CONTRACTS TO PURCHASE ALCOHOLIC BEVERAGES
Proprietors of Distilled Spirits Plants,
Wineries, Breweries, Wholesale Liquor and
Beer Dealers and Others Concerned:
Purpose. This circular is issued to advise proprietors of the
possibility of being found in violation of section 5 of the Federal
Alcohol Administration Act by virtue of sales contracts obtained
from the U. S. military or other trade buyers.
Background. The Department of Defense generally requires that
purchases of goods and articles for resale at military installations
be made in such manner and under such conditions as shall obtain the
most advantageous terms of purchase. Recently, officers' clubs,
consolidated package stores, and other nonappropriated fund activities
at some military bases have sought to implement this requirement by
soliciting bids from wholesale liquor dealers for the sale of their
beer or other alcoholic beverages to such activities, and then
entering into contracts to purchase the activities' requirements of
such beverages from the dealers submitting the lowest bids. As in
previous, situations where commercial dealers have attempted to obtain
certain purchasing advantages through contracts with wholesalers and
other proprietors, the contracts being awarded by the Armed Forces
with respect to distilled spirits, wines, and beer have been found
to conflict with the proscriptions in section 5 of the FAA Act.
Areas of Conflict. It is recognized that a primary purpose for
accepting bids and awarding contracts to purchase is to obtain the
most favorable price. However, discounts offered to obtain such
contracts would constitute violations of the FAA Act if the transac-
tions involved fall within the provisions of sections 5(a) through
5(d) of the Act. Thus, while the Bureau would not object to the
customary discounts being given with respect to volume purchases, a
purchasing arrangement could result in a dealer being found in
violation of the FAA Act if it is determined that the discount is a
subterfuge for granting financial assistance, that a purchasing
agreement establishing an exclusive outlet has been made, or that
the transactions involve any of the other practices proscribed by
the above cited sections of the Act.
If, in order to secure the desired discount, the retailer
(including nonappropriated fund activities on military bases) agrees
to buy all or any portion of his future requirements for alcoholic
beverages from the wholesaler with whom the contract is made, such
wholesaler, on accepting the contract, will have established an
exclusive outlet proscribed by section 5(a) of the FAA Act, and will
have violated the quota sales prohibition of section 5(b)(7) of the
Act.
Proprietors should bear in mind that several opinions of this
Bureau have interpreted the phrase, "To require, by agreement or
otherwise...," as including mere contractual agreements unaccompanied
by any coercion. Also, the mere fact that the trade buyer solicits
the transactions does not insulate a permittee or brewer from liabi-
lity under section 5 of the FAA Act.
Inquiries. Inquiries concerning this circular should refer to
its number and be addressed to the Assistant Director, Regulatory
Enforcement, Bureau of Alcohol, Tobacco and Firearms, 1200 Pennsylvania
Avenue, N. W., Washington, D. C. 20226.
Rex D. Davis
Director |