A-11048, SEPTEMBER 12, 1925, 5 COMP. GEN. 186

A-11048, SEPTEMBER 12, 1925, 5 COMP. GEN. 186

CONTRACTS - CERTAINTY OF CONSIDERATION CONTRACTS FOR THE PURCHASE OF GASOLINE BY THE UNITED STATES BASED ON THE TANK-WAGON PRICE ON DATE OF DELIVERY ARE INVALID AND UNENFORCEABLE FOR LACK OF CERTAINTY, BEING NOTHING MORE THAN A PROMISE TO BUY AN INDEFINITE QUANTITY AT AN INDEFINITE PRICE TO BE FIXED BY THE CONTRACTOR. CONTRACTS FOR THE PURCHASE OF GASOLINE BY THE UNITED STATES AT A STIPULATED REDUCTION OR DISCOUNT FROM THE MARKET PRICE WITH A FURTHER STIPULATION THAT THE PRICE SHALL NOT EXCEED A SPECIFIED MAXIMUM ARE NOT INVALID OR VOID FOR UNCERTAINTY BUT, DUE TO THE NECESSITY OF DETERMINING THE MARKET PRICE AT THE DATE OF EVERY DELIVERY, PAYMENTS UNDER CONTRACTS SO WORDED SHOULD NOT BE MADE BY DISBURSING OFFICERS AND CLAIMS THEREUNDER SHOULD BE PAID ONLY BY DIRECT SETTLEMENT IN THE GENERAL ACCOUNTING OFFICE. SUCH CONTRACTS ARE INADVISABLE, THE BETTER PROCEDURE BEING TO CONTRACT FOR DELIVERIES AT A FIXED PRICE EXTENDING OVER SUCH A PERIOD OF TIME NOT EXCEEDING ONE YEAR AS TO WHICH COMPETITION, ADVANTAGEOUS TO THE GOVERNMENT, CAN BE SECURED. (MODIFIED BY 5 COMP. GEN. 342.)

COMPTROLLER GENERAL MCCARL TO THE POSTMASTER GENERAL, SEPTEMBER 12, 1925:

THERE HAS BEEN RECEIVED YOUR LETTER OF AUGUST 26, 1925, REQUESTING ADVICE WHETHER CONTRACTS FOR THE PURCHASE OF GASOLINE MAY BE LAWFULLY ENTERED INTO BASED ON COMPETITIVE BIDS STATING THE PRICE ,AT $0.03 BELOW THE FILLING-STATION PRICE ON DATE OF DELIVERY" OR "AT $0.02 BELOW THE TANK- WAGON PRICE ON DATE OF DELIVERY" OR AT "A PRICE OF $0.02 BELOW THE TANK- WAGON PRICE NOT TO EXCEED $0.18 PER GALLON.'

YOUR ATTENTION IS INVITED TO DECISION OF THIS OFFICE, DATED MARCH 5, 1925, A-7709, WHEREIN IT IS HELD THAT THE CONTRACT WITH THE CONTINENTAL OIL CO., DISCUSSED THEREIN, WAS INVALID AND UNENFORCEABLE BECAUSE THE PRICE OF GASOLINE WAS DETERMINED BY THE FUTURE TANK-WAGON PRICE ON DATE OF DELIVERY; IN OTHER WORDS, THE FUTURE TANK-WAGON PRICE FIXED BY THE SELLER BECAME THE CONTRACT PRICE. IT IS OBVIOUS THAT SUCH A CONTRACT IS INVALID FOR LACK OF CERTAINTY; IN FACT, BEING NOTHING MORE THAN A PROMISE TO BUY AN INDEFINITE QUANTITY AT THE FUTURE MARKET PRICE.

IN DECISION OF MAY 20, 1925, A-8751, IN DISCUSSING THE CONTRACT DATED JUNE 24, 1924, MADE WITH THE STANDARD OIL CO. OF CALIFORNIA, IT WAS HELD IN EFFECT THAT WHERE THE PRICES QUOTED TO THE GOVERNMENT WERE AT A STIPULATED AMOUNT BELOW THE MARKET PRICE ON THE DATE OF DELIVERY WITH A FURTHER STIPULATION AS TO MAXIMUM PRICE, SUCH PRICES WOULD FORM A LEGAL BASIS FOR A VALID CONTRACT. IT WAS POINTED OUT IN THAT DECISION, HOWEVER, THAT AS PAYMENT UNDER SUCH A CONTRACT WOULD INVOLVE A DETERMINATION AS TO THE MARKET PRICE ON DATE OF EACH DELIVERY, VOUCHERS COVERING ALL SUCH PAYMENTS SHOULD BE FORWARDED TO THE GENERAL ACCOUNTING OFFICE FOR DIRECT SETTLEMENT, ACCOMPANIED BY EVIDENCE OF WHAT THE MARKET PRICE WAS AT THE TIME AND PLACE OF DELIVERY.

IT WAS FURTHER STATED IN SAID DECISION THAT IT SHOULD NOT BE UNDERSTOOD THAT SUCH CONTRACTS ARE ACCEPTABLE AS BEING PROPER OR ADVISABLE, THE BETTER PROCEDURE BEING TO HAVE THE CONSIDERATION TO BE PAID DEFINITELY FIXED FOR DELIVERIES OVER A PERIOD AS TO WHICH COMPETITION, ADVANTAGEOUS TO THE GOVERNMENT CAN BE OBTAINED--- AS FOR A YEAR, QUARTER, OR MONTH.