A-55264, JUNE 1, 1934, 13 COMP. GEN. 404

A-55264: Jun 1, 1934

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THE RATE OF INTEREST CONTEMPLATED IS A HIGHER RATE THAN 2 1/2 PERCENT PER ANNUM. A RESOLUTION ADOPTED BY A GOVERNMENT AGENCY STIPULATING THAT A LOAN WILL BE MADE UPON APPLICATION WHEN CERTAIN CONDITIONS ARE MET. DOES NOT CONSTITUTE A LOAN AGREEMENT WITHIN THE MEANING OF THE STATUTE REQUIRING THE RATE OF INTEREST ON SUCH LOAN TO BE FIXED AS OF THE TIME "THE LOAN AGREEMENT IS ENTERED INTO.'. THE LOAN AGREEMENT IS NOT ENTERED INTO UNTIL SUCH CONDITIONS HAVE BEEN MET. THE APPLICATION IS MADE AND ACCEPTED AND THE DEFINITE AMOUNT OF SUCH LOAN IS FIXED AND ALLOCATED. 1934: THERE IS BEFORE THIS OFFICE FOR CONSIDERATION THE RATE OF INTEREST CHARGEABLE ON LOAN ADVANCES MADE BY YOUR ADMINISTRATION TO THE COTTON GROWERS ASSOCIATION.

A-55264, JUNE 1, 1934, 13 COMP. GEN. 404

LOANS UNDER AGRICULTURAL MARKETING ACT - INTEREST UNDER SECTION 8 (A) OF THE AGRICULTURAL MARKETING ACT OF JUNE 15, 1929, 46 STAT. 11, PROVIDING THAT THE RATE OF INTEREST TO BE CHARGED ON A LOAN BY THE GOVERNMENT SHALL BE A RATE EQUAL TO THE LOWEST RATE OF YIELD OF ANY OUTSTANDING GOVERNMENT OBLIGATION EXCEPT POSTAL SAVINGS BONDS, THE RATE OF INTEREST CONTEMPLATED IS A HIGHER RATE THAN 2 1/2 PERCENT PER ANNUM, THE RATE PROVIDED FOR POSTAL SAVINGS BONDS. A RESOLUTION ADOPTED BY A GOVERNMENT AGENCY STIPULATING THAT A LOAN WILL BE MADE UPON APPLICATION WHEN CERTAIN CONDITIONS ARE MET, DOES NOT CONSTITUTE A LOAN AGREEMENT WITHIN THE MEANING OF THE STATUTE REQUIRING THE RATE OF INTEREST ON SUCH LOAN TO BE FIXED AS OF THE TIME "THE LOAN AGREEMENT IS ENTERED INTO.' THE LOAN AGREEMENT IS NOT ENTERED INTO UNTIL SUCH CONDITIONS HAVE BEEN MET, THE APPLICATION IS MADE AND ACCEPTED AND THE DEFINITE AMOUNT OF SUCH LOAN IS FIXED AND ALLOCATED.

COMPTROLLER GENERAL MCCARL TO THE GOVERNOR OF THE FARM CREDIT ADMINISTRATION, JUNE 1, 1934:

THERE IS BEFORE THIS OFFICE FOR CONSIDERATION THE RATE OF INTEREST CHARGEABLE ON LOAN ADVANCES MADE BY YOUR ADMINISTRATION TO THE COTTON GROWERS ASSOCIATION, OKLAHOMA CITY, OKLA., IN THE AMOUNT OF $188,505.34 AND TO THE COTTON COOPERATIVE ASSOCIATION, DALLAS, TEX., IN THE AMOUNT OF $18,827.04, COVERED BY VOUCHERS 1494 AND 1495, RESPECTIVELY, IN THE AUGUST 1933 ACCOUNTS OF A. L. PETERSON, DISBURSING CLERK, FARM CREDIT ADMINISTRATION.

SECTION 8 (A) OF THE AGRICULTURAL MARKETING ACT OF JUNE 15, 1929, 46 STAT. 11, UNDER WHICH APPARENTLY THE LOANS WERE MADE, PROVIDES AS FOLLOWS:

LOANS TO ANY COOPERATIVE ASSOCIATION OR STABILIZATION CORPORATION AND ADVANCES FOR INSURANCE PURPOSES SHALL BEAR INTEREST AT A RATE OF INTEREST PER ANNUM EQUAL TO THE LOWEST RATE OF YIELD (TO THE NEAREST ONE-EIGHTH OF 1 PERCENTUM) OF ANY GOVERNMENT OBLIGATION BEARING A DATE OF ISSUE SUBSEQUENT TO APRIL 6, 1917 (EXCEPT POSTAL SAVINGS BONDS), AND OUTSTANDING AT THE TIME THE LOAN AGREEMENT IS ENTERED INTO OR THE ADVANCE IS MADE BY THE BOARD, AS CERTIFIED BY THE SECRETARY OF THE TREASURY TO THE BOARD UPON ITS REQUEST: * * *.

THE FEDERAL FARM BOARD, ON AUGUST 4, 1930, ADOPTED A RESOLUTION RECOMMENDING THAT THE AMERICAN COTTON COOPERATIVE ASSOCIATION SHOULD HANDLE COMPLICATIONS ARISING FROM THE SALE OF CERTAIN COTTON BY THE OKLAHOMA COTTON GROWERS ASSOCIATION, THE TEXAS COTTON COOPERATIVE ASSOCIATION, AND THE SOUTHWESTERN IRRIGATED COTTON GROWERS ASSOCIATION TO TATA AND SONS OF JAPAN; THAT THE BOARD WOULD, ON THE REQUEST OF THE AMERICAN COTTON COOPERATIVE ASSOCIATION, MAKE ARRANGEMENTS FOR FINANCING THE TRANSACTION FOR THE AMERICAN COTTON COOPERATIVE ASSOCIATION; THAT THE FEDERAL FARM BOARD, AFTER THE LOSS TO THE RESPECTIVE ASSOCIATIONS HAD BEEN DETERMINED BY THE SALE OF THE COTTON INVOLVED, WOULD, UPON APPLICATION, LOAN TO THE RESPECTIVE ASSOCIATIONS INVOLVED SUMS SUFFICIENT TO MEET THEIR DEFICIT ON SAID TRANSACTIONS, SAID FUNDS TO BE REPAYABLE IN THREE EQUAL ANNUAL INSTALLMENTS DUE IN 1, 2, AND 3 YEARS AFTER THE DATE OF THE ADVANCE, SUCH ADVANCES TO BE REPRESENTED BY NOTES OF THE SEVERAL ASSOCIATIONS PAYABLE TO THE FEDERAL FARM BOARD; AND THAT SAID LOANS WOULD BE MADE ONLY UPON PRESENTATION BY THE AMERICAN COTTON COOPERATIVE ASSOCIATION OF FULL AND COMPLETE ACCOUNTING FOR THE VARIOUS TRANSACTIONS.

AT THE TIME THIS RESOLUTION WAS PASSED, THE RATE OF INTEREST APPLICABLE WAS THAT PRESCRIBED IN SECTION 8 (A) OF THE AGRICULTURAL MARKETING ACT OF 1929, SUPRA. THIS SECTION OF THE ACT, HOWEVER, WAS AMENDED BY SECTION 54 OF THE FARM CREDIT ACT OF JUNE 16, 1933, 48 STAT. 257, ET SEQ., TO PROVIDE THAT LOANS TO ANY COOPERATIVE ASSOCIATION SHOULD BEAR INTEREST AT A RATE NOT LESS THAN 3 PERCENT PER ANNUM. BY ORDER ENTERED JUNE 20, 1933, AMENDED AUGUST 2, 1933, THE LOAN ADVANCES HERE IN QUESTION WERE APPROVED BY THE FARM CREDIT ADMINISTRATION, SUCCESSOR TO THE FEDERAL FARM BOARD. THE VOUCHERS COVERING THE ADVANCES PROVIDED FOR PAYMENT OF INTEREST AT THE RATE OF 1 3/8 PERCENT PER ANNUM, RATHER THAN AT THE RATE OF 3 PERCENT AS PROVIDED IN THE ACT OF 1933, AND CARRIED THE NOTATION WITH REFERENCE TO THE RATE OF INTEREST "AUGUST 4, 1930, DATE OF LOAN AGENT.'

IN EXPLANATION OF THE RATE OF INTEREST, A MEMORANDUM FROM H. N. WEIGANDT, TREASURER, UNDER DATE OF APRIL 13, 1934, STATES THAT IT WAS CONSIDERED BY THE OFFICE OF THE TREASURER OF THE FARM CREDIT ADMINISTRATION THAT THE LOANS WERE APPROVED AUGUST 4, 1930, AND THAT WHILE IT IS TRUE THAT THE APPROVAL OF AUGUST 4, 1930, DID NOT MAKE COMMITMENTS OF ANY DEFINITE SUMS OF MONEY, IT DID MAKE COMMITMENTS OF INDEFINITE AMOUNTS.

THE BASIS FOR THIS CONCLUSION IS NOT UNDERSTOOD. THE ORIGINAL ACT OF 1929, AS WELL AS THE AMENDMENT OF 1933, PROVIDES FOR A RATE OF INTEREST TO BE FIXED AT THE TIME THE LOAN AGREEMENT IS MADE. SEE IN THIS CONNECTION 9 COMP. GEN. 120. THE PURPORTED RESOLUTION OF AUGUST 4, 1930, IS NOT A LOAN AGREEMENT WITHIN THE MEANING OF THE LAW. SAID RESOLUTION PROVIDED IN SPECIFIC TERMS THAT UPON APPLICATION, THE BOARD WOULD LOAN TO THE RESPECTIVE ASSOCIATIONS SUCH FUNDS AS REPRESENTED ACTUAL LOSSES TO THEM. INSTEAD OF THE "LOAN AGREEMENT" THE RESOLUTION MUST BE CONSIDERED MERELY AS AN ANNOUNCEMENT OF THE POLICY TO BE FOLLOWED BY THE BOARD IN DEALING WITH THE SITUATION PRESENTED BY THE MATTER, AND BY ITS OWN TERMS MADE PROVISION FOR THE BASIS ON WHICH A LOAN AGREEMENT COULD BE NEGOTIATED AND MADE.

UNDER SUCH CIRCUMSTANCES AND UNDER THE FACTS APPEARING, IT MUST BE HELD THAT THERE WAS NO LOAN AGREEMENT MADE IN THESE CASES UNTIL AFTER THE ACT OF JUNE 16, 1933, BECAME EFFECTIVE, AND THAT THE RATE OF INTEREST SHOULD BE AT THE RATE PROVIDED FOR UNDER THAT ACT.

ASIDE FROM THE QUESTION OF THE DATE OF THE LOAN AGREEMENT IN THESE CASES, ATTENTION IS INVITED TO THE RECENT CASE OF THE BALTIMORE MAIL STEAMSHIP COMPANY V. THE UNITED STATES, IN THE UNITED STATES DISTRICT COURT OF MARYLAND, L NO. 4910, APRIL 20, 1934, IN WHICH THERE WAS CONSTRUED A PROVISION OF LAW PRACTICALLY THE SAME AS THAT CONTAINED IN SECTION 8 (A) OF THE AGRICULTURAL MARKETING ACT OF 1929, THAT IS TO SAY, A RATE OF INTEREST "EQUAL TO THE LOWEST RATE OF YIELD OF ANY GOVERNMENT OBLIGATION BEARING A DATE OF ISSUE SUBSEQUENT TO APRIL 6, 1917 (EXCEPT POSTAL SAVINGS BONDS)," ETC. THE COURT HELD THAT THE LOWEST RATE OF YIELD MUST BE TAKEN TO MEAN THE NET RETURN TO THE ORIGINAL SUBSCRIBER OR INVESTOR, THAT IS TO SAY, THE COST TO THE GOVERNMENT OF SECURING THE MONEY BY ISSUING THE SECURITIES, AND THAT SINCE POSTAL SAVINGS BONDS BEARING A RATE OF INTEREST OF 2 1/2 PERCENT PER ANNUM WERE SPECIFICALLY EXCLUDED BY THE LAW THE APPARENT INTENT OF THE LAW WAS THAT A HIGHER RATE OF INTEREST THAN 2 1/2 PERCENT WAS CONTEMPLATED. IF THE SAME PRINCIPLE BE APPLIED TO THE PRESENT CASE, IT IS READILY APPARENT THAT A HIGHER RATE OF INTEREST THAN 1 3/8 PERCENT--- PROBABLY AT LEAST 3 PERCENT--- SHOULD BE CHARGED ON THE ADVANCES MADE ON THE LOANS HERE IN QUESTION EVEN IF IT SHOULD BE CONSIDERED THAT THE PROVISIONS IN THE ORIGINAL ACT OF 1929 ARE FOR APPLICATION.

IN VIEW OF THE FOREGOING, IT IS REQUESTED THE PROPER ADMINISTRATIVE ACTION BE TAKEN FOR THE FIXING OF A RATE OF INTEREST AS REQUIRED BY LAW ON THE LOANS IN QUESTION. MEANWHILE, CREDIT FOR THE ADVANCES MADE BY THE DISBURSING OFFICERS OF YOUR ADMINISTRATION WILL BE SUSPENDED IN THE ACCOUNTS UNTIL THERE IS SUBMITTED EVIDENCE THAT THE LOAN AGREEMENTS COVERING SUCH ADVANCES PROVIDE FOR A PROPER RATE OF INTEREST AS REQUIRED BY LAW.