Ashwander v. Tennessee Valley Authority

Nos. 403 and 404

Argued December 19, 20, 1935

Decided February 17, 1936

297 U.S. 288

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Syllabus



1. Owners of a minority of the preferred shares, with voting power, in a

corporation have standing to sue in its right to prevent the carrying

out of a contract executed in its name by the directors with an agency

of the United States, upon the grounds that the contract is

unconstitutional, and that its performance will cause irreparable injury

to the interests of the corporation.  P. 318.



In order to establish the stockholders' right of suit, it is not

necessary to show that, in executing the contract, the directors acted

with fraudulent intent or under legal duress or ultra vires of the

corporation.  In the absence of an adequate legal remedy, it is enough

to show the breach of duty involved in the injurious, illegal action. 

This may consist in yielding to illegal government demands.  The fact

that the directors, in the exercise of their judgment, resolved to

comply with such demands is not an adequate ground for denying to the

stockholders an opportunity to contest their validity.



2. 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.  P. 321.



3. Estoppel in equity must rest on substantial grounds of prejudice or

change of position -- not on technicalities.  P. 322.



4. Where a contract between an electric power corporation and the

Tennessee Valley Authority, a federal agency, for the sale by the former

to the latter of transmission lines leading from a government dam where

electricity was generated, was attacked in behalf of the corporation

upon the ground that legislation by Congress purporting to empower the

federal agency was unconstitutional -- held that the corporation was not

estopped by having bought electricity of the Government at the dam

before and after the passage of the legislation, or by having applied to

a state public service commission for approval of the contract, or by a

delay of some months in the bringing of a stockholders' suit to set the

contract aside.  P. 323. [297 U.S. 289]



The principle that one who accepts the benefit of a statute may not

question its constitutionality held inapplicable.



5. The judicial power does not extend to the determination of abstract

questions.  P. 324.



6. The Act 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," meaning a

controversy of a justiciable nature, thus excluding advisory decrees

upon hypothetical states of fact.  P. 325.



7. The dam across the Tennessee River at Muscle Shoals, known as the

Wilson Dam, was constructed pursuant to the National Defense Act of June

3, 1916, in the exercise of constitutional functions of the Federal

Government, (a) as a means of assuring abundant electric energy for the

manufacture of munitions in the event of war; (b) to improve the

navigability of the river.  P. 326.



8. Judicial notice is taken of the international situation existing when

the Act of 1916 was passed.  Indisputably, the Wilson Dam and its

auxiliary plants, including a hydroelectric power plant, are, and were

intended to be, adapted to the purposes of national defense.  P. 327.



9. The power to regulate interstate commerce includes the power to

remove obstructions to navigation from the navigable rivers of the

United States.  P. 328.



10. In the execution of the Wilson Dam project for the constitutional

purposes above stated, the United States acquired full title to the dam

site, with all riparian rights.  Water power, an inevitable incident of

the construction of the dam, came into the exclusive control of the

Federal Government, and was convertible into electric energy.  Held:



(1) That the water power, the right to convert it into electric energy,

and the electric energy thus produced, constitute property belonging to

the United States.  P. 330.



(2) That this electric energy so produced at the Wilson Dam is property

of which Congress may dispose pursuant to the authority expressly

granted by  3, Art. IV, of the Constitution.  P. 330.



(3) The Ninth and Tenth Amendments do not apply to rights which are

expressly granted by the Constitution to the Federal Government.  P.

330.



(4) The authority of Congress to dispose of electric energy generated at

the Wilson Dam is not limited to a surplus necessarily created in the

course of making munition of war or operating [297 U.S. 290] the works

for navigation purposes, but extends to the remainder of the available

energy, which would otherwise be lost or wasted.  P. 335.



(5) The method of disposing of government property under the

constitutional provision ( 3, Art. IV) must be appropriate to the nature

of the property, and be adopted in the public interest, as distinguished

from private or personal ends, and, the Court assumes, 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.  P. 338.



11. The Government, acting through its agency, the Tennessee Valley

Authority, undertook to dispose of electric energy generated at the

Wilson Dam by sale to a power company by interchange of energy with the

company, and by purchase from the company of certain transmission lines

leading from the dam and providing the means of distributing such energy

to a large population within fifty miles.  The power company had

theretofore been buying energy from the Government at the dam, and was

apparently the only customer to whom it could be sold there.  The

purchase of the lines was to enable the Government to seek a wider

market.  Held:



(1) That there was no basis for concluding that the contract exceeded

the federal power to dispose of property, and invaded rights reserved to

the State or to the people.  P. 338.



(2) The power company had no constitutional right to insist that the

energy should be sold to it at the dam or go to waste.  P. 339.



The decision on the constitutional question is strictly limited to the

right of the Government to dispose of the energy itself -- which is

simply the mechanical energy, incidental to falling water at this dam,

converted into electric energy, susceptible of transmission -- and the

right to acquire these transmission lines as a facility for disposing of

that energy.  The Government rightly conceded at the bar that it was

without constitutional authority to acquire or dispose of electric

energy except as it comes into being in the operation of works

constructed in the exercise of some power delegated to the United

States.  The question whether it might constitutionally use the energy

generated at Wilson Dam in carrying on manufacturing or commercial

enterprises not related to the purposes for which the Government was

established, is not involved in this case; nor is the question whether,

for disposing of the energy, the Government could acquire or operate

local or urban [297 U.S. 291] distribution systems.  The Court expresses

no opinion as to such questions, nor as to the status of any other dam

or power development in the Tennessee Valley, whether connected with or

apart from the Wilson Dam, nor as to the validity of the Tennessee

Valley Authority Act or of the claims made in the pronouncements and

program of that Authority, apart from the questions discussed in

relation to the particular provisions of the contract above mentioned

affecting the Power Company.  P. 339. 78 F.2d 578, affirmed.



CERTIORARI, 296 U.S. 562, to review a decree reversing a decree of the

District Court, by which that court, at the suit of preferred

stockholders of the Alabama Power Company, set aside a contract that had

been entered into by the Company and the Tennessee Valley Authority

involving the sale and exchange of electric power generated at a

government dam, and the acquisition by the Authority of certain

transmission lines from the Power Company. [297 U.S. 315] HUGHES, J.,

lead opinion



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}



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 [297 U.S. 316] 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.



The contract of January 4, 1934, also provided for cooperation between

the Alabama Power Company and the Electric Home and 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 and

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.



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.



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 [297 U.S. 317] 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.



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.  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.



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 cross-appeal.



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 [297

U.S. 318] 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 cross-appeal.  78 F.2d 578.  On plaintiffs'

application, we granted writs of certiorari.



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.



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

improvidently made -- as an unwise exercise of the discretion vested in

the board of directors.  They challenged the contract both as injurious

to the [297 U.S. 319] interests of the corporation and as an illegal

transaction -- 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 stockholders -- when their corporation refuses to

take suitable measures for its protection -- to 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 of 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; Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 433,

553, 554; Brushaber v. Union Pacific R. Co., 240 U.S. 1, 10); 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. Freight Co., 105 U.S. 13, 15, 16;

Cotting v. Kansas City Stockyards Co., 183 U.S. 79, 114).  The remedy

has been accorded to stockholders of public service corporations with

respect to rates alleged to be confiscatory [297 U.S. 320] (Smyth v.

Ames, 169 U.S. 466, 469, 517; Ex parte Young, 209 U.S. 123, 129,

130, 143).  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, at

pp. 340, 345; Greenwood v. Freight Co., supra, at p. 15; Pollock v.

Farmers' Loan & Trust Co., supra, at pp. 433, 553, 554;

Brushaber v. Union Pacific R. Co., supra, at p. 10.



In Smith v. Kansas City Title Co., 255 U.S. 180, 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. pp. 195, 196.  And it appeared

that the directors of the Title Company maintained that the Federal Farm

Loan Act was constitutional, and that the bonds were "valid and

desirable investments."  Id., p. 201.  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 complaint -- availed 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 [297 U.S. 321]

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, give jurisdiction under the principles settled

in Pollock v. Farmers' Loan & Trust Co. and Brushaber v. Union Pacific

R. Co., supra. Id., pp. 201, 202.  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.



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.  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., 93

Fed. 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 [297 U.S. 322] 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.



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 Co., 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 plaintiffs 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.



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

[297 U.S. 323] 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; Wall v. Parrot Silver & Copper Co., 244

U.S. 407; St. Louis Casting Co. v. Prendergast Construction Co., 260

U.S. 469.  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 subject matter of the

contract between them is concerned, or that there is any basis for the

claim of estoppel.



We think that plaintiffs have made a sufficient showing to entitle them

to bring suit, and that a constitutional question is properly presented

and should be decided. [297 U.S. 324]



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; Liberty Warehouse Co. v. Grannis, 273 U.S. 70, 74; Willing v.

Chicago Auditorium Assn., 277 U.S. 274, 289; Nashville, C. & St.L.

Ry. Co. v. Wallace, 288 U.S. 249, 262, 264.  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 Act{6} exceeded the authority of the Congress

and encroached upon that of the State.  New Jersey v. Sargent, 269 U.S.

328.  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.  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. West Virginia, 295 U.S. 463, 474.  Claims based merely upon

"assumed potential invasions" [297 U.S. 325] of rights are not enough to

warrant judicial intervention.  Arizona v. California, 283 U.S. 423,

462.



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, C. & St.L. Ry. 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.



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 and 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 (ante, p. 316), 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.



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 [297 U.S. 326] 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.



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 entrusted to the

government."  Chief Justice Marshall, in McCulloch v. Maryland, 4

Wheat. 316, 423; Linder v. United States, 268 U.S. 5, 17.  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, that is, for the purposes of

national defense and the improvement of navigation.



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  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 most 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 nonnavigable

river or rivers or upon the public lands as in his opinion will be

necessary for carrying out the purposes of this Act and "to construct,

maintain and operate" on any such site dams, locks, improvements to

navigation, power houses, and other plants and equipment or other [297

U.S. 327] 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.



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 [297 U.S. 328] 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.



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, "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,

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.



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

[297 U.S. 329] 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 protects 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 then 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}



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

[297 U.S. 330] that development, or that the construction of the Wilson

Dam was not an appropriate mean to accomplish a legitimate end.



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.



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 Canal Co. v. Patten Paper Co., 172 U.S. 58, 80;

United States v. Chandler-Dunbar Co., 229 U.S. 53, 72, 73; Utah, Power &

Light Co. v. Pfost, 286 U.S. 165, 170.



Authority to dispose of property constitutionally acquired by the United

States is expressly granted to the Congress by  3 of Article IV of the

Constitution.  This section provides:



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.



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 [297 U.S. 331] 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.



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.



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.  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. 

The policy, early [297 U.S. 332] 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; Montello Salt Co. v. Utah, 221 U.S. 452. 

It was in the light of this historic policy that the Court held that the

school grant to Utah by the Enabling Act of 1894{15} was not intended

to embrace land known to be valuable for coal.  United States v. Sweet,

245 U.S. 563, 57.  See also, as to the reservation and leases of oil

lands, Pan American Petroleum Co. v. United States, 273 U.S. 456,

487.



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 [297 U.S. 333] 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.



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.



(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 Canal Co. v.

Patten Paper Co., 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. pp. 68, 69.  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 [297

U.S. 334] 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., p. 80.  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., p. 69.  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 Walter Power Co. v.

Green Bay Canal Co., 142 U.S. 254; Green Bay Canal Co. v. Patten Paper

Co., 173 U.S. 179.



In United States v. Chandler-Dunbar Co., 229 U.S. 53, 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., p. 68.  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., p. 76.  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. [297 U.S. 335] "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.,

p. 73.  Reference was made to the case of Kaukauna Water Power Co. v.

Green Bay Canal Co., 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 Co. v. United States, 282 U.S. 399, the Government made a wartime

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.

pp. 407, 408.



(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 [297 U.S. 336] 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 Co. v. Indiana, 177 U.S. 190, 208.  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 constitutional power to sell

it.  Our decisions recognize no such restriction.  United States v.

Gratiot, 14 Pet. 526; Kansas v. Colorado, 206 U.S. 46, 88, 89; Light v.

United States, 220 U.S. 523, 536, 537; Ruddy v. Rossi, 248 U.S. 104,

106.  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.  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 anyone 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 [297 U.S. 337] 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 Canal Co., 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 Co., supra, the statutory provision, 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., p. 73.



The decisions which petitioners cite give no support to their

contention.  Pollard v. Hagan, 3 How. 212, Shively v. Bowlby, 152 U.S.

1, and Port of Seattle v. Oregon-Washington R. Co., 255 U.S. 56, 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.  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 [297 U.S. 338] the Green Bay

Canal Co., supra, by this statement, at p. 80: 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 controls that navigation.  In

such matters, there can be no divided empire. The case of Wisconsin v.

Illinois, 278 U.S. 367, 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.



(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.



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 [297 U.S. 339]

interchange of energy is a form of disposition, and presents no

questions which are essentially different from those that are pertinent

to sales.



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.



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 [297 U.S. 340]

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 drawn, 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.



The decree of the Circuit Court of Appeals is



Affirmed. [297 U.S. 341] BRANDEIS, J., concurring



MR. JUSTICE BRANDEIS, concurring.



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.



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.  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.



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}  [297 U.S. 342] 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.



Nor is there any basis in law for the assertion that the contract was

ultra vires of 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, 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.



First.  The substantive law.  The plaintiffs who object own about one

three hundred and fortieth of the preferred stock.  They claimed at the

hearing to represent about one-ninth of the preferred stock -- that is,

less than one forty-fifth in amount of all the securities outstanding. 

Their rights are not enlarged because the Tennessee Valley Authority

entered into the transaction pursuant to [297 U.S. 343] 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.



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.  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.



In Hawes v. Oakland, 104 U.S. 450, 462, a common stockholder sought to

enjoin the Contra Costa Waterworks 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 [297 U.S. 344] 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?



In Corbus v. Alaska Treadwell Gold Mining Co., 187 U.S. 455, 463, a suit

by a 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 all act which their judgment does not

approve, or to substitute his judgment for theirs.{2}



Second.  The equity practice.  Even where property rights of

stockholders are alleged to be violated by the management, stockholders

seeking an injunction must [297 U.S. 345] 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.



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.



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

[297 U.S. 346] 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 Comm'n,

258 U.S. 158, 162, the validity of Titles III and IV of the

Transportation Act of 1920.  In New Jersey v. Sargent, 269 U.S. 328, the

validity of parts of the Federal Water Power Act.  In Arizona v.

California, 283 U.S. 423, the validity of the Boulder Canyon Project

Act.  Compare United States v. West Virginia, 295 U.S. 463, involving

the Federal Water Power Act, and Liberty Warehouse Co. v. Grannis, 273

U.S. 70, 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.



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:



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. v. Wellman, 143 U.S. 339, 345.  Compare Lord v. Veazie,

8 How. 251; Atherton Mills v. Johnston, 259 U.S. 13, 15.



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

advance of the necessity of deciding it."  [297 U.S. 347] Liverpool,

N.Y. & P. S.S. Co. v. Emigration Commissioners, 113 U.S. 33, 39;{5}

Abrams v. Van Schaick, 293 U.S. 188; Wilshire Oil Co. v. United States,

295 U.S. 100.  "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.



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. & P. S.S. Co. v. Emigration Commissioners, supra;

compare Hammond v. Schapp Bus Line, 275 U.S. 164, 169-172.



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;

Light v. United States, 220 U.S. 523, 538.  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.



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. The Judges, 179 U.S. [297 U.S. 348] 405; Hendrick v. Maryland,

235 U.S. 610, 621.  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. v. Miller, 283 U.S. 96, 99-100. 

In Fairchild v. Hughes, 258 U.S. 126, 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, the challenge of the federal Maternity Act was not

entertained, although made by the Commonwealth on behalf of all its

citizens.



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; Wall v. Parrot

Silver & Copper Co., 244 U.S. 407, 411-412; St. Louis Malleable Casting

Co. v. Prendergast Construction Co., 260 U.S. 469.



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.{8} [297 U.S. 349]



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 failure to discharge it, whereas the Tennessee Valley

Authority Act 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}



Dodge v. Woolsey, 18 How. 331, 341-346, 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 drew

clearly the distinction between "an error of judgment" and a breach [297

U.S. 350] 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}



Grenwood v. Freight Co., 105 U.S. 13, 116, 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.



Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 553-554, 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 [297 U.S. 351] to

the plaintiff was admitted.  The Court said: The objection of adequate

remedy at 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 issue discussed in the dissent (157 U.S. at 608-612)

was the effect of R.S.  3224.



Cotting v. Kansas City Stock Yards Co., 183 U.S. 79, 113, 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."



Chicago v. Mills, 204 U.S. 321, was a suit brought by a common

stockholder of the People's Gas, Light and 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 (p. 331): 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. . . .



Brushaber v. Union Pacific R. Co., 240 U.S. 1, 9-10, was a suit brought

by a common stockholder to restrain the corporation from voluntarily

paying a tax alleged to [297 U.S. 352] be invalid.  As stated by

plaintiff's counsel: The contention -- and this is the only objection

that is made to the suit -- that it seeks to do indirectly what the

Revised Statutes [ 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.



Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 199-202, 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  24 of the Judicial Code.  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.



Hill v. Wallace, 259 U.S. 44, 60-63, was a suit by members of the

Board of Trade of Chicago to restrain enforcement of the Future Trading

Act, 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.



If, or insofar 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 decisions shown, upon

fuller [297 U.S. 353] 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, decided

at this term.  There, we overruled United States v. Stevenson, 215 U.S.

190, 195, long a controlling authority on the Criminal Appeals Act.



Fifth.  If the Company ever had a right to challenge the transaction

with the Tennessee Valley Authority, its right had been lost by 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, [297 U.S. 354] the plaintiffs

made no protest until August 7, 1934, and did not begin this suit until

more than eight months after the execution of the contract.  Others --

certain ice and coal companies who thought they would suffer as

competitors -- appeared before the Commission in opposition to the

action of the Authority, and apparently they are now contributing to the

expenses of this litigation.



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.



Mr. Justice Iredell said as early as 1798, in Calder v. Bull, 3 Dall.

386, 399: 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.



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

Wheat. 518, 625: On more than one occasion, this Court has expressed

the cautious 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}

[297 U.S. 355]



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

But if I could rest my opinion in favor 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 favor of its validity until it

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.



Mr. Chief Justice Waite said in the Sinking-Fund Case, 99 U.S. 700, 718:

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.



The challenge of the power of the Tennessee Valley Authority rests

wholly upon the claim that the act of [297 U.S. 356] 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, 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 Comm'n, 294 U.S. 50, 63: 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.



MR. JUSTICE STONE, MR. JUSTICE ROBERTS, and MR. JUSTICE CARDOZO join in

this opinion. MCREYNOLDS, J., separate opinion



Separate opinion of MR. JUSTICE McREYNOLDS.



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 Co., 255 U.S. 180, the grounds for jurisdiction were far less

substantial than those here disclosed.  We may not with propriety avoid

disagreeable duties by lightly forsaking long respected precedents and

established practice.



Nor do I find serious difficulty with the notion that the United States,

by proper means and for legitimate ends, [297 U.S. 357] 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

undertake the business of developing, distributing and selling electric

power.  If the record sustains this charge, we ought so to declare and

decree accordingly.



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.



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 [297 U.S. 358] which directly relate to

Alabama Power Company is not permissible.  We must give attention to the

whole transaction -- its antecedents, purpose and effect -- as well as

the terms employed.



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

enormous practical importance to petitioners -- their 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.



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.



At Muscle Shoals, near Florence, Alabama (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 [297 U.S. 359] of

power.  Production of electricity soon commenced.  Some of this was

devoted to governmental purposes; much was sold, delivery being made at

or near the dam.



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.



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, [297

U.S. 360] 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.



Readily to understand the issues now before us, one must be mindful of

these circumstances.



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.



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.



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 [297 U.S.

361] of property.  Nothing in the findings lends support to any such

view.



The record leaves no room for reasonable doubt that the primary purpose

was to put the Federal Government into the business of distributing 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.* [297 U.S.

362]



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 [297 U.S. 363] own power and to use existing systems as a standby or

backup service.



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 [297 U.S. 364] 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, [297 U.S. 365] moreover, implicit in both the January 4 contract and

the now terminated August 9th contract.



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 accomplished -- devotion 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.



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.



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 [297 U.S. 366] and industrial development, and to improve

navigation in the Tennessee River and to control the destructive

floodwaters in the Tennessee River and Mississippi River Basins. It

provided, a board of three directors "shall direct the exercise of all

the powers of the Corporation," and "is authorized to make alterations,

modifications or improvements in existing plants and facilities, and to

construct new plants", and to "produce, distribute, and sell electric

power as herein particularly specified."  The Corporation shall have

such powers as may be necessary or appropriate for the exercise of the

powers herein specifically conferred upon the Corporation; 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.



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. 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.



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, [297 U.S. 367] 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.



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.



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.



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. [297 U.S. 368]



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.



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.]



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 Pontotoc, 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.]



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.] [297

U.S. 369]



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.



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.



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.



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 [297 U.S. 370] amount

which Authority shall be entitled to demand at all points of exchange

shall be 70,000 k.v.



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 1/10 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.



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.



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 insofar as

any plan, purpose or activity of the TVA or of the United States

disclosed on this record would indicate. 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 [297 U.S. 371] 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 --



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.



Performance of the contract of January 4th, 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.



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 [297 U.S. 372] generation, transmission and commercial

distribution of electricity within State domain, having no reasonable

relation to a lawful governmental use.



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.



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.



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,

transmitting 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, an easy way has been

found for breaking down the limitations heretofore supposed to guarantee

protection against aggression. Footnotes HUGHES, J., lead opinion

(Footnotes)



1. 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.



2. 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.



3. Equity Rule 27.



4. 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.



5. See note 2.



6. 41 Stat. 1063.



7. 48 Stat. 955.



8. 39 Stat. 166, 215.



9. 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 hydroelectric 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 cyanamide 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 cyanamide from a manufacturing

standpoint, but, due to the availability of ammonium nitrate as a result

of commercial development of byproduct or synthetic processes, the

commercial or peacetime manufacture of calcium cyanamide 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

cyanamide 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. 43, 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 States v. Sweet, 245

U.S. 563, 568, 569.



14. Act of July 4, 1866, c. 16,  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. BRANDEIS, J., concurring (Footnotes)



1. 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 contract.  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.



2. See also Samuel v. Holladay, 21 Fed.Cas. No. 12,288, pp. 306,

311-312.



3. E.g., Miller, J., in Ex parte Garland, 4 Wall. 333, 382;

Hepburn v. Griswold, 8 Wall. 603, 610; Adkins v. Children's Hospital,

261 U.S. 525, 544; Holmes, J., in Blodgett v. Holden, 275 U.S. 142,

147-148.



4. E.g., Hayburn's Case, 2 Dall. 409; United States v. Ferreira, 13 How.

40; Gordon v. United States, 2 Wall. 561, 117 U.S. 697; Muskrat v.

United States, 219 U.S. 346; Willing v. Chicago Auditorium Assn., 277

U.S. 274.



5. E.g., Ex parte Randolph, 20 Fed.Cas. No. 11,558, pp. 242, 254;

Charles River Bridge v. Warren Bridge, 11 Pet. 420, 553;

Trade-Mark Cases, 100 U.S. 82, 96; Arizona v. California, 283 U.S. 423,

462-464.



6. E.g., Hatch v. Reardon, 204 U.S. 152, 160-161; Corporation Commission

v. Lowe, 281 U.S. 431, 438; Heald v. District of Columbia, 259 U.S. 114,

123; Sprout v. South Bend, 277 U.S. 163, 167; Concordia Fire Insurance

Co. v. Illinois, 292 U.S. 535, 547.



7. Compare Electric Co. v. Dow, 166 U.S. 489; Pierce v. Somerset Ry.,

171 U.S. 641, 648; Leonard v. Vicksburg, S. & P. R. Co., 198 U.S. 416,

422.



8. E.g., United States v. Delaware & Hudson Co., 213 U.S. 366, 407-408;

United States v. Jin Fuey Moy, 241 U.S. 394, 401; Baender v. Barnett,

255 U.S. 224; Texas v. Eastern Texas R. Co., 258 U.S. 204, 217; Panama

R. Co. v. Johnson, 264 U.S. 375, 390; Linder v. United States, 268 U.S.

5, 17-18; Missouri Pacific R. Co. v. Boone, 270 U.S. 466, 471-472;

Richmond Screw Anchor Co. v. United States, 275 U.S. 331, 346; Blodgett

v. Holden, 275 U.S. 142, 148; Lucas v. Alexander, 279 U.S. 573, 577;

Interstate Commerce Comm'n v. Oregon-Washington R. & N. Co., 288 U.S.

14, 40.



9. Others are Memphis v. Dean, 8 Wall. 64, 73; Smyth v. Ames, 169 U.S.

466, 515-518; Corbus v. Alaska Treadwell Gold Mining Co., 187 U.S. 455;

Ex parte Young, 209 U.S. 123, 143; Delaware & Hudson Co. v. Albany

& Susquehanna R. Co., 213 U.S. 435; Wathen v. Jackson Oil & Refining

Co., 235 U.S. 635.



10. The resolution of the directors (p. 340) 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: 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, which limited (p. 626 et seq.) Myers v. United

States, 272 U.S. 52, disapproving important statements in the opinion. 

For lists of decisions of this Court later overruled, see Burnet v.

Cormado Oil & Gas Co., 285 U.S. 393, 406-409; Malcolm Sharp, Movement

in Supreme Court Adjudication -- A 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 construction 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

no 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. MCREYNOLDS, J.,

separate opinion (Footnotes)



* From the Annual Report, TVA 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 distribution

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  4,374 Corinth steam

stand-by generating plant. . . . . . do       2,225 Blue Mountain Diesel

generating plant. . . . . . . do         150 Myrtle Diesel generating

plant . . . . . . . . . . do          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 on 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, TVA 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    

Miles in Alabama:                     completed   progress Colbert . . .

. . . . . . .  19          15 Lauderdale. . . . . . . . .  72         

__ Mississippi: Alcorn. . . . . . . . . . .  41          29 Lee and

Itawamba. . . . . .  41          26 Pontotoc. . . . . . . . . .  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 order to improve operating

and safety conditions, and to provide for increases in load.  Also,

additional customers were connected to all existing rural lines.

