Opinion of the Court

serted. Moreover, these matters and the facts relating thereto were brought to the attention of the authorized representatives of the Commissioner during consideration and audit of the returns and the consideration of all matters affecting the value of the estate and the resulting tax liability. At that time it was understood and agreed by the Commissioner's office that these matters, particularly with reference to the claims of Rockefeller and others and the executors' fees and commissions which were until November 1929 indefinite only as to amounts, should be suspended and held in abeyance pending ascertainment of the amounts which might be allowed as deductions in determining the correct tax liability of the estate. The Commissioner was not in any way misled. He had before him all the facts with reference to the items which the executors could furnish; the grounds on which the estate claimed that some allowance as deductions from the gross estate should be made on account thereof and he recognized that a proper refund resulting from the deductions, to which the estate claimed to be entitled, should be made. The Commissioner was in a position to act in the premises had he so desired. He did act and rendered a decision with reference to the Thomas H. Frothingham note item as we shall hereinafter show. However, with reference to the matter of the deductions to which the estate might be entitled on account of the claims of Rockefeller and others and the executors' fees and commissions, the Commissioner, as the facts disclose, agreed to wait until definite figures could be submitted on these items. He was clearly authorized to do this, thereby keeping the matter open. Such amounts were definitely determined in 1929, whereupon the estate submitted proof of the correct amounts to the Commissioner and requested the allowance as deductions and the refund of the resulting overpayment in accordance with its claims and the contentions previously and timely made. The deductions were refused and the claim for refund was denied on the ground that claim therefor had not been asserted within the time required by law. In this we think the Commissioner erred with respect to the claimed deductions of $582,681.48 paid to Rockefeller and

Opinion of the Court

others in settlement of claims against the estate and of $123,640.70, executors' fees and commissions allowed by the Surrogate Court. Plaintiff is therefore entitled to recover such overpayment as may result from the allowance of these items. as deductions from the gross estate, together with interest as provided by law.

With reference to the item of $113,440.68, representing the principle and interest of a note of Thomas H. Frothingham which the estate paid upon default of the maker on demand of the Chatham and Phenix National Bank, it appears that the Commissioner in his allowance of a partial refund of $27,365.71 on September 17, 1924, definitely decided upon this item in accordance with the contention then made by the estate. Shortly prior to the date mentioned the Commissioner had taken this item up for consideration and proposed in connection with an audit and investigation of the estate to increase the gross estate by the amount of $69,500 by reason of the fact, as found by him, that the stock of the Old Reliable Motor Truck Corporation, which was received by the estate when the Frothingham note was paid, had a value in excess of the principle and interest of the note. The estate requested that this not be done but that the stock be treated as taking the place of the amount paid on the Frothingham note for the reason that "On the occasion of an early hearing in Washington we received the impression that under the circumstances the Government would be disposed to waive the question of the ultimate application of the collateral if the debt to the Chatham & Phenix Bank was not pressed as a deduction; or, in other words, that the estate be considered as having been repaid; and we had presumed that the item would be subject to disposition upon some such basis. We are still willing that the matter be disposed of in this way so as to reduce in so far as possible the element of contingency." The Commissioner treated the matter of the Frothingham note and the Old Reliable Motor Truck Corporation stock in the manner requested. In holding that the Motor Corporation stock received by the estate upon payment of the note repaid it for the amount paid out, the Commissioner acted upon the

Reporter's Statement of the Case

claim of the estate for a deduction on account of payment of this note. This suit was not instituted until more than two years after that decision. Plaintiff is, therefore, not entitled to recover on this item. The Old Reliable Motor Truck Corporation was discharged in bankruptcy July 10, 1927. The loss, if any, which may have been sustained by the estate on that account was a deduction properly to be allowed from income in the year in which the loss was sustained. That question is not before us.

Judgment for the amount due plaintiff will be entered upon the filing of a computation of the amount of the overpayment in estate tax in accordance with this opinion. It is so ordered.

WHALEY, Judge; WILLIAMS, Judge; GREEN, Judge; and BOOTH, Chief Justice, concur.

UNITED STATES FIDELITY & GUARANTY COMPANY v. THE UNITED STATES

[No. 42429. Decided December 6, 1937]

On the Proofs

Liability of surety; payment under mutual mistake of fact.-Surety having, under mutual mistake of fact, paid amount alleged to be due by contractor by reason of default, is entitled to recover, where in Gertner v. United States, 76 C. Cls. 643, it was held that contractor was not in default and was not liable for the damage to the work.

United States v. State Bank, 96 U. S. 30, 36; Nelson v. United States, 35 C. Cls., 427, 429, cited.

The Reporter's statement of the case:

Mr. Louis M. Denit for the plaintiff. Brandenburg & Brandenburg were on the brief.

Mr. Paul A. Sweeney, with whom was Mr. Assistant Attorney General Sam E. Whitaker, for the defendant.

Opinion of the Court

The court made special findings of fact as follows: 1. Plaintiff, United States Fidelity & Guaranty Company, was surety on the bond of L. Gertner, Sr., in the penal sum of $29,000, for the faithful performance of his contract with the United States entered into June 28, 1926, for the construction of a power plant and laundry building and installation of a heating system and refrigeration plant at Hot Springs, Arkansas, in respect to which the principal recovered a judgment in this court against the United States, January 9, 1933, in an amount of $9,992.00 (docket No. K-438).

2. During the course of the contract work and as a part thereof, the contractor, the said Gertner, constructed an underground steam distribution system or conduit, a part whereof reached to the new laundry building on the site of the work.

Early in December of the year 1926, heavy rains accumulated surface water in and around the laundry building and notwithstanding the protests of the contractor the contracting officer diverted into the distribution system so constructed the accumulated water, flooding and ruining a substantial section thereof.

The work was inspected and tested in March 1927, found by the contracting officer to be in an unsatisfactory condition, due to the flooding, and on July 27, 1927, the contractor was by him, without justification or warrant, declared to be in default and the plaintiff herein, as surety on the bond, immediately given an opportunity to complete the work. This the plaintiff rejected.

The work was readvertised, the plaintiff advised of the bids, of which $16,900 was the lowest, and given the election of completing the work or of remitting $6,908, representing the difference between the lowest bid and that part of the contract price then unpaid, viz, $9,992. The surety company, plaintiff herein, again, November 11, 1927, refused to complete the work, but shortly thereafter elected to and did remit to the contracting officer the difference of $6,908, and the work was relet to and finished by the lowest bidder. 3. Present at the tests conducted in March 1927, on Gertner's installation, was one Moriarty, a representative of

Opinion of the Court

the United States Fidelity & Guaranty Co., plaintiff herein, who was a lawyer and engineer. Moriarty thereafter reported his inspection to the plaintiff.

After plaintiff's second refusal to complete the work, November 11, 1927, the quartermaster general had a conference with a representative of the plaintiff and stated that the conduit had been condemned and that the contractor had defaulted in substantial respects in the performance of his work. The question of advancing $6,908 was discussed and the quartermaster general reiterated his statement that the contractor had defaulted in the performance of the contract and because thereof the conduit had been condemned and would not pass the test.

The quartermaster general did not inform the plaintiff that the conduit had been flooded by the defendant in December 1926, entirely destroying its efficiency and that this was responsible for the necessity of obtaining new bids to replace the conduit. Plaintiff paid the sum of $6,908 to the defendant in reliance upon the truth and accuracy of the representations made, and without conducting an independent investigation to ascertain their truth and accuracy. The representations made to the plaintiff and which induced it to pay this sum were not true and correct. At the date of the payment, neither the plaintiff nor the quartermaster general had knowledge that the failure of the conduit was caused solely by the flooding thereof by the constructing quartermaster, or that the contractor was not in default, and had the plaintiff been advised of the same, it would not have paid the said sum of $6,908, or any part thereof.

The court decided that plaintiff was entitled to recover.

WHALEY, Judge, delivered the opinion of the court:

Plaintiff brings this action to recover a sum of money paid by it to the defendant under a mutual mistake of fact. Plaintiff was the surety on the bond of the contractor who had a contract with the defendant which was declared forfeited by the defendant and the plaintiff was called upon to make good the difference between the amount due the contractor and the amount of the second contract for the completion of the work.