B-135884, APRIL 27, 1959, 38 COMP. GEN. 722

B-135884, APRIL 27, 1959, 38 COMP. GEN. 722

MARITIME MATTERS - VESSEL CONSTRUCTION - LOAN GUARANTY AUTHORITY A VESSEL FINANCING PLAN UNDER WHICH THE MARITIME ADMINISTRATION WOULD ASSUME ADDITIONAL DUTIES AND OBLIGATIONS AS A GUARANTOR FOR THE CONSTRUCTION FUND SO THAT BOND PURCHASERS WOULD BE ASSURED THAT THE GOVERNMENT IS OBLIGATED FOR FULL PAYMENT OF BONDS AND VESSEL OWNERS WOULD HAVE THE BENEFITS OF FINANCING AT LOW INTEREST RATES MAY NOT BE REGARDED AS WITHIN THE AUTHORITY OF THE MARITIME ADMINISTRATION WHICH MAY BE NECESSARILY IMPLIED UNDER THE PROVISIONS OF THE MERCHANT MARINE ACT, 1936, AND SUCH PLAN SHOULD NOT BE IMPLEMENTED IN THE ABSENCE OF APPROPRIATE LEGISLATIVE AUTHORITY.

TO THE ADMINISTRATOR, MARITIME ADMINISTRATION, APRIL 27, 1959:

YOUR LETTER DATED JANUARY 22, 1959, OUTLINES A PLAN BY WHICH AMERICAN PRESIDENT LINES PROPOSES TO FINANCE THE COST OF CONSTRUCTING TWO NEW VESSELS AND TO OBTAIN MORTGAGE AND LOAN INSURANCE ON SUCH FINANCING PURSUANT TO TITLE XI OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, 46 U.S.C. 1271.

UNDER THIS PLAN THE COMPANY PROPOSES TO RAISE APPROXIMATELY $15,000,000, REPRESENTING 75 PERCENT OF THE ACTUAL COST OF THESE VESSELS AS DEFINED IN TITLE XI OF THE ACT, BY ISSUING BONDS DESIGNATED AS " UNITED STATES GOVERNMENT-1INSURED MERCHANT MARINE BONDS" AND BY THE SALE OF SUCH BONDS TO THE PUBLIC. AT THE TIME OF SUCH SALE, IT IS PROPOSED TO DEPOSIT AN AMOUNT EQUAL TO THE FACE AMOUNT OF THE BONDS, PLUS AN AMOUNT SUFFICIENT TO COVER INTEREST ON THE BONDS UNTIL SUCH TIME AS THE BONDS BECOME FULLY INSURED UNDER THE PROVISIONS OF TITLE XI, INTO A CONSTRUCTION FUND TO BE HELD BY THE UNITED STATES. AMOUNTS IN THIS FUND WOULD THEN BE VESTED IN GOVERNMENT OBLIGATIONS UNDER CONDITIONS WHICH WOULD INSURE ITS AVAILABILITY AND, ALTHOUGH NOT SPECIFICALLY STATED IN YOUR LETTER, WE UNDERSTAND THAT SUCH AMOUNTS WOULD THEN BE DRAWN UPON DURING THE PERIOD OF VESSEL CONSTRUCTION TO MAKE PROGRESS PAYMENTS TO THE SHIPBUILDER AND TO MAKE PAYMENTS TO A TRUSTEE TO MEET INTEREST PAYMENTS ON THE BONDS.

DURING THE CONSTRUCTION PERIOD THE SECURITY FOR THE BONDS WOULD INCLUDE AN ASSIGNMENT OF AMERICAN PRESIDENT LINES' RIGHTS UNDER THE CONSTRUCTION CONTRACTS TO THE TRUSTEE, WHO WOULD BE AUTHORIZED, UPON COMPLETION OF EACH VESSEL, TO ACCEPT A MORTGAGE ON THE VESSEL IN SUBSTITUTION OF THE CONSTRUCTION LOAN SECURITY, AT WHICH TIME THE MATURITY DATE OF THE BONDS WOULD AUTOMATICALLY BE EXTENDED TO A DATE NOT MORE THAN 20 YEARS FROM THE DATE OF DELIVERY OF THE COMPLETED VESSEL. UNDER THIS PROCEDURE YOU ADVISE THAT THE BONDS WOULD BECOME FULLY INSURED AT SUCH TIME AS 75 PERCENT OF THE AMOUNTS PAID AND OBLIGATED TO BE PAID ("ACTUAL COST" OF THE VESSEL FOR INSURANCE PURPOSES UNDER TITLE XI) EQUALS THE FACE AMOUNT OF THE BONDS, OR, IN THE EVENT THE FACE AMOUNT OF THE BONDS EXCEEDED 75 PERCENT OF "ACTUAL COST," SUCH EXCESS AMOUNT IN THE CONSTRUCTION FUND WOULD BE AVAILABLE FOR THE REDEMPTION OF UNINSURED BONDS AND THE PAYMENT OF ACCRUED INTEREST THEREON.

YOU STATE THAT THE PRINCIPAL FEATURE OF THIS PROPOSAL IS THE ASSUMPTION BY THE GOVERNMENT OF THE OBLIGATION TO ACT AS ESCROW AGENT FOR THE CONSTRUCTION FUND SO THAT BOND PURCHASERS MAY BE ASSURED THAT THE GOVERNMENT IS OBLIGATED, BY VIRTUE OF ITS DUAL FUNCTIONS OF INSURER AND ESCROW AGENT, FOR FULL PAYMENT OF ALL BONDS DURING THE CONSTRUCTION PERIOD, WHEREAS THE OBLIGATION OF THE GOVERNMENT SOLELY AS INSURER WOULD BE LIMITED, UNDER THE PROVISO TO SECTION 1101 (F), 46 U.S.C. 1271 (F), TO 75 PERCENT OF THE AMOUNT PAID BY OR FOR THE ACCOUNT OF THE BORROWER. THE GOVERNMENT WOULD LIKEWISE BE OBLIGATED, AFTER COMPLETION OF THE VESSEL, FOR PAYMENT OF THE AMOUNTS OF ALL BONDS ISSUED IN EXCESS OF 75 PERCENT OF "ACTUAL COST," EVEN THOUGH THE MORTGAGE INSURANCE OBLIGATION OF THE GOVERNMENT IS LIMITED TO 75 PERCENT OF ACTUAL COST BY THE SAME PROVISO. BENEFITS TO THE BORROWER ARE EXPECTED IN THE FORM OF LOWER INTEREST RATES, THE EXTENSION OF INVESTMENT OPPORTUNITY IN BONDS OF THIS TYPE TO THOSE INVESTORS WHO MAY INVEST ONLY IN OBLIGATIONS INSURED BY THE GOVERNMENT OR OBLIGATIONS FOR PAYMENT OF WHICH THE GOVERNMENT HOLDS FUNDS, SAVINGS IN COMMITMENT FEES, AND OTHER COSTS WHICH WOULD BE INCURRED IN THE ABSENCE OF THE SUGGESTED ARRANGEMENT. IN THIS CONNECTION, WE ARE ADVISED BY MEMBERS OF YOUR STAFF THAT ONE OF THE SOURCES EXPECTED TO BE MADE AVAILABLE FOR FINANCING OF SHIP CONSTRUCTION UNDER THE PROPOSED PLAN CONSISTS OF THE FUNDS OF NATIONAL AND OTHER COMMERCIAL BANKS, THE INVESTMENT OF WHICH IS PRESENTLY LIMITED BY SECTION 5136, REVISED STATUTES, AS AMENDED, 12 U.S.C. 24, TO 10 PERCENTUM OF PAID IN AND UNIMPAIRED CAPITAL STOCK AND 10 PERCENTUM OF UNIMPAIRED SURPLUS FUNDS IN THE OBLIGATIONS OF ONE OBLIGOR, UNLESS SUCH INVESTMENT IS IN OBLIGATIONS OF THE UNITED STATES.

IN VIEW OF THE ABOVE YOU EXPRESS THE VIEW THAT THE MARITIME ADMINISTRATION MAY, IN CONJUNCTION WITH THE INSURANCE OF LOANS AND MORTGAGES UNDER TITLE XI, ENTER INTO AGREEMENTS FOR THE PERFORMANCE OF FIDUCIARY FUNCTIONS SUBSTANTIALLY AS OUTLINED ABOVE, AND THAT SUCH AGREEMENTS WOULD FALL WITHIN THE CLASS OF AGREEMENTS THAT THE MARITIME ADMINISTRATION IS AUTHORIZED TO ENTER INTO UNDER SECTION 207 OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, 46 U.S.C. 1117, TO CARRY OUT THE PURPOSES AND PROVISIONS OF TITLE XI OF THE ACT. ADDITIONALLY, YOUR SUPPLEMENTAL LETTER DATED MARCH 16 INDICATES YOU HAVE MADE A DETERMINATION THAT THE EXECUTION OF APPROPRIATE AGREEMENTS FOR THE PERFORMANCE OF FIDUCIARY FUNCTIONS SUBSTANTIALLY IN ACCORDANCE WITH THE PROPOSAL OUTLINED IN YOUR LETTER OF JANUARY 22 IS NECESSARY IN ORDER TO CARRY OUT THE ACTIVITIES AUTHORIZED BY THE ACT. STATED BRIEFLY, SUCH DETERMINATION APPEARS TO BE BASED UPON YOUR CONCLUSION THAT SECTION 207 OF THE ACT AUTHORIZES THE MARITIME ADMINISTRATION TO EXECUTE SUCH CONTRACTS AS MAY, IN ITS DISCRETION, BE NECESSARY TO CARRY ON ACTIVITIES AUTHORIZED BY THE ACT, AND UPON YOUR FURTHER CONCLUSION THAT PERFORMANCE OF THE FIDUCIARY FUNCTIONS CONTEMPLATED BY THE PROPOSED PLAN ARE NECESSARY TO THE PERFORMANCE OF ACTIVITIES AUTHORIZED AND REQUIRED UNDER TITLES V, VI, AND XI OF THE ACT, 46 U.S.C. 1151, 1171, AND 1271. IN EXPLANATION THEREOF YOUR LETTER OF MARCH 16 POINTS OUT THAT THE BASIC FUNCTION OF THE MARITIME ADMINISTRATION IS TO FOSTER THE DEVELOPMENT AND MAINTENANCE OF A PRIVATELY OWNED MERCHANT MARINE AND THAT PROPER DISCHARGE OF THE ADMINISTRATION'S FUNCTIONS WITH RESPECT TO CONSTRUCTION-DIFFERENTIAL SUBSIDY UNDER TITLE V AND OPERATING DIFFERENTIAL SUBSIDY UNDER TITLE VI MAKE IT INCUMBENT UPON THE ADMINISTRATION TO INSURE THAT VESSEL REPLACEMENT OBLIGATIONS ARE ACCOMPLISHED AT THE LOWEST POSSIBLE COST TO THE OWNER. YOU FURTHER POINT OUT THAT TITLE XI AUTHORIZES THE USE OF THE TRUST INDENTURE AS A DEVICE FOR THE SALE OF BONDS TO THE "BROADEST POSSIBLE MARKET," PLACES A CEILING ON THE INTEREST RATE OF LOANS WHICH MAY BE INSURED, AND PLEDGES THE FAITH AND CREDIT OF THE UNITED STATES TO THE PAYMENT OF INSURANCE OBLIGATIONS. ACCORDINGLY, SINCE YOU BELIEVE THE PROPOSED PLAN WOULD OFFER THE LOWEST INTEREST RATES AND FINANCING COSTS TO THE OWNER AND, IN ADDITION, WOULD OFFER POTENTIAL BENEFITS TO THE GOVERNMENT IN THE FORM OF SMALLER AMOUNTS OF UNPAID INSURED INTEREST IN THE EVENT OF DEFAULT, TOGETHER WITH INCREASED POSSIBILITY OF EXCESS PROFIT RECAPTURE UNDER TITLE VI, IT IS YOUR CONCLUSION THAT THE PRODUCTION OF LOW INTEREST RATES AND THE REDUCTION OF FINANCING COSTS IS OF SUCH CONCERN AND SO RELATED TO THE ACCOMPLISHMENT OF THE PROGRAM AND PURPOSES OF THE ACT AS TO PERMIT THE ADMINISTRATION TO ACT AS A TRUSTEE OF THE PROCEEDS FROM BOND SALES UNDER THE RULE OF STATUTORY CONSTRUCTION WHICH STATES THAT A DUTY OR POWER WHICH IS IMPOSED OR CONFERRED BY A STATUTE ALSO IMPLIES AUTHORITY TO DO ALL THINGS NECESSARY TO CARRY OUT THE STATUTORY DIRECTIVE. HOWEVER, BEFORE TAKING FURTHER ACTION, YOU REQUEST OUR ADVICE AS TO WHETHER WE SEE ANY OBJECTION TO THE PROPOSAL OR TO THE VIEWS OF THE MARITIME ADMINISTRATION AS STATED ABOVE.

WHILE IT IS TRUE THAT THE BASIC FUNCTION OF THE MARITIME ADMINISTRATION, AS SET OUT IN SECTION 101 OF THE ACT, 46 U.S.C. 1101, IS TO FOSTER THE DEVELOPMENT AND ENCOURAGE THE MAINTENANCE OF A PRIVATELY OWNED MERCHANT MARINE, THE AUTHORITY GRANTED TO THE ADMINISTRATION IN SECTION 207 DOES NOT PERMIT THE EXECUTION OF ALL CONTRACTS WHICH MAY BE DETERMINED NECESSARY OR DESIRABLE TO ACCOMPLISH THIS BASIC FUNCTION. ON THE CONTRARY, SUCH CONTRACTING AUTHORITY IS SPECIFICALLY LIMITED TO ACTIVITIES WHICH ARE AUTHORIZED BY THE REMAINING PROVISIONS OF THE ACT. DETERMINING WHETHER THE ADMINISTRATION MAY EXECUTE CONTRACTS WHICH ARE CONSIDERED BENEFICIAL IN ACCOMPLISHING ITS BASIC FUNCTION, BUT WHICH WOULD REQUIRE THE ASSUMPTION OF DUTIES AND OBLIGATIONS NOT SPECIFICALLY AUTHORIZED BY THE ACT, IT MUST FIRST BE DETERMINED WHETHER THE NATURE OF THOSE ACTIVITIES WHICH ARE SPECIFICALLY AUTHORIZED IS SUCH THAT AUTHORITY TO EXECUTE THE CONTRACTS IN QUESTION MUST BE IMPLIED IF THE SPECIFIED FUNCTIONS, DUTIES, OR OBJECTIVES OF THE ACT ARE TO BE ACCOMPLISHED. PROPERLY INTERPRETED, THE CONTRACTUAL PROVISIONS OF SECTION 207 WOULD THEREFORE APPEAR TO BE NO MORE THAN A RESTATEMENT OF THE RULE OF NECESSARY IMPLICATION IN STATUTORY CONSTRUCTION TO WHICH YOUR LETTER OF MARCH 16 REFERS AND WHICH IS SET OUT IN SECTION 5402, SUTHERLAND, STATUTORY CONSTRUCTION, AS FOLLOWS:

WHERE A STATUTE CONFERS POWERS OR DUTIES IN GENERAL TERMS, ALL POWERS AND DUTIES INCIDENTAL AND NECESSARY TO MAKE SUCH LEGISLATION EFFECTIVE ARE INCLUDED BY IMPLICATION.

THE PHRASE "NECESSARY IMPLICATION," WHICH IS DERIVED FROM THIS RULE, REFERS TO A LOGICAL, NOT A PHYSICAL NECESSITY, AND IMPLIES THAT NO OTHER INTERPRETATION IS PERMITTED BY THE WORDS OF THE STATUTE. IT MEANS AN IMPLICATION WHICH RESULTS FROM SO STRONG A PROBABILITY OF INTENTION THAT AN INTENTION CONTRARY TO THAT IMPUTED CANNOT BE SUPPOSED. 42 C.J.S. 405; UNITED STATES V. JONES, 204 F.2D 745, 754; CERTIORARI DENIED 346 U.S. 854; REHEARING DENIED 346 U.S. 905. AND A STATUTE WILL NOT BE EXTENDED TO INCLUDE SITUATIONS BY IMPLICATION WHERE THE LANGUAGE OF THE STATUTE IS SPECIFIC AND NOT SUBJECT TO REASONABLE DOUBT. SECTION 5402, SUTHERLAND, STATUTORY CONSTRUCTION; 82 C.J.S. 633 634. MOREOVER, TO AUTHORIZE THE SUPPLYING OF A POWER BY IMPLICATION, INFERENCE, OR PRESUMPTION OF INENTION, IT IS NOT SUFFICIENT THAT THE ACT IS ADVANTAGEOUS OR CONVENIENT TO THE MAJOR POWER CONFERRED, OR EVEN EFFECTUAL IN THE EXERCISE OF IT. CREAGER V. HIDALGO COUNTY WATER IMPROVEMENT DISTRICT NO. 4, 283 S.W. 151, 152; COMMONWEALTH OF MASSACHUSETTS V. UNITED N. AND S. DEVELOPMENT CO. ET AL., 168 S.W.2D 226, 229.

ACCORDINGLY, IN DETERMINING WHETHER THE MARITIME ADMINISTRATION IS AUTHORIZED TO EXECUTE A CONTRACT TO ACCOMPLISH THE PLAN PRESENTLY PROPOSED, IT WOULD APPEAR PROPER TO EXAMINE THE SPECIFIC POWERS AND DUTIES IMPOSED BY TITLES V, VI, AND XI OF THE ACT IN THE LIGHT OF THE RULE OF "NECESSARY IMPLICATION" AS SET OUT IN THE AUTHORITIES QUOTED ABOVE.

THE PROVISIONS OF TITLE V ARE DESIGNED TO AFFORD AUTHORIZATION FOR THE PAYMENT OF CONSTRUCTION-DIFFERENTIAL SUBSIDIES TO EQUALIZE THE DOMESTIC AND FOREIGN COST OF VESSEL CONSTRUCTION, IN WHICH THE PAYMENT OF LOAN INTEREST IS NOT A CONSIDERED FACTOR, WHILE TITLE VI IS DESIGNED TO AUTHORIZE THE PAYMENT OF OPERATING-DIFFERENTIAL SUBSIDIES BASED UPON THE DIFFERENCE BETWEEN THE COST OF FOREIGN AND AMERICAN FLAG OPERATION, IN WHICH INTEREST BECOMES A FACTOR ONLY FOR EXCESS PROFIT RECAPTURE PURPOSES. WHILE IT UNDOUBTEDLY IS A PROPER FUNCTION OF THE MARITIME ADMINISTRATION TO ENGAGE IN SUCH ACTIVITIES AS MAY BE NECESSARY TO INSURE THAT OPERATORS ACCOMPLISH VESSEL CONSTRUCTION AND OPERATION AS ECONOMICALLY AND EFFICIENTLY AS POSSIBLE. WE ARE OF THE OPINION THAT THE PROVISIONS OF THESE TITLES CONFER NO IMPLIED AUTHORITY UPON THE MARITIME ADMINISTRATION TO ASSUME DUTIES AND OBLIGATIONS TO PERSONS, SUCH AS LENDERS OR TRUSTEES FOR BONDHOLDERS, WHO ARE NOT PARTIES TO CONTRACTS EXECUTED UNDER TITLES V AND VI, AND FOR PURPOSES WHICH ARE NOT DIRECTLY RELATED TO THE PAYMENT OF SUBSIDIES UNDER SUCH CONTRACTS. THE SUBSIDY AID CONTEMPLATED BY TITLES V AND VI OF THE ACT APPEARS TO HAVE BEEN ACCOMPLISHED SUCCESSFULLY FOR MORE THAN 20 YEARS WITHOUT ASSUMPTION BY THE GOVERNMENT OF FIDUCIARY FUNCTIONS WHICH MIGHT RESULT IN LOWER INTEREST RATES TO VESSEL OWNERS, AND SUCH SUCCESSFUL OPERATION WOULD APPEAR TO CONCLUSIVELY REBUT ANY CONTENTION THAT AUTHORITY TO ASSUME FIDUCIARY FUNCTIONS TO PRODUCE LOWER INTEREST RATES THAN THE MAXIMUM PRESCRIBED IN TITLE XI MUST BE IMPLIED IF THE PURPOSES OF TITLE V AND VI ARE TO BE ACCOMPLISHED. THE EXTENT TO WHICH CONGRESS INTENDED THE MARITIME ADMINISTRATION TO ASSUME ADDITIONAL DUTIES AND OBLIGATIONS TO ASSURE THAT THE BENEFITS OF FINANCING AT LOW INTEREST RATES WOULD BE BESTOWED UPON VESSEL OWNERS MUST BE PRESUMED TO HAVE BEEN FULLY EXPRESSED IN THE LOAN AND MORTGAGE INSURANCE PROVISIONS OF TITLE XI. IT IS THEREFORE OUR OPINION THAT ANY AUTHORITY OF THE ADMINISTRATION TO PARTICIPATE IN THE PLAN PRESENTLY PROPOSED MUST BE FOUND IN THAT TITLE ALONE.

THE SALE OF BONDS UNDER A TRUST INDENTURE AND THE INSURANCE OF SUCH BONDS UNDER TITLE XI WERE FIRST AUTHORIZED UNDER THE PROVISIONS OF PUBLIC LAW 781, 83D CONGRESS. SEE SECTION 1101 (D), 46 U.S.C. 1271 (D). SPECIFIC PROVISION WAS MADE THEREIN FOR THE INSURANCE OF BONDS ISSUED TO FINANCE A COMBINED CONSTRUCTION AND MORTGAGE LOAN. SEE SECTION 1103 (C), 46 U.S.C. 1273 (C). ADDITIONALLY, THIS LAW PROVIDED THAT 5 PERCENT (OR 6 PERCENT UNDER STATED CONDITIONS) SHOULD BE THE MAXIMUM INTEREST PAYABLE ON INSURED LOANS (SECTIONS 1104 (A) (5) AND 1104 (B) (6), 46 U.S.C. 1274 (A) (5) AND 1274 (B) (6) ); DEFINED "ACTUAL COST" AS THE SUM OF THE AMOUNTS PAID, PLUS THE AMOUNTS OBLIGATED TO BE PAID, BY OR FOR THE ACCOUNT OF THE BORROWER (SECTION 1101 (F) ); LIMITED THE AMOUNT OF INSURANCE ISSUED TO 75 PERCENT (OR 87 1/2 PERCENT IN CERTAIN CASES) OF SUCH ACTUAL COST (SECTIONS 1104 (A) (2) AND 1104 (B) (4), 46 U.S.C. 1274 (A) (2) AND 1274 (B) (4) ); AND LIMITED THE AMOUNT OF INSURANCE PAYABLE IN THE EVENT OF DEFAULT TO 90 PERCENT (OR 100 PERCENT IN THE CASE OF SPECIAL PURPOSE VESSELS) OF 75 PERCENT OF THE AMOUNT ACTUALLY PAID BY OR FOR THE ACCOUNT OF THE BORROWER (SECTIONS 1103 (A) AND 1103 (B), 46 U.S.C. 1273 (A) AND 1273 (B) ). CONCERNING THE INTEREST RATE PROVISIONS OF TITLE XI, IT IS OUR OPINION THAT THE LEGISLATIVE HISTORY OF PUBLIC LAW 781 INDICATES THAT SECTIONS 1104 (A) (5) AND 1104 (B) (6), IMPOSING A CEILING OF 5 PERCENTUM ON THE INTEREST RATE OF BONDS SECURED BY INSURED LOANS AND MORTGAGES AND PROVIDING FOR AN INCREASE TO 6 PERCENTUM IN SUCH RATE IF THE SECRETARY OF COMMERCE DETERMINES THAT THE LENDING MARKET DEMANDS IT, WERE PREDICATED UPON THE ASSUMPTION THAT IT SHOULD BE THE MARITIME ADMINISTRATION'S SOLE RESPONSIBILITY IN THIS AREA TO REFUSE INSURANCE WHERE THE INTEREST RATE WAS CONSIDERED TOO HIGH, RATHER THAN TO ASSUME FUNCTIONS WHICH WOULD RESULT IN INTEREST RATES BELOW THAT WHICH WOULD BE OFFERED BY THE LENDING MARKET IN THE ABSENCE OF SUCH FUNCTIONS. SEE PAGES 68-69, 107-108, 119- 120, HOUSE HEARINGS ON H.R. 8637, 83D CONGRESS; PAGES 27-28, 40-41, 101, SENATE HEARINGS ON S. 3219, 83D CONGRESS. YOUR SUPPLEMENTAL LETTER OF MARCH 16 CONTAINS NUMEROUS REFERENCES TO PORTIONS OF THE LEGISLATIVE HISTORY OF PUBLIC LAW 85-520, 46 U.S.C. 1275 (B), WHICH SPEAK OF THE DESIRABILITY OF LOW INTEREST RATES, IN SUPPORT OF YOUR CONCLUSION THAT THE MARITIME ADMINISTRATION IS JUSTIFIED IN ACTING AS TRUSTEE UNDER THE PROPOSED PLAN IN ORDER TO ASSURE THAT VESSEL OWNERS MAY OBTAIN THE LOWEST POSSIBLE INTEREST RATE. HOWEVER, PUBLIC LAW 85-520 IS DIRECTED ONLY TO ASSURING THAT FUNDS ARE AVAILABLE TO DISCHARGE THE GOVERNMENT'S OBLIGATION UNDER THE INSURANCE CONTRACT IN THE EVENT OF DEFAULT, AND THE TESTIMONY WITH RESPECT TO THE DESIRABILITY OF LOW INTEREST RATES TO WHICH YOU HAVE REFERRED APPEARS TO BE DIRECTED SOLELY TO THE FACT THAT FAILURE OF THE GOVERNMENT TO MEET ITS INSURANCE OBLIGATIONS PROMPTLY UPON DEFAULT MIGHT BE EXPECTED TO FORCE INTEREST RATES UPWARD AND THUS COMPLETELY NULLIFY THE INTENDED EFFECT OF TITLE XI INSURANCE. WE ARE, THEREFORE, UNABLE TO AGREE WITH YOUR CONCLUSION THAT THE HISTORY OF THAT LAW LENDS ANY SUPPORT TO YOUR CONTENTION THAT IT IS INCUMBENT UPON THE MARITIME ADMINISTRATION TO ACT AS TRUSTEE AND GUARANTOR UNDER THE PROPOSED PLAN IN ORDER TO ASSURE THE "LOWEST POSSIBLE INTEREST RATE" TO VESSEL OPERATORS.

IN THIS CONNECTION, IT SHOULD BE NOTED THAT A PROPOSED AMENDMENT TO S. 3219, 83D CONGRESS, WHICH BILL SUBSEQUENTLY WAS ENACTED AS PUBLIC LAW 781, WOULD HAVE SPECIFICALLY EXEMPTED BONDS INSURED UNDER TITLE XI FROM THE PROVISIONS OF SECTION 5136, REVISED STATUTES, AS AMENDED, 12 U.S.C. 24, SO AS TO MAKE SUCH BONDS ELIGIBLE FOR PURCHASE WITHOUT RESTRICTION BY NATIONAL AND OTHER COMMERCIAL BANKS. SEE PAGES 41-42 AND 111-112, SENATE HEARINGS ON S. 3219, 83D CONGRESS. THIS PROPOSAL WAS NOT ADOPTED BY THE SENATE INTERSTATE AND FOREIGN COMMERCE COMMITTEE AND WE ARE UNABLE TO OVERLOOK THE FACT THAT CONGRESS, WHEN CONFRONTED IN THE PAST WITH THE QUESTION WHETHER BONDS WHICH ARE NOT FULLY INSURED BY THE GOVERNMENT SHOULD BE CONSIDERED OBLIGATIONS OF THE UNITED STATES FOR PURPOSES OF UNRESTRICTED INVESTMENT BY NATIONAL BANKS, HAS SEEN FIT TO AMEND SECTION 5136, REVISED STATUTES, TO SPECIFICALLY AUTHORIZE SUCH INVESTMENT. THIS CONNECTION, SEE PAGES 111-112, AND 113 OF SENATE HEARINGS ON S. 3219, WHERE IT IS INDICATED THAT THE SENATE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE WOULD HAVE REQUIRED FURTHER JUSITIFICATION BEFORE RECOMMENDING THAT COMMERCIAL BANKS BE PERMITTED TO INVEST, FREE OF THE LIMITATIONS SET OUT IN SECTION 5136, REVISED STATUTES, IN INSURED MARITIME BONDS.

UNDER THE PROVISO TO SECTION 1101 (F) OF THE ACT NO LIABILITY ARISES ON THE PART OF THE UNITED STATES UNTIL SOME AMOUNT HAS BEEN PAID TO THE SHIPBUILDER, AND EVEN THEN LIABILITY IS LIMITED BY THE AMOUNT SO PAID WITHOUT REFERENCE TO THE FACE AMOUNT OF BONDS WHICH MAY BE OUTSTANDING. HOWEVER, ADOPTION OF THE PLAN PROPOSED BY AMERICAN PRESIDENT LINES WOULD RESULT, FOR ALL PRACTICAL PURPOSES, IN THE UNITED STATES BECOMING A GUARANTOR OF THE FULL FACE AMOUNT OF ALL BONDS ISSUED, PLUS INTEREST, FROM THE TIME OF ISSURANCE UNTIL SUCH BONDS, AS A RESULT OF PROGRESS AND OTHER PAYMENTS TO THE SHIPBUILDER, WERE FULLY INSURED UNDER THE LOAN AND MORTGAGE CONTRACTS. FROM YOUR LETTER OF JANUARY 22 AND CONVERSATIONS WITH MEMBERS OF YOUR STAFF AND OTHER INTERESTED PARTIES, WE UNDERSTAND THAT BONDS INSURED UNDER TITLE XI WOULD NOT BE CLASSIFIED AS OBLIGATIONS OF THE UNITED STATES WITHIN THE MEANING OF SECTION 5136, REVISED STATUTES, AS AMENDED, IF THE OBLIGATION OF THE UNITED STATES UNDER THE PROVISO TO SECTION 1101 (F) AND THE INSURANCE CONTRACT, DURING THE PERIOD OF VESSEL CONSTRUCTION, IS LIMITED BY THE AMOUNTS ACTUALLY PAID TO THE SHIPBUILDER, BUT THAT SUCH BONDS MIGHT REASONABLY BE EXPECTED TO BE CLASSIFIED AS OBLIGATIONS OF THE UNITED STATES IF THE MARITIME ADMINISTRATION IS PERMITTED TO ASSUME THE ADDITIONAL DUTIES AND OBLIGATIONS OF TRUSTEE UNDER THE PROPOSED PLAN. IT THEREFORE APPEARS THAT INSTITUTION OF THE PROPOSED PLAN WOULD ACCOMPLISH THE SAME RESULT, BY ADMINISTRATIVE ACTION, THAT THE CONGRESS, IN CONSIDERING THE VARIOUS AMENDMENTS TO TITLE XI, DID NOT SEE FIT TO ACCOMPLISH BY LEGISLATION IN THE FORM OF AN AMENDMENT TO SECTION 5136, REVISED STATUTES.

WHILE THE LEGISLATIVE HISTORY OF PUBLIC LAW 781 WOULD APPEAR TO INDICATE THAT THE PROVISO TO SECTION 1101 (F) WAS DESIGNED PRIMARILY TO PREVENT WINDFALLS IN THE FORM OF EXCESSIVE LOANS TO VESSEL OPERATORS BASED ON ESTIMATES OR APPRAISALS IN EXCESS OF ACTUAL COSTS, IT CANNOT BE DISPUTED THAT THE EFFECT OF THIS PROVISO, AS A MATTER OF LAW, IS TO MAKE THE EXTENT OF THE GOVERNMENT'S LIABILITY UNDER A TITLE XI INSURANCE CONTRACT CONTINGENT UPON AMOUNTS PAID TO THE SHIPBUILDER RATHER THAN UPON THE AMOUNT OF THE LOAN AND THE INSURANCE CONTRACT. IT MUST BE ASSUMED THAT THE CONGRESS, IN ENACTING THIS PROVISO, AND IN AUTHORIZING THE USE OF TRUST INDENTURES IN THE SAME AMENDATORY LEGISLATION, WAS AWARE OF THE FACT THAT THE PROVISO WOULD OPERATE, DURING CONSTRUCTION OF THE VESSEL, TO EXTEND ONLY PARTIAL INSURANCE COVERAGE TO BONDS ISSUED UNDER TRUST INDENTURE. SEE 21 COMP. GEN. 510 AND CASES CITED THEREIN. IN VIEW THEREOF ANY ACTION BY YOUR ADMINISTRATION WHICH WOULD RESULT IN THE GOVERNMENT BECOMING A GUARANTOR, DURING CONSTRUCTION OF A VESSEL, OF THAT PORTION OF THE BOND ISSUE WHICH IS NOT COVERED BY TITLE XI INSURANCE, MIGHT WELL BE SUBJECT TO CRITICISM BY THE CONGRESS AS AN UNAUTHORIZED, AND PERHAPS UNWARRANTED, EXTENSION OF THE INTENDED PURPOSE OF TITLE XI.

IN THIS CONNECTION, YOUR ATTENTION IS INVITED TO THE LANGUAGE OF THE COURT IN WABASH R. CO. V. UNITED STATES, 178 F.5, 11-12, WHICH READS AS FOLLOWS:

BUT THE POWER WAS CONFERRED AND THE DUTY WAS IMPOSED UPON THE MEMBERS OF CONGRESS, AND NOT UPON THE COURTS, TO DETERMINE WHETHER OR NOT THESE EXCEPTIONS TO THE EXPRESS TERMS OF THE PROVISO SHOULD BE MADE. * * *

THE BILL, THE DEBATES UPON IT, AND THE ACT FAIL TO CONVINCE THAT THE MEMBERS OF CONGRESS EVER HAD ANY INTENTION TO MAKE ANY OF THESE EXCEPTIONS. IF HOWEVER, SUCH AN INTENTION EVER EXISTED, IT WAS A SECRET INTENTION THAT IS NOT EXPRESSED IN THE STATUTE. AND IT IS THE INTENTION EXPRESSED IN THE STATUTE, AND THAT ALONE, TO WHICH THE COURTS MAY LAWFULLY GIVE EFFECT. THEY MAY NOT ASSUME OR PRESUME PURPOSES AND INTENTION THAT THE TERMS OF THE LAW DO NOT INDICATE, AND THEN ENACT AND EXPUNGE PROVISIONS TO CARRY OUT THOSE SUPPOSED INTENTIONS. * * *

ADDITIONALLY, WE NOTE THAT SECTION 1104 (F), 46 U.S.C. 1274 (F), DIRECTS THAT ALL MONEYS RECEIVED UNDER THE PROVISIONS OF TITLE XI SHALL BE DEPOSITED INTO THE FEDERAL SHIP MORTGAGE INSURANCE FUND ESTABLISHED UNDER SECTION 1102, 46 U.S.C. 1272. SINCE FUNDS TO BE HELD IN ESCROW UNDER THE PROPOSED PLAN WOULD BE RECEIVED ONLY IN CONNECTION WITH THE TITLE XI INSURANCE ACTIVITIES OF THE ADMINISTRATION, IT WOULD APPEAR PROPER TO ALSO CLASSIFY SUCH FUNDS AS MONEYS RECEIVED UNDER THE PROVISIONS OF TITLE XI. HOWEVER, THE TRUST NATURE OF THESE FUNDS, THE USE PROPOSED, AND THE ACCOUNTING INVOLVED WOULD APPEAR TO PRECLUDE THEIR DEPOSIT INTO THE SHIP MORTGAGE INSURANCE FUND AND TO REQUIRE ESTABLISHMENT AND ADMINISTRATION OF SEPARATE TRUST FUND ACCOUNTS IN BOTH THE MARITIME ADMINISTRATION AND THE TREASURY DEPARTMENT FOR EACH VESSEL FINANCED UNDER THE PLAN. THE FAILURE OF CONGRESS TO AMEND SECTION 1104 (F) AT THE TIME INSURANCE OF LOANS FINANCED BY BOND ISSUES WAS AUTHORIZED WOULD APPEAR TO LEND ADDITIONAL WEIGHT TO THE CONCLUSION THAT THE MARITIME ADMINISTRATION WAS NOT INTENDED TO ACT AS A FISCAL OR DISBURSING AGENT FOR THE MORTGAGORS IN AID OF AGREEMENTS BETWEEN MORTGAGORS AND LENDERS.

IN VIEW OF THE ABOVE, AND OF OUR UNDERSTANDING THAT FINANCING WITH THE AID OF TITLE XI INSURANCE IS AVAILABLE WITHIN THE MAXIMUM INTEREST RATES PRESCRIBED BY THE ACT WITHOUT HAVING THE UNITED STATES ACT AS TRUSTEE OR DEPOSITARY UNDER THE PROPOSED PLAN, IT IS OUR OPINION THAT BOTH THE PROVISIONS OF TITLE XI AND THE LEGISLATIVE HISTORY OF PUBLIC LAW 781 OPERATE TO PRECLUDE APPLICATION OF THE RULE OF "NECESSARY IMPLICATION" TO SUPPORT EXECUTION OF AN AGREEMENT TO ASSUME THE ADDITIONAL FUNCTIONS AND OBLIGATIONS CONTEMPLATED BY THE PROPOSED PLAN.

WHILE IT IS TRUE, AS CONTENDED BY COUNSEL FOR AMERICAN PRESIDENT LINES AND FOR LEHMAN BROTHERS IN A SUPPLEMENTAL BRIEF SUBMITTED TO THIS OFFICE UNDER DATE OF APRIL 17, THAT SECTIONS 1103 (A) AND (B) AUTHORIZE THE ISSUANCE OF COMMITMENTS TO INSURE MORTGAGES AND LOANS "UPON SUCH TERMS AS THE SECRETARY OF COMMERCE MAY PRESCRIBE," SUCH AUTHORIZATION APPEARS TO HAVE BEEN PROVIDED SOLELY FOR THE PURPOSE OF ASSURING PROSPECTIVE LENDERS THAT A CONSTRUCTION OR MORTGAGE LOAN, ONCE EXECUTED, WOULD BE INSURED UNDER TITLE XI. THE AUTHORITY OF THE SECRETARY WITH RESPECT TO THE INSURANCE CONTRACT ITSELF IS LIMITED BY THESE SAME SECTIONS SO AS TO REQUIRE HIM "TO INSURE AS HEREINAFTER PROVIDED," AND THERE IS NO INDICATION IN THE REMAINING PROVISIONS OF TITLE XI THAT THE UNITED STATES IS TO ASSUME ANY DUTIES OR RESPONSIBILITIES UNDER THE INSURANCE CONTRACT OTHER THAN THOSE WHICH WOULD BE NECESSARY TO THE DISCHARGE OF ITS OBLIGATIONS AS AN INSURER IN THE EVENT OF DEFAULT BY THE BORROWER. THE EXTENT TO WHICH THE UNITED STATES MAY BE OBLIGATED BY THE COMMITMENT TO INSURE MAY NOT EXCEED THE EXTENT TO WHICH IT MAY BE OBLIGATED UNDER THE INSURANCE CONTRACT, AND THE DISCRETION OF THE SECRETARY WITH RESPECT TO THE TERMS OF INSURANCE COMMITMENTS UNDER SECTIONS 1103 (A) AND (B) IS THEREFORE LIMITED TO DETERMINATIONS WITH RESPECT TO THE NATURE AND EXTENT OF THE OBLIGATIONS WHICH THE BORROWER AND LENDER MAY BE REQUIRED TO ASSUME IN ORDER TO PROTECT ADEQUATELY THE INTERESTS OF THE UNITED STATES. VIEWED IN CONNECTION WITH OUR CONCLUSIONS ON THE REMAINING PROVISIONS OF THE ACT AS SET OUT ABOVE, IT IS OUR OPINION THAT SECTIONS 1103 (A) AND (B) DO NOT AUTHORIZE THE EXECUTION OF EITHER A COMMITMENT TO INSURE OR AN INSURANCE CONTRACT WHICH WOULD OBLIGATE THE UNITED STATES TO ACT AS A TRUSTEE OR DEPOSITARY UNDER THE PROPOSED PLAN.

CONCEDING THAT BENEFITS TO OUR MERCHANT MARINE MIGHT BE ANTICIPATED AS A RESULT OF OBTAINING THE LOWEST POSSIBLE INTEREST RATE ON INSURED CONSTRUCTION AND MORTGAGE LOANS, AND THAT POTENTIAL BENEFITS MIGHT ACCRUE TO THE UNITED STATES, IN THE FORM OF REDUCED LIABILITY IN THE EVENT OF DEFAULT AND GREATER POSSIBILITY OF PROFIT RECAPTURE UNDER OPERATING- DIFFERENTIAL SUBSIDY CONTRACTS, WE ARE NEVERTHELESS OF THE OPINION THAT ANY INTERPRETATION OF THE PRESENT PROVISIONS OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, WHICH WOULD AUTHORIZE THE MARITIME ADMINISTRATION TO ACT AS TRUSTEE OF THE PROCEEDS OF THE SALE OF TITLE XI LOAN AND MORTGAGE BONDS WOULD CONSTITUTE LEGISLATION BY STATUTORY CONSTRUCTION. IT IS THEREFORE OUR CONCLUSION THAT THE PROPOSED PLAN SHOULD NOT BE IMPLEMENTED IN THE ABSENCE OF APPROPRIATE LEGISLATION SPECIFICALLY AUTHORIZING YOUR ADMINISTRATION TO ACCEPT, ADMINISTER, AND ACCOUNT FOR THE INVOLVED FUNDS.