B-169104, MAR. 20, 1970

B-169104: Mar 20, 1970

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ROYALTY RATES WHEN DOCUMENTARY EVIDENCE CLEARLY ESTABLISHED THAT MUTUAL MISTAKE WAS MADE IN ROYALTY LICENSE CONTRACT AS EXECUTED WHICH NEITHER EXPRESSED NOR CONFORMED TO ACTUAL INTENTIONS OF PARTIES. SECRETARY: REFERENCE IS MADE TO A LETTER. IT WAS DISCOVERED THAT THE EXECUTED COPY OF THE LICENSE PROVIDED FOR A 5-PERCENT ROYALTY PAYMENT ON SALES. OUR REVIEW OF THE DOCUMENTARY EVIDENCE SUBMITTED WITH THE REPORT REVEALS THAT THE TRUE INTENT OF THE PARTIES PRIOR TO THE EXECUTION OF THE CONTRACT WAS NOT REFLECTED SINCE A 5-PERCENT RATE WAS USED IN ERROR RATHER THAN THE INTENDED 3-PERCENT RATE. THE ASSISTANT DIRECTOR'S MAY 20 LETTER REQUESTING APPROVAL AND/OR COMMENTS ON THE PROPOSED LICENSE STATES: "THE BLUE JEANS CORPORATION IS OFFERING A ROYALTY OF 3% OF SALES***.".

B-169104, MAR. 20, 1970

CONTRACTS--MISTAKES--ROYALTY RATES WHEN DOCUMENTARY EVIDENCE CLEARLY ESTABLISHED THAT MUTUAL MISTAKE WAS MADE IN ROYALTY LICENSE CONTRACT AS EXECUTED WHICH NEITHER EXPRESSED NOR CONFORMED TO ACTUAL INTENTIONS OF PARTIES, TERMS OF LICENSE MAY BE REFORMED, RETROACTIVELY TO OCT. 1, 1969, TO DELETE 5 PERCENT ROYALTY RATE INCLUDED IN CONTRACT AND SUBSTITUTE THEREFOR 3 PERCENT ROYALTY RATE CONTEMPLATED BY PARTIES. SEE COMP. GEN. DECS. CITED.

TO MR. SECRETARY:

REFERENCE IS MADE TO A LETTER, WITH ENCLOSURES, DATED FEBRUARY 16, 1970, FROM THE ASSOCIATE DEPUTY CHIEF, FOREST SERVICE, WASHINGTON, D. C; REQUESTING OUR APPROVAL TO REFORM THE ROYALTY PROVISIONS OF LICENSE NO. 13 -416 GRANTED TO BLUE JEANS CORPORATION, NEW YORK, NEW YORK, APPROVED ON SEPTEMBER 8, 1969, AND EFFECTIVE OCTOBER 1, 1969.

THE LICENSE PERMITS BLUE JEANS CORPORATION, INCIDENT TO ITS MANUFACTURE AND SALE OF A LINE OF BOYS' WEAR, TO USE THE NAME AND ART OF "SMOKEY BEAR" ALONG WITH A FOREST FIRE PREVENTION MESSAGE. DURING A REVIEW OF THE LICENSEE'S INITIAL QUARTERLY REPORT OF SALES AND ROYALTY, WHEREIN IT COMPUTED ROYALTIES USING A 3-PERCENT RATE ON NET SALES TO BE PAID THE GOVERNMENT, IT WAS DISCOVERED THAT THE EXECUTED COPY OF THE LICENSE PROVIDED FOR A 5-PERCENT ROYALTY PAYMENT ON SALES.

OUR REVIEW OF THE DOCUMENTARY EVIDENCE SUBMITTED WITH THE REPORT REVEALS THAT THE TRUE INTENT OF THE PARTIES PRIOR TO THE EXECUTION OF THE CONTRACT WAS NOT REFLECTED SINCE A 5-PERCENT RATE WAS USED IN ERROR RATHER THAN THE INTENDED 3-PERCENT RATE. IN THIS REGARD, A CONTRACT WORK SHEET DATED MAY 6, 1969, FROM A REPRESENTATIVE OF BLUE JEANS CORPORATION TO THE ASSISTANT DIRECTOR, FOREST FIRE PREVENTION, DISCLOSES THAT THE LICENSE HAD OFFERED A "THREE PERCENT (3%) OF BILLING PRICE" ROYALTY RATE. ALSO, THE ASSISTANT DIRECTOR'S MAY 20 LETTER REQUESTING APPROVAL AND/OR COMMENTS ON THE PROPOSED LICENSE STATES: "THE BLUE JEANS CORPORATION IS OFFERING A ROYALTY OF 3% OF SALES***." IN ADDITION, A MEMORANDUM TO THE RECORD, DATED AUGUST 27, 1969, FROM THE DIRECTOR, FOREST FIRE PREVENTION, RECOMMENDING APPROVAL OF THE LICENSE BY THE CHIEF FOREST SERVICE INCLUDES THE FOLLOWING STATEMENT: "WE BELIEVE ROYALTY RETURNS (EVEN AT THE CLOTHING LINE'S LOW MARK-UP RATE OF 3% OF SALES) WILL EXCEED THE MINIMUM DURING THE FIRST YEAR."

OUR OFFICE MAY APPROVE REFORMATION OF A WRITTEN CONTRACT UNDER CIRCUMSTANCES WHERE, AS HERE, THE CONTRACT, BY REASON OF MUTUAL MISTAKE, DOES NOT REFLECT THE ACTUAL AGREEMENT AND INTENTION OF THE PARTIES, AS LONG AS IT CAN BE ESTABLISHED WHAT THE AGREEMENT ACTUALLY WAS. B-166507, APRIL 30, 1969; B-157899, NOVEMBER 1, 1965, AND CASES CITED THEREIN.

SINCE THE LICENSE, AS EXECUTED, NEITHER EXPRESSED NOR CONFORMED TO THE ACTUAL INTENTIONS OF THE PARTIES THERETO, THE TERMS OF THE LICENSE MAY BE REFORMED, RETROACTIVE TO OCTOBER 1, 1969, TO DELETE THE 5 PERCENT ROYALTY RATE AND SUBSTITUTE THEREFOR THE 3-PERCNET ROYALTY RATE CONTEMPLATED BY THE PARTIES.