
    PRATT & WHITNEY COMPANY v. THE UNITED STATES
    [No. K-169.
    Decided April 9, 1934.
    Amended Findings and Judgment, March 4, 1985]
    
      ■ Mr. Karl D. Loos for the plaintiff. Messrs. Preston B. Kavanagh and Preston G. King, Jr., were on the briefs.
    
      Mr. J. H. Sheppard, with whom was Mr. Assistant Attorney General Frank J. Wideman, .for the defendant.
   ORIGINAL OPINION

Green, Judge,

delivered the opinion of the court:

The plaintiff in this case seeks to recover $316,701.25 with interest (altogether about a half million dollars) overpaid on the taxes of 1918 and applied by the Commissioner on a deficiency in its taxes for 1917, the collection of which at the time of the application was barred by the statute of limitations. A claim for refund on the taxes of 1918 was filed on June 24, 1921, and thereafter the Commissioner made an audit and review of plaintiff’s taxes for the years 1915 to 1919, inclusive, and as a result, among other things, determined a deficiency for the calendar year 1917 in the sum of '$316,701.25, an overassessment for the year 1918 in the sum of $495,833.12, and advised the plaintiff thereof by letter on November 4, 1922. The deficiency for 1917 was assessed in January 1923.

The Commissioner thereafter proceeded in the usual manner to make a certificate showing this overassessment, which was sent to the collector with directions to ascertain the condition of the account against the plaintiff for taxes, apply the overassessment upon any taxes found to be due for other years, complete the schedule and return it. This the collector did, and his certificate showed the amount of $177,041.92 refundable. In accordance with the collector’s certificate and about June 1, 1923, the Commissioner mailed to the plaintiff a certificate of overassessment for the year 1918 in the sum of $495,833.12 which also showed that the overas-sessment was applied on three different items totaling $318,-791.20 as credits upon taxes due for other years, leaving $177,041.92 refundable. A check on the Treasury was enclosed with the certificate in payment of the amount refundable together with interest in the sum of $36,638.21. This check was received by plaintiff and cashed.

We have here the same situation which has appeared in many cases recently before us. The certificate mailed to plaintiff was not made up in the ordinary form of an account, but it was in fact nothing more or less than a statement of the account between plaintiff and defendant with reference to plaintiff’s taxes for certain years. It showed the amount of the overassessment for 1918 and by appropriate reference that a large part of it had been applied and credited upon taxes for other years in three separate items, one of which was $316,701.25 taxes of 1917, and that the balance which the Government claimed was due the plaintiff was $177,041.92 which, together with interest thereon in the amount of $36,638.21, or a total of $213,680.13, was paid in settlement. The plaintiff made no complaint about the transaction until more than five years afterward, when through its attorneys it made a demand upon defendant for the amount which had been credited on the 1917 taxes and nearly six years expired before suit was begun to recover the amount thereof.

Notwithstanding the recent decisions of the court, which, in our opinion, fully cover the case now before us, the plaintiff insists that the recital of the overassessment contained in the certificate constituted an account stated in its behalf for the amount of the overassessment. We have held many times that when an account is presented a party thereto cannot select one or more items stated in his favor therein and ignore charges made against him even though those charges be not well founded, and that an account stated must be taken as a whole or not at all. In this particular case, the account showed a balance of a certain amount in favor of plaintiff for which it received a check issued in settlement. No complaint having been made with reference thereto for over five years, it must be considered an account settled. Cf. R. H. Stearns Co. v. United States, 291 U. S. 54.

The plaintiff, however, seeks to recover on another and novel ground which, in our opinion, is equally unfounded. It is insisted that if it does not have the right to recover on an account stated the cause of action was still in time for the reason that plaintiff’s claim for refund filed June 24, 1921, was not rejected until the Commissioner of Internal Revenue declined to comply with the demand for the return of the amount credited on the 1917 taxes made by its attorneys through a letter dated August 23, 1928, and that the statute of limitations on claims for refund did not begin to run until that date. Nevertheless, it is said in argument that the claim for refund was at first allowed. It is thus conceded, as it must be, that action was taken upon the claim for refund. It is not necessary that any particular form should be used by the Commissioner in allowing or rejecting a claim for refund. In the instant case, after the claim for refund had been filed, the Commissioner made an audit and review of plaintiff’s taxes in order to determine whether in fact they had been overpaid as was alleged in the claim for refund. He found and determined that the taxes for 1918 had been overpaid, or as stated in the language of the Bureau, there had been an “ overassessment ” thereof. Having also determined a deficiency in the 1917 taxes, he applied part of the overpayment thereon and refunded the balance. All this was shown by the certificate of overassessment in the manner above stated. When the Commissioner computed the amount of refund to be made the plaintiff and paid it, he allowed the claim for refund to that extent. When, instead of refunding the remainder of the overpayment to plaintiff, he credited it upon the taxes of other years, he rejected the claim for refund to the extent of these credits. Section 3226 of the Revised Statutes (section 1113 of the Revenue Act of 1926) requires that a suit to recover a tax collected shall not be begun after the expiration of five years from the date of the payment of such tax, “ unless such suit or proceeding is begun within two years after the disallowance of the part of such claim to which such suit or proceeding relates.” The claim for refund alleged that there had been an overpayment of the 1918 taxes. If, after the filing of this claim, the Commissioner had announced that he had considered the matter and determined that there was no overpayment, we do not think anyone would claim that suit could not then be begun. In the case at bar, after consideration and having found that there was an overpayment, he announced that part of this overpayment would be credited on taxes for other years. This was in effect a disallowance of the part of the claim to which the suit relates and the provisions of section 3226 became applicable.

The plaintiff contends that no cause of action accrued until the enactment of the Revenue Act of 1928 which declared that a credit made after the expiration of the statute of limitations was void and might be refunded in the same manner as any other overpayment. But we have already shown that plaintiff’s claim for refund was disallowed in part on June 1, 1923, when the certificate was issued and that a cause of action then arose which under section 3226 must be begun within two years, and this leaves no foundation for plaintiff’s position. The 1928 act did not repeal section 3226, nor did it in any manner limit its provisions with reference to the time in which suit must be begun.

Counsel for plaintiff also contend that the fact that the Commissioner found the overassessment constituted an allowance of the claim and a promise to pay the amount thereof and that the suit is based on the promise. This is merely a statement in another form that the determination of the overassessment constituted an account stated in favor of plaintiff to the amount of the overassessment. There is no basis for this contention. The action of the Commissioner in allowing the overassessment, crediting part of it on the taxes of other years and refunding the balance was all one-transaction and cannot be separated. The Commissioner did not merely allow the overassessment; he determined it and by the same determination announced that a part of it would not be refunded. Moreover, we have found as an ultimate fact that there is no evidence showing or tending to show any promise or agreement to pay the plaintiff any other sum than the amount which was refunded.

For the reasons above set forth, we hold that the separate item of the overassessment contained in the certificate did not constitute an account stated upon which plaintiff could bring a suit within six years, and that plaintiff having failed to bring its suit within two years after the certificate or over-assessment and statement of account was issued, its action is barred under section 3226 of the Eevised Statutes.

In support of the conclusions above stated with reference to an account stated, see R. H. Stearns Co. v. United States, supra; Leisenring v. United States, 78 C. Cls. 171 (certiorari denied); and Samuel Daube v. United States, 78 C. Cls. 754.

It is clear that plaintiff’s petition should be dismissed and it is so ordered.

Whaley, Judge; Williams, Judge; LittletoN, Judge; and Booth, Chief Justice, concur.

SUPPLEMENTAL OPINION ON MOTION FOR NEW TRIAL

Green, Judge,

delivered the opinion of the court:

Since the original opinion was rendered, the parties have made a stipulation with reference to certain additional facts material to the decision of the case but not heretofore presented to the court.

Plaintiff has filed a motion for new trial in which amendments to the findings are requested and the matter of the recovery of the portion of the overassessment for 1918 which was applied upon a deficiency for 1917 is reargued at great length. In the original opinion, the court held that plaintiff’s claim for refund of the taxes of 1918 was rejected and it is assumed in argument that the basis of this holding was the validity of the credit. This is an error. The question of whether the claim was rejected does not in any way depend upon the determination of whether the credit was valid and effective. The act of the Commissioner in making the credit, whether valid or invalid, was one of the matters that showed that the claim was rejected. The facts are that the Commissioner had mailed to plaintiff a full itemized statement of its liability for taxes for the years in controversy, as he determined it, in the form of a so-called “ certificate of overassessment ” which showed a credit upon the taxes of 191Y of the principal sum for which plaintiff now brings suit and also showed the balance due plaintiff which was refunded and accepted. Kegardless of how we construe the statute of 1928 which declares credits upon barred taxes to be “ void ”, the plaintiff must have understood from the statement of the account and the acts of the Commissioner in relation thereto that the Commissioner refused to pay anything more upon its claim for refund than the amount specified as refundable in the statement of the account with interest thereon and that the remainder of plaintiff’s claim for refund was rejected. When the Commissioner informed plaintiff that the part of the overpayment for which suit is now being brought was credited upon taxes of another year, he could not have made any statement that would more definitely inform plaintiff that the claim for refund thereof had been rejected, and when it was rejected the statute of limitations began to run. That plaintiff instead of accepting the refund could have refused it and forthwith brought suit for the amount of the credit is so clear as to leave no room for argument or discussion. It is contended by plaintiff that section 609 (a) of the act of 1928 created a new cause of action. This again is an error. This provision merely declared the status of an improper credit to be that of an overpayment, but it remained subject to all the statutory provisions with reference to the recovery of overpayments. This precise question was in effect determined in the case of R. H. Stearns Co. v. United States, 291 U. S. 54, a similar case to the one at bar except that the payment in settlement of the account was made by the taxpayer instead of the defendant, as was done in the instant case. In the original opinion we said that section 3226 of the Kevised Statutes was not repealed by the act of 1928, and in the Stearns Co. case, supra, where the effect of section 609 (a) of the act of 1928 was being considered, the Supreme Court applied section 3226 to an action for recovery of an overpayment applied upon a barred tax, and held in two different places in the opinion that the limitations provided by section 3226 barred plaintiff’s action. Following the rule laid down in the Stearns Co. case, it is clear that the plaintiff cannot recover the portion of the overpayment which was applied on the 1917 taxes.

It is contended, however, by plaintiff that its suit is not only for principal but for interest, and that it had six years in which to bring its suit for interest from the time when its claim was rejected. This may be conceded so far as the limitation on bringing suits for interest is concerned; but it is also argued that plaintiff is entitled to interest for the full period which has elapsed since the overpayment was made down to the present time, notwithstanding there can be no recovery of the principal. This contention ignores our holding in the original opinion on the authority of the Stearns Co. case that when the plaintiff accepted the payment of the refund the whole matter became an account settled by reason of no objection having been made within a reasonable time. Moreover, it was held in the Stearns Co. case that, notwithstanding the provisions of section 609 (a) of the act of 1928, the application of an overpayment to a deficiency on a barred tax is not always a nullity and that it was not intended to apply so as to override the doctrine of estoppel. When the plaintiff received the statement of the account together with a check for refund, it had the right to accept or reject the transaction. But instead of so doing it accepted the refund and ratified the transaction. Having received and retained benefits thereunder, it was estopped from taking a position inconsistent therewith. 21 C. J., sec. 207, pp. 1206-1207. As we held before, the account was settled and the liability for the principal sum was extinguished. Thereafter no interest could be collected thereon for the period ensuing after the settlement was made.

We do not overlook that on March 23, 1927, the Commissioner sent plaintiff some additional interest, thereby acknowledging that the amount of interest had been miscalculated. This also was accepted. No objection was made until this suit was brought, nearly six years after plaintiff received the certificate of overassessment and a refund of $177,041.92, and over two years after the further allowance of interest was paid. We find and hold that the objection was not made within a reasonable time.

The findings as amended show that even after the second allowance of interest was made and paid, the plaintiff did not receive all the interest that was due on the settlement of its account for taxes of the years in controversy. The plaintiff claims it should at least receive the interest that was due when the settlement was made. The stipulation of the parties filed since the former submission of the case now shows that plaintiff did not receive the full amount then due, evidently because the Commissioner made a mistake in its computation. This point was not considered in the original opinion. Counsel for defendant contends on grounds that are not consistent with what we have said above that no recovery can in any event be had by the plaintiff for any portion of the interest, and also argues that the settlement is conclusive. But an account settled is not conclusive as to its balance where that balance is found through a mistake, and where the mistake relates to a certain item the settlement may be corrected without changing the status of the remainder of the account. A correct computation of the interest shows that plaintiff was entitled to $2,399.69 more than it received on the basis under which the Commissioner attempted to calculate it. We think it is entitled to recover that sum notwithstanding the settlement. Cf. Clinton Coal Co. v. United States, 79 C. Cls. 505. The case now before us is a peculiar one and we are unable to find an adjudicated case which presents a similar line of facts except the case last cited in which this matter was not argued nor expressly decided. It is apparent, however, that when the Commissioner after the settlement voluntarily paid plaintiff additional interest, the act was certainly not one of which the plaintiff could complain or urge as a ground for setting aside the settlement whereby the credit on the barred tax was ratified. Nor does plaintiff do so now. Its contention is that there was no settlement, but that if there was one it is entitled to interest according to the intention of the parties, and with this last statement we agree.

An order will be entered sustaining the motion for new trial insofar as to set aside the judgment heretofore entered in favor of the defendant and also amending the findings in -certain particulars which will appear from the amended findings of fact now made and entered. In accordance with these findings and this opinion a new judgment will be entered in favor of the plaintiff for the sum of $2,399.69, all of which is so ordered.

Williams, Judge; Littleton, Judge; and Booth, Chief Justice, concur.

Whaley, Judge,

dissenting:

The Commissioner applied a live credit to a deficiency which was barred and rendered an account stated to the plaintiff showing a balance in its favor. With this account stated before it, and with full knowledge of all items which entered into it and that no interest had been allowed on the credit, the plaintiff accepted the payment of the balance. From then the statement became not an account stated, but an account settled. The taxpayer knew when the statement was before it that a dead deficiency had been applied to a live credit and it also knew that no interest had been allowed on the credit as provided by law. Nevertheless, plaintiff accepted the balance as payment. Later on the Commissioner, of his own volition, computed interest on the balance and sent the plaintiff a statement showing how and for what time it had been computed and a check for the amount. The plaintiff had ample opportunity to examine this statement of interest, and, as the Commissioner had opened the account settled, the plaintiff could have demanded the payment of the credit and the interest on the full amount of the credit from time of payment. But with full knowledge of how both of these accounts had been made and with both before it, the taxpayer accepted the check for the interest. In so doing, the taxpayer closed the door of opportunity to challenge the application of the credit to the dead deficiency, and to any additional interest. In my judgment, the principle of account settled is plain. No fraud or gross error amounting to bad faith is alleged.

However, if the account settled can be opened to allow additional interest, then it loses its settled status and the credit should be allowed also. In my judgment the original opinion was correct and the motion for new trial should be overruled.  