New York Mail & Newspaper Transportation Co. v. United States

154 F. Supp. 271, 139 Ct. Cl. 751, 1957 U.S. Ct. Cl. LEXIS 119

• Court: United States Court of Claims
• Decided: July 31, 1957
• Docket: 162-54
• Status: Published

Opinions

REED, Justice

(sitting by designation).

The plaintiff, New York Mail and Newspaper Transportation Company, brought this suit in this Court on April 15, 1954, against the United States to recover damages for an alleged breach by the Government of a contract between the United States and plaintiff. Various items, some variable, enter into the total damages claimed aggregating around two million dollars. That contract was for the rental by the Government of pneumatic tubes on Route 507011-A, New York, New York, for the transmission of the mails from January 1, 1951, through December 31, 1960.

On December 29, 1953, defendant, having closed down this Pneumatic Tube Service during that December with notice thereof to plaintiff, advised plaintiff that it considered the contract “null and void.” The notice added, “The purported contract if valid is hereby cancelled in the public interest.” Plaintiff, on January 23, 1954, notified defendant that the contract was terminated for breach by the Government. The plaintiff had allowed until January 22, 1954, for defendant to consider plaintiff’s position that the defendant had no legal right to terminate the contract. In the letter plaintiff explained that on termination of the contract, its employees would be scattered and its property values impaired. Defendant has not used the property since December 1953.

The contract dated December 29, 1950, continued arrangements between the United States and the owners of the pneumatic tube service that had existed, with some intermissions since about 1897. The provisions of law underlying the various contracts and their terms varied substantially.¹ The contract before the one here in question ran from January 1 to December 31, 1950. Like those immediately preceding it, this contract was on a lease or rental basis with the Government operating the tube system and the lessor bearing the cost of repair and maintenance.

In preparation for handling New York mail after 1950, the Post Office Department on April 24, 1950, advertised for proposals for furnishing a pneumatic tube system generally on the' same rental basis as the existing contract. The pertinent provisions of the governing statutes at that time required for pneumatic tube contracts a preliminary investigation and a favorable report on the practicalities of such service. “Advertisements shall state in general terms only the requirements of the service” calculated to invite competitive bidding. They were to run for six weeks in not less than five newspapers. The contracts were to be subject to the postal laws and regulations relating to the letting of mail contracts. 39 U.S.C. (1946 ed.) § 423, 39 U.S.C.A. § 423. See finding 4.

Furthermore, 39 U.S.C. § 429, 39 U.S. C.A. § 429, directed:

“All contracts for carrying the mail shall be in the name of the United States and shall be awarded to the lowest responsible bidder tendering sufficient guaranties for faithful performance in accordance with the terms of the advertisement.”

There is no contention that these requirements were not followed in the April 1950 advertisement for bids. However, plaintiff in its proposals to the United States in answer to the advertisement did not make its offer to contract in accordance with the terms of the advertisement. Instead, it submitted a proposal which specifically stated, “Conditions and requirements in your advertisement not specifically included in our proposal are intended to be excluded from our proposal.” Finding 13.

Without detailing in extenso the variations between the invitation to bid and plaintiff’s proposal and eventual contract, which appear in findings 12 to 23, inclusive, the conclusion is necessary that the variations were material. There was omitted the advertised requirement that the contract was to be subject to cancellation for failure of plaintiff to change the location of the system by reason of changes by the Government in the tube terminals, findings 12 and 14; that the Postmaster General might terminate the contract when the public interest might require, finding 12; and that the contractor should bear the expense of converting the system from DC to AC electricity, at a cost estimated between $125,000 and $350,000. Contract, variable costs, ¶ 2, Schedule A of contract, and finding 12. The cost turned out to be $214,870.13. Finding 32. Plaintiff’s proposal and contract required the assumption of this cost with interest by the Government through amortization. Instead' of a rate per annum for rent, as called for by the advertisement for bids, the contract makes the rental vary from year to year, depending upon operating and general expenses, e. g., operating taxes, wages, amortization of electrical conversion cost. There was a limit to bring total compensation within the statutory authority of the Department on cost. This method of payment appears to assure plaintiff a guaranteed net rental for the system, limited by the overall power of the Department to contract for pneumatic tube service. See Act of 1950, 64 Stat. 1118.

The Government’s defense, in accordance with its notice, is two-fold — (1) that the contract is void because of its material departure from the terms of the advertised invitation to bid, and (2) that the cancellation “in the public interest” of the contract on December 29, 1953, by the Postmaster General was a valid exercise of a retained power under § 97.67(b) of the Postal Laws and Regulations, Edition of 1948. As the second defense depends on a regulation that by its terms not only authorizes termination of a contract but settles all problems of damages, it should be considered first.

1. The section, at all times during the advertisement, negotiation and termination of this contract, read as follows:

“(b) The Postmaster General may discontinue or curtail the service on any mail route, in whole or in part, in order to place on the route superior service, or whenever the public interests, in his judgment, shall require such discontinuance or curtailment for any other cause. The contractor shall be allowed, as full indemnity, one month’s extra pay, on the amount of service dispensed with and a pro rata compensation for the amount of service retained and continued.² ”

The Government contends the section was made applicable to Service by Pneumatic Tubes by § 95.2. “The general provisions relating to contract service, Part 97 of this chapter, shall apply, so far as pertinent, to the pneumatic-tube service.” As reports to the Postmaster General before his discontinuance of the route showed by unchallenged evidence that an annual savings in postal operations of over $700,000 would be made by substituting trucks for the tube system, there was a substantial factual basis for the cancellation, if there was power in the Postmaster General to cancel. Power is the nub of this issue. The regulation, if applicable to this contract, could not, of course, validly be waived by the Postmaster General in this particular instance.³ Actually the contract right to cancel in the public interest called for by the advertisement was omitted from the contract. We do not speculate on the reason, for the contract was finally made pursuant to the authority of the Act of 1950. The section here applicable reads:

“Sec. 2. Contracts for the transmission of mail by pneumatic tubes or other mechanical devices shall be subject to the provisions of laws relating to the letting of mail contracts, except as otherwise provided •in this Act. Advertisements shall state in general terms only the requirements of the service and shall be in the form best calculated to invite competitive bidding. The Postmaster General may reject any and all bids. No contract shall be awarded except to the lowest responsible bidder tendering full and sufficient guaranties to the satisfaction of the Postmaster General of his ability to perform satisfactory service.” 64 Stat. 1118.

Section 97.67(b) does not appertain to a “letting of mail contracts” but to their “discontinuance.” Although the phrase “letting of mail contracts” has appeared in the statutes relating to pneumatic tube operation since 1902 (32 Stat. 114), we do not think that the regulation, § 97.67(b), should be read as authorizing the cancellation attempted in the notice of December 29, 1953. It is a harsh regulation when applied to a long term contract, requiring such a heavy investment by the other contracting party, largely useless for other activities. We recognize that the power retained by the Postmaster General to cancel a star route contract has been enforced by the Supreme Court in Garfielde v. United States, 3 Otto. 242, 93 U.S. 242, 23 L.Ed. 779. There the contractor’s proposals followed the advertisement and “instructions attached,” which contained a regulation authorizing discontinuance in the public interest. See also Slavens v. United States, 196 U.S. 229, 232, 25 S.Ct. 229, 49 L.Ed. 457, upholding the power to cancel a mail contract containing a clause providing for such a discontinuance as was attempted in the present case. The contract now under consideration did not contain such a clause. We would need more specific words than the uncertainty of § 95.2, supra, that the “general provisions, relating to contract service, Part 97 * * * shall apply, so far as pertinent,” to the tubes, to hold that § 97.67(b) controlled this contract. The cancellation related to “public interests,” not “contract service.” It does not govern this situation. Nor would it govern if no contract had been validly adopted.

2. We now consider the first defense —the nullity of the contract because of the material departure of the contract from the advertised invitation. We think that the variations, previously listed herein, between the invitation, plaintiff’s proposals, and the contract actually signed, demonstrate that the April advertisement could not be treated as a compliance with the essential provisions of 39 U.S.C. (1946 ed.) §§ 423 and 429, 39 U.S.C.A. §§ 423, 429, set out on p. 2, supra. Those sections remained the governing law as to advertising of postal requirements. Neither the Act of 1948, 62 Stat. 1163,⁴ nor of 1950, 64 Stat. 1118, made any change. After the 1950 Act the statutory requirements for advertisements were the same as before its passage. The 1950 Act, § 2,⁵ as theretofore, made the newly authorized contract “subject to the provisions of laws relating to the letting of mail contracts.”

The authority of an officer to enter into a contract binding the United States must be found in some legally enacted provision of law. That rule has been long recognized. In re Floyd Acceptances, 7 Wall. 666, 19 L.Ed. 169; see Hooe v. United States, 218 U.S. 322, 334, 31 S.Ct. 85, 54 L.Ed. 1055; Eastern Extension Australasia & China Tel. Co. v. United States, 251 U.S. 355, 363, 40 S.Ct. 168, 64 L.Ed. 305; United States v. Goltra, 312 U.S. 203, 208, 61 S.Ct. 487, 85 L.Ed. 776; Fries v. United States, 6 Cir., 170 F.2d 726, 730. When the statutes on contracts for the carriage of the mails call for prior advertisement, the execution of a contract without such advertisement is invalid. Cf. United States v. Ellicott, 223 U.S. 524, 543,⁶ 32 S.Ct. 334, 56 L.Ed. 535.

If this contract had been drawn in accordance with the April 1950 advertised requirements for proposals, it may be that a second advertisement under the December 1950 Act would be unnecessary even though it called for compliance with the laws relating to letting mail contracts obviously including those imposing advertisement. 64 Stat. 1118. It was unlikely that any other bidder would compete, as there was no other tube system. A second advertisement was thought by the Attorney General to be unnecessary in a case where former bids, after advertisement, met the requirements of the advertisement.⁷ Here there was no attempt to meet the terms of the advertisement. The contractor secured material modifications by negotiation. The Postmaster General did not rely on a rule of necessity to maintain postal functions. Cf. 41 U.S.C. § 5, 41 U.S.C.A. § 5. There is no indication of exigency. Trucks were used in 1953. United States v. Speed, 8 Wall. 77, 83, 19 L.Ed. 449. Nothing appears to indicate the use of the system could not have been extended for the time necessary to advertise. The history of the 1950 Act does not show any direction by or intention of Congress to have this contract executed by the Postmaster General, without complying with previous provisions for advertisement. In fact his request for legislation and the Act really changed nothing except the limit on rent per mile.⁸

It need hardly be said that the general requirements of advertising for government contracts is a true rule of necessity to avoid the dangers of overpricing goods or services, with the accompanying dangers of corruption in a governmental organization. Variations £rom that requirement should be and are limited. Cf. 10 U.S.C. § 2304, 10 U.S. C.A. § 2304; see Report on Study of Armed Services Procurement Act, June 15, 1957. Here, although there was and is no suggestion of improper influence or unfair dealing, we conclude that the failure to meet by this contract the advertisement for proposals or to advertise again under the new Act makes the contract of 1950 invalid.

3. The next problem is what effect such invalidity has upon the services rendered by plaintiff and the expenses incurred by it on account of its undertaking. When the United States contracts, its rights and liabilities are the same as those of an individual, except it cannot be sued without its consent.⁹ When an individual or the Government rescinds a contract, the parties are to be placed, as far as possible, in the position they would have occupied without the transaction.¹⁰ So, in United States v. Bethlehem Steel Co., 258 U.S. 321, 42 S.Ct. 334, 66 L.Ed. 639, a contract implied in fact rather than a tortious use of a patent was found. In Clark v. United States, 95 U.S. 539, 542, 24 L.Ed. 518, the Supreme Court said this of an invalid parol contract:

“We do not mean to say that, where a parol contract has been wholly or partially executed and performed on one side, the party performing will not be entitled to recover the fair value of his property or services. On the contrary, we think that he will be entitled to recover such value as upon an implied contract for a quantum meruit.”

Here, as there was bona fide purpose to render services to the United States, as agreed to by the Postmaster General, we think the parties should be put substantially in the position they would have occupied without the attempted contract rather than a strict quantum meruit.

4. Our application of that conclusion leads to this.

Plaintiff has been paid under the contract for services performed through December 31, 1953, except for December expenses. These payments it should retain. Plaintiff should recover its December expenses of $27,960.94, its January 1954 expenses of $6,241.69, its special franchise taxes for the second half of the 1953-54 tax year, $12,792.18. In our opinion, since the cost of electric power conversion was due solely to the requirements of the contract, the Government should reimburse that expense in accordance with the terms of the contract, i. e., $141,564.47. Plaintiff should also recover for the same reason the cost of the new set of carriers purchased for use on the system, $27,551.52. As the removal of equipment from Government-owned stations would have been necessary whether or not the contract had been made, that claim is denied.

The counter-claims of the United States are dismissed.

It is so ordered,

LARAMORE and WHITAKER, Judges, concur.

1 . See 32 Stat. 114; 34 Stat. 1211; 35 Stat. 412; 42 Stat. 661; 62 Stat. 1163; 64 Stat. 1118.

2 . The present regulations seemingly do not provide this authority to discontinue contract routes. See 39 CFR (1955 Rev. Ed.) 97. It appears to have been eliminated November 20, 1954, 19 Fed.Reg. 6772, 6996.

3 . See Chapman v. Sheridan-Wyoming Co., 338 U.S. 621, 629, 70 S.Ct. 392, 94 L.Ed. 393.

4 . It merely amended the Acts of 1902, 1908, and 1922 by increasing the limitation on payments per mile. S.Rep. No. 1241, 80th Cong., 2d Sess.; H.R.Rep. No. 2093 and No. 2431, 80th Cong., 2d Sess.

5 . “Sec. 2. Contracts for the transmission of mail by penumatic tubes or other mechanical devices shall be subject to the provisions of laws relating to the letting of mail contracts, „ except as otherwise provided in this Act.”

6 . This was a case where the offer of the contractor set at naught the provisions of the specifications. If that were allowed, the Court said the contract would be “so irresponsive to and destructive of the advertised proposals as to nullify them, and therefore cause it to result that the contract was one made without competitive bidding which was necessary to give it validity.”

7 . “The conclusion that, as matter of law, the bids thus obtained must be rejected and the whole thing done over again, merely because, at the time the bids were received, there was no specific provision of law authorizing the making of the contract contemplated, is not required or justified by any statute or by any fundamental principle of law.” 36 Op.Atty. Gen. 33, 38.

8 . 64 Stat. 1118; S.Rep. No. 2500, 81st Cong., 2d Sess.; H.R.Rep. No. 3144, 81st Cong., 2d Sess.

9 . Perry v. United States, 294 U.S. 330, 352, 55 S.Ct. 432, 79 L.Ed. 912; In re Floyd Acceptances, 7 Wall. 666, 675, 19 L.Ed. 169; Clearfield Trust Co. v. United States, 318 U.S. 363, 369, 63 S.Ct. 573, 87 L.Ed. 838; United States v. Standard Rice Co., 323 U.S. 106, 65 S.Ct. 145, 89 L.Ed. 104.

10 . Neblett v. Macfarland, 92 U.S. 101, 103, 23 L.Ed. 471. Cf. Pan American Petroleum & Transport Co. v. United States, 273 U.S. 456, 505, 47 S.Ct. 416, 71 L.Ed. 734. But see Schneider v. United States, 19 Ct.Cl. 547, 551.