B-123738, JUN. 17, 1955

B-123738: Jun 17, 1955

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TREASURER OF THE UNITED STATES: REFERENCE IS MADE TO THE LETTER OF THE SPECIAL ASSISTANT TREASURER. WHICH WAS GRANTED TO ENABLE THE PAYEE TO PURCHASE CATTLE FEED. WHEN THE BANK REFUSED TO RESCIND ITS ACTION THE ADMINISTRATIVE OFFICE REQUESTED THAT PAYMENT BE STOPPED ON THE CHECK AND PAYMENT WAS DECLINED ON OCTOBER 22. IT APPEARS TO BE THE POSITION OF THE ADMINISTRATIVE OFFICE THAT IN THE INSTANT CASE THE BANK MAY NOT EXERCISE ITS RIGHT OF SET -OFF BECAUSE TO DO SO WOULD DIVERT THE PROCEEDS OF THE LOAN FROM THE PURPOSE FOR WHICH IT WAS GRANTED AND THE BANK HAD NOTICE OF THIS FACT. PROVIDES: "THE SECRETARY MAY MAKE LOANS TO FARMERS AND STOCKMEN WHO ARE CITIZENS OF THE UNITED STATES FOR THE PURCHASE OF LIVESTOCK.

B-123738, JUN. 17, 1955

TO MRS. IVY BAKER PRIEST, TREASURER OF THE UNITED STATES:

REFERENCE IS MADE TO THE LETTER OF THE SPECIAL ASSISTANT TREASURER, DATED FEBRUARY 9, 1955, FILE CC 455 MC, RELATIVE TO CHECK NO. 29,927,598, DRAWN OCTOBER 5, 1954, BY E. L. HLINAK, SYMBOL 408, FOR $1,500, TO THE ORDER OF JOSEE B. MATHOT.

THE CHECK REPRESENTS FUNDS LOANED TO THE PAYEE BY THE FARMERS HOME ADMINISTRATION UNDER THE BANKHEAD-JONES FARM TENANT ACT, AS AMENDED. THE PAYEE ENDORSED THE CHECK "PAY TO THE ORDER OF FIRST NATIONAL BANK, MARION, N.Y. - JOSEE MATHOT - ALBERT MATHOT.' AND MAILED IT TO THAT BANK FOR DEPOSIT TO A JOINT ACCOUNT WHICH SHE MAINTAINED WITH HER FATHER, ALBERT MATHOT. THE BANK CREDITED THE ACCOUNT WITH THE DEPOSIT, CHARGED THE ACCOUNT WITH PAST DUE OBLIGATIONS OWED TO IT BY JOSEE MATHOT IN THE AMOUNT OF $1,370.50, AND SURRENDERED TO HER ALL COLLATERAL HELD BY IT. THE RECORD INDICATES THAT THE BANK NOTIFIED THE PAYEE AT THE TIME OF ITS ACTION AND THE PAYEE AND THE LOCAL ADMINISTRATIVE OFFICE PROTESTED SUCH ACTION ON THE GROUND IT WOULD DEFEAT THE PURPOSE OF THE LOAN, WHICH WAS GRANTED TO ENABLE THE PAYEE TO PURCHASE CATTLE FEED. WHEN THE BANK REFUSED TO RESCIND ITS ACTION THE ADMINISTRATIVE OFFICE REQUESTED THAT PAYMENT BE STOPPED ON THE CHECK AND PAYMENT WAS DECLINED ON OCTOBER 22, 1954, PURSUANT TO SUCH REQUEST. YOU REQUEST TO BE ADVISED WHETHER THE CLAIM OF THE BANK FOR PAYMENT OF THE CHECK MAY BE ALLOWED OR WHETHER, PURSUANT TO THE REQUEST OF THE ADMINISTRATIVE OFFICE, THE BANK'S CLAIM SHOULD BE DENIED AND THE CHECK CANCELLED.

AT THE OUTSET, IT MAY BE NOTED THAT THE RIGHT OF A BANK TO SET OFF AGAINST A DEPOSIT THE PRE-EXISTING INDEBTEDNESS OWED TO IT BY A DEPOSITOR APPEARS TO BE WELL ESTABLISHED. SEE 9 C.J.S., BANKS AND BANKING, SECTIONS 296 AND 694. HOWEVER, IT APPEARS TO BE THE POSITION OF THE ADMINISTRATIVE OFFICE THAT IN THE INSTANT CASE THE BANK MAY NOT EXERCISE ITS RIGHT OF SET -OFF BECAUSE TO DO SO WOULD DIVERT THE PROCEEDS OF THE LOAN FROM THE PURPOSE FOR WHICH IT WAS GRANTED AND THE BANK HAD NOTICE OF THIS FACT.

SECTION 21 (A) OF THE BANKHEAD-JONES FARM TENANT ACT, AS AMENDED, 7 U.S.C. 1007 (A), PROVIDES:

"THE SECRETARY MAY MAKE LOANS TO FARMERS AND STOCKMEN WHO ARE CITIZENS OF THE UNITED STATES FOR THE PURCHASE OF LIVESTOCK, SEED,FEED, * * * AND OTHER FARM NEEDS, * * * THE REFINANCING OF EXISTING INDEBTEDNESS, AND FOR FAMILY SUBSISTENCE.'

SECTION 41 (I) OF THE ACT, 7 U.S.C. 1015 (I), AUTHORIZES THE SECRETARY OF AGRICULTURE TO MAKE SUCH RULES AND REGULATIONS AS HE DEEMS NECESSARY TO CARRY OUT THE ACT. THE REGULATIONS, 6 C.F.R. 342.3, UNDER THE HEADING OF "USE OF LOAN FUNDS," ALSO SPECIFY THE PURPOSES FOR WHICH LOANS MAY BE MADE. WHILE BOTH THE STATUTE AND THE REGULATIONS CLEARLY CONTROL THE DETERMINATION OF ELIGIBILITY OF APPLICANTS FOR LOANS, NEITHER THE STATUTE NOR THE REGULATIONS PURPORT TO THE AFFECT THE NEGOTIABILITY OF THE CHECK OR BIND PERSONS NOT PARTIES TO THE LOAN. IN OTHER WORDS, IT APPEARS THE ADMINISTRATIVE OFFICE CAN CONTROL WHETHER A LOAN IS TO BE MADE OR NOT INITIALLY, BUT ONCE THE LOAN IS MADE AND THE CHECK ISSUED IT DOES NOT APPEAR THAT THE ADMINISTRATIVE OFFICE PROPERLY MAY ASSERT A CONTINUING CONTROL OVER THE CHECK, AT LEAST WHEN IT COMES INTO THE HANDS OF ONE NOT A PARTY TO THE LOAN. THUS, IN THE INSTANT CASE IT WOULD BE IMMATERIAL WHETHER OR NOT THE BANK HAD NOTICE OF THE PURPOSE OF THE LOAN WHEN IT ACCEPTED THE CHECK FOR DEPOSIT, SINCE IT WAS NOT BOUND TO FURTHER THAT PURPOSE.

ACCORDINGLY, INASMUCH AS THE RECORD DISCLOSES NO PROPER BASIS FOR STOPPING PAYMENT OF THE CHECK, THE STOP PAYMENT ORDER SHOULD BE REMOVED AND THE CHECK PAID. IT IS REQUESTED, IN VIEW OF THE INTEREST OF SENATOR IRVING M. IVES AND REPRESENTATIVE KENNETH B. KEATING, THAT YOUR ACTION BE EXPEDITED.