Opinion
Plaintiff seeks to recover $100,908.57, income an profits tax erroneously collected for the fiscal year ending June 30, 1920, with interest. There is no question as to the fact of overpayment or the correctness of the amount thereof. The Commissioner of Internal Revenue refused to refund the overpayment on the sole ground that the claim for refund which had theretofore been filed was not sufficient to warrant the refund, and that no other timely claim for refund on proper grounds had been filed.
The second phase of the case involves the correctness of the withholding by the Comptroller General of $26,557.67 of an overpayment duly allowed by the Commissioner and the application thereof against an alleged indebtedness by the plaintiff to the government in connection with a war contract for ammonia.
Special Findings of Fact.
1. Plaintiff, a New York corporation, filed a tentative consolidated return for the taxable year ending June 30, 1920, on September 15, 1920, and on November 14 of the same year duly filed a final and completed consolidated return showing a total tax of $190,433.73 which was paid in installments between September 15, 1920, and March 17, 1921. The remainder of the total tax shown on the return of $63,477.91 was abated upon a claim filed in 1921 and allowed by the Commissioner June 21, 1926. In addition $3,254.23, overpayment for prior years, was later credited on the tax for the fiscal year 1920.
2. The consolidated return as filed showed a total tax of $303,753.12 from which the plaintiff deducted, under the statute, $49,841.48, being the amount of income, war profits, and excess-profits paid to the Dominion of Canada during the fiscal year 1920. This left a net balance of tax of $253,911.64, as above stated.
Plaintiff kept its books and made its return on the accrual basis and the above-mentioned deduction for Canadian taxes was determined on the basis of the amount of the Canadian tax actually paid instead of the amount of tax actually accrued, as will be hereinafter more fully stated.
3. The supervising internal revenue agent at New York made an examination and, on April 27, 1925, transmitted to plaintiff a copy of his report to the Commissioner recommending the assessment of an additional tax of $296,579.06. This report dealt, among other things, with tree principal items; namely, consolidated net income, invested capital, and depreciation. The report recommended that consolidated net income be increased by $477,950.17; that invested capital be decreased by $969,830.66; and that the credit of $49,841.48 taken on the return for taxes paid to Canada be totally disallowed. June 17, 1925, plaintiff took exceptions to the findings and recommendations of the revenue agent as set forth in the report, protested against the various changes of the items on the return, particularly those above mentioned, and requested a hearing thereon. The various proposed changes were discussed in detail by plaintiff in its written protest, errors were pointed out therein, and specific reasons were given why the changes proposed should not be made or the tax shown by the return increased. In this written protest plaintiff not only pointed out that the disallowance of the credit for taxes paid to Canada was in error, but that since the credit was only "for taxes actually paid during the year," whereas it should have been for taxes accrued during the year, "it is now claimed that we should be allowed a deduction of $318,903.83, which amount is substantiated by the attached photostatic copies of notice of assessment and of letter acknowledging receipt of the balance due shown by the notice," instead of the deduction of $49,841.48 taken on the return filed.
4. September 14, 1925, plaintiff duly filed a claim for refund of $190,433.73, being the amount of tax actually paid for the fiscal year 1920, setting out as grounds therefor that in the return as filed $49,481.48 had been claimed as a credit for taxes paid to Canada, whereas $319,903.83 should have been taken as a credit on account of taxes accrued to Canada, and further stating that "It is now claimed that this company erred in deducting from item No. 12 the Canadian business profits war tax paid during the taxable year and that it should have deducted the Canadian business profits war tax actually related to the income of the taxable year ended June 30, 1920, and for which, together with other taxes, an adequate reserve for taxes was set up." The claim for refund further set out the law in respect to the deduction of foreign taxes, set forth and quoted the computation of the return as originally made, and set forth a new computation based on the new deduction which showed that by reason of this increase in this deduction on account of Canadian taxes no tax was due for the fiscal year 1920 and that the amount paid for 1920, a refund of which was claimed, should be paid.
The Commissioner at no time ever assessed any additional tax for the fiscal year 1920. In October, 1925, conferences were had between the plaintiff and the supervising internal revenue agent at New York pursuant to regulations in connection with changes in plaintiff's return which the agent had recommended to the Commissioner increasing plaintiff's consolidated income for 1920. As a result of these conferences, the committee representing the government allowed the plaintiff's claim for a deduction of $318,903.83 for Canadian taxes, reduced other items shown in the revenue agent's report by which he increased the consolidated income and invested capital, and advised the Commissioner accordingly, stating also that the consolidated invested capital had not been thoroughly adjusted inasmuch as the Commissioner's decision for prior taxable years would materially alter the invested capital for 1920.
5. Subsequently, the Commissioner partially considered the questions involved for the fiscal year 1920, that is to say certain matters relating to consolidated invested capital for prior years which would materially affect consolidated invested capital for prior years which would materially affect consolidated invested capital for 1920 had not been finally determined, and invested capital, depreciation, and net income for 1920 were not finally determined. The Commissioner held that under plaintiff's claim for a deduction for Canadian taxes accrued, which amount was in excess of the amount taken on the return, and he fixed the amount of the credit to which plaintiff was entitled at $311,727.73. The difference in this amount and the amount set forth in the claim for refund was due to rates of exchange. The Commissioner also made certain other adjustments, and, as a preliminary determination, arrived at an overassessment of $110,127.06, $60,223.68 being an abatement of the unpaid portion of the tax as shown on the return for 1920 and $49,903.38 representing overpayment of tax made on the return, which, together with interest allowed of $13,621.12, made a total refund allowance of principal and interest of $63,524.50. The Commissioner did not reject the balance of the plaintiff's claim for refund inasmuch as there were still to be considered for the fiscal year 1920 certain questions with reference to consolidated net income, consolidated invested capital, and depreciation deductions for prior years then pending before the United States Board of Tax Appeals.
The certificate of overassessment for the above-mentioned overassessments scheduled by the Commissioner was sent through the General Accounting Office and that office on June 21, 1926, deducted and withheld from the refund allowed plaintiff the amount of $26,557.67 on account of an alleged indebtedness of plaintiff to the government under a contract for ammonia dated January 1, 1918, and supplement of October 1918, hereinafter more fully set forth, and tendered plaintiff a check for the balance of the refund of $36,966.83. December 31, 1926, plaintiff protested in writing and in detail the action of the Commissioner of Internal Revenue in allowing an overassessment of only $110,127.06 and an overpayment of only $49,903.38 contending again, as it had in its original claim for refund theretofore filed, that the items of income, invested capital, and deductions, as shown on the return for 1920, were correct and that it was entitled to a refund of the full amount of $190,433.73 claimed on account of the additional deduction for Canadian taxes which had been allowed. This written protest was made by plaintiff within the time that it could file an original claim for refund, and it was made in connection with its claim for refund then pending before the Commissioner, which claim for refund was based upon the ground that the return filed was correct and that the allowance of the increased deduction for Canadian taxes entitled plaintiff to the full amount of the refund claimed. The Commissioner was requested further to consider the case and to correct the errors which the plaintiff alleged had been made.
6. The Commissioner again took up the case for further consideration and thereafter caused the books and records of plaintiff and its affiliated corporations to be re-examined and the tax liability for the fiscal year 1920 to be again redetermined under the claim for refund theretofore filed, except as to items for prior years before the Board of Tax Appeals which might affect 1920. As a result of this further consideration, the Commissioner, on December 13, 1927, made certain adjustments of his previous determination and scheduled a further overassessment and issued another certificate of overassessment in plaintiff's favor for an additional overpayment of $15,433.12. The basis of this additional allowance by the Commissioner was an increase by him in the consolidated invested capital over that which he had previously determined, but the invested capital thus determined was approximately 3,000,000 less than that claimed in the return and insisted upon by the plaintiff. Plaintiff's claim for refund was not finally rejected. Thereafter, upon the basis of the last-mentioned allowance by the Commissioner, Treasury check was issued to plaintiff for $21,677.40 covering the additional overpayment allowed, together with interest thereon of $6,244.28.
7. Pending the working out of the foregoing matters, the question of plaintiff's tax liability for the fiscal years ending June 30, 1918, and 1919, was before the Board of Tax Appeals and being considered under appropriate procedure by the Commissioner through the special advisory committee of the Bureau of Internal Revenue. Among the questions involved which materially affect the correct determination of the correct net income and the tax for the fiscal year 1920 was that of valuation of properties for the purpose of depreciation and invested capital.
At the time of the last-mentioned certificate of overassessment in connection with plaintiff's claim for refund, the Commissioner advised plaintiff that the had made no change in his first determination increasing income shown by the return by certain adjustments made thereon and that as to the items numbered 3 and 7 "It is impracticable to adjust your invested capital with respect to the prior years' tax liability as finally determined, at this time, inasmuch as the United States Board of Tax Appeals has not yet rendered a decision in your case" and that "no adjustment of good will can be effected until a decision in your case for prior years shall have been rendered by the Board of Tax Appeals." Thus the matter stood with plaintiff's claim for refund and its written protests of the adjustments made on the return pending before the Commissioner until May 11, 1928, when plaintiff, in a letter to the Commissioner, inquired if the matter of its claim would be "further handled in conformity with adjustments for prior years when made." To this the Commissioner, on May 28, 1928, replied stating that he "believed that a reply to your question relative to the redetermination of your tax liability in the event of a favorable decision on issues now pending before the United States Board of Tax Appeals [for prior years] can be made in a more satisfactory manner when such issues have been decided and the acquiescence or nonacquiescence in such decision is expressed by this office."
Nothing further was done with respect to the fiscal year 1920 until the conclusion of the proceeding before the special advisory committee of the Bureau of Internal Revenue for the settlement of the issues involved for the years 1918 and 1919 then pending before the Board of Tax Appeals. These proceedings finally resulted in the settlement of the disputes between plaintiff and the Commissioner with respect to the last-mentioned years, and a written stipulation between plaintiff and the Commissioner was signed and filed with the Board of Tax Appeals pursuant to which the Board entered its final decision favorable to plaintiff on certain points September 6, 1929. In the meantime plaintiff had instituted this suit May 28, 1928.
As a result of this final decision by the Board of Tax Appeals with respect to the fiscal years 1918 and 1919, the necessary adjustments carried over into the fiscal year 1920 for invested capital and depreciation purposes resulted in a total correct tax liability of plaintiff for the fiscal year 1920 of $54,000.56 and an overpayment because of the increased deduction for Canadian taxes to which the plaintiff was entitled in excess of the overpayments theretofore allowed of $74,350.90, the last determination of the Commissioner, about December 13, 1927, having fixed plaintiff's tax liability for the fiscal year 1920 at $128,351.46, after allowing the increased deduction for Canadian taxes and after making certain adjustments on the return increasing the income shown therein.
June 21, 1930, the General Counsel of the Bureau of Internal Revenue advised plaintiff "that a certificate of overassessment has been prepared by the income tax unit for the year 1920, tentatively along the lines of the adjustment previously made by the bureau for the years 1918 and 1919 upon the recommendation of the special advisory committee. This proposed allowance is now under consideration of reviewing authorities, and this office will probably be in a position within the next three weeks to inform you of the exact amount of such allowance and of the date when same is scheduled in favor of the plaintiff." The amount of $74,350.90, in addition to all of the overpayments theretofore allowed by the Commissioner, was determined by him to be the correct and remaining overpayment for the fiscal year 1920, but the Commissioner refused to refund the same on the ground that the refund thereof was barred by the statute of limitation. Income and profits tax waivers executed by plaintiff and the Commissioner were filed by the plaintiff at the request of the Commissioner for the fiscal year 1920 in April and in September, 1925.
8. On December 13, 1917, at which time the defendant was engaged in the World War, the purchase section, gun division, Ordnance Office, War Department of the United States, sent plaintiff a procurement order for from 7,800 to 10,400 tons of ammonia (NH3) to be shipped in the form of aqua ammonia for the year 1918. This order was not acceptable to plaintiff and correspondence passed resulting in an amendment thereto. The amendment, dated January 17, 1918, was sent to plaintiff and signed by it on February 5, 1918. The original procurement order was signed by plaintiff on February 15, 1918. That order provided:
"The price to be paid you [plaintiff] for the ammonia is $0.08 1/4 per pound of 26~ Be. (20.4% NH3) aqua ammonia f.o.b. any point designated by the Chief of Ordnance within a radius of four hundred (400) miles from Warners, New Jersey. Shipments to be made by rail only. Any decrease or increase in freight rate to be deducted or added to delivered price, $0.08 1/4." A formal contract, dated January 1, 1918, covering the procurement order was sent to plaintiff on February 28, 1918, and was executed and returned. Thereafter defendant returned the contract to plaintiff March 18, 1918, for approval of a clause which was omitted by oversight, and plaintiff approved the addition.
9. On June 25, 1918, a general increase in all freight rates was directed by defendant, then in control of the railroads of the country. On all shipments thereafter made, plaintiff billed the defendant on the basis of increased rates. The invoices were questioned by the New York district ordnance office, payment was held up, and plaintiff was informed by that office that the contract did not provide for varying freight rates, although the procurement order did. The omission of the freight clause from the contract had not been observed by plaintiff until its attention was called to it. The matter of correcting the error was then taken up with the Chief of Ordnance, at Washington, and with Major Gelshenen, with whom the original negotiations were had, with the result that an amendment to the contract was ordered by the government "in view of the fact that such freight clause was contemplated in the original negotiations, included in the procurement order, and omitted from the final contract through inadvertence." There was delay in the matter of correcting the error and getting vouchers paid, and the first supplemental contract, embodying the freight-clause correction, was in fact executed in October, 1918, although drawn and dated August 7, 1918. This supplemental contract recites that the freight clause "through inadvertence and mutual mistake was omitted from the original contract, and it is now desired, in the interest of the United States, to amend and supplement said contract so as to incorporate correctly the arrangement between the parties." Accordingly the following provision was added:
"In the event of increase or decrease in freight rates affecting the cost of the performance of this contract, a corresponding adjustment will be made in the purchase price per pound of the ammonia, it being the intention of the parties that the contractor [plaintiff] shall neither profit nor lose by reason of the change in freight rates."
10. The signing of the Armistice on November 11, 1918, terminated the war. Defendant then took up the matter of terminating the contract, and, on December 11, 1918, directed plaintiff to suspend operations thereunder. Correspondence ensued with reference to any claims plaintiff might have had by reason of the suspension. Plaintiff refused to cancel the contract until, inter alia, it was paid the sum of $20,996.95, additional manufacturing cost due to increases in freight rates. That matter covered the period from December, 1918, to November, 1919. The claim in the sum of $20,832.48 was paid on November 24, 1919.
11. April 30, 1919, the district claims board (the board handling the freight claim referred to in finding 10 hereof) advised plaintiff that its contract with defendant was an informal contract, and pointed out the procedure necessary to validate it. Proof for validation was duly filed. As part of the proof there were included the contract and the first and second supplements. The latter is not involved here. The claim for $20,996.95 and the proof of validation having been considered, the claims board rendered its final award in plaintiff's favor. Thereafter a settlement contract dated May 1, 1920, approved by the claims board on May 29, 1920, was entered into whereby plaintiff, after receiving payment of its freight claim, released the defendant from any claims under the contract or any supplement thereto, thus finally closing the matter.
12. The original procurement order hereinabove referred to, and dated December 13, 1917, was signed on behalf of the United States by Colonel Jay Hoffer, Ordnance Department, U.S. Army. The amendment to the said procurement order, dated January 17, 1918, was signed on behalf of the United States by Samuel McRoberts, Colonel, Ordnance Department, N.A., by Chas. N. Black, Lieut. Col., Ordnance Department, N.A., who was duly authorized to sign.
The original contract, dated January 1, 1918, was signed on behalf of the United States by Samuel McRoberts, Colonel, Ordnance Department, U.S.N.A., contracting officer, by R.P. Lamont, Lieutenant Colonel, Ordnance Department, N.A., who was duly authorized so to sign. The first supplemental contract, dated August 7, 1918, was executed on behalf of the United States by Wm. Williams, Lieutenant Colonel, Ordnance, U.S.A., contracting officer. The second supplemental contract, dated October 21, 1918, was executed on behalf of the United States by A.W. Fairchild, Lieutenant Colonel, Ordnance Department, U.S.A., contracting officer.
The defendant received the articles for which it contracted. H.H. Shelton, of Washington, D.C., for plaintiff.
Ralph C. Williamson and W.W. Scott, both of Washington, D.C., for defendant.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
LITTLETON, Judge.
With reference to the sufficiency of the claim for refund filed by plaintiff for the fiscal year 1920, the facts clearly establish that the grounds of this claim were those upon which the refunds made and the overpayment of $74,350.09 involved in this case were determined. There is no question as to the amount of the overpayment for 1920. The amount claimed was determined by the Commissioner, but his reasons for refusing to schedule this overpayment and refund the same was that it resulted from adjustments of income and invested capital; that the claim for refund theretofore filed had not specifically made these items a basis of the refund claimed; and that as no timely claim for refund had been filed based on the adjustments made by the Commissioner in consolidated income and invested capital, the refund of the overpayment in question was barred by the statute of limitations. This is the government's sole defense to this suit on this phase of the case. We can find no merit in it.
As shown by the findings, plaintiff filed a consolidated income and profits tax return showing in detail the items of income, invested capital, deductions, and credits, and paid a tax of $190,433.73 after taking a deduction against the tax shown on the return of $49,841.48, taxes actually paid to Canada. Plaintiff employed the accrual method of accounting and was entitled under the statute to deduct from the tax shown on the return the Canadian tax accrued for 1920, which , at the proper rate of exchange, was $311,727.73. Thereafter plaintiff filed a timely claim for refund for 1920 based upon the specific ground that all of the items shown in the return filed were correct except the deduction for Canadian taxes, which had been understated in the amount of $318,903.83. The claim stated that "It is now claimed that this company erred in deducting from item No. 12 [on the return] the Canadian business profits war tax actually related to the income of the taxable year ended June 30, 1920. * * *" The refund claim went further. It set out the law, set forth and quoted the computation of the return as made, and gave a new computation based upon the new deductions which showed that by reason of the increase in the deduction on account of Canadian taxes plaintiff had overpaid its tax for the year in question in the amount claimed. Even if it had been necessary for plaintiff to specify, in connection with its claim for refund, the various adjustments which the Commissioner from time to time proposed in the income, invested capital, and deductions shown on the return, we think the facts clearly show that plaintiff sufficiently did so specify in the original claim for refund and the written protest field in connection therewith, which protest was considered by the Commissioner in connection with the claim for refund. This protest related to and was directed to the contention made in the claim for refund that plaintiff was entitled to the refund of the total overpayment resulting from the increased deduction for Canadian taxes. However, we need not pursue this matter further for the reason that, in the circumstances of this case, it was not necessary under the statute relating to claims for refund that plaintiff file a refund claim or amend the one already filed so as to claim a refund bases on the proposed adjustments by the Commissioner to items set forth by the taxpayer in the return when such proposed adjustments did not result in any additional tax, and no additional assessment in excess of the tax shown on the return was ever made by the Commissioner. The Commissioner ultimately, when he rendered his final decision on plaintiff's claim for refund, receded from his earlier position that the consolidated net income shown on the return should be increased because of adjustments in the consolidated invested capital and deductions taken on the return and from the positions taken by him in the refunds allowed and paid, with the result that the balance of the overpayment here involved resulted directly from the original allowance of plaintiff's claim for the increased deduction for accrued Canadian taxes. No additional tax was ever assessed or collected from plaintiff and no portion of the overpayment involved grew out of any item other than the deduction for Canadian taxes. Moreover, the claim for refund involved in this case especially set forth, as a ground thereof, that the return as filed and the computations shown thereon as corrected by the proper deduction for Canadian taxes were correct. The ultimate decision of the Commissioner determining the overpayment in question was substantially an agreement with this contention. No new items of income were ever brought into the case and the Commissioner at no time ever assessed, or proposed to assess, any tax in excess of that shown on the return.
The Commissioner never finally rejected plaintiff's claim for refund until he refused, some time in 1930, to schedule and refund the overpayment of $74,350.90. At the time the Commissioner made the partial allowances of an overpayment of $49,903.38, some time in 1926, and of $15,433.12, about December 13, 1927, the matter of the overpayment to which plaintiff was entitled on account of deductions for Canadian taxes had not been finally determined on account of the fact that the matter of the correct invested capital and tax for the fiscal years 1918 and 1919 was pending before the Board of Tax Appeals. Both the Commissioner and the plaintiff knew that if any of the plaintiff's contentions before the Board as to prior years should be allowed,l these adjustments would necessarily carry over into the year 1920 and affect the amount of its tax for 1920 as computed by the Commissioner without giving effect to any such adjustments. In these circumstances it was understood and agreed between the plaintiff and the Commissioner that the final determination of the tax and the amount of the overpayment to which plaintiff was entitled for 1920 would await the decision of the Board of Tax Appeals for prior years.
Plaintiff is therefore entitled to recover the admitted overpayment of $74,350.90, with interest as provided by law.
The next phase of the case involves the withholding by the Comptroller General on June 21, 1926, of $26,557.67 of the overpayment of tax and interest allowed by the Commissioner in the amount of $63,524.50, on the ground that plaintiff had been overpaid by the government under a war contract for furnishing ammonia. This alleged indebtedness of plaintiff represented the amount paid plaintiff by the War Department under an original and a supplemental contract on account of an increase in freight rates added to the price of 8 1/4 cents a pound for ammonia delivered to the defendant under the original procurement order of February 15, 1918, the formal contract of January 1, 1918, and the supplemental contract executed in October, 1918.
The Comptroller General based his action on the conclusion that the original procurement order and the original contract did not provide for the payment to plaintiff of any increase in freight rates, that this was never intended by the parties to the contract, was not omitted from the formal contract of January 1, 1918, through inadvertence and mutual mistake, and that the supplemental contract executed in October, 1918, was without consideration, made without authority, and, therefore, void. Counsel for the defendant makes the same contention here and insists that plaintiff is not entitled to recover the amount withheld. We cannot agree. The undisputed facts disclose that the War Department in December, 1917, negotiated with plaintiff for the purchase by the government and delivery by plaintiff of a designated quantity of aqua ammonia at a specified price of $0.08 1/4 a pound; that a procurement order correctly embracing the terms agreed upon was given and accepted; that a formal contract was entered into, intended to embrace the terms of negotiation and the procurement order; and that, by oversight, inadvertence, and mutual mistake, the freight clause above quoted was omitted from the formal contract. The defendant, then in charge of the railways, increased freight rates and plaintiff thereafter included this increase in its invoices for ammonia delivered; because of such inclusion the payment of the invoices was held up by the New York ordnance office, thus, for the first time, calling plaintiff's attention to the fact of such omission of the freight clause from the formal contract. The matter of correcting the error was taken up with those who had mad it and the error was corrected by a supplemental contract under an order of the Chief of Ordnance who stated that the omission of the freight clause was due to inadvertence, and the supplemental contract recited that the omission was "through inadvertence and mutual mistake." The Chief of Ordnance, the contracting officers, and the official who carried on the negotiations with plaintiff and arrived at the original contract agreed with plaintiff that the addition of any increase in freight rates to the specified price of 8 1/4 cents was intended and provided for in the original procurement order and that specific provision therefor in the original form of contract was omitted through inadvertence and mutual mistake. There is no evidence to the contrary.
Counsel for the defendant contends that the original procurement order is not susceptible of the construction that any increase in freight rate charges was to be allowed plaintiff on ingredients entering into the manufacture of ammonia or on shipments by plaintiff to the defendant of the finished product at certain designated points. In our opinion the plain language of the procurement order and all the evidence in the case refutes this contention. The original procurement order, which was signed by the plaintiff, provided for the manufacture and delivery of aqua ammonia at a stated price per pound f.o.b. any point designated by the Chief of Ordnance within a certain radius, and then provided that "any * * * increase in freight rate to be * * * added to delivered price, $0.08 1/4." We think this could only mean that plaintiff was entitled to add to the price specified any increase in freight rates, whether on the ingredients entering into the manufactured product or on the finished product delivered to the defendant. There are no other provisions in the contracts calling for a different conclusion and there is not the slightest evidence in the record that supports the contention made by the defendant. There was clearly a mutual mistake and the supplemental contract executed in October, 1918, was valid. Plaintiff was therefore entitled to the allowance made an paid by the War Department and is entitled to recover the amount of the overpayment of tax withheld by the Comptroller General and applied as an offset against such allowances. Even if there had been no supplemental contract, we would hold under the facts disclosed by the record the increased freight rates, amounting to $26,577.67, because of mutual mistake. Harvey v. United States, 105 U.S. 671, 26 L.Ed. 1206; Cramp & Sons Ship & Engine Bldg. Co. v. United States, 239 U.S. 221, 36 S.Ct. 70, 60 L.Ed. 238; Ackerlind v. United States, 240 U.S. 531, 36 S.Ct. 438, 60 L.Ed. 783; Poole Engineering & Machine Co. v. United States, 58 Ct.Cl. 9; Chicago, Wilmington & Franklin Coal Co. v. United States, 59 Ct.Cl. 708; Ordnance Engineering Corp. v. United States, 62 Ct.Cl. 204. In Heid Brothers v. United States, 63 Ct.Cl. 392, a case very similar to the present one, this court said: "It is quite evident that both parties to the contract believed the provision providing for the increase or decrease in freight rates was embodied in the contract when it was signed by them; due to mistake, which was mutual, the provision aforesaid was omitted from the contract. Both parties understood the obligations imposed by the contract to be different from those stated in the written instrument. In such a case the court will reform the contract in accordance with the real intention and understanding of the parties shown by the evidence. * * *"
The freight clause agreed upon and contained in the procurement order as accepted was, by mutual mistake and inadvertence, omitted from the formal contract. This omission was corrected by the parties themselves, who were in a position best to know what had been agreed upon. The defendant received the goods contracted for and a final settlement agreement, made in good faith, was entered into by the parties. We can find no valid reason for ignoring what was done. The plaintiff is, therefore, entitled to recover the amount of $26,557.67 withheld on June 21, 1926, with interest thereon at 6 per cent. per annum from that date until March 3, 1933, under the Act of March 3, 1875, 18 Stat. 481 (31 USCA § 227). Ernest C. Whitbeck, receiver, L-W-F Engineering Co., Inc., v. United States, no. F-322, decided April 10, 1933; Chicago, Indianapolis & Louisville Ry. Co. v. United States, no. K-474, decided June 5, 1933.
Judgment will therefore be entered in favor of plaintiff for $100,908.57, together with interest, as set forth in the conclusion of law herein. It is so ordered.