text:
    MERANDO, INC. v. The UNITED STATES.
    No. 807-71.
    United States Court of Claims.
    March 16, 1973.

      Maurice A. Guervitz, Washington, D. C., attorney of record for plaintiff.
    Francis H. Clabaugh, Washington, D. C., with whom was Asst. Atty. Gen. Harlington Wood, Jr., for defendant.
    Before COWEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG and BENNETT, Judges.
   KUNZIG, Judge.

In this government contract case, the court is being asked by cross motions for summary judgment to review a decision of the Armed Services Board of Contract Appeals (the Board) pursuant to the Wunderlich Act, 41 U.S.C. §§ 321-22 (1970).

In issue is whether the contract language was clear enough to give the eon-tractor an unambiguous representation of the method of pouring concrete. Only the question of entitlement is presently before this court, the parties having stipulated to leave the question of quantum for further proceedings. .

We hold that the Board was correct as a matter of law when it concluded that the plaintiff’s strained interpretation of the specifications would render the specifications as a whole meaningless. Accordingly, plaintiff’s petition must be dismissed.

On April 20, 1966 plaintiff was awarded a contract. No. DA44-110-ENG6020, for the construction of a reinforced concrete frame building at Fort Myer, Virginia. The building contained a basement plus four elevated levels. The wings of the building varied from 114 to 122 feet. The dispute arose when the resident engineer realized that the plaintiff intended to pour concrete for each wing in one continuous operation. This he argued was in violation of the sixty foot limitation for any concrete pouring. Paragraph 2-15 of Section 2 of the specifications provides in pertinent part:

2-15. CONSTRUCTION JOINTS:
The unit of operation shall not exceed 60 feet in any horizontal direction, unless approved by the Contracting Officer. Concrete shall be placed continuously so that the unit will be monolithic in construction. At least 48 hours shall elapse between the casting of adjoining units. .

While the resident engineer interpreted the sixty foot limitation on the “unit of operation” as referring to a pour of concrete, the contractor interpreted it as referring to construction joints. The plaintiff reluctantly adhered to the resident engineer’s interpretation and filed a claim for the additional work which was subsequently required. The claim was denied by the Contracting Officer and the Board. Plaintiff then filed its petition in this court on November 4, 1971.

Although this court is not bound by the Board’s interpretation of the contract provisions, since such is a matter of law, (International Telephone and Telegraph v. United States, 453 F.2d 1283, 1288, 197 Ct.Cl. 11, 20 (1972); HRH Constr. Corp. v. United States, 428 F.2d 1267, 1271, 192 Ct.Cl. 912, 918 (1970); Paschen Contractors, Inc. v. United States, 418 F.2d 1360, 1361, 190 Ct.Cl. 177, 180 (1969)) we find that the Board’s conclusion in favor of the defendant in this case is correct. To adopt plaintiff’s interpretation of the first sentence of paragraph 2-15 would render the rest of that paragraph and other paragraphs of the specifications totally meaningless. This would be violative of a well established principle that the provisions of a contract must be read as a whole. Northwestern Industrial Piping, Inc. v. United States, 467 F.2d 1308, 1312, 199 Ct.Cl. 540, 547 (1972); Embassy Moving & Storage Co. v. United States, 424 F.2d 602, 606, 191 Ct.Cl. 537, 543 (1970).

The second sentence of paragraph 2-15, “[c]oncrete shall be placed continuously so that the unit will be monolithic in construction", leaves no doubt that the “unit of operation” in the first sentence must refer to concrete and not to construction joints. It is not conceivable that a construction joint can be “monolithic in construction”. Similarly, the third sentence, “[a]t least 48 hours shall elapse between the casting of adjoining units”, would be absurd. Contractors do not “cast” construction joints.

Plaintiff’s strained interpretation of “unit of operation” would also be inconsistent with the.use of the same phrase in subparagraph b of paragraph 2-23 of the specifications which reads in pertinent part:

b. Concrete shall have a slump of no more than 2 inches. Concrete shall be compacted, screeded to grade, and prepared for the specified finish. Concrete shall be placed so that each unit of operation will be monolithic in construction and terminate at an expansion or construction joint.
[emphasis added]

The law does not intend that ordinary language' should be interpreted to absurdity. Restatement of Contracts § 235 (1932).

Reading the contract as a whole, we find that the specifications were clear and unambiguous in requiring that the concrete pours should be monolithic in construction and not exceed 60 feet in any horizontal direction.

Plaintiff finally argued that the 60 foot limitation upon concrete pouring was 'not in accord with trade practice and therefore it was reasonable to interpret the 60 foot restriction as applying to something else. Recently, in Northwestern Industrial Piping, Inc. v. United States, supra, Judge Skelton of this court refuted this argument by stating:

. since we have decided that the contract specifications were clear and unambiguous, and since trade practice cannot override unambiguous contract provisions (S. S. Silberblatt, Inc. v. United States, 433 F.2d 1314, 1323, 193 Ct.Cl. 269, 288 (1970)), we do not have to consider the question of what was required by trade practice in the industry.

Id., 467 F.2d at 1314, 199 Ct.Cl. at 550-551.

In light of the foregoing, we find that the contract as a whole was clear and unambiguous and that the Board’s decision withstands a Wunderlich Act review. Accordingly, the plaintiff’s motion for summary judgment is denied; the defendant’s cross motion for summary judgment is granted; and the petition is hereby dismissed.

      . Merando, Inc., 69-2 BCA ¶ 7946.

      . A construction joint is the junction of two separate pours of concrete.


source: Caselaw Access Project

author: PER CURIAM:

license: Public Domain

text:
    RAWLEIGH, MOSES & CO., INC. v. The UNITED STATES.
    No. 375-70.
    United States Court of Claims.
    Decided March 16, 1973.
    Edwin J. McDermott, Philadelphia, Pa., of record, for plaintiff.
    Raymond B. Benzinger, Washington, D. C., with whom was Asst. Atty. Gen., Harlington Wood, Jr., for defendant.
    Before COWEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG and BENNETT, JJ.-
   OPINION

PER CURIAM:

This case was referred to Trial Commissioner Louis Spector with directions to make findings of fact and recommendation for conclusions of law under the order of reference and Rule 134(h). The commissioner has done so in an opinion and report filed on November 10, 1972. Plaintiff filed no notice of intention to except. On December 22, 1972, defendant duly filed a notice of intention to except. However, on February 7, 1973, defendant filed a request to withdraw its notice of intention to except which has been granted by the court. On February 12, 1973, plaintiff filed a motion under Rule 141(b) moving that the court adopt the commissioner’s opinion, findings of fact and recommended conclusion of law as the basis for its judgment in the case.

Since the court agrees with the commissioner’s opinion, findings of fact and recommended conclusion of law, as hereinafter set forth, it hereby grants plaintiff’s motion and adopts the same as the basis for its judgment in this case without oral argument. Therefore, plaintiff is entitled to recover in accordance therewith and judgment is entered for plaintiff in the total sum of $55,300.40.

OPINION OF COMMISSIONER

SPECTOR, Commissioner:

Plaintiff, a manufacturer of garments, was low bidder in response to an invitation for bids (IFB) published by defendant acting through the Defense Personnel Support Center (DPSC), a unit of the Defense Supply Agency (DSA). Its offer was to supply 57,570 high temperature resistant flying shirts at a unit price of $15.84 (f.o.b. destination) and 56,070 pairs of high temperature resistent flying trousers at a unit price of $25.70 (f.o.b. origin) or $25.84 (f.o.b. destination).

The IFB contained the following information.

NOTICE TO ALL OFFERORS
The following press release was issued 4 December 1968:
“Brigadier General W. M. Mantz, Commander, Defense Personnel Support Center, announced today that effective 18 December 1968, DPSC was instructing its buyers to include a discount limitation clause in those solicitations where excessive discounts are being encountered and are anticipated. The clause has been in use by other DSA Centers since 1966.
“(For text of clause, see page 56 herein.)”

This case hinges on the proper interpretation of the mentioned “discount limitation clause,” which appeared on page 56, as follows:

170.7 DISCOUNT LIMITATION (DPSC 1969 MAY)
It is understood and agreed that, for the purpose of payments under this contract, an offer of prompt payment discount in excess of two percent shall be considered as a trade or special discount which shall be available to the Government as a reduction from the prices quoted, without regard to whether invoices are actually paid within the designated discount period. Offerors who desire to do so may quote customary terms of discount (not in excess of two percent), for prompt payment in addition to any trade or special discount available to the Government, provided such discounts are stated separately in their offers. Unless such trade or special discounts are separately stated, the offeror agrees that, when the discount offered exceeds two percent, the entire discount will be considered as a trade or special discount and will not be treated as a discount for prompt payment. [Emphasis supplied.] •

In the blanks provided therefor, plaintiff had offered the following prompt payment discount:

DISCOUNT FOR PROMPT PAYMENT:
2Vio% 10 calendar days; 2% — 30 calendar days; Net% 30 calendar days

Defendant considered that portion of plaintiffs prompt payment discount offer reading “2Wo% 10 calendar days” to be a trade or special discount, to be taken immediately from the prices bid, thereby reducing them by 2.1 percent to $15.50736 for each shirt, and $25.16030 for each pair of trousers. It awarded the contract at those reduced prices. Also, the award was made f.o.b. destination, and defendant now acknowledges that it incorrectly computed the price for the trousers on the f. o. b. origin bid, thus understating the contract price by $7,733.12

Plaintiffs reaction to the award was a letter of protest to the contracting officer stating:

We have received the Notice of Award dated October 30, 1969 stating the unit price for the Man’s Flying Shirt to be $15.50786, and for the Man’s Flying Trousers to be $25.-16080 [] Our unit price bid for the shirt was $15.84 and for the trousers was $25.84. This constitutes our protest. We will consult our attorney for the proper legal steps to take.
In the meantime, and without prejudice, we will perform under the contract.

The protest was denied, the contracting officer relying on a decision of the Comptroller General for his interpretation of the discount limitation clause.

Plaintiff timely performed under the contract, delivering a total of 58,146 shirts and 56,628 pairs of trousers to DPSC’s facility at Ogden, Utah. Deliveries were made over a period of several months, and plaintiff received 22 partial payments during the course of performance. Upon each delivery, plaintiff submitted an invoice to the Atlanta Regional Office of the Defense Contract Administration Services, which invoices contained the prompt payment discount terms that appeared on plaintiff’s original bid, i. e., 2.1 percent 10 days; 2 percent 20 days; net percent 30 days. This phrase was required to be included by the authorized Government inspector, who would not sign the invoices unless they were presented in a form consistent with the contracting officer’s interpretation of the contract, namely, that the 2.1 percent discount taken at the time of award, was still available to be taken again at time of payment.

In accordance with this interpretation, defendant took an additional prompt payment discount of 2.1 percent on 19 of a total of 22 invoices paid within 10 days, and a discount of 2 percent on one invoice paid within 20 days. In summary, plaintiff’s basic price was reduced by 2.1 percent, or $49,923.84 by way of a trade discount. Furthermore, defendant deducted an additional $47,567.28 from partial payments in the form of prompt payment discounts, as above-described.

Shortly after completion of its contractual obligation, plaintiff filed a petition in this court seeking reformation of the contract to reflect an award computed according to its bid. In an amendment to its petition, plaintiff also alleged that defendant, having availed itself of the trade or special discount at time of award, breached the contract by also deducting prompt payment discounts from plaintiff’s invoices.

Defendant’s answer avers, inter alia that:

For the purpose of expediting proceedings herein, to the extent it may be concluded that plaintiff had an administrative remedy under the disputes procedure of the cited contract, any necessity that such procedure be exhausted as a prerequisite to a decision on the merits by this Court is hereby waived.

The Government also pleads by way of an affirmative defense or set-off that:

* * * [Wjere it to be ruled that the prior reduction (trade discount) of 2Vio% upon which the contract was awarded eliminated the 2Vio% for consideration as a prompt payment discount when defendant paid invoices within 10 days, than [sic] in any event defendant would be entitled to the remaining 2% prompt payment discount when it made payments on plaintiff’s invoices at the awarded price within 20 days. All invoices upon which 2Vio% prompt payment discounts were taken * * * were paid within 20 days. Accordingly, were the 2Vio% prompt payment discount held not available to defendant at the awarded price, plaintiff would be entitled to a refund of no more than Vw% of the invoices on which the 21Ao% was taken, which amounts to a total sum of $2,078.05.

It appears that the above-quoted discount limitation clause developed out of the following circumstances. During the 1960’s, partly as a result of the Vietnam buildup, Defense Department agencies were relatively slow in paying vouchers. Contractors, aware of the fact that prompt payment discounts are taken into consideration in bid evaluation, frequently offered large prompt payment discounts (for example, 5.1 percent 10 days; 5 percent 20 days) with the realization that the 20-day discount would be taken into consideration in bid evaluation, but would rarely be earned by the Government because of slow payments. DSA had hoped to have the discount limitation clause it developed included in the Armed Services Procurement Regulations (ASPR), but its request was rejected. It was permitted to use the clause as a “deviation” from ASPR for a period of 1 year. The 1-year authorization was subsequently extended several times until May, 1971, when a new clause was adopted. The new clause contains the following additional language:

NOTE: If an offeror submits discounts in excess of 2%, the highest of such discounts offered will be treated as a trade discount regardless of any time period attached to such discount. If the same offer also contains a prompt payment discount not in excess of 2%, this will be construed as an intent to offer trade and prompt payment discounts cumulatively. In such case, the trade discount will be deducted from the contract price upon award and the prompt payment discount will be taken, if earned. (For example: k% — 10 calendar days, 3% — 20 calendar days, 2% — SO calendar days. The U% — 10 calendar days (being the largest of those in excess of 2%) will be taken as a trade discount and the bid price reduced U% in determining the contract price. The 2% — 30 days will be taken as a prompt payment discount, if earned.)

The new language set forth above was added to the discount limitation clause at the suggestion of the Defense Supply Agency Headquarters to resolve a “dichotomy between the Comptroller General’s decisions and the ASBCA case.”

Mr. Rose, plaintiff’s president, testified that he had interpreted the original discount limitation clause (the one appearing in his contract) to mean that “the Government ha[d] to make up their [sic] mind to either take the 21/io per cent as a trade discount, or take it as a prompt payment discount, but they [could not] take both.”

The testimony of one of the defendant’s principal witnesses is not inconsistent with this interpretation of plaintiff. In contrast, the contracting officer testified that it was his interpretation that trade discounts “would be taken off the top.” He acknowledged, however, that the term “ ‘trade discount’ is foreign to our bidding in clothing and textiles.” It was first introduced, he explained, in the wording of the discount limitation clause.

That the DSA did not always take a prompt payment discount “off the top” at time of award, is illustrated by the following example. On May 8, 1969, plaintiff and others were notified by the Defense Supply Agency that Mason & Hughes, Inc., was the successful offeror on a solicitation for 70,461 intermediate cold weather jackets at a unit price of $9.8675 and award was made at that same price. The information to bidders/offerors portion of the IFB on that solicitation contained the identical notice to all offerors concerning the inclusion of the discount limitation clause, and the identical discount limitation clause found in the invitation portion of plaintiff’s contract. Discount terms offered by the successful offeror (Mason & Hughes, Inc.) were 2.05 percent — 10 days; 2 percent — 20 days; 1.95 percent —30 days.

It also should be observed that the discount limitation clause does not appear to have served the historical purpose intended (as above-outlined) in the case of this particular solicitation. The 2.1 percent 10-day prompt payment discount, twice taken under the contracting officer’s interpretation, was not a large discount of the type to be taken into consideration in bid evaluation, and then not earned because of slow payments. That is because this contract further provided that:

* * * Notwithstanding the fact that a blank is provided for a ten (10) day discount, prompt payment discounts offered for payment within less than twenty (20) calendar days will not be considered in evaluating offers for award * * *. However, offered discounts of less than 20 days will be taken if payment is made within the discount period, even though not considered in the evaluation of offers. [Emphasis supplied.]

On this latter point, plaintiff’s president testified that he considered the above-quoted bid evaluation clause along with the discount limitation clause when they first appeared in IFB’s issued by the DSA. He testified that he did not wish “to take any chances on how [the discount limitation clause] would be interpreted,” and therefore sometimes bid 2 percent, 10 days, 1.9 percent, 20 days. Other bids were submitted, however, as in this case, with prompt payment discounts of 2.1 percent, 10 days, 2 percent, 20 days. The witness felt that the Government might take the discount in excess of 2 percent as a trade discount, and then pay in 20, 30, or even 60 days. Mr. Rose also felt that the 0.1 percent was such a very small amount over 2 percent that it would not cause the discount limitation clause to be invoked.

It is apparent that from the foregoing that if defendant’s representatives intended to convey the meaning ultimately expressed in the “NOTE” appended in 1971 to the discount limitation clause, that meaning was inadequately conveyed in the contract clause as it appeared in plaintiff’s contract.

The first sentence of the latter clause suggests, upon a reasonable reading, that a prompt payment discount in excess of 2 percent will be taken at the time of payment “without regard to whether invoices are actually paid within the designated discount period.” It does not infer a discount taken “off the top.”

The second sentence of that clause reasonably suggests that a prompt payment discount may also be taken, but only if separately stated. Plaintiff’s single stated “Discount for Prompt Payment” for 10 and 20 days does not convey an intent to offer such a “separately stated” discount.

The last sentence reiterates the meaning conveyed by the first two sentences and, in addition, strongly infers that only one discount will be taken if, as in this case, it is taken “as a trade or special discount.”

In summary, a reasonable reading of the clause strongly supports the interpretation placed upon it by the contractor, rather than that urged by the contracting officer. Even were that not so, plaintiff would be entitled to prevail in its interpretation because it is a reasonable one. As stated by the court in WPC Enterprises, Inc. v. United States:

* * * It is precisely to this type of contract that this court has applied the rule that if some substantive provision of a government-drawn agreement is fairly susceptible of a certain construction and the contractor actually and reasonably so construes it, in the course of bidding or performance, that is the interpretation which will be adopted — unless the parties’ intention is otherwise affirmatively revealed. [Citing cases.] This rule is fair both to the drafters and to those who are required to accept or reject the contract as proffered, without haggling. * * *

That plaintiff’s interpretation of the discount limitation clause is a reasonable one, is perhaps best illustrated by the fact that the ASBCA has also placed the same interpretation upon it. In both So-Sew Styles, Inc., ASBCA No. 15467, 71-1 BCA ¶[ 8844, and Chic de Paris Handbag Co., ASBCA No. 14622, 70-1 BCA ¶ 8160; it was concluded that a discount limitation clause in the form contained in this contract, does not change the normal practice of regarding discounts expressed as these were, as being in the alternative', and not cumulative.

Furthermore, the contracting officer acknowledged that the term “trade discount” is “foreign to our bidding in clothing and textiles.” So unusual is the offer of a trade discount by contractors regularly supplying clothing and textiles to defendant, that in 1966 the ASBCA held a contracting officer to be on notice of a possible bidding error, when a contractor’s bid appeared to offer a trade discount, in addition to the offer of a prompt payment discount.

All of the foregoing considered, it is concluded that the bid and resultant contract documents, construed as a whole, manifested an intent on the part of plaintiff to offer a prompt payment discount of 2.1 percent for payment within 10 calendar days; that the discount limitation clause probably contemplated the taking of that discount at time of payment “without regard to whether invoices [were] actually paid within the designated discount period”; that the taking of the discount immediately upon award as a reduction in contract price nevertheless amounted to the same thing, and was reasonably within the contemplation of the clause; but that defendant was not thereafter entitled to take the discount again at time of payment. The latter intent is adequately expressed in the “NOTE” added to the discount limitation clause in 1971, but it was not so expressed in this contract, nor in the other cases earlier cited in this opinion. Having immediately availed itself of the 2.1 percent prompt payment discount (considered as a trade or special discount), defendant improperly deducted further discounts from the invoices submitted by plaintiff during the course of the contract.

Plaintiff is therefore entitled to judgment in the amount of $55,300.40, that being the sum of $47,567.28 in prompt payment discounts erroneously deducted; and $7,733.12 resulting from the contracting officer’s admitted error in computing the' award for the trousers on an f.o.b. origin basis, rather than on an f. o.b. destination basis as the contract prescribed.

       The petition was filed by the E.C.T. Corporation as plaintiff. On February 2, 1973, an order was entered allowing plaintiff’s motion to substitute Rawleigh, Moses & Co., Inc., as plaintiff in the case.

      . See findings 5 and 6 -infra.

      . See finding 21 infra.

      . In the Notice of Award, the unit price for the shirts was $15.50736, and for the trousers $25.16030.

      . B-167984, December 3, 1969.

      . The final two invoices were not eligible for prompt payment discount, and were paid net.

      . These last quoted words are from the testimony of Grover Dean Fogle, Chief, Policy Branch, Procurement Division, DSA. The “ASBCA case” referred to is So-Sew Styles, Inc., ASBCA No. 15467, 71-1 BCA ¶ 8844, which bears a date approximately 1 month prior to the addition of the above-quoted “NOTE” to the discount limitation clause.

      . The Mr. Fogle mentioned in the preceding footnote.

      . See finding 24 infra.

      . See finding 22 infra.

      . Under the long established rule, contra proferentem, as enunciated, for example, in United States v. Seckinger, 397 U.S. 203, 216, 90 S.Ct. 880, 25 L.Ed.2d 224 (1970); J. W. Bateson Co. v. United States, 450 F.2d 896, 196 Ct.Cl. 531 (1971); Leavell-Morrison-Knudsen-Hardeman v. United States, 436 F.2d 451, 193 Ct.Cl. 949 (1971); Sherwin v. United States, 436 F.2d 992, 193 Ct.Cl. 962 (1971); Max Drill, Inc. v. United States, 427 F.2d 1233, 192 Ct.Cl. 608 (1970); Gorn Corp. v. United States, 424 F.2d 588, 592, 191 Ct.Cl. 560, 567 (1970); Paschen Contractors, Inc. v. United States, 418 F.2d 1360, 190 Ct.Cl. 177, (1969); Tecon Corp. v. United States, 411 F.2d 1262, 188 Ct.Cl. 15 (1969); D & L Constr. Co. v. United States, 402 F.2d 990, 185 Ct.Cl. 736 (1968); Sundstrand Turbo v. United States, 389 F.2d 406, 182 Ct.Cl. 31 (1968); Southern Constr. Co. v. United States, 364 F.2d 439, 453, 176 Ct.Cl. 1339, 1362 (1966); WPC Enterprises, Inc. v. United States, 323 F.2d 874, 876-877, 163 Ct.Cl. 1, 6 (1963), and Peter Kiewit Sons’ Co. v. United States, 109 Ct.Cl. 890 (1947).

      . Note 10 supra.

      . Although not in this particular case. (See finding 17 infra, and note 6 supra.)

      . As observed in So-Sew Styles, Inc., 71-1 BCA ¶ 8844 at 41,119:
      “ * * * When treated as prompt payment discounts, the discounts inserted in the ‘Discount For Prompt Payment’ block have always been interpreted as alternative rather than cumulative.
      “ # * * Whereas the IFB required that the 2.05% discount be treated as a trade discount and therefore deductible regardless of when payment is made such discount did not lose its identity as an offer of a prompt payment discount. It remained in the ‘Discount For Prompt Payment’ block. Under the circumstances, appellant’s offers of discounts in the customary form for offering alternative prompt payment discounts cannot be reasonably interpreted as manifesting an unexpressed intent to offer cumulative discounts.”

      . Southern Athletic Co., ASBCA No. 10674, 66-1 BCA ¶ 5655 (aff’d on reconsideration, 66-2 BCA ¶ 5777).

      . See finding 22 infra.

      . Clarification of the clause was also apparently prompted in part by letter from the General Accounting Office to the DSA, advising:
      “While our decisions support the DPSC interpretation [permitting a deduction of both a prompt payment discount for one period in excess of 2 percent, after conversion to a trade discount, and a prompt payment discount of 2 percent or less for another period], in view of the number of apparent misinterpretations by bidders we recommend that the clause (as well as any similar clause which may now be in use by any other Defense Supply Agency procuring activity) be reworded so as to more clearly state the Government’s intention, in order to minimize further questions by bidders as to the effect of the clause. * * * ” [Unpublished Opinion, B-171731, April 6, 1971.]


author:
KASHIWA, Judge, delivered the opinion of the court:
     DAVIS, Judge KUNZIG, Judge,

text:
    UNITED AMERICAN INSURANCE COMPANY v. The UNITED STATES.
    No. 510-69.
    United States Court of Claims.
    Decided March 16, 1973.
    As Amended on Rehearing June 1, 1973.
    Vester T. Hughes, Jr., Dallas, Tex., of record, for plaintiff; Larry L. Bean, and W. John Glancy, Dallas, Tex., of counsel.
    Theodore D. Peyser, Jr., Washington, D. C., with whom was Asst. Atty. Gen., Scott P. Crampton, for defendant; Michael H. Singer, Washington, D. C., of counsel.
    Edward J. Schmuck, Bethesda, Md., for Lincoln National Life Ins. Co., amicus curiae; Willis B. Snell, James V. Heffernan, Francis M. Gregory, Jr., Washington, D. C., and Thomas G. Thornbury, Fort Wayne, Ind., of counsel.
    Before CO WEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG and BENNETT, Judges.
   OPINION

KASHIWA, Judge, delivered the opinion of the court:

This is a suit for the recovery of $209,827.83 which represents additional income taxes and interest paid for the 1961 through 1966 period pursuant to deficiencies that were assessed against the plaintiff by the Internal Revenue Service. We hold that the plaintiff is entitled to recover.

The plaintiff is a life insurance company organized under the laws of the State of Texas, with its principal place of business located in Dallas, Texas. The plaintiff is qualified and licensed to do business in 49 states in Puerto Rico, in the District of Columbia, and in Canada.

This case involves nonparticipating insurance in the form of guaranteed renewal policies issued by the plaintiff. Such a policy is a health and accident insurance contract, or a health and accident insurance contract combined with a life insurance or annuity contract, which the plaintiff enters into with a policyholder and which cannot be canceled by the plaintiff during the life of the insured for any reason except the nonpayment of premiums but under which the plaintiff reserves the right under certain circumstances to adjust premium rates by class. A class of insureds may be defined as insureds having the same policy form, being of the same age, sex, and occupational risk classification, and sometimes also being located in a particular territorial region. In other words, so long as an insured pays the premiums when they become due under a guaranteed renewable insurance policy, the plaintiff is obligated to continue the policy in force during the life of the insured. The level premium stated in the policy will also continue subject to the proviso that it can be raised if the premium for the whole class can be raised.

The statute involved is the Life Insurance Company Income Tax Act of 1959, 73 Stat. 112, Internal Revenue Code of 1954, §§ 801-820, as amended. Among other deductions which a life insurance company is allowed to take in determining its gain or loss for income tax purposes is that provided for by section 809(d)(5):

An amount equal to 10 percent of the increase for the taxable year in the reserves for nonparticipating contracts or (if greater) an amount equal to S percent of the premiums for the taxable year * * * attributable to nonparticipating contracts /' * * * which are issued or renewed for periods of 5 years or more. * * *
[Emphasis supplied.]

In preparing its income tax returns for the several years during the 1961-66 period, the plaintiff claimed deductions based on 3 percent of the premiums attributable to its nonparticipating insurance contracts, including its guaranteed renewable health and accident contracts. However, upon auditing the plaintiff’s returns, the Internal Revenue Service determined that the plaintiff was entitled to a deduction with respect to its guaranteed renewable policies only on the basis of 10 percent of the increase in reserves and could not properly utilize 3 percent of premiums for this purpose. The IRS thereupon assessed against the plaintiff the deficiencies and interest which provided the basis for the present litigation. The Government has admitted that if the policies are noncancellable (i. e., the premiums cannot be changed, even by class) and have five years or more to run to age 60, or a higher specified age, they are entitled to the 3 percent of premiums deduction. Rev.Rul. 65-237, 1965-2 Cum.Bull. 231.

In view of the Government’s foregoing admission regarding noncancellable policies and since section 801(e) provides as follows:

Sec. 801. Definition of life insurance company.
(e) Guaranteed renewable contracts.
For purposes of this part, guaranteed renewable life, health, and accident insurance shall be treated in the same manner as noncancellable life, health, and accident insurance.

it would seem that there should not be any serious question that guaranteed renewable insurance policies should also be entitled to the 3 percent of premiums deduction. In spite of the compelling language of section 801(e), the Government maintains that since the guaranteed renewable policies were not issued “for periods of 5 years or more,” as the Government interprets the phrase, they may not be treated in the same manner as noncancellable policies for purposes of the 3 percent of premiums deduction. We must resolve this question by an analysis of the precise language of section 809(d)(5) and the regulations thereunder, a review of the types of policies involved, an investigation of the legislative history in granting the alternative 3 percent of premiums deduction, and, finally, an examination of the effect of section 801(e) which we have set out above. The Government’s position is that if an insurer can change the premium rates during a five-year period, even if those rates can only be changed by class, then such a contract cannot be considered as issued or renewed for five years or more. The Government seizes upon certain language of the Senate Finance Committee Report, S.Rep.No.291, 86th Cong., 1st Sess., p. 55, U.S.Code & Admin.News p. 1575. (1959-2 Cum.Bull., p. 810), which was adopted by the following Treasury Regulation, as authority for its position: * * * The determination of

whether a contract meets the 5-year requirement shall be made as of the date the contract is issued, or as of the date it is renewed, whichever is applicable. Thus, a 20-year nonparticipating endowment policy shall qualify for the deduction under section 809(d)(5), even though the insured subsequently dies at the end of the second year, since the policy is issued for a period of 5 years or more. However, a 1-year renewable term contract shall not qualify, since as of the date it is issued (or of any renewal date) it is not issued (or renewed) for a period of 5 years or more. In like manner, a policy originally issued for a 3-year period and subsequently renewed for an additional 3-year period shall not qualify. However, if this policy is renewed for a period of 5 years or more, the policy shall qualify for the deduction under section 809(d)(5) from the date it is renewed. Treas.Reg. § 1.809-5(a).(5) (iv) (1969) [Emphasis supplied].

The Government urges that the taxpayer’s guaranteed renewable accident and health policies are too closely akin to one-year renewable term contracts, which are specifically precluded by the Regulation from the section 809(d)(5) alternative 3 percent deduction, to qualify for such a deduction. The Government has published this position in Rev. Rul. 65-237, 1965-2 Cum.Bull. 231. For all practical purposes, the Government’s position rests on the argument that the statement in the Senate Report that “1-year renewable term” contracts do not qualify for the 3 percent deduction has the effect of disqualifying for the deduction all contracts, such as guaranteed renewable contracts, which do not guarantee a premium rate for the full duration of the policy.

It is our view that the Government misinterprets the Senate Committee Report. There is not a single word in that Report to explain what policies, or types of policies, were intended to be covered by the words “1-year renewable term” contract. There is no suggestion whatever that the term was meant to encompass all policies on which the premium rate is not guaranteed.

In the trial of this case, an expert witness testified on the issue of what was meant by the words “1-year renewable term.” We think that his uncontradicted testimony is very material. John H. Miller, an actuary with 32 years of experience in the insurance field, having done much work in the health and accident area, and a member of the Society of Actuaries, the Casualty Actuarial Society, and the American Academy of Actuaries, was the only expert witness called. The plaintiff put him on, his qualifications were not challenged, and defendant did not produce any witness to rebut his testimony. Mr. Miller testified that on the basis of his knowledge of the industry the phrase “1-year renewable term” contract is used only with reference to life insurance, but for the purpose of the issue herein, the rules are the same. Mr. Miller then explained two varieties of one-year renewable term life insurance contracts of which he was aware. In one form (form A for discussion herein) the company guarantees that it will continue the coverage in force upon timely payment of premiums, and the precise amount of premiums for each age is specified in the policy; in the other form (form B for discussion herein) the company guarantees that it will continue the coverage in force upon timely payment of premiums, and the amount of premiums will be determined by reference to the company’s then current rate for the insured’s age and class at each policy anniversary date. Taking Mr. Miller’s definitions and applying the Government’s argument that contracts which guarantee a premium rate for the full duration of the policy qualify for the 3 percent deduction, we are faced with the result of form A, one-year renewables qualifying. Such a contract is issued for five years or more as renewability is at the option of the insured. It even meets the test defendant is seeking to impose here in that it has stated, guaranteed rates.

It is proper, then, to ask what was intended by the insertion of the “issued or renewed for * * * 5 years or more” requirement in section 809(d)(5) and what-was intended to be covered by the phrase “1-year renewable term,” as used in the Senate Report. As we have noted above, there is no explanation in the Senate Report as to'the meaning of the latter phrase. There are such a variety of “1-year renewable term” policies, certain of which resemble non-cancellable policies, that the only reasonable definition is one which looks to duration of risk. This court takes the view that the primary reason for inserting the “issued or renewed for * * * 5 years or more” requirement in section 809(d)(5) was to prohibit from qualification those contracts under which the insurer has the right to terminate or cancel the insurance risk within the five-year period. Cancellable accident and health insurance policies are issued for a relatively short term, usually no more than one year. Typically, such contracts are renewable by the insured unless the company gives the insured advance notice in writing that it will not renew the policy at the contract anniversary date. Thus, a cancellable accident and health insurance policy issued for a period of one year may be described accurately as a “1-year renewable term” policy which, as to each insured, is subject to cancellation by the company. The insurer is not free to cancel or refuse to renew a guaranteed renewable contract of the type we have before us.

We deem it of crucial significance that the Government, in its own Revenue Ruling, has indicated that a proscribed aspect of the one-year renewable term policies is the ability of the insurer to cancel:

A “1-year renewable term contract” is ordinarily a contract which does not guarantee the rate of premium to be charged each year [this language of the Government does not disqualify form A “1-year renewable term” contracts, only the form B type], or a contract which requires some sort of annual application by the insured for renewal (which is subject to rejection by the insurer), so that, in effect, a new contract is entered into upon each renewal.
The noncancellable health and accident contracts issued by X [the insurer] continue to force automatically to age 60 or over so long as the renewal premium set forth in the policy is paid when due. At age 60 (or later age stipulated for termination) these policies revert to yearly renewable term contracts where consent of X is necessary to keep the policy in force. Rev.Rul. 65-237, 1965-2 Cum.Bull., p. 232. [Emphasis supplied.]

It is clear that the reference in the Senate Report to a “1-year renewable term contract” as one which does not qualify for the 3 percent' deduction was not intended to preclude the allowance of the 3 percent deduction for guaranteed renewable contracts. Under the provisions of the latter policies, one term of which is a stated level premium, the insured may unilaterally renew each year and thereby, on his own volition, keep the insurance in force for a period of five years or more. In addition, there are substantial restrictions on the raising of rates.

The Government next argues, as a theoretical foundation for its position that the legislative history of the Life Insurance Company Income Tax Act of 1959 reveals that the reason for the 3 percent deduction was to provide a “cushion” for inflated costs or increased morbidity. Thus, since the rates of the policies in issue can conceivably be raised by class, the reason for granting the normally more favorable 3 percent deduction disappears. We cannot agree with either the Government’s reading of the legislative history or, for that matter, its reading of its own regulations.

The legislative history makes clear that Congress enacted section 809(d)(5) to eliminate what otherwise would be an inequality of tax treatment between stock and mutual insurance companies. In the case of mutual insurance companies, premiums are higher and include an amount normally returned to policyholders as dividends. Amounts of premiums normally returned to policyholders give a mutual insurance company an additional “cushion” with which to meet unexpectedly heavy claims or other contingencies. Stock insurance companies do not have this cushion available and hence must maintain relatively larger surplus and capital accounts. Therefore, to enable stock insurance companies to build up and maintain adequate surplus, a special deduction is allowed with respect to nonparticipating policies. The Senate Finance Committee Report gave the following explanation of this deduction:

Policyholder dividends in part reflect the fact that mutual insurance is usually - written on a higher initial premium basis than nonpartieipating insurance, and thus the premiums returned as policyholder dividends, in part, can be viewed as a return of redundant premium charges. However, such amounts provide a “cushion” for mutual insurance companies which can be used to meet various contingencies. To have funds equivalent to a mutual company’s redundant premiums, stock companies must maintain relatively larger surplus and capital accounts, and in their case the surplus generally must be provided out of taxable income. To compensate for this, the House bill allows a deduction for nonparticipating insurance equal to 10 percent of the increase in life insurance reserves attributable to nonparticipating life insurance (not including annuities). Your committee has recognized the validity of the reasons for providing such a deduction and has therefore continued it in your committee’s version of the bill. However, basing this addition, as does the House bill, only upon additions to life insurance reserves does not take account of the mortality risk factor present in policies involving only small reserves. To overcome this deficiency, your committee’s amendments provide that a special 3 percent deduction based on premiums is to apply, instead of the 10 percent deduction, where it results in a larger deduction. This is a deduction equal to 3 percent of the premiums for the current year attributable to nonparticipating policies (other than group or annuity contracts) issued or renewed for a period of 5 years or more. Senate Comm, on Finance, Life Insurance Company Income Tax Act of 1959, S.Rep.No.291, 86th Cong., 1st Sess. 22 U.S.Code Cong. & Admin.News, p. 159 (1959) (reprinted at 1959-2 Cum.Bull. 770, 786).

The Senate Finance Committee Report went on to describe the five-year requirement, and this description was adopted by Treas.Reg. § 1.809-5(a) (5) (iv), supra.

While it is true that the legislative purpose involved allowing a “cushion” when the insurer undertook a long-term risk, there is nothing in the above-quoted legislative history to indicate that the scope of the phrase “1-year renewable term” was thought to encompass guaranteed renewable policies merely because there was not a fixed premium also guaranteed by the latter policy. The Report merely states that “1-year renewable term” policies cannot qualify since they are not issued for a period of five years or more. It is significant that the report looks to duration of risk and not to the insurer’s limited ability to alter one aspect of the policy.

The guaranteed renewable policies in issue clearly involve long-term risks. They are issued for life and the insurer is required to keep the policy in force, save for the failure to pay premiums. Both noneancellable insurance (under which the premium cannot be changed and which the Government concedes is-subject to the 3 percent deduction) and guaranteed renewable insurance do require the creation of reserves from premiums to cover the higher risks of later years.

Guaranteed renewable policies prescribe a level premium and there are substantial limitations on the ability of the insurer to increase these rates. Any change in the premiums of the guaranteed renewable policies is prospective and cannot be accomplisehd without some difficulty. In at least 27 states, guaranteed renewable policies must be renewed without a rate increase unless a proposed increase is approved by the state insurance authorities. This process, which we find to be difficult in some states and time consuming in most of the others, was required with respect to 80 percent of the guaranteed renewable policies which plaintiff had in force. In other states, business, economic, and other pressures, especially competition, may substantially restrain any rate change.

Indeed, the Government has recognized, albeit in another context, that there is a virtual identity between the noneancellable and the guaranteed renewable policies:

Generally, the reserve in addition to the unearned premiums is necessary in the area of noneancellable health and accident policies because the policy is renewable at the sole option of the insured. If, in such a situation, the premium called for by the policy is at a level rate, it would have to be greater in the early years of the policy than the pure cost of insurance so that the excess may be accumulated, with interest, to offset the increase in mortality risks as the insureds get older. United Benefit Life Insurance Co. v. McCrory, [D.C.] 242 F.Supp. 845, at 849 (1965). Because hospital and medical expense benefit policies, renewable solely at the option of the insureds, involve not only increasing mortality risks as the insureds get older but also the uncertainty of the costs of medical care, the premiums for such policies do not necessarily remain level but may be increased at renewal. However, such increase in premium cannot be made with respect to an individual insured but only with respect to the class of which he is a part. This affords a certain stability to the premium that, together with the security of the coverage, necessitates a reserve in addition to the unearned premiums similar to that required under the noneancellable level premium contracts. For this reason guaranteed renewable health and accident policies, not cancellable by the insurance company and with respect to which a reserve in addition to the unearned premiums must be carried, is treated in the same manner as a noncancellable health and accident policy. See section 1.801-3 (d) of the regulations. Rev.Rul. 71-367, 1971-2 Cum. Bull., p. 259. [Emphasis supplied.] The case of Commissioner v. Pacific

Mutual Life Ins. Co., 413 F.2d 55 (9th Cir. 1969), rev’g 48 T.C. 118 (1967), three judges dissenting, was decided favorably to the Government on this very issue. The Tax Court had held for the plaintiff, stressing, as we do, both the guaranteed renewability of the contracts as well as the very qualified nature of the right to change rates, and then only by class. The Tax Court made the following observation:

While we do not question the fact that petitioner retained the right to alter renewal premiums on the contracts in question, we note, as set forth in our findings, supra, that those contracts imposed substantial limitations on such premium changes. In addition and of greater significance in distinguishing petitioner’s guaranteed renewable contracts from the 1-year renewable term contracts referred to in the above-quoted Senate committee report, is the fact that, under the former contracts, petitioner guaranteed the renewal of the policies and all their provisions for a period of 5 years or more. Thus, the only way the term of petitioner’s guaranteed renewable contracts could have been shortened to less than 5 years was for an insured to either voluntarily cancel his policy or fail to make timely premium payments thereon. Since these possibilities are within the exclusive control of the insured and exist not only with regard to petitioner’s guaranteed renewable contracts but with virtually all insurance contracts “issued or renewed for a period of 5 years or more,” we think the insurance contracts in question satisfy the statutory definition of section 809(d)(5) in that they are, in essence, “issued * * * for periods of 5 years or more.” * * * 48 T.C. 118, 143-144. [Emphasis supplied.]

The plaintiff’s position is further supported by a structural analysis of the Life Insurance Act of 1959 as a whole. Specifically the language of section 801(e) is clear authority for the plaintiff’s view that guaranteed renewable policies are, along with noncaneellable policies, entitled to the 3 percent of premiums alternative deduction. Section 801(e) reads as follows:

Guaranteed Renewable Contracts.— For purposes of this part, guaranteed renewable life, health, and accident insurance shall be treated in the same manner as noncaneellable life, health, and accident insurance.

It must initially be noted that section 801(e) is made applicable to all the provisions of Part I of Subchapter L of the Code. Part I consists of sections 801 through 820 and is entitled “Life Insurance companies.” Part I, by definition, includes section 809(d)(5). Statutory drafters very frequently are called upon to expand or contract definitional sections; and the calibration, in the context of these sections relating to life insurance companies, is very keen. We cull the following examples to illustrate this calibration:

1. The definition of a life insurance company in section 801(a) is to apply “[f]or purposes of this subtitle,” i. e., Code sections 1 through 1564.

2. Numerous sections and subsections in Part I of Subchapter L are introduced with the phrase “for purposes of this part.” See, for example, the definition of “investment yield” under section 804(c). See also section 804(b) defining “gross investment income,” and section 806(a) relating to certain changes in life insurance reserves.

3. Section 806(b) is applicable solely “for purposes of this subpart * * Section 810(d)(1) is also applicable solely “for purposes of this subpart * *

4. The term “distribution” is defined in section 815(f) solely “[f]or purposes of this section * *

5. Section 801(e) defines the term “total reserves” “[f]or purposes of subsection (a) * *

6. Section 804(a)(1) refers to a rule solely “[f]or purposes of the preceding sentence * *

The legislative drafters of Subpart L also used the technique of specifying exceptions to the broad sweep of expansive language. This is demonstrated by section 818(c) which, in general, allows a life insurance company to elect to recompute its reserves for certain purposes. Section 818(c) specifically provides that it is to apply “[f]or purposes of this part (other than section 801) * * Congress obviously drafted this provision in this way because Congress intended that a company’s life insurance reserves would be taken into account for purposes of section 801 without regard to a section 818(c) election.

In the context of the income taxation of underwriting profits of life insurance companies, it should be kept in mind that we are dealing with relatively recent legislation, the Life Insurance Company Income Tax Act of 1959, P.L. 86-69, 73 Stat. 112, Section 2. We are not dealing with those areas of the Code in which legislation by one Congress is layered upon legislation of another Congress. Rather, our attention is directed to two sections, 801(e) and 809(d)(5), which came into the Code at precisely the same time. If, as the Government contends, it was really the purpose of Congress to deny the favorable treatment to guaranteed renewable policies which was granted to noneaneellable policies issued for five years or more, it would have been most logical for Congress to exclude section 809(d)(5) from the scope of section 801(e). This could easily have been accomplished by inserting the words “except for section 809(d)(5)” immediately after the word “part” in section 801(e). To leave the broad scope of section 801(e) while at the same time evolving the pattern of specificity which we have outlined, supra, leads us to the inescapable conclusion that Congress intended precisely what it said: guaranteed renewable policies should be treated in the same manner as noneaneellable policies for the purposes of sections 801 through 820.

The Government, however, argues that sections 801(e) and 809(d)(5) are not harmonious and urges that we adopt the following solution:

* * * Congress impliedly adopted as part of Sec. 801(e) the requirement contained in the alternative deduction provision of Sec. 809(d)(5) that the contracts mentioned in Sec. 801(e) be issued or renewed for periods of five years or more. * *. * Commissioner v. Pacific Mutual Ins. Co., 413 F.2d 55, 60 (9th Cir. 1969), rev’g 48 T.C. 118 (1967).

We disagree with the Government on this point. There is no real indication that section 801(e) was merely meant to insure that reserves for guaranteed renewable policies would be treated in the same manner as reserves for noncancellable policies, i. e., as life insurance reserves. While one effect of section 801(e) certainly requires that reserves for guaranteed renewable policies be treated as life insurance reserves, we find nothing at all to indicate that this was the only effect of section 801(e). In fact, the broad brush wording of section 801(e) requires a conclusion precisely the opposite of the Government’s. We note that the Treasury’s own regulations confirm that reserves were not at all the exclusive area in which guaranteed renewable and noncancellable policies were to be treated in the same manner. Treas.Reg. § 1.801-3(d) provides, in part, that:

(d) Guaranteed renewable life, health, and accident insurance policy. The term “guaranteed renewable life, health, and accident insurance policy” means a health and accident contract, or a health and accident contract combined with a life insurance or annunity contract, which is not cancellable by the company but under which the company reserves the right to adjust premium rates by classes in accordance with its experience under the type of policy involved, and with respect to which a reserve in addition to the unearned premiums (as defined in paragraph (e) of this section) must be carried to cover that obligation. Section 801(e) provides that such policies shall be treated in the same manner as noncancellable life, health, and accident insurance policies. For example, the age termination date requirements applicable to noncancellable health and accident insurance policies shall also apply to guaranteed renewable life, health, and accident insurance policies. * * *

No inconsistency between section 801(e) and section 809(d)(5) will arise unless the Government’s inferences with respect to what Congress meant by “issued * * * for 5 years or more” are adopted. Since we have chosen to view Congressional intent with respect to this phrase in terms of duration of risk, there is no necessity to adopt the Government’s strained reading of section 801(e). The alternative 3 percent of premiums deduction was granted because the 10 percent of reserve increase deduction was not deemed to provide a sufficient “cushion.” To receive this potential benefit, Congress required that only life, health, and accident policies involving a relatively long-term undertaking could qualify. It is clear, for instance, that if the plaintiff were to offer either noncancellable or guaranteed renewable policies issued for periods of less than five years, neither would qualify for the 3 percent deduction. We do not decide whether Congress has made a wise decision; nor do we decide whether Congress has been too munificent in qualifying guaranteed renewable policies issued for five years or more for the 3 percent of premiums deduction. That is not our function. We are concerned here only with what Congress’ intent was, not what it, perhaps, should have been. By this standard, we hold that the plaintiff is entitled to recover and judgment is entered accordingly with the amount thereof to be determined pursuant to Rule 131(c).

DAVIS, Judge

(dissenting).

In this very close case, I would follow the Ninth Circuit (Commissioner v. Pacific Mutual Life Ins Co., 413 F.2d 55 (C.A.9, 1969)), the dissenting judges in the Tax Court (Pacific Mutual Life Ins. Co., 48 T.C. 118, 144-145 (1967)), Trial Commissioner White, and the Internal Revenue Service’s ruling.

In my view there “are ambiguities in the legislative language that must be resolved”, and accordingly we should consider “arguments of policy” revealed in the search for the dominant Congressional purpose. See Unexcelled Chemical Corp. v. United States, 345 U.S. 59, 64, 73 S.Ct. 580, 97 L.Ed. 821 (1953). Neither section 809(d)(5) nor section 801(e) is absolutely clear by itself, and in combination they present substantial textual difficulties. We must look to the legislative history to construe and harmonize the provisions. I read that source, not as concentrating on the five-year period, but as attempting to help only those companies which cannot change their rates to build up additional surplus to protect against unexpected bad experience. As the dissenters in the Tax Court put it (48 T.C. at 144-145): “Although the legislative history fails to explain the reason for the requirement that the policy be issued for 5 years, it seems clear that the accumulation of increased surplus was necessary only when the insurance company was committed for a 5-year or longer period. If the company is free to adjust its rates at any time when its experience proves to be more unfavorable than expected, there is no need for allowing the tax-free build-up of increased surplus. In the case of noncancellable accident and health policies, the company cannot adjust its rates notwithstanding unfavorable experience. However, in the case of the guaranteed renewable policies involved herein, petitioner could alter its rate schedule. It could not increase the rates of an individual policyholder merely because he became an increased risk, but it could increase the rates for the class of policies if it became apparent that the risks for the whole class were greater than expected. * * * [S]ince the company is free to adjust its rate schedule, there is no reason to permit the tax-free accumulation of additional surplus to protect against unanticipated risks in connection with these guaranteed renewable policies * * On the same basis, Trial Commissioner White concluded that “there was a logical reason for Congress to give insurers the benefit of the Section 809(d)(5) alternative deduction based on 3 percent of the premiums received under noncancellable contracts, while withholding such benefit with respect to guaranteed renewable contracts” like those involved here.

From this standpoint, section 801(e) does not have to be construed as mandating inclusion of taxpayer’s contracts under section 809(d)(5) even though they fail to meet the dominant purpose Congress had in mind. The language of section 801(e) is not so demanding. For one thing, we do not really know what Congress meant by “guaranteed renewable life, health, and accident insurance”, or whether plaintiff’s insurance agreements fall within the category Congress wanted to cover. And even if they are included, this would not be the first definitional section found to contain an implied exception to words which may appear all-embracing. On balance, I agree with the Ninth Circuit (413 F.2d at 60) and Commissioner White that, to avoid conflict between the specific purpose of section 809(d)(5) and the general words of section 801(e), the latter should not be understood as a wooden directive compelling treatment of these renewable policies “in the same manner” as noncancellable agreements in every instance, regardless of differentiating legislative policies.

Another factor influencing me is that this seems the type of narrow and close tax issue which can properly be left to resolution by Congress (in the previous Congress, one house did pass an alleviating measure), and particularly in that light I see insufficient basis for disagreeing with the court of appeals which has already spoken.

KUNZIG, Judge,

concurs in the foregoing dissenting opinion.

       We have used material from the opinion of Trial Commissioner Mastín G. White, though we reach a contrary result.

      . The amount of the claim, the amount allowed, and the amount disallowed, by years, are as follows:

      . See United States v. Atlas Ins. Co., 381 U.S. 233, 85 S.Ct. 1379, 14 L.Ed.2d 358 (1965), for a discussion of the 1959 Act.

      . While the Government has not, in so many words, conceded that the form A “1-year renewable term” policy qualifies for the 3 percent of premiums deduction, the following language of its brief suggests that such a policy meets all the criteria under its test:
      “A nonparticipating, noncancellable policy, including that form of yearly renewable term policy which guarantees the premium rate at specified ages or ~intervals, creates a greater loss potential to the insurer than a nonparticipating, guaranteed renewable policy. * * * The reason for this is that the guaranteed renewable policy permits the insurer to increase its rates by class, whereas noncancellable policies provide for a guaranteed premium.” [Emphasis supplied.]

      . We note that at oral argument before this court, there was confusion on the part of both parties as to what a “1-year renewable term policy” was, in addition to the greater question of whether a guaranteed renewable policy is sufficiently “akin” to it to require similar treatment. This is undoubtedly due to the variety of policies, having a wide range of terms, which could be categorized under the general phrase “1-year renewable.”

      . We say “primary” because policies are written in a great variety of forms; and we do not intend that the successful passing of this test will automatically guarantee qualification for the 3 percent of premiums deduction. Guaranteed renewables, as will be shown infra, have other characteristics which confirm our conclusion that they were meant to be treated as “noncancellable” policies, and thereby to qualify.

      . “Noncancellable Disability Insurance, as Related to the Federal Taxation of Life Insurance Companies,” a memorandum prepared by the Massachusetts Indemnity Insurance Co., Hearings Before a Sub-
      committee of the House Ways and Means Committee, “Taxation of Life Insurance Companies,” 83rd Cong., 2d Sess., 403-404 (1954). Thus, for example, a typical cancellable accident and health insurance policy issued by the Lincoln National Life Insurance Company between 1951 and 1962 provides as follows :
      “PRIVILEGE OF RENEWAL
      “Unless the Company shall have delivered to the Insured or shall have mailed to his last address as shown by the records of the Company written notice of its decision not to renew the policy at least fifteen days prior to the expiration of the then current period for which the premium has been paid, this policy may be renewed for a further term equal to the Amount of Premium. This privilege of renewal shall cease upon payment of the premium for the Premium Period which will expire next preceding the insured’s 65th birthday.”

      . It should be noted that during all the years in issue, plaintiff did not increase the premiums on its guaranteed renewable policies.

      . It is a cardinal rule of statutory construction that “ * * * [t]o the extent possible, violence should not ordinarily be done to the words chosen by the Congress. * * * ” Crawford v. United States, 376 F.2d 266, 272, 179 Ct.Cl. 128, 138 (1967), cert. denied, 389 U.S. 1041, 88 S.Ct. 781, 19 L.Ed.2d 831 (1968). See also Flora v. United States, 357 U.S. 63, 65, 78 S.Ct. 1079, 2 L.Ed.2d 1165 (1958), aff’d on rehearing, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960).

      . The House Report language, upon which the Government bases its view, reads, in pertinent part:
      “5. Guaranteed renewable contracts.— The bill provides that guaranteed renewable life, health, and accident insurance will be treated in the same manner as noncancelable life, health, and accident insurance. Reserves with respect to such insurance will, therefore, be treated in the same manner as life insurance reserves for purposes of computing taxable investment income and gains from operations. * * * By including such contracts specifically within life insurance reserves for the future, your committee intends no inferences to be drawn as to their tax treatment under prior law. H.Rep.No. 34, 86th Cong., 1st Sess., p. 18 (1959-2 Cum.Bull., p.' 748).”

      . It is a cardinal principle of statutory construction that a statute clear on its face must be interpreted as it is written. The United States Supreme Court in Unexcelled Chemical Corp. v. United States, 345 U.S. 59, 64, 73 S.Ct. 580, 583, 97 L.Ed. 821 (1953), stated the rule as follows:
      “ * * * Arguments of policy are relevant when for example a statute has an hiatus that must be filled or there are ambiguities in the legislative language that must be resolved. But when Congress, though perhaps mistakenly or inadvertently, has used language which plainly brings a subject matter into a statute, its word is final — save for questions of constitutional power which have not even been intimated here.”


text:
    HARRISON PROPERTY MANAGEMENT CO., INC., et al. v. The UNITED STATES.
    No. 280-69.
    United States Court of Claims.
    March 16, 1973.

      C. Ellis Henican, New Orleans, La., of record, for plaintiffs; Henican, James & Cleveland, New Orleans, La., of counsel.
    Thomas Smidt II, Arlington, Va., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant; Gilbert E. Andrews, Joseph Kovner, and Philip R. Miller, Washington, D. C., of counsel.
    Before CO WEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG and BENNETT, Judges.

       We borrow our statement of facts from tlie opinion of Trial Commissioner O. Murray Bernhardt but we come to the opposite conclusion on the principal question.

      . There is a dispute whether tire corporation liad valid record title, under the peculiarities of Louisiana law, to the property transferred to it. We are not impressed with plaintiffs’ state law argument that it did not — a current contention which is at war with the consistent conduct of the company’s business on the understanding that it did have record title (including a statement to that effect in the side agreement between the company and its owners). Furthermore, in Carver v. United States, supra, 412 F.2d at 238, 239, 188 Ct.Cl. at 210-211, 212-213, this court expressly held taxable a corporation which was assumed not to have legal or equitable title, under the intricacies of state law, to the property transferred to it by its stockholders. See also National Carbide Corp. v. Commissioner, supra, 336 U.S. at 434-435, 438, 69 S.Ct. 726.

      . In addition, it is noteworthy that the agreement between the company and the owners does not even make clear that the conventional incidents of agency were intended to be created. For instance, it is far from plain whether the corporation purported to bind the individual Harrisons in leasing, etc.; the contract does not so state explicitly and its terms do not implicitly require that result. (Some of the leases were signed by the company alone and some by both the company and the Harrisons.) Also, the plaintiffs argue that the contract waived the individuals’ limited liability, but we agree with defendant that all that was provided was that the Harrisons would be chargeable for costs and expenses before receiving distributions ; nothing was said as to liability to outsiders. These and like factors are not dispositive considerations, one way or the other, but National Carlide suggests that they are relevant. On the whole, as our text indicates, we are satisfied that a “true agency” relationship, under the National Carlide standards, was not established.

   OPINION

DAVIS, Judge, delivered the opinion of the court:

The central issue turns on whether profits in the tax years 1960-63 derived principally from oil leases to property, the record title to which is in the name of a management corporation, are properly taxable to the corporation, as the defendant maintains or, as the plaintiffs contend, they are taxable solely to the individuals who, while retaining beneficial ownership of the property, transferred title to the corporation of which they were the sole incorporators, stockholders, officers, and directors. A subordinate issue is whether minor amounts paid by such corporation to two of its three shareholders as wages are properly classified as wages and are taxable accordingly under the Federal Insurance Contribution Act. The Government prevails on both issues.

Walter J. Harrison, William H. Harrison, and Mrs. Lydia Harrison Couturie Ryan, brothers and sister, owned extensive oil-bearing acreage and a headquarters building in Louisiana which, prior to April 14, 1960, they had operated through Crescent Commercial Company, their family partnership. On April 14, 1960, the three individuals formed the plaintiff corporation, Harrison Property Management Co., Inc., to which they transferred title to the property in question, without warranty or consideration, reserving to themselves beneficial title to the property and all rights to proceeds of existing leases thereon for mineral rights and rights-of-way. The corporation replaced the partnership, and was formed primarily for the stated purpose of providing for efficient management in the event of the death of one of the individuals. There is no hint that tax evasion or avoidance motivated the transaction.

The corporate charter tightly limited the rights, power, and authority of the corporation to conduct its business with particular reference to such transactions as acquisition of real property, investment of funds, fixing of officers’ salaries, employment of personnel, adoption or repeal of by-laws, borrowing or lending of money, and sale or encumbrance of property, all of which transactions required unanimous approval of the shareholder directors. The transferors, who were the incorporators and became the sole stockholders of the corporation in equal proportions, as well as its sole officers and directors, retained full control of corporate decisions as to the matters specified. The charter required approval of a majority of the directors for the granting of leases, rights-of-way, licenses, or permits regarding the property transferred to the corporation “for administration and management purposes”, and prohibited transfers of such rights so as to favor one officer or shareholder over another, directly or indirectly.

Contemporaneously with the incorporation the individuals and the corporation entered into an agreement which specified that the transfer of property to the corporation was made “solely and only as a matter of convenience and accommodation and without consideration whatsoever” having been paid by the corporation to the individuals, who were expressly identified as the “beneficial owners” and “true owners” of the property transferred, with the corporation disclaiming “any right, title, or interest” in and to the property other than the right to manage and administer it. By the agreement the corporation’s expenses were to be charged against the three individuals in equal amounts by means of deductions from proceeds of operations distributable periodically to the individuals. The agreement also provided for the retransfer without consideration of any part of the corporate property to the individuals on a proportionate basis, required the corporation in the event of its breach of the agreement to retransfer all of the property proportionately to the individuals without consideration on due notice and demand by them, and required the retransfer of the property to the individuals after 50 years.

Throughout the taxable years in issue the corporation complied in all respects with the agreement’s terms. It deducted from corporate revenues all expenses and credited the balance in proportionate amounts to accounts of the individuals, who received such earnings directly. The individuals were obligated to replenish the corporation’s funds for costs and expenses, as needed, again on a proportionate basis. Besides payments for leases (the major source of income), receipts included cash contributions from shareholders, building demolition proceeds, profits from land sales, camp rentals, and pecan sale proceeds. Disbursements included salaries, payments to shareholders, taxes, cost of litigation and professional services, supplies, travel expenses, utilities, maintenance costs, commissions, insurance premiums, land care expense, contributions, and petty cash. The corporation maintained a checking account and recorded all receipts and disbursements on its books and records. No loans were made by or to the corporation.

The members at the first meeting of the board of directors of the corporation on April 15, 1960, specified that it was to be regarded purely as a “management instrument only” without change from the Crescent Commercial Company partnership which it succeeded, and stated the purpose of forming the corporation to be “solely to provide for efficient management in the event of the death of one of the Harrisons.”

Each of the incorporators contributed $5,000 to the authorized capital of $15,000, and received in exchange 50 of the 150 authorized and issued shares of capital stock. The corporation and the individuals joined in suits. Some leases were signed by the corporation alone and some by it and the individuals. The corporate accounts reflected the three individuals as joint owners of the properties whose nominal title had vested in the corporation. The company maintained capital accounts in the names of the three individuals and generally speaking kept its financial and accounting records in much the same way as Crescent Commercial Company, the family partnership which it succeeded.

For calendar year 1960 the corporation filed a United States Fiduciary Income Tax Return on Form 1041, showing a distribution of net income proportionately to the three individuals. In 1961, 1962 and 1963 the corporation filed returns on Form 1120, reporting no income or expenses but accompanying each return with a schedule showing the proportionate distribution of income and expenses to the three individuals. In each of the calendar years 1960 through 1963 the individual plaintiffs filed separate Federal tax returns reporting the income and expenses allocated to them by the corporation. The taxes were paid accordingly. On February 9, 1968, the Internal Revenue Service made timely assessments of taxes and interest against the corporation as shown in the findings. The assessments against the corporation were paid by the three individual plaintiffs on a proportionate basis. Claims for refund were duly filed by the corporation, and disallowed on March 28, 1969, resulting in this suit.

On the major issue of whether the management corporation is itself taxable on its income, there are well-established standards which confine and guide our ruling. The Supreme Court has spoken twice, in Moline Properties, Inc. v. Commissioner, 319 U.S. 436, 63 S.Ct. 1132, 87 L.Ed. 1499 (1943), and National Carbide Corp. v. Commissioner, 336 U.S. 422, 69 S.Ct. 726, 93 L.Ed. 779 (1949). The precedents in this court are Carver v. United States, 412 F.2d 233, 188 Ct.Cl. 202 (1969), and Love v. United States, 119 Ct.Cl. 384, 96 F.Supp. 919 (1951). A leading case in the courts of appeals is Tomlinson v. Miles, 316 F.2d 710 (C.A. 5), cert. denied, 375 U.S. 828, 84 S.Ct. 71, 11 L.Ed.2d 60 (1963). Under the principles declared and applied in those decisions, it is very clear that —putting aside for the moment the contract (which plaintiffs call an agreement of agency) made by the individuals with the corporation at the time it was set up —the corporation was taxable.

The paramount principle is that stockholders of a closely held corporation cannot demand (Subchapter S aside) that it be ignored for federal income tax purposes — at least if it is more than a pure sham and was created or acts for some business end. “The doctrine of corporate entity fills a useful purpose in business life. Whether the purpose be to gain an advantage under the law of the state of incorporation or to avoid or to comply with the demands of creditors or to serve the creator’s personal or undisclosed convenience, so long as that purpose is the equivalent of business activity or is followed by the carrying on of business by the corporation, the corporation remains a separate taxable entity.” Moline Properties, Inc. v. Commissioner, supra, 319 U.S. at 438-439, 63 S.Ct. at 1134 (footnotes omitted). Where individuals adopt the corporate form for purposes of their own, the choice of the advantages of incorporation to do business requires “the acceptance of the tax disadvantages.” Ibid. It is immaterial that the shareholders remain the beneficial owners of the property transferred to the company, or that the latter’s policies and day-today activities are determined, not as decisions of the corporation, but by the owners acting individually. National Carbide Corp. v. Commissioner, supra, 336 U.S. at 433-434, 69 S.Ct. 71; Tomlinson v. Miles, supra, 316 F.2d at 714; Carver v. United States, supra, 412 F.2d at 239, 188 Ct.Cl. at 212-213. By the same token, it does not matter that the corporation is regarded by its owners as a simple “dummy”. National Carbide Corp. v. Commissioner, supra, 336 U.S. at 433, 69 S.Ct. 726; Love v. United States, supra, 96 F.Supp. at 922, 119 Ct.Cl. at 405. The controlling tests, ignoring the fact that the corporation is substantially the alter ego of the stockholders, concentrate on the reasons why the “dummy” was created, and what it actually does.

Harrison Property Management Co. Inc. was formed for the three Harrisons’ own “convenience”, in that its primary purpose was to provide for efficient management if one of them died, and a lesser aim apparently was to decrease the need for the signatures of all three owners in routine operations. Those are, of course, business goals — perfectly acceptable business purposes — deliberately sought by the Harrisons for their own ease and advantage. Other benefits of the corporate form would also accrue to the shareholders, as the Fifth Circuit pointed out in the similar case of Tomlinson v. Miles, supra, 316 F.2d at 713.

Moreover, this corporation was actually used, and performed business functions. It authorized and executed leases for mineral rights, granted several rights-of-way, sold some produce, acted as a party in litigation, hired executive officers, paid local taxes, maintained its building, kept a checking account, recorded its receipts and disbursements, held meetings of stockholders and directors, and followed the formalities of corporate operation. It was by no means dormant or inert. On the contrary, its business activity was fully comparable to that found in Tomlinson v. Miles, supra, and more than in Carver — both of which held the corporation a taxable entity. We know of no case which, on similar facts, has disregarded the corporation, at the instance of the shareholders, as not engaging in enough business activity. In Paymer v. Commissioner, 150 F.2d 334 (C.A. 2, 1945), the court of appeals upheld the taxability of one corporation which carried on somewhat less activity than Harrison Property Management Co., Inc., but disregarded as sham a sister company which did nothing but take and hold title to some real estate as a blind to deter the creditors of one of the shareholders.

Plaintiffs, however, do not put their major emphasis on the status of the corporation apart from the side agreement. Fundamentally, they rest on this contract between the Harrisons and the Management Company which, in their view, brings this case within the exception recognized by the Supreme Court in National Carbide Corp. v. Commissioner, supra, 336 U.S. at 437, 69 S.Ct. at 734: “What we have said does not foreclose a true corporate agent or trustee from handling the property and income of its owner-principal without being taxable therefor.” The claim is that by this pact, made contemporaneously with the birth of the corporation, the company was made, and continued to act as, such a “true corporate agent.”

National Carbide makes it clear that the formal designation of “agency agreement” is not conclusive; the significant criteria, as we understand them, are whether the so-called “agent” would have made the agreement if the so-called “principals” were not its owners, and conversely whether the “principals” would have undertaken the arrangement if the “agent” were not their corporate creature. The Court put it thus: “If the corporation is a true agent, its relations with its principal must not be dependent upon the fact that it is owned by the principal * * * ” (336 U.S. at 437, 69 S.Ct. at 734), and the opinion illustrated that premise by saying of the corporate parent in that case (Airco, the alleged “principal”): “The entire earnings of petitioners [Airco’s subsidiaries, the alleged “agents”], except for trifling amounts, are turned over to Aireo not because the latter could command this income if petitioners were owned by third persons, but because it owns, and thus completely dominates the subsidiaries. Aireo, for sufficient reasons of its own, wished to avoid the burdens of principalship. * * * It cannot now escape the tax consequences of that choice, no matter how bona fide its motives or longstanding its arrangements. When we referred to the ‘usual incidents of an agency relationship’ in the Moline Properties case, we meant just that — not the identity of ownership and control disclosed by the facts of this case” (336 U.S. at 438-439, 69 S.Ct. at 734-735).

An example of a “true” agency (or “true” trusteeship) under this standard was found by this court in Carver v. United States, supra, 412 F.2d at 239-240, 188 Ct.Cl. at 213-214, where the wholly-owned corporation acted on behalf of a non-owner independent third-party in the same way as it did for its individual owner. The relationship to this third-party, an outsider, demonstrated that, with respect to that transaction, the company’s agency connection with its owner was not dependent on the fact of ownership.

Unlike this aspect of Carver, we do not doubt that the present plaintiffs fail the test. It is inconceivable that Harrison Property Management Co., Inc. would have made its alleged “agency” contract with property owners other than its own shareholders, the Harrisons, or that the latter would have agreed to such an arrangement with the corporation if they did not own and control it. Obviously the agreement was deliberately drawn, in conjunction with the special provisions of the corporate charter, so that the company would service its owners alone, and was made solely because they were its owners. The entire operating arrangement was custom-made for that very purpose. The total arrangement assured, for instance, that each of the three Harrisons (or a representative) would be one of the three directors of the corporation; that sales of property would have to have the approval of all three but that two would be enough for future leases; that certain activities (including acquisition of land and making investments) would also require the unanimous consent of all three; that expenses were to be charged equally against the three; and that the property transferred to the corporation would be transferred (before the end of the corporate life in 50 years) only if all three should so demand (except in case of breach by the company or failure to manage part of the property). Thus, many of the important activities of the company required consent of all three Harrisons (or their designees), while the rest called for approval of two of them. In other words, all of the corporation’s relations with the beneficial owners of the managed property were wholly dependent on the fact that they were the sole shareholders.

Several of the points made to support a “true agency” here seem to assume that the Moline Properties-National Carbide-Love-Tomlinson-Carver rule for the taxability of close corporations, discussed earlier in this opinion, can be avoided by the simple device of having the company and its owners execute an “agreement” designating the former as “agent” and the latter as “principal”, regardless of the actual relationships and the realistic operations of the corporation. We have already pointed out that the National Carbide opinion, which rejected such an agreement (comparable to the one we have before us) as establishing a “true agency”, squarely disposes of that postulate, and on the contrary calls for a more substantial showing that the connection between the self-designated “principal” and “agent” is independent of the “principal’s” ownership of and control over the “agent”.

National Carbide also answers- other contentions raised on behalf of plaintiffs. One is that the “principals” (here, the Harrisons) received all the profits directly. As to this, the Supreme Court said (336 U.S. at 436, 69 S.Ct. at 733):

The Tax Court felt that the fact that Aireo [the “principal” and owner in that case] was entitled to the profits by contract shows that the income “belonged to Aireo” and should not, for that reason, be taxed to petitioners [the “agents”, wholly-owned corporations] . Our decisions requiring that income be taxed to those who earn it, despite anticipatory agreements designed to prevent vesting of the income in the earners, foreclose this result. [Citing cases]. Of course one of the duties of a collection agent is to transmit the money he receives to his principal according to their agreement. But the fact that petitioners were required by contract to turn over the money received by them to Airco, after deducting expenses and nominal profits, is no sure indication that they were mere collection agents. Such an agreement is entirely consistent with the corporation-sole stockholder relationship whether or not any agency exists, and with other relationships as well.

Another circumstance negatived by the National Carbide opinion as showing “true agency” is that the “agent’s” assets all came from the owner-“principal”, without real consideration in return. 336 U.S. at 434-435, 438, 69 S.Ct. 726. The Court thought it irrelevant on the agency issue whether the funds supplied by the owner were capital contributions or loans; in either ease the parent was not a true principal. Similarly in our case the fact that the Harrisons supplied the Management Company’s assets and its operating capital is ineffective to create a “true agency”.

In National Carbide the purported “agents” (subsidiary corporations) carried on more extensive activities than Property Management did here but each of those subsidiaries was limited in its functioning (336 U.S. at 424-425, 69 S.Ct. 726), just as the Harrisons’ company was restricted to the management of certain real estate. In neither instance was the “agent” permitted to perform all the functions of the “principal”. And we have held in the first part of this opinion that the limited activity carried on by Harrison Property Management, which clearly resulted in income from leasing and otherwise, was enough for taxability under the Moline Properties principle.

We close on this issue by noting that it is especially important to adhere to the National Carbide tests in cases, such as this, of closely-held small corporations. In Subchapter S, sections 1371-1379 of the 1954 Code, Congress has provided, in defined circumstances, for the treatment of such companies as partnerships, with the stockholders rather than the corporation paying the income tax on the profits. It appears highly probable that Harrison Property Management Company, though a small business corporation, could not qualify for Subchapter S benefits because more than 20 percent of its receipts in the taxable years was “passive investment income" from rents — a specific exception contained in Section 1372(e)(5). This limitation is still an integral part of the Congressional design for lifting the tax from the corporation — an existing legislative restriction which would be thwarted if non-eligible companies could attain the same result by the simple procedure of a surfacial “principal”“agent” agreement which is not in essence divorced from the owner-corporation relationship.

On the subsidiary issue the trial commissioner wrote as follows:

“The remaining issue relates to the assessment against the corporation in 1968 of $647.33 in Federal Insurance Compensation Act taxes, penalties and interest for salaries of $3,200 each paid in 1960 by the corporation to Walter J. and William H. Harrison for services rendered by them to the corporation in that year while they were corporate officers, directors, and shareholders. The assessment was paid in equal shares by the three Harrisons. The plaintiff contends that, rather than being remuneration paid by the corporation to Walter J. and William H. Harrison for services rendered, and thus subject to FICA taxes, the sums paid were in reality extra distributions to them as partners. If so, the plaintiffs concede that the sums would be subject to the self-employment tax under section 1402 of the Internal Revenue Code, but it is not clear that such self-employment taxes were ever paid by the recipients. Since Article XV of the corporation charter authorizes the payment of ceiling salaries to the two individuals as corporate officers, which salaries were subsequently waived by formal authorization of the board of directors^ and the account books of the corporation reflect that the sums received by the two individuals were paid them as salaries, it is presumed that the sums paid were salaries to corporate officers rather than distributions to partners, and the corporation was liable to pay FICA taxes thereon. United States v. Griswold, 124 F.2d 599 (1st Cir. 1941), cited by plaintiff is not controlling. There it was simply held that trustees in an investment trust who were not subject to shareholder control are not employees whose compensation was subject to the payment of Social Security taxes. The individuals in the case under consideration rendered services to the corporation for which the corporation was authorized to pay — and did pay — salaries. Thus, the assessment of FICA taxes, along with penalties and interest, was proper.”

Plaintiffs have not excepted to this part of the trial commissioner’s opinion or to his conclusion on this issue, and we adopt the quoted paragraph as our ground for rejecting this part of the claim.

The plaintiffs are not entitled to recover on any aspect of the case, and their petition is dismissed. •

      . Plaintiffs seem to argue that when the Supreme Court said, “If the corporation is a true agent, its relations with its principal must not be dependent upon the fact that it is owned by the principal”, the Court implied that the formal existence of a bare “agency agreement” would show ipso faoto that these relations were not, and could not be, “dependent” upon ownership (as they would be in the absence of some paper contract), but rather upon the technical wording of the agreement (regardless of its content and operation). The whole of the last section of the National Carbide opinion, 336 U.S. at 437-439, 69 S.Ct. 726, with its analysis of the “agency agreement” in that case, refutes this semantic suggestion.

      . Proposals have been made to remove the particular limitation, but they have not yet been adopted.