Franchise and Regulation

In the case Munn v. State of Illinois, 94 U.S. 113 (1876) the decision pivoted on the distinction between the two states of private ownership- "public" and private. Property granted as a "public" franchise or license was subject to regulation of rates charged and services provided to the public. Public franchises included proprietorship of "common carriers" such as ferries; "public ways" or roads; "public warehouses"; "public houses"; and public wharfs.

Relating to the essential public nature of the use, the owner was held to "exercise a sort of public office" - a "public calling"" and have public duties to perform as contrasted with those using private property in the normal competitive arena of "ordinary business pursuits" (contract) or for their own personal enjoyment.

Munn v. State of Illinois, 94 U.S. 113 (1876):

..."When one becomes a member of society, he necessarily parts with some rights or privileges which, as an individual not affected by his relations to others, he might retain. 'A body politic,' as aptly defined in the preamble of the Constitution of Massachusetts, 'is a social compact by which the whole people covenants with each citizen, and each citizen with the whole people, that all shall be governed by certain laws for the common good.' This does not confer power upon the whole people to control rights which are purely and exclusively private, Thorpe v. R. & B. Railroad Co., 27 Vt. 143; but it does authorize the establishment of laws requiring each citizen to so conduct himself, and so use his own property, as not unnecessarily to injure another. This is the very essence of government, and has found its expression in the maxim sic utere tuo ut alienum non laedas. From this source come the police powers, which, as was said by Mr. Chief Justice Taney in the License Cases, 5 How. 583, 'are nothing more or less than the powers of government inherent in every sovereignty, . . . that is to say, . . . the power to govern men and things.' Under these powers the government regulates the conduct of its citizens one towards another, and the manner in which each shall use his own property, when such regulation becomes necessary for the public good. In their exercise it has been customary in England from time immemorial, and in this country from its first colonization, to regulate ferries, common carriers, hackmen, bakers, millers, wharfingers, innkeepers, etc., and in so doing to fix a maximum of charge to be made for services rendered, accommodations furnished, and articles sold. To this day, statutes are to be found in many of the States some or all these subjects; and we think it has never yet been successfully contended that such legislation came within any of the constitutional prohibitions against interference with private property. With the Fifth Amendment in force, Congress, in 1820, conferred power upon the city of Washington 'to regulate . . . the rates of wharfage at private wharves, . . . the sweeping of chimneys, and to fix the rates of fees therefor, . . . and the weight and quality of bread,' 3 Stat. 587, sect. 7; and, in 1848, 'to make all necessary regulations respecting hackney carriages and the rates of fare of the same, and the rates of hauling by cartmen, wagoners, carmen, and draymen, and the rates of commission of auctioneers,' 9 id. 224, sect. 2."

...."And the same has been held as to warehouses and warehousemen. In Aldnutt v. Inglis, 12 East, 527, decided in 1810, it appeared that the London Dock Company had built warehouses in which wines were taken in store at such rates of charge as the company and the owners might agree upon. Afterwards the company obtained authority, under the general warehousing act, to receive wines from importers before the duties upon the importation were paid; and the question was, whether they could charge arbitrary rates for such storage, or must be content with a reasonable compensation. Upon this point Lord Ellenborough said (p. 537):--

 "'There is no doubt that the general principle is favored, both in law and justice, that every man may fix what price he pleases upon his own property, or the use of it; but for a particular purpose the public have a right to resort to his premises and make use of them and he have a monopoly in them for that purpose, if he will take the benefit of that monopoly, he must as an equivalent, perform the duty attached to it on reasonable terms. The question then is, whether, circumstanced as this company is, by the combination of the warehousing act with the act by which they were originally constituted, and with the actually existing state of things in the port of London, whereby they alone have the warehousing of these wines, they be not, according to the doctrine of Lord Hale, obliged to limit themselves to a reasonable compensation for such warehousing. And, according to him, whenever the accident of time casts upon a party the benefit of having a legal monopoly of landing goods in a public port, as where he is the owner of the only wharf authorized to receive goods which happens to be built in a port newly erected, he is confined to take reasonable compensation only for the use of the wharf.'" [Emphasis mine.]

"And further on (p. 539):--

"'It is enough that there exists in the place and for the commodity in question a virtual monopoly of the warehousing for this purpose, on which the principle of law attaches, as laid down by Lord Hale in the passage referred to [that from De Portibus Maris already quoted], which includes the good sense as well as the law of the subject.'"

"And in the same case Le Blanc, J., said (p. 541):--

"'Then, admitting these warehouses to be private property, and that the company might discontinue this application of them, or that they might have made what terms they pleased in the first instance, yet having, as they now have, this monopoly the question is, whether the warehouses be not private property clothed with a public right, and, if so, the principle of law attaches upon them. The privilege, then, of bonding these wines being at present confined by the act of Parliament to the company's warehouses, is it not the privilege of the public, and shall not that which is for the good of the public attach on the monopoly, that they shall not be bound to pay an arbitrary but a reasonable rent? But upon this record the company resist having their demand for warehouse rent confined within any limit; and, though it does not follow that the rent in fact fixed by them is unreasonable, they do not choose to insist on its being reasonable for the purpose of raising the question. For this purpose, therefore, the question may be taken to be whether they may claim an unreasonable rent. But though this be private property, yet the principle laid down by Lord Hale attaches upon it, that when private property is affected with a public interest it ceases to be juris privati only; and, in case of its dedication to such a purpose as this, the owners cannot take arbitrary and excessive duties, but the duties must be reasonable.'" [Emphasis mine.]

The Munn case involved the expansion of the right of government to regulate individual choice and use of private property (as regarded the level of rates charged for use) to include regulation of commercial uses of private property that provide an exclusive and essential service of an entirely public nature for commercial profit - the "public nature" being a defacto monopoly upon which the community was entirely dependent by virtue of lack of alternative, (universal use and dependence analogous to a public "utility".) In this case, the use at issue was the operation of public grain elevators. Under such limited circumstances, the Court determined that "juris privati" became "clothed" with a "public interest" with obligations attendant upon that monopoly which justified expanding government regulation beyond the limits of the police powers to which ordinary commercial and private property use could be subject. In addition, the Court further clarified that in no event did such commercial public use create an actual public ownership interest in the property itself, only the public right to regulate equitable rates and services.

Munn v. State of Illinois,, 94 U.S. 113 (1876) contin...:

"Warehousemen for the storage of grain in the manner the business is conducted at Chicago are engaged in a public employment, as distinguished from ordinary business pursuits. In this regard they occupy a position similar to common carriers, who are held to 'exercise a sort of public office,' and have public duties to perform. N. J. Steam Nav. Co. v. Merchants' Bank, 6 How. 344; Sanford v. Railroad Company, 24 Penn. St. 381; Coggs v. Bernard, 2 Ld. Raym. 909; C. & N. W. Railroad Co. v. The People, 56 Ill. 377.

"Like common carriers, they are required by law to receive grain from all persons, and store the same upon equal terms and conditions. Rev. Stat. of Ill. (of 1874), p. 821, 101; Ross v. Johnson, 5 Burr. 2827; Low v. Martin, 18 Ill. 288; Steinman v. Wilkins, 7 Watts & S. (Pa.) 466, 468.

"Although the ownership of the property is private, the use may be public in a strict, legal sense; hence, in adjudicated cases, the terms 'public wharves,' 'public roads,' 'public houses,' and 'public warehouses,' are of frequent occurrence, although the property may be the subject of private ownership. Dutton v. Strong, 1 Black, 32; Ives v. Hartley, 51 Ill. 523; Olcott v. The Supervisors, 16 Wall. 678.

"Whenever any person pursues a public calling, and sustains such relations to the public that the people must of necessity deal with him, and are under a moral duress to submit to his terms if he is unrestrained by law, then, in order to prevent extortion and an abuse of his position, the price he may charge for his services may be regulated by law. Commonwealth v. Duane, 98 Mass. 1; State v. Perry, 5 Jones (N. C.) L. 252; State v. Nixon, id. 258; Bac. Abr. tit. 'Carriers,' D.; Murray's Lessee et al. V. Hoboken Land and Imp. Co., 18 How. 272; Kirkham v. Shawcrass, 6 T. R. 17; 2 Peake N. P. C. 185; 10 M. & W. 415; Ogden v. Saunders, 12 Wheat. 259; Mills v. County Commissioners, 4 Ill. 53; Trustees of Schools v. Tatman, 13 id. 37.

"If grain warehousemen in Chicago 'pursue a public employment,' or 'exercise a sort of public office,' and sustain such relations to the public that all the grain consigned to 'the greatest grain market in the world' must necessarily pass through their hands, the State of Illinois, in virtue of its unquestionable power to regulate its internal commerce, may enact laws prescribing maximum rates of storage. The storage of grain offered for sale in the markets of a State most clearly pertains to its internal or domestic commerce."

..."This brings us to inquire as to the principles upon which this power of regulation rests, in order that we may determine what is within and what without its operative effect. Looking, then, to the common law, from whence came the right which the Constitution protects, we find that when private property is 'affected with a public interest, it ceases to be juris privati only.' This was said by Lord Chief Justice Hale more than two hundred years ago, in his treatise De Portibus Maris, 1 Harg. Law Tracts, 78, and has been accepted without objection as an essential element in the law of property ever since. Property does become clothed with a public interest when used in a manner to make it of public consequence, and affect the community at large. When, therefore, one devotes his property to a use in which the public has an interest, he, in effect, grants to the public and interest in that use, and must submit to be controlled by the public for the common good, to the extent of the interest he has thus created. He may withdraw his grant by discontinuing the use, but, so long as he maintains the use, he must submit to the control."

..."Thus, as to ferries, Lord Hale says, in his treatise De Jure Maris, 1 Harg. Law Tracts, 6, the king has 'a right of franchise or privilege, that no man may set up a common ferry for all passengers, without a prescription time out of mind, or a charter from the king. He may make a ferry for his own use or the use of his family, but not for the common use of all the king's subjects passing that way; because it doth in consequence tend to a common charge, and is become a thing of public interest and use, and every man for his passage pays a toll, which is a common charge, and every ferry ought to be under a public regulation, viz., that it give attendance at due times, keep a boat in due order, and take but reasonable toll; for if he fail in these he is finable.' So if one owns the soil and landing-places on both banks of a stream, he cannot use them for the purposes of a public ferry, except upon such terms and conditions as the body politic may from time to time impose; and this because the common good requires that all public ways shall be under the control of the public authorities. This privilege or prerogative of the king, who in this connection only represents and gives another name to the body politic, is not primarily for his profit, but for the protection of the people and the promotion of the general welfare. And, again, as to wharves and wharfingers, Lord Hale, in his treatise De Portibus Maris, already cited, says:--

"'A man, for his own private advantage, may, in a port or town, set up a wharf or a crane, and may take what rates he and his customers can agree upon for cranage, wharfage, housellage, pesage; for he doth no more than is lawful for any man to do, viz., makes the most of his own ...If the king or subject have a public wharf, unto which all persons that come to that port must come and unlade or lade their goods as for the purpose, because they are the wharfs only licensed by the queen,...or because there is no other wharf in that port, as it may fall out where a port is newly erected; in that case there cannot be taken arbitrary and excessive duties for cranage, wharfage, pesage, etc., neither can they be enhanced to an immoderate rate; but the duties must be reasonable and moderate, though settled by the king's license or charter. For now the wharf and crane are affected with a public interest, and they cease to be juris privati only; as if a man set out a street in new building on his own land, it is now no longer bare private interest, but is affected by a public interest.'" [Emphasis mine.]

Munn v. State of Illinois, 94 U.S. 113 (1876) contin...:

"And it must also be conceded that it is a business in which the whole public has a direct and positive interest. It presents, therefore, a case for the application of a long-known and well-established principle in social science, and this statute simply extends the law so as to meet this new development of commercial progress. There is no attempt to compel these owners to grant the public an interest in their property, but to declare their obligations, if they use it in this particular manner." [Emphasis mine.]