inheritance tax to either the transmission, or the exercise of the legal power of transmission, of property by will or descent, or to the legal privilege of taking property by devise or descent.[463] Accordingly, an inheritance tax law, enacted after the death of a testator, but before the distribution of his estate, constitutionally may be imposed on the shares of legatees, notwithstanding that under the law of the State in effect on the date of such enactment, ownership of the property passed to the legatees upon the testator's death.[464] Equally consistent with due process is a tax on an inter vivos transfer of property by deed intended to take effect upon the death of the grantor.[465]

The due process clause places no restriction on a State as to the time at which an inheritance tax shall be levied or the property valued for purposes of such a tax; and for that reason a graduated tax on the transfer of contingent remainders, undiminished by the value of an intervening life estate but not payable until after the death of the life tenant, is valid.[466] Also, when a power of appointment has been granted by deed, transfer tax upon the exercise of the power by will is not a taking of property without due process of law, even though the instrument creating the power was executed prior to enactment of the taxing statute.[467] Likewise when a transfer tax law did not become effective until after a deed creating certain remainders had been executed, but the State court applied the tax on the theory that the vesting actually occurred after the tax law became operative, no denial of due process resulted. "* * *, the statute unquestionably might have made the tax applicable to this transfer, * * * [and the Court need] * * * not inquire * * * into the reasoning by which * * *" the State held the statute operative.[468]

On the other hand, when remainders indisputably vest at the time of the creation of a trust and a succession tax is enacted thereafter, the imposition of said tax on the transfer of such remainder is unconstitutional.[469] But where the remaindermen's interests are contingent and do not vest until the donor's death subsequent to the adoption of the statute, the tax is valid.[470] Another example of valid retroactive taxation is to be found in a New York statute amending a 1930 estate tax law. The amendment required inclusion in the decedent's gross estate, for tax computation purposes, of property in respect of which the decedent exercised after 1930, by will, a nongeneral power of appointment created prior to that year. The amendment reached such transfers under powers of appointment as under the previous statute escaped taxation. In sustaining application of the amendment, the Court held that the inclusion in the gross estate of property never owned by the decedent, but appointed by her will under a limited power which could not be exercised in favor of the decedent, her creditors, or her estate, did not deny due process to those who inherited the decedent's property, even though, because the tax rate was progressive, the net amount they inherited was less than it would have been if the appointed property had not been included in the gross estate.[471] In summation, the Court has noted that insofar as retroactive taxation of vested gifts has been voided, the justification therefor has been that "the nature or amount of the tax could not reasonably have been anticipated by the taxpayer at the time of the particular voluntary act which the [retroactive] statute later made the taxable event * * * Taxation, * * *, of a gift which * * * [the donor] might well have refrained from making had he anticipated the tax, * * * [is] thought to be so arbitrary * * * as to be a denial of due process."[472]

Other Types of Taxes

Income Taxes.—Any attempt by a State to measure a tax on one person's income by reference to the income of another is contrary to due process as guaranteed by the Fourteenth Amendment. Thus a husband cannot be taxed on the combined total of his and his wife's incomes as shown by separate returns, where her income is her separate property and where, by reason of the tax being graduated, its amount exceeded the sum of the taxes which would have been due had their separate incomes been separately assessed.[473] Moreover, a tax on income, unlike a gift tax, is not necessarily unconstitutional, because retroactive. Taxpayers cannot complain of arbitrary action or assert surprise in the retroactive apportionment of tax burdens to income when that is done by the legislature at the first opportunity after knowledge of the nature and amount of the income is available.[474]

Franchise Taxes.—A city ordinance imposing annual license taxes on light and power companies is not violative of the due process clause merely because the city has entered the power business in competition with such companies.[475] Nor does a municipal charter authorizing the imposition upon a local telegraph company of a tax upon the lines of the company within its limits at the rate at which other property is taxed, but upon an arbitrary valuation per mile, deprive the company of its property without due process of law, inasmuch as the tax is a mere franchise or privilege tax.[476]

Severance Taxes.—A State excise on the production of oil which extends to the royalty interest of the lessor in the oil produced under an oil lease as well as to the interest of the lessee engaged in the active work of production, the tax being apportioned between these parties according to their respective interest in the common venture, is not arbitrary as regards the lessor, but consistent with due process.[477]

Real Property Taxes (Assessment).—The maintenance of a high assessment in the face of declining value is merely another way of achieving an increase in the rate of property tax. Hence, an over-assessment constitutes no deprivation of property without due process of law.[478] Likewise, land subject to mortgage may be taxed for its full value without deduction of the mortgage debt from the valuation.[479]

Real Property Taxes: Special Assessments.—A State may defray the entire expense of creating, developing, and improving a political subdivision either from funds raised by general taxation, or by apportioning the burden among the municipalities in which the improvements are made, or by creating, or authorizing the creation of, tax districts to meet sanctioned outlays.[480] Where a State statute authorizes municipal authorities to define the district to be benefited by a street improvement and to assess the cost of the improvement upon the property within the district in proportion to benefits, their action in establishing the district and in fixing the assessments on included property, after due hearing of the owners as required by the statute cannot, when not arbitrary or fraudulent, be reviewed under the Fourteenth Amendment upon the ground that other property benefited by the improvement was not included.[481]

It is also proper to impose a special assessment for the preliminary expenses of an abandoned road improvement, even though the assessment exceeds the amount of the benefit which the assessors estimated the property would receive from the completed work.[482] Likewise a levy upon all lands within a drainage district of a tax of twenty-five cents per acre to defray preliminary expenses does not unconstitutionally take the property of landowners within that district who may not be benefited by the completed drainage plans.[483] On the other hand, when the benefit to be derived by a railroad from the construction of a highway will be largely offset by the loss of local freight and passenger traffic, an assessment upon such railroad is violative of due process,[484] whereas any gains from increased traffic reasonably expected to result from a road improvement will suffice to sustain an assessment thereon.[485] Also the fact that the only use made of a lot abutting on a street improvement is for a railway right of way does not make invalid, for lack of benefits, an assessment thereon for grading, curbing, and paving.[486] However, when a high and dry island was included within the boundaries of a drainage district from which it could not be benefited directly or indirectly, a tax on such island was held to be a deprivation of property without due process of law.[487] Finally, a State may levy an assessment for special benefits resulting from an improvement already made[488] and may validate an assessment previously held void for want of authority.[489]

JURISDICTION TO TAX

Land

Prior even to the ratification of the Fourteenth Amendment, it was settled principle that a State could not tax land situated beyond its limits; and subsequently elaborating upon that principle the Court has said that "* * *, we know of no case where a legislature has assumed to impose a tax upon land within the jurisdiction of another State, much less where such action has been defended by a court."[490] Insofar as a tax payment may be viewed as an exaction for the maintenance of government in consideration of protection afforded, the logic sustaining this rule is self-evident.

Tangible Personalty

As long as tangible personal property has a situs within its borders, a State validly may tax the same, whether directly through an ad valorem tax or indirectly through death taxes, irrespective of the residence of the owner.[491] By the same token, if tangible personal property makes only occasional incursions into other States, its permanent situs remains in the State of origin, and is taxable only by the latter.[492] The ancient maxim, mobilia sequuntur personam, which had its origin when personal property consisted in the main of articles appertaining to the person of the owner, yielded in modern times to the "law of the place where the property is kept and used." In recent years, the tendency has been to treat tangible personal property as "having a situs of its own for the purpose of taxation, and correlatively to * * * exempt [it] at the domicile of its owner."[493]The benefit-protection theory of taxation, upon which the Court has in fact relied to sustain taxation exclusively by the situs State, logically would seem to permit taxation by the domiciliary State as well as by the nondomiciliary State in which the tangibles are situate, especially when the former levies the tax on the owner in terms of the value of the tangibles. Thus far, however, the Court has taken the position that when the tangibles have a situs elsewhere, the domiciliary State can neither control such property nor extend to it or to its owner such measure of protection as would be adequate to meet the jurisdictional requirements of due process.

Intangible Personalty

General.—To determine whether a State, or States, may tax intangible personal property, the Court has applied the fiction, mobilia sequuntur personam and has also recognized that such property may acquire, for tax purposes, a business or commercial situs where permanently located; but it has never clearly disposed of the issue as to whether multiple personal property taxation of intangibles is consistent with due process. In the case of corporate stock, however, the Court has obliquely acknowledged that the owner thereof may be taxed at his own domicile, at the commercial situs of the issuing corporation, and at the latter's domicile; but, as of the present date, constitutional lawyers are speculating whether the Court would sustain a tax by all three jurisdictions, or by only two of them, and, if the latter, which two, the State of the commercial situs and of the issuing corporation's domicile, or the State of the owner's domicile and that of the commercial situs.[494]

Taxes on Intangibles Sustained.—Thus far, the Court has sustained the following personal property taxes on intangibles:

(1) A debt held by a resident against a nonresidence, evidenced by a bond of the debtor and secured by a mortgage on real estate in the State of the debtor's residence.[495]

(2) A mortgage owned and kept outside the State by a nonresident but on land within the State.[496]

(3) Investments, in the form of loans to residents, made by a resident agent of a nonresident creditor, are taxable to the nonresident creditor.[497]

(4) Deposits of a resident in a bank in another State, where he carries on a business and from which these deposits are derived, but belonging absolutely to him and not used in the business, are subject to a personal property tax in the city of his residence, whether or not they are subject to tax in the State where the business is carried on. The tax is imposed for the general advantage of living within the jurisdiction [benefit-protection theory], and may be measured by reference to the riches of the person taxed.[498]

(5) Membership owned by a nonresident in a domestic exchange, known as a chamber of commerce.[499]

(6) Membership by a resident in a stock exchange located in another State. "Double taxation" the Court observed "by one and the same State is not" prohibited "by the Fourteenth Amendment; much less is taxation by two States upon identical or closely related property interests falling within the jurisdiction of both, forbidden."[500]

(7) A resident owner may be taxed on stock held in a foreign corporation that does no business and has no property within the taxing State. The Court also added that "undoubtedly the State in which a corporation is organized may * * *, [tax] of all its shares whether owned by residents or nonresidents."[501]

(8) Stock in a foreign corporation owned by another foreign corporation transacting its business within the taxing State. The Court attached no importance to the fact that the shares were already taxed by the State in which the issuing corporation was domiciled and might also be taxed by the State in which the issuing corporation was domiciled and might also be taxed by the State in which the stock owner was domiciled; or at any rate did not find it necessary to pass upon the validity of the latter two taxes. The present levy was deemed to be tenable on the basis of the benefit-protection theory; namely, "the economic advantages realized through the protection, at the place * * *, [of business situs] of the ownership of rights in intangibles * * *"[502]

(9) Shares owned by nonresident shareholders in a domestic corporation, the tax being assessed on the basis of corporate assets and payable by the corporation either out of its general fund or by collection from the shareholder. The shares represent an aliquot portion of the whole corporate assets, and the property right so represented arises where the corporation has its home, and is therefore within the taxing jurisdiction of the State, notwithstanding that ownership of the stock may also be a taxable subject in another State.[503]

(10) A tax on the dividends of a corporation may be distributed ratably among stockholders regardless of their residence outside the State, the stockholders being the ultimate beneficiaries of the corporation's activities within the taxing State and protected by the latter and subject to its jurisdiction.[504] This tax, though collected by the corporation, is on the transfer to a stockholder of his share of corporate dividends within the taxing State, and is deducted from said dividend payments.[505]

(11) Stamp taxes on the transfer within the taxing State by one nonresident to another of stock certificates issued by a foreign corporation;[506] and upon promissory notes executed by a domestic corporation, although payable to banks in other States.[507] These taxes, however, were deemed to have been laid, not on the property, but upon an event, the transfer in one instance, and execution, in the latter, which took place in the taxing State.

Taxes on Intangibles Invalidated.—The following personal property taxes on intangibles have not been upheld:

(1) Debts evidenced by notes in safekeeping within the taxing State, but made and payable and secured by property in a second State and owned by a resident of a third State.[508]

(2) A property tax sought to be collected from a life beneficiary on the corpus of a trust composed of property located in another State and as to which said beneficiary had neither control nor possession, apart from the receipt of income therefrom.[509] However, a personal property tax may be collected on one-half of the value of the corpus of a trust from a resident who is one of the two trustees thereof, notwithstanding that the trust was created by the will of a resident of another State in respect of intangible property located in the latter State, at least where it does not appear that the trustee is exposed to the danger of other ad valorem taxes in another State.[510] The first case, Brooke v. Norfolk,[511] is distinguishable by virtue of the fact that the property tax therein voided was levied upon a resident beneficiary rather than upon a resident trustee in control of nonresident intangibles. Different too is Safe Deposit and Trust Co. v. Virginia,[512] where a property tax was unsuccessfully demanded of a nonresident trustee with respect to nonresident intangibles under its control.

(3) A tax, measured by income, levied on trust certificates held by a resident, representing interests in various parcels of land (some inside the State and some outside), the holder of the certificates, though without a voice in the management of the property, being entitled to a share in the net income and, upon sale of the property, to the proceeds of the sale.[513]

Transfer Taxes (Inheritance, Estate, Gift Taxes).—Being competent to regulate exercise of the power of testamentary disposition and the privilege of inheritance, a State may base its succession taxes upon either the transmission, or an exercise of the legal power of transmission, of property by will or by descent, or the enjoyment of the legal privilege of taking property by devise or descent.[514] But whatever may be the justification of their power to levy such taxes, States have consistently found themselves restricted by the rule, established as to property taxes in 1905 in Union Refrigerator Transit Co. v. Kentucky,[515] and subsequently reiterated in Frick v. Pennsylvania[516] in 1925, which precludes imposition of transfer taxes upon tangible personal property by any State other than the one in which such tangibles are permanently located or have an actual situs. In the case of intangibles, however, the States have been harassed by the indecision of the Supreme Court; for to an even greater extent than is discernible in its treatment of property taxes on intangibles, it has oscillated in upholding, then rejecting, and again currently sustaining the levy by more than one State of death taxes upon intangibles comprising the estate of a decedent.

Until 1930, transfer taxes upon intangibles levied by both the domiciliary as well as nondomiciliary, or situs State, were with rare exceptions approved. Thus, in Bullen v. Wisconsin,[517] the domiciliary State of the creator of a trust was held competent to levy an inheritance tax, upon the death of the settlor, on his trust fund consisting of stocks, bonds, and notes kept and administered in another State and as to which the settlor reserved the right to control disposition and to direct payment of income for life, such reserved powers being equivalent to a fee. Cognizance was taken of the fact that the State in which these intangibles had their situs had also taxed the trust. Levy of an inheritance tax by a nondomiciliary State was sustained on similar grounds in Wheeler v. Sohmer, wherein it was held that the presence of a negotiable instrument was sufficient to confer jurisdiction upon the State seeking to tax its transfer.[518] On the other hand, the mere ownership by a foreign corporation of property in a nondomiciliary State was held insufficient to support a tax by that State on the succession to shares of stock in that corporation owned by a nonresident decedent.[519] Also against the trend was Blodgett v. Silberman[520] wherein the Court defeated collection of a transfer tax by the domiciliary State by treating coins and bank notes deposited by a decedent in a safe deposit box in another State as tangible property, albeit it conceded that the domiciliary State could tax the transfer of books and certificates of indebtedness found in that safe deposit box as well as the decedent's interest in a foreign partnership.

In the course of about two years following the recent Depression, the Court handed down a group of four decisions which, for the time being at any rate, placed the stamp of disapproval upon multiple transfer and—by inference—other multiple taxation of intangibles. Asserting, as it did in one of these cases, that "practical considerations of wisdom, convenience and justice alike dictate the desirability of a uniform general rule confining the jurisdiction to impose death transfer taxes as to intangibles to the State of the [owner's] domicile; * * *"[521] the Court, through consistent application of the maxim, mobilia sequuntur personam, proceeded to deny the right of nondomiciliary States to tax and to reject as inadequate jurisdictional claims of the latter founded upon such bases as control, benefit, and protection or situs. During this interval, 1930-1932, multiple transfer taxation of intangibles came to be viewed, not merely as undesirable, but as so arbitrary and unreasonable as to be prohibited by the due process clause.

Beginning, in 1930, with Farmers' Loan and Trust Co. v. Minnesota,[522] the Court reversed its former ruling in Blackstone v. Miller,[523] in which it had held that the State in which a debtor was domiciled or a bank located could levy an inheritance tax on the transfer of the debt or the deposit, notwithstanding that the creditor had his domicile in a different State. Farmers' Loan and Trust Co. v. Minnesota, strictly appraised, was authority simply for the proposition that jurisdiction over a debtor, in this instance a State which had issued bonds held by a nonresident creditor, was inadequate to sustain a tax by that debtor State on the transfer of such securities. The securities in question, which had never been used by the creditor in any business in the issuing State, were located in the State in which the creditor had his domicile, and were deemed to be taxable only in the latter. In Baldwin v. Missouri,[524] a nondomiciliary State was prevented from applying its inheritance tax to bonds, bank deposits, and promissory notes, all physically present within its limits and some of them secured by lands therein, when the owner thereof was domiciled in another State. A like result, although on this occasion on grounds of lack of evidence of any "business situs," was reached in Beidler v. South Carolina Tax Commission,[525] in which the Court ruled that a State, upon the death of a nonresident creditor, may not apply its inheritance tax to a debt [open account] owned by one of its domestic corporations. Finally, in First National Bank v. Maine,[526] which has since been overruled in State Tax Commission v. Aldrich,[527] the Court declared that only the State in which the owner of corporate stock died domiciled was empowered to tax the succession to the shares by will or inheritance and that the State in which the issuing corporation was domiciled could not do so.

Without expressly overruling more than one of these four cases condemning multiple succession taxation of intangibles, the Court, beginning with Curry v. McCanless[528] in 1939, announced a departure from the "doctrine, of recent origin, that the Fourteenth Amendment precludes the taxation of any interest in the same intangible in more than one State * * *." Taking cognizance of the fact that this doctrine had never been extended to the field of income taxation or consistently applied in the field of property taxation, where the concepts of business situs as well as of domiciliary situs had been utilized to sustain double taxation, especially in connection with shares of corporate stock, the Court declared that a correct interpretation of constitutional requirements would dictate the following conclusions: "From the beginning of our constitutional system control over the person at the place of his domicile and his duty there, common to all citizens, to contribute to the support of government have been deemed to afford an adequate constitutional basis for imposing on him a tax on the use and enjoyment of rights in intangibles measured by their value. * * * But when the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another State, in such a way as to bring his person or * * * [his intangibles] within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains, * * * [However], the State of domicile is not deprived, by the taxpayer's activities elsewhere, of its constitutional jurisdiction to tax." In accordance with this line of reasoning, Tennessee, where a decedent died domiciled, and Alabama, where a trustee, by conveyance from said decedent, held securities on specific trusts, were both deemed competent to impose a tax on the transfer of these securities passing under the will of the decedent. "In effecting her purposes," the testatrix was viewed as having "brought some of the legal interests which she created within the control of one State by selecting a trustee there, and others within the control of the other State, by making her domicile there." She had found it necessary to invoke "the aid of the law of both States, and her legatees" were subject to the same necessity.

These statements represented a belated adoption of the views advanced by Chief Justice Stone in dissenting or concurring opinions which he filed in three of the four decisions rendered during 1930-1932. By the line of reasoning taken in these opinions, if protection or control was extended to, or exercised over, intangibles or the person of their owner, then as many States as afforded such protection or were capable of exerting such dominion should be privileged to tax the transfer of such property. On this basis, the domiciliary State would invariably qualify as a State competent to tax and a nondomiciliary State, so far as it could legitimately exercise control or could be shown to have afforded a measure of protection that was not trivial or insubstantial.

On the authority of Curry v. McCanless, the Court, in Pearson v. McGraw,[529] also sustained the application of an Oregon transfer tax to intangibles handled by an Illinois trust company and never physically present in Oregon, jurisdiction to tax being viewed as dependent, not on the location of the property in the State, but on control over the owner who was a resident of Oregon. In Graves v. Elliott,[530] decided in the same year, the Court upheld the power of New York, in computing its estate tax, to include in the gross estate of a domiciled decedent the value of a trust of bonds managed in Colorado by a Colorado trust company and already taxed on its transfer by Colorado, which trust the decedent had established while in Colorado and concerning which he had never exercised any of his reserved powers of revocation or change of beneficiaries. It was observed that "the power of disposition of property is the equivalent of ownership, * * * and its exercise in the case of intangibles is * * * [an] appropriate subject of taxation at the place of the domicile of the owner of the power. Relinquishment at death, in consequence of the non-exercise in life, of a power to revoke a trust created by a decedent is likewise an appropriate subject of taxation."[531] Consistent application of the principle enunciated in Curry v. McCanless is also discernible in two later cases in which the Court sustained the right of a domiciliary State to tax the transfer of intangibles kept outside its boundaries, notwithstanding that "in some instances they may be subject to taxation in other jurisdictions, to whose control they are subject and whose legal protection they enjoyed." In Graves v. Schmidlapp[532] an estate tax was levied upon the value of the subject of a general testamentary power of appointment effectively exercised by a resident donee over intangibles held by trustees under the will of a nonresident donor of the power. Viewing the transfer of interest in said intangibles by exercise of the power of appointment as the equivalent of ownership, the Court quoted from McCulloch v. Maryland[533] to the effect that the power to tax "'is an incident of sovereignty, and is coextensive with that to which it is an incident.'" Again, in Central Hanover Bank & T. Co. v. Kelly,[534] the Court approved a New Jersey transfer tax imposed on the occasion of the death of a New Jersey grantor of an irrevocable trust executed, and consisting of securities located, in New York, and providing for the disposition of the corpus to two nonresident sons.

The costliness of multiple taxation of estates comprising intangibles is appreciably aggravated when each of several States founds its tax not upon different events or property rights but upon an identical basis; namely that, the decedent died domiciled within its borders. Not only is an estate then threatened with excessive contraction but the contesting States may discover that the assets of the estate are insufficient to satisfy their claims. Thus, in Texas v. Florida,[535] the State of Texas filed an original petition in the Supreme Court, in which it asserted that its claim, together with those of three other States, exceeded the value of the estate, that the portion of the estate within Texas alone would not suffice to discharge its own tax, and that its efforts to collect its tax might be defeated by adjudications of domicile by the other States. The Supreme Court disposed of this controversy by sustaining a finding that the decedent had been domiciled in Massachusetts, but intimated that thereafter it would take jurisdiction in like situations only in the event that an estate did not exceed in value the total of the conflicting demands of several States and that the latter were confronted with a prospective inability to collect.

Corporation Taxes

(1) Intangible Personal Property.—A State in which a foreign corporation has acquired a commercial domicile and in which it maintains its general business offices may tax the latter's bank deposits and accounts receivable even though the deposits are outside the State and the accounts receivable arise from manufacturing activities in another State.[536] Similarly, a nondomiciliary State in which a foreign corporation did business can tax the "corporate excess" arising from property employed and business done in the taxing State.[537] On the other hand, when the foreign corporation transacts only interstate commerce within a State, any excise tax on such excess is void, irrespective of the amount of the tax.[538] A domiciliary State, however, may tax the excess of market value of outstanding capital stock over the value of real and personal property and certain indebtedness of a domestic corporation even though this "corporate excess" arose from property located and business done in another State and was there taxable. Moreover, this result follows whether the tax is considered as one on property or on the franchise.[539] Also a domiciliary State, which imposes no franchise tax on a stock fire insurance corporation, validly may assess a tax on the full amount of its paid-in capital stock and surplus, less deductions for liabilities, notwithstanding that such domestic corporation concentrates its executive, accounting, and other business offices in New York, and maintains in the domiciliary State only a required registered office at which local claims are handled. Despite "the vicissitudes which the so-called 'jurisdiction-to-tax' doctrine has encountered * * *," the presumption persists that intangible property is taxable by the State of origin.[540] But a property tax on the capital stock of a domestic company which includes in the appraisement thereof the value of coal mined in the taxing State but located in another State awaiting sale deprives the corporation of its property without due process of law.[541] Also void for the same reason is a State tax on the franchise of a domestic ferry company which includes in the valuation thereof the worth of a franchise granted to the said company by another State.[542]

(2) Privilege Taxes Measured by Corporate Stock.—Since the tax is levied not on property but on the privilege of doing business in corporate form, a domestic corporation may be subjected to a privilege tax graduated according to paid up capital stock, even though the latter represents capital not subject to the taxing power of the State.[543] By the same token, the validity of a franchise tax, imposed on a domestic corporation engaged in foreign maritime commerce and assessed upon a proportion of the total franchise value equal to the ratio of local business done to total business, is not impaired by the fact that the total value of the franchise was enhanced by property and operations carried on beyond the limits of the State.[544] However, a State, under the guise of taxing the privilege of doing an intrastate business, cannot levy on property beyond its borders; and, therefore, as applied to foreign corporations, a license tax based on authorized capital stock is void,[545] even though there be a maximum to the fee,[546] unless apportioned according to some method, as, for example, a franchise tax based on such proportion of outstanding capital stock as is represented by property owned and used in business transacted in the taxing State.[547] An entrance fee, on the other hand, collected only once as the price of admission to do an intrastate business, is distinguishable from a tax and accordingly may be levied on a foreign corporation on the basis of a sum fixed in relation to the amount of authorized capital stock (in this instance, a $5,000 fee on an authorized capital of $100,000,000).[548]

(3) Privilege Taxes Measured by Gross Receipts.—A municipal license tax imposed as a percentage of the receipts of a foreign corporation derived from the sales within and without the State of goods manufactured in the city is not a tax on business transactions or property outside the city and therefore does not violate the due process clause.[549] But a State is wanting in jurisdiction to extend its privilege tax to the gross receipts of a foreign contracting corporation for work done outside the taxing State in fabricating equipment later installed in the taxing State. Unless the activities which are the subject of the tax are carried on within its territorial limits, a State is not competent to impose such a privilege tax.[550]