B-133441, OCT. 17, 1957

B-133441: Oct 17, 1957

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YOU STATE THAT PAST TRANSACTIONS HAVE DEMONSTRATED A NEED FOR INCLUSION OF SUCH PROVISION TO FACILITATE THE PRIVATE FINANCING CONTEMPLATED BY TITLE XI AND TO ELIMINATE DOUBT AND CONCERN IN THE ADMINISTRATION OF ITS PROVISIONS IN THE EVENT OF DEFAULT BY THE MORTGAGOR OR BORROWER AND DEMAND FOR PAYMENT OF INSURANCE BY THE MORTGAGEE OR LENDER. IS THAT A GUARANTOR MAY SET OFF CLAIMS AGAINST THE GUARANTEE WHICH ARISE OUT OF THE CONTRACT OF GUARANTY BUT MAY NOT SET OFF CLAIMS ARISING OUT OF SEPARATE AND DISTINCT CONTRACTS. WE HAVE BEEN INFORMALLY ADVISED THAT IT IS NOT YOUR INTENTION TO WAIVE THE RIGHT TO SET OFF DEBTS OF THE MORTGAGEE ARISING OUT OF THE CONTRACT OF INSURANCE ITSELF AND THAT SUCH RIGHTS WILL BE PRESERVED BY SPECIFIC PROVISION IN THE CONTRACT.

B-133441, OCT. 17, 1957

TO HONORABLE CLARENCE G. MORSE, ADMINISTRATOR, MARITIME ADMINISTRATION:

YOUR LETTER DATED AUGUST 13, 1957, STATES THAT A QUESTION HAS ARISEN IN CONNECTION WITH THE PREPARATION OF STANDARD FORMS OF INSURANCE CONTRACTS FOR USE UNDER TITLE XI OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, AS TO WHETHER SUFFICIENT LEGAL AUTHORITY EXISTS TO WARRANT THE INSERTION OF A CLAUSE IN SUCH CONTRACTS WHEREBY THE GOVERNMENT WOULD WAIVE THE RIGHT TO SET OFF SUMS DUE THE UNITED STATES FROM THE INSURED AGAINST INSURANCE PAYABLE UNDER THE MORTGAGE INSURANCE CONTRACT.

YOU STATE THAT PAST TRANSACTIONS HAVE DEMONSTRATED A NEED FOR INCLUSION OF SUCH PROVISION TO FACILITATE THE PRIVATE FINANCING CONTEMPLATED BY TITLE XI AND TO ELIMINATE DOUBT AND CONCERN IN THE ADMINISTRATION OF ITS PROVISIONS IN THE EVENT OF DEFAULT BY THE MORTGAGOR OR BORROWER AND DEMAND FOR PAYMENT OF INSURANCE BY THE MORTGAGEE OR LENDER.

THE GENERAL RULE, AS STATED AT 28 C.J. 1014; 38 C.J.S. 1261, IS THAT A GUARANTOR MAY SET OFF CLAIMS AGAINST THE GUARANTEE WHICH ARISE OUT OF THE CONTRACT OF GUARANTY BUT MAY NOT SET OFF CLAIMS ARISING OUT OF SEPARATE AND DISTINCT CONTRACTS. THUS IT WOULD APPEAR THAT, TO THE EXTENT CLAIMS BY THE UNITED STATES AGAINST THE MORTGAGEE DO NOT ARISE OUT OF THE MORTGAGE INSURANCE CONTRACT, SET-OFF OF SUCH CLAIMS AGAINST AMOUNTS DUE THE MORTGAGEE WOULD BE OF DOUBTFUL VALIDITY. WE HAVE BEEN INFORMALLY ADVISED THAT IT IS NOT YOUR INTENTION TO WAIVE THE RIGHT TO SET OFF DEBTS OF THE MORTGAGEE ARISING OUT OF THE CONTRACT OF INSURANCE ITSELF AND THAT SUCH RIGHTS WILL BE PRESERVED BY SPECIFIC PROVISION IN THE CONTRACT.

SECTION 1103 AUTHORIZES THE SECRETARY OF COMMERCE TO MAKE COMMITMENTS TO INSURE MORTGAGES AND LOANS UPON SUCH TERMS AS HE MAY PRESCRIBE, AND SUCH AUTHORITY MUST NECESSARILY BE CONSTRUED TO GRANT SIMILAR LATITUDE IN PRESCRIBING THE TERMS OF THE INSURANCE CONTRACT ITSELF. ACCORDINGLY, IN THE EVENT THE SECRETARY OF COMMERCE CONCLUDES THAT A CLAUSE, EXPRESSLY WAIVING ANY RIGHT THE UNITED STATES MAY HAVE TO SET-OFF DEBTS ARISING OUTSIDE OF THE INSURANCE CONTRACT AGAINST INSURANCE PAYMENTS, IS NECESSARY IN FUTURE INSURANCE CONTRACTS TO FACILITATE THE PRIVATE FINANCING CONTEMPLATED BY TITLE II, NO OBJECTION TO SUCH PROCEDURE WILL BE INTERPOSED BY THIS OFFICE.