#### GARFORD MOTOR TRUCK COMPANY v. THE UNITED STATES.

[No. 68—A.

Decided June 12, 1922.]

*On the Proofs.*

*Contract; addition of sales tax to contract price.-*— Where the plaintiff enters into a contract .with the United States for furnishing certain automobile chassis, and it is agreed that the Government shall pay to the contractor, in addition to the contract price, a sum equal to the direct war tax on the sale of the articles contracted for, such tax, added to the contract price, is part of the consideration of the contract, and valid.

*The Reporter's*statement of the case.

*Mr. W. Ainsworth Parker*for the plaintiff.

*Mr. Crowley*Wentworth, with whom was *Mr. Assistant Attorney General Robert H.*Lovett, for the. defendant. *Mr. W. F. Norris*was on the briefs.

The following are the facts of the case as found by the court:

I. The plaintiff is, and was, during the times herein mentioned, a corporation organized under the laws of Ohio. Its principal office and factory is located at Lima, Ohio.

II. On September 19,1919, plaintiff and the United States entered into a written contract (No. 3882), attached to the plaintiff’s petition as Exhibit I and made a part hereof by reference, signed at the end by the parties by their duly authorized representatives, by which contract the plaintiff *405contracted to manufacture and sell to the United States and the United States contracted to buy from the plaintiff .on the terms and conditions therein set forth certain designated spare parts for Garford automobile trucks for a total price of $43,875.00 plus the war tax on sales.

III. Thereafter the plaintiff in performance of the aforesaid contract of September 19,1919, delivered to the United States in accordance with the terms of the said contract the articles which the plaintiff had thereby contracted to deliver. The said articles were each inspected by the United States before delivery in accordance with the terms and conditions of the said contract and were formally approved and accepted by the United States. Thereupon there became due and owing from the United States to the plaintiff under and by virtue of the aforesaid contract the total sum of $46,068.75, being the aforesaid sum of $43,875.00, and, in addition, the sum of $2,193.75, being the sales tax of 5 per cent thereof imposed on the plaintiff for and on account of the said sale and delivery by chapter 18, section 900, of an act of Congress approved February 24, 1919, which tax the plaintiff paid to the United States.

IY. The plaintiff has demanded payment by the United States of the said sum of $46,068.75, and the said sum has been admitted by the Auditor for the War Department to be due to the plaintiff, but the United States has not paid to the plaintiff the said sum or any part thereof. The Auditor for the War Department on behalf of the United States has made offers of settlement to the plaintiff of the said claim and of other claims admittedly due and payable by the United States to the plaintiff as follows:

By notice of settlement, February 24, 1920:

Admitted due to plaintiff_$81, 629. 65

Less alleged overpayment_ 69,294. 77

Tendered to plaintiff_ 12, 334. 88

By notice of settlement, April ] 5, 1920:

Admitted due to plaintiff_ 6,586.74

Less alleged overpayment_ 4,194,43

Tendered to plaintiff_ 2,392.31

Total admitted due_ 88, 216. 39

Total ■ alleged overpayment_ 73,489.20

Total tendered to plaintiff_ 14, 727.19

*406The plaintiff refused and refuses to accept the settlements so tendered to it and demanded and demands immediate payment of its said claims without deduction.

' The above sum of $88,216.39 credited to the plaintiff covered amounts due under certain other contracts which the plaintiff had with the defendant, as well as the $46,068.75 admitted by the defendant to be due the plaintiff on its said contract of September 19, 1919.

V. The aforesaid counterclaim by the United States against the plaintiff for $73,489.20, Finding IY, is for alleged improper payments made by the authorized representative of the defendant to the plaintiff in settlement of a prior contract between the plaintiff and the defendant dated June 25, 1917, which alleged improper payments were disallowed by the accounting officers of the Government in settling the accounts of the representative of the defendant who made the payments. This counterclaim for the deduction of $73,489.20 grew out of the following circumstances:

In the spring of 1917 the defendant through its authorized representatives advertised for bids to supply the Government with automobile trucks, and solicited bids from the plaintiff and others to whom in connection therewith it sent a. circular and an advertisement inviting proposals. The plaintiff became a bidder for a part of these trucks, but before bidding, anticipating that automobiles would be subjected to a tax by Congress, inquired of the proper official of the defendant whether it would be permissible for it to incorporate in its bid and proposal in response to said advertisement a clause obligating the defendant to pay as part of the purchase price of said trucks a sum equal to such taxes as might be imposed by the Government thereafter and paid by the plaintiff, and was informed by said authorized representative of the defendant that such a clause was permissible and was advised to incorporate it. Thereafter the plaintiff submitted a written proposal to supply 1,050 one-ton Class A chassis, with or without body, at a price and on the conditions contained therein, a copy of which proposal is attached to the plaintiff’s petition marked “ Exhibit II ” and is by reference made a part hereof. The plaintiff’s proposal and bid were accepted, the plaintiff notified of the acceptance, and awarded a contract for 900 Class A Garford *407chassis, in which the following language is used: “Award is made you in accordance with your proposal to this depot.”

The said proposal contained the following provision:

“ The fulfillment of this proposal will be subject to other requirements and demands of the United States Government, and any special taxes imposed by National or State Governments which will be added to the above prices.”

It was the understanding, purpose, and intention of the authorized representatives of the defendant and of the plaintiff that the formal contract should include a provision obligating the defendant to pay to the plaintiff in addition to the base price named in its proposal an additional sum equivalent to the amount of taxes it might thereafter be called upon to pay and did pay to the Government as a part of the consideration and compensation for supplying said chassis.

YI. The plaintiff immediately upon x'eceipt of said award, at the request of the defendant, and before it had received a formal contract for execution, commenced the production of said chassis.

VII. Thereafter the defendant submitted to the plaintiff for execution a formal written contract, a copy of which is attached to the plaintiff’s petition marked “ Exhibit IV,” and made a part hereof by reference. This contract contained no specific provision for the reimbursement to the plaintiff as part of the purchase price of the chassis of such sum as it might be called upon to pay and paid in taxes. The plaintiff before signing it conferred with the authorized' representative of the defendant and called attention to the' fact of this omission and was assured by said authorized representative of the defendant that the contract did provide-for such payment by reason of the fact that its proposal was made a part of the contract, under the practice and understanding of the War Department, and was covered into the contract and made a part thereof so as to obligate the Government for the payment of whatever sum might be paid' by the plaintiff in the form of taxes, by the following provision of said contract, and that under the practice and understanding of the War Department the language of this provision was intended to and did cover the proposal and its terms x

*408“ That the said parties do hereby mutually covenant and agree to and with each other (referring to any advertisement, circular to bidders, and specifications hereto attached or referred to herein, or pertaining hereto, and to samples referred to herein or in said advertisement, circular to bidders or specifications, which, so far as they are applicable, form a part of this contract) as follows

VIII. Eelying upon this assurance and with this understanding the plaintiff proceeded to the performance of its contract and fully complied with its terms and'manufactured and delivered the chassis contracted for to the satisfaction and approval of the defendant, and they were accepted by the defendant. In accordance with the said contract and understanding between the parties the plaintiff was thereupon paid the purchase price agreed upon, which included the sum of $73,489.20 which it had paid out prior thereto to the Government in the form of sales taxes upon the chassis supplied under this contract.

Gkaham:, Judge,

delivered the opinion of the court.

The facts in this case are fully stated in the findings of fact. The defendant on June 25, 1917, entered into a contract with the- plaintiff for supplying certain automobile chassis in accordance with the terms of its proposal in response to the defendant’s request for a bid. The plaintiff’s proposal contained the following provision:

“ The fulfillment of this proposal will be subject to other requirements and demands of the United States Government, and any special taxes imposed by National or State governments, which will be added to the above prices.”

This provision was inserted in the proposal after the plaintiff had conferred with the proper representative of the defendant as to the propriety of inserting it, and whether such an arrangement would be incompatible with the practice of the department, and it was assured that it would not be and was advised to insert it. Its proposal as presented was accepted and a contract awarded to it. Its proposal contained a base sum as payment for the chassis with the above quoted provision for repayment to it of such additional sum as it might be required to pay as taxes to the Government.

*409The plaintiff at the request of the defendant began the work of manufacturing the chassis before the formal contract had been signed. Thereafter the formal contract was presented to it for signature and it discovered that it did not have in it a clause with regard to the repayment to it of taxes as provided in this proposal. Before signing and executing the contract it conferred with the proper representative of the defendant and was assured that under the practice and understanding of the War Department the terms of the proposal were embodied in the contract and that under this practice and understanding the terms of the plaintiff’s proposal were embodied and were intended to be covered by the following provision of the contract:

•“ That the said parties do hereby mutually covenant and agree to and with each other (referring to any advertisement, circular to bidders, and specifications hereto attached or referred to herein or pertaining hereto and to samples referred to herein or in said advertisement, circular to bidders, or specifications, which, so far as they are applicable, form a part of this contract), as follows: ” '

In accordance with and relying upon this assurance and understanding the plaintiff signed the contract. It fully performed its part of the contract, and delivered the chassis. They were accepted by the Government, and the base'price was paid and also the sum of $73,489.20, which it had in the meantime paid the Government in sales taxes on said chassis as they were delivered. Thereafter the accounting officers of the Government, in passing upon the accounts of the Government’s representative who had made these payments, disallowed the payments for taxes. The matter stood in this condition until the plaintiff entered into certain other contracts with the Government, among them a contract dated September 19, 1919, sued on here, which contained the following provision:

“In addition to the contract price hereinafter provided, the Government shall pay to the contractor a sum equal to such direct war tax on the sale of the articles herein contracted for as is now in effect or as may hereafter be imposed: *Provided,*however, That such tax as may become effective shall only apply and be added to the price of such articles herein contracted for as may be delivered after the said tax becomes operative.”

*410The Government admitted liability to the plaintiff under this latter contract for the base price of the articles delivered of $43,875.00 and $2,198.75 paid out by the plaintiff for taxes, making a total of $46,068.75, and for other sums under other contracts aggregating $88,216.39, but refused to pay this sum and deducted therefrom the sum of $73,489.20, which had been disallowed for taxes previously paid under the contract of June 25, 1917, as aforesaid. The difference between these two amounts was tendered the plaintiff who refused to accept it and demanded payment admitted to be due as aforesaid. The defendant refused to make payment of said sum and the plaintiff thereupon brought this suit.

This is not a case of a department attempting to exempt a person from taxation. This, of course, it could not do. It is simply a contract to allow the plaintiff as part of the pux--chase price to be paid for an article such sum as it should be called upon to pay as taxes in addition to the base sum named in the contract. It was a part of the consideration of the contract and was for the protection and in the interest of both parties. Otherwise the plaintiff would have had to add a sum by guess to cover the amount it would have had to pay out as taxes, and the Government’s representative would have had to have guessed whether it was a reasonable amount or not. Had it been too much the Government would have lost; had it been too little the plaintiff would have lost. The arrangement made was fair and just to both parties and clearly legal and in conformity to the standards of good business conduct. It follows that this counterclaim of the Government should not be allowed.

The defendant has raised a further question, namely, that if this counterclaim is not allowed the plaintiff should at least be held for a further sum equivalent to the 5 per cent tax on the amount of the counterclaim on the theory that if the amount was a part of the purchase price the plaintiff should pay a tax not on the base amount but upon the base amount plus this tax. This contention is clearly based upon a misapprehension. The contract provided that the plaintiff be paid a base sum for chassis furnished and, in effect, that it should be made whole for such taxes as it should be called upon to pay and did pay. There was no profit involved in *411this sum paid for taxes, and even should it be held that it should pay an additional sum, under the terms of the contract- and the understanding of the parties, this sum would have to be paid back to it by the Government as taxes paid to the Government, the understanding being that whatever taxes it should be called upon to pay should be repaid. It is plain that this contention can not be sustained. Judgment will be entered for the plaintiff in the sum of $46,068.75. And it is so ordered.

Hat, *Judge;*Downet, *Judge;*Booth, Judge, and Campbell, *0kief*Justice, concur.