B-141191, NOV. 23, 1959

B-141191: Nov 23, 1959

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TO THE SECRETARY OF THE ARMY: REFERENCE IS MADE TO A LETTER DATED NOVEMBER 4. THAT REFORMATION IN THE CONTRACT WORDING IS IN ORDER. IT IS REPORTED THAT THE SUBJECT OF TRANSPORTATION TAX WAS NEVER DISCUSSED PER SE BY THE PARTIES IN THE NEGOTIATION OF THE CONTRACT. IT IS FURTHER REPORTED THAT AN AMOUNT TOTALING $93. 583.74 WAS PAID UNDER THE CONTRACT AND THAT THE ONLY AMOUNT REMAINING DUE IS REPRESENTED BY THE CONTRACTOR'S INVOICE COVERING THE FEDERAL TRANSPORTATION TAX WHICH WAS PAYABLE BY THE CONTRACTOR UNDER INTERNAL REVENUE REGULATIONS. THE COURTS AND AUTHORITIES HAVE HELD THAT A MISTAKE AS TO AN EXISTING SITUATION WHICH LEADS EITHER ONE OR BOTH OF THE PARTIES TO ENTER INTO A CONTRACT WHICH THEY WOULD NOT HAVE ENTERED INTO HAD THEY BEEN ADVISED OF THE ACTUAL FACTS.

B-141191, NOV. 23, 1959

TO THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO A LETTER DATED NOVEMBER 4, 1959, WITH ENCLOSURES, FROM THE CHIEF, CONTRACTS BRANCH, PROCUREMENT DIVISION, OFFICE OF THE DEPUTY CHIEF OF STAFF FOR LOGISTICS, CONCERNING THE REQUEST OF SEA AIR MOTIVE, INC., FOR REFORMATION OF CONTRACT NO. DA-95 507-ENG-1054 (ENG) TO PROVIDE FOR REIMBURSEMENT IN THE AMOUNT OF $9,358.37 FOR FEDERAL TRANSPORTATION TAXES PAID BY THE CONTRACTOR.

IN A FINDINGS OF FACT DATED MAY 20, 1959, THE CONTRACTING OFFICER RECOMMENDED THAT THE CONTRACT BE REFORMED ON THE BASIS "* * * THAT A MUTUAL MISTAKE IN THE WRITING OF THE CONTRACT EXISTS; THAT THE EXECUTED CONTRACT DOES NOT REFLECT THE ORIGINAL AGREEMENT OF THE PARTIES, AND THAT REFORMATION IN THE CONTRACT WORDING IS IN ORDER, * * *.' IT IS REPORTED THAT THE SUBJECT OF TRANSPORTATION TAX WAS NEVER DISCUSSED PER SE BY THE PARTIES IN THE NEGOTIATION OF THE CONTRACT, AND THAT THE CONTRACT DID NOT PROVIDE AN EXCEPTION TO CLAUSE 10 (B) OF THE GENERAL PROVISIONS WHICH READS AS FOLLOWS:

"FEDERAL TAXES.--- EXCEPT AS MAY BE OTHERWISE PROVIDED IN THIS CONTRACT, THE CONTRACT PRICE INCLUDES ALL APPLICABLE FEDERAL TAXES IN EFFECT ON THE CONTRACT DATE.'

IT IS FURTHER REPORTED THAT AN AMOUNT TOTALING $93,583.74 WAS PAID UNDER THE CONTRACT AND THAT THE ONLY AMOUNT REMAINING DUE IS REPRESENTED BY THE CONTRACTOR'S INVOICE COVERING THE FEDERAL TRANSPORTATION TAX WHICH WAS PAYABLE BY THE CONTRACTOR UNDER INTERNAL REVENUE REGULATIONS.

THE COURTS AND AUTHORITIES HAVE HELD THAT A MISTAKE AS TO AN EXISTING SITUATION WHICH LEADS EITHER ONE OR BOTH OF THE PARTIES TO ENTER INTO A CONTRACT WHICH THEY WOULD NOT HAVE ENTERED INTO HAD THEY BEEN ADVISED OF THE ACTUAL FACTS, WILL NOT JUSTIFY REFORMATION AND THAT IT IS NOT WHAT THE PARTIES WOULD HAVE INTENDED HAD THEY KNOWN BETTER BUT WHAT THEY DID INTEND AT THE TIME INFORMED AS THEY WERE. SEE E. CLEMENS HORST COMPANY V. FEDERAL MUTUAL LIABILITY INSURANCE COMPANY, 33 F.SUPP. 598; RUSSELL ET AL. V. SHELL PETROLEUM CORPORATION, 66 F.2D 864; WILLISTON ON CONTRACTS, SECTIONS 1548 AND 1549.

ACCORDINGLY, AND SINCE IT APPEARS THAT THE CONTRACT PRESENTED THE INTENTION AND UNDERSTANDING OF THE PARTIES, INFORMED AS THEY WERE, AT THE TIME OF ENTERING INTO THE CONTRACT, REFORMATION OF THE CONTRACT TO PROVIDE FOR TAX REIMBURSEMENT IS NOT AUTHORIZED.