proceed independently in order to file a tariff within the statutory time to start the service on the date desired, i. e., January 2nd.

In my letter to you of February 3rd, I sent you copy of my report and conclusions with respect to proposed establishment of rate of $1.40 per 100 lbs., with a minimum of 40,000 lbs., for the handling of this same sort of newspaper supplement from Chicago to points in California, and as you will recall, I pointed out therein the threat to the freight rate structure as well as possibility of a very great loss in mail revenues if such baggage car rates for newspaper inserts were established.

In view of my conclusions in the Chicago-Pacific Coast case, an informal appeal was made to me against the proposed action of the Chicago Great Western and the Missouri Pacific in establishing a 60-cent rate, Chicago to Wichita. I immediately took the question up with the executive officers of both the Great Western and the Missouri Pacific, who, upon being informed of the collateral and much more important questions, readily agreed to withdraw the proposition. The publishers of the Wichita Beacon then went to the Rock Island people, requesting the same 60-cent rate, but with a minimum of 30,000 lbs. The Rock Island Passenger Department representatives submitted the proposal as a proposition to the Transcontinental-Western Passenger Association, but upon being advised of my position in the matter agreed to withdraw their proposal.

As I have heretofore set forth, the rates which are now in effect covering the handling of bona fide newspapers in baggage cars were established a long time ago and were never intended to be used for other than the movement of comparatively small lots of newspapers from principal cities to the smaller towns in general baggage equipment. We have freight rates applicable to magazines on a carload basis, under which these magazine inserts can be handled, and, as was pointed out at the hearing in Chicago to California newspaper rate case, the railroads cannot afford to jeopardize the present railway mail pay structure through the publication of carload baggage rates applicable to these newspaper inserts at the levels which have been suggested, and it will be my purpose to take the question to the Presidents, if necessary, in every instance where such proposal comes to my attention.

8. Reduction in Banana Rates from New Orleans to Shreveport, La.-I was recently informed that on December 13th the Louisiana & Arkansas Ry. served notice, under the procedure of the Texas-Louisiana Freight Bureau, of intention to reduce rates on bananas from New Orleans to Shreveport from 63 cents to 40 cents, which it was claimed was necessary to meet truck competition.

An informal appeal was made to me with the statement that such a proposition, if given effect, would in all probability reduce rates to other destinations in Louisiana, Arkansas, and Northern Texas, and additionally would no doubt involve the rates from Galveston.

I immediately took this question up with President Couch of the Louisiana & Arkansas Ry., pointing out the heavy terminal expense plus car mileage allowances would leave only some $34.00 per car as the revenue to the road for the service performed and that, furthermore, all lines needed to preserve their revenues to the fullest possible extent and certainly do nothing which might adversely affect the decision in our application in the 15% case.

Mr. Couch replied that they were solely concerned with truck competition and that while the revenue per car was small, it would bring them some additional profit, but that in view of my apprehension of its effect on the revenues of the carriers generally, they would hold in abeyance any further procedure toward publication of the reductions proposed.

9. Reduction in Rates on Pulpwood and Woodpulp.-On December 13th, after having handled the proposition in the reglular course through the TexasLouisiana Freight Bureau, the Louisiana & Arkansas Ry, published rates on pulpwood from stations on their line to the mill at Spring Hill, La., making reductions of as much as 30% in the normal rate and applying the reductions on woodpulp from the mill at Spring Hill to New Orleans for coastwise movement. These rate reductions immediately brought about demand for the establishment of similar rate of 131⁄2 cents on woodpulp from Advance, La., and other mills to New Orleans for export to Cuba and the West Indies, the shippers' representatives stating that in view of the rate reductions made from Spring Hill to New Orleans for coastwise movement, they could not keep their plants at Advance and other points running unless new business could be developed by the reduced rates to meet the competition.

When the matter was brought to my attention, I immediately wired the Chairman of the Texas-Louisiana Freight Bureau that unfortunately the action

taken on the L. & A. rates to Spring Hill and from Spring Hill to New Orleans reached me after the effective date, but that with respect to the new proposal for reduced rates from Advance and other mills to New Orleans for export, the Chief Executives of railroads throughout the entire country had adopted a very strong attitude against rate reductions, and in view of our pending application in the 15% case, I did not believe there was any emergency existing which re quired reduced rates on woodpulp or, for that matter, any other commodity. Chairman Roberts promulgated this view to the roads concerned and agreed to advise me of any independent notices which might be filed of intention to make the reductions effective, but to date nothing of the sort has been received.

10. Request for Emergency Rates on Agricultural Commodities Account Drought Conditions.-Governor Huxman of the State of Kansas recently requested conference of the Kansas railroads to consider the application of emergency rates on certain agricultural commodities account drought conditions in that state.

Following the second of these conferences in the offices of the Governor, lines concerned agreed to give the matter full consideration, and after conclusion had been reached that such emergency rates were not warranted, I was directed to advise the Governor for account of the Kansas lines. This I did under date of December 17, 1937, pointing out that the financial condition of the railroads was very critical and that in the face of such an emergency I believed he would agree that it would not only be inconsistent, but highly improvident, for the railroads to make the reduction asked for in Kansas, adding that similar requests had been declined by the lines serving Nebraska and Colorado. The Governor's reply of December 23, 1937, is quoted below:

"I have your letter of December 17 notifying me that the railroads have declined to consider the application of Kansas for emergency drought rates for the drought-stricken areas of Kansas.

"I am very much disappointed with the attitude and decision of the railroad companies in this matter. I think their action is arbitrary and is taken without any regard for the distressed areas of Kansas and shows an utter lack of a willingness or spirit to cooperate.

"The railroads have no hesitancy in stressing and pressing to us their distressed condition and have no hesitancy in making application for increased rates to relieve them of their distress. As a matter of fact, they did not even hesitate to ask the Interstate Commerce Commission to grant an increase before the case was concluded, basing their request on the fact that they claimed they were facing an emergency.

"Everyone admits that there is an emergency in parts of Kansas, as far as the drought area is concerned, and that the cattlemen are as much entitled to the consideration of the railroads as the railroads are entitled to our consideration in their distressed condition.

"I do not agree with your statement that it would not only be inconsistent but highly improper for the railroads to make the reduction asked for by Kansas. On the other hand, there would be a much better feeling on the part of all people toward the railroads and much more of a willingness to cooperate with them if they showed the slightest inclination to cooperate with the people of Kansas in our distressed condition.

"It shall be my intention to instruct the Corporation Commission of Kansas to at once proceed to use all the powers it has to procure for the distressed Kansas livestock industry whatever reduction they have in their power to procure. "WALTER A. HUXMAN, Governor."

11. Effect of 15% Increase in Rates on Cost of Constructing a $10,000 House.As a matter of information, you may be interested in the attached copy of letter addressed to the Presidents of the Western Lines by Mr. S. T. Bledsoe as Chairman of the Committee of Western Railway Executives appointed to progress and give consideration to the advanced rate case designated as Er Parte 123, containing a comparison of the freight rates that would be paid in the construction of a $10.000 house under existing freight rates and freight charges resulting from application of the increase proposed in the 15% case.

Very truly yours,

H. G. TAYLOR, Commissioner.

EXHIBIT No. 327

Mr. D. A. CRAWFORD:

Answering your memorandum of October 20 about the meaning of the term "standard sleeping cars," this expression has become a trade name to distinguish the type of service rather than the construction of the car. The facts supporting this conclusion are:

The Company furnishes two separate types of sleeping-car service-standard and tourist. Separate tariffs are published for each. The standard tariff shows on the title page, "Rates in Dollars and Cents for Berths, Rooms, and Seats in Standard Cars."

Frequently when tourist cars are not available, standard cars are used for that purpose and a cheaper type of service is furnished in the same cars.

In the I. C. C. classification of accounts separation is made in revenue and expense accounts. The first three revenue accounts are: "Standard Sleeping Car Berth Revenue," "Tourist Sleeping Car Berth Revenue," and "Other Car Berth Revenue." In the expense accounts maintenance is subdivided into "Standard Sleeping Cars-Repairs," and followed by similar designation of other classes of cars. Such separation also appears in the depreciation accounts. The annual reports to the I. C. C. follow the classification. On page 63 of the report, under the heading "Description of Equipment," all classes of cars are named, making greater subdivision than in the revenue and expense accounts.

Throughout the Company's records similar separation appears, all indicating that the term has a well-defined meaning, applying primarily to the type of service.

The operating contracts from the earliest date make use of the term "Standard sleeping cars." At the beginning of all contracts appears the provision with reference to furnishing such cars, and when tourist or parlor cars are furnished they are seperately mentioned. The requirement, to furnish standard sleeping cars appears to mean the furnishing of cars in which standard sleeping car service is afforded to passengers. Therefore, the exclusive provisions contained at the end of all operating contracts apply to cars furnishing the same type of service as mentioned at the beginning of the contracts; that is, cars furnishing standard service as recognized in the tariffs, accounts, records, and practices of the Company.

As it is intended that fares applicable to standard cars will apply to accommodations furnished in the new type cars, the tariff and accounting provisions would similarly apply to such cars. Applications of the accounting provisions would not preclude further subdivisions of accounts, as for example, separate depreciation provisions or separation of the new type cars in ascertaining average expenses of all other cars.

For all these reasons it seems advisable to use the word "standard" in describing the new type light-weight cars. If they are classified under the different names, omitting "standard," then railroads could claim that The Pullman Company itself had made a distinction between such new type light-weight cars and standard cars, and that the exclusive provisions of the contracts only cover standard cars; therefore, that no contract provision prohibited the roads furnishing sleeping-car service of their own under any name they should choose in cars different from standard cars although the general type of service might be the same. That is, if we make the distinction in the type of car rather than in type of service, there is danger of opening the door to the railroads in the way just indicated.

A further reason is suggested why the type of service rather than construction of the car should be the criterion. A railroad, like the Santa Fe, might announce that they were going to put on a light-weight train with sleeping cars, not calling them standard cars, and with higher or different fares, claiming that our exclusive provisions did not apply and that we had recognized a difference in such cars by requiring separate contracts. Then the primary question would be whether their sleeping-car service was such as came within the description of standard service.

In this connection, we must bear in mind that three contracts have been executed in 1934 (C. & E. I., Wisconsin Central and the Soo Line), and two submitted but not executed (C. & N. W. and Wabash), containing the restriction in Section 1

of Article I that the provision with reference to quality of cars does not obligate the Company

to furnish sleeping and/or parlor cars substantially different in contour, weight, length, general construction, or cost from the standard sleeping and/or parlor cars now in general use.

While this refers to "standard sleeping cars now in general use," that does not prevent the Company from using the term "standard" in connection with the new type cars, because they would come within the qualification of being substantially different in contour, weight, etc.

You inquire if it would be advisable to admit in any way that these new type cars are standard cars because we could not afford to furnish them under the contract arrangements applicable to standard cars. Under other contracts than the three mentioned claim might be made that the new type cars were of better quality and therefore should be furnished. For instance, the Pennsylvania and New York Central contracts provide that the quality, character, and type of cars shall be equal to those furnished for use on any railroad in the United States for similar classes or kinds of service, and a similar provision appears in the Santa Fe. We recently considered that provision in connection with air conditioned cars, and in our consideration of the subject reached the conclusion that as no air-conditioned cars are furnished except under special contracts, we were treating all roads alike and were not acting contrary to the provision respecting the quality of cars. I think the same conclusion should be reached with respect to particular types of equipment furnished under special contracts, and so long as we treat all railroads alike in not furnishing any of these added types or facilities without special contracts the procedure is not subject to criticism.

Question might also be raised as to the effect of inserting the restriction in the 1934 and subsequent contracts on the ground that no such restriction appeared in prior contracts and therefore the roads under other contracts had the right to demand equipment equal to that furnished any other road. As we have entered into no contracts after 1930 until 1934, the logical answer to such criticism is that the intent of the parties could not possibly have included the furnishing of lightweight equipment, then not being actively considered. When actual building commenced so that such lightweight cars were known to the railroads and this Company, failure to exclude them would constitute recognition that they were simply cars of better quality which must be furnished all roads alike. The intent of the parties at the time the contract was made is the principle to be followed.

In these supplemental contracts such as the Union Pacific, I think the cars should be designated as "new type lightweight standard sleeping cars." A different description will become necessary for other types such as those on which research and engineering work is now under way as a result of the New York Central inquiry.

The language of the exclusive provision is that The Pullman Company shall have the exclusive right "to furnish under this agreement," etc. Some road may claim that as we decline to furnish the new type cars under the principal agreement our exclusive right applies only to such cars as are so furnished; therefore that they can put on their own special type. This is mentioned only as a possible contingency to meet. The danger seems not to be greater than the right of any road to put on all of its own cars whenever a contract expires. We rely upon the advantages of the Pullman system and the pool of cars to meet peak loads to secure continuance of contracts.

We are entering upon a new phase of transportation where many old types of equipment and service will be gradually superseded by new ones. Our contract system and the provisions of individual contracts require unusual attention not only to cover current changes but to avoid the present use of provisions which may be embarrassing in the future.

L. E. GREENLAW.

OCTOBER 26, 1934.

EXHIBIT No. 328

Mr. CRAWFORD:

I have your second memorandum of October 29 with reference to general contract provisions, but with specific reference to the preparation of contracts for the

new-type lightweight standard sleeping cars, and would call your attention to my memorandum of October 27, handed you yesterday, to which was attached amended draft of supplemental agreement to cover the new-type lightweight standard sleeping cars built for the Union Pacific system. I think this supplement agreement is complete in itself, covers the situation fully and with the insertion therein of the paragraph suggested on the fourth page of my memorandum to provide that if the earnings from any class of cars operated under the terms of the principal agreement or supplemental agreement are less than our average expenses per car of that class then an amount sufficient to make up such deficit will be deducted from any amounts due the Railroad Company under the terms of article IV of the principal agreement or the supplemental agreement. I believe that that draft of supplemental agreement fully meets the several thoughts contained in the second paragraph of your memorandum of the 29th.

In regard to the suggestion of danger of admitting the existence of a new class of cars, I believe Mr. Greenlaw has fully covered this in his memorandum to you of October 26 and we have inserted in our new draft the word "standard" in designation of this new type of cars and in my opinion the provision in article V of our agreements-that The Pullman Company shall have the exclusive right, so far as the same be legally granted, to furnish all standard sleeping cars to the railroad with which such agreement is made-would prevent that railroad from operating for its own account a new type of lightweight sleeping car or permitting any other company to furnish cars of that character for operation on its lines.

As you know, all of our recent agreements contain the provision that The Pullman Company shall not be obligated to furnish under the terms of that agreement sleeping or parlor cars substantially different in contour, weight, length, general construction or cost from the standard sleeping and/or parlor cars now in general use, and they also contain the provision that The Pullman Company shall not be required to furnish sleeping cars or parlor cars equipped with air conditioning system and if cars so equipped are desired a separate agreement shall be entered into therefor.

Referring to the first paragraph on the second page of your memorandum in regard to the possibility of a new and separate pool of sleeping cars being created, to which railroads would have access, this leads me to again urge for careful consideration the desirability of our making our contracts for a definite and longer period of time, not less than ten years. I earnestly believe that we are very dangerously jeopardizing the best interests of the company in making agreements with important railroads which those railroads may cancel on six months notice. We have devised a contract which is practically "foolproof" with the possible exception of the effect further inflation of our currency might have on our fixed profit or return on investment spread, and I believe we might protect ourselves against even that eventuality. I am proposing to write you a separate memorandum on this subject; I believe it is of sufficiently serious character to require our most earnest consideration.

Our agreements with the New York Central and Pennsylvania contain the following provision:

"The quality, character, and type of cars furnished under this agreement shall be equal in every respect to those furnished by The Pullman Company for use on any railroad or system of railroads in the United States for similar classes or kinds of service."

Practically all of our agreements with other roads have a provision of similar

nature.

Referring to the last paragraph of your letter, as previously stated, with my memorandum of October 27 relative to the Union Pacific supplemental agreement, I suggested a provision for consolidated treatment of earnings of all cars in excess of our expenses of operation for each class of car.

In regard to the form of agreement which we could afford to offer to other railroads covering the operation of the new-type lightweight cars, I agree that we will have to be prepared to suggest varying terms made to fit the operating conditions and prospective earning volume of each railroad. It is undoubtedly true that these new-type lightweight cars would at least primarily be operated in the highest-earning lines, and as to increased investment cost, I think we would be fully protected with the consolidated earning provision applied to any division of revenue with the railroad.

Ост. 30, 1934.