#### THE DELAWARE, LACKAWANNA & WESTERN RAILROAD CO. v. THE UNITED STATES.

[No. 30364.

Decided June 5, 1916.]

*On the Proofs.*

*Contract; transportation of*mails.—A distance circular, plaintiffs indorsement thereon, and the orders and notices of the Postmaster General stating the compensation, and plaintiff’s action thereafter, constitute a contract to carry the mails for a period of four years from July 1, 1905,’ said contract containing a reservation that the compensation to be paid should be subject to future readjustment. Under the act of March 2, 1907, 34 Stat., 1205, 1212, the Postmaster General readjusts the compensation to be paid plaintiff by deducting 5 per cent from the rates then being paid, said readjusted compensation being made effective from and after July 1, 1907, for which deducted compensation plaintiff sues.

*Compensation, readjustment*of.—Where plaintiff acted under the rates stated in the contract of 1905, the rights of the parties became fixed, subject to the terms of the offer itself, which were that the compensation would be subject to readjustment. *Compensation;*protest.—The act of March 2,1907, *supra,*was designed to make a reduction in the compensation then being paid to railroads, and plaintiff had the option of declining the readjusted terms and refusing to further transport the mails, but a protest on the part of plaintiff would not have the effect of restoring the old rates or reserving to it compensation at such rates.

*The Reporter's*statement of the case:

*Messrs. Benjamin Garter*and *F. Garter Pope*for the plaintiff. *Mr. Philip M. Ashford*was on the briefs.

In his correspondence with the claimant, the Postmaster General cites the *Eastern Railroad*ease, 20 C. Cls., 23; 129 U. S., 391, as authority for the reduction here made. We submit that examination of these decisions will clearly show that the Postmaster-General’s conclusions are erroneous.

It is quite clear that the *Eastern Railroad ease*is a case *sui generis*and does not settle anything except the rights of the parties in that particular case.

*427The Post Office Department treats its notice to the claimant, when notifying it of the pay it would receive for the new term 1905-09, that “ this adjustment is subject to future orders and to fines and deductions, and is based on a service of not less than six round trips per week ” as incorporated into the contract, and construes it as a unilateral license to vary its terms at pleasure.

This proposition is unsound. The contract was completed by the Postmaster General submitting to the claimant a written proposal, the execution by the claimant of that proposal, its return to the Postmaster General and his acceptance of it. It bound the claimant to carry, for the rates then provided by law, the matter of which the mails of the United States then consisted, for a term of four years, or until the Postmaster General might choose, within the four years, to reweigh the mails; its compensation to be based .on the lawful rates above mentioned applied to the weights about to be taken. It also bound the claimant to submit to the lawful orders of the Post Office Department and to lawful fines and deductions. On the other hand, it bound the Government to pay the lawful rates, to make only lawful deductions, to levy only lawful fines, and to keep the contract on its part. The subsequent notification of the department was no more than a mere answer to an unasked inquiry as to what was the department’s calculation of claimant’s pay. Any statement *ex post facto*the contract, not *prima facie*inconsistent therewith, could not affect or modify the contract. The meaning of the language employed in the notice of adjustment of pay, therefore, must be restricted to “ future orders and to fines and deductions” within the contract—just as everybody, for 30 years, has known it *did*mean—and no more.

If there is any authority whatever in the case at bar, it is the decision of the Supreme Court in *Chicago & Northwestern Ry. Co.*and Chicago, *Milwaukee & St. Paul Ry.*Co., 104 U. S., 680 and 687. In both these cases the railway companies had formal contracts with the Government for the transportation of the mails for a period of four years.

The reservation and the notice of the statement of pay that “this adjustment is subject to future orders and fines *428and deductions,” was and is no more than would be implied from the agreement because the law makes provision for certain fines and deductions and so do the Postal Regulations, drawn to conform with the law.

We respectfully insist:

(1) That claimant has a four-years contract with the Government and has a right to recover for the breach of the contract, *even though the breach be held to have been committed by express direction of Congress.*

(2) That if claimant did not have a four-years contract with the Government and Congress directed the Postmaster General to set aside the existing arrangement, which in the absence of orders to the contrary, was to continue for a period of four years, it in so doing established a new scale of compensation which involved a reweighing of the mails, and claimant is therefore entitled to recover, since there was no reweighing; in other words, that claimant was entitled to have the *status quo*maintained until the Postmaster General complied with the condition prescribed for the application of the new rates of pay.

*Messrs. Joseph Stewart*and *J. Robert*Anderson, with whom was *Mr. Assistant Attorney General Huston Thomp*son, for the defendants.

The cases relied on by claimant, *Chicago Northwestern Ry. Co.,*104 U. S., 680, and *Chicago, Milwaukee & St. Paul Ry. Co.,*104 U. S., 687, do not apply here. These were cases where the Postmaster General had entered into a written contract for the period of four years and agreed to pay the railways the compensation therein stipulated for such period, and without reserving the right to issue further orders, or “ future orders ” affecting the service, during the period. Before the four-year term expired or the contract terminated, the Postmaster General, in pursuance of an act of Congress, issued an order reducing the pay of the railway company.

The court said:

The contracts * * * were for four years; * * * they were, therefore, valid and binding on the United States *429as well as the railroad company. *Chi. N. W. Ry. Co., 104 U. S., 685.*The Government “ can not retain the obligation of the contract as against the company, and at the same time vary its own, *unless it has reserved the right to do so in the contract itselfP*(Italics ours.) (Id., p. 684.)

The exception just quoted, “unless it (the Government) has reserved the right to do so,” that is, make the order authorizing the carrying of the mails and fixing pay “subject to future orders, fines, and deductions,” takes the instant case out of the rule applied to the facts in the *Chicago Northwestern,*and Chicago, *Milwaukee & St. Paul Ry. Co.*cases, in 104 U. S., 680, 687. The pertinent authority here is that of the *Eastern Railroad Company*v. *United States,*(129 U. S., 391), where the claimant was authorized to carry mails from July 1, 1877, to June 80, 1881, covering a period of four years.

The two cases relied on by claimant differ from that of the *Eastern Railroad*and the instant case in one very material respect. In the *Chicago Northwestern,*and *Chicago, Milwaukee & St. Paul Ry.*cases the companies bound themselves to carry the mails for a definite period and the Government agreed to pay the rate fixed for the same period, without reserving the power in the original order authorizing the transportation of mails and making the same *subject to future orders,*consequently acceptance of pay did not estop the railroads from claiming and recovering the difference between what they were paid under the order reducing compensation and the amount of compensation which the Post Office Department had unreservedly agreed to pay under a contract for a given period which had not expired.

The original order in the *Eastern Railroad case*fixed the rate of compensation for four years “unless otherwise ordered.” In the case at bar the Postmaster General fixed claimant’s compensation at the rates therein specified by the order effective July 1,1905, and by its terms reserved the right to make future orders affecting the adjustment in the following words: “ Subject to future orders, fines, and deductions.” The reservation so made is in effect the same as was made in the *Eastern Railroad case,*which *430the court said “ opened the way for the Postmaster General to exercise the authority conferred,” and the duty on the part of the claimant to conform to the order readjusting pay or else exercise its option, when the reduction was made, to discontinue transportation of mails on its cars “if the changes in the rates were unreasonable or did not meet with its (claimant’s) assent.”

The claimant agreed to perform the service upon “ conditions prescribed by law and the regulations of the Post Office Department.” This stipulation was signed by the claimant’s president and approved by its executive committee (distance circular). The claimant would now make this stipulation read that, in case the Post Office Department authorized the transportation of mails over its line, or any part of it, the railroad company agrees to accept and perform the service, but *declines*to perform the same upon the conditions prescribed by law and the regulations of the department, or subject to future orders.

The claimant can not thus change the effect of its agreement and at the same time perform the service on the terms authorized and recover on an unauthorized basis after July 1, 1907. A four-year service at the rates fixed in the original order was a conditional service, or rather a service upon the conditions prescribed by law and required by the Post Office Department, and the conditions first required by the department were subject to change by “future orders.”

Claimant’s contention seems to be that “actual weight” or “all weight” of the mails carried from July 1, 1907, after a reweighing of the mails, furnishes the only basis for readjustment of compensation. The act provides that compensation is to be readjusted upon “i*outes that are carrying an average weight per day of upward of 5,000 pounds.” According to claimant’s interpretation, the act should read:

Compensation shall only be reduced upon such routes as may be found upon a reweighing of the mails to be carrying an average weight of mail per day in excess of 5,000 pounds.

The same argument was advanced in the *Eastern Railroad Company case,*20 C Cls., 23. The court said: .

*431It is insisted on behalf of the claimant that the words “unless otherwise ordered” were intended to apply only to the results of reweighing the mails, which might be ordered as frequently as the Postmaster General chose to so direct, and which, under the statute, might necessitate a change in the amount of compensation. But we find no such limitation or restriction in either the order or notice.

In the *Eastern Railroad*case, 20 C. Cls., 23, claimant was notified of the reduction July 12, 1878, the same to take effect from July 1, 1878. Thereafter, and on May 9, 1879, the claimant made application to the Post Office Department for a reweighing of the mails between Portland and Boston, on the ground that the weight of the mails “on that portion of their service” had “greatly increased.” In response to this application the Postmaster General did cause a reweighing to be made on two routes, and thereafter applied, as he had been theretofore applying, a 5 per cent reduction less than the compensation would have been under the original orders authorizing the service. On all the other routes the reduced compensation put into effect July 1,1878, continued to be paid on the basis of a 5 per cent reduction, computed on the original order without a reweighing. On appeal the judgment of the Court of Claims was affirmed, 129 U. S., 396.

If the claimant did not wish to carry the mails after its pay was reduced, under an order issued subsequent to the original order, it was not bound to do so “if subsequent changes in the rate were unreasonable or did not meet with its assent.” *Eastern Railroad*Co., *supra.*

Therefore the grounds of objection availed nothing, because in not declining the performance of the service the claimant must have assented thereto, inasmuch as it did not pursue the alternative announced by the court in the case last above cited.

Campbell, *Chief*Justice,

reviewing the facts found to be established, delivered the opinion of the court:

In *Chicago & Northwestern Ry. Co.*v. *United*States, 104 U. S., 680, it was held that where the railroad company had a contract for a term of four years at a stipulated price to carry the mails the price could not be reduced during the *432term by the Post Office Department without the former’s consent. That road was a land-grant road; and in *Chicago, M. & St. P. Ry. Co. case,*104 U. S., 687, the same ruling was made. In each of said cases an attempt had been made by the Postmaster General to reduce the compensation stated in the contract because of the direction to do so contained in the act of July 12,1876. The court held that they could recover the price stated in the contract.

In *Eastern Railroad Co.*v. *United States,*129 U. S., 391, a reduction had been made by the Postmaster General in the compensation stated in the contract because of the act of June 17,1878, and it was held that the company could not recover the difference between what was paid to it upon the reduced basis and what it would have received under the original basis of compensation. The court distinguishes the case from that of *Chicago, etc., Ry. Co., supra,*saying (p. 396) : “That case differs from the present one in the important particular that in the former the company bound itself to carry the mails during a certain period, and, consequently, its acceptance from time to time during that period of less than it was entitled to demand did not prejudice its right to claim what was legally due under its contract, whereas in the present case the company could have declined to accede to the readjustments of rates when they were made.”

It was declared that this court had properly said that the order for the reduction under the act of 1878 and the notice thereof to the company “constituted an offer on the part of the Postmaster General which the claimant might decline or accept at his pleasure,” and the Supreme Court added: “Having received the reduced compensation without protest or objection it may be justly held to have accepted that offer.” (Opinion, p. 396.)

The facts of the instant case are not materially different from the facts of the *Eastern Railroad case,*as stated by Mr. Justice Harlan, except in the particular that in the *Eastern Railroad case*the claimant made no protest or objection to the reduction in the compensation and received the same. In the instant case there was a protest, the effect of which is to be considered later. The principle upon which the *East-**433*em Railroad case*proceeds is that the contract between the parties provided that the compensation could be readjusted and therefore that “ it can not be said that the reduction of 5 per cent was a violation of that contract, for, according to its terms, the parties agreed that the rates fixed * * * were subject to such future orders as the Postmaster General might make.”

In the instant case, a “ distant circular ” had been sent by the Postmaster General to plaintiff, who signified its willingness, by an indorsement thereon duly returned to the Post Office Department, to transport the mails as follows: “In case the Post Office Department authorizes the transportation of mails over this line, or any part of it, the railroad company agrees to accept and perform the service upon the conditions prescribed by law and the regulations of the department.” After the return of the distance circular with the information it called for and the said indorsement thereon by the plaintiff company, the Postmaster General made an order and gave a notice to plaintiff stating that “ the compensation for the transportation of mails, etc., on route No. 107,108, between Hoboken and Buffalo, has been fixed from July 1, 1905, to June 30, 1909,” under certain named acts, “upon returns showing the amount and character of the service,” at á designated rate per annum, and it was added, in both the order and notice, that “ This adjustment is subject to future orders and to fines and deductions and is based on a service of not less than six round trips per week.” There were two routes on plaintiff’s lines, and the orders and notices were substantially the same as to both.

The distance circular, and plaintiff’s said indorsement thereon, taken in connection with the orders and notices of the Postmaster General stating the compensation, and the action of plaintiff thereafter in carrying the mails and receiving the said compensation, evidence the contract between the parties. Until the rates were stated and acted upon there was no acceptance by the plaintiff of the offer of the Government, and when acted upon the rights of the parties became fixed, subject to the terms of the offer itself, which were, as has been said, that the compensation would be sub*434ject to readjustment. Reserved as it was in the offer, the right of future adjustment was reserved in the contract of which the offer was a part, because what we designate as the “ offer ” was the order and notice of adjustment under which plaintiff acted, and, by acting under it, accepted. Prior to such order and notice in 1905 the plaintiff had indicated a willingness to carry the mails “ in case ” the department authorized it, and the order and notice, or some similar action by the department, was essential to convert the conditional expression by the plaintiff into an actual undertaking; but the plaintiff’s indorsement on the distance circular did not say dr imply that the plaintiff would be bound to transport the mails at a price unreasonably low or at any price. It had the option of refusing to carry the mails at the rate fixed subsequently in 1905. *Eastern Railroad*case, *supra.*

In the instant case the Postmaster General reduced the compensation stated in said orders and notices, because of the direction contained in the act of March 2,1907, 34 Stats., 1212, which is similar to the act of 1878 considered in the *Eastern Railroad case.*

The contracts in the instant case contain the same reservation in effect as were involved in that case. As was there said (p. 395): “ This reservation of power in the Postmaster General opened the way for him to exercise the authority conferred and to conform to the direction given by the act of 1878,” or, in the instant case, by the act of 1907.

We are governed by the decisions of the Supreme Court, and the *Eastern Railroad case*controls the instant case unless the plaintiff’s protest be held to make a difference. It is well established that a contract may contain an express provision that one or either party may terminate such contract at his option. *3 Paige Contr. Sec. 1360.*It may be conceded that the parties contemplated that the arrangement effected in 1905 would probably continue for four years at the stated compensation, but the right was nevertheless reserved to make readjustments by future orders. The “future order ” came in the act of 1907, and when acted upon by the department the readjustment was made as Congress directed that it should be made. We can not assent to the argument that the act of 1907 was intended to apply only *435to roads whose contracts expired by limitation after its enactment. Its terms do not admit of that construction. It was designed to make a reduction in the compensation being then paid to any and all roads. It could not lawfully be applied to roads which had contracted with the Postmaster General for a definite period at a fixed compensation. *Chicago, etc., Ry. Co. case,*104 U. S., 680. It could be applied to contracts with roads containing the reservation of the right to readjust the compensation by future orders. *Eastern Railroad case, supra.*Plaintiff’s contract came within the latter class.

The option thus secured to the Government did not have the effect, however, of requiring the railroad company to carry the mails at the reduced rate. Its obligation was to carry them at the compensation stated in the orders and notices of 1905, and when reduced under the authority and direction of the act of 1907 it was free to refuse to go forward under the reduced rates. As said by Mr. Justice Harland in the *Eastern Railroad case:*

> “ We do not mean that the railroad company was bound to continue the carrying of the mails if subsequent changes in the rates were unreasonable or did not meet with its assent. On the contrary, it was at liberty when the five per cent reduction was made to discontinue their transportation on its cars.”

In fact, that right was admitted in the correspondence which ensued between the Postmaster General and the general attorney of the company when the latter was protesting against the former’s action.

The Postmaster General in his letter of November 25, 1907, after stating the position of the Government under the terms of the contracts, which he insisted reserved authority to make the reduction, said:

> “It is open to the company to accept the terms of the readjustment and continue the service or decline those terms and cease the performance of service.”

It is, however, insisted by plaintiff that if the act of 1907 could be put into effect upon plaintiff’s road at all, the ma.il.g should first have been reweighed. We think it clear that the department had a right to reweigh the mails, but it did not *436do so, nor did plaintiff demand that it should. It would have been perhaps a practical impossibility to reweigh the mails on all the railroad mail routes in the country where there were contracts similar to that of plaintiff in any reasonable time. We fail to see how the fact that the mails were not reweighed affects the plaintiff’s case. “ Having the right reserved in the contract to readjust the rates, the Postmaster General proceeded to do so.” “ Chief Justice Richardson, speaking for the Court of Claims, properly said that the order for the reduction under the act of 1878 and the notice thereof to the company constituted an offer on the part of the Postmaster General which the claimant might decline or accept at his pleasure.’ ” Per Mr. Justice Harlan in *Eastern Railroad case*(p. 396). The failure to weigh the mails anew in accordance with the act of 1873 and acts supplementary thereof did not affect the right reserved in the contract and exercised by the Government. It made an offer which plaintiff was free to accept or refuse. The effect of said action by the Government was necessarily a termination of the compensation as stated in 1905, there being no term in the contract which constituted a condition that the mails be reweighed before an adjustment under future orders could be made. What then was the effect of plaintiff’s protest and objection? Plaintiff was duly informed of the reduction. It was tendered the option which it already had of declining the offered terms, but it insisted upon its rights under the contract of 1905. Speaking through its general attorney, it said to the Postmaster General in its letter of December 12:

> *“*I fail to appreciate your reasons, if you are right in your view of the law, in declining to assent to our willingness to carry the mails for restated compensation provided our rights under the contracts are not prejudiced thereby.”

To which the Postmaster General replied:

> “ The service may be continued by you, but it must be with the distinct understanding that there is no agreement on the part of the department to pay for the same at a higher rate than that fixed by the readjusting order issued in accordance with the act above referred to. There is no objection, however, to your reserving any legal right which you may have under the contract existing prior to July 1,1907, and resort*437ing to legal procedure for the determination of the same if you choose to do so.”

Manifestly, plaintiff’s objection to the readjustment could not keep in effect the adjustment of 1905 if the department was authorized by the contract to modify it, and did so in accordance with the contract. *Texas & Pac. Ry. Co.*case, 28 C. Cls., 379, 390. That it could properly do so and that it did effectually make a readjustment are sustained by the ruling in the *Eastern Railroad case.*The contract reserved the right and the Postmaster General duly exercised it. Such being the case, “ it can not be said that the reduction of five per cent (or the smaller reduction) was a violation of that contract.” When, therefore, plaintiff expressed a “willingness to carry the mails for restated compensation, provided our rights under the contracts are not prejudiced thereby,” and the Postmaster General replied as above stated, it is clear that his protest and objection went no further than an assertion that the contract of 1905 continued in force, notwithstanding the fact that the adjustment had been lawfully and according to the express reservation in the contract itself restated by defendants. Suing, as it does in this action, upon the contract of 1905, the answer must be that there has been no violation of it by the defendants. If a mere protest or objection by plaintiff could keep the 1905 contract in force notwithstanding the department’s action under the act of 1907, it is manifest that this right of adjustment expressly reserved in the contract could amount to nothing. The protest or objection to the change might go to the question of compensation as readjusted. It could not restore or keep in force the contract of 1905 if the department could make and did properly make the later adjustment. In other words, plaintiff could accept the readjustment, which was in effect a new offer, or it could refuse to carry the mails on the terms offered. It sought to claim that the contract of 1905 was still in effect, and, by protesting against the change, to reserve the right to so claim. We decided that said contract was not in effect, and that there was no violation by the defendants of that contract in making the new adjustment, and hence that the protest avails *438nothing in this case. *Eastern Railroad Co. case.*By continuing the transportation of the mails under the restated offer of the department, the plaintiff either assented to the terms of the offer or there was no contract at all between the parties. *Tex. & Pac. Ry. Co.*case, 379. If it assented as under the terms of its protest and the Postmaster General’s reply, we think the more reasonable view to be that it did, there is, of course, an end of this case. If it be held that it did not assent, then in the absence of an express contract its right of recovery would be based upon an implied obligation to pay the reasonable value of the services rendered as upon a *quantum meruit.*No such claim has been advanced in this case and there is no evidence upon which to base it. It is not shown that the weights of the mails were greater or less than those found in 1905, and no presumption can be indulged as to that fact. If the price fixed in 1905 were attempted to be used in case the weights in 1907 were shown as evidence of what was a fair or reasonable price for the new weights we would be confronted with the condition stated in the Postmaster General’s letter to plaintiff’s general attorney relative to the terms upon which the service could be continued. Plaintiff alleges that it had four-year contracts, and sues to recover the amounts it would have received under their terms less what it was paid. It appears, however, that the orders and notices under the act of 1907 were issued on September 12, 1907. The plaintiff was paid for the quarter beginning July 1 and ending September 30, 1907, at the rates stated in the readjusting orders and notices. We think it was entitled to receive the rates fixed by the 1905 orders until they were changed by the Postmaster General as directed by the act of 1907, and thereafter to be paid under the new rates. The difference between the two rates up to September 12 was $698.39, and for this difference plaintiff should have judgment. As to the balance of its claim it is not entitled to recover under the principles stated in the *Eastern Railroad case.*

Barney, Judge, and Downey, Judge, concur.

Booth, Judge, not sitting.