#### THE SOUTHERN PACIFIC COMPANY v. THE UNITED STATES.

[No. 33058.

Decided March 25, 1918.]

*On the Proofs.*

*Railroad traAisporiation; War Department; contracts.•*— Where the United States contracts with a railroad for specially expedited transportation of equipage and troops, and where the same in all respects conforms to the provisions of the acts of March 3, 1909, 35 Stat., 745 and March 23, 1910, 36 Stat., 256, no reduction can be made from the contract rates not authorized by a provision in the contract.

*Same.*— ’Full performance of a special contract for a special service at a stated price requires payment of the contract rate.

*The Reporter’s*statement of the case:

*Mr. William R. Karr*for the plaintiff. *Harr & Bates*were on the briefs.

*Mr. Horace 8. Whitman,*with whom was *Mr. Assistant Attorney General Huston*Thompson, for the defendants.

In this case there are but two issues to be considered:

First. Whether the Secretary of War may vitiate a contract made by a duly authorized quartermaster with the railroad, and substitute for the rate agreed upon in the contract lower rates which he deems to be just and reasonable.

Second. Whether both parties agree that class A, net cash rate, shall apply to a movement, and that rate is specified in the contract as 72 cents and it develops that the railroad employed an illegal method of computing the rate which would have been, if legally computed, 46 cents, the United States is entitled to repudiate the rate illegally computed and demand the rate of 42 cents.

On the first proposition the facts are briefly stated. A quartermaster officer whose duty it was to direct and contract for the movement of United States troops, contracted to pay a rate of 72 cents which the railroad claimed to be class A, net cash rates, for the movement of freight that *333accompanied the troops in special trains over the land-grant-aided railroads.

All the movements in the petition were carried over lines that had been land-aided and Congress had provided in the statute granting the land when all but the first movement is concerned. (Acts of July 27, 1866, 14 Stat., 292; July 25, 1868,15 Stat., 187; June 28,1870,16 Stat., 382; Mar. 3,1871, 16 Stat., 579.)

On the line over which the first movement in the petition was made Congress provided when granting lands:

“ That the grants aforesaid are made upon the condition that the said companies shall keep said railroad and telegraph in repair and use, and shall at all times transport the mails upon said railroad, and transmit dispatches by said telegraph line for the Government of the United States, when required to do so by any department thereof, and that the Government shall at all times have the preference in the use of said railroad and telegraph therefor at fair and reasonable rates of compensation, not to exceed the rates paid by private parties for the same kind of service. And said railroad shall be and remain a public highway for the use of the Government of the United States, free of all toll or other charges upon the transportation of the property or troops of the United States; and the same shall be transported over said road at the cost, charge, and expense of the corporations or companies owning or operating the same, when so required by the Government of the United States.” (Acts of Mar. 3, 1879, 21 Stat., 390; July .25, 1866, 14 Stat., 239; July 25, 1868, 15 Stat., 80; Apr. 10,1869, 16 Stat., 47.)

Congress in the appropriation acts in the years during which the movements were made, and for many years before and.since, appropriated—

“ for the payment of army transportation lawfully due such land-grant railroads as have not received aid in Government bonds (to be adjusted in accordance with the decisions of the Supreme Court in cases decided under such land-grant acts), but in no case shall more than fifty per centum of full amount of service be paid: Provided, That such compensation shall be computed upon the basis of the tariff or lower special rates for like transportation performed for the public at large, and shall be accepted as in full for all demands for such service: *Provided*fwrther, That in expending the money appropriated by this act, a railroad company which *334has not received aid in bonds of the United States, and which obtained a grant of public land to aid in the construction of its railroad on condition that such railroad should be a post route and military road, subject to the use of the United States for postal, military, naval, and other Government services, and also subject to such regulations as Congress may impose restricting the charge for such Government transportation, having claims against the United States for transportation of troops and munitions of war and military supplies and property over such aided railroads, shall be paid out of the moneys appropriated by the foregoing provision only on the basis of such rate for the transportation of such troops and munitions of war and military supplies and property as the Secretary of War shall deem just and reasonable under the foregoing provisions, such rate not to exceed fifty per centum of the compensation for such Government transportation as shall at that time be charged to and paid by private parties to any such company for like and similar transportation; and the amount so fixed to be paid shall be accepted as in full for all demands for such service * * (35 Stat., 745.)

The- service contracted for was rendered by the railroad in August and October, 1910, and February, 1911, and the bills sent to the Quartermaster in accordance with the contract. The account was revised and disallowance made. In the statement of difference of February 9, 1912, disallowance was made for $13,232.89 from the amount claimed upon the ground that the payment for special train rates for the passenger trains took care of all claim for special train rates for the mixed train, and that hawing paid special train rates for the passenger train, that the Government was entitled to apply the regular tariff rates to the freight movement. An appeal was taken to the Comptroller from this settlement in- February, 1913". It does not appear that the Secretary of War had previously passed upon the reasonableness of the rates contracted for. On August 5, 1913, however, the rates stipulated having been submitted to him, the Secretary of War wrote:

“4. *V'¿hides and animals.*— So far as the vehicles and animals accompanying these shipments are concerned, the conditions are believed to be different, and it is not thought by this office that the class A net rates are just and reasonable *335rates for commodities of this character moved in carloads, even though special train service is requested and furnished.

“An examination of the records would indicate that the Southern Pacific Co. is practically the only railroad in the United States that has demanded class A net rates on live stock or vehicles moved with troops.

•Í» V V *1* íjí $ 4s

“It will be noted that the carriers above named cover a large part of the United States, and in each and every one of the contracts entered into by them provision was made for the movement of the vehicles and live stock at freight-tariff rates, subject to authorized land-grant deductions, and this seems to have been the uniform practice of all railroads, not only in western territory, but in the United States, with the exception of the Southern Pacific Co.

“ 5. In view of the facts heretofore stated, it is believed that the class A net rate claimed is just and reasonable for the camp equipage and impedimenta, but that a just and reasonable rate of compensation for the vehicles and live stock included in the shipments would be the freight-tariff rate with authorized land-grant deductions.” 20 Comp. Dec., 124.

The Comptroller held that as the power had been conferred upon the Secretary of War to determine the reasonable and just rate, and the Secretary of War having exercised that power, settlement must be made in accordance with the rates fixed by the Secretary of War.

The defendants contend that wherever a power is conferred by law over a subject matter and not exercised, contracts may be entered into with regard to that subject matter and enforced until the power is exercised. Contracts so made are, however, subject to future legislation or exercise of the power. For instance, prior to the Interstate Commerce Act, a railroad might contract to give a coal company lower rates over its lines than to its competitors if the coal company would refuse a competing railroad a right of way through its property. When, however, the act was passed to regulate commerce making rates equal for all, the coal company could no longer exact lower rates. So an annual pass for life granted to a person in settlement of a personal damage suit could not be exacted after the passage of the act making it unlawful to give passes. *Louisville dc Nashville Railroad Go.*v. Motley, 219 U. S., 461.

*336It thus appears that even where a contract is executed by one party, the execution by the other party is subject to the exercise of a power to control or regulate the subject matter. Hence the Secretary of Y/ar having the power conferred to determine the reasonable rates, and having acted, the rates he prescribes as just and reasonable must be the rates to be applied.

In the transportation of the material from Cosgrove, Wash., to Atascadero, Cal., the evidence shows that the agreement between the parties was that class A net cash rate was to be applied. At the time the movement was made the Southern Pacific Co. was in the habit of arriving at its class A net cash rate by disregarding in such a movement the land-grant portion of the road and applying the local net cash rates of the parts of the road over which there was no free land grant. In this instance they determined the class A net cash rate to be 72 cents. There was no through rate from Cosgrove to Atascadero, but there was a through rate from Portland to Atascadero. The 72 cents was arrived at by taking the local class A net cash rate from Cos-grove to Atascadero and then, for the purpose of the balance of the rate, disregarding the line from Portland to Roseville, the free land-grant road and applying the local rate from Roseville to Atascadero. This method of arriving at the rate has been held illegal by the Supreme Court in *Southern Pacific Railroad*v. *United*States, 237 U. S., 202. In that case the construction of a rate was between San Francisco and Portland. But the. same free land-grant portion of the road from Roseville to Portland was involved. The court held that it was improper to disregard the free land-grant portion of the road and that the proper way to arrive at the rate was to take the through rate and deduct from that the percentage of the land-grant road.

As both parties were mistaken in the method of figuring the rate, and it has been declared by statute that the United States is entitled to reasonable rates over that road and the erroneous rates applied were not reasonable, then the United States is entitled to the reasonable rates properly calculated *337and figured for the movement. The rate to be applied, therefore, should have been 47 cents and not 72 cents for this movement.

Booth, Judge,

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

The plaintiff company, on the dates mentioned in the findings, by special contract in writing, agreed with the defendants to transport over its own and connecting lines by special train service certain animals, vehicles, camp equipage, and impedimenta belonging to and accompanying troops of the United States. The findings are not disputed, and no issue of fact is raised. The company performed the service to the entire satisfaction of the defendants and presented its bills for the same in accord with the contract terms. The Auditor for the War Department challenged the legality of the rates charged as per contract only as to the animals and vehicles transported, substituting therefor the published tariff rates for ordinary freight-train service, with land-grant deductions therefrom, resulting in a dis-allowance to the plaintiff company of $12,447.69, the amount herein sued for.

The controversy seems to have arisen because of certain limitations applied to land-grant railroads as to collectible transportation rates appearing in the Army appropriation acts of March 3, 1909, 35 Stat., 732, and March 23, 1910, 36 Stat., 256. These special provisions provided for a number of years that land-grant railroads subject to congressional regulation as to rates should be paid “ for the transportation of troops and munitions of war and military supplies and property over such aided roads * * * on the basis of such rate * * * as the Secretary of War shall deem just and reasonable under the foregoing provision, such rate not to exceed 50 per cent of the compensation for such Government transportation as shall at that time be charged to and paid by private parties to any such company for like and similar transportation.”

It is not disputed in the record that the rates specified in the special contract comply with the foregoing statute, and *338the final reason for deductions was predicated upon a letter addressed to the Comptroller of the Treasury in response to an inquiry propounded to the Secretary, in which he elaborates in detail upon this identical issue, the letter bearing the date of August *5,*1913, two years after the performance of the contract.

We think the manifest error which obviously pursued this settlement from its presentation until the present time lies in the failure to discriminate between the special service furnished the defendants under a special contract therefor and an ordinary shipment in the ordinary and usual way. It is difficult to reconcile a payment for a portion of the transportation service under the contract and a disallowance of the remainder when both were expressly provided for in the special contract. The contract in suit was regular; its authenticity is in nowise disputed; surely it evidences the action of the Secretary \of War with respect thereto, and precludes an assertion made some years later, especially after the plaintiff company has in good faith performed and the defendants accepted the contract service, that the rates in some respect were not fair and reasonable.

The defendants applied to the plaintiff company for rates covering a specialty expedited service, a special train. The rates were furnished, the defendants accepted the terms and conditions of the special contract, and formally executed it through an officer authorized so to do. The plaintiff company performed the service and is entitled to be paid the contract rate therefor. *United States*v. Andrews, 207 U. S., 229; Bush, *Receiver,*v. *United*States, 52 C. Cls., 199.

The case of the *Southern Pacific Railroad Co.*v. *United*States, 237 U. S., 202, has, we think, no application to the issue involved herein. The statute quoted hereinbefore applied in terms to the above case. The transportation involved was an ordinary and usual through shipment upon an ordinary bill of lading. The company attempted to segregate the rate charges by an arbitrary application of local instead of through rates, thereby profiting by eliminating the mandatory reduction imposed by law upon the land-grant portion of its lines. In this case the situation is entirety *339devoid of similarity. The rate and service asked for was *special;*there was no public service akin to it, the nearest approach being the rates applied for the carriage of excess baggage and express charges, both of which were higher. The making of the rate involved a computation based upon the special services exacted by the defendants, and it is expressly proven that in the final figures quoted land-grant deductions were fully considered. The contract provided that the rates were net cash and subject to deduction only in the event they were in excess of the regular tariff rates for a similar service over land-grant roads or other lawful deductions. This provision of the agreement, supplementary to the statutes, can not apply here to reduce the rates provided in the contract, for, as above stated, the service requested and performed ivas special, and the defendants so recognized it by paying for a portion of the same the contract rates. There is no basis for its invocation. To hold otherwise would subject to departmental supervision every contract for transportation involving special service and would manifestly deter a company from furnishing it, irrespective of its imperative necessity.

Judgment is awarded the plaintiff company in the sum of $12,447.69. It is so ordered.

Hat, *Judge; ’Basííws, Judge;*and Campbell, *Chief Justice,*concur.

Downey, Judge, did not hear this case and took no part in its decision.