Sinram-Marnis Oil Co., Inc. v. City of New York, SINRAM-MARNIS

• Decision Date: 04 August 1988
• Docket Number: SINRAM-MARNIS
• Citation: 532 N.Y.S.2d 94,139 A.D.2d 360
• Parties: OIL COMPANY, INC., Plaintiff-Respondent, v. The CITY OF NEW YORK, Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 94

532 N.Y.S.2d 94

139 A.D.2d 360

SINRAM-MARNIS OIL COMPANY, INC., Plaintiff-Respondent, v. The CITY OF NEW YORK, Defendant-Appellant.

Supreme Court, Appellate Division First Department.

Aug. 4, 1988.

Terry Myers, of counsel (Herbert Rubin, David B. Hamm and Miriam Skolnik on the brief; Herzfeld & Rubin, P.C., attorneys) for plaintiff-respondent.

Elizabeth Dvorkin, of counsel (Edward F.X. Hart on the brief; Peter L. Zimroth, attorney) for defendant-appellant.

Before MURPHY, P.J., and SANDLER, SULLIVAN, ASCH and MILONAS, JJ.

MILONAS, Justice.

In April of 1983, defendant City of New York, through the Department of General Services, solicited bids for contracts to supply fuel oil and kerosene for the period of July 1, 1983 to June 30, 1984. All interested parties were provided with two documents, the Standard Form of Contract, which includes general instructions and conditions, and the Requirement Contract for Fuel Oil and Kerosene. It is undisputed that these two documents together constitute a binding agreement. According to the Standard Form of Contract, the seller's bid is considered a firm offer such that "[t]he bidder will accept any awards ... if they are made within forty-five calendar days" of the opening of bids. However, "[i]f no award is made within forty-five days and the bidder desires to withdraw his bid, he must do so in writing; otherwise his bid remains in effect." The contract can be modified only in writing and "in a manner not materially affecting the substance hereof, in order to carry out and complete more fully and perfectly the work herein agreed to be done and performed, provided such changes do not result in a net change in cost to the City or to the Seller of the Work to be done under the Contract." Under the terms of the Requirement Contract, the bid amount must encompass the cost of the New York State Gross Receipts Tax, which cannot be shown as a separate line item, although the vendor is required to indicate whether or not the bid price contains the gross receipts tax.

Plaintiff Sinram-Marnis Oil Company, Inc., was the low bidder. At the time of its bid, plaintiff was exempt from the gross receipts tax since it was engaged primarily in the sale of fuel for residential purposes. On June 26, 1983, the New York State Legislature adopted a new tax on petroleum businesses, effective June 30, 1983 (Tax Law 300 et seq., added L.1983, c. 400, § 8). A 3 1/4 percent tax was imposed upon the sale of fuel oil by companies previously exempt from the operation of the law, such as plaintiff herein. In the Requirement Contract which plaintiff had filled out as part of the bidding process, it had, notwithstanding that the tax was not then applicable to the transaction, checked the box marked "yes" with respect to the question of whether the price included the gross receipts tax.

The Deputy Commissioner of the Department of General Services, Carla Lallatin, sent plaintiff a letter of intent, dated June 21, 1983, to enter into a contract. The bid's forty-five day firm offer period expired on June 26, 1983, after which plaintiff was entitled to revoke its bid at any time up to the point that the City accepted the company's offer. On July 1, 1983, plaintiff's counsel wrote to Commissioner Lallatin that the gross receipts tax "has not been included in our bid price under this contract. In view of the dramatic impact this 3 1/4% gross receipts tax will have on our business, we must advise you of our intention to charge this tax to the City of New York, as a separate line item on our invoices, in connection with purchases made pursuant to this contract."

The City formally accepted plaintiff's bid pursuant to its Notice of Award, dated July 6, 1983. The accompanying Summary of Award contained the price that plaintiff had quoted in its bid, which did not encompass the gross receipts tax. Commissioner Lallatin acknowledged plaintiff's July 1st communication in a letter dated July 8, 1983 wherein she asserted that "[p]lease be advised that your letter of July 1, 1983, is being forwarded to the Corporation Counsel for a formal opinion regarding the payment of the gross receipts tax. I will keep you informed of the status of this matter and send you a copy of the opinion as soon as I receive it." Thereafter, the City placed orders for fuel oil with plaintiff in July, August and September of 1983. When plaintiff added the 3 1/4 percent gross receipts tax to its invoices, the City refused to remit the amount of the tax. The company then notified the City that it would suspend deliveries unless the deficiency was paid. The next day, the Commissioner of the Department of General Services, Robert Litke, informed plaintiff that it was in default of the contract. The City subsequently turned to other suppliers to meet its need for fuel oil and kerosene. It should be noted that the City apparently never followed-up on its statement that the opinion of the Corporation Counsel would be solicited and plaintiff advised accordingly.

Plaintiff commenced the instant declaratory judgment action in May of 1984. In its complaint, the company sought a declaration that the City was responsible for payment of the gross receipts tax. The City responded by urging that the contract price was the bid price and that the seller was legally precluded from unilaterally raising its price; it also counterclaimed for the difference between the bid price and the cost of obtaining fuel from substituted vendors after plaintiff refused to continue performance. Defendant City of New York then moved, and plaintiff cross-moved, for summary judgment. In denying defendant's motion and granting that of plaintiff, the Supreme Court concluded that "[t]he July 1, 1983 letter did constitute a revocation and/or withdrawal of the first offer .... Although the letter did not contain the words revocation or withdrawal, the letter contained a modification of a material element of the offer which effectively revoked the former offer.... The letter was sent within the time frame in which a bid could be withdrawn. Despite receiving this communication which evidenced plaintiff's unwillingness to proceed with the contract under its initial bid, the City proceeded to formalize the contract, therefore acknowledging its acceptance of the new terms. The City, by continuing to do business with Sinram after a material change in the bid of Sinram, accepted Sinram's proposal."

The issue of whether a supplier is entitled to pass along the cost of the gross receipts tax where such item was not included in the bid price was recently decided by this court in Burnside Coal & Oil Company, Inc. v. City of New York, 135 A.D.2d 413, 521 N.Y.S.2d 703. In that case, we declared that (at 414-415, 521 N.Y.S.2d 703):

The issue at hand is not whether the tax applies to plaintiff or whether an oil company can pass the tax on to a municipal customer, for clearly the answer to both these questions is yes. Rather, the question we must determine is whether under the terms of these contracts plaintiff may pass the tax along to the City. The answer to that is no. The bidding specifications were clear in requiring that any Gross Receipts Tax liability was to be subsumed within the bid itself as a cost of doing business and that the tax could not be billed later on as a separate line item. Thus, the contract was clear in specifying that the tax could not be passed on to the defendant, unless it was included in the bid price of the lowest responsible bidder.

While plaintiff was exempt from the tax when it submitted its bid and, accordingly, did not incorporate the tax liability in its overall price bid, it had the opportunity to withdraw its bid after the law became effective. Not only did it not do so, but on the day the new tax law became effective, July 1, 1983, it accepted assignment of another fuel contract with the City. There is nothing in the new law which requires the oil company to pass on the tax to the consumer. The tax is directed at the oil company in return for the privilege of doing business in this State. As opposed to the statute, it is the contract terms which will dictate who shall ultimately bear the burden. Not having included the tax when it placed its bid, because it was then inapplicable, and not having exercised its option to withdraw its bid after the tax did become applicable, plaintiff may not unilaterally modify the contract terms at the defendant's expense. Manhattan & Queens Fuel Corp. v. Village of Rockville Centre, 126 A.D.2d 523, 524 .

The Court of Appeals, in Manhattan & Queens Fuel Corp. v. Village of Rockville Centre, 72 N.Y.2d 824, 530 N.Y.S.2d 540, 526 N.E.2d 31, wherein plaintiff fuel company had sought reimbursement from defendant municipality for gross receipt taxes paid to the Tax Commission, recently observed that while a supplier could lawfully pass along this tax burden to a municipal corporation, plaintiff had not done so under its contract with defendant. In addition, the court stated therein, "[p]laintiff does not claim impracticality or impossibility of performance, but merely claims that the cost of its performance under the contract has increased due to the change in the Tax Law. There is no basis for plaintiff's claim that defendant is contractually bound to assume this tax burden. Plaintiff, being the party legally obligated to pay the gross receipts tax, must bear the burden of its increased cost in the performance of the contract" (at 825, 530 N.Y.S.2d 540, 526 N.E.2d 31).

There is a distinction between the present situation and that in Burnside Coal & Oil Company, Inc. v. City of New York, supra, as well as the foregoing Court of Appeals case, since plaintiff herein wrote to the City on July 1, 1983, before the latter had formally awarded the contract, to advise that it intended to charge defendant for the gross receipts tax. Thus, the crucial question is whether plaintiff's letter constituted a revocation of...