Honorable C. R. McNamee, Director
Rate Division
Railroad Commlsslon of Texas
Austin, Texas
Dear Sir: Opinion No. O-3118
Re: (a) Transportation of cotton
owned by Commodity Credit Corpor-
ation, Unlted States Department
of Agriculture, by a common or
contract carrier, intrastate, for
special rates arrived at by con-
tract and in disregard of the pub-
lished tariff prescribed by the
Railroad Commission of Texas.
(b) Transportation of cotton held
and possessed by Commodity Credits
Corporation, United States Depart-
ment of Agriculture, under loan
agreement not yet in default and
to which title remains in the pro-
ducer, on the basis of rates flx-
ed by contract between the parties
rather than at the published rates
prescribed by the Railroad Commis-
sion for intrastate traffic.
Your letter of February 3, 1941, submits for OUP opin-
ion the following question, which has been presented to you
by Mr. C. G. Rausch, Traffic Manager, Cotton Division, Commcd-
itg Corporation, Unlted States Department of Agriculture:
"'In transporting U. S. Government Cotton
must the motor truck adhere to Its published
rates or can a common or contract carrier make
special rates on this traffic for us?'"
In connection with the foregoing question, copy of at-
tached letter to you from Mr. 0. G. Rausch, gives the follow-
lng informatlon:
"In response to the questions propounded
in Mr. McNamee's letter provlouslg referred to,
will say that all of the cotton shipped from
Honorable C. R. McNamee, Director, page 2 o-3118
one location to another in the State of Texas
is now owned outright by this Corporation, but
in some instances is cotton placed In the loan
by the owner of such cotton as security for the
funds advanced by the Corporation to the owner
of such cotton. Of course~thls Corporation
holds temporary title to such cotton until the
loan agreements have been complied with or are
in d,efault;therefore, the cotton may or may
not at some future date become the outright prop-
erty of the Corporation.
"hnswerlng your further inquiry, usually
the cotton shipped by us moves under documents
showing the Commodity Credit Corporatlon as both
the shipper and the receiver of the cotton, and
as receiver in care of the facility in which
the cotton will be stored on delivery."
The business of transporting persons and property from
one point in Texas to another by common or contract carrier,
Is a business impressed or affected wi.tha public use of inter-
est, so as to become subject, under the reserved police power
of the State, to legislative control in all respects necessary
to protect the public against danger, injustice, and opression,
including the fixing and regulation of rates. In general, the
Legislature may make all such reasonable regulations as it may
deem necessary for the protection of the public In its rela-
tions with those who carry on a business affected with the
public Interest. 6 Ruling Case Law 228; 13 C. J. S. pages 44-
45, 631-632. To the Railroad Commission, as the duly consti-
tuted agency of the State for this purpose, the Legislature
has delegated the duty of fixing maximum rates for intre~state
transportation services of common or contract carriers, to
protect the public from excessive charges and from unjust dls-
crimination.
But the first phase of your questlon does not present
a controversy between a common or contract carrier and a ship-
per of cotton in the ordlnarg channels of commerce, i.e. the
public, so as to require the protection of the police power
in the above respect. The Commodity Credit Corporation, the
admitted owner and shipper of the cotton under the first
phase of your question, is undoubtedly an agency or instrumen-
tality of the United States, being so declared by Congress In
15 U. S. C. A., Section 713, providing:
"Notwithstanding any other provision of law,
Commodity Credit Corporation, a corporation or-
ganized under the laws of the State of Delaware
Honorable C. R. McNamee, Director, page 3 O-3118
as an agency of the United States pursuant to,the
executive order of the President of October 16,
1933, shall continue, until the close of business
of June 30, 1941, or such earlier date as may be
fixed by the President by executive order, to be
an agency of the United States."
Under Title 5, U. S. C. A. Section 1333, Reorganiza-
tion Plan No. 1, Part IV, Section 401, the Commodity Credit
Corporation, its functions ana activities, property and per-
sonnel, was transferred to the Department of dgrlculture; a
duly constituted, executive department of the Government, to
be administered under the general direction and supervision
of the Secretary of Agriculture.
The status of the Commodlty Credit Corporation being
thus established as an outright and direct agency or lnstrumen-
tality of the Federal Government, created for the purpose of
discharging the constitutional functions of said Government
under its Farm Relief Program, it Is for us to determlne
whether or not the admitted authority of the Railroad Com7nls-
sion of Texas to fix and promulgate rates for the transporta-
tion of persons or property, intrastate, under the police
power residing In the Legislature, would, in the instant case,
impose such a-burden or restriction upon such agency or in-
strumentality, as to contravene the Federal Constitution and
the powers which stem therefrom.
The Constitution of the United States does not contain
any express limitation on the police power of the states as
such, and does not limit a state's power to make all regula-
tions reasonably necessary to advance or secure the general
welfare of the people residing within such state. However,
Article VI, Section 2, of the Constitution of the United States,
expressly declares that the Constitution itself and the Fed-
eral laws and treaties made in pursuance thereof, are the su-
preme law of the land. The Federal Government, therefore, is
paramount within the scope of the powers conferred upon it by
the Constitution, and a state must exercise Its police power
subject to the constitutional llmitatlons. 16 c. J. s. 565.
The rule is stated in Western Union Telegraph Co. V.
Mayor of the City of New York, et al, 38 Fed. 552, as follows:
"The statutes which the defendants are pro-
ceeding to enforce unquestionably belong in the
category of police regulations, the power to es-
tablish which has been left to the indlvldual
states. But statutes of this class may sometimes
trench upon the federal jurisdiction; and when
Honorable C. R. McNamee, Director, page 4 O-3118
their provisions extend beyond a just reg-
ulation of right for the public good, and unrea-
sonably abridge or burden the prlvlleges which
the national authorl.tyconserves.,they cease to
be operative. The state, when providingby leg-,
islation for the protection of the public health,
the public morals, or the public safety, Is sub-
ject to the paramount authority of the constitu-
tion of the United States, and may not violate
rights secured or guaranteed by that Instrument,
or Interfere with the execiation of the powers
confided to the general,government. Mugler v.
Kansas, 123 U. S. 623,~663, 8 Sup. Ct. Rep. 273.
In M0rgan.v. Louisiana, 118 U. S. 462, 6 Sup. Ct.
Rep. 1114, the supreme court say:
"'In all cases of this kind it has been re-
peatedly held that when a question is raised
whether the state statute is a just exercise of
state power, or Is intended by roundabout means
to invade the domain of federal authority this
court will look into the operation and effect of
the statute to discern Its purpose.'
"And again the court say, (page 464:)
"For, while it may be a police power In.
the sense that all provisions for the health,
comfort, and security of the citizens are police
regulations and an exercise of the police power,
it has been said more than once in this court
that, even where such powers are so exercised
as to come within the domain of federal author-
ity, as defined by the constitution, the latter
must prevail.'"
Under the program enacted by Congress for maintaining
a fixed percentage of parity price for certain farm products,
cotton which the producer or grower fails, within the terms
and manner required, to redeem from the loan made to him by
the Commodi~tyCredit Corporation, becomes the absolute proper-
ty of the Federal Government, by and through its duly estab-
lished agency, subject to such sale or other disposition as
would follow full and complete title. The transportationof
such cotton from point to point within this State is certain-
ly reasonably necessary to the proper sale or handling of such
cotton, and the costs of this transportation is a substantial
item In determining the net price which will be realized by
the Government in the sale of such cotton. For the State of
Texas, through its Railroad Commisslon, to require the Federal
Honorable C. R. McNamee, DFrector, page 5 O-3118
Government to pay the published maximum rates on Intrastate
shipments, when presumptively, common and contract carriers
stood willing and able to give more advantageous rates,
would constitute, in the amount of such differential, a di-
rect burden upon an agency or Department of the Federal Gov-~
ernment. There being no reason to support such added burden,
in the protectionof the public from extortionate charges
and unjust dlscrlmlnation, we thlnk~such burden cannot be
constitutionallg'exacted. The sale, transportation and dls-
position of cotton owned by the Government through the Com-
modity Credit Corporation; is within the exclusive scope of
Federal power and Lt Is accordingly our answer to the first
phase of your question that the police power of the State, in
the field of rate-making and flxlng, has no application here
but must be subordtnate to the implied powers of the Federal
Government, arlsing under the Constitution of the United States.
This conclusion may be easily distinguished from that
reached by this Department in Conference Opinion 3106 to
Honorable Homer Garrison, Jr., Director, Department of Public
Safety, Austin, Texas, of date November 25, 1940, upholding,
as to vehicles operated by employees of the Soil Conservation
Service of the United States Department of Agriculture, the
provisions of state.law prohibfting the operation of over-
length, over-height, over-width and,over-weight vehicles
on the public highways of this State. The exercise of tAeuP-
police power in the opinion referred to was reasonably designed
to safeguard the lives, safety and well-being of the inhabi-
tants of the State and to protect the highways of the State
from damages and Injury, while in the instant discussion the
police power sought to be exercised bears no reasonable rela-
tion to the health, safety and well-being of the people or
preservation of the property of the State of Texas. In the
first instance the burden visited upon a Federal agency by the
police power is reasonable and constitutional while in the
latter it is not.
But the same prlnclples of constitutional law will not
be applicable to the second phase of your lnqulry involving
the authority of common or contract carriers to transport, ln-
trastate, at rates other than those fixed by the Raflroad Com-
mission, cotton in the custodg and possession of the Commodity
Credit Corporation, as security for loans thereon to the pro-
ducer, under the cotton parity price program, but to which ab-
solute title has not ripened in such Corporation by default
of such producer. In this situation, the title to the cotton
remains in the producer, subject to redemption or release of
the lien thereon by timely payment of the loan or advance made
by the Government, plus accrued handling costs and charges.
Title to the cotton cannot be said to rest In the Government
. .
Honorable C. R. McNamee, Director, page 6 0-3118
until the expiration of the date flxed,by law for such payment
and redemption by the producer. Hence, the producer and not
the Government is the actual shipper.
The results which follow from this distinction are
stated In the.case of Sands v. Calmar S. S. Corporation, 296
N. Y. sup. 590, involving the validity of the contract of a
common carrier by water to transport goods sold to the United
States, under acts of Congress permitting rate reductions for
the Government:
"In construing the provision in connection
with the Interstate Commerce Act, it has been
held Improper to permit the beneflt of special
rates on government material to accrue to ang-
one other than the government itself. Havens
& co. v. Chicago & N. W. Rg. Co. 20, I.C.C. 156;
Nashville, C. & St. L. Rg. v. State of Tennessee,
262 U. S. 318, 43 S. Ct. 583, 67 L. Ed. 999; 25
Op. Attys. Gen. 408.
"In the opinion of the Attorney General
(supra), It was stated in substance ~that the
Interstate Commerce Act is not violated by re-
ductlon of freight rates, authorized by Section
22 on materials and machinery used by the United
States, or by parties contracting with them,
for work upon irrigation systems, provided the
government receives the whole benefit of the re-
duced rate or concession; but it is violated if
the contractor receives any portion of such bene-
fit.
"I am forced to conclude that it is the
plalntlff shipper who would benefit by any re-
duction In rates, and not the government. By
obtaining such a concession the plaintiff would,
be benefitted, in that it would find itself
able to bid more advantageously than other pro-
spectlve bidders not receiving such special rates.
Therein lies the vice of plaintiff's contention.
All of these various acts aim to curtail the
vicious practice resulting from discrimination.
Discrimination would certainly result if a par-
ticular shipper, whether by iradvertance or design,
is accorded an advantage which is not available
to others."
It is therefore, our answer to the second phase of
your Fnquiry, that the carriage or transportation of such cot-
F ..
Honorable 6. R. McNamee, Director, page 7 O-3118
ton by a common or contract carrier at rates less than those
fixed and published by the Railroad Commission of Texas,
would constitute an undue and reasonable dFscrImlnatlon in
favor of the Individual shipper, to the injury and detriment
of competing shippers. The police power of the State, reason-
ably eferclsed in the fixing of rates for the protection of
the public, will not operate to unconstitutionally burden
an agency or Department of the Federdl Government, and the
rates fixed thereunder by the Railroad Commission of Texas
must be fully observed.
Trusting the foregoing fully answers your inquLry, we
are
Yours very truly
ATTORNEY GENERAL OF TEXAS
By s/Pat M. Neff, Jr.
Pat M. Neff, Jr.
Assistant
PMN:LMzwc
APPROVED MAY 9, 1941
s/Grover Sellers
FIRST ASSISTANT
ATTORNEY GENWAL
Approved Opinion Committee By s/BWB Chalrman