B-28737, SEP 17, 1942

B-28737: Sep 17, 1942

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ARTICLE 32 OF SUBJECT CONTRACT STATES THAT PRICES THEREIN INCLUDE ANY FEDERAL TAX OR CHARGE THERETOFORE IMPOSED BY THE CONGRESS WHICH IS APPLICABLE TO THE SUPPLIES COVERED BY THE CONTRACT. "3. THE MENTIONED TAX CLAUSE IS ERRONEOUS IN THAT IT DOES NOT PROVIDE THAT PRICES THEREIN DO NOT INCLUDE FEDERAL TAXES IMPOSED BY CHAPTER 29. WHICH FACT WAS UNDERSTOOD AND AGREED TO AT THE TIME OF THIS NEGOTIATION AND EXECUTION OF THE SUBJECT CONTRACT. "4. THERE IS SUBMITTED HEREWITH THE FOLLOWING: (A) AFFIDAVIT OF CONTRACTOR IN DUPLICATE CONTAINING COPY OF TAX CLAUSE IN SUBJECT CONTRACT. IT IS REQUESTED THAT SUBJECT CONTRACT BE READ IN ACCORDANCE WITH THE REAL INTENTION OF THE PARTIES. "6. IT IS CONTEMPLATED THAT ON CLAIM FOR ADDITIONAL PAYMENT WILL BE MADE UNDER THE SUBJECT CONTRACT. "7.

B-28737, SEP 17, 1942

PRECIS-UNAVAILABLE

THE HONORABLE, THE SECRETARY OF WAR:

BY ENDORSEMENT DATED SEPTEMBER 2, 1942, THE DIRECTOR, FISCAL DIVISION, SERVICES OF SUPPLY, FORWARDED TO THIS OFFICE A LETTER DATED JULY 1, 1942 FROM THE CHIEF, CONTRACT SECTION, MATERIAL CENTER, WRIGHT FIELD, DAYTON, OHIO, AS FOLLOWS:

"SUBJECT: MUTUAL MISTAKE IN CONTRACT W 535 AC-26305 THE GENERAL TIRE AND RUBBER COMPANY

"1. SUBJECT CONTRACT CONTAINS A MUTUAL MISTAKE IN THAT IT DOES NOW EXPRESS THE REAL INTENTION OF THE PARTIES.

"2. ARTICLE 32 OF SUBJECT CONTRACT STATES THAT PRICES THEREIN INCLUDE ANY FEDERAL TAX OR CHARGE THERETOFORE IMPOSED BY THE CONGRESS WHICH IS APPLICABLE TO THE SUPPLIES COVERED BY THE CONTRACT.

"3. THE MENTIONED TAX CLAUSE IS ERRONEOUS IN THAT IT DOES NOT PROVIDE THAT PRICES THEREIN DO NOT INCLUDE FEDERAL TAXES IMPOSED BY CHAPTER 29, SUB-CHAPTER A OF THE INTERNAL REVENUE CODE, AS AMENDED, WHICH FACT WAS UNDERSTOOD AND AGREED TO AT THE TIME OF THIS NEGOTIATION AND EXECUTION OF THE SUBJECT CONTRACT.

"4. PURSUANT TO AR 5-200 DATED JANUARY 2, 1940, PARAGRAPH 20(D) (4), THERE IS SUBMITTED HEREWITH THE FOLLOWING:

(A) AFFIDAVIT OF CONTRACTOR IN DUPLICATE CONTAINING COPY OF TAX CLAUSE IN SUBJECT CONTRACT.

(B) I.O.M. IN DUPLICATE FROM CONTRACTING OFFICER TO CHIEF, CONTRACT SECTION, WRIGHT FIELD.

"5. IT IS REQUESTED THAT SUBJECT CONTRACT BE READ IN ACCORDANCE WITH THE REAL INTENTION OF THE PARTIES.

"6. IN VIEW OF THE FACT THAT CONTRACTOR HAS AGREED TO USE TAX EXEMPTION CERTIFICATE IN LIEU OF PAYMENT OF FEDERAL EXCISE TAXES, IT IS CONTEMPLATED THAT ON CLAIM FOR ADDITIONAL PAYMENT WILL BE MADE UNDER THE SUBJECT CONTRACT.

"7. IT IS FURTHER REQUESTED THAT THIS OFFICE BE ADVISED WHETHER OR NOT THE INCLOSED EVIDENCE OF MUTUAL MISTAKE IS SATISFACTORY TO YOUR OFFICE SO THAT TAX EXEMPTION CERTIFICATES MAY ISSUE TO THE CONTRACTOR IN LIEU OF PAYMENT OF SUCH TAXES."

THE REFERRED TO AFFIDAVIT OF THE SECRETARY OF THE GENERAL TIRE AND RUBBER COMPANY IS AS FOLLOWS:

"H. R. JENKINS, BEING DULY SWORN, DEPOSES AND SAYS THAT HE IS SECRETARY OF THE GENERAL TIRE & RUBBER COMPANY; THAT THE PRICES QUOTED IN THE GENERAL TIRE & RUBBER COMPANY LETTER OF FEBRUARY 4, 1942 ADDRESSED TO THE ASSISTANT CHIEF, MATERIAL DIVISION, WAR DEPARTMENT, WRIGHT FIELD, DAYTON, OHIO, ON WHICH CONTRACT W 535 AC-26305 IS BASED, WERE EXCLUSIVE OF FEDERAL EXCISE TAX; THAT THE EXACT FEDERAL EXCISE TAX ON THE 56" LANDING WHEEL CASING IN THIS CONTRACT IS $10.16 EACH OR A TOTAL OF $23,256.24 ON THE ENTIRE CONTRACT; THAT THE PRICE QUOTED FOR EACH ITEM IS $167.92, A TOTAL AMOUNT OF $384,368.88, WHICH AMOUNT SHOULD BE EXCLUSIVE OF TAX; THAT THE TAX CLAUSE, WHICH IS ARTICLE 33 OF CONTRACT W 535 AC-26305, IS ERRONEOUS AND THE GENERAL TIRE & RUBBER COMPANY IS, THEREFORE, ENTITLED TO EXEMPTION CERTIFICATE FOR THE TAX; THAT THE TAX CLAUSE OF CONTRACT W 535 AC-26305 IS AS FOLLOWS:

"ARTICLE 33, TAXES (A) APPLICABLE FEDERAL TAXES - PRICES HEREIN INCLUDE ANY FEDERAL TAX OR CHARGE HERETOFORE IMPOSED BY THE CONGRESS WHICH IS APPLICABLE TO THE SUPPLIES COVERED HEREBY. IF AFTER THE DATE SET FOR THE OPENING OF BIDS, OR IN THE CASE OF A NEGOTIATED CONTRACT, AFTER THE DATE OF THE AWARD, THE CONGRESS SHALL IMPOSE, REMOVE, OR CHANGE ANY SALES TAX, DUTY, EXCISE TAX, OR ANY OTHER TAX OR CHARGE, DIRECTLY APPLICABLE TO THE SUPPLIES COVERED HEREBY, OR OTHER MATERIALS USED IN THE MANUFACTURE THEREOF, OR DIRECTLY UPON THE IMPORTATION, PRODUCTION, PROCESSING, MANUFACTURE, OR SALE OF SUCH SUPPLIES OR MATERIALS, WHICH TAX CHARGE MUST BE BORNE BY THE CONTRACTOR BECAUSE OF A SPECIFIC CONTRACTUAL OBLIGATION OR BY THE OPERATION OF LAW, AND IF THE CONTRACTOR HAS PAID SUCH TAX OR CHARGE TO THE FEDERAL GOVERNMENT OR TO ANY OTHER PERSON, THEN THE PRICES NAMED HEREIN WILL BE INCREASED OR DECREASED ACCORDINGLY AND ANY AMOUNT DUE TO THE CONTRACTOR AS A RESULT OF SUCH CHANGE WILL BE CHARGED TO THE GOVERNMENT AND ENTERED ON VOUCHERS (OR INVOICES) AS A SEPARATE ITEM.'"

THE COPY OF LETTER DATED JULY 1, 1942, FROM THE CONTRACTING OFFICER IS AS FOLLOWS:

"MUTUAL MISTAKE IN CONTRACT W 535 AC-26305 THE GENERAL TIRE & RUBBER COMPANY

"1. IN THE NEGOTIATION OF THE ABOVE CONTRACT, IT WAS MUTUALLY AGREED AND UNDERSTOOD WITH THE CONTRACTOR, THAT THE PRICES THEREIN DID NOT INCLUDE FEDERAL MANUFACTURER'S EXCISE TAXES UPON THE SUPPLIES COVERED BY THE CONTRACT.

"2. QUOTATION OF PRICE SUBMITTED BY THE CONTRACTOR CONTAINS NO REFERENCE TO SUBJECT TAXES.

"3. ARTICLE 32 OF SUBJECT CONTRACT ENTITLED "TAXES" IS IN ERROR, IN THAT IT DID NOT PROVIDE THAT THE ABOVE MENTIONED TAXES WERE NOT INCLUDED IN THE PRICES THEREIN.

"4. AT OR ABOUT THE TIME OF THE NEGOTIATION OF SUBJECT CONTRACT, TWO OTHER CONTRACTS WERE NEGOTIATED FOR SIMILAR TIRES WITH OTHER MANUFACTURERS. ALL OF THESE NEGOTIATIONS WERE HELD ON THE SAME BASIS AND SUCH TWO OTHER CONTRACTS WERE PREPARED AND EXECUTED AT PRICES EXCLUSIVE OF FEDERAL EXCISE TAXES.

"5. THE CORRECTION OF THE ABOVE MENTIONED MUTUAL MISTAKE WILL INVOLVE NO ADDITIONAL COST OR PAYMENT BY THE ARMY AIR FORCES TO THE CONTRACTOR.

"6. CONTRACTOR IS ENTITLED TO TAX EXEMPTION CERTIFICATES COVERING SUCH TAXES."

THE COMMANDING GENERAL, ARMY AIR FORCES, IN ENDORSEMENT OF JULY 11, 1942, STATED:

"SUBJECT: MUTUAL MISTAKE IN CONTRACT W 535 AC-26305 (THE GENERAL TIRE & RUBBER COMPANY)

"3. BECAUSE OF THE MUTUAL MISTAKE, THE WRITTEN CONTRACT IN ITS PRESENT FORM FAILS TO EXPRESS THE MUTUAL UNDERSTANDING OF THE PARTIES WITH RESPECT TO APPLICABLE FEDERAL TAXES, THEREFORE, IT IS THE RECOMMENDATION OF THE COMMANDING GENERAL, ARMY AIR FORCES, THAT THE CONTRACT BE READ IN ACCORDANCE WITH THE REAL INTENT OF THE PARTIES AND THAT THE CONTRACTING OFFICER BE ADVISED THAT TAX EXEMPTION CERTIFICATES MAY BE ISSUED IN LIEU OF PAYMENT OF SUCH TAXES."

THE SUBJECT OF TAXES IS CONTAINED IN ARTICLE 33 OF CONTRACT NO. W 535 AC- 26305, DATED MARCH 12, 1942, RATHER THAN IN ARTICLE 32, AS STATED IN LETTERS OF JULY 1, 1942, SUPRA.

IN A CASE SUBMITTED TO THIS OFFICE FOR DECISION AS TO WHETHER A TAX EXEMPTION CERTIFICATE WAS AUTHORIZED TO BE ISSUED WHERE THE BID FAILED TO SHOW AFFIRMATIVELY THAT THE AMOUNT OF THE TAX WAS EXCLUDED AND THE BIDDER FURNISHED AN AFFIDAVIT THAT THE EXCISE TAX WAS EXCLUDED FROM THE BID, IT WAS STATED, IN DECISION OF NOVEMBER 22, 1938, 18 COMP.GEN. 465, 466-- REFUSING ISSUANCE OF A TAX EXEMPTION CERTIFICATE-- AS FOLLOWS:

"IT HAS BEEN HELD IN DECISIONS OF THIS OFFICE THAT UNDER THE PROVISIONS OF THE INTERNAL REVENUE LAW AS IT STANDS, A BIDDER IS FREE TO SUBMIT PRICES EITHER INCLUSIVE OR EXCLUSIVE OF THE EXCISE TAX, 15 COMP.GEN. 588; THAT WHEN A BID AS SUBMITTED DOES NOT AFFIRMATIVELY ASSERT THE EXCLUSION OF EXCISE TAXES, IT IS PRESUMED TO INCLUDE ALL ELEMENTS OF COST AND PROFIT INCLUDING SAID EXCISE TAX, AND NO INQUIRY AS TO INCLUSION OR EXCLUSION OF THE TAX IS NECESSARY, 16 COMP.GEN. 1021; THAT IF, IN ANY INSTANCE, A BID AS SUBMITTED IS IN CONTEMPLATION OF REFUND, CREDIT, OR DRAWBACK OF ANY DESCRIPTION, THE FACT SHOULD APPEAR AFFIRMATIVELY ON THE FACE OF THE BID, 16 COMP.GEN. 1021; ID.1054; AND THAT WHERE A BID PRICE A SUBMITTED WITHOUT AFFIRMATIVE SHOWING THAT THE TAX IS EXCLUDED IS ACCEPTED, IT CONSTITUTES A CONTRACT BINDING ALIKE UPON THE CONTRACTOR AND THE GOVERNMENT, AND THAT NO SUBSEQUENT STATEMENT OF A CONTRACTOR THAT THE CONTRACT PRICE ACTUALLY WAS EXCLUSIVE OF THE AMOUNT OF THE TAX MAY BE ACCEPTED TO VARY THE CONTRACT PRICE IN ANY WAY; AND THAT IN SUCH A CASE THERE IS NO AUTHORITY FOR THE ISSUANCE OF A TAX EXEMPTION CERTIFICATE. THE CITED DECISIONS ARE CONTROLLING IN THIS CASE. ALSO, DECISION OF JUNE 1, 1938, 17 COMP.GEN. 1039, WOULD APPEAR TO BE DIRECTLY IN POINT."

HOWEVER, IN THE PRESENT CASE, IN ADDITION TO THE SWORN STATEMENT OF THE SECRETARY OF THE GENERAL TIRE AND RUBBER COMPANY THAT THE BID PRICE ON WHICH CONTRACT NO. W 535 AC-26305 IS BASED WAS EXCLUSIVE OF THE EXCISE TAX, THE CONTRACTING OFFICER STATED IN LETTER OF JULY 1, 1942, SUPRA, WITH RESPECT TO SAID CONTRACT THAT "IT WAS MUTUALLY AGREED AND UNDERSTOOD WITH THE CONTRACTOR, THAT THE PRICES THEREIN DID NOT INCLUDE FEDERAL MANUFACTURER'S EXCISE TAXES UPON THE SUPPLIES COVERED BY THE CONTRACT."

CONSEQUENTLY, IT APPEARS THAT ARTICLE 33 OF THE CONTRACT SPECIFYING THAT THE CONTRACT PRICE INCLUDED ANY APPLICABLE FEDERAL TAXES OR CHARGES THERETOFORE IMPOSED BY THE CONGRESS WAS ERRONEOUS AND NOT AS INTENDED BY EITHER PARTY AND THAT IT WAS THE INTENTION OF BOTH PARTIES THAT THE CONTRACT PRICE WAS EXCLUSIVE OF APPLICABLE FEDERAL TAXES. IT IS WELL SETTLED THAT WHEN THE WRITING DOES NOT EMBODY THE AGREEMENT AS ACTUALLY MADE BY THE PARTIES THERETO, THERE IS SUCH A MUTUAL MISTAKE AS WILL ENTITLE EITHER PARTY TO HAVE THE CONTRACT REFORMED TO CONFORM TO THE AGREEMENT SO MADE. HYGIENIC FIBRE COMPANY V. UNITED STATES, 59 C.CLS. 598.

ACCORDINGLY, ON THE BASIS OF THE STATED FACTS, THIS OFFICE WILL INTERPOSE NO OBJECTION TO THE ISSUANCE OF TAX EXEMPTION CERTIFICATES TO THE GENERAL TIRE AND RUBBER COMPANY IN CONNECTION WITH THE LANDING WHEEL CASINGS FURNISHED UNDER CONTRACT NO. W 535 AC-26305.

A COPY OF THIS DECISION WILL BE ATTACHED TO THE CONTRACT ON FILE IN THIS OFFICE.

THE PAPERS ARE RETURNED HEREWITH.