Story Case

The South Shore Telephone Company maintained a system of telephones between Gary, Indiana, and South Chicago, Illinois. It charged a rate of fifteen cents per call for the use of its wires between these two points. The city of Gary, under its charter authority, attempted to reduce this rate. The telephone company maintained that its business between the two towns was interstate commerce, and beyond the power of state control. The city of Gary maintained that there was no exchange of commodities, and, therefore, no commerce. Which contention is correct?

Ruling Court Case. International Textbook Company Vs. Pigg, Volume 217 United States Reports, Page 91

In 1901, Kansas passed a statute providing that a corporation formed under the laws of another state should apply to a State Charter Board, for permission to engage in business in Kansas. The application was to be accompanied with a fee, and with an irrevocable consent that suits against the company might be sustained by service of process against the Secretary of State. As a penalty for failure to comply with this law and to furnish periodical reports, the delinquent corporation was prohibited from maintaining an action or recovering on any obligation in any court of the state. This statute was relied upon as a defense by Pigg, in this suit for a balance of $79 due under a contract which he had signed, subscribing to a correspondence course in commercial law. The plaintiff, the International Textbook Company, was the corporation which owned the International Correspondence Schools in Scranton, Pennsylvania. Its headquarters were there, but it had agents travelling all over the country, enrolling students, selling the books used in the courses, and collecting the fees. The books and the instructions were then sent by mail direct to the student. The company claimed that this was commerce, and that it was interstate, and therefore, within the realm of Congress, and not subject to regulation or interference by the states. If this were true, the statute could not be applied and Pigg's defense should fail.

In an opinion delivered by Mr. Justice Harlan, the court held "that the plaintiff, the International Textbook Company, was engaged in interstate commerce, and was not subject to the legislation of Kansas. There was a course of business dealings, regular and continuous intercourse by the mails, the transportation of books, apparatus and papers, all in the execution of a contract between the parties. The court quoted from the earlier cases, holding that telegraph companies were engaged in interstate commerce, where it was said that the transmissions of intelligence, the transportation of ideas, the importation of information, constituted commerce between the states.

The law imposing the requirements upon business done by foreign corporations could not, therefore, validly apply to the business of the International Textbook Company, and it was not subject to the penalty. It was entitled to bring the suit in a court of the state of Kansas, and Pigg should be held liable. Judgment was given for the plaintiff, the International Textbook Company.

Ruling Law. Story Case Answer

The communication of intelligence as a means of commerce is now recognized as in the same category with transportation, and subject to the control of the Federal Government when interstate in its scope. A telegraph company, as a carrier of messages, occupies the same relation as a railway company in carrying goods. Therefore, Congress has the power to authorize and aid in the construction of interstate telegraph lines, and regulate its entire business. The telephone, when used in interstate business, is equally an instrument of commerce.

The South Shore Telephone Company, in the Story Case, is correct in its contention.