A-86965, SEPTEMBER 3, 1937, 17 COMP. GEN. 215

A-86965, SEPTEMBER 3, 1937, 17 COMP. GEN. 215

VEHICLES--- MOTOR--- PASSENGER-CARRYING--- STATUTORY PURCHASE PRICE LIMITATIONS--- EXCHANGE VALUES THE $750 PRICE LIMITATION FOR MOTOR-PROPELLED PASSENGER-CARRYING VEHICLES FIXED BY THE ACT OF JUNE 23, 1936, 49 STAT. 1854, DOES NOT REFER TO THE NET CASH COST TO THE GOVERNMENT AFTER DEDUCTION OF THE TRADE-IN VALUE OF A CAR TAKEN BY THE BIDDER IN EXCHANGE BUT TO THE PRICE QUOTED FOR A NEW CAR REGARDLESS OF THE GREATER OR LESS AMOUNT OFFERED BY THE VARIOUS BIDDERS AS THE TRADE-IN VALUE OF A USED CAR TAKEN IN EXCHANGE, AND AWARD IS NOT AUTHORIZED TO A BIDDER WHERE QUOTATION FOR A NEW CAR EXCEEDS $750, EVEN THOUGH THE NET CASH COST TO THE GOVERNMENT WOULD BE LESS THAN $750. COMP. GEN. 7, AMPLIFIED. THE ACCOUNTING OFFICERS OF THE GOVERNMENT ARE WITHOUT AUTHORITY TO SANCTION OR APPROVE THE ILLEGAL EXPENDITURE, IN CONNECTION WITH THE PURCHASE OF PASSENGER-CARRYING AUTOMOBILES, OF AN AMOUNT IN EXCESS OF THAT EXPRESSLY PROVIDED BY STATUTE, WHETHER OR NOT THE ACTION IN ATTEMPTING THE EXPENDITURE IS TAKEN IN GOOD FAITH.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF WAR, SEPTEMBER 3, 1937:

THERE HAS BEEN RECEIVED YOUR LETTER OF JULY 29, 1937, AS FOLLOWS:

REFERENCE IS MADE TO YOUR LETTER OF JULY 7, 1937, WHEREIN YOU STATE THAT CONTRACT NO. W-1092-ENG-5448, WITH THE AUTOMOBILE SALES COMPANY, MEMPHIS, TENNESSEE, COVERING THE PURCHASE OF THIRTEEN SEDANS, HAS BEEN BROUGHT TO YOUR ATTENTION. YOU STATE THAT ALTHOUGH SECTION 3709, REVISED STATUTES, CONTEMPLATES THE PURCHASE OF EQUIPMENT FOR THE GOVERNMENT AT THE MOST REASONABLE COST, AND THAT THE ADMINISTRATIVE ACTION IN THIS CASE RESULTED IN A MONETARY SAVING TO THE UNITED STATES, THE AWARD OF CONTRACT WAS IMPROPERLY MADE IN VIEW OF THE EXPRESS AND MANDATORY PRICE LIMIT FIXED BY THE ACT OF JUNE 23, 1936, 49 STAT. 1854. THE PROVISION OF LAW TO WHICH YOU REFER STATES:

"TO PURCHASE ANY MOTOR-PROPELLED PASSENGER-CARRYING VEHICLE (EXCLUSIVE OF BUSSES, AMBULANCES, AND STATION WAGONS), AT A COST, COMPLETELY EQUIPPED FOR OPERATION, AND INCLUDING THE VALUE OF ANY VEHICLE EXCHANGED, IN EXCESS OF $750, UNLESS OTHERWISE SPECIFICALLY PROVIDED FOR IN THE APPROPRIATION.'

IT IS A WELL ESTABLISHED POLICY OF THE RETAIL AUTO SALES INDUSTRY NOT TO QUOTE PRICES LOWER THAN THOSE PRESCRIBED BY THE MANUFACTURERS. HOWEVER, TRADE-IN ALLOWANCES ARE UNIVERSALLY OFFERED FAR IN EXCESS OF THE MARKET VALUE OF THE MACHINES TO BE ACCEPTED IN PART PAYMENT. THE DIFFERENCE BETWEEN THE MARKET VALUE AND THE TRADE-IN ALLOWANCE IN SUCH TRANSACTIONS OBVIOUSLY OPERATES AND IS OFTEN EXPRESSLY UNDERSTOOD AS A REDUCTION IN THE LIST PRICE OF THE NEW CAR. AN EXAMPLE OF THIS SYSTEM IS SHOWN ON THE ABSTRACT OF THE BIDS RECEIVED IN THIS INSTANCE. THE AUTOMOBILE SALES COMPANY, THE SUCCESSFUL BIDDER, SUBMITTED TWO BIDS. ONE FOR FURNISHING TERRAPLANE CARS AND THE SECOND OFFERING STUDEBAKER MACHINES. THE LATTER WERE PRICED ABOUT $160 PER CAR HIGHER THAN THE TERRAPLANE. THE CASH BIDS FOR DIRECT PURCHASE WERE THE SAME UNDER BOTH PROPOSALS. HOWEVER, THE TRADE-IN ALLOWANCE OFFERED UNDER THE BID FOR STUDEBAKER CARS WAS INCREASED $60 PER CAR OVER THE PROPOSED EXCHANGE ON THE TERRAPLANE. OBVIOUSLY THE MARKET VALUE OF THE USED CAR WAS NO GREATER WHETHER TRADED FOR THE PURCHASE OF A TERRAPLANE OR A STUDEBAKER, AND THE DIFFERENCE BETWEEN THE MARKET VALUE, WHICH IS FAIRLY FIXED BY THE HIGHEST CASH BID, AND THE TRADE -IN OFFER CAN BE PROPERLY CONSIDERED ONLY AS THE REDUCTION OF THE LIST PRICE OF THE NEW CAR WHICH THE BIDDER, DUE TO THE PARTICULAR CONDITIONS OF HIS BUSINESS, IS WILLING TO MAKE IN ORDER TO OBTAIN THE AWARD.

THE BEST EVIDENCE OF THE VALUE OF THE USED CARS TURNED IN ON TRADE WITH THE PURCHASE OF THE NEW MACHINES IS THE RANGE OF CASH PRICES OFFERED FOR SUCH AUTOMOBILES, FROM $765 TO $1,735, AN AVERAGE OF $1,287.50 FOR ALL 13 CARS. IN SUPPORT OF THIS POSITION THE WORD "VALUE" IS DEFINED IN WORDS AND PHRASES, VOLUME 4, PAGE 1140: "BY VALUE- IN COMMON PARLANCE IS MEANT - MARKET VALUE-, WHICH IS NO OTHER THAN THE FAIR VALUE OF PROPERTY AS BETWEEN ONE WHO WANTS TO PURCHASE AND ANOTHER WHO DESIRES TO SELL.' THE WORD "VALUE" IN THE ACT OF JUNE 23, 1936, IS USED IN ITS ORDINARY SENSE AS NO OTHER PARTICULAR MEANING IS INDICATED BY THE STATUTE.

THE PRICE PAID FOR THE AUTOMOBILES UNDER CONTRACT NO. W-1092-ENG 5448, WITH THE AUTOMOBILE SALES COMPANY, $6,651.22, PLUS THE FAIR MARKET VALUE REPRESENTED BY THE HIGHEST CASH BID RECEIVED, $1,735.00 OR $8,386.22, REPRESENTS AN EXPENDITURE OF $645.09 PER CAR. BY ACCEPTANCE OF THE HIGHEST CASH BID FOR DIRECT SALE IN THE AMOUNT OF $1,735.00 AN ACCEPTANCE OF THE PROPOSAL OF GENERAL MOTORS CORPORATION IN THE SUM OF $8,453.25, THE AVERAGE COST PER CAR WOULD HAVE BEEN $650.25. A SAVINGS TO THE UNITED STATES OF $67 WAS, THEREFORE, EFFECTED BY THE METHOD OF AWARD FOLLOWED IN THIS CASE.

IN VIEW OF THE ABOVE, IT IS RESPECTFULLY SUBMITTED THAT THE ACTION TAKEN IS NOT IN CONTRAVENTION OF THE ACT OF JUNE 23, 1936. IN ANY EVENT, THE ACTION IN THIS CASE WAS TAKEN IN GOOD FAITH AS THE BEST INTERESTS OF THE UNITED STATES WOULD SEEM TO CLEARLY REQUIRE. IF, THEREFORE, YOU ADHERE TO THE RULING SET FORTH IN YOUR LETTER OF JULY 7, 1937, IT IS REQUESTED THAT NO FURTHER EXCEPTION BE TAKEN IN THIS PARTICULAR CASE.

IT WAS POINTED OUT IN THE DECISION TO YOU OF JULY 7, 1937, THAT THE IMPORT OF THE STATUTES PLACING A MAXIMUM LIMITATION ON THE PRICE WHICH MAY BE PAID FOR PASSENGER-CARRYING MOTOR VEHICLES IS TOO PLAIN TO BE OPEN TO SERIOUS ARGUMENT. THE STATUTES PROVIDE THAT THE MAXIMUM PRICE, INCLUDING THE VALUE OF ANY VEHICLE EXCHANGED SHALL NOT EXCEED $750. WHATEVER MIGHT BE THE DEFINITION OF THE WORD "VALUE" UNDER OTHER CONDITIONS, THE CONTEXT OF THE STATUTES IS SUCH THAT THE ONLY REASONABLE INTERPRETATION POSSIBLE OF THEIR WORDING IS THAT THE $750 PRICE LIMIT IS INCLUSIVE OF THE EXCHANGE VALUE OF THE USED VEHICLE--- THAT IS, THE PRICE OFFERED BY A BIDDER FOR USED VEHICLES AS PART OF THE PURCHASE PRICE OF NEW AUTOMOBILES. THE AMOUNT SO OFFERED IS AS MUCH A PART OF THE PRICE OF NEW AUTOMOBILES AS THE BALANCE PAID IN CASH, AND THE STATUTES EXPRESSLY PROVIDE THAT BOTH SHALL NOT BE IN EXCESS OF $750.

THE MOTIVES WHICH MAY PROMPT A BIDDER TO OFFER MORE OR LESS FOR USED VEHICLES AS PART OF THE PURCHASE PRICE OF NEW ONES ARE NOT FOR CONSIDERATION AND, OF COURSE, CANNOT AFFECT THE PROHIBITION OF THE PRICE- LIMITING STATUTES, IRRESPECTIVE OF ANY ESTABLISHED POLICY OF THE RETAIL AUTOMOBILE SALES INDUSTRY NOT TO QUOTE PRICES LOWER THAN THOSE PRESCRIBED BY THE MANUFACTURERS OR TO TREAT OR CONSIDER, OR UNDERTAKE TO HAVE THE PURCHASING OFFICERS OF THE GOVERNMENT TO TREAT OR CONSIDER, AN EXCESSIVE TRADE-IN ALLOWANCE FOR USED VEHICLES AS A REDUCTION IN THE LIST PRICE OF NEW AUTOMOBILES. NO SOPHISTRY MAY BE INDULGED EITHER BY BIDDERS OR PURCHASING AGENCIES TO THE END THAT THE STATUTES MAY BE EVADED AND PASSENGER-CARRYING AUTOMOBILES BE PURCHASED AT A PRICE IN EXCESS OF $750, INCLUDING THE EXCHANGE VALUE OF USED VEHICLES.

IN THE PRESENT INSTANCE THE PRICE OF THE NEW AUTOMOBILES WAS $778.94 EACH. THAT WAS THE PRICE AT WHICH THEY WERE OFFERED, WHETHER ALL OF THE PURCHASE PRICE WAS PAID IN CASH OR A PART THEREOF BY THE EXCHANGE OR TRADE -IN OF USED VEHICLES. THE BID PRICE WAS $28.94 PER VEHICLE IN EXCESS OF THE MAXIMUM PRICE WHICH LEGALLY COULD BE PAID UNDER THE STATUTE, AND THE BID WAS NOT PROPERLY FOR CONSIDERATION.

THE PURCHASING OFFICERS OF THE GOVERNMENT NOT ONLY ARE PRESUMED TO BE FAMILIAR WITH THE LAW, AND IT IS EVIDENT FROM THE RECORD THAT THEY WERE, YET THE LAW WAS DISREGARDED IN AWARDING THE CONTRACT. ALSO, THE CONTRACTOR WAS CHARGED WITH KNOWLEDGE OF THE STATUTES PROHIBITING THE PURCHASE OF PASSENGER-CARRYING VEHICLES AT A PRICE INCLUDING THE EXCHANGE VALUE OF USED VEHICLES IN EXCESS OF $750. BOTH THE PURCHASING OFFICER AND THE CONTRACTOR VIOLATED THE LAW. CLARK V UNITED STATES, 95 U.S. 539. WAS SAID IN CONSOLIDATED SUPPLY CO. V UNITED STATES, 59 CT. CLS. 197:

* * * WHERE A STATUTE IN EXPRESS LANGUAGE CIRCUMSCRIBES THE AUTHORITY AND POWER OF AN OFFICER OF THE GOVERNMENT AND EXPRESSLY DIRECTS THE MANNER OF SECURING SUPPLIES OF THE CHARACTER HERE FURNISHED, WE ARE NOT, IN THE ABSENCE OF SOME PRECEDENT TO THAT EFFECT, AUTHORIZED IN HOLDING THE UNITED STATES LIABLE FOR A CONTRACT MADE IN DIRECT OPPOSITION TO EXISTING LAW.

* * * IF AN OFFICER OF THE GOVERNMENT IS POSITIVELY FORBIDDEN TO ENTER INTO A CONTRACT, AND IN ADDITION TO THIS IS MANDATORILY DIRECTED TO ACT IN A CERTAIN WAY UNDER PRESCRIBED CONDITIONS, HE MAY NOT DISREGARD THE MANDATE OF THE LAW AND OBLIGATE THE UNITED STATES IN SO DOING. HIS AUTHORITY TO ACT IS DERIVED FROM THE STATUTE.

AN ANALOGOUS RULE IS FOR APPLICATION HERE. THAT IS TO SAY, THE PRICE LIMITING STATUTES AT THE SAME TIME OPERATE TO CIRCUMSCRIBE THE AUTHORITY AND POWER OF THE PURCHASING AGENCIES OF THE GOVERNMENT AS TO THE MAXIMUM PRICE TO BE PAID FOR PASSENGER-CARRYING AUTOMOBILES AND TO MANDATORILY DIRECT THAT ALL PASSENGER-CARRYING AUTOMOBILES NOT EXCEPTED BE PURCHASED WITHIN THAT PRICE LIMIT. AN UNDERTAKING BY A GOVERNMENT DEPARTMENT OR AGENCY TO PURCHASE SUCH AUTOMOBILES AT A PRICE IN EXCESS OF THAT FIXED BY THE STATUTE IS "IN DIRECT OPPOSITION TO EXISTING LAW.'

THE ACCOUNTING OFFICERS OF THE GOVERNMENT ARE WITHOUT AUTHORITY TO SANCTION OR APPROVE THE ILLEGAL EXPENDITURE OF AN AMOUNT FOR THE PURCHASE OF PASSENGER-CARRYING AUTOMOBILES WHICH IS EXPRESSLY PROHIBITED BY STATUTE, WHETHER OR NOT THE ACTION IN ATTEMPTING THE EXPENDITURE IS TAKEN IN GOOD FAITH, AS SUGGESTED IN THE FINAL PARAGRAPH OF YOUR LETTER. FOLLOWS THAT THERE IS NO LEGAL AUTHORITY FOR MODIFICATION OF THE CONCLUSION REACHED IN MY DECISION OF JULY 7, 1937, 17 COMP. GEN. 7, WHICH MUST BE AND IS AFFIRMED.