B-48221, APRIL 3, 1945, 24 COMP. GEN. 716

B-48221, APRIL 3, 1945, 24 COMP. GEN. 716

CONTRACTS - DISCOUNTS - COMMENCEMENT OF DISCOUNT PERIOD UNDER A CONTRACT PROVIDING FOR INSPECTION AND ACCEPTANCE AT DESTINATION OF COAL PURCHASED F.O.B. POINT OF ORIGIN AT A STIPULATED PRICE, LESS DISCOUNT OF "10 CENTS PER NET TON IF PAID WITHIN 15 DAYS FROM DATE OF INVOICE," THE DISCOUNT PERIOD MUST BE REGARDED AS BEGINNING TO RUN FROM THE DATE OF THE INVOICE AND NOT FROM THE DATE OF DELIVERY OF THE COAL AT DESTINATION, ASSUMING THAT THE INVOICE IS DATED ON OR AFTER THE DAY OF SHIPMENT AND IS RECEIVED PRIOR TO DELIVERY OF THE COAL. 14 COMP. GEN. 721, DISTINGUISHED.

ACTING COMPTROLLER GENERAL YATES TO THE SECRETARY OF WAR, APRIL 3, 1945:

THERE HAS BEEN CONSIDERED YOUR LETTER OF MARCH 3, 1945, AS FOLLOWS:

AN EXTREMELY CRITICAL SITUATION HAS ARISEN AS RESULT OF THE DEMAND OF THE ARMY AUDIT BRANCH, GENERAL ACCOUNTING OFFICE IN NEW YORK CITY THAT THE PAYING FINANCE OFFICER DEDUCT DISCOUNTS IN APPARENT ARBITRARY DISREGARD OF TERMS OF THE DISCOUNT OFFER SHOWN ON THE FACE OF CONTRACTS.

THE SITUATION IS PRECIPITATED BY WHAT APPEARS TO BE AN ILLOGICAL AND ERRONEOUS INTERPRETATION, NOT ONLY OF THE TERMS OF THE OFFER OF DISCOUNT, BUT OF THE VERY DECISION UPON WHICH THE DEMAND OF THE ARMY AUDIT BRANCH, GENERAL ACCOUNTING OFFICE IS BASED.

THE SITUATION HAS ASSUMED SUCH EXTREMELY GRAVE PROPORTIONS THAT COAL SHIPMENTS WILL BE SERIOUSLY JEOPARDIZED UNLESS THE GOVERNMENT CEASES AND DESISTS FROM ITS PRESENT REQUIREMENTS, AND UNLESS THE GOVERNMENT REFUNDS TO THE CONTRACTOR THE DEDUCTIONS WHICH HAVE BEEN AND ARE BEING MADE FROM MONIES DUE THEM ON SAID CONTRACTS.

THE QUARTERMASTER GENERAL ADVISES ME AS FOLLOWS:

(1) CONTRACTS WERE ISSUED FOR THE PURCHASE OF VARIOUS TYPES AND SIZES OF ANTHRACITE COAL AT THE MAXIMUM UNIT PRICE PER TON ALLOWED BY THE OFFICE OF PRICE ADMINISTRATION, WHICH IS AUTHORIZED PROCEDURE FOR THE PROCUREMENT OF COAL.

(2) CONTRACTS WERE BASED ON BIDS SUBMITTED BY THE CONTRACTORS, SOLICITED BY THE GOVERNMENT AND SUCH BIDS QUOTED THE DISCOUNT APPLICABLE (IN ACCORDANCE WITH THE MAXIMUM PRICE REGULATION) TO THE PARTICULAR TYPE AND SIZE OF COAL PURCHASED ON SAID CONTRACTS.

(3) THE APPLICABLE MAXIMUM PRICE REGULATION IS AS FOLLOWS:

"APPENDIX A, SEC. 1340.200, SUBPARAGRAPH (C):--- CASH DISCOUNTS, CREDIT TERMS AND SPECIAL SERVICES. (1) THERE SHALL BE DEDUCTED FROM THE MAXIMUM PRICES ESTABLISHED IN PARAGRAPHS (A) AND (B) OF THIS SECTION THE CASH DISCOUNTS ON ALL SALES AND QUANTITY DISCOUNTS, OR REBATES, F.O.B. TRUCKS AT MINES OR PREPARATION PLANTS OPERATED AS AN ADJUNCT TO A MINE OR MINES, IN EFFECT DURING THE PERIOD OCTOBER 1-15, 1941, INCLUSIVE. ( (1) AS AMENDED FEBRUARY 12, 1943.)

IN ACCORDANCE WITH THE AFORESAID MAXIMUM PRICE REGULATION, THE PARTICULAR CONTRACTOR INVOLVED, IN THE INSTANT CASE, THORNE, NEALE AND CO., INC., OFFERED A DISCOUNT IN ONE INSTANCE UNDER CONTRACT NO. 4617 E, DATED MAY 6, 1944, AS FOLLOWS: " DISCOUNT: 10 CENTS PER NET TON IF PAID WITHIN 15 DAYS FROM DATE OF INVOICE.' CONTRACT CALLS FOR INSPECTION AND ACCEPTANCE AT DESTINATION.

(4) THE FISCAL DIVISION OF THE JERSEY CITY QUARTERMASTER DEPOT AND THE PAYING FINANCE OFFICER MADE PAYMENT IN ACCORDANCE WITH THE DISCOUNT OFFER AS SHOWN ON THE FACE OF THE CONTRACT; I.E., THAT SINCE PAYMENT WAS MADE AFTER THE EXPIRATION OF THE FIFTEEN DAYS FROM THE DATE OF THE INVOICE, THE DISCOUNT WAS NOT APPLICABLE, AND, THEREFORE, NOT TAKEN. THIS SAME PROCEDURE WAS FOLLOWED ON OTHER CONTRACTS CARRYING SIMILAR DISCOUNT OFFERS WITH THE SAME RESULT: THAT SUBSEQUENT TO PAYMENT, MEMORANDA OF EXCEPTION WERE RECEIVED FROM THE ARMY AUDIT BRANCH, GENERAL ACCOUNTING OFFICE, NEW YORK CITY, TO THE EFFECT THAT DISCOUNTS SHOULD HAVE BEEN TAKEN SINCE PAYMENT WAS MADE WITHIN FIFTEEN DAYS OF THE DATE OF DELIVERY OF THE ITEM AND THE DATE OF RECEIPT OF THE INVOICE IN THE OFFICE DESIGNATED FOR PAYMENT. SUCH MEMORANDA OF EXCEPTION, IN THE INSTANT CASE, CITED AS BASIS FOR ISSUE, 14 COMP. GEN. 721.

IN THE CASE WHICH GAVE RISE TO THE ABOVE DECISION, THE BID CONTAINED A SPACE FOR THE INDICATION OF DISCOUNT. IN SAID SPACE WAS INDICATED A DISCOUNT OF 2 PERCENT FOR TEN CALENDAR DAYS. PAYMENT COULD NOT HAVE BEEN MADE WITHIN TEN CALENDAR DAYS SINCE THE GOODS COULD NOT HAVE BEEN RECEIVED AND ACCEPTED WITHIN TEN DAYS FROM THE DATE OF INVOICE. THEREFORE, THE QUESTION AROSE AS TO WHETHER THE GOVERNMENT MIGHT TAKE THE DISCOUNT WHEN THE DISCOUNT PERIOD WAS INSUFFICIENT DURING WHICH TO RECEIVE AND ACCEPT THE GOODS. THE DECISION PLACED CONSIDERABLE IMPORTANCE ON THE NECESSITY FOR THE GOVERNMENT'S INSPECTION AND ACCEPTANCE OF THE GOODS PRIOR TO PAYMENT, STATING IN EFFECT THAT IF THE GOVERNMENT CANNOT INSPECT AND ACCEPT THE GOODS WITHIN THE DISCOUNT PERIOD, IF COMPUTED FROM DATE OF INVOICE, THE DISCOUNT PERIOD MUST BE CONSIDERED AS BEGINNING TO RUN FROM THE DATE OF DELIVERY TO THE PURCHASER; OTHERWISE, IN ORDER TO OBTAIN THE DISCOUNT, THE GOVERNMENT WOULD BE FORCED TO PAY BEFORE IT KNEW WHETHER THE GOODS WERE ACCEPTABLE, AND BEFORE THEY WERE, IN FACT, ACCEPTED. THE DECISION STATES THAT TIME MUST BE ALLOWED TO RECEIVE THE ARTICLES AND EXAMINE THEM AND STATES THAT IF PAYMENTS WERE MADE, AND IT WERE LATER DETERMINED THAT THE GOODS WERE NOT IN ACCORDANCE WITH THE TERMS OF THE CONTRACT, IT MIGHT BE IMPOSSIBLE FOR THE GOVERNMENT TO RECOVER PAYMENTS BY SUIT OR TO SUSTAIN A COUNTERCLAIM.

THAT ARGUMENT IS BASED ENTIRELY UPON AN ERRONEOUS PREMISE AS APPLIED TO THE INSTANT CASE. NO PLACE IN THE CONTRACT UNDER DISCUSSION IS THERE ANY STATEMENT MADE OR ANY CONDITION SET FORTH THAT REQUIRES THE GOVERNMENT TO MAKE PAYMENT BEFORE THE GOODS ARE INSPECTED AND ACCEPTED. CONTRACT CALLS FOR INSPECTION AND ACCEPTANCE AT DESTINATION. THEREFORE, THE GOVERNMENT MAY MAKE ITS INSPECTION AND DULY ACCEPT THE GOODS BEFORE PAYMENT. THE FACT THAT THE DISCOUNT PERIOD WOULD THEN HAVE EXPIRED MEANS JUST ONE THING, THAT THE GOVERNMENT IS NOT ENTITLED TO THE DISCOUNT. THE DISCOUNT IS PURELY A GRATUITY FOR PROMPT PAYMENT. IT WOULD APPEAR THAT THE GOVERNMENT IS IN THE SAME POSITION AS ANY OTHER CONTRACTOR, AND IF IT CANNOT MAKE PROMPT PAYMENT IN ACCORDANCE WITH CONTRACT TERMS, IT IS DEFINITELY NOT ENTITLED TO A DISCOUNT.

IN ARRIVING AT THE DECISION CITED IN 14 COMP. GEN. 721, THE COMPTROLLER GENERAL STATES AS FOLLOWS:

"GENERALLY AND IN THE ABSENCE OF SPECIFIC STIPULATIONS OTHERWISE, A DISCOUNT PERIOD IS TO BE CONSIDERED AS BEGINNING TO RUN FROM DATE THE PURCHASED ARTICLES ARE IN FACT DELIVERED TO THE PURCHASER AS DISTINGUISHED FROM CONSTRUCTIVE DELIVERY BY DELIVERY TO A CARRIER, * * *.'

THE DISCOUNT TERMS APPEARING ON THE FACE OF THE CONTRACT IN QUESTION CONTRACT NO. 2 28-021-QM-12235, PURCHASE ORDER NO. 4617-3, DATED MAY 6, 1944, THORNE, NEALE AND CO. INC., IS A SPECIFIC STIPULATION OTHERWISE.

THE SITUATION BROUGHT ABOUT BY THE GOVERNMENT'S ACTIONS IN DEMANDING THAT DISCOUNT BE TAKEN ON ALL PAYMENTS NOW DUE THE CONTRACTOR, IN ORDER TO RECOUP DISCOUNTS WHICH WERE NOT TAKEN WHEN PAYMENTS WERE MADE UNDER VARIOUS CONTRACTS IS AN EXTREMELY GRAVE ONE BECAUSE IT THREATENS TO RESULT IN THE GOVERNMENT'S INABILITY TO OBTAIN DELIVERY OF ANTHRACITE COAL.

IT IS, THEREFORE, URGENTLY REQUESTED THAT YOU REVIEW THE ACTION OF THE ARMY AUDIT BRANCH, GENERAL ACCOUNTING OFFICE, NEW YORK CITY IN THE INSTANT CASES WITH A VIEW TOWARD REMOVING THE SUSPENSIONS RESULTING THEREFROM.

UNDER THE TERMS OF CONTRACT NO. 2 28-021-QM-12235, REFERRED TO IN YOUR LETTER, THE CONTRACTOR AGREED TO FURNISH 3,000 NET TONS OF ANTHRACITE BUCK WHEAT COAL, F.O.B. CARS AT CERTAIN DESIGNATED MINES LOCATED IN PENNSYLVANIA, AT $4.80 PER NET TON, LESS DISCOUNT OF "10 CENTS PER NET TON IF PAID WITHIN 15 DAYS FROM DATE OF INVOICE.'

THE CASH DISCOUNT PROVISIONS OF THE CONTRACT HERE INVOLVED ARE CLEAR AND UNAMBIGUOUS AND ARE NOT SUBJECT TO CONSTRUCTION. THE SITUATION HERE IS WHOLLY UNLIKE THAT CONSIDERED IN 14 COMP. GEN. 721, AND WHAT WAS THERE HELD IS NOT FOR APPLICATION HERE. CLEARLY, THE GOVERNMENT'S RIGHT TO THE CASH DISCOUNT CAN BE ASSERTED ONLY UPON PAYING THE INVOICE "WITHIN 15 DAYS FROM DATE" THEREOF. IT IS TO BE ASSUMED, OF COURSE, THAT IN NO CASE IS AN INVOICE TO BE ANTEDATED.

THE CONTRACT PROVIDED THAT INSPECTION AND ACCEPTANCE OF THE COAL WERE TO BE MADE BY THE GOVERNMENT AT DESTINATION, THE ROME ARMY AIRFIELD, ROME, NEW YORK, AND THAT THE CONTRACTOR WAS TO SUBMIT INVOICES FOR PAYMENT THEREOF TO THE JERSEY CITY QUARTERMASTER DEPOT, JERSEY CITY, NEW JERSEY. BY AGREEING TO MAKE PAYMENT WITHIN A DISCOUNT PERIOD COMMENCING FROM DATE OF INVOICE--- WHICH DATE PROPERLY MIGHT BE REPRESENTED BY THE CONTRACTOR AS THE DATE OF SHIPMENT AT POINT OF ORIGIN--- THE GOVERNMENT MUST BE REGARDED AS HAVING CONSIDERED THAT THE DISCOUNT PERIOD WOULD INCLUDE THE TIME NORMALLY CONSUMED IN DELIVERY AND ACCEPTANCE OF THE COAL AT DESTINATION. TO HOLD OTHERWISE WOULD BE REPUGNANT TO THE DISCOUNT PROVISION HERE INVOLVED, AND WOULD BE READING INTO THE CONTRACT WORDS WHICH ARE NOT THERE.

IN VIEW OF THE FOREGOING, AND ASSUMING THAT INVOICES ARE DATED ON OR AFTER THE DAY OF SHIPMENT AND ARE RECEIVED BY THE GOVERNMENT BEFORE DELIVERY OF THE COAL AT DESTINATION--- THUS INDICATING THAT THERE HAS BEEN NO UNDUE DELAY IN MAILING OF SAID INVOICES--- THE GOVERNMENT IS ENTITLED TO DISCOUNT ONLY WHEN PAYMENT OF THE INVOICE IS MADE WITHIN 15 DAYS FROM THE DATE THEREOF. AUDIT ACTION WILL BE ACCORDINGLY.