#### CHICAGO, WILMINGTON & FRANKLIN COAL COMPANY v. THE UNITED STATES

[No. B-11.

Decided May 19, 1924]

*On the Proofs*

*Contract; mutual mistake; reformation.*— Where plaintiff submitted a bid to supply coalto the Government, and is assured that the matter of increase of wages will be provided for, both plaintiff and the bureau directly involved intending that such provision be inserted in the contract, and both having understood that this contingency was taken care of, and plaintiff afterwards submits its bid upon this basis, there was mutual mistake and the contract as written should be reformed so as to ex[)ress the true1 intent of the parties.

*The Reporters*statement of the case:

*Mr. Charles H. Merillat*for the plaintiff.

*Mr. John E. Hoover,*with whom *was Mr. Assistant Attorney General Robert II. Lovett,*for the defendant.

*709The following are the facts of the case as found by the court:

I. The plaintiff, Chicago, Wilmington and Franklin Coal Company, is a corporation, organized and existing under the laws of the State of Massachusetts.

II. On or about the 27th day of February, 1920, the Bureau of Supplies and Accounts of the Navy Department of the Government called for proposals for the furnishing of coal for the Great Lakes Naval Training Station, at Great Lakes, Illinois, from April 1, 1920, to March 31, 1921. The form of proposal to be executed by the bidder and the instructions for preparing the same together with the general specilications relative to Schedule 5459, are correctly set forth in Exhibit A to the petition, which is a copy of tiie original Form A and specifications for Schedule 5459, except wherein the name of the plaintiff as executing the same appears. The name of plaintiff did not appear in the papers until their execution, as hereinafter stated. The date for opening these schedules, and particularly Schedule. 5459 aforesaid, was fixed for the 9th of March, but was by the Bureau postponed to the 23d of March, and finally postponed to the 6th day of April. The plaintiff received copies of said invitation for bids and instructions and specifications.

III. In calling for said bids the Paymaster General of the Navy under date of the 27th of February, 1920, sent to the coal producers, among others the plaintiff, a communication in which it was stated that it was desired to return to the practice of awarding contracts after competitive bidding, and it was therefore suggested that if for any reason the conditions of the schedules were not entirely satisfactory the bidder could submit an alternate bid containing the conditions under which he could furnish coal to the Navy, and on March 2 the plaintiff, responding to this communication stated to the Bureau of Supplies and Accounts that it would be interested only in class 818 Schedule 5459, but that under the original specifications it would not be warranted in bidding because there was no provision to take care of changes in miners’ wage scale or in railroad freight rates which might occur between the date of making and the expiration of the contract, and further stating that under the said letter of *710the 27 th of February the plaintiff understood it might be acceptable to the Navy Department to consider bids in which the bidder inserted his own condition, anck that while this clause offered some relief to the objection mentioned in the prior part of this letter it was still open to criticism because all bidders would not place the same limitations on their offers. It further added that it had not decided whether to bid.

Class 818.of Schedule 5459 referred to in this letter related to the delivery of 33,000 tons of bituminous coal screenings and 75,000 tons of bituminous coal run of the mine, and to what was called in the specifications alternate bids.

On receipt of plaintiff’s letter of March 2d the Bureau of Supplies and Accounts, by the Paymaster General of the Navy, replied to plaintiff and stated that the question of the change in wages was taken care of under the schedule, “ as will be noted from clause (d) of paragraph 25,” and added: “ It is suggested, therefore, that there should be no hesitancy in offering a bid because of the uncertainty as to the effective wage scale or railroad rates ” mentioned in plaintiff’s letter. On or about the 25th of March, 1920, the Paymaster General sent to the plaintiff and other proposed bidders or suppliers a communication referring to Schedule 5459 and others, being the Navy’s coal requirements, notifying them that the date for the receipt of bids had been postponed until the 6th of April, 1920. He again called attention to the fact that the department- desired to return to the practice of obtaining coal under competitive bidding and stated that it was appreciated that negotiations were then, or would shortly be, in progress looking to an agreement as to the mining rates and wage scale schedule to be made effective with respect to bituminous and anthracite fields, but that it was possible that such agreement would not be finally consummated in time for their inclusion in the bids to be received on the 6th of April. The communication further stated that this condition should not deter the suppliers from submitting a bid “ as the schedules contained protective provision in the matter of adjustment account of wage changes during the life of the contract,” and that it was only necessary that the bidder state the wage scale on *711which the bid was based so that subsequent changes could be readily determined or identified and, if necessary, appropriate adjustment in price be made accordingly.

The bid of plaintiff was made after the receipt of the above-mentioned communication and was applicable to Schedule 5459, to be opened April 6th. The bid was on Form A prescribed by the department, which stated among other things that it was based on Schedule No. 5459. • The prices at which they proposed to furnish the coal are stated in the contract, hereafter mentioned.

Upon the opening of the bids the Navy Department sent, a telegram to plaintiff, dated April 7th, as follows:

“ Your bid coal Great Lakes opening six April. It is understood prices therein named include full amount recent advance wages as awarded President’s Bituminous Coal Commission and effective one April. If understanding is incorrect on what basis is bid figured. Bush reply.”

To this telegram the plaintiff on the same date replied to the Navy Department as follows:

“ Your wire date Prices our bid coal Great Lakes opening-sixth April include full amount recent advance, wages as awarded President's bituminous coal commission effective on April first.”

IV. The plaintiff’s bid was accepted, and under date of May 1, 1920, the Navy Department by telegram advised the plaintiff of the acceptance and that a-f ormal contract would be promptly mailed. A form of contract was prepared and forwarded to plaintiff, who duly executed the same as so prepared and returned it to the Bureau of Supplies and Accounts, where the same was executed by Admiral McGowan, Paymaster General of the Navy and Chief of Bureau of Supplies and Accounts, acting for the United States. A copy of the contract numbered 50676 as so executed is made Exhibit K to the plaintiff’s petition and is made a part hereof by reference. The terms and conditions of the contract on the part of the Government were determined by the paymaster general, and the procedure in getting bids was to send out proposals to regular suppliers of coal requesting them to bid on furnishing the fuel.' Under the terms of these proposals, which -were prepared under the direction of the paymaster *712general, there were two clauses, one providing for a sliding scale of remuneration for the supplier, based on British thermal units development, the other being a straight selling price-per-ton basis, and it was the paymaster general’s intention that in either of these clauses there should be a provision that in the event of a wage increase in the production of coal to be supplied a corresponding increase should be allowed in the purchase price when the time came for payment.

When plaintiff’s bid was accepted it was the understanding of the officer in charge of the Fuel and Transportation Division of the Bureau of Supplies and Accounts, who was in charge of all purchases of coal, that the bid included a provision to the effect that prices would be increased to absorb increases in freight rates and miners’ wages that might occur subsequent to the acceptance of the bid. The preparation of the provisions to be inserted in the contract was made under the direction of the said Division of Fuel and Transportation, and the actual preparation and insertion of provisions in the contract were done under the contract section of the bureau. The said division directed the insertion of the said provision and it was a mistake of the contract section if it was not properly inserted.

After the award to plaintiff and the execution of the contract the plaintiff proceded to deliver the coal mentioned therein. Some time after the 16th day of August, 1920, but effective on that day, there was a wage scale increase adopted by the joint scale committe of operators and miners of the central competitive coal field, which met pursuant to an official call issued by the President of the United States. This increase in the wage scale was paid by plaintiff to its employees. On and after this effective date the plaintiff mined and delivered to the Navy Department for use of- the Great. Lakes Naval Training Station a total of nearly 14,000 tons of bituminous coal screenings and over 50,000 tons of the run-of-mine bituminous coal, and the increased cost of these two tonnages which was occasioned by said wage increase was $15,071.42. The plaintiff substantiated said increased cost as applicable to the coal in question, in compliance with *713tlxe rules and. regulations of the Navy Department in such cases, and made demand upon the Bureau of Supplies and Accounts for the payment of said increase. From time to time the plaintiff’s bill showed the said increase at the rate of 25 cents per net ton.

V. On or about the loth day of September the plaintiff addressed a communication to the Bureau of Supplies and Accounts referring to section (cl) of paragraph 25 of Schedule 5459, and stated that there had been an increase of wages to certain workmen in the plaintiff’s mines effective August 16th; that plaintiff had estimated the increase -to an amount of 25 cents per ton. but that was merely an estimate; but that plaintiff was perfectly willing to adjust the matter finally on a satisfactory basis, as it wanted only what was fair under the adjustment. The matter finally came, to the consideration of the bureau. Plaintiff was first notified that the increase could not be allowed, but this matter was reconsidered, and by direction of the Paymaster General, plaintiff was requested to make deliveries in the manner set out in the contract and submit invoices therefor “ covering not only the contract value of the coal, but the increased compensation requested to cover union-labor charges;” that upon receipt of this invoice by the supply officer at the training station, that officer would prepare a public bill covering the full amount and forward same with the invoice to the Purchase Division, Legal Section, of the office of the bureau, and that the bill would then be forwarded to the comptroller with a full statement of the facts, and recommendation that the increase be allowed. The bills were furnished and forwarded as suggested. When the matter was submitted to the comptroller under date of November 9, 1920, the Paymaster General submitting the matter stated that as. the question of delivery or nondelivery of coal under the contract arises it was particularly requested that the comptroller furnish the Bureau of Supplies and Accounts a statement of his views in the premises. In this connection the Paymaster General stated to the comptroller that the provisions of alternate bids D and F were intended to apply only to the method *714of price determination set out in clauses (a) (b) and (e) paragraph 25, adding:

“ These clauses, it will be noted, refer entirely to determination of price, based on percentage of ash, number of thermal units and other 'considerations which are ¡enumerated thereunder.”

He recommended that the increase be allowed on account of what he called “ an inadvertence in the printed form of the contract which was wholly due to the fault of the Government.” Clause (d) was inadvertently inserted in the form as printed, and in subsequent forms has been eliminated from paragraph 25 and made a separate paragraph.

Under date of December 14th the Acting Secretary of the Navy addressed a communication tO' the Auditor for the Navy Department recommending a settlement, authorizing the increases stated, and on -January 11, 1921, the Secretary of the Navy addressed a communication to the Comptroller of the Treasury relative to said contract and referring to the matter of increase stated that:

“The rates named in the contract are particularly favorable to the Navy, even taking into consideration the increases requested, and as the necessity for coal of this grade at the Great Lakes Training Station is very great, and for the other reasons set out above, it is particularly requested that the comptroller render a decision as to whether payment can be made to the company under the terms of contract 50676 on the basis of the increases requested, particularly in as much as the error in preparing the contract was largely due to inadvertence on the part of the Government.”

Under date of January 15th the Comptroller of the Treasury held that the proposed increases did not come within the terms of the contract and declined to authorize the payment.

VI. When the plaihtiff made its bid and afterwards executed the contract it did so upon the said information from the Buraeu of Supplies and Accounts that its bid would be subject to the provision relative to increased cost of wages and would be subject to change on account of subsequent changes in the wage scale applicable to coal. *715It was the understanding and intention of the Bureau of Supplies and Accounts, as represented by the Paymaster General as well as of the plaintiff, that the provisions of subparagraph (d) of section 25 under the heading of “ Price and payment ” of the general specifications, would apply to the coal to be furnished under its bid and contract.'

While the matter of paying the increase was under consideration the Bureau of Supplies and Accounts directed the payment to the plaintiff of the amount due it upon the basis of the contract rates, as set out in the contract, and stated to plaintiff that the difference covered by the increased labor charges would be temporarily suspended until a decision was rendered by the comptroller. The amount due the plaintiff on account of said wage increase is $15,071.42, no part of which has been paid.

Campbell, *Chief*Justice,

delivered the opinion of the court:

The Bureau of Supplies and Accounts, Navy Department, invited bids for supplying coal at different places, one of them being the naval training station at Great Lakes, Illinois. The prescribed form upon which the proposals were to be made and its accompanying conditions, and the general specifications which also went along with the form of proposals, were elaborately drawn. It seems manifest that they were not drawn with reference to fuel alone, but covered other subjects. The Paymaster General of the Navy, who -was also Chief of the Bureau of Supplies and Accounts, issued the invitations for bids, which were sent to different persons and to plaintiff. He called attention to the purpose of the Navy to return to the system of competitive bidding, and notified the suppliers that if the proposed conditions in the schedules were unsatisfactory to them they were requested to submit bids upon conditions they deemed satisfactory.

After receipt of the invitation to bid, but before making any bid, the plaintiff, on March 2,1920, informed the Bureau of Supplies and Accounts that under the original specifications it would not feel warranted in bidding because it did not appear that a change in miners’ wages was taken care of, *716but that in view of tlie department’s notice that bidders might insert conditions it might make a bid upon these conditions. It did not commit itself on this, score until after the Paymaster General’s reply a few days later, .which informed plaintiff that the question of change in miners’ wages was taken care of by clause (d), paragraph 25 of the schedule, and that plaintiff should not hesitate in making its bid because of any supposed uncertainty as to the effect upon the price of any wage increase. This information was repeated in a later communication to plaintiff and others invited to hid hv the Paymaster General. With these assurances plaintiff sent forward its proposal on the designated form, choosing to submit the same under the heading in the form of “Alternate bids.”

The form provided for six alternate bids numbered A, B, C, D, E, and F, and plaintiff’s bid was under alternate bids D and F, the one for 33,000 tons of coal and the other for 75,000 tons of run-of-mine coal. Uuder each of the headings in the schedule, C, D, E, and F the description of the tonnage was followed by the phrase “ except that the method of determination of the price as outlined in paragraph 25 of the general specifications will not apply.” The effect given to this clause when plaintiff’s bills because of an increase in miners’ wages were presented and the consequent refusal to pay the increase furnish the reason for this suit. Plaintiff had to pay an increase of miners’ wages during the life of the contract, and having been refused reimbursement for them, sues, and asks that if deemed necessary the court will reform the written contract. There can be no doubt that the Government officers who had charge of the invitations for bids, and of the contract, understood that plaintiff’s contract provided for the very contingency that happened and that plaintiff so understood the situation. .

When the whole of the specifications is taken together, and when the evident purpose of “ alternate bids ” is considered, it is not clear that the clause we have quoted from the alternate bids was meant to exclude alternate bids from the benefits of clause (d). paragraph 25. It will be noted that paragraph 25 had three clauses (a), (b), and (c), which outline methods of determination of price as the coal may be *717affected by thermal units, ash, or moisture. It also had a fourth clause, (d), which provided that the prices must be net prices, and would be subject to any change on account of subsequent change in wage scale or freight rates when properly substantiated, in which case the prices stated would he modified or revised accordingly. Whether the first three of these clauses which outline methods of determining the price based upon British thermal units in the coal and its ash and its moisture are what is referred to in the “ alternate bids ” when they “ except the method of determination of price as outlined in paragraph 25,” or whether this clause also refers to clause (d), presents something of an ambiguity, to say the least.

There was good reason for excepting from the operation of the alternate bids the clauses (a), (b), and (c), because the purpose of the latter bids was to secure conditions satisfactory to the suppliers without binding them to the strict terms of the Government's invitation. But to allow the change in miners’ wages or freight rates to affect and increase the price of coal supplied under the Government’s conditions and to deny a like increase to those making an alternate bid would be to discourage any alternate bids, notwithstanding the invitation itself asked for such bids. This condition of the written instrument furnishes additional reason for the court’s conclusion. The facts are undisputed. We have referred to what transpired before plaintiff’s contract wras made. The clause (d), paragraph 25, according to the facts found, was not intended to be a part of that paragraph. Newr forms place it in a. separate paragraph. When after the contract was made there was an increase of miners’ "wages, which increased the cost of production, plaintiff demanded the payment of this increase. The propriety of making it was plainly recognized by the bureau. .

An “ advance ” opinion by the comptroller was sought. That official was informed of the facts as they appeared to the Paymaster General, who stated in his communication that he believed it would be unfair to the plaintiff, “ in an equitable sense, to exclude them from participating in this increase on account of an inadvertence in the printed form of contract which was "wholly due to the fault of the *718Government." The comptroller ruled that it was apparently admitted that the contract as executed did not authorize payment of the increase of wages as part of the contract price, but that it was urged that an error had been made in the preparation of the contract, and said “ that a simple statement that a clause was erroneously put in the place in which it appears in a contract is not a sufficient reason for me to authorize payment to be made under such contract higher than would be made by giving effect to the contract wiih the clause in the place in which it appears.” That the clause is not in its proper place is made clearly to appear. We need not take issue with the comptroller in his view of the contract as actually written, but this court is authorized to reform a contract. See *Ackerlind*v. *United*States, 240 U. S. 531.

The plaintiff was assured the matter of increase of wages was provided for before it submitted its bid; both plaintiff and the bureau directly involved intended that provision should be made in the contract for any increase of wages, and both understood this contingency was taken care of; plaintiff presented its bills upon this theory, and out of an abundance of caution an advance opinion of the comptroller was sought by the bureau. In applying to the comptroller the position and belief of the bureau and of the Secretary of the Navy as well were made plain that these officers thought the plaintiff entitled to be paid, and the Paymaster General explained that the clause in question had been misplaced in the schedule. This latter fact is further confirmed by the subsequent correction of the form itself. The Government’s brief practically concedes a right of recover. These facts present a case for reformation quite as strong as was that of Aeherlind, *sufra.*To make plain the clearly proved and undisputed intention of both parties to the contract its reformation should be decreed and plaintiff be allowed to recover.

Judgment for plaintiff in the sum of $15,071.42. And it is so- ordered.

Hat, *Judge;*DowNey, *Judge;*and Booth, Judge, concur.