James Shirley Eaton.

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account. A young man on the way to his wedding missed con-
nections on a through ticket and he suffered such " great mental
pain and anguish " that the railroad was compelled to solace him
with a thousand dollars, which could only be described as a per-


sonal injury expense.* With the actual payment is included the
expense of effecting settlement, whether amicably or through the
courts, including pay and expenses of employees attending
coroner's inquest (Case 34). Salary and expenses of adjusters
are of this class, as also wages of other employees when attend-
ing court or investigations, rent and other office expenses, includ-
ing " Stationery and Printing " (Cases 35, 532). Legal expenses
(except when an item in the plaintiff's costs adjudged against
the defendant) are not of this class because there is a regular
legal staff on the railroad which serves all departments as needed
and whose expense is charged to legal expense.

Medical and hospital service is of the nature of preventive
measures to avoid when possible more serious injuries or
fatalities with the consequent heavier damages. For this reason
salaries of a fixed medical and surgical staff, with their supplies,
or contributions to hospitals, are charged to this account. All
emergency expense of carriages and attendants to care for
injured are of the same class.

The railroad is frequently required to provide funeral
expenses for victims of accident, and such expense is distinctly
an "Injuries to Persons" charge. Where any fixed expenses
are involved which serve several claims accounts the amount
unassignable must be evenly divided among the accounts served,
except that hospital subscriptions are divided one quarter each
to Maintenance of Way and Structures, and Maintenance of
Equipment, and one half to Transportation Expense this

In case the railroad carries an insurance policy against this
form of liability, the monthly accruals of insurance premium,
charged to " Insurance " take the place of the " Injuries to Per-

* The line between " Injuries to Persons " and " Other Expenses " is
not easy to draw at this point. ' ' If award of damages is based upon a
property loss," the charge is " Other Expenses; " " if because of personal
injuries sustained, to ' Injuries to Persons.' " (Case 79.)


sons" account (Case 526). This practice is indefensible. It is
a classification by the form of the payment instead of the use of
the payment.

" Injuries to Persons " being a most irregular account it is
permissible to make the monthly charge arbitrarily on the basis
of an annual schedule (Case 155).

In case of accidents involving both injuries to persons and
loss or damage of clothing each must be charged to its appro-
priate account; but if the separation is not possible the entire
amount of the settlement is charged to " Injuries to Persons "
(Case 386).

104, 105. Operating Joint Tracks and Facilities Dr.,Cr. To
avoid duplication of construction and maintenance, it frequently
happens that a road will admit a connecting road to a section of
its line to be manned and operated by one of the roads for the
joint account of both. The joint service at yards and terminals
has already been provided for separately in order to preserve
the distinction between line of road and terminal expense.
(Cases 275, 492). This account of joint tracks and facilities
covers the running right and facilities between terminals. In
order to preserve the relation between the items of expenses and
the operating units, the detail is not disturbed, but the offsetting
account, " Operating Joint Tracks and Facilities/' is set up,
through which the road disbursing the moneys, credits its trans-
portation expenses en bloc, by the amount of the bill rendered.
The other road in turn takes up the debt passed under a similar
heading on the debit side, and thus does not disturb its detail
accounts. Where a road pays trackage in, a single flat rate per
car or per train, such amount is necessarily composed of allow-
ance for manning towers, maintenance and interest on plant, and
it must be divided accordingly to the proper joint track and
facilities account (Cases 117, 120, 121).

This account implies the permanent, joint use of the facilities
(Cases 74, 535). When one railroad delivers its train and crew


to the rails of connecting road, and from this point surrenders
its revenue, billing the other road for crew and train expense,
there is not a case of joint tracks and facilities. It has been
ruled, however, that a single joint interlocker station at the
crossing of the lines of two railroads constitutes a case of joint
tracks and facilities (Case 283).

Joint facilities accounts can only be used when there is a
plant of some kind used in common: for the present a joint
staff without plant does not constitute "joint facilities." It
does however include the wages expense when in connection with
a plant in joint use.

" Joint facilities" contemplates some permanent joint
arrangement (Cases 74, 497) six months alternation is con-
sidered "permanent."

Joint facilities can only be used when the other railroad is
a common carrier (Case 495).

In marking the distinction between " joint tracks " and " joint
yards and terminals" it has been ruled that mileage (up to
2.45 miles in case cited) used as part of a union station facilities
falls under " joint yards and terminals" (Case 492).



The several specific functions of the operating railroad, which
are the getting of traffic, the handling of traffic, and the mainten-
ance of the roadway and the equipment by which the traffic is
handled, are each assigned to the responsibility of a separate
department. These several departments are brought together
in the general office in the official person of the president, who
reports to the Board of Directors. Here in the general office,
financial policies are worked out, and departmental policies
adjusted to conform. Here the capital is invested and the divi-
dends are distributed. Here is the corporate machinery by which
the company affirms its acts in the form of official records, and
affixes the corporate seal; here is the custody of the treasury
funds ; here is the legal organization that assures tke legal form
to the corporate undertaking, and protects the property and
various interests of the corporation. Here are accounted all
funds received, and here disbursements are apportioned in con-
formity with the instructions of the Board of Directors, whereby
general policies are made effective. To these usual functions of
the general office are sometimes added " law and tax commission-
ers," and special expert staff assignments which under various
conditions may be necessary.

The classification of expenses of the general office provides
for the salaries of the officers and their staff, with their expenses
and stationery and printing. Two classes of service are drawn
out of the general office and their wages and expenses are set up
as separate accounts under the headings respectively of " Law
Expenses " and " Belief Department Expenses."



With the expenses of the general office are also charged as
general expense the disbursements for pensions and insurance,
because these are for account of the property as a whole.

1 06. Salaries and Expenses General Officers. The
position of chairman of the Board of Directors is sometimes
established as a definite office with a salary, and the chairman
together with the secretary are classed as general officers, and
their salaries charged to this account.

Directors only give their services to attend the Board meet-
ings, for which they are paid in fees that are charged to '" Other
Expenses " in the group of " General Expenses." Because they
do not give their full time, they are not, strictly speaking,
officials, but the chairman who is paid a salary and gives a
definite part of his time in active work is considered an officer.

The chairman of the Board and the secretary are directly
concerned with the affairs of the Board of Directors. The presi-
dent, ex officio, is a member of the Board of Directors. He is
the connecting link, and in most cases the only connecting link,
between the Board of Directors which legislates on general
financial polices, and the organization which executes them.
Viewed broadly, the other general officers may be considered as
quasi staff officers on the staff of the president having custody
of the funds and of the accounts, the freight claims, the real
estate and the taxes.

The titles of the officers performing these and other functions,
whose salaries are charged to this account, are vice president,
treasurer, comptroller, general auditor, auditor, registrar or
transfer agent, freight claim agent, real estate agent, tax com-
missioner. With each officer is classed the assistant officer
of the same title, and also the officer of the title of " assistant
to " the officers named above. When a road is in the hands of a
court, the receiver is a general officer and his fees and salary are
charged to this account. To these are added " All other General
Officers not otherwise provided for."


In the quasi staff character of their functions, these officers
are practically a part of the president's office and together
sustain a common, general relation to the Traffic, Transportation,
and M. of W. and S. and M. of E. departments.

Wide differences in the organization of different railroads
force this classification to the basis of the uses served rather than
the titles in force. Thus a president who has direct charge of
one or more departments is classified as a departmental officer
(Case 82). If the service of a general officer is performed by
an officer of another company on the basis of a charge of a cer-
tain per cent of his salary, such charge is carried to this account
(Case 255).

The pay and expenses of the officials who purchase and dis-
burse supplies are not charged to this account, but are added as
a burden to the invoice cost of the supplies, which they handle.
These officers do serve the road as a whole in the same way as
general officers, but the device of adding their expenses to the
cost of the supplies makes it possible to charge out each month
the cost of their services at the points where such services apply.
This is not possible with general officers.

This account is divided into salaries and expenses. Under
the former caption is charged the pay, whether by salary or fee,
of the officers who perform the functions described above. Under
expenses are included all personal expenses paid by the company
for account of the officers named above, and the supplies and
cost of running their special cars or trains. Membership fees of
general officers in railroad and other associations, classify here.
107. Salaries and Expenses of Clerks and Attendants. The
pay of the staffs of the general officers is charged to this account.
They are a more numerous body and constitute a more flexible
expense ; hence the distinction. The line between the general
officers charged to " Salaries and Expenses of General Officers "
and their staff charged to this account, is drawn arbitrarily.
The local treasurer, the assistant treasurer, and the assistant


auditor, are " general officers " ; the cashier, the paymaster, the
chief accountant, the traveling auditor, are " clerks and

This account is itself divided into " Clerks " and " Attend-
ants," and the distinction here too, is at the last arbitrary. For
instance, the postman and mail clerks in the general office are
of the former class, while the superintendent of the general
office building, the bank messengers, messenger telephone
operator, and usher are classed with the drivers, stablemen,
janitors, cleaners and porters.

"Expenses," which is the third caption of this account,
includes traveling and other expenses, supplies for special cars
while in the use of the above staff, and expense of special trains
run for them.

1 08 General Office Supplies and Expenses. The salaries
and wages expense, together with the incidental personal
expenses of the officials and staff, who occupy and man the gen-
eral office building, have been provided for in the two accounts
next preceding. There remains the running expense, except
wages, incidental to the housing of, caring for, and furnishing
miscellaneous conveniences for the body of men and officials con-
stituting the general office. Such supplies and expenses are:
the rent and repairs of rented general office buildings and
fixtures, the alteration of partitions and fixtures, furniture, heat-
ing, lighting and cleaning supplies, messenger wagon facilities
and the use of public service for telephone, telegraph, cabling
and express.

Atlases, directories and like reference books for general
office use, together with newspapers and periodicals, are an item
of general office expense, classified separately from the stationery,
which has an expense head for itself. Premiums on fidelity
bonds for general office employees are a general office expense as
distinguished from memberships in associations held by officials,
which are charged to expense of general officers. The first cost


of automobiles, wagons or furniture (if less than $200) for
the use of the general office (Case 518), is, like any subsequent
renewal, charged to this account as a supplies expense, probably
upon the theory that most of the items thus charged are actually

When the general office building is occupied by depart-
mental office staffs, the office rent and expenses should be
equitably apportioned among them (Case 534).

109. Law Expenses. Every large railroad maintains a legal
staff to assure the legality and legal form of its acts, to give
counsel as to its legal rights and obligations, to enforce its con-
tracts, and to protect its property and rights under attack. The
general oversight of this legal staff extends from the minutest
act of the railroad in its dealings with its patrons, its employees
and the holders of its stock and securities, up to its general cor-
porate policies. It vises the form of bill of lading, under which
the carrier undertakes the function of bailee, for transporta-
tion, it indicates the method of handling garnishments on em-
ployees wages ; it defines the legal limits in issuing new
securities and consolidating railroad properties. At every point
of the operations it gives its counsel in matters of contractual
relations, expressed or implied, specific or general. When rights
are invaded it takes direct charge of the litigation. A very
large part of its duty is to effect settlement of disputes outside
of court. The men who settle disputes, whether in or out of
court, whether regular staff, special counsel (Case, 287, 617), or
arbitrators, together with their law books, the printing of their
briefs, legal forms, testimony and reports, perform essentially
the same function, and therefore their expenses are charged to
one account.

A very large part of the controversies which are a matter
of delicate negotiation and sometimes lead to litigation, is that
arising from loss and damage of freight and property, and from
personal injuries. These cases constitute so regular and large a


group, and are so nearly similar, that they result in specializa-
tion with regular staffs to handle them. For these reasons they
bear their own burden of all expenses incidental to arbitration,
litigation and final settlement, except the actual salaries, fees
and retainers for legal service. But the notarial fees in the
handling of overcharge claims is " Law Expenses v (Case 607).

While " Law Expenses " refers to a department and embraces
all of its salaried and legal and office expenses, including office
rent (Case 345) and the printing of briefs, legal forms, etc.,
yet it is so far consolidated with the other departments embraced
in general expenses that its stationery and printing of a general
character is included with that of the other departments in that
group of expense under the item " General Expenses Stationery
and Printing."

no. Insurance. All property in use, or committed to the
charge of the carrier, is at all times exposed to risk of sudden
damage and partial or entire destruction by fire or other extra-
ordinary cause. This damage and destruction of property by
accident is distinguished from the deterioration by wear,
although both are equally an incident of use. But the losses by
accident are irregular, and fall heavily in individual instances,
while wear is more or less constant. In order to save the opera-
tions from the disturbing effects of such erratic factors, it is the
practice in every well organized business to reduce the experience
of accidents of different character to an average, and apportion
the estimated annual expense of this character on the basis of a
regular periodical charge. Such a charge is insurance. It is
merely an arbitrarily estimated average of an irregular expense
related to certain forms of happenings called accidents. It
matters naught whether this charge is made for account of a
fund created by the railroad to care for its own insurance, or
whether it represents an actual cost payment of premiums to a
regular insurance company. The charge is the same. But a
reinsurance expense is the expense which the railroad is put to


when prudence dictates that risks originally carried by the rail-
road company shall be transferred to a company covering wider
range of risks. Such reinsurance expense is charged to the in-
surance fund which should have been created upon a scale liberal
enough to provide for all of the risks assumed. For the same
reason it is not charged to the " Insurance Expense " account,
the latter being a current monthly average charge. And in the
same way amounts recovered for damage to reinsured property
constitute an irregular credit which must be absorbed- by the
insurance fund, and not applied as a credit to the monthly in-
surance expense account (Case 31).

Because insurance is an average, it becomes somewhat of the
nature of a fixed charge, regulated largely by the safety factor
which may be used. It may be based upon experience growing
out of groups of conditions in which departmental lines have
been ignored, and specific local conditions embraced in general
categories. For all of these reasons it is apparently held to be
not closely related to the current expense of each department
insured, and therefore is considered a General Expense item.

Roads are permitted to carry their own insurance both
against property loss and injuries to employees (Case 419}. To
the extent that the " Injuries to Persons " expense may be taken
care of by relief department expense or by an insurance premium
(Cases 419, 526} there is no charge to " Injuries to Persons."

Comment: To the extent that actual charges for different
purposes may be superseded by a single account called
" Insurance " that has no characteristic except that it is an
average charge, the principle of classification is violated.

This violation of right principle is well exhibited when the
insurance of store stock is charged to "Insurance" (Case 181).
All other overhead expenses of supervision and like charges are
carried over to the material issued, so that the identity of values
may be traced to their uses, but the insurance expense is set up
in arbitrary isolation from any use or purpose.


in. Relief Department Expenses. The disability through
accident and through sickness of railroad men working in so
great a body and under such hazard early rendered desirable
some methodical provisions for the financial suffering involved
outside that covered by the legal liability of the railroad. It
was the part of business to substitute for an uncertain charity a
reliable and definite financial arrangement to meet these con-

Whether the insurance fund for these payments was made by
the men alone, or by the men and the company together, an
office for the collection and distribution of the fund was naturally
maintained by the railroad company. Any contributions made
by -the company would fall into the same class of expense. To
provide for such expense this account has been set up.

Since the several " Injuries to Persons " accounts include
only the payments for which the carrier is legally liable, there
must remain a large disbursement for relief, account of acci-
dents for which the railroad is not legally liable, and of sick
benefits for which the " Injuries to Persons " accounts do not
provide. If by contribution to this fund a carrier is released
from expenses for accidents to employees for which it would
otherwise be liable, no distribution under " Injuries to Persons "
is required (Case 419).

112. Pensions. The principle of depreciation that anticipates
the non-serviceability of machinery and plant, or the principle
of insurance that averages the recurrence of extraordinary
factors that destroy or impair efficiency of the property, are
principles that are found to have equal application as a matter
of business prudence among the working force. The theory
here, as in depreciation and insurance, is to make the efficiency of
the current instant pay its toll of the expense that shall affect
the processes that are hidden or unforeseen, but known by experi-
ence to be invariably present, registering their final effect in the
incapacity of superannuation, or disability by specific accident.


The regular monthly charge expense that performs this function
is distinct from the insurance of property, because it may at
times incorporate other factors than those of severe business
prudence, since it deals with men and not with things.

With the actual charge, is included all the salaries and
expenses, including stationery and printing, incidental to the
operation of the department in charge, because this is a special
function of the railroad, and furthermore is not yet in general

The theory of an expense charge is that it shall not only
cover the direct cost of the earnings which it offsets, but that it
shall also maintain the equilibrium of the plant against the
processes of deterioration and accident. Upon the further
theory that the earnings of any one year must be offset sometime
during that year by the , expense incurred to produce those earn-
ings, the insurance and depreciation charges for the year should
closely approximate the actual risk and deterioration of the year.
When the policy is extended to provide for the same factors
among the working force, however, there is no arrangement of
a pension fund accumulated out of a fixed charge to expenses.
No charges (save incidental expenses) may be made to this
account other than the actual payment of pensions. In case the
railroad contributes $30,000 to its pension fund in one year,
while the actual payments drawn on the pension fund are only
$10,000 for the same year, the excess of $20,000 above the cur-
rent disbursements is not a proper charge to expenses
(Case 208).

Comment: If it is proper to offset the decline of equipment
by a fixed depreciation charge, regardless when the actual
renewal payment is made, or to charge " Insurance " a regular
monthly premium based on the estimated loss of a given period
regardless of the actual loss, we think the same principle applies
to " Pensions."

113. Stationery and Printing. Stationery and printing is a


class of office supplies and of office facilities (not. furniture),
with which the staff does its work of recording, calculating, com-
piling and making the recorded communications between itself
and other parts of the organization. This class of supplies began
with the simple notion of the stationery on which the record was
made, whether for file or communications, and added to it the
necessary pencil, pen and ink, and the postage to carry it
through the mails. To this was added further the printing
which was a system of duplicating a single record on paper, and
which naturally fell in the same class. These items were clearly
of the nature of supplies of a special character, supplies being
understood to be articles and material of current consumption,
and in that way distinguished from furniture, which is charged
as an office expense, but is of fairly permanent use. With the

Online LibraryJames Shirley EatonHandbook of railroad expenses → online text (page 17 of 52)