A-44549, SEPTEMBER 30, 1932, 12 COMP. GEN. 383

A-44549: Sep 30, 1932

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INTEREST - PREPAYMENTS - DISCOUNTS THERE IS NO AUTHORITY IN THE UNITED STATES SHIPPING BOARD TO ALLOW 5 PERCENT DISCOUNT ON THE PREPAYMENT OF INTEREST ACCRUING AT THE SAME RATE UPON OBLIGATIONS DUE THE UNITED STATES WHICH WOULD AMOUNT IN EFFECT TO THE BORROWING OF PRIVATE FUNDS ON BEHALF OF THE GOVERNMENT. ONE FEATURE OF THIS SETTLEMENT WAS THAT THE SKINNER AND EDDY CORPORATION GAVE THE SHIPPING BOARD FIVE PROMISSORY NOTES. HAS RECENTLY TENDERED PAYMENT OF THE INTEREST WHICH WILL FALL DUE MARCH 15. THE AMOUNT OF INTEREST WHICH WILL BE DUE MARCH 15. ON THE PRESENT BALANCE OF THE OBLIGATION IS $27. 162.40 AND IF PAYMENT IS ACCEPTED ON THE DATE TENDERED. IT IS UNDERSTOOD THAT THE ALLOWANCE OF DISCOUNTS FOR PREPAYMENT OF INTEREST IS NOT UNUSUAL IN COMMERCIAL PRACTICE.

A-44549, SEPTEMBER 30, 1932, 12 COMP. GEN. 383

INTEREST - PREPAYMENTS - DISCOUNTS THERE IS NO AUTHORITY IN THE UNITED STATES SHIPPING BOARD TO ALLOW 5 PERCENT DISCOUNT ON THE PREPAYMENT OF INTEREST ACCRUING AT THE SAME RATE UPON OBLIGATIONS DUE THE UNITED STATES WHICH WOULD AMOUNT IN EFFECT TO THE BORROWING OF PRIVATE FUNDS ON BEHALF OF THE GOVERNMENT, PAYING INTEREST THEREFOR AT THAT RATE OF DISCOUNT.

COMPTROLLER GENERAL MCCARL TO THE CHAIRMAN OF THE UNITED STATES SHIPPING BOARD, SEPTEMBER 30, 1932:

THERE HAS BEEN RECEIVED YOUR LETTER OF SEPTEMBER 2, 1932, AS FOLLOWS:

ON MARCH 15, 1930, THE UNITED STATES SHIPPING BOARD ENTERED INTO AN AGREEMENT WITH THE SKINNER AND EDDY CORPORATION OF SEATTLE, WASHINGTON, TO SETTLE MUTUAL CLAIMS ARISING OUT OF VARIOUS RELATIONSHIPS BETWEEN THE PARTIES. ONE FEATURE OF THIS SETTLEMENT WAS THAT THE SKINNER AND EDDY CORPORATION GAVE THE SHIPPING BOARD FIVE PROMISSORY NOTES, EACH IN THE AMOUNT OF $500,000, AND BEARING THE INTEREST AT THE RATE OF 5 PERCENT, PAYABLE SEMIANNUALLY FROM MARCH 15, 1930, THE DATE OF THE NOTES.

THE SKINNER AND EDDY CORPORATION HAS PAID ALL INTEREST DUE TO SEPTEMBER 15, 1932, ON THE UNPAID BALANCE OF THE NOTES, AND HAS RECENTLY TENDERED PAYMENT OF THE INTEREST WHICH WILL FALL DUE MARCH 15, 1933, PROVIDED THAT A DISCOUNT OF 5 PERCENT BE ALLOWED INCONSIDERATION OF PREPAYMENT. THE AMOUNT OF INTEREST WHICH WILL BE DUE MARCH 15, 1933, ON THE PRESENT BALANCE OF THE OBLIGATION IS $27,162.40 AND IF PAYMENT IS ACCEPTED ON THE DATE TENDERED, SEPTEMBER 1, 1932, THE DISCOUNTED AMOUNT WOULD BE $26,455.71, OR $706.69 LESS THAN THE AMOUNT DUE MARCH 15, 1933.

IT IS UNDERSTOOD THAT THE ALLOWANCE OF DISCOUNTS FOR PREPAYMENT OF INTEREST IS NOT UNUSUAL IN COMMERCIAL PRACTICE, AND IS FREQUENTLY CONSIDERED TO BE IN THE BEST INTERESTS OF BUSINESS ON THE THEORY THAT PAYMENTS SHOULD BE ACCEPTED WHEN TENDERED, AND IF NOT THEN DUE, THE PAYER IS ENTITLED TO INTEREST (OR DISCOUNT) ON THE PAYMENT MADE.

THE PROPRIETY OF SUCH AN ARRANGEMENT IN THE CASE OF AN OBLIGATION OWED TO THE UNITED STATES OF AMERICA, ACTING BY AND THROUGH THE UNITED STATES SHIPPING BOARD, APPEARS, HOWEVER, TO BE SOMEWHAT UNCERTAIN, AND IT IS REQUESTED, THEREFORE, THAT YOU ADVISE WHETHER THE SHIPPING BOARD MAY PROPERLY ACCEPT PAYMENT OF INTEREST IN ADVANCE OF ITS DUE DATE AND ALLOW A DISCOUNT THEREON IN CONSIDERATION OF THE PREPAYMENT.

IT IS UNDERSTOOD THERE WAS A CASTING UP OF MUTUAL ACCOUNTS AND FOUND TO BE THEN DUE THE UNITED STATES FROM SKINNER AND EDDY CORPORATION SOME $2,500,000, WHICH THE DEBTOR WAS UNABLE OR NOT REQUIRED TO PAY IN CASH. IN LIEU OF IMMEDIATE PAYMENT THE CORPORATION WAS PERMITTED TO EXECUTE AND DELIVER TO THE GOVERNMENT ITS FIVE PROMISSORY NOTES, EACH FOR $500,000 AND BEARING INTEREST AT THE RATE OF 5 PERCENT PER ANNUM, PAYABLE SEMIANNUALLY, FROM DATE, MARCH 15, 1930. IT IS UNDERSTOOD ALL EARNED AND DUE INTEREST HAS BEEN RECEIVED BY THE GOVERNMENT AND THAT THE DEBTOR HAS NOW TENDERED THE INTEREST THAT HAS NOT BEEN EARNED BUT WHICH WILL BE EARNED AND DUE MARCH 15, 1933--- WITH A CONDITION, HOWEVER, THAT A DISCOUNT OF 5 PERCENT BE ALLOWED IN CONSIDERATION OF PREPAYMENT. THERE BEING NO INTEREST NOW DUE, THE ARRANGEMENT PROPOSED WOULD BE IN FACT AN ADVANCE TO OR A BORROWING OF THE AMOUNT BY THE GOVERNMENT AT 5 PERCENT INTEREST. NOT ONLY IS THE INTEREST RATE IN EXCESS OF THE RATE THE GOVERNMENT FINDS IT NECESSARY TO PAY FOR THE USE OF PRIVATE FUNDS, BUT, SO FAR AS THIS OFFICE IS AWARE, THERE EXISTS NO AUTHORITY IN YOUR BOARD TO BORROW PRIVATE FUNDS, AS SUGGESTED,ON BEHALF OF THE GOVERNMENT.

IF THE DEBTOR HAS FUNDS IT DESIRES TO EMPLOY IN CONNECTION WITH ITS INDEBTEDNESS, NO REASON IS SEEN WHY SUCH FUNDS MAY NOT AND SHOULD NOT BE EMPLOYED IN REDUCING THE PRINCIPAL OF SAID INDEBTEDNESS, AND THEREBY THE AMOUNT OF INTEREST ACCRUING HEREAFTER WILL BE LESSENED ACCORDINGLY.

IN SPECIFIC ANSWER TO THE QUESTION SUBMITTED, I HAVE TO ADVISE THAT WHILE THERE WOULD APPEAR TO BE NO LEGAL OBJECTION TO THE SHIPPING BOARD ACCEPTING PAYMENT OF INTEREST IN ADVANCE OF ITS DUE DATE, THERE IS NO AUTHORITY IN THE BOARD TO ALLOW A DISCOUNT THEREON IN CONSIDERATION OF THE PREPAYMENT.