A-59119, DECEMBER 22, 1934, 14 COMP. GEN. 483

A-59119: Dec 22, 1934

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

IS AN OUTSTANDING OBLIGATION OF THE UNITED STATES FOR WHICH APPROPRIATED FUNDS MUST REMAIN AVAILABLE TO HONOR ON PRESENTATION BY A BONA FIDE HOLDER. THIS COMMITMENT WAS MADE FOR THE PURPOSE OF PAYING GROUND RENTS DUE THE MISSOURI-KANSAS-TEXAS RAILROAD COMPANY OF TEXAS. CHECK NO. 5020 WAS ISSUED ON D.O. THIS CHECK WAS SENT BY MAIL TO THE FROST NATIONAL BANK OF SAN ANTONIO. THE SITUATION HAS NOW SO CHANGED THAT THE BORROWER IS NO LONGER DESIROUS OF OBTAINING THE AMOUNT OF THE CHECK FOR THE PURPOSE FOR WHICH IT WAS ORIGINALLY GRANTED. TO WHICH THE $700.50 WAS CHARGED ON AUGUST 9. THE BORROWER WAS REQUESTED TO OBTAIN A BOND OF INDEMNITY FOR THE ISSUANCE OF A DUPLICATE CHECK. IS ITS UNSECURED DEMAND NOTE.

A-59119, DECEMBER 22, 1934, 14 COMP. GEN. 483

LOST CHECKS - BOND OF INDEMNITY - LOANS BY FARM CREDIT ADMINISTRATION A CHECK FOR A FACILITY LOAN MADE BY THE FARM CREDIT ADMINISTRATION, SENT BY MAIL TO THE BORROWER BUT NOT RECEIVED BY HIM, IS AN OUTSTANDING OBLIGATION OF THE UNITED STATES FOR WHICH APPROPRIATED FUNDS MUST REMAIN AVAILABLE TO HONOR ON PRESENTATION BY A BONA FIDE HOLDER. THE CHECK BEING LOST BEFORE RECEIPT BY THE BORROWER, CREDIT FOR THE AMOUNT THEREOF ON THE LOAN MAY BE MADE ONLY AFTER THE EXECUTION OF A SURETY BOND TO INDEMNIFY THE UNITED STATES AS PROVIDED BY SECTION 3646, REVISED STATUTES, AS AMENDED.

COMPTROLLER GENERAL MCCARL TO THE GOVERNOR, FARM CREDIT ADMINISTRATION, DECEMBER 22, 1934:

THERE HAS BEEN RECEIVED YOUR LETTER OF DECEMBER 5, 1934, AS FOLLOWS:

ON JULY 24, 1933, THE FARM CREDIT ADMINISTRATION MADE A FACILITY LOAN COMMITMENT TO THE POULTRY PRODUCERS ASSOCIATION OF TEXAS, SAN ANTONIO, TEXAS, IN THE AMOUNT OF $700.50. THIS COMMITMENT WAS MADE FOR THE PURPOSE OF PAYING GROUND RENTS DUE THE MISSOURI-KANSAS-TEXAS RAILROAD COMPANY OF TEXAS. ON AUGUST 9, 1933, CHECK NO. 5020 WAS ISSUED ON D.O. VOUCHER NO. 1557, BY A. L. PETERSON, DISBURSING OFFICER, SYMBOL NO. 92/693, FOR $700.50, PAYABLE TO THE ORDER OF THE BORROWER AND CHARGEABLE TO THE AGRICULTURAL MARKETING REVOLVING FUND, SYMBOL NO. 0X567. THIS CHECK WAS SENT BY MAIL TO THE FROST NATIONAL BANK OF SAN ANTONIO, TEXAS, ON AUGUST 9, 1933, WITH INSTRUCTIONS THAT THE BANK SHOULD OBTAIN THE INDORSEMENT OF THE BORROWER AND ACT AS TRUSTEE OF THE FUNDS, IN ACCORDANCE WITH ARRANGEMENTS THERETOFORE MADE.

THIS CHECK HAS NEVER BEEN PRESENTED TO THE TREASURER OF THE UNITED STATES FOR PAYMENT, AND BOTH THE FROST NATIONAL BANK OF SAN ANTONIO AND THE BORROWER ALLEGE THAT IT HAS BEEN LOST. THE FARM CREDIT ADMINISTRATION HAS A DEMAND NOTE OF THE BORROWER, DATED JULY 24, 1933, FOR $700.50, AND THE SITUATION HAS NOW SO CHANGED THAT THE BORROWER IS NO LONGER DESIROUS OF OBTAINING THE AMOUNT OF THE CHECK FOR THE PURPOSE FOR WHICH IT WAS ORIGINALLY GRANTED.

IN ORDER THAT THE AMOUNT OF THE CHECK MIGHT BE CREDITED TO THE LOAN RECEIVABLE ACCOUNT, TO WHICH THE $700.50 WAS CHARGED ON AUGUST 9, 1933, THE BORROWER WAS REQUESTED TO OBTAIN A BOND OF INDEMNITY FOR THE ISSUANCE OF A DUPLICATE CHECK, AS REQUIRED BY SECTION 3646 OF THE REVISED STATUTES. ON OCTOBER 28, 1934, THE GENERAL MANAGER OF THE BORROWER ASSOCIATION PROTESTED AGAINST THE REQUIREMENT THAT THE BORROWER PAY THE EXPENSE OF PROVIDING THE REQUIRED INDEMNITY BOND, FOR THE REASON THAT THE ADVANCE UNDER THE LOAN COMMITMENT OF JULY 24, 1933, HAD NEVER ACTUALLY BEEN RECEIVED BY THE BORROWER. THE ONLY INSTRUMENT IN THE HANDS OF THE FARM CREDIT ADMINISTRATION, EVIDENCING THE OBLIGATION OF THE BORROWER ASSOCIATION TO PAY THIS MONEY, IS ITS UNSECURED DEMAND NOTE. IN CASES OF THIS KIND, WHERE A LOAN IS SUPPORTED BY COLLATERAL SECURITY WHICH THE BORROWER IS ANXIOUS TO HAVE RETURNED TO HIM, THERE IS SUCH AN INDUCEMENT THAT LITTLE OR NO DIFFICULTY IS EXPERIENCED IN OBTAINING THE REQUIRED BOND OF INDEMNITY, WHEREUPON THE DUPLICATE CHECK CAN BE ISSUED AND CANCELED, AND THE AMOUNT THEREOF CAN BE CREDITED TO THE LOAN, ENABLING THIS OFFICE TO CANCEL THE NOTE AND RETURN THE COLLATERAL SECURITY.

AS A GENERAL RULE, WHERE CHECKS ISSUED BY DISBURSING OFFICERS AND AGENTS OF THE UNITED STATES BECOME LOST, STOLEN, OR DESTROYED, EITHER THE ORIGINAL PAYEE OR LAWFUL HOLDER IS INTERESTED IN THE ISSUANCE OF A DUPLICATE CHECK IN ORDER THAT HE MAY RECEIVE THE PROCEEDS THEREOF, AND CAN READILY BE INDUCED TO PROVIDE THE REQUIRED BOND.

IN THE PRESENT CASE, THE SITUATION IS DECIDEDLY DIFFERENT. THE CHECK IS LOST AND THE ONLY ADVANTAGE TO BE GAINED BY THE BORROWER FROM THE EXECUTION OF A BOND OF INDEMNITY IS THE WAIVING OF AN INTEREST CHARGE ON THE LOAN AND THE RETURN OF THE NOTE. IN THE EVENT OF SUIT ON SUCH A NOTE, THE FARM CREDIT ADMINISTRATION WOULD, OF COURSE, BE UNABLE TO PROVE PAYMENT OF THE SUM BORROWED, IN THE ABSENCE OF THE CHECK BEARING THE INDORSEMENT OF THE BORROWER. AS THE RECORDS OF THIS OFFICE SHOW THAT THE $700.50 IS AN ACCOUNT RECEIVABLE OF THE UNITED STATES, AND AS SECTION 93, TITLE 31, U.S.C., REQUIRES THE GENERAL ACCOUNTING OFFICE TO SUPERINTEND THE RECOVERY OF ALL DEBTS FINALLY CERTIFIED BY IT TO BE DUE THE UNITED STATES, I AM REQUESTING INFORMATION RELATIVE TO THE STEPS WHICH YOUR OFFICE WISHES THE FARM CREDIT ADMINISTRATION TO TAKE, PRELIMINARY TO A FINAL ADJUSTMENT OF THIS MATTER.

IN THIS CONNECTION, IT SHOULD BE NOTED THAT MANY THOUSANDS OF CROP PRODUCTION LOANS, WHICH HAVE BEEN MADE BY THE FARM CREDIT ADMINISTRATION AND BY ITS PREDECESSOR, THE DEPARTMENT OF AGRICULTURE, HAVE BEEN SECURED BY CROP MORTGAGES FOR THE YEARS IN WHICH THE LOANS WERE MADE, AND THAT, UPON THE HARVESTING OF SUCH CROPS, IF THE LOANS ARE NOT FULLY PAID, THIS OFFICE IS IN POSSESSION OF MERELY THE NOTES EXECUTED BY THE BORROWERS. WHERE CHECKS ISSUED FOR LOAN PROCEEDS IN THESE CASES ARE LOST, DESTROYED, OR STOLEN BEFORE THEY HAVE BEEN NEGOTIATED BY THE PAYEES, A SIMILAR SITUATION TO THAT PRESENTED IN THE CASE OF THE POULTRY PRODUCERS ASSOCIATION OF TEXAS WILL ARISE.

IT IS ANTICIPATED THAT THE INFORMATION YOU MAY FURNISH RELATIVE TO THE POULTRY PRODUCERS ASSOCIATION OF TEXAS WILL BE OF ASSISTANCE TO THIS OFFICE IN HANDLING THESE OTHER SIMILAR CASES.

FROM THE STATEMENTS CONTAINED IN YOUR LETTER, IT APPEARS CLEAR THAT THE CHECK IN QUESTION IS AN OUTSTANDING OBLIGATION OF THE UNITED STATES FOR WHICH THE APPROPRIATED FUNDS MUST REMAIN AVAILABLE TO HONOR ON PRESENTATION. UNTIL THE CHECK IS PRESENTED, IT CANNOT BE DETERMINED WHETHER IT HAS BEEN NEGOTIATED OR OTHERWISE DISPOSED OF BY THE PAYEE THEREOF, AND THE TAKING OF ANY ACTION IN CONNECTION WITH THE DISPOSITION OF THE PROCEEDS OF ANY SUCH CHECK PRIOR TO THE ASCERTAINING OF THE FACTS WOULD CLEARLY BE IMPROPER. IT BEING ALLEGED THE CHECK IS LOST, THE MATTER IS FOR TREATING THE SAME AS ANY OTHER CASE OF A LOST, STOLEN, OR DESTROYED CHECK, AND PAYMENT MAY BE MADE OR CREDIT GIVEN THEREFOR ON THE LOAN ONLY AFTER THE EXECUTION OF A SURETY BOND TO INDEMNIFY THE UNITED STATES AS PROVIDED BY SECTION 3646, REVISED STATUTES, AS AMENDED, AND REGULATIONS MADE PURSUANT THERETO. A-11066, JANUARY 2, 1926. IF THE PAYEE REFUSES TO FURNISH A BOND OF INDEMNITY, NO ACTION MAY BE TAKEN BY YOUR ADMINISTRATION OTHER THAN REPORTING THE FACTS OF THE ALLEGED LOST CHECK TO THE TREASURER OF THE UNITED STATES REQUESTING STOPPAGE OF PAYMENT THEREON.