B-40964, APRIL 14, 1944, 23 COMP. GEN. 776

B-40964: Apr 14, 1944

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EVEN THOUGH SUCH OIL WERE DELIVERED PURSUANT TO A CONTRACT WHICH HAD BEEN CONSUMMATED PRIOR TO THE EFFECTIVE DATE OF THE REGULATION AND WHICH PROVIDED FOR THE PAYMENT OF A HIGHER PRICE THAN THAT FIXED BY SAID REGULATION. AFFIRMATIVE ACTION SHOULD BE TAKEN TO AMEND THE CONTRACT TO PROVIDE FOR A PRICE WHICH WILL NOT VIOLATE THE APPLICABLE PRICE MAXIMUMS. THE REGULATION WOULD HAVE THE EFFECT OF TEMPORARILY SUSPENDING THE OBLIGATION OF THE PARTIES. 1944: I HAVE YOUR LETTER OF MARCH 23. FOUR SEPARATE AGREEMENTS WERE ENTERED INTO BY AND BETWEEN THE UNITED STATES AND THE PERRY PETROLEUM COMPANY FOR THE SALE AND PURCHASE OF ROYALTY CRUDE OIL ACCRUING TO THE GOVERNMENT UNDER FEDERAL OIL AND GAS LEASES IN THE LANCE CREEK FIELD.

B-40964, APRIL 14, 1944, 23 COMP. GEN. 776

SALES - ROYALTY CRUDE OIL UNDER FEDERAL LEASE - EFFECT OF GOVERNMENT PRICE-FIXING ORDERS IT WOULD BE UNLAWFUL AS A VIOLATION OF SECTION 4 (A) OF THE EMERGENCY PRICE CONTROL ACT OF 1942 FOR THE UNITED STATES TO DEMAND OR RECEIVE FOR ROYALTY OIL DELIVERED AFTER THE EFFECTIVE DATE OF AN APPLICABLE PRICE REGULATION, ISSUED PURSUANT TO SAID ACT, ANY AMOUNT IN EXCESS OF THE MAXIMUM PRICE FIXED BY SAID REGULATION, EVEN THOUGH SUCH OIL WERE DELIVERED PURSUANT TO A CONTRACT WHICH HAD BEEN CONSUMMATED PRIOR TO THE EFFECTIVE DATE OF THE REGULATION AND WHICH PROVIDED FOR THE PAYMENT OF A HIGHER PRICE THAN THAT FIXED BY SAID REGULATION. WHERE A MAXIMUM PRICE REGULATION, ISSUED PURSUANT TO THE EMERGENCY PRICE CONTROL ACT OF 1942, ESTABLISHES A PRICE FOR THE SALE OF A COMMODITY BELOW THAT FIXED UNDER AN EXISTING CONTRACT, AFFIRMATIVE ACTION SHOULD BE TAKEN TO AMEND THE CONTRACT TO PROVIDE FOR A PRICE WHICH WILL NOT VIOLATE THE APPLICABLE PRICE MAXIMUMS; OTHERWISE THERE NO LONGER WOULD BE ANY BINDING LEGAL OBLIGATION UPON THE PARTIES UNDER THE CONTRACT--- OR, AT LEAST, THE REGULATION WOULD HAVE THE EFFECT OF TEMPORARILY SUSPENDING THE OBLIGATION OF THE PARTIES--- AND SUCH AMENDMENT SHOULD PROVIDE FOR REVERSION TO THE ORIGINAL CONTRACT PRICE IN THE EVENT THE MAXIMUM PRICE CEASES TO BE EFFECTIVE PRIOR TO THE TERMINATION OF THE CONTRACT.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE INTERIOR, APRIL 14, 1944:

I HAVE YOUR LETTER OF MARCH 23, 1944, AS FOLLOWS:

ON JUNE 22, 1942, FOUR SEPARATE AGREEMENTS WERE ENTERED INTO BY AND BETWEEN THE UNITED STATES AND THE PERRY PETROLEUM COMPANY FOR THE SALE AND PURCHASE OF ROYALTY CRUDE OIL ACCRUING TO THE GOVERNMENT UNDER FEDERAL OIL AND GAS LEASES IN THE LANCE CREEK FIELD, WYOMING. THESE AGREEMENTS, THE ORIGINALS OF WHICH ARE TRANSMITTED HEREWITH, ARE AS FOLLOWS:

I-1SEC. NO. 366, FOR A PERIOD OF FIVE YEARS BEGINNING APRIL 1, 1944, COVERING ALL ROYALTY OIL ACCRUING UNDER LEASES CHEYENNE 1036996 (A) AND (B), 1037094 (EXCEPT AS TO THE NW 1/4 NE 1/4 SEC. 33, T. 36 N., R. 66 W.), AND 1063018.

I-1SEC. NO. 367, FOR A PERIOD OF FIVE YEARS BEGINNING APRIL 1, 1944, COVERING ALL ROYALTY OIL ACCRUING UNDER LEASES CHEYENNE 1037093, 1037094 (AS TO THE NW 1/4 NE 1/4 SEC. 33, T. 36 N., R. 66 W.), 1063019, 1058838 (A), 1058885, AND 1060079.

I-1SEC. NO. 368, FOR A PERIOD OF FIVE YEARS BEGINNING APRIL 1, 1944, COVERING ALL ROYALTY OIL ACCRUING UNDER LEASES CHEYENNE 1036289 (A) AND (B), 1037069, AND 1037066.

I-1SEC. NO. 369, FOR A PERIOD OF FIVE YEARS BEGINNING APRIL 1, 1944, COVERING ALL ROYALTY OIL ACCRUING UNDER LEASES CHEYENNE 1036290 (A) AND (B), AND 1036291 (A) AND (B).

THE FOUR AGREEMENTS ARE IDENTICAL EXCEPT FOR THE LEASES FROM WHICH ROYALTY OIL ACCRUALS ARE SOLD. ARTICLE IX OF EACH AGREEMENT PROVIDES THAT THE SECRETARY OF THE INTERIOR SPECIFICALLY RESERVES THE RIGHT TO CANCEL THE AGREEMENT FOR ANY REASON DEEMED SUFFICIENT IN HIS DISCRETION AT ANY TIME MORE THAN 90 DAYS PRIOR TO APRIL 1, 1944. ON DECEMBER 31, 1943, THE DEPARTMENT DETERMINED THAT THE OPTION TO CANCEL SHOULD NOT BE EXERCISED. THEREAFTER, AS REQUIRED BY ARTICLE XI OF THE AGREEMENTS, THE PERRY PETROLEUM COMPANY SUBMITTED ACCEPTABLE SURETY BONDS IN THE AMOUNT OF $40,000.

ARTICLE I, SEC. 8 OF MPR 436, 8 F.R., P. 11370, PROVIDES IN PART, AS FOLLOWS:

" MAXIMUM PRICES FOR CRUDE PETROLEUM

NOTE: HOW TO DETERMINE MAXIMUM PRICES. TO DETERMINE THE MAXIMUM PRICE FOR CRUDE PETROLEUM, FIRST EXAMINE SECTION 8 TO SEE WHETHER A SPECIFIC PRICE HAS BEEN ESTABLISHED FOR THE PARTICULAR FIELD. IF NO PRICE HAS BEEN ESTABLISHED FOR THE PARTICULAR FIELD, THEN THE FORMULA IN SECTION 9 SHALL BE USED TO DETERMINE THE MAXIMUM PRICE.

SEC. 8. SPECIFIC PRICES. THE FOLLOWING SPECIFIC PRICES SHALL BE THE MAXIMUM PRICES FOR THE ITEMS NAMED AT THE POINTS ENUMERATED BELOW. IF A CONTRACT WAS IN EFFECT ON OCTOBER 1, 1941, FOR THE GIVEN POOL APPLICABLE TO SUCH PRODUCTION OR FOR THE PURCHASE OF CRUDE PETROLEUM AT A POINT OTHER THAN AT THE RECEIVING TANK AT A PRICE IN EXCESS OF SUCH POSTED PRICE, AND IF A SPECIFIC MAXIMUM PRICE HAS BEEN ESTABLISHED FOR CRUDE PETROLEUM PRODUCED AT SUCH POOL UNDER SECTION 8 THEN THE MAXIMUM PRICE AT THE RECEIVING TANK OR AT SUCH OTHER POINT FOR THE PRODUCTION COVERED BY THE CONTRACT, OR ANY RENEWAL OF SUCH CONTRACT, OR A NEW CONTRACT BETWEEN THE SAME BUYER AND SELLER CONCERNING THE SAME PRODUCTION, SHALL BE THE SUM OF THE CONTRACT PRICE AND THE DIFFERENCE BETWEEN THE SPECIFIC PRICE AS SET OUT IN THIS SECTION 8 AND THE HIGHEST POSTED PRICE AS OF OCTOBER 1, 1941.

ILLUSTRATION: A CONTRACT FOR THE PURCHASE OF CRUDE PETROLEUM WAS IN EFFECT ON OCTOBER 1, 1941, AT 25 CENTS PER BARREL ABOVE THE POSTED PRICE, WHICH POSTED PRICE WAS $1.00 PER BARREL, AND A SPECIFIC PRICE FOR THE POOL IS ESTABLISHED AT $1.10 PER BARREL. THE MAXIMUM PRICE WILL BE THE SUM OF THE CONTRACT PRICE AND THE DIFFERENCE BETWEEN THE SPECIFIC PRICE AND THE POSTED PRICE. THE DIFFERENCE BETWEEN THE SPECIFIC PRICE (1.10) AND THE POSTED PRICE (1.00) IS .10, THEREFORE THE MAXIMUM PRICE WOULD BE 10 CENTS PLUS THE CONTRACT PRICE ($1.25) OR $1.35.

WHERE CONTRACTS OF THE TYPE DESCRIBED ABOVE WERE IN EFFECT ON OCTOBER 1, 1941, DULY AUTHENTICATED COPIES OF SUCH CONTRACTS SHALL BE FILED BY THE PURCHASER WITH THE PETROLEUM BRANCH OF THE OFFICE OF PRICE ADMINISTRATION AT WASHINGTON, D.C. WITHIN THIRTY DAYS AFTER AUGUST 19, 1943, UNLESS COPIES OF SAID CONTRACTS HAVE HERETOFORE BEEN FILED WITH THE OFFICE OF PRICE ADMINISTRATION.'

AS OF AUGUST 19, 1943 (SEE THE LAST PARAGRAPH OF THE QUOTATION FROM ARTICLE II, SEC. 8 OF MPR 436, SUPRA), NO SPECIFIC PRICE HAD BEEN ESTABLISHED FOR THE LANCE CREEK FIELD BY THE OFFICE OF PRICE ADMINISTRATION. HOWEVER, AS THE AGREEMENTS WERE CONSIDERED TO BE IN EFFECT AS OF OCTOBER 1, 1941, EVEN THOUGH DELIVERIES THEREUNDER ARE NOT TO COMMENCE UNTIL APRIL 1, 1944, IT WAS DEEMED QUITE PROBABLE THAT A SPECIFIC PRICE WOULD BE ESTABLISHED FOR THE LANCE CREEK FIELD PURSUANT TO ARTICLE II, SEC. 8 (M) OF MPR 436 PRIOR TO THE COMMENCEMENT OF DELIVERIES. CONSEQUENTLY, IN ORDER TO PRESERVE THE PRICE STRUCTURE ESTABLISHED BY THE AGREEMENTS UNDER THE THEN EXISTING PROVISIONS OF MPR 436, THE ACTING DIRECTOR OF THE GEOLOGICAL SURVEY, BY A LETTER TO THE PETROLEUM BRANCH OF THE OFFICE OF PRICE ADMINISTRATION DATED SEPTEMBER 16, 1943, TRANSMITTED AUTHENTICATED COPIES OF THE AGREEMENTS FOR FILING, STATING IN PART, AS FOLLOWS:

"ALTHOUGH THE AGREEMENTS WERE NOT REDUCED TO FORMAL WRITING UNTIL JUNE 1942, THIS OFFICE TAKES THE POSITION THAT THEY ARE EVIDENCE OF CONTRACTS ACTUALLY IN EXISTENCE PRIOR TO OCTOBER 1, 1941, FOR THE FOLLOWING REASONS: THE ADVERTISEMENT AND SPECIFICATIONS FOR BIDS ON THE LANCE CREEK ROYALTY CRUDE PETROLEUM WERE ISSUED ON JULY 28, 1941; THE BIDS RECEIVED PURSUANT TO THE ADVERTISEMENT WERE OPENED ON AUGUST 20, 1941; AND THE BID OF THE PERRY PETROLEUM COMPANY WAS ACCEPTED IN BEHALF OF THE UNITED STATES BY THE ASSISTANT SECRETARY OF THE INTERIOR ON AUGUST 26, 1941 . . .

"THE ENCLOSED DOCUMENTS ARE BELIEVED TO FALL CLEARLY WITHIN ONE OF THE CATEGORIES DESCRIBED IN ARTICLE II, SECTION 8, OF MPR 436; I.E.,AS BEING CONTRACTS THAT WERE IN EFFECT ON OCTOBER 1, 1941, FOR THE PURCHASE OF CRUDE PETROLEUM AT THE RECEIVING TANK AT A PRICE IN EXCESS OF THE HIGHEST POSTED PRICE AS OF OCTOBER 1, 1941, FOR THE GIVEN POOL APPLICABLE TO THE PRODUCTION INVOLVED UNDER SAID CONTRACTS. IT IS NOTED THAT THE ABOVE- QUOTED PROVISION REQUIRES THE ,PURCHASER" TO FILE CONTRACTS WITH YOUR OFFICE. HOWEVER, THIS OFFICE HAS NOT BEEN INFORMED THAT AUTHENTICATED COPIES OF THE AGREEMENTS IN QUESTION HAVE BEEN FILED BY THE PERRY PETROLEUM COMPANY. THEREFORE, THE ENCLOSED AGREEMENTS ARE SUBMITTED WITH THE REQUEST THAT THEY BE TREATED AS HAVING BEEN FILED IN COMPLIANCE WITH SECTION 8 OF MPR 436, SUPRA, AND THAT THE PRICE STIPULATED TO BE PAID FOR THE CRUDE PETROLEUM SOLD THEREUNDER BE RECOGNIZED AS A MAXIMUM PRICE ESTABLISHED PURSUANT TO SAID REGULATION.'

ARTICLE II, SEC. 9 OF MPR 436, 8 F.R., P. 11373, PROVIDES IN PART AS FOLLOWS:

"SEC. 9. FORMULA FOR DETERMINING MAXIMUM PRICES. (A) THE MAXIMUM PRICE AT THE RECEIVING TANK FOR CRUDE PETROLEUM FROM ANY GIVEN POOL SHALL BE THE POSTED PURCHASE PRICE AS OF OCTOBER 1, 1941 FOR SUCH POOL.

" (B) WHERE ON OCTOBER 1, 1941, THERE WAS FOR ANY GIVEN POOL NO POSTED PURCHASE PRICE, OR MORE THAN ONE POSTED PURCHASE PRICE, THE MAXIMUM PRICE FOR A PARTICULAR PRODUCER AT THE RECEIVING TANK FOR CRUDE PETROLEUM FROM SUCH POOL SHALL BE THE PRICE PAID FOR THE CRUDE PETROLEUM AT ANY RECEIVING TANK OF THE SAME PRODUCER AS OF OCTOBER 1, 1941 UNLESS THIS PRICE IS BELOW THE HIGHEST OF THE POSTED PURCHASE PRICES, IF ANY, AND IN THAT CASE, THE MAXIMUM PRICE SHALL BE THE HIGHEST POSTED PURCHASE PRICE: PROVIDED, HOWEVER, THAT A PRICE PAID PURSUANT TO A CONTRACT IN EFFECT ON OCTOBER 1, 1941 AND ENTERED INTO PRIOR TO THAT DATE, SHALL NOT BE CONSIDERED IN DETERMINING THE MAXIMUM PRICE FOR CRUDE PETROLEUM UNLESS THE CONTRACT PRICE REFLECTED CURRENT MARKET CONDITIONS ON OR ABOUT OCTOBER 1, 1941.'

AT THE TIME THE AGREEMENTS WERE FILED WITH THE OFFICE OF PRICE ADMINISTRATION, ARTICLE II, SEC. 9 (C) OF MPR 436 8 F.R., P. 11373, PROVIDED AS FOLLOWS:

"THE GOVERNMENT AGREES TO ACCEPT AND THE PURCHASER AGREES TO PAY FOR SAID ROYALTY OIL A PRICE OF EIGHT CENTS (8) PER BARREL OVER THE PRICE PER BARREL REGULARLY POSTED BY THE MAJOR PURCHASERS OF CRUDE OIL IN THE MID- CONTINENT AREA FOR OIL OF 40 DEGREES A.P.I. GRAVITY, OR $1.33 PER BARREL.

HOWEVER, EFFECTIVE JANUARY 29, 1944, ARTICLE II, SEC. 9 (C) OF MPR 436 WAS AMENDED BY MPR, AMENDMENT 7, 9 F.R., P. 945, AS FOLLOWS:

"SECTION 9 (C) IS AMENDED TO READ AS FOLLOWS:

" " (C) WHERE A CONTRACT WAS IN EFFECT ON OCTOBER 1, 1941, FOR THE PURCHASE OF CRUDE PETROLEUM AT THE RECEIVING TANK AT A PRICE IN EXCESS OF THE HIGHEST POSTED PURCHASE PRICE FOR THE GIVEN POOL APPLICABLE TO SUCH PRODUCTION AND DELIVERIES WERE MADE PRIOR TO OR WITHIN SIXTY DAYS AFTER OCTOBER 1, 1941, IN ACCORDANCE WITH SUCH CONTRACT, THEN THE PRICE ACTUALLY CHARGED ON OCTOBER 1, 1941, OR ON THE FIRST DELIVERY AFTER OCTOBER 1, 1941, SHALL BE THE MAXIMUM PRICE FOR THE PRODUCTION COVERED BY THE CONTRACT.'

"THIS AMENDMENT SHALL BECOME EFFECTIVE JANUARY 29, 1944.'

AND EFFECTIVE FEBRUARY 12, 1944, ARTICLE II, SEC. 8 (M) OF MPR 436 WAS AMENDED BY MPR 436, AMENDMENT 8, 9 F.R., P. 1532, AS FOLLOWS:

"SECTION 8 (M) (2) IS ADDED TO READ AS FOLLOWS:

" " (2) LANCE CREEK FIELD AND SALT CREEK FIELD. THE MAXIMUM PRICE AT THE RECEIVING TANK FOR CRUDE PETROLEUM PRODUCED IN LANCE CREEK FIELD, NIOBRARA COUNTY, WYOMING, AND THE SALT CREEK FIELD, NATRONA COUNTY, WYOMING, EXCEPT CRUDE PETROLEUM PRODUCED FROM THE TENSLEEP SAND, SHALL BE AS FOLLOWS:

CHART:

DOLLARS PER 42 GALLON BARREL

A.P.I. GRAVITY:

BELOW 21------------------------------0.85

21-21.9------------------------------- .87

22-22.9------------------------------- .89

23-23.9------------------------------- .91

24-24.9------------------------------- .93

25-25.9------------------------------- .95

26-26.9------------------------------- .97

27-27.9------------------------------- .99

28-28.9-------------------------------1.01

29-29.9-------------------------------1.03

30-30.9-------------------------------1.05

31-31.9-------------------------------1.07

32-32.9-------------------------------1.09

33-33.9-------------------------------1.11

34-34.9-------------------------------1.13

35-35.9-------------------------------1.15

36-36.9-------------------------------1.17

37-37.9-------------------------------1.19

38-38.9-------------------------------1.23

39-39.9-------------------------------1.23

40 AND ABOVE--------------------------1.25

"THIS AMENDMENT SHALL BECOME EFFECTIVE FEBRUARY 12, 1944.'

WERE IT NOT FOR THE AMENDMENT TO SECTION 9 (C), ARTICLE II OF MPR 436, SUPRA, IT WOULD APPEAR THAT SECTION 8 OF ARTICLE II COULD HAVE BEEN CONSTRUED AS AUTHORIZING A MAXIMUM PRICE OF $1.46 PER BARREL, AS BETWEEN THE UNITED STATES AND PERRY PETROLEUM COMPANY, THUS PERMITTING, IN THE ABSENCE OF FURTHER AGREEMENT BETWEEN THE PARTIES, THE SALE OF THE ROYALTY OIL AT THE ORIGINALLY AGREED UPON PRICE OF $1.33 PER BARREL OR PERMITTING, IF OTHERWISE LEGALLY FEASIBLE AND MUTUALLY AGREEABLE TO THE PARTIES THERETO, AN AMENDMENT OF THE AGREEMENTS TO PROVIDE FOR A MAXIMUM PRICE OF $1.46 PER BARREL. UNDER THE ORIGINAL PROVISIONS OF SECTION 9 (C) THE AGREEMENTS WOULD HAVE FALLEN INTO THE CATEGORY OF CONTRACTS IN EFFECT AS OF OCTOBER 1, 1941, AND THE PRICE STIPULATED IN THE AGREEMENTS WOULD HAVE BEEN CONTROLLING EVEN THOUGH DELIVERIES WERE NOT TO TAKE PLACE UNTIL APRIL 1, 1944. USING THE ILLUSTRATION GIVEN IN SECTION 8, THE AGREEMENTS ARE FOR THE PURCHASE OF CRUDE PETROLEUM AT 21 CENTS PER BARREL ABOVE THE POSTED PRICE, WHICH POSTED PRICE IS $1.12 PER BARREL. THE SPECIFIC APPLICABLE PRICE FOR THE POOL HAS SINCE BEEN ESTABLISHED AT $1.25 PER BARREL. THE MAXIMUM PRICE WOULD HAVE BEEN THE SUM OF THE CONTRACT PRICE AND THE DIFFERENCE BETWEEN THE SPECIFIC PRICE AND THE POSTED PRICE. THE DIFFERENCE BETWEEN THE SPECIFIC PRICE ($1.25) AND THE POSTED PRICE ($1.12) IS 13 CENTS, THEREFORE, THE MAXIMUM PRICE WOULD HAVE BEEN 13 CENTS PLUS THE CONTRACT PRICE ($1.33) OR $1.46.

SECTION 9 (C), AS AMENDED, CLEARLY APPEARS TO AFFECT THE PRICE PROVISIONS OF THE AGREEMENTS DISCUSSED ABOVE, WITH THE EXCEPTION OF AGREEMENT I, SEC. NO. 366, WHICH THE DEPARTMENT BELIEVES, FOR REASONS HEREINAFTER STATED, DOES NOT FALL WITHIN ITS PURVIEW. CONSEQUENTLY, IT WOULD SEEM THAT THE SPECIFIC PRICE ESTABLISHED IN SECTION 8 (M) (2) NOW GOVERNS AS TO THE AGREEMENTS OTHER THAN I, SEC. NO. 366, AND THAT $1.25 PER BARREL IS THE MAXIMUM PRICE FOR WHICH THE GOVERNMENT'S ROYALTY CRUDE OIL MAY BE SOLD THEREUNDER. THE FOLLOWING QUESTIONS, THEREFORE, ARE PRESENTED FOR YOUR DECISION:

1 (A). ARE THE PRICES STIPULATED IN AGREEMENTS I, SEC. NOS. 367, 368 AND 369, ADJUSTABLE WITHOUT SPECIFIC AMENDMENT BETWEEN THE PARTIES TO A PRICE OF $1.25 PER BARREL FOR THE PERIOD THAT MAXIMUM PRICE CONTROL REMAINS IN EFFECT? (B) IF SO, MAY THE ORIGINAL CONTRACT PRICES BE APPLIED FOR THE UNEXPIRED PERIOD OF THE AGREEMENTS IN THE EVENT THAT PRICE CONTROL CEASES TO BE EFFECTIVE PRIOR TO THE TERMINATION OF SAID AGREEMENTS?

2. IF THE PRICES STIPULATED IN THESE AGREEMENTS ARE HELD NOT TO BE ADJUSTABLE, AS INDICATED ABOVE, MAY THE AGREEMENTS BE AMENDED BY THE PARTIES, IF THE PURCHASER IS AGREEABLE TO SUCH AMENDMENT, TO PROVIDE FOR A PRICE OF $1.25 PER BARREL DURING THE PERIOD PRICE CONTROL REMAINS IN EFFECT, WITH PROVISION FOR REVERSION TO THE ORIGINAL CONTRACT PRICE IN THE EVENT THE MAXIMUM PRICE CEASES TO BE EFFECTIVE PRIOR TO THE TERMINATION OF THE AGREEMENTS? UNDER THE PROVISIONS OF SECTION 4 (A) OF THE EMERGENCY PRICE CONTROL ACT OF 1942, 56 STAT. 28; 50 U.S.C., APPEND., SEC. 904 (A), IT IS UNLAWFUL FOR A PERSON--- WHICH TERM UNDER SECTION 302 (H) OF THE ACT INCLUDES THE UNITED STATES--- TO SELL OR DELIVER, UNDER ANY CONTRACT THERETOFORE OR THEREAFTER ENTERED INTO, ANY COMMODITY AT A PRICE IN EXCESS OF THE MAXIMUM PRICE ESTABLISHED THEREFOR UNDER THE ACT. IN THIS CONNECTION, SEE 22 COMP. GEN. 484, AND 21 COMP. GEN. 1046.

ARTICLE XV OF THE AGREEMENTS PROVIDES:

"IT IS UNDERSTOOD AND AGREED BY AND BETWEEN THE GOVERNMENT AND THE PURCHASER THAT THIS AGREEMENT SHALL BE SUBJECT TO ALL WAR OR EMERGENCY LAWS OF CONGRESS NOW OR HEREAFTER ENACTED AND TO ALL VALID ORDERS, RULES, AND REGULATIONS ISSUED PURSUANT TO SUCH LAWS, ANYTHING IN ARTICLE XIV TO THE CONTRARY NOTWITHSTANDING.'

THE DEPARTMENT IS OF THE OPINION THAT UNDER THE PROVISIONS OF SECTION 4 (A) OF THE EMERGENCY PRICE CONTROL ACT OF 1942, SUPRA, AND OF ARTICLE XV OF THE AGREEMENTS, SAID INSTRUMENTS--- I-SEC. NOS. 367, 368, AND 369--- SHOULD BE CONSTRUED AS HAVING BEEN AMENDED BY AGREEMENT BETWEEN THE PARTIES AND THROUGH OPERATION OF LAW AND THAT PAYMENTS MAY BE ACCEPTED AT $1.25 PER BARREL WITHOUT EXPRESS AMENDMENT OR SUPPLEMENTAL AGREEMENT. IS, THEREFORE, PROPOSED TO MAKE DELIVERIES OF ROYALTY CRUDE OIL TO, AND BILL THE CONTRACTOR AT $1.25 PER BARREL UNDER AGREEMENTS I-1SEC. NOS. 367, 368, AND 369, COMMENCING APRIL 1, 1944. (A RELATIVELY SMALL PORTION OF THE GOVERNMENT'S LANCE CREEK ROYALTY OIL IS LESS THAN 40 DEGREES A.P.I. GRAVITY. UNDER THE CONSTRUCTION WHICH THE DEPARTMENT PROPOSES TO PLACE ON THESE AGREEMENTS THE PRICE WHICH WOULD BE CHARGED FOR SUCH OIL WOULD BE THE O.P.A. SPECIFIC APPLICABLE MAXIMUM PRICE BASED ON GRAVITY). IT IS ALSO THE OPINION OF THE DEPARTMENT THAT SHOULD THE MAXIMUM PRICES NOW ESTABLISHED FOR THE LANCE CREEK FIELD CEASE TO BE EFFECTIVE BEFORE THESE AGREEMENTS EXPIRE, THE PRICES STIPULATED THEREIN MAY BE APPLIED FOR THEIR UNEXPIRED TERM.

WITH RESPECT TO AGREEMENT I-1SEC. NO. 366, HOWEVER, THE DEPARTMENT IS OF THE OPINION THAT THE CONTRACT PRICE STIPULATED THEREIN IS A PERMISSIBLE PRICE UNDER THE PROVISIONS OF MPR 436. IT WILL BE OBSERVED THAT ARTICLE II, SECTION 8 OF MPR 436 PROVIDES THAT "IF A SPECIFIC MAXIMUM PRICE HAS BEEN ESTABLISHED FOR CRUDE PETROLEUM PRODUCED AT SUCH POOL UNDER SECTION 8, THEN THE MAXIMUM PRICE AT THE RECEIVING TANK OR AT SUCH OTHER POINT FOR THE PRODUCTION COVERED BY THE CONTRACT, OR ANY RENEWAL OF SUCH CONTRACT, OR A NEW CONTRACT BETWEEN THE SAME BUYER AND SELLER CONCERNING THE SAME PRODUCTION, SHALL BE THE SUM OF THE CONTRACT PRICE AND THE DIFFERENCE BETWEEN THE SPECIFIC PRICE AS SET OUT IN THIS SECTION 8 AND THE HIGHEST POSTED PRICE AS OF OCTOBER 1, 1941.' (ITALICS SUPPLIED).

THE GOVERNMENT'S ROYALTY CRUDE OIL PRODUCED FROM LEASES CHEYENNE 1036996 (A), 1036996 (B), 1037094 (EXCEPT AS TO THE NW 1/4 NE 1/4 SEC. 33, T. 36 N., R. 66 W.), AND 1063018 IS NOW BEING SOLD UNDER AGREEMENT I, SEC. NO. 335 BETWEEN THE UNITED STATES AND PERRY PETROLEUM COMPANY. ROYALTY CRUDE OIL THAT WILL BE PRODUCED FROM THESE SAME LEASES ON AND AFTER APRIL 1, 1944, IS COVERED BY AGREEMENT I, SEC. NO. 366, BETWEEN THE UNITED STATES AND PERRY PETROLEUM COMPANY. CONSEQUENTLY, IT IS CLEAR THAT THIS AGREEMENT IS "A NEW CONTRACT BETWEEN THE SAME BUYER AND SELLER CONCERNING THE SAME PRODUCTION" WITHIN THE MEANING OF ARTICLE II, SECTION 8 OF MPR 436. USING THE FORMULA GIVEN IN THE ILLUSTRATION SET OUT IN ARTICLE II, SECTION 8 OF MPR 436, IT WOULD APPEAR THAT THE MAXIMUM PRICE THAT MAY BE CHARGED FOR THE OIL COVERED BY AGREEMENT I, SEC. NO. 366, IS $1.46 PER BARREL IF OTHERWISE LEGALLY FEASIBLE AND MUTUALLY AGREEABLE TO THE PARTIES TO SAID AGREEMENT.

ARTICLE II, SECTION 9 (C) OF MPR 436, AS AMENDED EFFECTIVE JANUARY 29, 1944, DOES NOT, IN OUR OPINION, MILITATE AGAINST THIS CONCLUSION. APPARENTLY THE AMENDMENT IS INTENDED ONLY TO DEFINE WITH GREATER PARTICULARITY CONTRACTS WHICH WILL BE REGARDED AS BEING EFFECTIVE ON OCTOBER 1, 1941, AND DOES NOT ALTER, MODIFY, OR REPEAL ANY OF THE PROVISIONS OF SECTION 8 OF ARTICLE II. THEREFORE, SINCE AGREEMENT I, SEC. NO. 366, IS WITHIN THE DEFINITIONS OF BOTH SECTION 8 AND SECTION 9 (C) AS AMENDED, THE MAXIMUM PRICE FORMULA SET OUT IN SECTION 8 GOVERNING NEW CONTRACTS BETWEEN THE SAME PARTIES AND FOR THE SAME PRODUCTION IS BELIEVED TO BE CONTROLLING AS TO THIS AGREEMENT.

IN ORDER TO PRESERVE THE GOVERNMENT'S LEGAL POSITION IN THE PREMISES IT IS FURTHER PROPOSED THAT EACH BILLING TO THE CONTRACTOR FOR DELIVERIES OF ROYALTY CRUDE OIL UNDER AGREEMENTS I, SEC. NOS. 367, 368, AND 369, BEAR THE FOLLOWING NOTATION:

"PAYMENT WILL BE ACCEPTED AT THE PRICE STIPULATED IN THE AGREEMENT AS MODIFIED BY O.P.A. MAXIMUM PRICE REGULATION 436, AMENDMENT 8 (9 F.R., P. 1532) OR BY ANY FURTHER AMENDMENT, MODIFICATION, OR REVISION OF SAID REGULATION, SUBJECT TO THE CONDITION, HOWEVER, THAT THE UNITED STATES, AS SELLER, RESERVES ITS LEGAL RIGHT TO RECOVER AT ANY TIME IN FULL ALL PAYMENTS DUE IT IN STRICT CONFORMITY WITH THE PRICE PROVISIONS OF THE ABOVE-DESCRIBED AGREEMENT IN THE EVENT THAT THE APPLICABLE MAXIMUM PRICE REGULATIONS OF THE OFFICE OF PRICE ADMINISTRATION OR PERTINENT PART THEREOF AFFECTING SAID AGREEMENT SHOULD BE DETERMINED TO BE OR TO HAVE BEEN INEFFECTIVE IN ANY JUDICIAL OR OTHER APPROPRIATE PROCEEDING.'

PLEASE ADVISE THIS OFFICE WHETHER YOU CONCUR IN THE VIEWS EXPRESSED ABOVE.

INASMUCH AS DELIVERIES UNDER THE AGREEMENTS ARE TO COMMENCE APRIL 1, 1944, AND FEDERAL OIL AND GAS LESSEES ARE NOT OBLIGATED TO FURNISH THE GOVERNMENT WITH FREE STORAGE FOR ITS ROYALTY OIL FOR MORE THAN 30 DAYS, A PROMPT DECISION WOULD BE GREATLY APPRECIATED.

SECTION 4 (A) OF THE EMERGENCY PRICE CONTROL ACT OF 1942, 56 STAT. 28 PROVIDES:

IT SHALL BE UNLAWFUL, REGARDLESS OF ANY CONTRACT, AGREEMENT, LEASE, OR OTHER OBLIGATION HERETOFORE OR HEREAFTER ENTERED INTO, FOR ANY PERSON TO SELL OR DELIVER ANY COMMODITY, OR IN THE COURSE OF TRADE OR BUSINESS TO BUY OR RECEIVE ANY COMMODITY, OR TO DEMAND OR RECEIVE ANY RENT FOR ANY DEFENSE-AREA HOUSING ACCOMMODATIONS, OR OTHERWISE TO DO OR OMIT TO DO ANY ACT, IN VIOLATION OF ANY REGULATION OR ORDER UNDER SECTION 2, OR OF ANY PRICE SCHEDULE EFFECTIVE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 206, OR OF ANY REGULATION, ORDER, OR REQUIREMENT UNDER SECTION 202 (B) OR SECTION 205 (F), OR TO OFFER, SOLICIT, ATTEMPT, OR AGREE TO DO ANY OF THE FOREGOING. AND THE TERM ,PERSON" IS DEFINED IN SECTION 302 (H) OF THE SAID ACT, 56 STAT. 37, AS INCLUDING THE UNITED STATES OR ANY AGENCY THEREOF. THUS, AS INDICATED IN YOUR LETTER, IT WOULD BE UNLAWFUL AS A VIOLATION OF SAID SECTION 4 (A) FOR THE UNITED STATES TO DEMAND OR RECEIVE FOR ROYALTY OIL DELIVERED AFTER THE EFFECTIVE DATE OF AN APPLICABLE PRICE REGULATION ISSUED PURSUANT TO AUTHORITY CONTAINED IN SAID ACT ANY AMOUNT IN EXCESS OF THE MAXIMUM PRICE FIXED BY SAID REGULATION EVEN THOUGH SUCH OIL WERE DELIVERED PURSUANT TO A CONTRACT WHICH HAD BEEN CONSUMMATED PRIOR TO THE EFFECTIVE DATE OF SAID REGULATION AND WHICH PROVIDED FOR THE PAYMENT OF A HIGHER PRICE THAN THAT FIXED BY SAID REGULATION. SEE, IN ADDITION TO 21 COMP. GEN. 1046, AND 22 ID. 484, CITED IN YOUR LETTER, MY DECISION OF MAY 11, 1942, B-25461, TO YOU.

APPARENTLY, IT IS THE VIEW OF YOUR DEPARTMENT THAT THE PRICE STATED IN THE INVOLVED CONTRACTS--- WITH THE EXCEPTION OF AGREEMENT I-1SEC. NO. 366 --- IS IN EXCESS OF THE MAXIMUM PRICE FIXED BY MPR 436. IN FACT, THE QUESTIONS UPON WHICH THE DECISION IS REQUESTED OBVIOUSLY ARE BASED ON THAT PREMISE. BUT THERE WOULD APPEAR TO BE SUFFICIENT DOUBT WITH RESPECT TO THIS PHASE OF THE MATTER TO WARRANT CONSIDERATION THEREOF BEFORE PROCEEDING FURTHER.

IN THE INSTRUCTIONS FOR DETERMINING MAXIMUM PRICES FOR CRUDE PETROLEUM--- SET FORTH IN THE NOTE PRECEDING ARTICLE II OF MPR 436, QUOTED IN YOUR LETTER--- IT IS STATED THAT EXAMINATION FIRST SHOULD BE MADE OF SECTION 8 OF SAID REGULATION "TO SEE WHETHER A SPECIFIC PRICE HAS BEEN ESTABLISHED FOR THE PARTICULAR FIELD," AND THAT, IF NO SUCH PRICE HAS BEEN ESTABLISHED, THE MAXIMUM PRICE IS FOR DETERMINATION IN ACCORDANCE WITH THE FORMULA CONTAINED IN SECTION 9. IN OTHER WORDS, IF A SPECIFIC PRICE FOR A PARTICULAR FIELD HAS BEEN FIXED UNDER SECTION 8, RESORT TO THE PROVISIONS OF SECTION 9 IS UNNECESSARY. AND SINCE A SPECIFIC PRICE HAS BEEN ESTABLISHED FOR LANCE CREEK FIELD, WYOMING--- THE FIELD INVOLVED IN THESE AGREEMENTS--- BY AN AMENDMENT TO SECTION 8, EFFECTIVE FEBRUARY 12, 1944, IT NECESSARILY FOLLOWS THAT SECTION 9 NOW HAS NO DIRECT APPLICATION IN THE DETERMINATION OF MAXIMUM PRICES FOR OIL PRODUCED FROM SUCH FIELD.

SECTION 8 OF SAID REGULATION CONTAINS A SPECIAL PROVISION FOR COMPUTING MAXIMUM PRICES WITH RESPECT TO "A CONTRACT IN EFFECT ON OCTOBER 1, 1941, FOR THE PURCHASE OF CRUDE PETROLEUM AT THE RECEIVING TANK PRICE IN EXCESS OF THE HIGHEST POSTED PRICE AS OF OCTOBER 1, 1941, FOR THE GIVEN POOL APPLICABLE TO SUCH PRODUCTION"--- PROVIDED, OF COURSE, A SPECIFIC PRICE FOR THE INVOLVED FIELD HAS BEEN FIXED BY SAID SECTION. THE SUBJECT AGREEMENTS PROVIDE FOR THE PAYMENT OF EIGHT CENTS ($0.08) PER BARREL OVER THE PRICE PER BARREL REGULARLY POSTED BY THE "MAJOR PURCHASERS OF CRUDE OIL IN THE MID-CONTINENT AREA FOR OIL OF 40 DEGREES A.P.I. GRAVITY.' IS STATED THAT SUCH REGULARLY POSTED PRICE IS $1.25 PER BARREL; THUS, THE CONTRACT PRICE PRESENTLY IS $1.33 PER BARREL. ALSO, IT IS STATED THAT THE HIGHEST POSTED PRICE AS OF OCTOBER 1, 1941, FOR THE POOL APPLICABLE TO THE PRODUCTION WAS $1.12 PER BARREL; THUS THE CONTRACT PRICE EXCEEDS SUCH POSTED PRICE BY 21 CENTS. HENCE, IF IT MAY BE CONSIDERED THAT THE SUBJECT AGREEMENTS CONSTITUTE "CONTRACTS IN EFFECT ON OCTOBER 1, 1941," WITHIN THE MEANING OF SECTION 8, THEN THE PRICE STATED IN SUCH AGREEMENTS IS WITHIN, OR LESS THAN, THE MAXIMUM PRICE COMPUTED IN ACCORDANCE WITH SAID SPECIAL PROVISION IN SECTION 8; BUT IF THE SUBJECT AGREEMENTS MAY NOT BE SO CONSIDERED, THEN THE SPECIFIC PRICE LISTED IN SECTION 8 (M) (2) OF $1.25 PER BARREL IS THE MAXIMUM PRICE FOR OIL OF 40 DEGREES API GRAVITY PRODUCED IN LANCE CREEK FIELD.

IT IS POINTED OUT THAT THE ADVERTISEMENT AND SPECIFICATIONS FOR BIDS ON THE LANCE CREEK ROYALTY CRUDE PETROLEUM WERE ISSUED ON JULY 28, 1941; THAT THE BIDS RECEIVED PURSUANT TO SUCH ADVERTISEMENT WERE OPENED ON AUGUST 20, 1941; AND THAT THE BID OF PERRY PETROLEUM COMPANY WAS ACCEPTED ON BEHALF OF THE UNITED STATES, BY THE ASSISTANT SECRETARY OF THE INTERIOR, ON AUGUST 26, 1941. CONSEQUENTLY, ALTHOUGH FORMAL AGREEMENTS WERE NOT EXECUTED UNTIL JUNE 22, 1942, THERE IS LITTLE OR NO QUESTION BUT THAT "CONTRACTS" FOR THE SALE OF SUCH ROYALTY OIL--- THE EXISTENCE OF WHICH COULD BE ESTABLISHED BY WRITTEN EVIDENCE--- WERE "IN EFFECT" ON OCTOBER 1, 1941. AMERICAN SMELTING AND REFINING CO. V. UNITED STATES, 259 U.S. 75; UNITED STATES V. PURCELL ENVELOPE CO., 249 U.S. 313. AND WERE CONSIDERATION OF THE MATTER TO STOP HERE--- THAT IS, HAVING REGARD SOLELY FOR THE LITERAL TERMS OF SAID SPECIAL PROVISION IN SECTION 8--- THE CONTRACT PRICE OF $1.33 PER BARREL WOULD BE WELL WITHIN THE MAXIMUM PRICE FIXED BY THE REGULATION.

HOWEVER, IT IS IN DETERMINING THE INTENDED MEANING OF THE TERM "CONTRACT IN EFFECT ON OCTOBER 1, 1941" AS IT APPEARS IN SECTION 8 OF SAID REGULATION THAT THE AMENDMENT TO SECTION 9 (C), EFFECTIVE JANUARY 29, 1944, MAY HAVE A MATERIAL BEARING. PRIOR TO SUCH AMENDMENT SECTION 9 (C) LIKEWISE ACCORDED RECOGNITION TO A PRICE STATED IN A "CONTRACT IN EFFECT ON OCTOBER 1, 1941; " BUT AS SECTION 9 (C) NOW READS, RECOGNITION IS ACCORDED CONTRACT PRICES ONLY IF THE CONTRACT WAS IN EFFECT ON OCTOBER 1, 1941, AND "DELIVERIES WERE MADE PRIOR TO OR WITHIN SIXTY DAYS AFTER OCTOBER 1, 1941 IN ACCORDANCE WITH SUCH CONTRACT.' ALTHOUGH SECTION 8 CONTAINED THE SAME LANGUAGE IN DESCRIBING THE REQUIREMENTS FOR RECOGNITION OF PREVIOUSLY ESTABLISHED CONTRACT PRICES, APPARENTLY NO SIMILAR CONDITION OR LIMITATION HAS BEEN PLACED THEREIN BY WAY OF SPECIFIC AMENDMENT. THAT THE QUESTION OF WHETHER THE PRICE STATED IN THE SUBJECT AGREEMENTS IS IN EXCESS OF THE APPLICABLE MAXIMUM UNDER MPR 436 DEPENDS UPON WHETHER THE REFERRED-TO AMENDMENT TO SECTION 9 (C) IS TO BE CONSTRUED AS AMENDING BY IMPLICATION THE PERTINENT LANGUAGE OF SECTION 8.

IT IS A WELL SETTLED PRINCIPLE IN THE CONSTRUCTION OF STATUTES AND REGULATIONS THAT AMENDMENTS BY IMPLICATION--- LIKE REPEALS BY IMPLICATION --- ARE NOT FAVORED AND WILL NOT BE UPHELD IN DOUBTFUL CASES. SUTHERLAND STATUTORY CONSTRUCTION, SECTION 1913. ALSO, IT HAS BEEN HELD THAT WHERE A STATUTE PURPORTS TO AMEND A DESIGNATED CLAUSE OF AN EXISTING STATUTE, IT WILL BE PRESUMED THAT SUCH CLAUSE IS THE ONLY ONE TO WHICH THE LEGISLATURE INTENDED THE AMENDMENT TO APPLY. UNITED STATES V. MCCLURE, 305 U.S. 472; HEALEY V. WHEELER, 72 A. 753. VIEWED IN THE LIGHT OF THE ABOVE AND SINCE THE INSTANT SITUATION INVOLVES, IN EFFECT, THE INSERTION OF AN EXPRESS CONDITION OR LIMITATION INTO ONE OF TWO SECTIONS IN A REGULATION, BOTH OF WHICH SECTIONS PREVIOUSLY CONTAINED THE SAME PERTINENT LANGUAGE AND THE SECTIONS BEING FOR APPLICATION TO SEPARATE AND DISTINCT CLASSES OF CASES, IT COULD BE ARGUED THAT THERE COULD HAVE BEEN NO INTENTION TO CHANGE THE IMPORT OF THE LANGUAGE NOT EXPRESSLY AMENDED, NAMELY, SECTION 8. HOWEVER, THERE WAS ISSUED BY THE PRICE ADMINISTRATOR--- WITH REFERENCE TO SAID AMENDMENT TO SECTION 9 (C), EFFECTIVE JANUARY 29, 1944--- THE FOLLOWING STATEMENT OF THE CONSIDERATIONS INVOLVED: IT WAS THE INTENTION OF THE ADMINISTRATOR WHEN MAXIMUM PRICE REGULATION NO. 436 WAS ISSUED, TO ESTABLISH AS CEILINGS THE PRICES ACTUALLY BEING PAID FOR CRUDE PETROLEUM ON OCTOBER 1, 1941. MAXIMUM PRICES ON PETROLEUM PRODUCTS WERE ESTABLISHED ON THE BASIS OF PRICES BEING PAID IN OCTOBER 1941, AND IT WOULD, THEREFORE, NOT ALWAYS BE FAIR AND EQUITABLE TO ESTABLISH MAXIMUM PRICES FOR CRUDE PETROLEUM BASED ON A PERIOD OTHER THAN THE ONE USED FOR PETROLEUM PRODUCTS.

IN OCTOBER 1941, IN ADDITION TO POSTED PRICES FOR CERTAIN FIELDS, THERE WERE CONTRACTS IN EFFECT AT PRICES IN EXCESS OF THE POSTED PRICES. SINCE THESE PRICES PRESUMABLY WERE REFLECTED IN THE PRICES OF REFINED PRODUCTS, THE ADMINISTRATOR DESIRED TO PERMIT THESE CONTRACTS TO REMAIN IN EFFECT. IT WAS ASSUMED, HOWEVER, THAT DELIVERIES WERE MADE IN ACCORDANCE WITH SUCH CONTRACTS BEFORE OCTOBER 1, 1941, OR WITHIN A REASONABLE TIME THEREAFTER. OTHERWISE, THE PRICE OF CRUDE PETROLEUM UNDER THESE CONTRACTS MIGHT NOT HAVE BEEN REPRESENTATIVE OF PRICES BEING PAID ON OCTOBER 1, 1941.

THE ADMINISTRATOR IS NOW ADVISED THAT CERTAIN LONG TERM CONTRACTS WERE NEGOTIATED PRIOR TO OCTOBER 1, 1941, THE TERMS OF WHICH PROVIDE THAT DELIVERIES UNDER THESE CONTRACTS WILL BEGIN IN THE YEAR 1944. IN ORDER TO CARRY OUT THE INTENTION OF THE ADMINISTRATOR IN FREEZING PRICES ACTUALLY BEING PAID ON OCTOBER 1, 1941, AMENDMENT NO. 7 TO TO MAXIMUM PRICE REGULATION NO. 436 IS ISSUED WHICH PROVIDES THAT WHERE A CONTRACT WAS IN EFFECT ON OCTOBER 1, 1941, AT A PRICE IN EXCESS OF THE POSTED PRICE, AND DELIVERIES WERE MADE PRIOR TO OR WITHIN 60 DAYS AFTER OCTOBER 1, 1941, IN ACCORDANCE WITH SUCH CONTRACT, THEN THE PRICE ACTUALLY CHARGED ON OCTOBER 1, 1941 OR ON THE FIRST DELIVERY AFTER OCTOBER 1, 1941 SHALL BE THE MAXIMUM PRICE FOR THE PRODUCTION COVERED BY THE CONTRACT.

THE CONSIDERATIONS THUS SET FORTH AS BEING INVOLVED IN THE ISSUANCE OF THE AMENDMENT TO SECTION 9 (C) ARE GENERAL IN NATURE AND APPLY TO THE ENTIRE REGULATION. IT IS STATED, IN EFFECT, THAT IT WAS THE ORIGINAL INTENTION OF THE PRICE ADMINISTRATOR THAT, UNDER MPR 436, RECOGNITION SHOULD BE ACCORDED ESTABLISHED CONTRACT PRICES ONLY WHERE IT APPEARED THAT SUCH PRICES WERE IN EFFECT ON OCTOBER 1, 1941, IN THE SENSE THAT DELIVERIES ACTUALLY WERE BEING MADE AT THAT TIME AT SUCH CONTRACT PRICES. IT WAS THE PURPOSE OF SAID AMENDMENT TO SECTION 9 (C) TO LEAVE NO DOUBT AS TO SUCH INTENTION. ALSO, IT COULD BE INFERRED THAT SAID AMENDMENT TO SECTION 9 (C) WAS RENDERED NECESSARY BY THE EXISTENCE OF THE VERY CONTRACTS HERE INVOLVED. AND, OF COURSE, SINCE AT THE TIME SAID AMENDMENT WAS ISSUED THE APPLICABLE PRICE MAXIMUMS FOR THESE CONTRACTS WERE FOR COMPUTATION UNDER SECTION 9--- RATHER THAN SECTION 8--- IT WAS UNNECESSARY TO AMEND SECTION 8 TO ACHIEVE THE DESIRED RESULT. IT WAS ONLY BY REASON OF THE SUBSEQUENT AMENDMENT TO SECTION 8, BY WHICH A SPECIFIC PRICE FOR OIL PRODUCED FROM LANCE CREEK FIELD WAS FIXED, THAT ANY QUESTION ARISES.

THUS, IT WOULD SEEM TO BE INDICATED THAT THE AMENDMENT TO SECTION 9 (C) WAS MERELY AN EXPRESSION OF WHAT ORIGINALLY WAS INTENDED BY THE TERM "CONTRACT IN EFFECT ON OCTOBER 1, 1941," IN MPR 436--- THAT IS, NOT ONLY AS IT APPEARED IN SECTION 9 (C) BUT, ALSO, AS IT APPEARS IN SECTION 8. CONSTRUE IT OTHERWISE WOULD TEND TO CREATE AN UNJUST DISPARITY BETWEEN MAXIMUMS INCONSISTENT WITH THE STATED PURPOSES OF THE REGULATION AS A WHOLE. HENCE, EVEN THOUGH THE STRICT LANGUAGE OF SECTION 8 DOES NOT SO PROVIDE, THIS OFFICE WILL NOT OBJECT TO THE APPLICATION OF MAXIMUM PRICES FOR CRUDE PETROLEUM SOLD UNDER THE SUBJECT AGREEMENTS DETERMINED ON THE BASIS THAT--- WITH THE EXCEPTION OF AGREEMENT I-1SEC. NO. 366--- THE SPECIAL PROVISION IN SECTION 8, RESPECTING CONTRACTS IN EFFECT ON OCTOBER 1, 1941, HAS NO APPLICATION. THUS, AS TO AGREEMENTS I-1SEC. NOS. 367, 368 AND 369, THE MAXIMUM PRICE RECEIVABLE WOULD APPEAR TO BE $1.25 PER BARREL FOR OIL OF 40 DEGREES API GRAVITY.

AS TO AGREEMENT I-1SEC. NO. 366, IT IS STATED THAT, WHILE NO DELIVERIES OF OIL THEREUNDER ARE TO BE MADE PRIOR TO APRIL 1, 1944, OIL FROM THE SAME LEASES INVOLVED IN SUCH AGREEMENTS HAS BEEN SOLD TO THE SAME COMPANY, PERRY PETROLEUM COMPANY, UNDER AGREEMENT I-1SEC. NO. 335, AND THAT, THEREFORE, AGREEMENT I-1SEC. NO. 366 WOULD APPEAR TO CONSTITUTE "A NEW CONTRACT BETWEEN THE SAME BUYER AND SELLER CONCERNING THE SAME PRODUCTION" SO AS TO RENDER APPLICABLE IN DETERMINING THE MAXIMUM PRICE RECEIVABLE FOR OIL DELIVERED UNDER SUCH AGREEMENT THE SAID SPECIAL PROVISION IN SECTION 8. THIS OFFICE IS INCLINED TO AGREE WITH THIS CONSTRUCTION--- IT BEING ASSUMED THAT OIL ACTUALLY WAS DELIVERED UNDER SAID PRIOR AGREEMENT PRIOR TO OR WITHIN 60 DAYS AFTER OCTOBER 1, 1941. HOWEVER, IT WOULD APPEAR THAT THE FORMULA SET OUT IN SAID SECTION 8 HAS BEEN APPLIED ERRONEOUSLY AND THAT THE FIGURE INDICATED IN YOUR LETTER OF $1.46 PER BARREL AS THE MAXIMUM PRICE APPLICABLE TO SUCH AGREEMENT IS INCORRECT.

SAID AGREEMENT I-1SEC. NO. 335 PROVIDES FOR A PRICE OF "SIX AND NINE- TENTHS CENTS (6.9 CENTS) PER BARREL UNDER THE PRICE PER BARREL REGULARLY POSTED BY THE MAJOR PURCHASERS OF OIL IN THE MID-CONTINENT AREA FOR OIL OF 40 DEGREES A.P.I. GRAVITY; PROVIDED, THAT IF AT ANY TIME DURING THE TERM OF THIS AGREEMENT THE POSTED FIELD PRICE FOR LANCE CREEK OIL SHOULD BE HIGHER THAN THE PRICE SPECIFIED IN THIS ARTICLE, THE PURCHASER AGREES TO PAY SUCH HIGHER POSTED FIELD PRICE.' SAID SPECIAL PROVISION IN SECTION 8 PROVIDES THAT THE MAXIMUM PRICE FOR A "NEW" CONTRACT BETWEEN THE SAME BUYER AND SELLER CONCERNING THE SAME PRODUCTION SHALL BE THE SUM OF THE "CONTRACT PRICE" AND THE DIFFERENCE BETWEEN THE SPECIFIC PRICE, AS SET OUT IN SAID SECTION 8, AND THE HIGHEST POSTED PRICE AS OF OCTOBER 1, 1941. PRESUMABLY, THE FIGURE OF $1.46 PER BARREL INDICATED IN YOUR LETTER, WAS COMPUTED BY USING AS THE "CONTRACT PRICE" THE PRICE STATED IN THE "NEW" CONTRACT, $1.25 PER BARREL; BUT IT WOULD SEEM THAT THE TERM "CONTRACT PRICE" MUST, IN THIS INSTANCE, REFER TO THE PRICE STATED IN THE "OLD" AGREEMENT--- THAT IS, THE PRICE AT WHICH OIL ACTUALLY WAS BEING SOLD AND DELIVERED PRIOR TO OCTOBER 1, 1941, OR WITHIN 60 DAYS THEREAFTER. THUS, ASSUMING THAT THE OLD CONTRACT PRICE, AS OF OCTOBER 1, 1941, WAS $1.181--- $1.25 LESS $0.069--- THE MAXIMUM PRICE APPLICABLE TO AGREEMENT I-1SEC. NO. 366 WOULD APPEAR TO BE $1.311--- THAT IS, $1.181 PLUS THE DIFFERENCE BETWEEN $1.25 AND $1.12, OR $0.13.

OF COURSE, WERE IT NOT FOR ARTICLE XV OF SAID AGREEMENTS THERE PROBABLY WOULD BE LITTLE DOUBT BUT THAT UNLESS AFFIRMATIVE AMENDATORY ACTION WERE TAKEN TO PROVIDE FOR A PRICE WHICH WOULD NOT VIOLATE THE APPLICABLE PRICE MAXIMUMS FIXED BY MPR 436, THERE NO LONGER WOULD BE ANY BINDING LEGAL OBLIGATION UPON THE UNITED STATES TO SELL OR PERRY PETROLEUM COMPANY TO BUY OIL UNDER THE SUBJECT AGREEMENTS--- OR, AT LEAST, THAT THE REGULATION WOULD HAVE THE EFFECT OF TEMPORARILY SUSPENDING THE OBLIGATIONS OF THE PARTIES. SEE, PARTICULARLY, LONG ISLAND STRUCTURAL S. CO. V. SCHIAVONE- BONOMO CORP., 53 F.1SUPP. 505; ALSO, SEE ANNOTATION IN 47 A.L.R. 1286, AND CASES CITED THEREIN; AND SECTION 458, RESTATEMENT OF THE LAW OF CONTRACTS. CF. B-32273, FEBRUARY 19, 1943. SO THAT, IT FIRST MUST BE DETERMINED WHETHER SAID ARTICLE XV PROPERLY SHOULD BE CONSTRUED AS HAVING THE EFFECT OF SUBSTITUTING FOR THE PRICE STATED IN SUCH AGREEMENTS THE LOWER CEILING PRICES ESTABLISHED BY MPR 436.

UNDER SAID ARTICLE XV THE PARTIES AGREED THAT THE RESPECTIVE AGREEMENTS SHOULD BE "SUBJECT TO" ALL WAR OR EMERGENCY LAWS OF CONGRESS AND VALID ORDERS, RULES AND REGULATIONS ISSUED PURSUANT THERETO. UNQUESTIONABLY, A MAXIMUM PRICE REGULATION ISSUED UNDER THE AUTHORITY CONTAINED IN THE EMERGENCY PRICE CONTROL ACT OF 1942--- WHICH ACT WAS IN EFFECT AT THE TIME THE INVOLVED AGREEMENTS WERE SIGNED--- IS WITHIN CONTEMPLATION OF SAID ARTICLE XV. BUT IT WOULD SEEM THAT NEVERTHELESS AN ARGUMENT COULD BE MADE TO THE EFFECT THAT SAID ARTICLE XV WAS NOT INTENDED TO OPERATE TO BIND THE SELLER TO SELL OR THE BUYER TO BUY OIL AT A PRICE WHICH NEITHER PARTY KNEW OR COULD HAVE KNOWN AT THE TIME THE AGREEMENTS WERE EXECUTED. ALL THAT WAS AGREED TO WAS THAT THE AGREEMENTS SHOULD BE ,SUBJECT TO" SUCH EMERGENCY LAWS AND ORDERS. THEREFORE, IT COULD BE CONTENDED THAT SAID ARTICLE OF THE AGREEMENTS HAS NO PRACTICAL EFFECT IN RESPECT OF LOWER CEILING PRICES ESTABLISHED UNDER THE EMERGENCY PRICE CONTROL ACT OF 1942 SINCE EXISTING AGREEMENTS ARE BY THE TERMS OF SAID ACT MADE ,SUBJECT TO" PRICE REGULATIONS ISSUED THEREUNDER.

IT IS ASSUMED THAT IT HAS BEEN DETERMINED ADMINISTRATIVELY BY YOUR DEPARTMENT TO BE IN THE INTERESTS OF THE UNITED STATES TO SELL THE OIL COVERED BY THESE AGREEMENTS AT THE PRICE PRESENTLY IN EFFECT UNDER MPR 436, EVEN THOUGH SUCH PRICE IS LOWER THAN THE AMOUNT STATED IN THE BIDS OF PERRY PETROLEUM COMPANY AND SUBSEQUENTLY STATED IN THE FORMAL CONTRACTS. THAT IS TO SAY, THERE IS NO INDICATION IN YOUR LETTER THAT IT HAS BEEN DETERMINED THAT IT WOULD BE IN THE INTERESTS OF THE UNITED STATES TO WITHDRAW ALTOGETHER FROM THE INVOLVED AGREEMENTS IF THERE BE NO BINDING OBLIGATION UPON THE UNITED STATES TO SELL THE OIL AT SUCH LOWER MAXIMUM PRICE.

UPON THAT ASSUMPTION IT WOULD APPEAR UNNECESSARY TO DETERMINE THE LEGAL EFFECT OF SAID ARTICLE XV AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS CASE. THE MERE FACT THAT AN ARGUMENT ALONG THE LINES INDICATED COULD BE MADE AND THAT THE BASIS THEREFOR IS NOT WHOLLY ILLOGICAL AND UNREASONABLE IS SUFFICIENT TO WARRANT SUCH ACTION AS WOULD REMOVE THE POSSIBILITY OF AN OCCASION FOR SUCH AN ARGUMENT BEING MADE AND ITS MERITS BEING CONSIDERED. THAT IS TO SAY, SINCE IT APPEARS THAT PERFORMANCE UNDER THE INVOLVED CONTRACTS IS JUST BEGINNING AND SINCE THERE IS NO REASON TO SUPPOSE THAT THE PURCHASER, PERRY PETROLEUM COMPANY, WOULD OBJECT TO AMENDMENTS TO SUCH CONTRACTS BY WHICH IT WOULD BE REQUIRED TO PAY LESS THAN THE STATED CONTRACT PRICE FOR OIL DELIVERED THEREUNDER, IT WOULD APPEAR TO BE IN THE INTERESTS OF THE UNITED STATES THAT SPECIFIC AMENDMENTS BE EXECUTED IN ORDER THAT THERE MAY BE NO DOUBT AS TO THE OBLIGATIONS OF THE PARTIES UNDER SUCH CONTRACTS.

HOWEVER, SINCE THE SOLE PURPOSE OF SAID AMENDMENTS WOULD BE TO PROVIDE FOR A PRICE AT WHICH OIL COULD BE DELIVERED IN CONFORMANCE WITH THE APPLICABLE CEILING PRICES NOW IN EFFECT UNDER MPR 436, SUCH AMENDMENTS SHOULD PROVIDE FOR REVERSION TO THE ORIGINAL CONTRACT PRICE IN THE EVENT THE MAXIMUM PRICE CEASES TO BE EFFECTIVE PRIOR TO THE TERMINATION OF SUCH AGREEMENTS. CF. B-25461, SUPRA. ALSO, IT WOULD SEEM THAT THE SAID AMENDMENTS SHOULD CONTAIN, IN SUBSTANCE, THE CONDITION SUGGESTED IN YOUR LETTER FOR INSERTION IN EACH BILLING TO THE CONTRACTOR WERE IT DETERMINED THAT SPECIFIC AMENDMENTS TO THE INVOLVED CONTRACTS WERE UNNECESSARY, SINCE THE PURPOSE TO BE SERVED BY SUCH PROVISION WOULD APPEAR EQUALLY DESIRABLE IN RESPECT OF CONTRACTS SPECIFICALLY AMENDED.