"I can imagine no more than three ways in which the value of a franchise can be stated. It is valuable: (1) because it authorizes the gainful use of private property in a particular manner; (2) because once obtained it is often difficult or impossible to get another like it; (3) because it may be used to injure or hinder another enterprise, although itself conferring or securing nothing of value.
"The third method of statement has been accurately, though colloquially, described as a 'nuisance value,' and is so obviously illegitimate as to require no discussion. The second method of statement, when carefully considered, asserts that because the sovereign has deemed it advisable to entrust a public work to one citizen or a body of citizens such quasi monopolistic grant confers the right to charge for the service more than would be just or lawful were the occupation open to all. Nor does it change the truth of the last statement that the difficulty of procuring franchises produces, and long has produced, a traffic in them. On every private sale of franchise property, the price paid is so much money lost to the public by official incompetence or worse, and such sale can confer on the vendee no right to compel the consumer to repay him a price that should have been paid to the State. For these reasons, I believe that on principle a franchise should be held to have no value except that arising from its use as a shield to protect those investing their property on the faith thereof, and that, it renders fruitful, it possesses no more economic value for the investor than does an actual shield possess fighting value, apart from the soldier who bears it."
It will not do to leave this decision without calling attention to the fact that the foregoing quotations are but argument advanced by the Court, and that he found a franchise value, following the reasoning of the Supreme Court in cases cited heretofore, and other cases, and upon the doctrine that:
"Private citizens may acquire vested property rights through a series of even erroneous decisions; rights so firmly vested that it becomes unconstitutional for the court which persisted in error suddenly to rectify its mistakes to the detriment of those who had securely rested upon the decisions sought to be invalidated."
After citing numerous cases, and considering methods of valuing franchises, the Court says:
"I think it obvious, as I have endeavored heretofore to point out, that either for the purpose of condemnation or regulation the value of a franchise depends wholly upon what is earned under it and I believe the best way of finding out how much a franchise, separately considered, is worth, is to ascertain what those persons desirous of continuing operation under it consider it to be worth. In a corporation whose stock is freely bought and sold, such value is measured by the success attending the sale of stock based entirely upon capitalization of the franchise; yet the value of stock issued only in consideration of the franchise is obviously dependent on earnings after the stock based on tangible property has received a satisfactory dividend * * * yet it will always be true that, unless the whole net return, compared with the value of tangibles, is above a satisfactory return on tangible investment alone, the addition of stock issued for franchise will be regarded as 'water,' and detract from the value of the entire issue, and I think this conclusive proof that value on a franchise depends wholly on what actual investment can earn."
In this particular instance stock to the amount of $7,781,000 had been issued in 1884 and divided among stockholders without any consideration, which stock represented the company's own valuation of its franchise at that date. The Court, in fixing a value, held that it would be proper to increase it proportionately to the increase in tangible property; this he did, fixing the franchise value at more than $12,000,000. The Supreme Court of the United States, in disposing of this, says (212 U. S., 47):
"But although the state ought for these reasons [applicable to this case—not general], to be bound to recognize the value agreed upon in 1884 as part of the property upon which a reasonable return can be demanded, we do not think an increase in that valuation ought to be allowed upon the theory suggested by the Court below. Because the amount of gas supplied has increased to the extent stated, and the other and tangible property of the corporations has increased so largely in value, is not, as it seems to us, any reason for attributing a like proportional increase in the value of the franchises. Real estate may have increased in value very largely, as also the personal property, without any necessary increase in the value of the franchises. Its past value was founded upon the opportunity of obtaining these enormous and excessive returns upon the property of the company, without legislative interference with the price for the supply of gas, but that immunity for the future was, of course, uncertain, and the moment it ceased and the legislature reduced the earnings to a reasonable sum, the great value of the franchises would be at once and unfavorably affected, but how much so it is not possible for us to see. The value would most certainly not increase."
The Court did not concur in the increase of the franchise value, and, in dismissing this subject, says:
"What has been said herein regarding the value of the franchises in this case has been necessarily founded upon its own peculiar facts, and the decision can form no precedent in regard to the valuation of franchises generally where the facts are not similar to those in the case before us."