United Gas Pipe Line Company v. Mobile Gas Service Corporation – Oral Argument – November 08, 1955

Media for United Gas Pipe Line Company v. Mobile Gas Service Corporation

Audio Transcription for Oral Argument – November 07, 1955 in United Gas Pipe Line Company v. Mobile Gas Service Corporation

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Earl Warren:

Number 17, 31, 51, and 53 on docket.

United Gas Pipe Line Company versus Mobile Gas Service Corporation.

Mr. Chanler.

William C. Chanler:

May it please the Court.

I think at the outset, it’s important to try and determine just what the issue is — how it got here.

The issue is really a very simple one.

Mobile and United — United is a natural gas pipe line and Mobile, a local gas distributing company in the City of Mobile, entered into a contract in 1946 whereby, United agreed to furnish Mobile all the gas needed by it for a particular resale with the Ideal Cement Company at a fix rate for a period of 10 years.

In 1953, United, by unilateral action of filing a schedule of higher rates, sought to increase the contract rate.

The issue is whether, under the Natural Gas Act, a contract between two utility companies for the sale of gas at a fixed rate for a term of years maybe aggregated unilaterally, by the natural gas company by the mere act of filling a schedule of increase or whether the contract is valid and binding between the parties until and unless it has been set aside by the Federal Power Commission after a hearing and finding by the Commission that the contract is against the public interest.

The case gets — reaches this Court under the following circumstances.

As I said, this contract was entered into in 1946.

It was a modification of an earlier contract entered into in 1936, the modification downward.

United agreed to sell this gas for the resale to the Ideal Cement Company at a special low rate, so that Mobile could make a contract in turn with the Ideal Cement Company, the new company in the area.

When United filed its schedule to increase the rates under Section 4 (d) of the Act — I’ll go into the meaning of the Section a moment.

Mobile filed a petition with the Federal Power Commission alleging that its contract rate could not be changed by a mere filing and asking that the filing be rejected and without prejudice, of course, to a hearing under 5 (a) as to the reasonableness of the contract.

The Commission denied our petition and dismissed our proceeding, so that the rate went into effect.

There was some talk yesterday as to the fact that it went into effect without suspension.

That’s not really material to the main issue here.

We don’t like this.

We would like to have it suspended but in the other case, it will be argued in a minute.

There was a suspension and the same issue arises.

The question is not whether it can be suspended.

The question is whether the rate can be changed before the contract has been itself found to be against the public interest.

Felix Frankfurter:

Well if it can be suspended, there is time to make that determination, if it cannot — there isn’t.

William C. Chanler:

Well sir, that determination, the real — when we come to discussing the statute, I will point out that the real question we had here on statutory construction is, that when you construe the statute carefully you’ll find that in a hearing commenced by a filing under 4 (d), you never reach the question of the reasonableness of the contract because Section 4 (d) and (e) merely authorized the Commission to have all the hearing and pass upon the reasonableness of the proposed new rate.

And when you come to study the Act, I think it can easily be seen.

As the courts below held that the proposed new rates might be reasonable and therefore, would have to be approve in a 4 (d) proceeding even though the contract rate was also reasonable.

And it’s for that reason, that we insist and the courts below agreed for this, that you cannot touch a contract rate until after the contract has been found unreasonable.

And —

William O. Douglas:

And that could be (Inaudible)

William C. Chanler:

In 5 (a).

So that a suspension under 4 (e) gives us five months less time during which our contract is being violated but in the end, the rate can still be increased as it was in the other case even though I think it’s easily demonstrable there that the contract rate was perfectly reasonable.

Now —

(Inaudible)

William C. Chanler:

No, sir.

We didn’t file under 5.

There was no reason for us to file under 5.

The —

Could you file under 5?

William C. Chanler:

Oh we would want to file under 5.

We think our contract is all right.

We have no objection to our contract, we think it should be sustained.

Just to make it clear, I would go into more detail as to the meaning of the Act in a moment.

But Section 4 is the Act provides for the filling of rates by a Commission.

It’s printed at page 101 of Mr. Wahrenbrock’s brief where he read from it yesterday.

4 (c) provides that under such rules and regulations the Commission may prescribed every natural gas company shall file with the Commission within 60 days of the passage of the Act.All schedules showing all — schedules showing all rates and at the bottom together with all contracts, which in any manner, affect or relate to such rates.

Felix Frankfurter:

Mr. Chanler, may I — just to — to be able to listen more intelligently to what you unfolds here.

As for the — (Inaudible) from what you’ve said (Inaudible) that 4 applies when there is no governing outstanding contract rate, 5 applies when there is contract rate, I say.

William C. Chanler:

Not quite.

Let me explain what 4 means here, and I think I can answer Your Honors question.

4 (d) — well 4 (c) says if there’s a contract, it must be filed.

4 deals with contracts.

Felix Frankfurter:

Yes.

William C. Chanler:

4 (d) says, unless the Commission otherwise orders, no change shall be made by any natural gas company in any such rate or contract except after 30 days notice to the Commission and to the public.

In other words, that provision prevents the parties to a contract from secret of changing their rates by amending their contracts.

They’ve got to tell the Commission before they can change the rate.

Mr. Wahrenbrock says, “That’s the provision that authorizes the company to unilaterally change the rate because it says no company may — natural gas company may not change a contract rate without 30 days notice, because that means they can change it unilaterally with 30 days notice.”

Well obviously, you can’t change a contract unilaterally and this is very clearly specified in the Act.

Well is it — is it strict the unilateral in the — and there’s to be — there maybe some action taken by the Commission?

William C. Chanler:

Well that again is the substance of the discussion that I will come to when I’ve set the — when I show you just how it arises.

William C. Chanler:

It’s quite technical to see how —

Felix Frankfurter:

What if it doesn’t?

As I understand it on the argument where it states your position, you agree that the existing contract rate comes under the restrictions of 4 as against changes and so on.

William C. Chanler:

Oh yes, yes.

Felix Frankfurter:

But do I not — did not — in what you’re about to argue, that if there is such an outstanding contract, then, it must be dealt with under 4 —

William C. Chanler:

Unless the parties agree to the change.

If the parties themselves have negotiated a change then, the natural gas company files the propose new contract rate under 4 (d).

Then the Commission, where it can suspend — suspends, where it cannot lets it go into effect and holds a hearing if there’s anything wrong with the new rate, obviously, they want to see whether the parties got together and put in an exorbitant rate for their own purposes, or something like that.

So the Commission then looks at the increase contract rate just as it looks at any rate increase.

Felix Frankfurter:

But in the form of agreement, then there is a contest filed in the controlling state, is that right?

William C. Chanler:

Yes, sir.

Felix Frankfurter:

All right, I’m (Voice Overlap) —

William C. Chanler:

For the simple reason that a contract, every congressman knows that a contract means that a contract can’t be changed unilaterally and when they said you can’t change a contract rate without notice, Congress assume that of course previously the change had been agreed to between the parties.

This Court so held in the case many years ago in a Kansas statute that a provision of this kind was a notice provision.

Now under 4 (e), whenever such schedules of the — has been filed, the Commission may on complaint on its own motion enter into a hearing as to the lawfulness of such rate charge classification.

In order words of the new rate not the lawfulness of the change but the new rate and if after a hearing — during a hearing, it can suspend except it can’t suspend these commercial resale.

There was so much talk about it yesterday, I’ll give you the reason for that.

At the hearings before Congress, the congressman who was proposing this provision, Congressman Lee stated just what it was.

He said why resale contracts for industrial use only — resales for industrial only are usually embodied in short-term contracts.

And those don’t have to be suspended and the reason they don’t have to be suspended is that if they’re binding contracts, the rate can’t be change for both parties have agreed so there’s no reason to suspend it.

That’s, I’m sure, the reason for that exception.

And anyway, that’s its effect, but we’re not concerned and perhaps they shouldn’t digress about the suspending question, it doesn’t help as much.

John M. Harlan:

Apparently, 4 (e) says nothing about contracts, it talks about rates —

William C. Chanler:

4 (e) —

John M. Harlan:

— schedules.

William C. Chanler:

— speaks of a hearing on the new rate proposed under 4 (d) and 4 (d) means a new rate whether or not on the contract.

John M. Harlan:

By agreement if it’s a contract and —

William C. Chanler:

That’s right —

John M. Harlan:

By filing it —

William C. Chanler:

In 4 (e), they can investigate the proposed new rate.

William C. Chanler:

Then after full hearings completed either before or after the rates goes into effect, the Commission may make such orders with reference thereto as would be proper in a proceeding initiated after it had become effective.

Well that shows us into 5 (a).

5 (a) deals in what the Commission can do in the case of an existing rate.

5 (a) says that whenever the Commission —

Well before — before we got to 5 (a) and back at the beginning of the proviso in 4 (e) provided that the Commission shall not have authority to suspend the rate charge classification for the sale of natural gas for resale.

Now, is it your argument that — that is true so far as any sale of natural gas for resale is concern except where there is a specific contract?

William C. Chanler:

Well — when there’s a contract they can’t change it under 4 at all so the provision doesn’t come in.

Well — so you think there is no contract at all if they’re merely purchases under the general rate.

William C. Chanler:

Oh — well if there is a contract and the parties have agreed to a change, it cannot be suspended.

I don’t (Voice Overlap) the written contract of — (Inaudible) subsidiary comes in and says we want to buy gas at your regular rate for industrial use.

Is that a contract?

William C. Chanler:

No.

Let me — well, I — I want to give a little time to what I mean by contracts here in a moment.

It’s quite important to understand that.

What — what is your view of the first sentence of that proviso?

What does it apply to?

That first clause —

William C. Chanler:

Well it provides for any proposed change of a rate in a sale by a natural gas company to a local distributing company for resale by the local distributing company for industrial use.

And says that that cannot be suspended.

William C. Chanler:

That cannot be suspended.

But you say it can be suspended so far as the contract is concerned?

William C. Chanler:

No sir.

That has nothing to do with whether it’s a contract or not.

It has very little to do with this case.

But its contract or not contract, you can’t suspend.

William C. Chanler:

That’s right.

And I think the reason is — were stated before Congress, that there was always — there are always contracts in these industrial sales because industrial companies always insist of these contracts.

Now I’ll bring that up later on.

It’s very important to understand that.

They always have contracts for industrial sales, and if they have contracts and the contracts are binding, as I think they clearly are, there’s no need to suspend the change when the buyer has agreed to the change.

William C. Chanler:

That’s the reason for it, but I don’t think it affects the real merits of our case.

Now in 5 (a) provides that whenever the — the Commission, after a hearing, had it by its own motion or on complaint shall find that at any rate charge, skip down all contract affecting such rate is at page 103 (Inaudible) shall find that at any rate, all contract affecting such rate is unjust, unreasonable, unduly discriminatory or preferential.

The Commission shall determine the just and reasonable rate charge — that’s the case and so forth and shall fix the same by order.

In other words, Congress said, “If there’s anything wrong with the contract or an existing rate, the Commission shall hold hearings and if it is the contract rate or the existing rate just the filed rate, is unduly discriminatory or preferential, or exorbitant.

If there’s anything wrong with it, then, they may set it aside, and we maintain that that is a delegation by Congress to the Federal Power Commission, authority of Congress to abrogate contract when the public interest requires it.

That it is an exclusive delegation of power and that there cannot be any delegation of power to the natural gas company to change its contract by a mere filing under Section 4.

The real question is whether —

Hugo L. Black:

Your — your claim of — in fact, there is, isn’t it, that that would not be a contract.

William C. Chanler:

Of what sir?

Hugo L. Black:

That would not be a contract —

William C. Chanler:

If they could change it — it wouldn’t be a contract.

So that in other way of approaching this question is, did Congress, when it enacted the Natural Gas Act and the Power Act is exactly the same, did Congress intend to outlaw all rate contract in this business the way this Court had held that it did when it enacted the Interstate Commerce Act.

As we all know, the Mottley case — Mottley had a contract be carried free which he proceed with settlement of an accident, which he lost his leg and then when the Interstate Commerce Act was passed, this Court held — Congress has the undoubted power to violate to abrogate contracts and Congress has said that nobody maybe carried on the railroad except in accordance with the published rate and Mr. Mottley lost his rights.

Then came the Armour case which my friends rely on very much in their briefs in which I wish to allude to because I think it illustrates clearly the difference between the Act — I’ve just been describing the Gas Act and the Interstate Commerce Act.

Armour had a contract for the transportation of its brief — at a special low rate with the Railroad Company almost indicted under the Elkins law and said, “Oh you’re operating under a legal contract.”

And this Court said, “No, you can’t operate under the contract.”

The Interstate Commerce Act doesn’t recognize contracts.

I’m reading now from pages 14 and 15 of my brief in the Armour case.

There is no provision in the Interstate Commerce Act for the filling of contracts with shippers, and no method of making them public defined in the statute.

If the rates are subject to secret alteration by special agreement, then, the statute would fail of its purpose.

To establish a rate known to work and then in answer to Armour’s suggestion that it would be a good thing to allow contracts in some portions of the railroad industry, this Court said, “It may be that such contracts should be recognized giving stability for limited periods that the contracts being filed, and published, and the rate stipulated known an opened wall, no injustice would be done.

But as we have said, such considerations address themselves to Congress not to the courts.

Felix Frankfurter:

Mr. Chanler, to clear out my difficulty, (Inaudible) difficulty I have in your argument is that Section 5 is not restricted to contract.

William C. Chanler:

No, sir.

Felix Frankfurter:

It is equally applicable to a previously filed tariff, having known such considerations as that which is raised by a contract namely — great reliance on its law et cetera.

William C. Chanler:

Yes, sir.

Felix Frankfurter:

So that, in forcing your argument seems to be (Inaudible) that fact.

William C. Chanler:

Well —

Felix Frankfurter:

— deal with it but — but that’s my difficulty.

William C. Chanler:

I will try in — I can’t deal with it directly because it is a rather complicated question that I — I think until you’ll see the answer to it in a moment.

William C. Chanler:

But I’ve just pointed out this Court suggested that the contracts might be alright if they were filed.

And in the Gas Act, Congress, gave just that and provided that they should be filed.

And that all changes must be filed.

Now, that means that a contract rate must be publicly filed like any filed rate, published rate that isn’t embodied in the contract in exactly the same way.

But that does not mean, Mr. Justice Frankfurter, that a contract isn’t binding.

And if you assume that a contract is binding, as Congress must have assumed when they use the words and did not use it in the Commerce Act, and referred to it in the hearings, then, it’s obvious that a contract rate cannot be changed —

Felix Frankfurter:

But we’re dealing —

William C. Chanler:

— by the company merely finding —

Felix Frankfurter:

— we’re dealing here with a contract which you will recall (Inaudible) has a congenital defect.

William C. Chanler:

Well, it has the congenital defect, sir, that it may be changed by the paramount power of Government when the public interest so requires and the question is, how did Congress provide that it should be changed and Congress in 5 (a) says that when the Commission finds that any existing rate or any contract is against the public interest, it may set it aside in fixed new rates.

That is the only way we maintain under which a contract may be changed.

Now I believe it was — Judge Burton — Judge Minton said, why did I say that if the company could change the rate by a mere filling under Section 4, this constituted a unilateral abrogation of the contract.

That is one of very important questions that we must understand here.

Perhaps before going into it, I’d like to digress a minute to explain that we’re talking here about a type of contract that is both customary and necessary in the gas business and if they are not sustained, I think will do great harm to the gas business.

We’re not talking about contracts with domestic consumers.

Obviously, I couldn’t make a contract to get gas that might range cheaper than my neighbor.

That could be an unlawful discrimination.

But the Natural Gas Act only deals with these recent sales and wholesale for resale to distributing companies.

There, we are in a highly competitive business.

The importance of ability of a gas — natural gas company to make such contract is well illustrated by the Tyler case, which is referred to in the briefs and which has submitted to the brief amicus curiae in this case.

It had a contract, Tyler Distributing Company, in the City of Tyler, a contract just as Mobile had a contract with the same petitioner, United.

Tyler had a franchise with the City of Tyler.

The franchise expired.

Well some citizens of the City of Tyler went to the downfall and said, “We can get you cheaper gas and the company is getting from United.

So the Tyler Company went to United and said, “We’re going to lose this business and as you can lower the rates,” and United said, “Alright we’ll give you rates — such a rate much lower for the duration of your new franchise, otherwise, you won’t get the franchise 15 years.”

The City follows the Tyler — wrote a letter to United and said, “Before we grant the franchise we want you to tell us, the governing body of the City of Tyler, that you’re going to abide by this contract for its terms and that if we take over the distributing business, you’ll sell to us for the same price, otherwise, we’re going to give the gas to these newcomers have found a well near the city.

Mr. Fletcher’s client agreed and wrote a letter saying, “Yes we’ll not charge more than this amount,” and they got the franchise.

Now by the same increase, it applies to us, they just said, “Oh well, we’re going to increase it now.”

And when I ask in the argument below whether they’ve been trying to put one over on a good citizens of Tyler, let’s say, they don’t know, they were actually in good faith at that time, they believe the contract was binding.

But now they’ve looked at the books and think they can get out of it.

William C. Chanler:

Now our case presents another things of these contracts.

This question of sales — for resale for industrial use.

Ideal Cement Company bought an aluminum plant in the City of Mobile.

The question was, was it going to establish and turn it into a cement plant in Mobile for the benefit of everybody in Mobile and United, or, was it going to remove the profiteer to its own plant elsewhere and the Ideal Cement Company said to Mobile Distributing Company, “If you can guarantee us gas at 12 cents per MCF by the cubic feet for 10 years, we will develop a plant here.

So Mobile wrote to United and United agreed in 1946.

That’s the contract I’m talking about here.

You may sell — we will sell gas to you for resale to Ideal for 10 years at 12 cents — you may resale to them at 12 cents and pay us 90% of that, which meant 1.3 we paid to them.

Then we got the contract and the Ideal Cement Company opened up its plant.

Now they’re trying to violate that contract.

Now the very interesting thing has happened since this case began.

United has undertaken to induce my client Mobile and its other local — and the local industrial consumers to let them take our contracts by assignments so they’re not carrying out the very same contract that they’ve tried to abrogate in this proceeding by selling directly to the Ideal Cement Company except they pay us two cents for transportation.

In other words, they get even less under this arrangement and they did it under a contract and we get a little more.

We get 2 cents instead of 1.03 cents and they only get 10 cents instead of 12.

I was very much surprise when I learned this and I stated in my brief that I couldn’t understand it.

My attention was called to some cases that this Court had in which the Panhandle Company was trying to take over the Ford business in Detroit by direct sales and another business in Indiana.

And this Court, in those cases, pointed out that what they were trying to do was to take off the cream of the business and get it away from the local distributing company.

And get it into their own hands which would increase the cost of gas to local consumers because the distributing company is depending on their industrial sales to make their business functional.

Now at the hearing before the Federal Power Commission at which this assignment contract that I just spoke of was being presented.

Mr. Fletcher’s client presented one of its officials to testify.

They said, “What is the objective?

United wishes to accomplish with regard to adjust fuel rates here?”

The answer is, United — I’m reading at page 19 of my brief.

United is found for over a long period time they had again better serve the public at large by setting large volumes of industrial gas.

This proceeding seeks a solution of the fundamental problem presented — presently encountered in the sale of gas for industrial costumers.

Such costumers are normally willing to install unnecessary facilities to burn gas and thereafter to purchase gas only when two conditions are met.

First, that the cost of gas be no higher than competitive fuels and second, that the cost of gas be fixed by contract for a reasonable period of time.

Because the rates to distributors will be our subject to regulation in change, they have just upset our contracts before the Commission.

The distributors are unable to safely put long-term rates for industrial gas.

This condition, a major obstacle to industrial sales could be effectively eliminated by permitting the Pipe Line Company to contract directly with the industrial costumer.

In other words, United has found another way of accomplishing the results that this Court did not allow Panhandle to accomplish by taking over the direct sales of the industrial business by showing that the middleman, the distributing company is incapable of making a binding contract because it can’t make a binding contract for the purchase of fuel, and of course, a direct sale is not subject to regulation.

William C. Chanler:

If we are reversed in this case, Mr. Fletcher can go to all the industrial costumers in this area citing this case and say, “You see, there’s no use you’re dealing to the local distributing company.

It can’t make a binding contract.”

They make a — we make a binding contract with them to sell them gas at a lower rate, we can change it the next day by filing a higher rate.

It’s been so held by the courts and of course, they scraped the cream of this business.

That’s the only reason I can think of for this peculiar business, upsetting our contract by trying to increase it and then agreeing to serve that at even lower rate later on.

I think they’re trying to establish that proposition.

Now, why is the proposition wrong?

To understand the question as to what is wrong with the proceeding under 4 (d) and 4 (e), one must realize that in this business regulation, there may be several reasonable rates for the identical service.

I think that great many people have been misled in their thinking by the fact that most of the discussions of the reasonableness of a rate, particularly in this Court and other courts, has turned around rates fixed by the Commission after setting aside the rate fixed either by contract or by filing by the company.

The Commission fixes a rate that produces only 5% return.

The company says that’s confiscatory.

Or, a company fixes a rate producing the 7% return.

And the Commission says that’s exorbitant and the Court sustains the Commission.

And somewhere in between there, there is an area of reasonableness.

And when the Commission is fixing the rate, it picks out.

It pinpoints the spot there where it thinks the rate is reasonable.

And the courts will not disturb the Commission if it is within that reasonable area to produce a fair return on its investment to the company.

The State of California allows 6%, the Federal Power Commission, 5.5% on electric business, and so forth.

But now, if you look at the Act, you’ll remember that the Commission hasn’t any power to fix rates until after it has set aside rates that have been originally fixed by a company.

The company existing rates are filed under 4 (c) or changes are filed under 4 (d) and the Commission may not draw out such a rate until a hearing under 4 (e) in which it has the same powers it has under 5 (a) to set it aside if it is unduly discriminatory or preferential or unlawful.

Now, what is the position of the Commission when it is passing upon a rate that has been fixed by a company either by filing or in a contract.

It is in the same position in reviewing the Commission here as the Court is in reviewing the company’s rate as the Court is in reviewing the Commission’s rate.

It cannot set it aside unless it is unreasonable, unduly discriminatory, or unduly preferential.

Now a company isn’t obligated to always put in a rate that gives it 5.5% if that be the agreed reasonable return or 6%.

The company for its own purposes may of course, reduce its rates to meet competition provided, first, that the result doesn’t create an undue preference or an undue discrimination, provided second, that it isn’t, it doesn’t so an undue burden on other consumers that this lower rate is absorbed by the company and provided of course, that it isn’t so low as to prevent the company from performing its subject utility duties.

It isn’t likely that the company would propose such a rate but a contract might become unreasonable for that reason by the action of time.

But otherwise, the Commission, as I read the Act, has no duty to set aside a rate because it’s less than fully compensatory.

And Mr. Wahrenbrock has so admitted in his brief in the Sierra case, in the Sierra case which we’ve come to next.

The Commission itself permitted the Pacific Gas and Electric Company to file and make effective rate to produce only 4.75% on its investment although it was conceded that 5.5% was a reasonable rate of return on its investment and Mr. Wahrenbrock said to the Commission, “That’s perfectly profited.

The rate is not discriminatory, it doesn’t hurt anybody, the burden is absorbed by the stockholders of the company, it’s not up to the Commission to double guess a company as to which of several rates, all of them reasonable, it may wish to select.

William C. Chanler:

So there is no end, of course, this Court has often held in the railroad industry — railroad — carry the loss to meet the competition, trucks and water cottage were also here.

In Tyler, Texas, they had competition from another well.

In the particular situation we had in our case here, the question was, whether the Ideal Cement Company would buy gas at all or move elsewhere.

And they were perfectly justified in agreeing to end into a contract at a special low rate.

Now having ended into a contract to sell at a special lower rate, which is less than fully compensatory.

They have an absolute right to do it and it’s the Commission permitted them to do, and it permitted the contract filed, the question is, whether the company can come in and file under Section 4 (d) a new schedule of rates a little higher but still not exorbitant.

And thus break the contract.

If they can file under 4 (d), that’s exactly what they can do because in the hearing under 4 (d), the reasonableness of the contract rate isn’t considered or reached at all.

Mr. Wahrenbrock conceded and they — they’ve all conceded in their briefs the only issue in a proceeding under 4 (e) as to a rate proposed under 4 (d) is the reasonableness of the new rate.

This court below pointed out, it can be that the new rate is reasonable and therefore, if it can be filed in violation of a contract, becomes the legal rate.

Even though the contract rate itself is perfectly reasonable.

And it is for that reason, that we have insisted throughout thoughts on those statements, that a contract is valid in binding as between the parties until and unless it is set aside in a proceeding under 5 (a).

Under 5 (a), Congress has given, has delegated to the Commission its power to abrogate contracts from the public interests suppliers.

They tell us that under 4 (d), Congress delegated the power to the Natural Gas Company, to abrogate its contract by merely filing a new rate, provided the new rate itself was reasonable.

Now they based their arguments in part — primarily on the wording of 4 (d), which I said before seems to me a very long stress language, page 101 again of Mr. Wahrenbrock’s brief.

Unless the Commission otherwise orders no change shall be made by any natural gas company in any rate or contract except after 30 days notice to the Commission and to the public.

Mr. Wahrenbrock said yesterday “Look, it says no change shall be made by any natural gas company.”

That means that Congress said a natural gas company could unilaterally change its rate.

John M. Harlan:

Well I suppose you can say that changing a contract doesn’t authorize repudiation of contract.

William C. Chanler:

Changing of the rate of a contract is —

John M. Harlan:

A unilateral change is a repudiation and not —

William C. Chanler:

Yes.

John M. Harlan:

— a change.

William C. Chanler:

It’s a repudiation and not a change.

Yes, sir, that’s right.

Changing the contract means change — no — in fact it doesn’t say they can change it, they — it doesn’t even say they can change the contract, they can’t make any — well it does, it says “No change shall be made without notice”.

Well, the change in a contract rate means a change agreed to by the parties in the contract rate.

Well Congress authorized this change by statute, didn’t it?

William C. Chanler:

No sir.

Congress said that a contract can be changed if it is found against the public interest.

Well it says that it can’t change its rates, the utility can’t change its rate except by filing a schedule and giving 30 days notice.

William C. Chanler:

Yes, sir.

That would seem to indicate that they can do it that way, don’t they?

William C. Chanler:

Well it says “No rate or contract maybe changed without filing of notice”.

I submit that when Congress said “No contract maybe changed without due notice,” the congressman knew that before a contract could be change at all, the parties must agree to it, otherwise, the contract is void of ab initio for lack of mutuality.

If a contract that is subject to regulation maybe changed by the — by the regulatory power.

William C. Chanler:

Absolutely.

And in the manner that Congress has provided, may it not?

William C. Chanler:

Yes, sir and I think Congress —

The contract maybe — maybe changed.

William C. Chanler:

I think Congress expressly provided that the contract could be changed by the Commission after a finding that the contract is against the public interest.

After all, sir, the power of the Government to change contracts depends first on a finding that the public interest requires it.

Now as I said, Congress can’t say we don’t want any contracts in this business.

They did say that the railroad business.

Although it’s interesting to point out by the way, that in the Interstate Commerce Act, contracts are — do exist in our customary — between shippers for true rates and those contracts under Section 65 of the Commerce Act must be filed.

They used the same language where there are contracts.

They used it here.

That shows, sir, I think, that Congress did not intend to outlaw all contracts.

Now if Congress didn’t outlaw all contracts in this business, to whom did they delegate the power to outlaw?

Not to the natural gas company itself that decide that its own contract is against the public interest.

They delegated it to the Commission specifying that the Commission could only do so after a finding that the contract injured the public interest.

It doesn’t delegate it to the company to do it under the statute.

William C. Chanler:

What’s that sir?

It doesn’t delegate it to the company to do it, to make a change under the statute.

It — it — the change is made by filing a — a change of schedule or rates —

William C. Chanler:

Yes.

— in accordance with the statute.

William C. Chanler:

Well if that can change a contract rate, then, the contract can be changed at will by the company as this contract was changed and as the contract in the Sierra case was changed without any finding that the contract itself was ever against the public interest.

Well, the — the reasonableness of this rate is under investigation by the Commission, wasn’t it?

William C. Chanler:

The reasonableness of a new rate sir.

Yes.

William C. Chanler:

Not the reasonableness of the contract.

Oh, sure not.

William C. Chanler:

Well —

But the reasonableness of the new rate —

William C. Chanler:

Yes, sir.

And they said if it is unreasonable, why — it’s out.

William C. Chanler:

Well the point here sir, that the new rate might be reasonable and the contract rate might be reasonable too.

That’s right.

William C. Chanler:

Well then, I don’t think that there should be any power to throw out a contract that is not against the public interest.

Felix Frankfurter:

Mr. Chanler, before you get to either with your arguments in this case for the ample time that you can have on the other case, would you be good enough (Inaudible) that Section 4, by Section 4, Congress divides what I should like to call an interlocutory scheme and Section 5 is the — is the procedure for a final disposition.

William C. Chanler:

I think, sir, that Section 4 acts retroactively and Section 5 prospectively.

Under Section 4, the company files a rate, purpose, of course, is to have the company’s initiate rates as much as possible they know most about.

So the company files the rate and if the company has a legal right to file a rate, in other words if it hasn’t contracted not to make a change, it files the rate and the rate goes into effect either in 30 days or after five months suspension if it’s suspendible.

If it’s not suspendible or isn’t suspended, it goes through effect in 30 days.

If the Commission wants to investigate it, it requires the company, if it suspends the rate, requires the company to keep books so that a refund can be made in case later the rate is found to have been exorbitant.

After two or three years, the Commission finally makes a decision, hearing, that the new rate was reasonable, why then the company keeps what it’s been getting.

If it finds it unreasonable, it fixes a new rate then the company refunds.It’s all retroactive.

Under Section 5, the Commission may not — the Commission, of course, has no power to do anything under 4 until it’s found the rate unreasonable.

Felix Frankfurter:

May I — may I ask you this?

Section 4 doesn’t expose the rates that’s filed and it doesn’t involve the contract, does it?It — that doesn’t concluded —

William C. Chanler:

It can, yes, sir.

If a file — if a rate is filed under Section 4 (d), the Commission may let it go into effect in 30 days and it’s the rate.

Felix Frankfurter:

Yes, then let it go into effect (Inaudible) that — suppose that Section 5 doesn’t apply, namely, it may let it go into effect and yet (Voice Overlap) on the face of it mean not unreasonable within this area of reasonableness as you know but on further and fuller final inquiry it may add in the case of interlocutory and final injunction conclude that the originally interlocutory injunction can’t stand final hearing.

William C. Chanler:

Oh, yes sir.

For instance, any rate, suppose a rate goes into effect of 30 days, the Commission thought it was all right.

He gets a violent letter from somebody who says “Hey, you’ve got to look into that rate, it’s outrageous, it does this and that”.

Well it’s too late to suspend that, so they proceed under 5 (a).

Usually, they get those letters within the 30 days and then they suspend it and hold a hearing as to the reasonableness of the rates before it becomes finally effective.

After it’s become finally effective, suppose they’ve gone through a long hearing, for two or three years and they say this rate is perfectly all right, and put into effect, the very next day somebody can come in, the Commission say, “Here are some circumstances that make us think that rate is too high”.

Felix Frankfurter:

(Inaudible)

William C. Chanler:

And begin under 5 (a), there’s no doubt about that.

Felix Frankfurter:

But when you say they may, having allowed it to stand under 4, somebody from — alert citizens, they look at here and your counsel (Inaudible)

You say they may then proceed under 5.

When you say that, new rates for me is the difficulty that I have.

I have difficulties with the other side and I have difficulty with your side, namely, it seems that the 2, 4, and 5 aren’t just valid sections.

William C. Chanler:

Are what?

Felix Frankfurter:

Are notwithstanding —

William C. Chanler:

No.

Felix Frankfurter:

— sections.

William C. Chanler:

No.

Felix Frankfurter:

Are they —

William C. Chanler:

No.

Felix Frankfurter:

Well therefore, I have to — I have to find the meaning by bringing them together.

William C. Chanler:

The only place where they become significantly different is in the situation where you have a contract.

The — if a company can enter into a contract to serve at a fixed rate for a period of years, then, I maintain that it could not be permitted to change that rate by merely filing unilaterally an increase and saying the increase rate is valid.

Therefore, in that situation, the contract remains binding as between the two parties until the Commission acts under Section 5 (a).

Now if the — if the contract hurts anybody, somebody comes up and say “Here, these fellows made a contract.

They’re discriminated against me.

I’m next door.”

Or the contract rate is too high.

Or the company can’t perform its services anymore and says it’s got so many low rate contracts, it isn’t making any money.

By then, the Commission will hold a hearing and find out whether that’s a fact, and if so, the Commission exercising the power of the Government to set aside private rights, sets aside the contract on the grounds that the public interest is injured by that contract and orders a new rate.

Until that happens, we maintain — the contract is valid and possible —

Isn’t — isn’t that very matter before the Commission now?

William C. Chanler:

Well, no, sir, because —

— as to the validity — as to the validity of the proposed increase?

William C. Chanler:

It’s the reasonableness of the proposed increase —

That’s a reasonable —

William C. Chanler:

— no, not of the increase but of the new rate sir —

All right —

William C. Chanler:

— it’s a little very close.

— of the new rates —

William C. Chanler:

It’s the new rate not the fact that they’re increasing it.

If —

All right, it’s the new rates.

William C. Chanler:

Yes.

Now that’s — that’s before the Commission now.

William C. Chanler:

Yes, yes.

And this —

William C. Chanler:

Well it isn’t because the whole matter has been wiped out by this conversion tariff — but it should be, normally.

Well —

William C. Chanler:

You know, they’ve taken over our contract.

Now, so I can’t say that there’s anything pending before the Commission.

Well, I’m trying to find out precisely what’s before us here.

William C. Chanler:

The question here is —

Now, you — let — let me state my difficulty.

As I understand, the Court of Appeals directed that the Commission go ahead with the hearing and set aside certain orders that they had entered.

And the order that’s objected to here is, whether under the Natural Gas Act of the Power Commission may become the effect — let this become effect to the schedule, increasing the rate.

William C. Chanler:

Yes.

Now, isn’t that all we have up here before us?

William C. Chanler:

No, sir.

Not the question of the validity of your contract but a question of the statutory interpretation as to whether it goes into effect before or after the Commission completes its hearing?

William C. Chanler:

No sir.

No, I don’t think it’s quite that — this contract —

William J. Brennan, Jr.:

Well, at least the question presented to us for which we took certiorari is apparently limited to that.

William C. Chanler:

Well, it raises — the question is exactly how it arises sir.

It arises this way.

If I am right when I say that when a company files an increase under Section 4, it is violating its contract.

Then —

I assume that you’re right.

William C. Chanler:

If you would assume that, then we maintain that in order to prevent contracts and being unilaterally abrogated, the Commission, when increase is filed with it and the Commission is told that that violates a contract, the Commission must reject the filing of having been unlawfully made.

Otherwise, if they go ahead and — leave it in their files as a file of increase, the Commission has no alternative but to hold a hearing as to the reasonableness of the new rate and if that is also within this wide area of reasonableness as well as the contract rate to permit the contract to be abrogated although the contract is still perfectly reasonable.

Well I’m assuming, if the contract is not going to be abrogated, it’s a valid contract, it will eventually be found to be a valid contract and they will refuse to allow the entry.

But isn’t the question that we have here pending that determination whether or not your rate continues.

William C. Chanler:

The question is whether pending that determination —

The rate continues.

William C. Chanler:

The filed rate may remain on the books —

All right, the filed rate remains in the books.

William C. Chanler:

It’s not — nothing to do with suspension, it’s more than that.

We say the filing must be rejected, it’s not a question of suspending because the suspension would only be for five months anyhow.

We say that they had no right to file an increase of an existing valid contract.

They had to wait until the Commission had found that the contract was against he public interest, then, the Commission either sets a new rate or what they usually do, they say to the company “That contract is no good, go make another one and bring it here and we’ll look at it.”

Well, then —

William C. Chanler:

That’s what he could do.

— then I am faced with something that I asked you about before the very beginning of the proviso, provided that the Commission shall not have authority to suspend the rate, charge classification or service for the sale of natural gas for resale.

Because as I understand that you say that applies only to those that do not have a contract.

William C. Chanler:

No, sir.

If — because they nearly always do have contract.

It’s intended to apply when there’s a contract.

It said the Congress — the congressman who proposed the amendment said that we’re doing this because they usually are involved in contracts.

But I say, that when the congressman spoke of changing rates in the contract, he assumed that the policies have agreed to the change.

I think the congressman knows the word contract means an agreement binding on both parties.

Felix Frankfurter:

All but the contract has been found (Inaudible) number 5.

William C. Chanler:

Well, if — if it’s been found wanting under 5, there was no contract and then they would file again under 4.

Felix Frankfurter:

Yes.

William C. Chanler:

Yes.

Felix Frankfurter:

It was — it was the contract but it’s found —

William C. Chanler:

Yes.

Felix Frankfurter:

— inadequate to return.

William C. Chanler:

Section 4, well, I don’t know, the Circuit Court of Appeals for the Sixth Circuit held different the other day, after the Commission sets a contract aside and directs the company to fix a new rate, I would have thought the company was then acting under Section 4.

As a matter of fact, in the recent Panhandle case, the Circuit Court of Appeals said that they were acting still under 5 because they were acting under the direction of the company but I don’t know that that — I think that only confuses us here.

I don’t think it helps the argument.

Well you filed the petition before the Commission, did you not?

William C. Chanler:

Yes, sir.

As —

What — what did you ask?

William C. Chanler:

I ask them to reject the filing because it was in violation of our contract and the company had no right to file an increase in violation of our contract in the absence of any finding that the contract was against the public interest.

And the Court of Appeals held that those parts of the Commission’s order, which dismissed your petition, should be eliminated.

William C. Chanler:

Yes sir.

And that’s where you are now.

William C. Chanler:

Yes sir.

If they eliminate — if they grant our petition, the filing is rejected and —

Well I think — grant it now because the case has been brought up here by petition for certiorari.

William C. Chanler:

Yes.

But we’re waiting for that.

If you affirm below, the Commission will be ordered to reject the filing as of the date when it was made, we will recover the amounts that we have paid in excess of our contracts since it became effective 30 days after the filing.

And the — except that it prevents them to have — since happened, the Commission could and in the other case, undoubtedly, will proceed in a 5 (a) proceeding to examine our contract and see whether or not it’s against the public interest which is what we asked them to do in the first place.

In our petition we pointed out to the Commission, that if there was anything wrong with our contract, they should hold the hearing under 5 (a), and determine the validity of the contract, but they couldn’t let the company throw out our contract before there’d been any such hearing.

Felix Frankfurter:

That’s the reason why —

Where — where is the — where is your petition in the record?

William C. Chanler:

I’m afraid our — now this record is all right I guess.

Here’s our petition.

I think we made petitions in Mobile somewhere in the first pages sir, the petition is on page 7.

These are amendments and I have difficulty in reading of it.

William C. Chanler:

What’s that?

There was an amendment made, the very first thing in the record.

William C. Chanler:

Yes although we’ve misstated something on the front page, I think, I forget what it was.

Misdescribed somebody I think.

Page 17, wherefore your petitioners respectively phrase that the Commission forthwith enter an order amending and modifying its order of July 10, 1953 so as to provide that the filing of — was she defecting us?

William C. Chanler:

Insofar as they apply to the service of Mobile to Mobile for resale of ideal be rejected.

And further phrase that in the event of foregoing relief be denied.

The Commission entered an order amending its order shows to provide for Section 5 proceeding as to the validity of the contract.

Felix Frankfurter:

Let’s see if I understand and follow your argument Mr. Chanler.

You say that the Interstate Commerce Act, the Elkins Act and the Hepburn Act for all practical purposes outlaw an existing arrangement between shippers and carriers.

William C. Chanler:

Yes sir.

Felix Frankfurter:

Unlike that which were therefore all were prior to a case where a shipment were made before the Elkins Act on a rebate, it was not arguable by the Elkins Act.

But payment made subsequent even that would disallow the (Inaudible).

What you say under the — under the Natural Gas Act, the opposite is applied Congress build on existing industrial contract.

William C. Chanler:

Yes sir.

Felix Frankfurter:

Therefore, it presuppose their social value or rightness as an existing (Inaudible).

It gave ample room for their chain if they should be either too high or too low.

What you say that in view of the fact that that which is reasonable may play anywhere between 10 cents and 15 cents so far as profit —

William C. Chanler:

Yes sir.

Felix Frankfurter:

— is concerned.

If this issue is merely the validity of (Inaudible) it submerge the system of contract by fixing the issue before a Commission nearly on whether an unrelated new schedule is in it of itself (Inaudible) and that presupposes and presumably defeat the underlying presupposition of the statute and therefore no construction should be given to the statute.

William C. Chanler:

Yes, I think it is.

Yes, sir.

Hugo L. Black:

May I ask you if you are?

If Mobile and United had agreed to change their contract validly and make a real change instead of one trying to repudiate it.

William C. Chanler:

Yes.

Hugo L. Black:

As I understand it, your position is that — that tariff could have been filed and the proviso would have apply.

William C. Chanler:

That’s right.

Hugo L. Black:

But you can’t apply it as a chain when it’s a mere repudiation of a valid contract.

William C. Chanler:

That’s right, yes sir.

That’s — that’s the whole point.

Now, I think whether a lot more to this case, but I don’t think I’ll go into it now because I would probably end up confusing you.

It is a difficult question.

Felix Frankfurter:

Now are you going to speak either now or later on what has been indicated to us as to construction administrative practice uniformity of pleading attached to the scheme.

William C. Chanler:

Mr. Wahrenbrock in his speech states that the Commission has uniformly construed the statute as permitting contract rates to be abrogated by a mere filing.

William C. Chanler:

In my brief, I challenged that statement and stated that I believe this is the first time it has ever been authorized by the Commission.

Mr. Wahrenbrock, in his brief, cites in support of his statement long series of cases revolving around the Panhandle Company which had been frequently in these court.

Panhandle over sold its gas.

It sold more gas than it could deliver on the contract.

It contracted to deliver more.

And the contracts had to be revised.

The Commission held hearings under Section 5.

Mr. Wahrenbrock says they were under Section 4.

The Commission held hearings under Section 5 as I shall demonstrate conclusively in a moment and ordered them to limit their deliveries and to change their rates.

Now when they ordered them to change their rates in some cases, the new rates were filed I think under Section 4.

We did think so until today.

And so he says, these were Section 4 proceedings, but the new rates were not filed until after the Commission had found the contracts to be against the public interest.

Now the most recent case —

Felix Frankfurter:

(Inaudible) in face of something part of the Commission, Mr. Chanler, what you’ve just said?

William C. Chanler:

I refer in my brief, sir, to report to the Commission to decide the cases.

I now wish to read from a decision of the Circuit Court of Appeals from the Sixth Circuit handed down on October 8 last — October 6 last on rehearing, Michigan Consolidated versus Panhandle.

Panhandle and Michigan ended into a contract in 1938 or 1939, I think, which involved both rates and terms of service.

In 1942, the Commission held a 5 (a) proceeding, held the contract against the public interest ordered a new schedule of file.

The new schedule, both CEO held the writ to be against the public interest and ordered a new schedule of file.

Panhandle filed a new schedule that both changed the rate and changed the terms and conditions of service.

This, in this case, Michigan Consolidated said “You are violating the terms and conditions of service” and they were not properly changed by you.

Why not?

Because there was no finding that the — that under 5 (a), that the existing terms and conditions of service were bad, the only finding was that the rate was wrong.

Consolidated both, I think the Commission and Panhandle said, “Oh, this was a filing under Section 4,” and adapting the same view they do here.

We don’t need any finding and as far — and a filing under Section 4, I’ll read just one sentence.

The Court of Appeals said “No, this isn’t a new filing under Section 4.

You were directed by the Commission after us finding that the contract rate was unlawful under Section 5 to file a new schedule.

You can’t change anything but the rates.

You can’t change the terms and conditions until there’s been a finding that they are unreasonable.

On rehearing they said, “We don’t pass on whether if it were a Section 4 proceeding, you could file without a finding.”

William C. Chanler:

Mobile and the Tyler case don’t apply here.

All we say is, that this is a Section 5 proceeding.

Felix Frankfurter:

Are these proceedings before the Commission labels Section 4 and Section 5 considering the way it considers before the argument labeled Section 4 or (Inaudible)

William C. Chanler:

I think in my brief, I will quote — I quote statements by the Commission either under Section 4 or 5 this can’t be done.

The Commission — Commission steps out —

Felix Frankfurter:

Section 4 or 5 doctrine where there is before the ICC, is it?

William C. Chanler:

Well the Commission staff counsel is here and he doesn’t agree with me.

He says there’s no difference between the two Sections and he’s advised the Commission has drawn their orders, that when you look at what actually happened, the Court say, “No, this is a Section 5 proceeding,” regardless of what they denominated.

Well actually all these Panhandle cases were denominated originally Section 5.

And then when they found the contract unreasonable and told the company to fix new rates, it was assumed and I don’t quite quarrel with it, that that was under 4, but the Circuit Court of Appeals said that’s under 5 (2), I don’t think it matters very much.

Felix Frankfurter:

What’s the citation of this Six Circuit deal?

William C. Chanler:

Let’s see.

I have it here and I wish I find it sooner.

I would have had copies.

I have copies printed this decision of the Michigan Consolidated.

I’ve got it in paragraph 9474 —

Felix Frankfurter:

What’s date of the decision Mr. Chanler we can get —

William C. Chanler:

October 6.

Sixth Circuit, the first decision was August 1 then it was modified on rehearing October 6.

Felix Frankfurter:

And the title?

William C. Chanler:

Michigan Consolidated Gas Company, the Panhandle Eastern Pipe Line Company.

And that — so it’s a good deal of light on this question we’ve been debating.

I think my time is practically about —

Earl Warren:

Practically, yes.

William C. Chanler:

Thank you.

Earl Warren:

Mr. Fletcher.

Thomas Fletcher:

May it please the Court.

I want to first, before I get in to the matter, answer a question yesterday which Mr. Justice Frankfurter asked Mr. Wahrenbrock in which I did not get.

He asked him a question in 4 (d) whether the first phrase unless the Commission otherwise orders gave any additional power.

My understanding of that phrase is, that it modifies the except phrase at the end of the sentence and it gives power to the Commission to wave portions off, but not all of the 30 days required notice.

Thomas Fletcher:

The last sentence of the section gives a distinct and a new power to the Commission where for good cost shown it can permit the rate to become effective without any notice whatever.

Now, I want to answer too, if I may, as I had not had the time to do, the suggestion of Mr. Justice Black about the question of the equity and the question of the contract.

The — United conceives that it is in performance of Section 4, 4 (d) permits a change in contracts is our contention.

Contracts as used in Section 4 (d) is used in no different fashion from that in Section 5 (a).

No rate ever becomes final whether approved under 4 (d) or 4 (e) rehearing or 5 (e) — 5 (a) hearing because it is always subject to change by the Commission acting under the balance of either one of the sections.

Now, when this matter was filed, Mobile, as it should have done, filed a proceeding before the Alabama Commission.

And in the same proceeding from which counsel quoted Mr. Pitman and I’ll get to that in a moment, on cross-examination by the Commission, the President, Mr. Morris of Mobile said, that they left that application for an increase of the rate to Ideal (Inaudible) because their attorneys advised them that their earnings was so very excessive that the Alabama Commission would not entertain any application for an increase.

And in fact they said, they were ordered to make refunds for the year, I believe, it was 1953.

Our position is and Chief Judge Hutcheson in the Tyler case held, that a natural gas company subject to the Act could not stop itself by contract from access to Section 4 because the Act is incorporated into and became a part of the contract itself and that it was subject to change in consideration.

Now, the question, I believe, it was Mr. Justice Reed of whether, the contract could be considered in a full rehearing.

It has been consistently our contention that it can be, and this Court in the Midland case, which involved a Missouri statute that is precisely like or so precisely like that to add that the difference is on substantial.

Mr. Chief Justice Taft there said that in a hearing on the section of the Missouri statute, its input note seven of the opinion, and I thought I had 5191, yes, 5191, which is like 4 (e) of the Natural Gas Act.

Very, very substantially similar that there, the hearing was not only upon the proposed rate, but upon the contract and that the claimant of the contract there had the right to defend this contract and to adduced for the Commission’s consideration what evidence he had in support of it.

I come in again, if I may, skipping but I want to answer the Court’s questions as I understand which I conceived to be the more important.

I think my brief would take care of counsel.

Mr. Justice Frankfurter say’s what is the gloss?

It is sir, as I understand it, the Interstate Commerce Act, the courts hold that the Natural Gas Act comes from it.

Section 6 (3) three of the Interstate Commerce Act is similar to Section 4 (d), and if I may digress for the moment, that was the only section in existence at the time of Armour’s case.

Now, I do not agree, that there is any difference in the Interstate Commerce Act and the Natural Gas Act.

When one reads and considers the necessary connotations of Section 1 (a) in the light of Sections 4 (a) and (b), the purpose of Congress to take over the (Inaudible) gap and completely to regulate and preempt the regulation of that gap is as evident in those sections as it was evident against any other arrangement in the Interstate Commerce Act.

Felix Frankfurter:

— the power Mr. Fletcher —

Thomas Fletcher:

Certainly.

Felix Frankfurter:

Not in controversy.

Thomas Fletcher:

Yes, sir.

Felix Frankfurter:

Not as to power and that one in controversy but — but isn’t there a profound difference, as I —

Thomas Fletcher:

I don’t think so —

Felix Frankfurter:

— (Voice Overlap) — Mr. Chanler, in that, the Interstate Commerce Act cut out all contract.

Thomas Fletcher:

But it does —

Felix Frankfurter:

It gives them.

It meant to give them because of mischievous situation about rebates etcetera, etcetera.

Thomas Fletcher:

And equally in the Natural Gas Act, but Mr. Justice Frankfurter, as I understand it, the word contract is nowhere used by an expressed phrase in the Interstate Commerce Act, it arose by this Court’s decision in Armour, and the extent of the decision in Armour which only was after 63, a comparable 4 (d), can be best determined to my way of thinking, by the examination of the dissent of Mr. Justice Brook, which in the most strong language put it that the Court was holding that by the filling of a change of rates under Section 63 comparable to Section 4 (d) of the Natural Gas Act, the Court was giving to a party bound by contract the arbitrary I think was his term.

The arbitrary right to cancel and to know a contract, and that that was mischievous.

I say that that measures the scope of the consideration which this Court gave to Armour, and a statute at that time that is right except for the use as I understand it of the word contract 4 (d).

Felix Frankfurter:

Let me ask you this one Mr. Fletcher.

Thomas Fletcher:

Yes, sir.

Felix Frankfurter:

In your view with the Power Commission in considering your newly filed rate, never mind this new (Inaudible) would the Commission in its hearing regarding your new rate consider to operate the outstanding contract and say we have found that this we find that this contract during its duration, the cause of its duration and the income and the revenues and exactly, we find that unreasonable rate, we will change it, could it?

Thomas Fletcher:

I think without a shatter of a doubt, it could.

Felix Frankfurter:

Then it could — you couldn’t have a comparable situation (Inaudible)

Thomas Fletcher:

I think that the question of what constitutes the reasonableness today is always open to consideration and Chief Judge Hutcheson held that it was not unilateral abrogation because it was compliance with the Act.

Now, as I see it, Mr. Justice, Section 4 is initiated by the company and it has a continuing duty under the — under the categorical duty of 4 (a) and 4 (b) to offer a change whenever and is often as contracts aside because the statute is a part of the contract.

It becomes necessary to maintain just and reasonable, and the Commission is never foreclosed by Section 5 (a).

They are both equally open to the Commission upon the filling by the company or initiation.

The company cannot initiate the 5 (a).

It can under the Power Act, the natural gas company can’t file a complaint under Section 5 (a).

Nobody but the public guardians that is the State or the Federal Power Commission or the distributor the —

Hugo L. Black:

On your argument, is this contract have any validity at all?

Thomas Fletcher:

My proposition, Mr. Justice Black, is and I understand it to be I think sustained by the cases I have cited, that whenever any provision of a private contract comes in to conflict —

Hugo L. Black:

I understand that purpose of law.

In your judgement, is this contract have any — this kind of contract —

Thomas Fletcher:

Pro tanto —

Hugo L. Black:

— have any validity at all?

Thomas Fletcher:

Pro tanto, the conflict with the Act, the – the subject matter committed the regulation, no.

Hugo L. Black:

Supposed Mobile should decide it didn’t want to continue to divide its 10 cents.

And it’s the one that stopped.

Could you sue them?

Thomas Fletcher:

Certainly, not because —

Hugo L. Black:

— divided —

Thomas Fletcher:

— of the contract —

Hugo L. Black:

— divided on them?

Thomas Fletcher:

Not because of the contract, but because it was the filed rate.

Hugo L. Black:

Well but suppose it decide it and didn’t want to buy it at all.

They said, “We don’t want it anymore.”

Thomas Fletcher:

Well, I think it’s obligation to buy —

Hugo L. Black:

Why?

Obligation under the contracts?

Thomas Fletcher:

Certainly, Mr. Justice Black, but —

Hugo L. Black:

It would be binding on it.

Thomas Fletcher:

Its obligation.

Hugo L. Black:

But in — but your view is, as I understand it, it’s binding on it, but you can change it any moment you please, simply by filing a statement if we raise the rate.

Thomas Fletcher:

Well, my difference with your statement, Mr. Justice, is, that it’s not a change, as I please, whenever I plead.

Hugo L. Black:

Well, it —

Thomas Fletcher:

I think that it is a change on the Section —

Hugo L. Black:

Oh, whatever it is, you can do it at will, can you not, you can change the rate at will.

Thomas Fletcher:

Not at will, no.

Hugo L. Black:

Why?

Thomas Fletcher:

Because when we filed under 4 (d), the information we attached to the filing is tantamount to a prima facia rate case and it cannot become effective unless the Commission permits it saved in the one (Voice Overlap) —

Hugo L. Black:

But — but under the proviso — under the proviso —

Thomas Fletcher:

Say it in that 1 (a) writ.

Hugo L. Black:

That’s right.

Thomas Fletcher:

Now, that —

Hugo L. Black:

Well, that’s the only one I’m talking about.

Thomas Fletcher:

Yes, sir.

Now the —

Hugo L. Black:

You say that you have a right to make contracts of industrial when does few rate, but you can enforce against them, but that you can file a rate, new rate with the Commission above the contract rate at any moment you see fit and the Commission is without power under the proviso to do anything about it.

Thomas Fletcher:

Oh, they can do something about it though, Mr. Justice Black.

They can enter as they ordered here the full rehearing.

Hugo L. Black:

They can enter a hearing —

Thomas Fletcher:

Yes.

Hugo L. Black:

— but until that’s done, you get the increased rate, don’t you?

Thomas Fletcher:

Yes sir.

Thomas Fletcher:

Yes, sir.

That is the Act itself.

That’s not my Act.

That’s the provision of the Natural Gas Act and the reason void in the —

Hugo L. Black:

But you’ll get it — you’ll get it despite the contract?

Thomas Fletcher:

In the reason, If you let me answer this way I’ll give you, yes.

The reason for it is, as I understand it, the Federal Trade Commission report, which is referred to in Section 1 (a) and which induced the Act, itself said that the competition in industrial rates was a different class and was itself so fears that that was not necessary to be regulated whatever, and this is a resale rate and for that reason, this resale rate came under the jurisdiction of the Act.

And the — and the Congress, for whatever wisdom it had, whether it was wise or not, did provide and prohibit the suspension of a rate where it was for an industrial resale only.

Now why that was, I don’t know, sir.

But it is in the law —

Hugo L. Black:

I think it’s a very valid, easily understood provision of the law, which will argue the contract that way.

But under your statement, the contract binding on you but not binding on them, but binding on them but not binding on you.

Thomas Fletcher:

My statement is, Mr. Justice Black, that when I am under the compulsion, as I think the Natural Gas Company is by Section 4 to propose a change whenever, it is necessary to meet the statutory obligation of just and reasonable.

It is not my Act, it is not my whim, it is not my caprice, it is my statutory duty.

Hugo L. Black:

Well, having (Voice Overlap) —

Thomas Fletcher:

The issue for you to decide —

Hugo L. Black:

Having abrogated it, is there any part of the obligation on Mobile under that contract?

Thomas Fletcher:

The issue, if you let me answer this question, I’ll come to your question.

I want to answer your question if I can.

Hugo L. Black:

Well, that’s what I want to know.

Having abrogated, as you say, validate by — and filing an increase rate, is there any further obligation on Mobile under it’s contract with you?

Thomas Fletcher:

But I don’t think we abrogated, Mr. Justice Black.

Hugo L. Black:

Well, having raised the rate above that, which is provided in the contract with Mobile, is there any further obligation on Mobile to comply with that contract?

Thomas Fletcher:

As changed and modified by the Act, which is —

Hugo L. Black:

Changed and modified by the Act?

Thomas Fletcher:

Yes, sir.

Hugo L. Black:

But as repudiated by you —

Thomas Fletcher:

Well, the issue to be decided, I believe, Mr. Justice is —

Hugo L. Black:

I thought there’s a new contract.

To change in a contract was the same as a new one.

Hugo L. Black:

I would always thought that a contract is a mutual obligation between two or more (Inaudible) upon a valuable consideration for local purpose.

Thomas Fletcher:

Right.

And the question here —

Hugo L. Black:

— (Voice Overlap) — to this change.

Thomas Fletcher:

The question here is, did Congress by the Natural Gas Act, stipulate that that was superior to the Act?

If they did, we make contracts.

If they didn’t, and I understand they didn’t —

Hugo L. Black:

I have no difficulty — I have no difficulty insofar as you rely on the statute, if the statute does.

Thomas Fletcher:

Yes, sir.

That’s what I —

Hugo L. Black:

But that has nothing to do with the change of a contract.

That’s a statutory change you can get on.

Thomas Fletcher:

With the difference, that’s what I suggest as the case here.

Thank you.