297 U.S.

288
56 S.Ct. 466
80 L.Ed. 688

ASHWANDER et al.
v.
TENNESSEE VALLEY AUTHORITY et al. (two cases). *
Nos. 403, 404.
Argued and Submitted Dec. 19, 20, 1935.
Decided Feb. 17, 1936.

[Syllabus from pages 288-290 intentionally omitted]

Messrs. Forney Johnston, of Birmingham, Ala., and James M. Beck, of
Washington, D.C., for petitioners.

[Argument of Counsel from pages 291-307 intentionally omitted]

Messrs. John Lord O'Brian and Stanley F. Reed, Sol. Gen., both of Washington,
D.C., for respondent Tennessee Valley Authority.

[Argument of Counsel from pages 307-314 intentionally omitted]

Mr. W. H. Mitchell, f Florence, Ala., for respondent City of florence, ala.

Messrs. Thomas W. Martin, Perry W. Turner, and William Logan Martin, all of
Birmingham, Ala., for respondent Alabama Power Co.

Messrs. Courtland Palmer, of New York City, and John T. Stokely, of

Birmingham, Ala., for respondent Chemical Bank & Trust Co.

Mr. Chief Justice HUGHES delivered the opinion of the Court.

On January 4, 1934, the Tennessee Valley Authority, an agency of the federal

government,1 entered into a contract with the Alabama Power Company,

providing (1) for the purchase by the Authority from the Power Company of
certain transmission lines, substations, and auxiliary properties for $1,000,000;
(2) for the purchase by the Authority from the Power Company of certain real
property for $150,000; (3) for an interchange of hydroelectric energy, and, in
addition, for the sale by the Authority to the Power Company of its 'surplus
power,' on stated terms; and (4) for mutual restrictions as to the areas to be
served in the sale of power. The contract was amended and supplemented in
minor particulars on February 13 and May 24, 1934.2
9

The Alabama Power Company is a corporation organized under the laws of

Alabama, and is engaged in the generation of electric energy and its distribution
generally throughout that state; its lines reaching 66 counties. The transmission
lines to be purchased by the Authority extend from Wilson Dam, at the Muscle
Shoals plant owned by the United States on the Tennessee river in northern
Alabama, into seven counties in that state, within a radius of about 50 miles.
These lines serve a population of approximately 190,000, including about
10,000 individual customers, or about one-tenth of the total number served
directly by the Power Company. The real property to be acquired by the
Authority (apart from the transmission lines above mentioned and related
properties) is adjacent to the area known as the 'Joe Wheeler dam site,' upon
which the Authority is constructing the Wheeler Dam.

10

The contract of January 4, 1934, also provided for co-operation between the
Alabama Power Company and the Electric Home & Farm Authority, Inc., a
subsidiary of the Tennessee Valley Authority, to promote the sale of electrical
appliances, and to that end the Power Company, on May 21, 1934, entered into
an agency contract with the Electric Home & Farm Authority, Inc. It is not
necessary to detail or discuss the proceedings in relation to that transaction, as it
is understood that the latter corporation has been dissolved.

11

There was a further agreement on August 9, 1934, by which the Alabama

Power Company gave an option to the Tennessee Valley Authority to acquire
urban distribution systems which had been retained by the Power Company in
municipalities within the area served by the transmission lines above
mentioned. It appears that this option has not been exercised and that the
agreement has been terminated.

12

Plaintiffs are holders of preferred stock of the Alabama Power Company.

Conceiving the contract with the Tennessee Valley Authority to be injurious to
the corporate interests and also invalid, because beyond the constitutional
power of the federal government, they submitted their protest to the board of
directors of the Power Company and demanded that steps should be taken to

have the contract annulled. The board refused, and the Commonwealth &
Southern Corporation, the holder of all the common stock of the Power
Company, declined to call a meeting of the stockholders to take action. As the
protest was unavailing, plaintiffs brought this suit to have the invalidity of the
contract determined and its performance enjoined. Going beyond that particular
challenge, and setting forth the pronouncements, policies, and programs of the
Authority, plaintiffs sought a decree restraining these activities as repugnant to
the Constitution, and also asked a general declaratory decree with respect to the
rights of the Authority in various relations.
13

The defendants, including the Authority and its directors, the Power Company
and its mortgage trustee, and the municipalities within the described area, filed
answers, and the case was heard upon evidence. The District Court made
elaborate findings and entered a final decree annulling the contract of January
4, 1934, and enjoining the transfer of the transmission lines and auxiliary
properties. 9 F.Supp. 965. The court also enjoined the defendant municipalities
from making or performing any contracts with the Authority for the purchase of
power and from accepting or expending any funds received from the Authority
or the Public Works Administration for the purpose of constructing a public
distribution system to distribute power which the Authority supplied. The court
gave no consideration to plaintiffs' request for a general declaratory decree.

14

The Authority, its directors, and the city of Florence appealed from the decree
and the case was severed as to the other defendants. Plaintiffs took a crossappeal.

15

The Circuit Court of Appeals limited its discussion to the precise issue with
respect to the effect and validity of the contract of January 4, 1934. The District
Court had found that the electric energy required for the territory served by the
transmission lines to be purchased under that contract is available at Wilson
Dam without the necessity for any interconnection with any other dam or
power plant. The Circuit Court of Appeals accordingly considered the
constitutional authority for the construction of Wilson Dam and for the
disposition of the electric energy there created. In the view that the Wilson
Dam had been constructed in the exercise of the war and commerce powers of
the Congress and that the electric energy there available was the property of the
United States and subject to its disposition, the Circuit Court of Appeals
decided that the decree of the District Court was erroneous and should be
reversed. The court also held that plaintiffs should take nothing by their crossappeal. 78 F.(2d) 578. On plaintiffs' application we granted writs of certiorari.
296 U.S. 562, 56 S.Ct. 145, 80 L.Ed. 396.

16

First. The Right of Plaintiffs to Bring this Suit. Plaintiffs sue in the right of the
Alabama Power Company. They sought unsuccessfully to have that right
asserted by the Power Company itself, and, upon showing their demand and its
refusal, they complied with the applicable rule.3 While their stock holdings are
small, they have a real interest, and there is no question that the suit was
brought in good faith. 4 If otherwise entitled, they should not be denied the
relief which would be accorded to one who owned more shares.

17

Plaintiffs did not simply challenge the contract of January 4, 1934, as

improvidently madeas an unwise exercise of the discretion vested in the
board of directors. They challenged the contract both as injurious to the
interests of the interests of the corporation and as an illegal tran action
violating the fundamental law. In seeking to prevent the carrying out of the
contract, the suit was directed, not only against the Power Company, but against
the Authority and its directors upon the ground that the latter, under color of the
statute, were acting beyond the powers which the Congress could validly
confer. In such a case it is not necessary for stockholderswhen their
corporation refuses to take suitable measures for its protectionto show that
the managing board or trustees have acted with fraudulent intent or under legal
duress. To entitle the complainants to equitable relief, in the absence of an
adequate legal remedy, it is enough for them to show the breach of trust or duty
involved in the injurious and illegal action. Nor is it necessary to show that the
transaction was ultra vires the corporation. The illegality may be found in the
lack of lawful authority on the part of those with whom the corporation is
attempting to deal. Thus, the breach of duty may consist in yielding, without
appropriate resistance, to governmental demands which are without warrant of
law or are in violation of constitutional restrictions. The right of stockholders to
seek equitable relief has been recognized when the managing board or trustees
of the corporation have refused to take legal measures to resist the collection of
taxes or other exactions alleged to be unconstitutional (Dodge v. Woolsey, 18
How. 331, 339, 340, 345, 15 L.Ed. 401; Pollock v. Farmers' Loan & Trust
Company, 157 U.S. 429, 433, 553, 554, 15 S.Ct. 673, 39 L.Ed. 759; Brushaber
v. Union Pacific R. Co., 240 U.S. 1, 10, 36 S.Ct. 236, 60 L.Ed. 493, L.R.A.
1917D, 414, Ann.Cas. 1917B, 713); or because of the failure to assert the rights
and franchises of the corporation against an unwarranted interference through
legislative or administrative action (Greenwood v. Union Freight R. Co., 105
U.S. 13, 15, 16, 26 L.Ed. 961; Cotting v. Kansas City Stock Yards Co., 183
U.S. 79, 114, 22 S.Ct. 30, 46 L.Ed. 92). The remedy has been accorded to
stockholders of public service corporations with respect to rates alleged to be
confiscatory. Smyth v. Ames, 169 U.S. 466, 469, 517, 18 S.Ct. 418, 42 L.Ed.
819; Ex parte Young, 209 U.S. 123, 129, 130, 143, 28 S.Ct. 441, 52 L.Ed. 714,
13 L.R.A.(N.S.) 932, 14 Ann.Cas. 764. The fact that the directors in the

exercise of their judgment, either because they were disinclined to undertake a

burdensome litigation or for other reasons which they regarded as substantial,
resolved to comply with the legislative or administrative demands, has not been
deemed an adequate ground for denying to the stockholders an opportunity to
contest the validity of the governmental requirements to which the directors
were submitting. See Dodge v. Woolsey, supra, 18 How. 331, at pages 340,
345, 15 L.Ed. 401; Greenwood v. Union Freight R. Co., supra, 105 U.S. 13, at
page 15, 26 L.Ed. 961; Pollock v. Farmers' Loan & Trust Company, supra, 157
U.S. 429, at pages 433, 553, 554, 15 S.Ct. 673, 39 L.Ed. 759; Brushaber v.
Union Pacific R. Co., supra, 240 U.S. 1, at page 10, 36 S.Ct. 236, 60 L.Ed. 493,
L.R.A. 1917D, 414, Ann.Cas. 1917B, 713.
18

In Smith v. Kansas City Title & Trust Company, 255 U.S. 180, 41 S.Ct. 243, 65
L.Ed. 577, a shareholder of the Title Company sought to enjoin the directors
from investing its funds in the bonds of federal land banks and joint-stock land
banks upon the ground that the act of Congress authorizing the creation of these
banks and the issue of bonds was unconstitutional, and hence that the bonds
were not legal securities in which the corporate funds could lawfully be
invested. The proposed investment was not large only $10,000 in each of the
classes of bonds described. Id., 255 U.S. 180, at pages 195, 196, 41 S.Ct. 243,
65 L.Ed. 577. And it appeared that the directors of the Title Company
maintained that the Federal Farm Loan Act (see 12 U.S.C.A. 641 et seq.) was
constitutional and that the bonds were 'valid and desirable investments.' Id., 255
U.S. 180, at page 201, 41 S.Ct. 243, 45, 65 L.Ed. 577. But neither the conceded
fact as to the judgment of the directors nor the small amount to be invested
shown by the averments of the complaintavailed to defeat the jurisdiction of
the court to decide the question as to the validity of the act and of the bonds
which it authorized. The Court held that the validity of the act was directly
drawn in question and that the shareholder was entitled to maintain the suit.
The Court said: 'The general allegations as to the interest of the shareholder,
and his right to have an injunction to prevent the purchase of the alleged
unconstitutional securities by misapplication of the funds of the corporation,
gives jurisdiction under the principles settled in Pollock v. Farmers' Loan &
Trust Co. and Brushaber v. Union Pacific R.R. Co., supra.' Id., 255 U.S. 180, at
pages 201, 202, 41 S.Ct. 243, 246, 65 L.Ed. 577. The Court then proceeded to
examine the constitutional question and sustained the legislation under attack.
A similar result was reached in Brushaber v. Union Pacific R. Co., supra. A
close examination of these decisions leads inevitably to the conclusion that they
should either be followed or be frankly overruled. We think that they should be
followed, and that the opportunity to resort to equity, in the absence of an
adequate legal remedy, in order to prevent illegal transactions by those in
control of corporate properties, should not be curtailed because of reluctance to

decide constitutional questions.

19

We find no distinctions which would justify us in refusing to entertain the

present controversy. It is urged that plaintiffs hold preferred shares, and that,
for the present purpose, they are virtually in the position of bondholders. The
rights of bondholders, in case of injury to their interests through
unconstitutional demands upon, or transactions with, their corporate debtor, are
not before us. Compare Reagan v. Farmers' Loan & Trust Co., 154 U.S. 362,
367, 368, 14 S.Ct. 1047, 38 L.Ed. 1014. Plaintiffs are not creditors but
shareholders (with equal voting power share for share with the common
stockholders, according to the findings), and thus they have a proprietary
interest in the corporate enterprise which is subject to injury through breaches
of trust or duty on the part of the directors who are not less the representatives
of the plaintiffs because their shares have certain preferences. See Ball v.
Rutland R. Co. (C.C.) 93 F. 513, 514, 515. It may be, as in this case, that the
owner of all the common stock has participated in the transaction in question,
and the owners of preferred stock may be the only persons having a proprietary
interest in the corporation who are in a position to protect its interests against
what is asserted to be an illegal disposition of its property.5 A court of equity
should not shut its door against them.

20

It is said that here, instead of parting with money, as in the case of illegal or
unconstitutional taxes or exactions, the Power Company is to receive a
substantial consideration under the contract in suit. But the Power Company is
to part with transmission lines which supply a large area, and plaintiffs allege
that the consideration is inadequate and that the transaction entails a disruption
of services and a loss of business and franchises. If, as plaintiffs contend, those
purporting to act as a governmental agency had no constitutional authority to
make the agreement, its execution would leave the Power Company with
doubtful remedy, either against the governmental agency which might not be
able, or against the government which might not be willing, to respond to a
demand for the restoration of conditions as they now exist. In what
circumstances and with what result such an effort at restoration might be made
is unpredictable. If, as was decided in Smith v. Kansas City Title & Trust
Company, supra, stockholders had the right to sue to test the validity of a
proposed investment in the bonds of land banks, we can see no reason for
denying to these p aintiffs a similar resort to equity in order to challenge, on the
ground of unconstitutionality, a contract involving such a dislocation and
misapplication of corporate property as are charged in the instant case.

21

The government urges that the Power Company is estopped to question the
validity of the act creating the Tennessee Valley Authority, and hence that the

stockholders, suing in the right of the corporation, cannot maintain this suit. It
is said that the Power Company, in 1925, installed its own transformers and
connections at Wilson Dam, and has ever since purchased large quantities of
electric energy there generated, and that the Power Company continued its
purchases after the passage of the act of 1933 constituting the Authority. The
principle is invoked that one who accepts the benefit of a statute cannot be
heard to question its constitutionality. Great Falls Manufacturing Co. v.
Attorney General, 124 U.S. 581, 8 S.Ct. 631, 31 L.Ed. 527; Wall v. Parrot
Silver & Copper Co., 244 U.S. 407, 37 S.Ct. 609, 61 L.Ed. 1229; St. Louis, etc.,
Co., v. George C. Prendergast Const. Co., 260 U.S. 469, 43 S.Ct. 178, 67 L.Ed.
351. We think that the principle is not applicable here. The prior purchase of
power in the circumstances disclosed may have a bearing upon the question
before us, but it is by no means controlling. The contract in suit manifestly has a
broader range, and we find nothing in the earlier transactions which preclude
the contention that this contract goes beyond the constitutional power of the
Authority. Reference is also made to a proceeding instituted by the Power
Company to obtain the approval of the contract by the Alabama Public Service
Commission and to the delay in the bringing of this suit. It was brought on
October 8, 1934, following plaintiffs' demand upon the board of directors in the
preceding August. Estoppel in equity must rest on substantial grounds of
prejudice or change of position, not on technicalities. We see no reason for
concluding that the delay or the proceeding before the Commission caused any
prejudice to either the Power Company or the Authority, so far as the subjectmatter of the contract between them is concerned, or that there is any basis for
the claim of estoppel.
22

We think that plaintiffs have made a sufficient showing to entitle them to bring
suit and that a constitutional question is property presented and should be
decided.

23

Second. The Scope of the Issue. We agree with the Circuit Court of Appeals
that the question to be determined is limited to the validity of the contract of
January 4, 1934. The pronouncements, policies, and program of the Tennessee
Valley Authority and its directors, their motives and desires, did not give rise to
a justiciable controversy save as they had fruition in action of a definite and
concrete character constituting an actual or threatened interference with the
rights of the persons complaining. The judicial power does not extend to the
determination of abstract questions. Muskrat v. United States, 219 U.S. 346,
361, 31 S.Ct. 250, 55 L.Ed. 246; Liberty Warehouse Company v. Grannis, 273
U.S. 70, 74, 47 S.Ct. 282, 71 L.Ed. 541; Willing v. Chicago Auditorium Ass'n,
277 U.S. 274, 289, 48 S.Ct. 507, 72 L.Ed. 880; Nashville, Chattanooga & St.
Louis R. Co. v. Wallace, 288 U.S. 249, 262, 264, 53 S.Ct. 345, 77 L.Ed. 730,

87 A.L.R. 1191. It was for this reason that the Court dismissed the bill of the
state of New Jersey which sought to obtain a judicial declaration that in certain
features the Federal Water Power Act6 exceeded the authority of the Congress
and encroached upon that of the state. New Jersey v. Sargent, 269 U.S. 328, 46
S.Ct. 122, 70 L.Ed. 289. For the same reason, the state of New York, in her suit
against the state of Illinois, failed in her effort to obtain a decision of abstract
questions as to the possible effect of the diversion of water from Lake Michigan
upon hypothetical water power developments in the indefinite future. New
York v. Illinois, 274 U S. 488, 47 S.Ct. 661, 71 L.Ed. 1164. At the last term the
Court held, in dismissing the bill of the United States against the state of West
Virginia, that general allegations that the state challenged the claim of the
United States that the rivers in question were navigable, and asserted a right
superior to that of the United States to license their use for power production,
raised an issue 'too vague and ill-defined to admit of judicial determination.'
United States v. State of West Virginia, 295 U.S. 463, 474, 55 S.Ct. 789, 79
L.Ed. 1546. Claims based merely upon 'assumed potential invasions' of rights
are not enough to warrant judicial intervention. Arizona v. California, 283 U.S.
423, 462, 51 S.Ct. 522, 75 L.Ed. 1154.
24

The Act of June 14, 1934,7 providing for declaratory judgments, does not
attempt to change the essential requisites for the exercise of judicial power. By
its terms, it applies to 'cases of actual controversy,' a phrase which must be
taken to connote a controversy of a justiciable nature, thus excluding an
advisory decree upon a hypothetical state of facts. See Nashville, Chattanooga
& St. Louis R. Co. v. Wallace, supra. While plaintiffs, as stockholders, might
insist that the board of directors should take appropriate legal measures to
extricate the corporation from particular transactions and agreements alleged to
be invalid, plaintiffs had no right to demand that the directors should start a
litigation to obtain a general declaration of the unconstitutionality of the
Tennessee Valley Authority Act in all its bearings or a decision of abstract
questions as to the right of the Authority and of the Alabama Power Company
in possible contingencies.

25

Examining the present record, we find no ground for a demand by plaintiffs

except as it related to the contracts between the authority and the Alabama
Power Company. And as the contract of May 21, 1934, with the Electric Home
& Farm Authority, Inc., and that of August 9, 1934, for an option to the
Authority to acquire urban distribution systems, are understood to be
inoperative (56 S.Ct. 469), the only remaining questions that plaintiffs are
entitled to raise concern the contract of January 4, 1934, providing for the
purchase of transmission lines and the disposition of power.

26

There is a further limitation upon our inquiry. As it appears that the

transmission lines in question run from the Wilson Dam and that the electric
energy generated at that dam is more than sufficient to supply all the
requirements of the contract, the questions that are properly before us relate to
the constitutional authority for the construction of the Wilson Dam and for the
disposition, as provided in the contract, of the electric energy there generated.

27

Third. The Constitutional Authority for the Construction of the Wilson Dam.
The Congress may not, 'under the pretext of executing its powers, pass laws for
the accomplishment of objects not intrusted to the government.' Chief Justice
Marshall, in McCulloch v. Maryland, 4 Wheat. 316, 423, 4 L.Ed. 579; Linder v.
United States, 268 U.S. 5, 15, 17, 45 S.Ct. 446, 69 L.Ed. 819, 39 A.L.R. 229.
The government's argument recognizes this essential limitation. The
government's contention is that the Wilson Dam was constructed, and the
power plant connected with it was installed, in the exercise by the Congress of
its war and commerce powers (Const. art. 1, 8, cls. 3, 11); that is, for the
purposes of national defense and the improvement of navigation.

28

Wilson Dam is described as a concrete monolith one hundred feet high and
almost a mile long, containing two locks for navigation and eight installed
generators. Construction was begun in 1917 and completed in 1926. Authority
for its construction is found in section 124 of the National Defense Act of June
3, 1916.8 It authorized the President to cause an investigation to be made in
order to determine 'the best, cheapest, and ost available means for the
production of nitrates and other products for munitions of war'; to designate for
the exclusive use of the United States 'such site or sites, upon any navigable or
non-navigable river or rivers or upon the public lands, as in his opinion will be
necessary for carrying out the purposes of this Act (section)'; and 'to construct,
maintain, and operate' on any such site 'dams, locks, improvements to
navigation, power houses, and other plants and equipment or other means than
water power as in his judgment is the best and cheapest, necessary or
convenient for the generation of electrical or other power and for the
production of nitrates or other products needed for munitions of war and useful
in the manufacture of fertilizers and other useful products.' The President was
authorized to lease or acquire by condemnation or otherwise such lands as
might be necessary, and there was further provision that 'the products of such
plants shall be used by the President for military and naval purposes to the
extent that he may deem necessary, and any surplus which he shall determine is
not required shall be sold and disposed of by him under such regulations as he
may prescribe.' Id.

29

We may take judicial notice of the international situation at the time the act of

29

We may take judicial notice of the international situation at the time the act of
1916 was passed, and it cannot be successfully disputed that the Wilson Dam
and its auxiliary plants, including the hydroelectric power plant, are, and were
intended to be, adapted to the purposes of national defense.9 While the District
Court found that there is no intention to use the nitrate plants or the
hydroelectric units installed at Wilson Dam for the production of war materials
in time of peace, 'the maintenance of said properties in operating condition and
the assurance of an abundant supply of electric energy in the event of war,
constitute national defense assets.' This finding has ample support.

30

The act of 1916 also had in view 'improvements to navigation.' Commerce

includes navigation. 'All America understands, and has uniformly understood,'
said Chief Justice Marshall in Gibbons v. Ogden, 9 Wheat. 1, 190, 6 L.Ed. 23,
'the word 'commerce,' to comprehend navigation.' The power to regulate
interstate commerce embraces the power to keep the navigable rivers of the
United States free from obstructions to navigation and to remove such
obstructions when they exist. 'For these purposes,' said the Court in Gilman v.
Philadelphia, 3 Wall. 713, 725, 18 L.Ed. 96, 'Congress possesses all the powers
which existed in the States before the adoption of the national Constitution, and
which have always existed in the Parliament in England.' See, also, Philadelphia
Company v. Stimson, 223 U.S. 605, 634, 32 S.Ct. 340, 56 L.Ed. 570.

31

The Tennessee river is a navigable stream, although there are obstructions at

various points because of shoals, reefs, and rapids. The improvement of
navigation on this river has been a matter of national concern for over a
century. Recommendation that provision be made for navigation around
Muscle Shoals was made by the Secretary of War, John C. Calhoun, in his
report transmitted to the Congress by President Monroe in 1824,10 and, from
1852, the Congress has repeatedly authorized projects to develop navigation on
that and other portions of the river, both by open channel improvements and by
canalization.11 The Wilson Dam project, adopted in 1918, gave a nine-foot
slack water development, for fifteen miles above Florence, over the Muscle
Shoals rapids, and, as the District Court found, 'flooded out the them existing
canal and locks which were inadequate.' The District Court also found that a
'high dam of this type was the only feasible means of eliminating this most
serious obstruction to navigation.' By the act of 1930, after a protracted study
by the Corps of Engineers of the United States Army, the Congress adopted a
project for a permanent improvement of the main stream 'for a navigable depth
of nine feet.'12

32

While, in its present condition, the Tennessee river is not adequately improved
for commercial navigation, and traffic is small, we are not at liberty to
conclude either that the river is not susceptible of development as an important

waterway, or that Congress has not undertaken that development, or that the
construction of the Wilson Dam was not an appropriate means to accomplish a
legitimate end.
33

The Wilson Dam and its power plant must be taken to have been constructed in
the exercise of the constitutional functions of the federal government.

34

Fourth. The Constitutional Authority to Dispose of Electric Energy Generated

at the Wilson Dam. The government acquired full title to the dam site, with all
riparian rights. The power of falling water was an inevitable incident of the
construction of the dam. That water power came into the exclusive control of
the federal government. The mechanical energy was convertible into electric
energy, and the water power, the right to convert it into electric energy, and the
electric energy thus produced constitute property belonging to the United
States. See Green Bay & M. Canal Company v. Patten Paper Company, 172
U.S. 58, 80, 19 S.Ct. 97, 101, 43 L.Ed. 364; United States v. Chandler-Dunbar
Water Power Company, 229 U.S. 53, 72, 73, 33 S.Ct. 667, 57 L.Ed. 1063; Utah
Power & Light Co. v. Pfost, 286 U.S. 165, 170, 52 S.Ct. 548, 76 L.Ed. 1038.

35

Autho ity to dispose of property constitutionally acquired by the United States

is expressly granted to the Congress by section 3 of article 4 of the
Constitution. This section provides:

36

'The Congress shall have Power to dispose of and make all needful Rules and
Regulations respecting the Territory or other Property belonging to the United
States; and nothing in this Constitution shall be so construed as to Prejudice any
Claims of the United States, or of any particular State.'

37

To the extent that the power of disposition is thus expressly conferred, it is

manifest that the Tenth Amendment is not applicable. And the Ninth
Amendment (which petitioners also invoke), in insuring the maintenance of the
rights retained by the people, does not withdraw the rights which are expressly
granted to the federal government. The question is as to the scope of the grant
and whether there are inherent limitations which render invalid the disposition
of property with which we are now concerned.

38

The occasion for the grant was the obvious necessity of making provision for
the government of the vast territory acquired by the United States. The power
to govern and to dispose of that territory was deemed to be indispensable to the
purposes of the cessions made by the States. And yet it was a matter of grave
concern because of the fear that 'the sale and disposal' might become 'a source

of such immense revenue to the national government as to make it independent

of and formidable to the people.' Story on the Constitution, 1325, 1326. The
grant was made in broad terms, and the power of regulation and disposition was
not confined to territory, but extended to 'other property belonging to the United
States,' so that the power may be applied, as Story says, 'to the due regulation
of all other personal and real property rightfully belonging to the United States.'
And so, he adds, 'it has been constantly understood and acted upon.' Id.
39

This power of disposal was early construed to embrace leases, thus enabling the
government to derive profit through royalties. The question arose with respect
to a government lease of lead mines on public lands, under the Act of March 3,
1807 (2 Stat. 448). The contention was advanced that 'disposal is not letting or
leasing'; that Congress had no power 'to give or authorize leases' and 'to obtain
profits from the working of the mines.' The Court overruled the contention,
saying: 'The disposal must be left to the discretion of Congress. And there can
be no apprehensions of any encroachments upon State rights, by the creation of
a numerous tenantry within their borders, as has been so strenuously urged in
the argument.' United States v. Gratiot, 14 Pet. 526, 533, 538, 10 L.Ed. 573.
The policy, early adopted and steadily pursued, of segregating mineral lands
from other public lands and providing for leases, pointed to the recognition
both of the full power of disposal and of the necessity of suitably adapting the
methods of disposal to different sorts of property. The policy received particular
emphasis following the discovery of gold in California in 1848.13 For example,
an act of 1866, dealing with grants to Nevada, declared that 'in all cases lands
valuable for mines of gold, silver, quicksilver, or copper shall be reserved from
sale.'14 And Congress from the outset adopted a similar practice in reserving
salt springs. Morton v. Nebraska, 21 Wall. 660, 667, 22 L.Ed. 639; Montello
Salt Company v. Utah, 221 U.S. 452, 31 S.Ct. 706, 55 L.Ed. 810,
Ann.Cas.1912D, 633. It was in the light of this historic policy that the Court
held that the school grant to Utah by the Enabling Act of 189415 was not
intended to embrace land known to be valuable for coal. United States v.
Sweet, 245 U.S. 563, 572, 38 S.Ct. 193, 62 L.Ed. 473. See, also, as to the
reservation and leases of oil lands, Pan American Petroleum & Transport Co. v.
United States, 273 U.S. 456, 487, 47 S.Ct. 416, 71 L.Ed. 734.

40

But, when Congress thus reserved mineral lands for special disposal, can it be
doubted that Congress could have provided for mining directly by its own
agents, instead of giving that right to lessees on the payment of royalties?16
Upon what ground could it be said that the government could not mine its own
gold, silver, coal, lead, or phosphates in the public domain and dispose of them
as property belonging to the United States? That it could dispose of its land but
not of what the land contained? It would seem to be clear that under the same

power of disposition which enabled the government to lease and obtain profit
from sales by its lessees it could mine and obtain profit from its own sales.
41

The question is whether a more limited power of disposal should be applied to

the water power, convertible into electric energy, and to the electric energy
thus produced at the Wilson Dam constructed by the government in the
exercise of its constitutional functions. If so, it must be by reason either of (1)
the nature of the particular property or (2) the character of the 'surplus' disposed
of, or (3) the manner of disposition.

42

(1) That the water power and the electric energy generated at the dam are
susceptible of disposition as property belonging to the United States is well
established. In the case of Green Bay & M. Canal Company v. Patten Paper
Company, supra, the question was 'whether the water power incidentally
created by the erection and maintenance of the dam and canal for the purpose
of navigation in Fox river' was 'subject to control and appropriation by the
United States, owning and operating those public works, or by the state of
Wisconsin, within whose limits Fox river lies.' Id., 172 U.S. 58, at pages 68, 69,
19 S.Ct. 97, 101, 43 L.Ed. 364. It appeared that, under the authority of the
Congress, the United States had acquired, by purchase from a Canal Company,
title to its improvement works, lands and water powers, on the Fox river, and
that the United States had consented to the retention by the Canal Company of
the water powers with appurtenances. We held that the 'substantial meaning of
the transaction was that the United States granted to the Canal Company the
right to continue in the possession and enjoyment of the water powers and the
lots appurtenant thereto, subject to the rights and control of the United States as
owning and operating the public works'; and that the method by which the
arrangement was effected was 'as efficacious as if the entire property had been
conveyed to the United States by one deed, and the reserved properties had
been reconveyed to the Canal Company by another.' Id., 172 U.S. 58, at page
80, 19 S.Ct. 97, 105, 43 L.Ed. 364. We thought it clear that the Canal Company
was 'possessed of whatever rights to the use of this incidental water power that
could be validly granted by the United States.' Id., 172 U.S. 58, at page 69, 19
S.Ct. 97, 101, 43 L.Ed. 364. And in this view it was decided that, so far as the
'water powers and appurtenant lots are regarded as property,' the title of the
Canal Company could not be controverted, and that it was 'equally plain that
the mode and extent of the use and enjoyment of such property by the Canal
Company' fell within the sole control of the United States. See Kaukauna
Water-Power Company v. Green Bay & M. Canal Company, 142 U.S. 254, 12
S.Ct. 173, 178, 35 L.Ed. 1004; Green Bay & M. Canal Company v. Patten
Paper Company, 173 U.S. 179, 19 S.Ct. 316, 43 L.Ed. 658.

43

In United States v. Chandler-Dunbar Water Power Company, 229 U.S. 53, 33

S.Ct. 667, 57 L.Ed. 1063, the United States had condemned land in Michigan,
lying between the St. Marys river and the ship canal strip of the government, in
order to improve navigation. The riparian owner, under revocable permits from
the Secretary of War, had placed in the rapids 'the necessary dams, dykes, and
forebays for the purpose of controlling the current and using its power for
commercial purposes.' Id., 229 U.S. 53, at page 68, 33 S.Ct. 667, 674, 57 L.Ed.
1063. The Act of March 3, 1909,17 authorizing the improvement, had revoked
the permit. We said that the government 'had dominion over the water power of
the rapids and falls' and could not be required to pay 'any hypothetical
additional value to a riparian owner who had no right to appropriate the current
to his own commercial use.' Id., 229 U.S. 53, at page 76, 33 S.Ct. 667, 677, 57
L.Ed. 1063. The act of 1909 also authorized the Secretary of War to lease 'any
excess of water power which results from the conservation of the flow of the
river, and the works which the government may construct.' 'If the primary
purpose is legitimate,' said the Court, 'we can see no sound objection to leasing
any excess of power over the needs of the government. The practice is not
unusual in respect to similar public works constructed by state governments.'
Id., 229 U.S. 53, at page 73, 33 S.Ct. 667, 676, 57 L.Ed. 1063. Reference was
made to the case of Kaukauna Water-Power Company v. Green Bay & M.
Canal Company, supra, where the Court had observed in relation to a
Wisconsin statute of 1848, which had reserved to the state the water power
created by the dam over the Fox river: 'As there is no need of the surplus
running to waste, there was nothing objectionable in permitting the state to let
out the use of it to private parties, and thus reimburse itself for the expenses of
the improvement.' In International Paper Company v. United States, 282 U.S.
399, 51 S.Ct. 176, 75 L.Ed. 410, the government made a war-time requisition of
electrical power, and was held bound to make compensation to a lessee who
thereby had lost the use of the water to which he was entitled. The Court
brushed aside attempted 'distinctions between the taking of power and the
taking of water rights,' saying that the government intended 'to take and did
take the use of all the water power' and had exercised its power of eminent
domain to that end. Id., 282 U.S. 399, at pages 407, 408, 51 S.Ct. 176, 177, 75
L.Ed. 410.

44

(2) The argument is stressed that, assuming that electric energy generated at the
dam belongs to the United States, the Congress has authority to dispose of this
energy only to the extent that it is a surplus necessarily created in the course of
making munitions of war or operating the works for navigation purposes; that
is, that the remainder of the available energy must be lost or go to waste. We
find nothing in the Constitution which imposes such a limitation. It is not to be
deduced from the mere fact that the electric energy is only potentially available

until the generators are operated. The government has no less right to the
energy thus available by letting the water course over its turbines than it has to
use the appropriate processes to reduce to possession other property within its
control, as, for example, oil which it may recover from a pool beneath its lands,
and which is reduced to possession by boring oil wells and otherwise might
escape its grasp. See Ohio Oil Company v. Indiana, 177 U.S. 190, 208, 20 S.Ct.
576, 44 L.Ed. 729. And it would hardly be contended that, when the
government reserves coal on its lands, it can mine the coal and dispose of it
only for the purpose of heating public buildings or for other governmental
operations. Or, if the government owns a silver mine, that it can obtain the
silver only for the purpose of storage or coinage. Or that, when the government
extracts the oil it has reserved, it has no constituti nal power to sell it. Our
decisions recognize no such restriction. United States v. Gratiot, supra; Kansas
v. Colorado, 206 U.S. 46, 88, 89, 27 S.Ct. 655, 51 L.Ed. 956; Light v. United
States, 220 U.S. 523, 536, 537, 31 S.Ct. 485, 55 L.Ed. 570; Ruddy v. Rossi,
248 U.S. 104, 106, 39 S.Ct. 46, 63 L.Ed. 148, 8 A.L.R. 843. The United States
owns the coal, or the silver, or the lead, or the oil, it obtains from its lands, and
it lies in the discretion of the Congress, acting in the public interest, to
determine of how much of the property it shall dispose.
45

We think that the same principle is applicable to electric energy. The argument
pressed upon us leads to absurd consequences in the denial, despite the broad
terms of the constitutional provision, of a power of disposal which the public
interest may imperatively require. Suppose, for example, that in the erection of
a dam for the improvement of navigation, it became necessary to destroy a dam
and power plant which had previously been erected by a private corporation
engaged in the generation and distribution of energy which supplied the needs
of neighboring communities and business enterprises. Would any one say that,
because the United States had built its own dam and plant in the exercise of its
constitutional functions, and had complete ownership and dominion over both,
no power could be supplied to the communities and enterprises dependent on it,
not because of any unwillingness of the Congress to supply it, or of any
overriding governmental need, but because there was no constitutional
authority to furnish the supply? Or that, with abundant power available, which
must otherwise be wasted, the supply to the communities and enterprises whose
very life may be at stake must be limited to the slender amount of surplus
unavoidably involved in the operation of the navigation works, because the
Constitution does not permit any more energy to be generated and distributed?
In the case of the Green Bay & M. Canal Company, above cited, where the
government works supplanted those of the Canal Company, the Court found no
difficulty in sustaining the government's authority to grant to the Canal
Company the water powers which it had previously enjoyed, subject, of course,

to the dominant control of the government. And in the case of United States v.
Chandler-Dunbar Water Power Company, supra, the statutory provision (35
Stat. 822, 12) to which the Court referred was 'that any excess of water in the
St. Marys River at Sault Sainte Marie over and above the amount now or
hereafter required for the uses of navigation shall be leased for power purposes
by the Secretary of War upon such terms and conditions as shall be best
calculated in his judgment to insure the development thereof.' It was to the
leasing, under this provision, of 'any excess of power over the needs of the
government,' that the Court saw no valid objection. Id., 229 U.S. 53, at page 73,
33 S.Ct. 667, 676, 57 L.Ed. 1063.
46

The decisions which petitioners cite give no support to their contention. Pollard
v. Hagan, 3 How. 212, 11 L.Ed. 565, Shively v. Bowlby, 152 U.S. 1, 14 S.Ct.
548, 38 L.Ed. 331, and Port of Seattle v. Oregon & Washington Railway Co.,
255 U.S. 56, 41 S.Ct. 237, 65 L.Ed. 500, dealt with the title of the States to
tidelands and the soil under navigable waters within their borders. See Borax
Consolidated v. Los Angeles, 296 U.S. 10, 15, 56 S.Ct. 23, 80 L.Ed. 9. Those
cases did not concern the dominant authority of the federal government in the
interest of navigation to erect dams and avail itself of the incidental water
power. We emphasized the dominant character of that authority in the case of
the Green Bay & M. Canal Company v. Patten Paper Co., supra, 172 U.S. 58, at
page 80, 19 S.Ct. 97, 105, 43 L.Ed. 364, by this statement: 'At what points in
the dam and canal the water for power may be withdrawn, and the quantity
which can be treated as surplus with due regard to navigation, must be
determined by the authority which owns and c ntrols that navigation. In such
matters there can be no divided empire.' The case of Wisconsin v. Illinois, 278
U.S. 367, 49 S.Ct. 163, 73 L.Ed. 426, related to the diversion by the state of
Illinois of water from Lake Michigan through the drainage canal at Chicago,
and the questions now before us with respect to the disposition of surplus
energy created at a dam erected by the federal government in the performance
of its constitutional functions were in no way involved.

47

(3) We come then to the question as to the validity of the method which has
been adopted in disposing of the surplus energy generated at the Wilson Dam.
The constitutional provision is silent as to the method of disposing of property
belonging to the United States. That method, of course, must be an appropriate
means of disposition according to the nature of the property, it must be one
adopted in the public interest as distinguished from private or personal ends,
and we may assume that it must be consistent with the foundation principles of
our dual system of government and must not be contrived to govern the
concerns reserved to the States. See Kansas v. Colorado, supra. In this instance,
the method of disposal embraces the sale of surplus energy by the Tennessee

Valley Authority to the Alabama Power Company, the interchange of energy

between the Authority and the Power Company, and the purchase by the
Authority from the Power Company of certain transmission lines.
48

As to the mere sale of surplus energy, nothing need be added to what we have
said as to the constitutional authority to dispose. The government could lease or
sell and fix the terms. Sales of surplus energy to the Power Company by the
Authority continued a practice begun by the government several years before.
The contemplated interchange of energy is a form of disposition, and presents
no questions which are essentially different from those that are pertinent to
sales.

49

The transmission lines which the Authority undertakes to purchase from the
Power Company lead from the Wilson Dam to a large area within about fifty
miles of the dam. These lines provide the means of distributing the electric
energy, generated at the dam, to a large population. They furnish a method of
reaching a market. The alternative method is to sell the surplus energy at the
dam, and the market there appears to be limited to one purchaser, the Alabama
Power Company, and its affiliated interests. We know of no constitutional
ground upon which the federal government can be denied the right to seek a
wider market. We suppose that in the early days of mining in the West, if the
government had undertaken to operate a silver mine on its domain, it could
have acquired the mules or horses and equipment to carry its silver to market.
And the transmission lines for electric energy are but a facility for conveying to
market that particular sort of property, and the acquisition of these lines raises
no different constitutional question, unless in some way there is an invasion of
the rights reserved to the state or to the people. We find no basis for concluding
that the limited undertaking with the Alabama Power Company amounts to
such an invasion. Certainly, the Alabama Power Company has no constitutional
right to insist that it shall be the sole purchaser of the energy generated at the
Wilson Dam; that the energy shall be sold to it or go to waste.

50

We limit our decision to the case before us, as we have defined it. The
argument is earnestly presented that the government by virtue of its ownership
of the dam and power plant could not establish a steel mill and make and sell
steel products, or a factory to manufacture clothing or shoes for the public, and
thus attempt to make its ownership of energy, generated at its dam, a means of
carrying on competitive commercial enterprises, and thus drawing to the federal
government the conduct and management of business having no relation to the
purposes for which the federal government was established. The picture is
eloquently dr wn, but we deem it to be irrelevant to the issue here. The
government is not using the water power at the Wilson Dam to establish any

industry or business. It is not using the energy generated at the dam to

manufacture commodities of any sort for the public. The government is
disposing of the energy itself which simply is the mechanical energy, incidental
to falling water at the dam, converted into the electric energy which is
susceptible of transmission. The question here is simply as to the acquisition of
the transmission lines as a facility for the disposal of that energy. And the
government rightly conceded at the bar, in substance, that it was without
constitutional authority to acquire or dispose of such energy except as it comes
into being in the operation of works constructed in the exercise of some power
delegated to the United States. As we have said, these transmission lines lead
directly from the dam, which has been lawfully constructed, and the question of
the constitutional right of the government to acquire or operate local or urban
distribution systems is not involved. We express no opinion as to the validity of
such an effort, as to the status of any other dam or power development in the
Tennessee Valley, whether connected with or apart from the Wilson Dam, or as
to the validity of the Tennessee Valley Authority Act or of the claims made in
the pronouncements and program of the Authority apart from the questions we
have discussed in relation to the particular provisions of the contract of January
4, 1934, affecting the Alabama Power Company.
51

The decree of the Circuit Court of Appeals is affirmed.

52

Affirmed.

53

Mr. Justice BRANDEIS (concurring).

54

'Considerations of propriety, as well as long-established practice, demand that

we refrain from passing upon the constitutionality of an act of Congress unless
obliged to do so in the proper performance of our judicial function, when the
question is raised by a party whose interests entitle him to raise it.' Blair v.
United States, 250 U.S. 273, 279, 39 S.Ct. 468, 470, 63 L.Ed. 979.

55

I do not disagree with the conclusion on the constitutional question announced

by the CHIEF JUSTICE; but, in my opinion, the judgment of the Circuit Court
of Appeals should be affirmed without passing upon it. The government has
insisted throughout the litigation that the plaintiffs have no standing to
challenge the validity of the legislation. This objection to the maintenance of
the suit is not overcome by presenting the claim in the form of a bill in equity
and complying with formal prerequisites required by Equity Rule 27 (28
U.S.C.A. following section 723). The obstacle is not procedural. It inheres in
the substantive law, in well-settled rules of equity, and in the practice in cases

involving the constitutionality of legislation. Upon the findings made by the

District Court, it should have dismissed the bill.
56

From these it appears: The Alabama Power Company, a corporation of that

state with transmission lines located there, has outstanding large issues of
bonds, preferred stock, and common stock. Its officers agreed, with the
approval of the board of directors, to sell to the Tennessee Valley Authority a
part of these lines and incidental property. The management thought that the
transaction was in the interest of the company. It acted in the exercise of its
business judgment with the utmost good faith.1 There was no showing of fraud,
oppression, or gross negligence. There was no showing of legal duress. There
was no showing that the management believed that to sell to the Tennessee
Valley Authority was in excess of the company's corporate powers, or that it
was illegal because entered into for a forbidden purpose.

57

Nor is there any basis in law for the assertion that the contract was ultra vires
the company. Under the law of Alabama, a public utility corporation may
ordinarily sell a part of its transmission lines and incidental property to another
such corporation if the approval of the Public Service Commission is obtained.
The contract provided for securing such approval. Moreover, before the motion
to dissolve the restraining order was denied, and before the hearing on the
merits was concluded, the Legislature, by Act No. 1, approved January 24,
1935 (Gen.Acts Ala.1935, p. 1) and effective immediately, provided that a
utility of the state may sell all or any of its property to the Tennessee Valley
Authority without the approval of the Public Service Commission or of any
other state agency.

58

First. The substantive law. The plaintiffs who object own about 1/340 of the
preferred stock. They claimed at the hearing to represent about 1/9 of the
preferred stock; that is, less than 1/45 in amount of all the securities
outstanding. Their rights are not enlarged because the Tennessee Valley
Authority entered into the transaction pursuant to an act of Congress. The fact
that the bill calls for an enquiry into the legality of the transaction does not
overcome the obstacle that ordinarily stockholders have no standing to interfere
with the management. Mere belief that corporate action, taken or contemplated,
is illegal gives the stockholder no greater right to interfere than is possessed by
any other citizen. Stockholders are not guardians of the public. The function of
guarding the public against acts deemed illegal rests with the public officials.

59

Within recognized limits, stockholders may invoke the judicial remedy to

enjoin acts of the management which threaten their property interest. But they
cannot secure the aid of a court to correct what appear to them to be mistakes of

judgment on the part of the officers. Courts may not interfere with the
management of the corporation, unless there is bad faith, disregard of the
relative rights of its members, or other action seriously threatening their
property rights. This rule applies whether the mistake is due to error of fact or
of law, or merely to bad business judgment. It applies, among other things,
where the mistake alleged is the refusal to assert a seemingly clear cause of
action, or the compromise of it. United Copper Securities Co. v. Amalgamated
Copper Co., 244 U.S. 261, 263, 264, 37 S.Ct. 509, 61 L.Ed. 1119. If a
stockholder could compel the officers to enforce every legal right, courts,
instead of chosen officers, would be the arbiters of the corporation's fate.
60

In Hawes v. Oakland, 104 U.S. 450, 462, 26 L.Ed. 827, a common stockholder
sought to enjoin the Contra Costa Water-Works Company from permitting the
city of Oakland to take without compensation water in excess of that to which it
was legally entitled. This Court, in affirming dismissal of the bill, said: 'It may
be the exercise of the highest wisdom, to let the City use the water in the
manner complained of. The directors are better able to act understandingly on
this subject than a stockholder residing in New York. The great body of the
stockholders residing in Oakland or other places in California, may take this
view of it and be content to abide by the action of their directors. If this be so, is
a bitter litigation with the City to be conducted by one stockholder for the
Corporation and all other stockholders, because the amount of his dividends is
diminished '

61

In Corbus v. Alaska Treadwell Gold Mining Co., 187 U.S. 455, 463, 23 S.Ct.
157, 160, 47 L.Ed. 256, a suit by the common stockholder to enjoin payment of
an Alaska license tax alleged to be illegal, the Court said: 'The directors
represent all the stockholders, and are presumed to act honestly and according
to their best judgment for the interests of all. Their judgment as to any matter
lawfully confided to their discretion may not lightly be challenged by any
stockholder or at his instance submitted for review to a court of equity. The
directors may sometimes properly waive a legal right vested in the corporation
in the belief that its best interests will be promoted by not insisting on such
right. They may regard the expense of enforcing the right or the furtherance of
the general business of the corporation in determining whether to waive or
insist upon the right. And a court of equity may not be called upon at the appeal
of any single stockholder to compel the directors or the corporation to enforce
every right which it may possess, irrespective of other considerations. It is not a
trifling thing for a stockholder to attempt to coerce the directors of a
corporation to an act which their judgment does not approve, or to substitute his
judgment for theirs.'2

62

Second. The equity practice. Even where property rights of stockholders are
alleged to be violated by the management, stockholders seeking an injunction
must bear the burden of showing danger of irreparable injury, as do others who
seek that equitable relief. In the case at bar the burden of making such proof
was a peculiarly heavy one. The plaintiffs, being preferred stockholders, have
but a limited interest in the enterprise, resembling, in this respect, that of a
bondholder in contradistinction to that of a common stockholder. Acts may be
innocuous to the preferred which conceivably might injure common
stockholders. There was no finding that the property interests of the plaintiffs
were imperiled by the transaction in question; and the record is barren of
evidence on which any such finding could have been made.

63

Third. The practice in constitutional cases. The fact that it would be convenient
for the parties and the public to have promptly decided whether the legislation
assailed is valid, cannot justify a departure from these settled rules of corporate
law and established principles of equity practice. On the contrary, the fact that
such is the nature of the enquiry proposed should deepen the reluctance of
courts to entertain the stockholder's suit. 'It must be evident to any one that the
power to declare a legislative enactment void is one which the judge, conscious
of the fallibility of the human judgment, will shrink from exercising in any case
where he can conscientiously and with due regard to duty and official oath
decline the responsibility.' 1 Cooley, Constitutional Limitations (8th Ed.), p.
332.

64

The Court has frequently called attention to the 'great gravity and delicacy' of
its function in passing upon the validity of an act of Congress; 3 and has
restricted exercise of this function by rigid insistence that the jurisdiction of
federal courts is limited to actual cases and controversies; and that they have no
power to give advisory opinions.4 On this ground it has in recent years ordered
the dismissal of several suits challenging the constitutionality of important acts
of Congress. In Texas v. Interstate Commerce Commission, 258 U.S. 158, 162,
42 S.Ct. 261, 66 L.Ed. 531, the validity of titles 3 and 4 of the Transportation
Act of 1920 (41 Stat. 456). In New Jersey v. Sargent, 269 U.S. 328, 46 S.Ct.
122, 70 L.Ed. 289, the validity of parts of the Federal Water Power Act (41
Stat. 1063). In Arizona v. California, 283 U.S. 423, 51 S.Ct. 522, 75 L.Ed.
1154, the validity of the Boulder Canyon Project Act (43 U.S.C.A. 617 et
seq.). Compare United States v. West Virginia, 295 U.S. 46 , 55 S.Ct. 789, 79
L.Ed. 1546, involving the Federal Water Power Act and Liberty Warehouse
Co. v. Grannis, 273 U.S. 70, 47 S.Ct. 282, 71 L.Ed. 541, where this Court
affirmed the dismissal of a suit to test the validity of a Kentucky statute
concerning the sale of tobacco; also, Massachusetts State Grange v. Benton,
272 U.S. 525, 47 S.Ct. 189, 71 L.Ed. 387.

65

The Court developed, for its own governance in the cases confessedly within its
jurisdiction, a series of rules under which it has avoided passing upon a large
part of all the constitutional questions pressed upon it for decision. They are:

66

1. The Court will not pass upon the constitutionality of legislation in a friendly,
nonadversary, proceeding, declining because to decide such questions 'is
legitimate only in the last resort, and as a necessity in the determination of real,
earnest, and vital controversy between individuals. It never was the thought
that, by means of a friendly suit, a party beaten in the legislature could transfer
to the courts an inquiry as to the constitutionality of the legislative act.' Chicago
& Grand Trunk Ry. Co. v. Wellman, 143 U.S. 339, 345, 12 S.Ct. 400, 402, 36
L.Ed. 176. Compare Lord v. Veazie, 8 How. 251, 12 L.Ed. 1067; Atherton
Mills v. Johnston, 259 U.S. 13, 15, 42 S.Ct. 422, 66 L.Ed. 814.

67

2. The Court will not 'anticipate a question of constitutional law in advance of

the necessity of deciding it.' Liverpool, N.Y. & Phila. Steamship Co. v.
Emigration Commissioners, 113 U.S. 33, 39, 5 S.Ct. 352, 355, 28 L.Ed. 899;5
Abrams v. Van Schaick, 293 U.S. 188, 55 S.Ct. 135, 79 L.Ed. 278; Wilshire Oil
Co. v. United States, 295 U.S. 100, 55 S.Ct. 673, 79 L.Ed. 1329. 'It is not the
habit of the court to decide questions of a constitutional nature unless
absolutely necessary to a decision of the case.' Burton v. United States, 196
U.S. 283, 295, 25 S.Ct. 243, 245, 49 L.Ed. 482.

68

3. The Court will not 'formulate a rule of constitutional law broader than is
required by the precise facts to which it is to be applied.' Liverpool, N.Y. &
Phila. Steamship Co. v. Emigration Commissioners, supra. Compare
Hammond v. Schappi Bus Line, Inc., 275 U.S. 164, 169172, 48 S.Ct. 66, 72
L.Ed. 218.

69

4. The Court will not pass upon a constitutional question although properly
presented by the record, if there is also present some other ground upon which
the case may be disposed of. This rule has found most varied application. Thus,
if a case can be decided on either of two grounds, one involving a constitutional
question, the other a question of statutory construction or general law, the Court
will decide only the latter. Siler v. Louisville & Nashville R. Co., 213 U.S. 175,
191, 29 S.Ct. 451, 53 L.Ed. 753; Light v. United States, 220 U.S. 523, 538, 31
S.Ct. 485, 55 L.Ed. 570. Appeals from the highest court of a state challenging
its decision of a question under the Federal Constitution are frequently
dismissed because the judgment can be sustained on an independent state
ground. Berea College v. Kentucky, 211 U.S. 45, 53, 29 S.Ct. 33, 53 L.Ed. 81.

70

5. The Court will not pass upon the validity of a statute upon complaint of one

70

5. The Court will not pass upon the validity of a statute upon complaint of one
who fails to show that he is injured by its operation.6 Tyler v. Judges, etc., 179
U. S. 405, 21 S.Ct. 206, 45 L.Ed. 252; Hendrick v. Maryland, 235 U.S. 610,
621, 35 S.Ct. 140, 59 L.Ed. 385. Among the many applications of this rule,
none is more striking than the denial of the right of challenge to one who lacks
a personal or property right. Thus, the challenge by a public official interested
only in the performance of his official duty will not be entertained. Columbus &
Greenville Ry. Co. v. Miller, 283 U.S. 96, 99, 100, 51 S.Ct. 392, 75 L.Ed. 861.
In Fairchild v. Hughes, 258 U.S. 126, 42 S.Ct. 274, 66 L.Ed. 499, the Court
affirmed the dismissal of a suit brought by a citizen who sought to have the
Nineteenth Amendment declared unconstitutional. In Massachusetts v. Mellon,
262 U.S. 447, 43 S.Ct. 597, 67 L.Ed. 1078, the challenge of the federal
Maternity Act was not entertained although made by the commonwealth on
behalf of all its citizens.

71

6. The Court will not pass upon the constitutionality of a statute at the instance
of one who has availed himself of its benefits.7 Great Falls Mfg. Co. v.
Attorney General, 124 U.S. 581, 8 S.Ct. 631, 31 L.Ed. 527; Wall v. Parrot
Silver & Copper Co., 244 U.S. 407, 411, 412, 37 S.Ct. 609, 61 L.Ed. 1229; St.
Louis Malleable Casting Co. v. Prendergast Construction Co., 260 U.S. 469, 43
S.Ct. 178, 67 L.Ed. 351.

72

7. 'When the validity of an act of the Congress is drawn in question, and even if
a serious doubt of constitutionality is raised, it is a cardinal principle that this
Court will first ascertain whether a construction of the statute is fairly possible
by which the question may be avoided.' Crowell v. Benson, 285 U.S. 22, 62, 52
S.Ct. 285, 296, 76 L.Ed. 598. 8

73

Fourth. I am aware that, on several occasions, this Court passed upon important
constitutional questions which were presented in stockholders' suits bearing a
superficial resemblance to that now before us. But in none of those cases was
the question presented under circumstances similar to those at bar. In none,
were the plaintiffs preferred stockholders. In some, the Court dealt largely with
questions of federal jurisdiction and collusion. In most, the propriety of
considering the constitutional question was not challenged by any party. In
most, the statute challenged imposed a burden upon the corporation and
penalties for fail re to discharge it; whereas the Tennessee Valley Authority Act
(16 U.S.C.A. 831 et seq.) imposed no obligation upon the Alabama Power
Company, and under the contract it received a valuable consideration. Among
other things, the Authority agreed not to sell outside the area covered by the
contract, and thus preserved the corporation against possible serious
competition. The effect of this agreement was equivalent to a compromise of a
doubtful cause of action. Certainly, the alleged invalidity of the Tennessee

Valley Authority Act was not a matter so clear as to make compromise

illegitimate. These circumstances present features differentiating the case at bar
from all the cases in which stockholders have been held entitled to have this
Court pass upon the constitutionality of a statute which the directors had
refused to challenge. The cases commonly cited are these:9
74

Dodge v. Woolsey, 18 How. 331, 341346, 15 L.Ed. 401, was a suit brought
by a common stockholder to enjoin a breach of trust by the directors which, if
submitted to, would seriously injure the plaintiff. The Court crew clearly the
distinction between 'an error of judgment' and a breach of duty; declared that it
could not interfere if there was only an error of judgment; held that on the facts
the threatened action of the directors would be a breach of trust; and pointed to
the serious injury necessarily resulting therefrom to the plaintiff. 10

75

Greenwood v. Union Freight R. Co., 105 U.S. 13, 15, 16, 26 L.Ed. 961, was a
suit brought by a common stockholder to enjoin the enforcement of a statute
alleged to be unconstitutional as repealing the corporation's charter. The Court
said: 'It is sufficient to say that this bill presents so strong a case of the total
destruction of the corporate existence * * * that we think the complainant as a
stockholder comes within the rule * * * which authorizes a shareholder to
maintain a suit to prevent such a disaster, where the corporation peremptorily
refuses to move in the matter.'

76

Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 553, 554, 15 S.Ct. 673,
679, 39 L.Ed. 759, was a suit brought by a common stockholder to enjoin a
breach of trust by paying voluntarily a tax which was said to be illegal. The
stockholder's substantive right to object was not challenged. The question raised
was that of equity jurisdiction. The allegation of threatened irreparable damage
to the corporation and to the plaintiff was admitted. The Court said: 'The
objection of adequate remedy t law was not raised below, nor is it now raised
by appellees, if it could be entertained at all at this stage of the proceedings;
and, so far as it was within the power of the government to do so, the question
of jurisdiction, for the purposes of the case, was explicitly waived on the
argument. * * * Under these circumstances, we should not be justified in
declining to proceed to judgment upon the merits.' The jurisdictional issued
discussed in the dissent (157 U.S. at pages 608612, 15 S.Ct. 673, 39 L.Ed.
759) was the effect of Rev.St. 3224 (26 U.S.C.A. 1543).

77

Cotting v. Kansas City Stock Yards Co., 183 U.S. 79, 113, 22 S.Ct. 30, 44, 46
L.Ed. 92, was a suit brought by a common stockholder to enjoin enforcement of
a rate statute alleged to be unconstitutional against which the directors refused
to protect the corporation. It was alleged and found that its enforcement would

subject the company to great and irreparable loss. The serious contention
concerning jurisdiction was, as stated by Mr. Justice Brewer, whether a suit lay
against the Attorney General of the State. Of the jurisdiction of the suit 'as one
involving a controversy between the stockholders and the corporation and its
officers, no serious question is made.'
78

Chicago v. Mills, 204 U.S. 321, 27 S.Ct. 286, 51 L.Ed. 504, was a suit brought
by a common stockholder of the People's Gas, Light & Coke Company to
enjoin enforcement of an ordinance alleged to be illegal. The sole question
before this Court was whether the federal court had jurisdiction. That question
raised an issue of fact. This Court in affirming the judgment below said (204
U.S. 321, at page 331, 27 S.Ct. 286, 289, 51 L.Ed. 504): 'Upon the whole
record we agree with the circuit court that the testimony does not disclose that
the jurisdiction of the Federal court was collusively and fraudulently invoked.'

79

Brushaber v. Union Pacific R. Co., 240 U.S. 1, 9, 10, 36 S.Ct. 236, 60 L.Ed.
493, L.R.A.1917D, 414, Ann.Cas.1917B, 713, was a suit brought by a common
stockholder to restrain the corporation from voluntarily paying a tax alleged to
be invalid. As stated by plaintiff's counsel: 'The contention is and this is the
only objection that is made to the suitthat it seeks to do indirectly what the
Revised Statutes (section 3224) have said shall not be done; namely, enjoin the
collection of a tax.' The Court, assuming that the averments were identical with
those in the Pollock Case, declared that the right of the stockholder to sue was
clear.

80

Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 199 202, 41 S.Ct. 243,
65 L.Ed. 577, was a suit brought by a common stockholder to enjoin
investment by the company in bonds issued under the Federal Farm Loan Act.
Neither the parties, nor the government which filed briefs as amicus, made any
objection to the jurisdiction. But as both parties were citizens of Missouri, the
Court raised, and considered fully, the question whether there was federal
jurisdiction under section 24 of the Judicial Code (28 U.S.C.A. 41). It was on
this question that Mr. Justice Holmes and Mr. Justice McReynolds dissented.
The Court held that there was federal jurisdiction; and upon averments of the
bill, assumed to be adequate, sustained the right of the stockholder to invoke
the equitable remedy on the authority of the Brushaber and Pollock Cases.

81

Hill v. Wallace, 259 U.S. 44, 6063, 42 S.Ct. 453, 455, 66 L.Ed. 822, was a
suit by members of the Board of Trade of Chicago to restrain enforcement of
the Future Trading Act (42 Stat. 187), alleged to be unconstitutional. The Court
held that the averments of the bill, which included allegations of irreparable
injury, stated 'sufficient equitable grounds to justify granting the relief' on the

cases above cited.

82

If, or in so far as, any of the cases discussed may be deemed authority for
sustaining this bill, they should now be disapproved. This Court, while
recognizing the soundness of the rule of stare decisis where appropriate, has not
hesitated to overrule earlier decisio shown, upon fuller consideration, to be
erroneous.11 Our present keener appreciation of the wisdom of limiting our
decisions rigidly to questions essential to the disposition of the case before the
court is evidenced by United States v. Hastings, 296 U.S. 188, 56 S.Ct. 218, 80
L.Ed. 148, decided at this term. There, we overruled United States v.
Stevenson, 215 U.S. 190, 195, 30 L.Ed. 35, 54 L.Ed. 153, long a controlling
authority on the Criminal Appeals Act (18 U.S.C.A. 682).

83

Fifth. If the Company ever had a right to challenge the transaction with the
Tennessee Valley Authority, its right had been lost be estoppel before this suit
was begun; and as it is the company's right which plaintiffs seek to enforce,
they also are necessarily estopped. The Tennessee Valley Authority Act
became a law on May 18, 1933. Between that date and January, 1934, the
company and its associates purchased approximately 230,000,000 kwh electric
energy at Wilson Dam. Under the contract of January 4, 1934, which is here
assailed, continued purchase of Wilson Dam power was provided for and made;
and the Authority has acted in other matters in reliance on the contract. In May,
1934, the Company applied to the Alabama Public Service Commission for
approval of the transfers provided for in the contract; and on June 1, 1934, the
commission made in general terms its finding that the proposed sale of the
properties was consistent with the public interest. Moreover, the plaintiffs in
their own right are estopped by their long inaction. Although widespread
publicity was given to the negotiations for the contract and to these later
proceedings, the plaintiffs made no protect until August 7, 1934; and did not
begin this suit until more than eight months after the execution of the contract.
Otherscertain ice and coal companies who thought they would suffer as
competitorsappeared before the commission in opposition to the action of the
Authority; and apparently they are now contributing to the expenses of this
litigation.

84

Sixth. Even where by the substantive law stockholders have a standing to

challenge the validity of legislation under which the management of a
corporation is acting, courts should, in the exercise of their discretion, refuse an
injunction unless the alleged invalidity is clear. This would seem to follow as a
corollary of the long established presumption in favor of the constitutionality of
a statute.

85

Mr. Justice Iredell said, as early as 1798, in Calder v. Bull, 3 Dall. 386, 399, 1
L.Ed. 648: 'If any act of congress, or of the legislature of a state, violates those
constitutional provisions, it is unquestionably void; though, I admit, that as the
authority to declare it void is of a delicate and awful nature, the court will never
resort to that authority, but in a clear and urgent case.'

86

Mr. Chief Justice Marshall said, in Dartmouth College v. Woodward, 4 Wheat.

518, 625, 4 L.Ed. 629: 'On more than one occasion, this court has expressed the
cautions circumspection with which it approaches the consideration of such
questions; and has declared, that in no doubtful case, would it pronounce a
legislative act to be contrary to the constitution.'12

87

Mr. Justice Washington said, in Ogden v. Saunders, 12 Wheat. 213, 270, 6

L.Ed. 606: 'But if I could rest my opinion in favour of the constitutionality of
the law on which the question arises, on no other ground than this doubt so felt
and acknowledged, that alone, would, in my estimation, be a satisfactory
vindication of it. It is but a decent respect due to the wisdom, the integrity and
the patriotism of the legislative body, by which any law is passed, to presume
in favour of its validity, until its violation of the constitution is proved beyond
all reasonable doubt. This has always been the language of this court, when that
subject has called for its decision; and I know that it expresses the honest
sentiments of each and every member of this bench.'

88

Mr. Chief Justice Waite said in the Sinking-Fund Cases, 99 U.S. 700, 718, 25
L.Ed. 496: 'This declaration (that an act of Congress is unconstitutional) should
never be made except in a clear case. Every possible presumption is in favor of
the validity of a statute, and this continues until the contrary is shown beyond a
rational doubt. One branch of the government cannot encroach on the domain
of another without danger. The safety of our institutions depends in no small
degree on a strict observance of this salutary rule.'

89

The challenge of the power of the Tennessee Valley Authority rests wholly
upon the claim that the act of Congress which authorized the contract is
unconstitutional. As the opinions of this Court and of the Circuit Court of
Appeals show, that claim was not a matter 'beyond peradventure clear.' The
challenge of the validity of the act is made on an application for an injunction
a proceeding in which the court is required to exercise its judicial discretion.
In proceedings for a mandamus, where, also, the remedy is granted not as a
matter of right but in the exercise of a sound judicial discretion, Duncan
Townsite Co. v. Lane, 245 U.S. 308, 311, 312, 38 S.Ct. 99, 62 L.Ed. 309,
courts decline to enter upon the enquiry when there is a serious doubt as to the

existence of the right or duty sought to be enforced. As was said in United

States v. Interstate Commerce Commission, 294 U.S. 50, 63, 55 S.Ct. 326, 331,
79 L.Ed. 752: 'Where the matter is not beyond peradventure clear, we have
invariably refused the writ (of mandamus), even though the question were one
of law as to the extent of the statutory power of an administrative officer or
body.' A fortiori this rule should have been applied here where the power
challenged is that of Congress under the Constitution.
90

Mr. Justice STONE, Mr. Justice ROBERTS, and Mr. Justice CARDOZO join
in this opinion.

91

The separate opinion of Mr. Justice McREYNOLDS.

92

Considering the consistent rulings of this court through many years, it is not
difficult for me to conclude that petitioners have presented a justiciable
controversy which we must decide. In Smith v. Kansas City Title & Trust Co.,
255 U.S. 180, 41 S.Ct. 243, 65 L.Ed. 577, the grounds for jurisdiction were far
less substantial than those here disclosed. We may not with propriety avoid
disagreeable duties by lightly forsaking ong respected precedents and
established practice.

93

Nor do I find serious difficulty with the notion that the United States, by proper
means and for legitimate ends, may dispose of water power or electricity
honestly developed in connection with permissible improvement of navigable
waters. But the means employed to that end must be reasonably appropriate in
the circumstances. Under pretense of exercising granted power, they may not in
fact undertake something not intrusted to them. Their mere ownership, e.g., of
an iron mine would hardly permit the construction of smelting works followed
by entry into the business of manufacturing and selling hardware, albeit the ore
could thus be disposed of, private dealers discomfited and artificial prices
publicized. Here, therefore, we should consider the truth of petitioners' charge
that, while pretending to act within their powers to improve navigation, the
United States, through corporate agencies, are really seeking to accomplish
what they have no right to undertakethe business of developing, distributing
and selling electric power. If the record sustains this charge, we ought so to
declare and decree accordingly.

94

The Circuit Court of Appeals took too narrow a view of the purpose and effect
of the contract of January 4, 1934. That went far beyond the mere acquisition of
transmission lines for proper use in disposing of power legitimately developed.
Like all contracts, it must be considered as a whole, illumined by surrounding

circumstances. Especial attention should be given to the deliberately announced

purpose of directors, clothed with extraordinary discretion and supplied with
enormous sums of money. With $50,000,000 at their command they started out
to gain control of the electrical business in large areas and to dictate sale prices.
The power at Wilson Dam was the instrumentality seized upon for carrying the
plan into effect.
95

While our primary concern is with this contract, it cannot be regarded as a mere
isolated effort to dispose of property. And certainly to consider only those
provisions which directly relate to Alabama Power Company is not permissible.
We must give attention to the whole transactionits antecedents, purpose and
effectas well as the terms employed.

96

No abstract question is before us; on the contrary, the matter is of enormous

practical importance to petitionerstheir whole investment is at stake. Properly
understood, the pronouncements, policies and program of the Authority
illuminate the action taken. They help to reveal the serious interference with the
petitioners' rights. Their property was in danger of complete destruction under a
considered program commenced by an agency of the national government with
vast resources subject to its discretion and backed by other agencies likewise
intrusted with discretionary use of huge sums. The threat of competition by such
an opponent was appalling. The will to prevail was evident. No private concern
could reasonably hope to withstand such force.

97

The Tennessee river, with headwaters in West Virginia and North Carolina,
crosses Tennessee on a southwesterly course, enters Alabama near
Chattanooga, and flows westerly across the northern part of that state to the
northeast corner of Mississippi. There it turns northward, passes through
Tennessee and Kentucky, and empties into the Ohio forty miles above Cairo.
The total length is nine hundred miles; the drainage basin approximates forty
thousand square miles. The volume of water is extremely variable; commercial
navigation is of moderate importance.

98

At Muscle Shoals, near Florence, Ala. (twenty miles east of the Mississippi line
and fifteen south of Tennessee), a succession of falls constitutes serious
interference with navigation; also presents possibilities for development of
power on a large scale. During and immediately after the World War, a great
dam was constructed there by the United States, intended primarily for
generation of power. Production o electricity soon commenced. Some of this
was devoted to governmental purposes; much was sold, delivery being made at
or near the dam.

99

During the last thirty years, several corporations have been engaged in the
growing business of developing electric energy and distributing this to
customers over a network of interconnected lines extending throughout
Tennessee, Georgia, Alabama, and Mississippi. At great expense they
gradually built up extensive businesses and acquired properties of very large
value. All operated under state supervision. Through stock ownership or
otherwise, they came under general control of the Commonwealth & Southern
Corporation. Among the associates were the Alabama Power Company which
serviced Alabama; the Mississippi Company which serviced Mississippi; and
the Tennessee Company which operated in eastern Tennessee. Huge sums were
invested in these enterprises by thousands of persons in many states.
Apparently, the companies were diligently developing their several systems and
responding to the demands of the territories which they covered.

100 In 1933, operations began under an imposing program for somewhat improving
Tennessee river navigation and especially for developing the water power
along its whole course at public expense. This plan involved conversion of
water power into electricity for wide distribution throughout the valley and
adjacent territory. Its development was intrusted to the Tennessee Valley
Authority, a federal corporation wholly controlled by the United States. This
promptly took over the Wilson Dam and began work upon the Wheeler Dam,
twenty miles up the river, and the Pickwick Dam, some forty miles lower
down. Also it commenced construction of Norris Dam across Clinch river, a
branch of the Tennessee, two hundred miles above the Wilson Dam. All these,
with probable additions, were to be connected by transmission wires, and
electric energy distributed from them to millions of people in many states.
Public service corporations were to be brought to terms or put out of business.
At least $75,000,000 of public funds was early appropriated for expenditure by
the directors; and other governmental agencies in control of vast sums were
ready to lend aid.
101 Readily to understand the issues now before us, one must be mindful of these
circumstances.
102 The trial court made findings of fact which fill more than sixty printed pages.
They are not controverted and for present purposes are accepted; upon them the
cause stands for decision. They are much quoted below. Plainly they indicate,
and that court, in effect, declared, the contract of January 4th was a deliberate
step into a forbidden field, taken with definite purpose to continue the trespass.
103 Nothing suggests either necessity or desirability of entering into this agreement

solely to obtain solvent customers willing to pay full value for all surplus power
generated at Wilson Dam. Apparently there was ample opportunity for such
sales deliveries to be made at or near the dam. No attempt was made to show
otherwise. The definite end in view was something other than orderly
disposition.
104 The Authority's answer to the complaint is little more than a series of denials. It
does not even allege that the contract of January 4th was necessary for ready
disposal of power; or that thereby better prices could be obtained; or that no
buyer was ready, able and willing to take at the dam for full value; or that the
board expected to derive adequate return from the business to be acquired. No
sort of explanation of the contract is presented why it was entered into or
whether profitable use probably could be made of the property. And I find in
the Authority's brief no serious attempt to justify the purchases because
necessary or in fact an advantageous method for disposing of property. Nothing
in the findings lends support to any such view.
105 The record leaves no room for reasonable doubt that the primary purpose was
to put the federal government into the business of distrib ting and selling
electric power throughout certain large districts, to expel the power companies
which had long serviced them, and to control the market therein. A government
instrumentality had entered upon a pretentious scheme to provide a 'yardstick'
of the fairness of rates charged by private owners, and to attain 'no less a goal
than the electrification of America.' 'When we carry this program into every
town and city and village, and every farm throughout the country, we will have
written the greatest chapter in the economic, industrial and social development
of America.' Any reasonable doubt concerning the purpose and result of the
contract of January 4th or of the design of the Authority should be dispelled by
examination of its Reports for 1934 and 1935.*
106 'The conception was to establish an independent network comparable in all
respects with the electric utility system serving the area, with which TVA
sought to establish interchange arrangements, both as outlets for its own power,
and to use existing systems as a stand-by or back-up service.'
107 'The TVA plan as conceived and in process of execution contemplates complete
and exclusive control and jurisdiction over all power sites on the Tennessee
River and tributaries.' 'The TVA policy contemplates full corporate discretion
by TVA in developing, executing and extending its electric system and service
within transmission limits.' 'This policy contemplated service utility in type and
covered not only generation but transmission and distribution (preferably
through public or nonprofit agencies, if available) both wholesale and retail.

That is,moreover, implicit in both the January 4 contract and the now
terminated August 9th contract.'
108 The challenged contract is defended upon the theory that the 'Federal
Government may dispose of the surplus water power necessarily created by
Wilson Dam and may authorize generation of electric energy and acquisition of
transmission lines as means of facilitating this disposal.' But to facilitate
disposal was not the real purpose; obviously the thing to be facilitated was
carrying on business by use of the purchased property. Under the guise of
disposition something wholly different was to be accomplisheddevotion of
electric power to purposes beyond the sphere of proper federal action, an
unlawful goal. There is no plausible claim that such a contract was either
necessary or desirable merely to bring about the sale of property. This Court has
often affirmed that facts, not artifice, control its conclusions. The Agency has
stated quite clearly the end in view: 'This public operation is to serve as a
yardstick by which to measure the fairness of electric rates.' 'The TVA power
policy was not designed or limited with a view to the marketing of the power
produced and available at Muscle Shoals.' 'In formulating and going forward
with the power policy the Board was considering that policy as a permanent
and independent commercial function.'
109 For present purposes a complete survey of relevant circumstances preceding the
contract of January 4th and all its consequences is not essential. The pleadings
and findings fairly outline the situation. What follows is mainly quoted or
derived from them.
110 The Act of May 18, 1933, created the Tennessee Valley Authority as a body
corporate 'for the purpose of maintaining and operating the properties now
owned by the United States in the vicinity of Muscle Shoals, Alabama, in the
interest of the national defense and for agricultural and industrial development,
and to improve navigation in the Tennessee River and to control the destructive
flood waters in the Tennessee River and Mississippi River Basins.' Section 1,
16 U.S.C.A. 831. It provided, a board of three directors 'shall direct the
exercise of all the powers of the Corporation' (section 2, 16 U.S.C.A. 831a),
and 'is authorized to make alterations, modifications, or improvements in
existing plants and facilities, and to construct new plants' (section 5, 16
U.S.C.A. 831d); and to 'produce, distribute, and sell electric power, as herein
particularly specified.' (Section 5). The corporation 'shall have such powers as
may be necessary or appropriate for the exercise of the powers herein
specifically conferred upon the Corporation' (section 4, 16 U.S.C.A. 831c);
'to acquire real estate for the construction of dams, reservoirs, transmission
lines, power houses, and other structures, and navigation projects at any point

along the Tennessee River, or any of its tributaries.' (Section 4).

111 Also, the board is 'hereby empowered and authorized to sell the surplus power
not used in its operations, and for operation of locks and other works generated
by it, to States, counties, municipalities, corporations, partnerships, or
individuals, according to the policies hereinafter set-forth; and to carry out said
authority, the board is authorized to enter into contracts for such sale for a term
not exceeding twenty years.' Section 10, 16 U.S.C.A. 831i. 'In order to
promote and encourage the fullest possible use of electric light and power on
farms within reasonable distance of any of its transmission lines the board in its
discretion shall have power to construct transmission lines to farms and small
villages that are not otherwise supplied with electricity at reasonable rates, and
to make such rules and regulations governing such sale and distribution of such
electric power as in its judgment may be just and equitable.' Section 10.
112 'One of the first corporate acts of TVA after its organization was to formulate
and announce a power policy to govern the commercial distribution of electric
power by TVA. The evidence establishes the fact that the Board from the outset
has considered that it has general corporate discretion as to the establishment
and extension of its electric power policy. In establishing a power policy the
Board was not primarily considering merely the question of disposal of power
produced at Muscle Shoals no longer required for governmental purposes as a
result of overbuilding, obsolescence of plants or termination of war purpose.
Nor was it considering disposal of prospective increases in electric power to be
unavoidably created in excess of some governmental requirement. It was
considering the matter from the standpoint of the successful establishment and
permanent operation of an independent and well rounded government-owned
electric distribution system and the general civic, social and industrial planning
and development of the Tennessee Valley region as a whole.'
113 'Under date of August 25, 1933, TVA announced its power policy, indicating
both the initial stage of its development and certain later steps originally
determined upon. * * * This power policy had not been rescinded or abandoned
or modified at the time of submission of this cause.'
114 'In September, 1933, the Authority announced its wholesale and retail rate
schedules, which are shown by the evidence to be materially lower than
corresponding schedules of the existing utilities in the area. Following this
action numerous municipalities in the area began to make efforts to construct
municipal systems with which to distribute TVA current, and Public Works
Administration (called PWA) gave assurances of favorable consideration of
applications for loans to that end.'

115 Under such circumstances, Commonwealth & Southern Corporation negotiated

the January 4th contract for its operating subsidiaries Alabama Power
Company, Georgia Power Company, Mississippi Power Company, and
Tennessee Electric Power Company.
116 This recited that the Alabama Company, the Mississippi Company, and the
Tennessee Company desired to sell, and the Authority desired to purchase,
certain land, buildings, and physical properties devoted to the generation,
transmission, and distribution of electricity, together with certain franchises,
contracts, and going business.
117 The Alabama Company agreed to sell for $1,000,000 all of its low tension (44
KV or lower) transmission lines, substations (including the high tension station
at Decatur and the Sheffield Steam Plant Station), and all rural lines and rural
distribution systems in five Alabama counties and parts of two others. (These
counties are northwestern Alabama and lie on both sides of the Tennessee river
for eighty miles or more.)
118 The Mississippi Company, in consideration of $850,000, agreed to transfer all
of its transmission and distribution lines, substations, generating plants and
other property in Pontoto , Lee, Itawamba, Union, Benton, Tippah, Prentiss,
Tishomingo, and Alcorn counties (except one dam site in Tishomingo county),
state of Mississippi, used in connection with the generation, transmission,
distribution or sale of electrical energy. (These counties are the northeastern
section of the state, a territory sixty miles square.)
119 For $900,000, the Tennessee Company agreed to convey its transmission and
distribution lines, substations, distribution systems, and other properties used in
connection with the transmission, distribution, and sale of electrical energy in
Anderson, Campbell, Morgan, and Scott counties, East Tennessee, and 'all of
the 66 KV transmission line from Cove Creek to Knoxville.' (These counties
are in the mountains northward from Knoxville within a radius of about sixty
miles. They lie northeast of Muscle Shoals and some points therein are much
more than a hundred miles from Wilson Dam. They have a population of
86,000.) The power companies agreed that 'any conveyance of property shall
include not only the physical property, easements and rights-of-way, but shall
also include all machinery, equipment, tools and working supplies set forth in
the respective exhibits, and all franchises, contracts and going business relating
to the use of any of said properties.' Also, 'to transfer or secure the transfer of
said franchises, contracts and going business, and to transfer said properties
with all present customers attached, so far as they are able.' Also, 'that during
the period of this contract none of said companies will sell electric energy to

any municipality, corporation, partnership, association or individual in any

portion of the above described counties or parts thereof in Alabama, Tennessee
and Mississippi, etc.' The Authority agreed not to sell 'electric energy outside of
the specified counties to the customers of non-utilities supplied by the power
companies.'
120 Other covenants provided for interchange of electric energy between the
contracting parties and for cooperation in the sale of electric appliances
throughout the entire territory served by the power companies.
121 'Power Companies covenant and agree that after the expiration of this
agreement the interchange arrangement then in effect will be maintained by
Power Companies for an additional period (not exceeding eighteen months)
sufficient to permit Authority to construct its own transmission facilities for
serving all of the territory which it is then serving in whole or in part with
power obtained at such interchange points.'
122 'Power Companies agree to have available at all times for exchange, at each
point of exchange, energy and capacity to supply the entire demands of the
customers served by Authority from such points of exchange, subject to the
limitations as to transmission capacity set forth in Section 10(h) hereof;
Provided, that the maximum amount which Authority shall be entitled to
demand at all points of exchange shall be 70,000 k.v.'
123 Prior to the agreement for sale the Alabama Company had derived $750,000
gross annual revenue from its properties located within the 'ceded area.' This
district had a population of 190,000; and the company had therein 10,000
individual customers approximately one-tenth of all those directly served by it.
The lines transferred by the Mississippi Power Company served directly 4,000
customers in 9 counties, having total population of 184,000. When this cause
began, the Mississippi properties were being operated by TVA and rural lines
were in process of extension by it in both Mississippi and Alabama.
124 'All of the electric properties and facilities covered by the contract of January 4,
1934, * * * were contracted for by TVA for the purpose of continuing and
enlarging the utility service for which they were used by the respective power
companies.'
125 'The operation of a commercial utility service by TVA and the wholesaling and
retailing by TVA of electricity in the area served by the Alabama Power
Company is not and will not be in aid of the regulation of navigation or national

defense or other governmental function in so far as any plan, purpose or activity

of the TVA or the United States disclosed on this record would indicate.'
126 Answering the petitioners' complaint, Alabama Company admitted 'that the
public statements of TVA indicated the program therein alleged; and the
directors of respondent company considered that to vest such an agency as
therein alleged with unlimited power and access to public funds, in a program
of business competition and public ownership promotion in the area served by
respondent company would in effect destroy this respondent's property; and
such conclusion on its part was the principal inducement for it to enter into the
contracts of January 4 and August 9, 1934; and respondent company thereby
was and will be enabled to salvage a larger amount of its property than it could
have done by competition.' Also, 'that under the circumstances of threatened
competition, directed or controlled by TVA as averred therein, this respondent
agreed to the sale of certain of its transmission lines and property, and entered
into the contract dated January 4, 1934. * * * Respondent company admits that
at and before the execution of the contract, the threat was made to use federal
funds to duplicate the facilities of respondent which would result in competition
with rates not attainable by or permissible to this respondent, and such rates
would be stipulated, controlled and regulated by TVA.'
As matter of law the trial court found:
127 'The function intended by TVA under the evidence in relation to service, utility
in type, in the area ceded by the contract of January 4, 1934, transcends the
function of conservation or disposition of government property, involves
continuing service and commercial functions by the government to fill contracts
not governmental in origin or character.'
128 'Performance of the contract of January 4, 1934, would involve substantial loss
and injury to the Alabama Power Company, including, inter alia, the loss or
abandonment of franchises, licenses, going business and service area supporting
its general system and power facilities and unless resisted would tend to invite a
progressive encroachment on its service area by the Tennessee Valley
Authority.'
129 'Congress has no constitutional authority to authorize Tennessee Valley
Authority or any other federal agency to undertake the operation, essentially
permanent in character, of a utility system, for profit, involving the generation,
transmission and commercial distribution of electricity within state domain,
having no reasonable relation to a lawful governmental use.'

130 'The contract of January 4, 1934, expressly provided for the transfer of all or
substantially all of the lines and properties of the Alabama Power Company for
the service of the ceded area, included transmission lines, rural distribution
systems and certain urban distribution systems, and contemplated the eventual
transfer of fourteen urban distribution systems. This contract, expressly
contemplating service of the ceded area by the Tennessee Valley Authority
with electricity to be generated or purchased by the Tennessee Valley Authority
for that purpose, was in furtherance of illegal proprietary operations by the
Tennessee Valley Authority in violation of the Federal Constitution and void.
The contract was accordingly ultra vires and void as to the Alabama Power
Company.'
131 Having made exhaustive findings of fact and law, the trial court entered a
decree annulling the January 4th contract and enjoining the Alabama Power
Company from performing it. The Circuit Court of Appeals reversed, upon the
theory that the Authority was making proper arrangements for sale of surplus
power from the Wilson dam. The injunction was continued.
132 I think the trial court reached the correct conclusion and that its decree should
be approved. If under the thin mask of disposing of property the United States
can enter the business of generating, ransmitting and selling power as, when,
and wherever some board may specify, with the definite design to accomplish
ends wholly beyond the sphere marked out for them by the Constitution, and
easy way has been found for breaking down the limitations heretofore supposed
to guarantee protection against aggression.

Rehearing denied 297 U.S. 728, 56 S.Ct. 588, 80 L.Ed. 1011. Mandate of
Supreme Court conformed to 14 F.Supp. 11.

The Tennessee Valley Authority is a body corporate created by the Act of

Congress of May 18, 1933, amended by the Act of Congress of August 31,
1935. 48 Stat. 58; 49 Stat. 1075 (16 U.S.C.A. 831 et seq.).

The Commonwealth & Southern Corporation, organized under the laws of

Delaware, and the owner of the common stock of the Alabama Power
Company, was a party to the contract, which also contained agreements with
other subsidiaries of the Commonwealth & Southern Corporation, viz:
Tennessee Electric Power Company, Georgia Power Company, and Mississippi
Power Company. The agreements with these companies are not involved in this
suit.

Equity Rule 27 (28 U.S.C.A. following section 723).

The District Court found that 'approximately 1900 preferred stockholders of the
Alabama Company, holding over 40,000 shares of the preferred stock thereof,
have associated themselves with a preferred stockholders' protective committee
and authorized their names to be joined with the plaintiffs of record in this case
as parties plaintiff.'

See note 2.

41 Stat. 1063.

48 Stat. 955 (28 U.S.C.A. 400). 56 S.CT.30 1/2

39 Stat. 166, 215 (50 U.S.C.A. 79).

Among the findings of the District Court on this point are the following:
'38. The Muscle Shoals plants, including the Sheffield steam plant and the 8
hydro-electric units installed at Wilson Dam, were authorized for war purposes
by section 124 of the National Defense Act of 1916 in anticipation of
participation in the great war. The original conception was for the use of Nitrate
Plant No. 1 employing the Haber process and Plant No. 2 employing the
cyanamid process for the fixation or manufacture of nitrogen and its subsequent
conversion into ammonium nitrate for explosives. Plant No. 1 was completed
but was never practicable, due to the lack of knowledge of the Haber process.
Plant No. 2 successfully developed calcium cyanamid from a manufacturing
standpoint but due to the availability of ammonium nitrate as a result of
commercial development of by-product or synthetic processes, the commercial
or peace-time manufacture of calcium cyanamid at Nitrate Plant No. 2 is
considered uneconomical and undesirable and is not proposed or suggested by
either the War Department or the TVA. The Court further finds, however, that
the plant with the aid of electric power furnished by Wilson Dam and the
Sheffield steam plant can be operated to produce annually 110,000 tons of
ammonium nitrate by the cyanamid process and that the present plans of the
War Department count upon that plant to supply that amount annually in the
event of a major war. * * *
'40. The existence of these facilities which make available large quantities of
nitrogenous war materials by use of either the nitrogen fixing process or the
oxidation of synthetic ammonia is a valuable national defense asset.'

10

Sen.Doc.No.1, 18th Cong., 2d Sess.; H.R.Doc.No.119, 69th Cong., 1st Sess.,

11, 12.

11

See Rivers and Harbors Acts of August 30, 1852, c. 104, 10 Stat. 56, 60; July
25, 1868, c. 233, 15 Stat. 171, 174; March 3, 1871, c. 118, 16 Stat. 538, 542;
June 10, 1872, c. 416, 17 Stat. 370, 372; September 19, 1890, c. 907, 26 Stat.
426, 445, 446; August 18, 1894, c. 299, 28 Stat. 338, 354; April 26, 1904, c.
1605, 33 Stat. 309; March 2, 1907; c. 2509, 34 Stat. 1073, 1093; June 25, 1910,
c. 382, 36 Stat. 630, 652; July 25, 1912, c. 253, 37 Stat. 201, 215; July 27,
1916, c. 260, 39 Stat. 391, 399; March 3, 1925, c. 467, 43 Stat. 1186, 1188;
July 3, 1930, c. 847, 46 Stat. 918, 927, 928. See, also H.R.Docs.No.319, 67th
Cong., 2d Sess.; No. 463, 69th Cong., 1st Sess.; No. 185, 70th Cong., 1st Sess.;
No. 328, 71st Cong., 2d Sess.

12

Act of July 3, 1930, c. 847, 46 Stat. 918, 927, 928.

13

See citations of numerous statutes in United St tes v. Sweet, 245 U.S. 563, 568,
569, 38 S.Ct. 193, 62 L.Ed. 473.

14

Act of July 4, 1866, c. 166, 5, 14 Stat. 85, 86.

15

Act of July 16, 1894, c. 138, 28 Stat. 107.

16

See, as to royalties under leases 'to promote the mining of coal, phosphate, oil,
oil shale, gas, and sodium on the public domain,' the Act of February 25, 1920,
c. 85, 41 Stat. 437. Also, as to leases of public lands containing potassium
deposits, the Act of October 2, 1917, c. 62, 40 Stat. 297.

17

35 Stat. c. 264, 815, 820, 821.

The management explained that it was in the best interest of the company to
accept the offer of the Authority for the purchase of the transmission lines in a
limited area coupled with an agreement on the part of the Authority not to sell
outside of that area during the life of the contra t. It protected the company
against possible entrance of the Authority into the territory in which were
located nine-tenths of the company's customers, including the largest; and it
assured the company that so long as the latter retained its urban distribution
systems within the territory served by the transmission lines, those systems
would be serviced by power from Wilson Dam. Upon delivery of the
transmission lines, the Authority agreed to pay the company $1,150,000.

See, also, Samuel v. Holladay, 21 Fed. Cas. pages 306, 311, 312, No. 12,288.

E.g., Miller, J., in Ex parte Garland, 4 Wall. 333, 382, 18 L.Ed. 366; Hepburn
v. Griswold, 8 Wall. 603, 610, 19 L.Ed. 513; Adkins v. Children's Hospital, 261
U.S. 525, 544, 43 S.Ct. 394, 67 L.Ed. 785, 24 A.L.R. 1238; Holmes, J., in
Blodgett v. Holden, 275 U.S. 142, 147, 148, 276 U.S. 594, 48 S.Ct. 105, 72

L.Ed. 206.
4

E.g., Hayburn's Case, 2 Dall. 409, 1 L.Ed. 436; United States v. Ferreira, 13
How. 40, 14 L.Ed. 42; Gordon v. United States, 2 Wall. 561, 17 L.Ed. 921; Id.,
117 U.S. 697, append.; Muskrat v. United States, 219 U.S. 346, 31 S.Ct. 250,
55 L.Ed. 246; Willing v. Chicago Auditorium Ass'n, 277 U.S. 274, 48 S.Ct.
507, 72 L.Ed. 880.

E.g., Ex parte Randolph, 20 Fed.Cas. pages 242, 254, No. 11,558; Charles
River Bridge v. Warren Bridge, 11 Pet. 420, 553, 9 L.Ed. 773; Trade-Mark
Cases, 100 U.S. 82, 96, 25 L.Ed. 550; Arizona v. California, 283 U.S. 423, 462
464, 51 S.Ct. 522, 75 L.Ed. 1154.

E.g., Hatch v. Reardon, 204 U.S. 152, 160, 161, 27 S.Ct. 188, 51 L.Ed. 415, 9
Ann.Cas. 736; Corporation Commission v. Lowe, 281 U.S. 431, 438, 50 S.Ct.
397, 74 L.Ed. 945; Heald v. District of Columbia, 259 U.S. 114, 123, 42 S.Ct.
434, 66 L.Ed. 852; Sprout v. South Bend, 277 U.S. 163, 167, 48 S.Ct. 502, 72
L.Ed. 833, 62 A.L.R. 45; Concordia Fire Insurance Co. v. Illinois, 292 U.S.
535, 547, 54 S.Ct. 830, 78 L.Ed. 1411.

Compare Electric Co. v. Dow, 166 U.S. 489, 17 S.Ct. 645, 41 L.Ed. 1088;
Pierce v. Somerset Ry., 171 U.S. 641, 648, 19 S.Ct. 64, 43 L.Ed. 316; Leonard
v. Vicksburg, etc., R. Co., 198 U.S. 416, 422, 25 S.Ct. 750, 49 L.Ed. 1108.

E.g., United States v. Delaware & Hudson Co., 213 U.S. 366, 407, 408, 29
S.Ct. 527, 53 L.Ed. 836; United States v. Jin Fuey Moy, 241 U.S. 394, 401, 36
S.Ct. 658, 60 L.Ed. 1061, Ann.Cas.1917D, 854; Baender v. Barnett, 255 U.S.
224, 41 S.Ct. 271, 65 L.Ed. 597; Texas v. Eastern Texas R. Co., 258 U.S. 204,
217, 42 S.Ct. 281, 66 L.Ed. 566; Panama R. Co. v. Johnson, 264 U.S. 375, 390,
44 S.Ct. 391, 68 L.Ed. 748; Linder v. United States, 268 U.S. 5, 17, 18, 45
S.Ct. 446, 69 L.Ed. 819, 39 A.L.R. 229; Missouri Pacific R. Co. v. Boone, 270
U.S. 466, 471, 472, 46 S.Ct. 341, 70 L.Ed. 688; Richmond Screw Anchor Co.
v. United States, 275 U.S. 331, 346, 48 S.Ct. 194, 72 L.Ed. 303; Blodgett v.
Holden, 275 U.S. 142, 148, 276 U.S. 594, 48 S.Ct. 105, 72 L.Ed. 206; Lucas v.
Alexander, 279 U.S. 573, 577, 49 S.Ct. 426, 73 L.Ed. 851, 61 A.L.R. 906;
Interstate Commerce Commission v. Oregon-Washington R. & N. Co., 288
U.S. 14, 40, 53 S.Ct. 266, 77 L.Ed. 588.

Others are Memphis City v. Dean, 8 Wall. 64, 73, 19 L.Ed. 326; Smyth v.
Ames, 169 U.S. 466, 515518, 18 S.Ct. 418, 42 L.Ed. 819; Corbus v. Alaska
Treadwell Gold Mining Co., 187 U.S. 455, 23 S.Ct. 157, 47 L.Ed. 256; Ex
parte Young, 209 U.S. 123, 143, 28 S.Ct. 441, 52 L.Ed. 714, 13 L.R.A. (N.S.)
932, 14 Ann.Cas. 764; Delaware & Hudson Co. v. Albany & Susquehanna R.
Co., 213 U.S. 435, 29 S.Ct. 540, 53 L.Ed. 862; Wathen v. Jackson Oil &

Refining Co., 235 U.S. 635, 35 S.Ct. 225, 59 L.Ed. 395.

10

The resolution of the directors (Dodge v. Woolsey, 18 How. 331, at page 340,
15 L.Ed. 401) was this: 'Resolved, that we fully concur in the views expressed
in said letter as to the illegality of the tax therein named, and believe it to be in
no way binding upon the bank; but, in consideration of the many obstacles in
the way of testing the law in the courts of the State, we cannot consent to take
the action which we are called upon to take, but must leave the said Kleman to
pursue such measures as he may deem best in the premises.' Referring to Dodge
v. Woolsey, the Court pointed out in Hawes v. Oakland, 104 U.S. 450, 459, 26
L.Ed. 827: 'As the law then stood there was no means by which the bank, being
a citizen of the same State with Dodge, the tax-collector, could bring into a
court of the United States the right which it asserted under the Constitution, to
be relieved of the tax in question, except by writ of error to a State court from
the Supreme Court of the United States.'

11

A notable recent example is Humphrey's Executor v. United States, 295 U.S.

602, page 626 et seq., 55 S.Ct. 869, 79 L.Ed. 1611, which limited Myers v.
United States, 272 U.S. 52, 47 S.Ct. 21, 71 L.Ed. 160, disapproving important
statements in the opinion. For lists of decisions of this Court later overruled, see
Burnet v. Coronado Oil & Gas Co., 285 U.S. 393, 406409, 52 S.Ct. 443, 76
L.Ed. 815; Malcolm Sharp, Movement in Supreme Court AdjudicationA
Study of Modified and Overruled Decisions, 46 Harv.L.Rev. 361, 593, 795.

12

In 1811, Chief Justice Tilghman of the Supreme Court of Pennsylvania, while

asserting the power of the court to hold laws unconstitutional, but declining to
exercise it in a particular case, stated the practice as follows: 'For weighty
reasons, it has been assumed as a principle in constitutional const uction by the
Supreme Court of the United States, by this court, and every other court of
reputation in the United States, that an Act of the legislature is not to be
declared void, unless the violation of the constitution is so manifest as to leave
to room for reasonable doubt.' James B. Thayer, after quoting the passage in
The Origin and Scope of the American Doctrine of Constitutional Law, 7
Harv.Law Review 129, 140, called attention (p. 144) to 'a remark of Judge
Cooley, to the effect that one who is a member of a legislature may vote against
a measure as being, in his judgment, unconstitutional; and, being subsequently
placed on the bench, when this measure having been passed by the legislature
in spite of his opposition, comes before him judicially, may there find it his
duty, although he has in no degree changed his opinion, to declare it
constitutional.'

From the Annual Report, T.V.A. Board for 1934, pp. 23, 24, 25, 26, 27 and 28:

To provide a workable and economic basis of operations, the Authority plans

initially to serve certain definite regions and to develop its program in those
areas before going outside.
The initial areas selected by the Authority may be roughly described as (a) the
region immediately proximate to the route of the transmission line soon to be
constructed by the Authority between Muscle Shoals and the site of Norris
Dam; (b) the region in proximity to Muscle Shoals, including northern
Alabama and northeastern Mississippi; and (c) the region in the proximity of
Norris Dam (the new source of power to be constructed by the Authority on the
Clinch River in northeast Tennessee).
At a later stage in the development it is contemplated to include, roughly, the
drainage area of the Tennessee River in Kentucky, Alabama, Georgia, and
North Carolina, and that part of Tennessee which lies east of the west margin of
the Tennessee drainage area.
To make the area a workable one and a fair measure of public ownership, it
should include several cities of substantial size (such as Chattanooga and
Knoxville) and, ultimately, at least one city of more
than a quarter million, within transmission distance, such as Birmingham,
Memphis, Atlanta, or Louisville.
While it is the Authority's present intention to develop its power program in the
above-described territory before considering going outside, the Authority may
go outside the area if there are substantial changes in general conditions, facts,
or governmental policy, which would necessarily require a change in this policy
of regional development, or if the privately owned utilities in the area do not
cooperate in the working out of the program.
The Authority entered into a 5-year contract on January 4, 1934, with the
Commonwealth & Southern Corporation and its Alabama, Tennessee, Georgia,
and Mississippi subsidiaries. The contract covered options to purchase electric
properties in certain counties of Alabama, Mississippi, and Tennessee, the sale
of distribution systems to municipalities in these counties, restrictions on
territorial expansion by the contracting parties, the interchange of power, and
other matters.
Alabama properties.All of the low-tension (44,000 volts or lower)
transmission lines, substations, rural lines, and rural distribution systems of the
Alabama Power Co. in the counties of Lauderdale, Colbert, Lawrence,
Limestone, and Morgan (except the Hulaco area), were included in the contract;
also those in the north half of Franklin County, including the town of Red Bay,

and the territory in the northern part of Cullman County served by a line of the
Alabama Power Co. extending south from Decatur. The price of these
properties was set at $1,101,256. The purchase had not been completed at the
end of the fiscal year.
The power company agreed to attempt to sell the local distribution systems in
the above counties to the respective municipalities, the Authority reserving the
right to serve them if sales were not consummated within 3 months of bona fide
negotiation and effort. Because of the failure of any (many) of the
municipalities in northern Alabama to consummate negotiations for the
purchase of the distributi n systems serving them, the Authority entered into
negotiations for the direct purchase of these distribution systems, but a
purchase contract had not been completed on June 30.
Mississippi properties.The contract covered all of the properties of the
Mississippi Power Co. in the counties of Pontotoc, Lee, Itawamba, Union, Benton, Tippah, Prentiss, Tishomingo, and Alcorn, except a
dam site on the Tennessee River in Tishomingo County. The purchase price
was $850,000. The purchase was completed and delivery was accepted on June
1, 1934.
The transmission and generation facilities acquired in Mississippi and to be
retained as part of the Authority's system include the following:
44,000-volt transmission lines...........miles. 63
44,000-volt substations................ 6
22,000-volt transmission lines..........miles. 45
22,000-volt substations................ 4
Tupelo steam stand-by generating plant. Kilovolt-amperes
Corinth steam stand-by generating plant. Kilovolt-amperes
Blue Mountain Diesel generating plant. Kilovolt-amperes

4,374
2,225
150

Myrtle Diesel generating plant. Kilovolt-amperes. 75

Part of the local distribution facilities acquired in Mississippi were sold prior to
the end of the fiscal year and it is expected that all will be sold eventually, as
noted hereafter.
Tennessee properties.The contract covered all of the properties of the
Tennessee Electric Power Co. in the counties of Anderson, Campbell, Morgan

(except the lines extending into Morgan County from Harriman), and Scott;
also those in the west portion of Claiborne County, and the 66,000-volt
transmission line from Anderson County to Knoxville. The price of these
properties was set at $900,000. The purchase had not been completed at the end
of the fiscal year.
Negotiations were carried on diligently for several months with the National
Power & Light Co., an affiliate of the Electric Bond & Share Co., in an
endeavor to acquire the eastern Tennessee electric properties of the Tennessee
Public Service Co., a subsidiary of the National Power & Light Co. The electric
distribution system in the city of Knoxville is included in these properties. The
negotiations resulted in a contract after the end of the fiscal year.
Construction of rural electric lines in northern Alabama and northeastern
Mississippi was commenced in the latter part of 1933 with relief labor, the
Authority furnishing supervision and materials.
Relief labor was withdrawn of February 15, 1934, after which date the work
was continued by the Authority with its own forces. Approximately 93.5 miles
of rural electric lines were under construction in Lauderdale and Colbert
Counties, Ala., on June 30, and approximately 127 miles in Lee, Pontotoc,
Alcorn, Itawamba, Prentiss, Monroe, and Tishomingo Counties, Miss.
A standard form of 20-year contract was devised to govern the sale of power at
wholesale to municipal distribution systems, and was first used in a contract
with the city of Tupelo, Miss. The Tupelo contract has been published by the
Authority and is available for distribution.
Annual Report, T.V.A. 1935, pp. 29, 30:
The Authority has devoted special attention during the year to the problems of
rural electrification, as required by section 10 of the act. By the close of the
fiscal year 200 miles of rural electric line had been built, and 181 additional
miles were in process of construction. These lines are divided among the
various counties as follows:
Miles
completed

Miles in
progress

Alabama:
Colbert .....................

19.

15

Lauderdale ..................

72.

---

Mississippi:

Alcorn ......................

41.

29

Lee and Itawamba.............

41.

26

Pontotac ....................

27.

---

Prentiss

..................... 7

Tennessee:
Lincoln

....................---.

104

Total ....................... 200.

181

In addition to the above, a number of the rural lines

purchased from the Mississippi Power Co. were rehabilitated in ord
r to improve operating and safety conditions, and to provide for
increases in load. Also, additional customers were connected to
all existing rural lines.