B-147677, MAY 10, 1962

B-147677, MAY 10, 1962

TO REGIONAL FORESTER, FOREST SERVICE, UNITED STATES DEPARTMENT OF AGRICULTURE:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 16, 1961 (2430), REQUESTING OUR DECISION WHETHER, UNDER THE CIRCUMSTANCES RELATED IN YOUR LETTER, AUTHORIZED APPROVING OFFICERS MAY REFORM 12 TIMBER SALE CONTRACTS TO REFLECT THE INTENT OF THE CONTRACTING PARTIES.

THE CONTRACTS IN QUESTION PROVIDED FOR THE CUTTING OF TIMBER ON CERTAIN NATIONAL FOREST AREAS IN CALIFORNIA. FOR TIMBER OF EACH OF THE SEVERAL SPECIES AND CLASSIFICATIONS ENUMERATED IN THE CONTRACTS THE CONTRACTOR IS REQUIRED TO PAY AT A STUMPAGE RATE PER THOUSAND BOARD FEET STIPULATED IN THE CONTRACT AS A "TENTATIVE RATE," ADJUSTED QUARTERLY BY THE ADDITION OR SUBTRACTION OF ONE-HALF OF THE DIFFERENCE BETWEEN THE ARITHMETIC AVERAGE OF WESTERN PINE ASSOCIATION MONTHLY TIMBER PRICE INDICES FOR THE CALENDAR QUARTER IN WHICH THE TIMBER IS CUT AND SCALED, AND THE AVERAGE FOR THE QUARTER PRECEDING EXECUTION OF THE CONTRACT, STATED IN THE CONTRACTS AS THE "BASE INDEX.' PRIOR TO JANUARY 1, 1961, THE WESTERN PINE ASSOCIATION PUBLISHED TWO LUMBER PRICE INDICES FOR DOUGLAS-FIR, DESIGNATED AS THE GREEN DOUGLAS-FIR LARCH INDEX (1951-53 BASIS), AND THE DRY DOUGLAS-FIR- LARCH INDEX (1951 53 BASIS). THE DRY INDEX WAS USED IN MOST NATIONAL FOREST TIMBER SALE CONTRACTS IN CALIFORNIA AND ELSEWHERE FOR ADJUSTING DOUGLAS-FIR STUMPAGE RATES, BUT THE GREEN INDEX WAS USED IN TIMBER SALE CONTRACTS- - INCLUDING THOSE INVOLVED IN THE PRESENT SUBMISSION--- IN THE DOUGLAS FIR REGION OF THE KLAMATH AND SIX RIVERS NATIONAL FORESTS IN NORTHERN CALIFORNIA WHERE IT WAS THE GENERAL PRACTICE OF SAWMILL OPERATORS TO SHIP MOST OF THE DOUGLAS-FIR LUMBER IN A GREEN CONDITION.

YOUR LETTER AND ENCLOSURES SHOW THAT IN THE SPRING OF 1960 THE ASSOCIATION CHANGED THE LUMBER GRADING RULES FOR DOUGLAS-FIR DIMENSION LUMBER; THAT ASSOCIATION MEMBERS WERE GIVEN UNTIL THE END OF THE CALENDAR YEAR 1960 TO CHANGE FROM THE OLD GRADING RULES TO THE NEW RULES AND THAT SUCH CHANGES TOOK PLACE PROGRESSIVELY DURING THE REMAINDER OF 1960. SINCE THE ADJUSTMENT OF STUMPAGE RATES AS PROVIDED FOR IN THE FOREST SERVICE TIMBER SALE CONTRACTS WAS BASED ON THE ASSOCIATION'S INDICES, IT BECAME NECESSARY FOR THE FOREST SERVICE TO CHANGE THE BASE PRICE INDICES IN EXISTING CONTRACTS TO COMPARABLE INDICES BASED ON THE NEW GRADING RULES. ON OCTOBER 4, 1960, THE ASSOCIATION SENT A CIRCULAR LETTER NO. 334 TO THE WESTERN PINE INDUSTRY WHEREIN IT WAS STATED THAT THE GREEN DOUGLAS-FIR- LARCH INDEX (1951-53 BASIS) WOULD BE DISCONTINUED ON JANUARY 1, 1961, AND IT WAS SUGGESTED THAT CONTRACTS WITH THE OLD INDICES BEING DISCONTINUED SHOULD BE MODIFIED TO TIE IN WITH THE DRY DOUGLAS-FIR-LARCH INDEX (1951-53 BASIS) WHICH WAS THEN IN THE PROCESS OF BEING REVISED. AS POINTED OUT IN YOUR LETTER THERE WAS NOTHING IN CIRCULAR LETTER NO. 334 INDICATING THAT THE DRY INDEX WOULD ALSO BE DISCONTINUED.

THERE WERE 19 CONTRACTS BASED ON THE GREEN DOUGLAS-FIR-LARCH INDEX (1951- 53 BASIS) AND FOR THE FOURTH QUARTER 1960, THE FOREST SERVICE FOLLOWED THE CONTRACTUAL PROCEDURE FOR ADJUSTING THE STUMPAGE PRICES UNDER THESE CONTRACTS, USING THE ASSOCIATION'S GREEN DOUGLAS-FIR-LARCH INDICES SINCE THESE INDICES WERE STILL EFFECTIVE AND PUBLISHED UNTIL JANUARY 1, 1961.

IN A CIRCULAR LETTER OF OCTOBER 20, 1960, FROM THE ACTING REGIONAL FORESTER FOR THE CALIFORNIA REGION, ALL FOREST SUPERVISORS WERE INSTRUCTED TO MODIFY ALL CONTRACTS FROM THE GREEN DOUGLAS-FIR LARCHINDEX (1951-53 BASIS) TO THE DRY DOUGLAS-FIR-LARCH INDEX (1951-53 BASIS), EFFECTIVE JANUARY 1, 1961, AND IT WAS STATED THAT PURCHASERS SHOULD HAVE NO OBJECTION TO SUCH MODIFICATION "WHEN THEY COMPARE THE TREND OF THE GREEN AND DRY INDICES FOR THE PAST QUARTER.' THREE TIMBER SALE CONTRACTS WERE ACTUALLY MODIFIED IN ACCORDANCE WITH THE CIRCULAR LETTER OF OCTOBER 20, 1960, BEFORE IT WAS REALIZED THAT THE DRY INDEX (1951-53 BASIS) WAS ALSO TO BE DISCONTINUED BY THE ASSOCIATION ON JANUARY 1, 1961, ON WHICH DATE BOTH THE GREEN AND DRY DOUGLAS-FIR-LARCH INDICES (1951-53 BASIS) WERE REPLACED BY A NEW DRY DOUGLAS-FIR-LARCH INDEX, 1957-60 BASIS. FOR COMPARATIVE PURPOSES AND TO PROVIDE INFORMATION FOR ADJUSTING TIMBER SALE CONTRACTS, THE ASSOCIATION COMPUTED AND PUBLISHED THE NEW INDEX BACK FOR THE LAST SIX MONTHS OF 1960. ON JANUARY 10, 1961, THE CHIEF, FOREST SERVICE, SENT A MEMORANDUM TO THE FOREST SERVICE REGIONS IN THE WEST WITH INSTRUCTIONS FOR CHANGING FROM THE OLD DRY DOUGLAS-FIR-LARCH INDEX (1951- 53 BASIS) TO THE NEW DRY DOUGLAS-FIR-LARCH INDEX (1957-60 BASIS). THE INSTRUCTIONS STATED THAT THE NEW BASE INDEX SHOULD BE COMPUTED BY SUBTRACTING THE DIFFERENCE (4.58) BETWEEN THE FOURTH QUARTER 1960 OLD DRY DOUGLAS-FIR-LARCH INDEX (1951-53 BASIS) AND THE FOURTH QUARTER 1960 NEW DRY INDEX (1957-60 BASIS) FROM THE EXISTING CONTRACT BASE INDEX.

THEREAFTER, BY MEMORANDUM OF JANUARY 26, 1961, THE CHIEF, DIVISION OF TIMBER MANAGEMENT FOR CALIFORNIA, TRANSMITTED COPIES OF THE MEMORANDUM OF JANUARY 10, 1961, TO ALL FOREST SUPERVISORS IN REGION 5 FOR ACTION AND IT IS REPORTED THAT CHANGES WERE EFFECTED BY LETTER WITHOUT OBJECTION FROM TIMBER SALE PURCHASERS HOLDING CONTRACTS ORIGINALLY BASED ON THE OLD DRY INDEX (1951-53 BASIS).

WHILE THE INSTRUCTIONS ISSUED BY THE CHIEF, FOREST SERVICE ON JANUARY 10, 1961, OUTLINED THE PROCEDURE ONLY FOR CHANGING FROM THE OLD DRY INDEX TO THE NEW DRY INDEX, IT WAS BELIEVED THAT IT WOULD BE APPROPRIATE TO USE THE SAME PROCEDURE IN CHANGING FROM THE OLD GREEN INDEX TO THE NEW DRY INDEX BY APPLYING THE SAME PROCEDURE BASED ON THE FOURTH QUARTER INDICES RELATIONSHIP. YOU STATE THAT IT WAS FELT THAT THESE CHANGES SHOULD NOT BE EFFECTED BY UNILATERAL CONTRACT MODIFICATIONS, AND THAT THEREFORE PROPOSED CONTRACT MODIFICATIONS WERE SENT TO THE 19 PURCHASERS HOLDING TIMBER SALE CONTRACTS CALLING FOR THE USE OF THE OLD GREEN DOUGLAS-FIR-LARCH INDEX (1951-53 BASIS). THE PROPOSED MODIFICATIONS TO THE 19 CONTRACTS WERE COMPUTED ON THE BASIS OF THE ADJUSTED STUMPAGE RATE DETERMINED UNDER EACH CONTRACT FOR THE FOURTH QUARTER OF 1960, USING THE OLD GREEN LUMBER INDEX, AND CONSISTED OF THE ESTABLISHMENT OF A NEW BASE INDEX FOR EACH CONTRACT WHICH WOULD PRODUCE FOR THAT QUARTER AN IDENTICAL STUMPAGE RATE BY ADJUSTMENT ON THE BASIS OF THE DRY DOUGLAS-FIR-LARCH INDEX (1957-60 BASIS). THE FORMULA UNDER WHICH IT WAS PROPOSED TO EFFECT THE RATE CHANGES WAS EXPLAINED BY LETTERS FROM THE REGIONAL FORESTER SENT TO THE 19 PURCHASERS. THE MODIFICATIONS ESTABLISHING THE NEW BASE INDICES WERE EXECUTED BY 12 OF THE PURCHASERS, BUT 7 OF THEM REFUSED TO DO SO, CONTENDING THAT THE USE OF THE FOURTH QUARTER 1960 INDICES AS A MEASURE OF THE RELATIONSHIP BETWEEN THE OLD GREEN INDEX AND THE NEW DRY INDEX DID NOT RESULT IN CONTINUATION OF THE PRICING PROCEDURE ON A LIKE BASIS, AND THAT THE ASSOCIATION'S FOURTH QUARTER 1960 GREEN INDEX WAS INADEQUATE AS A PRICE CHANGE INDICATOR SINCE IT DISTORTED TRENDS IN MARKET PRICES OF LUMBER BECAUSE OF THE SMALL VOLUME OF LUMBER SOLD UNDER THE OLD GRADING RULES DURING THE FOURTH QUARTER OF 1960.

BY LETTER DATED MAY 31, 1961, THE ASSOCIATION INFORMED THE REGIONAL FORESTER THAT SEVERAL OF ITS MEMBERS HAD REQUESTED IT TO WRITE HIM REGARDING THE ASSOCIATION'S FOURTH QUARTER 1960 INDEX PRICES FOR GREEN DOUGLAS FIR AND LARCH. THE ASSOCIATION REVIEWED THE SITUATION LEADING UP TO THE ADOPTION OF THE NEW GRADING RULES IN THE SPRING OF 1960 AND STATED THAT AT THE TIME OF THE ADOPTION ITS MEMBERS WERE GIVEN UNTIL THE END OF 1960 TO CHANGE FROM THE OLD GRADING RULES; THAT THE CHANGE WAS PROGRESSIVE THROUGH THE BALANCE OF THE YEAR WITH MORE AND MORE OF THE BALANCE BEING SOLD UNDER THE NEW RULES EACH MONTH; THAT BY SEPTEMBER IT WAS EVIDENT THAT THE VOLUME BEING SHIPPED UNDER THE OLD RULES WAS FALLING OFF SO RAPIDLY THAT COMPUTATION OF THE INDEX PRICES BASED ON THE OLD RULES WOULD HAVE TO BE DISCONTINUED AT THE END OF 1960; THAT THE OLD INDEX PRICES WERE CONTINUED DURING THE FOURTH QUARTER ONLY AS A CONVENIENCE TO TIMBER BUYERS AND SELLERS; AND THAT PERHAPS THE ASSOCIATION SHOULD HAVE SIMPLY CHOPPED OFF THE INDEX PRICES AT THE END OF SEPTEMBER BECAUSE IT HAD SOME REAL MISGIVINGS AS TO THEIR ACCURACY. THE ASSOCIATION STATED FURTHER THAT THE CHANGE TO THE NEW RULES TOOK PLACE FASTER AMONG THE CALIFORNIA MILLS THAN IN THE REST OF THE REGION, PARTLY BECAUSE MANY OF THEM ALREADY WERE ON WEST COAST TIMBER ASSOCIATION RULES AND WERE COMPETING PRINCIPALLY WITH DOUGLAS-FIR FROM WCLA MILLS IN THE NORTHWEST; AND SINCE IT IS CUSTOMARY TO SHIP MOST DOUGLAS-FIR FRAMING LUMBER GREEN TO CUSTOMERS IN CALIFORNIA THE SWITCH TO THE NEW RULES REDUCED THE VOLUME OF INFORMATION AVAILABLE FOR COMPUTATION OF THE GREEN INDEX PRICE ON THE OLD BASIS MUCH MORE RAPIDLY THAN IT DID THE DRY INDEX PRICES ON THE OLD BASIS; THAT SINCE IT WAS THE ASSOCIATION'S UNDERSTANDING THAT PRACTICALLY ALL DOUGLAS-FIR TIMBER SALES WERE BASED ON THE DRY INDEX PRICE, IT DID NOT REGARD TOO SERIOUSLY THE FACT THAT ITS GREEN INDEX PRICE ON THE OLD BASIS MIGHT BE GETTING OUT OF LINE. IN THE LIGHT OF THE FOREGOING, THE ASSOCIATION REQUESTED THAT SOME WAY BE FOUND TO ADJUST THE PRICES FOR SALES MADE IN THE FOURTH QUARTER WITHOUT USING THE OLD GREEN INDEX.

AFTER REVIEW OF THE SITUATION THE FOREST SERVICE AGREED WITH THE VIEWS OF THE PURCHASERS UNDER THE 7 CONTRACTS AND AUTHORIZED MODIFICATION OF THEIR CONTRACTS ON THE BASIS OF THE OLD THIRD QUARTER GREEN INDEX (1951-53 BASIS). IN THE MEANTIME, THE CONTRACTS FOR THE OTHER 12 PURCHASERS HAD ALREADY BEEN MODIFIED ON THE BASIS OF THE FOURTH QUARTER INDICES.

IN SUBSEQUENT LETTERS TO EACH OF THE 12 PURCHASERS WHOSE CONTRACTS HAD BEEN MODIFIED EFFECTIVE AS OF JANUARY 1, 1961, THE REGIONAL FORESTER ADVISED THEM OF THE REPRESENTATIONS MADE IN THE ASSOCIATION'S LETTER OF MAY 31, 1961, CONCERNING THE ALLEGED UNRELIABILITY OF THE FOURTH QUARTER INDICES FOR EFFECTING RATE CHANGES BROUGHT ABOUT BY ABANDONMENT OF THE OLD DRY AND GREEN INDICES AND THE CONTENTION THAT SINCE THE THIRD QUARTER OF 1960 WAS THE LAST ASSOCIATION GREEN DOUGLAS FIR INDEX WHICH WAS SATISFACTORY FOR EFFECTING QUARTERLY STUMPAGE RATE ADJUSTMENTS, MODIFICATION OF THE PURCHASERS CONTRACTS SHOULD HAVE BEEN BASED ON THE RELATIONSHIP OF THE GREEN INDEX TO THE NEW DRY INDEX FOR THE THIRD QUARTER 1960.

IT WAS EXPLAINED TO EACH PURCHASER THAT TO CORRECT THE "MISTAKE" AND TO REFORM THE CONTRACT RETROACTIVE TO OCTOBER 1, 1960, WOULD REQUIRE THE APPROVAL OF OUR OFFICE AND THAT IF THE PURCHASER WISHED TO MAKE APPLICATION FOR REFORMING ITS CONTRACT THE FOREST SERVICE WOULD TRANSMIT SUCH A REQUEST TO OUR OFFICE FOR APPROVAL. EACH PURCHASER WAS FURNISHED WITH A PREPARED APPLICATION FOR REFORMATION ADDRESSED TO THE REGIONAL FORESTER WHICH APPLICATIONS WERE SUBSEQUENTLY EXECUTED BY THE PURCHASERS.

IN EACH OF THE 12 CASES, EXCEPT CONTRACT NO. 12-11-055-17 WITH THE WILLIAMETTE PLYWOOD CORPORATION, THE PROPOSED MODIFICATION STATES THAT SINCE THE MODIFICATION ENTERED INTO ON JANUARY 1, 1961, WAS INTENDED TO ARRIVE AT AN INDEX FOR DOUGLAS-FIR BASED ON THE NEW DRY DOUGLAS-FIR LARCH INDEX (1957-60 BASIS) WHICH WAS TO BE SUBSTANTIALLY EQUIVALENT TO THE OLD GREEN DOUGLAS-FIR-LARCH INDEX (1951-53 BASIS) DISCONTINUED BY THE ASSOCIATION, AND SINCE THE MODIFICATION WAS BASED ON THE FOURTH QUARTER 1960 GREEN INDEX FOR DOUGLAS-FIR WHICH HAS NOW BEEN DETERMINED AS INADEQUATE AND INACCURATE, THE MODIFICATION OF JANUARY 1, 1961, IS HEREBY RESCINDED AND THE CONTRACT IS REFORMED BY THIS MODIFICATION TO REFLECT THE INTENTION OF THE PARTIES TO SHOW NEW BASE INDEX FOR DOUGLAS-FIR SAWLOGS IN SECTION 2B-2 IN THE AMOUNT STATED. CONTRACT NO. 12-11-055-17 READS THE SAME EXCEPT THAT THE PRIOR MODIFICATION IS STATED TO HAVE BEEN ENTERED INTO ON JANUARY 31, 1961.

REFORMATION OF AN INSTRUMENT MUST BE PREDICATED UPON MUTUAL MISTAKE OF THE PARTIES, AS WHERE THE CONTRACT, AS FINALLY DRAWN, DOES NOT REFLECT THE ACTUAL AGREEMENT OF THE PARTIES AND IT IS ESTABLISHED CLEARLY WHAT THE CONTRACT ACTUALLY WAS OR WOULD HAVE BEEN BUT FOR THE MISTAKE. 30 COMP. GEN. 220; 26 ID. 899; 37 ID. 688; 20 ID. 533. THE PURPOSE OF REFORMATION IS NOT TO MAKE A NEW AGREEMENT BETWEEN THE PARTIES, BUT, RATHER TO ESTABLISH THE ALREADY EXISTING ONE. IN ORDER TO JUSTIFY THE REFORMATION OF ANY INSTRUMENT, THE MUTUAL MISTAKE MUST HAVE BEEN IN DRAWING THE INSTRUMENT AND NOT IN MAKING THE CONTRACT OUT OF WHICH IT GREW OR WHICH IT EVIDENCES. SEE 76 C.J.S., REFORMATION OF INSTRUMENTS, SEC. 25 (C), AND AUTHORITIES THERE CITED. FURTHERMORE, REFORMATION IS NOT AUTHORIZED EVEN IF IT IS CLEARLY ESTABLISHED THAT THE PARTIES WOULD HAVE COME TO A CERTAIN AGREEMENT HAD THEY BEEN AWARE OF THE ACTUAL FACTS. 39 COMP. GEN. 660, CITING WILLISTON ON CONTRACTS (REV.ED.) SECTION 1548, 76 C.J.S. REFORMATION OF INSTRUMENTS, SEC. 26; 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, 867. APPLYING THE ABOVE RULES TO THE PRESENT CASES, THERE CAN BE LITTLE DOUBT THAT THE MODIFICATIONS OF JANUARY 1, 1961, AND JANUARY 31, 1961, EMBODIED THE ACTUAL AGREEMENTS AND INTENTIONS OF THE PARTIES. AS STATED BY THE COURT IN PETCHANUK V. MOHLSICK, 134 N.Y.S.2D 1, A MISTAKE AS TO AN EXISTING SITUATION WHICH LEADS ONE OR BOTH PARTIES TO ENTER INTO A CONTRACT WHICH THEY WOULD NOT HAVE ENTERED INTO HAD THEY BEEN APPRISED OF THE FACTS, WILL NOT JUSTIFY REFORMATION. THE COURT STATED FURTHER THAT "IT IS NOT WHAT THE PARTIES WOULD HAVE INTENDED IF THEY HAD KNOWN BETTER, BUT WHAT DID THEY INTEND AT THE TIME INFORMED AS THEY WERE.' THE ALLEGED MISTAKE IN THE SUPPLEMENTAL AGREEMENTS WITH THE 12 PURCHASERS WHICH WAS MADE EFFECTIVE JANUARY 1, 1961, ARE NOT THAT SUCH AGREEMENTS DO NOT EXPRESS THE TERMS WHICH THE PARTIES AGREED TO, BUT THAT THERE WAS A MISTAKE IN A FACT EXTRINSIC TO THE AGREEMENT (NAMELY, THAT USE OF THE FOURTH QUARTER GREEN INDEX WAS ADEQUATE TO CONTINUE THE PRICING PROCEDURE IN EXISTENCE PRIOR TO JANUARY 1, 1961), BUT FOR WHICH MISTAKE SUCH SUPPLEMENTAL AGREEMENTS WOULD HAVE BEEN DIFFERENT. THIS DOES NOT JUSTIFY REFORMATION.

IT IS UNDERSTOOD THAT AT THE TIME THE FOREST SERVICE COMPUTED THE FOURTH QUARTER 1960 INDEX FOR THE OLD GREEN DOUGLAS-FIR INDEX (1951-53 BASIS) THE DETAILED INFORMATION SUPPORTING THE ASSOCIATIONS' MONTHLY INDEX (WHICH INCLUDES THE VOLUME OF SHIPMENTS OF GREEN LUMBER) WAS ON FILE IN THE FOREST SERVICE, WASHINGTON AND REGIONAL OFFICES. NO DOUBT SUCH INFORMATION WAS ALSO AVAILABLE TO THE 12 PURCHASERS PRIOR TO THE EXECUTION OF THE SUPPLEMENTAL AGREEMENTS. THEY HAD THE SAME OPPORTUNITY FOR DETERMINING THE ADEQUACY OF THE FOURTH QUARTER GREEN INDEX FOR CONSTRUCTING THE NEW BASE INDICES IN THEIR CONTRACTS AS DID THE 7 WHO REJECTED THE PROPOSED MODIFICATIONS.

MOREOVER, THERE APPEARS TO BE GROUND FOR DOUBT WHETHER THE THIRD QUARTER PRICE INDEX WAS ANY MORE RELIABLE THAN THE FOURTH QUARTER INDEX FOR COMPUTING THE NEW BASE INDICES FOR THE 12 CONTRACTS INVOLVED. IN THE ASSOCIATION'S LETTER OF MAY 31, 1961, IT WAS STATED THAT BY SEPTEMBER THE VOLUME BEING SHIPPED UNDER THE OLD RULES WAS FALLING OFF SO RAPIDLY THAT COMPUTATION OF INDEX PRICES UNDER THE OLD RULE WOULD HAVE TO BE DISCONTINUED AT THE END OF 1960. THEREFORE, IT APPEARS THAT VOLUMES WERE DECREASING IN THE THIRD QUARTER AS WELL AS THE FOURTH QUARTER. ALSO, IT IS SIGNIFICANT TO NOTE THAT WHILE GENERALLY LUMBER PRICES IN THE THIRD QUARTER WERE DECREASING THE PRICES FOR GREEN DOUGLAS-FIR FOR THAT QUARTER WERE ACTUALLY INCREASING.

HOWEVER, EVEN IF IT BE CONCEDED THAT ADJUSTMENT ON THE BASIS OF THIRD QUARTER INDICES PRODUCED A MORE NEARLY EQUIVALENT BASE PRICE THAN ADJUSTMENT ON THE FOURTH QUARTER FIGURES, THE LATTER ADJUSTMENT WAS IN FACT KNOWINGLY AND VOLUNTARILY ADOPTED BY BOTH PARTIES, AND WE CAN FIND NO VALID LEGAL BASIS FOR A RETROACTIVE CHANGE IN IT. REFORMATION OF THE SUPPLEMENTAL AGREEMENTS AS PROPOSED IS THEREFORE NOT AUTHORIZED.

THE ENCLOSURES FORWARDED WITH YOUR LETTERS OF NOVEMBER 16, 1961, AND APRIL 2, 1962, ARE RETURNED.