B-136271, JUL. 10, 1958

B-136271, JUL. 10, 1958

TO HONORABLE WENDELL B. BARNES, ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION:

YOUR LETTER OF MAY 22, 1958, REQUESTS OUR DECISION REGARDING THE LIQUIDATION OF VARIOUS DEBTS TRANSFERRED TO YOUR AGENCY BY REORGANIZATION PLAN NO. 1 OF 1957.

BY REORGANIZATION PLAN NO. 1 OF 1957, ALL OF THE DISASTER LOAN FUNCTIONS OF THE RECONSTRUCTION FINANCE CORPORATION WHICH WERE NOT TRANSFERRED TO THE SMALL BUSINESS ADMINISTRATION BY REORGANIZATION PLAN NO. 2 OF 1954, AND ALL MATTERS ARISING OUT OF THE RECONSTRUCTION FINANCE CORPORATION'S FINANCIAL-ASSISTANCE PROGRAMS TO BUSINESS ENTERPRISES EXCEPT THOSE RELATING TO ASSISTANCE TO RAILROADS, FINANCIAL INSTITUTIONS, INSURANCE COMPANIES, AND CERTAIN OTHER SPECIFIC EXCEPTIONS WERE TRANSFERRED TO THE ADMINISTRATOR OF THE SMALL BUSINESS ADMINISTRATION. REORGANIZATION PLAN NO. 1 OF 1957 ALSO TRANSFERRED TO THE SMALL BUSINESS ADMINISTRATION THE PERTINENT ASSETS AND LIABILITIES OF THE RECONSTRUCTION FINANCE CORPORATION RELATING TO THE FUNCTIONS TRANSFERRED. YOU SAY THAT INCLUDED IN THE TRANSFER WERE NUMEROUS LOANS, EVIDENCED BY PROMISSORY NOTES, MADE TO BUSINESS ENTERPRISES AND VICTIMS OF FLOODS OR OTHER DISASTERS.

IN CONNECTION WITH THE LIQUIDATION OF ONE OF THE LOANS TRANSFERRED YOU REQUEST OUR DECISION ON THE FOLLOWING:

"1. WHETHER IN THE LIQUIDATION OF THE VARIOUS DEBTS TRANSFERRED BY SAID REORGANIZATION PLAN SUCH DEBTS ARE ENTITLED TO THE PRIORITY AVAILABLE TO THE UNITED STATES PURSUANT TO SECTION 3466 OF THE REVISED STATUTES; AND

"2. IN THE EVENT YOU DETERMINE SUCH DEBTS ARE ENTITLED TO THE PRIORITY AVAILABLE PURSUANT TO SAID SECTION, SHOULD THIS AGENCY ASSERT SUCH PRIORITY IN THE LIQUIDATION OF A DEBT DUE FROM A DEBTOR WHOSE ASSETS HAD PASSED TO AN INSOLVENT DECEDENT'S OR CREDITOR'S ESTATE PRIOR TO THE EFFECTIVE DATE OF SUCH REORGANIZATION PLAN.'

THE JURISDICTION OF THIS OFFICE TO RENDER DECISIONS TO HEADS OF GOVERNMENT AGENCIES IS SET OUT IN 31 U.S.C. 74, AS FOLLOWS:

"DISBURSING OFFICERS, OR THE HEAD OF ANY EXECUTIVE DEPARTMENTS, OR OTHER ESTABLISHMENT NOT UNDER ANY OF THE EXECUTIVE DEPARTMENTS, MAY APPLY FOR AND THE COMPTROLLER GENERAL SHALL RENDER HIS DECISIONS UPON ANY QUESTION INVOLVING A PAYMENT TO BE MADE BY THEM OR UNDER THEM, WHICH DECISIONS, WHEN RENDERED SHALL GOVERN THE GENERAL ACCOUNTING OFFICE IN PASSING UPON THE ACCOUNT CONTAINING SAID DISBURSEMENT.'

REORGANIZATION PLAN NO. 1 OF 1957 WHICH TRANSFERRED TO YOU THE ABOVE- MENTIONED LOAN FUNCTIONS OF THE RFC, IN SECTION 2 (C) ALSO TRANSFERRED TO YOU FOR USE IN EXECUTING YOUR FUNCTIONS THEREUNDER, THE POWERS, RIGHTS AND IMMUNITIES APPLICABLE TO THE RFC FOR CARRYING OUT THE FUNCTIONS TRANSFERRED. SUCH POWERS INCLUDE, 15 U.S.C. 603 (2), THE POWER TO DETERMINE, EXCEPT AS OTHERWISE PROVIDED IN THE RECONSTRUCTION FINANCE CORPORATION ACT OR IN THE GOVERNMENT CORPORATION CONTROL ACT, THE NECESSITY FOR AND THE CHARACTER AND AMOUNT OF THE OBLIGATIONS AND EXPENDITURES AND THE MANNER IN WHICH THEY SHALL BE INCURRED, ALLOWED, PAID AND ACCOUNTED FOR WITHOUT REGARD TO THE PROVISIONS OF OTHER LAWS GOVERNING THE EXPENDITURE OF PUBLIC FUNDS, AND SUCH DETERMINATIONS ARE MADE FINAL AND CONCLUSIVE UPON ALL OTHER OFFICERS OF THE GOVERNMENT. SINCE THE ONLY EXPENDITURE OR PAYMENT INVOLVED IN THE QUESTIONS RAISED WOULD APPEAR TO BE THE EXPENSES INCIDENT TO ASSERTION OF THE PRIORITIES, AS TO WHICH YOUR DETERMINATION WOULD APPEAR TO BE CONTROLLING, THE QUESTIONS RAISED DO NOT APPEAR TO BE ONES ON WHICH WE MAY RENDER AN AUTHORITATIVE DECISION.

YET THE QUESTIONS DO INVOLVE GOVERNMENT COLLECTION PROCEDURES WITH WHICH WE ARE CONCERNED AND FAMILIAR BECAUSE OF OUR GENERAL AUTHORITY TO SETTLE CLAIMS IN FAVOR OF THE GOVERNMENT UNDER 31 U.S.C. 71 AND TO SUPERINTEND THE RECOVERY OF DEBTS DUE THE UNITED STATES UNDER 31 U.S.C. 93. WE, THEREFORE, WISH TO TAKE THIS OCCASION TO EXPRESS OUR VIEWS IN THIS MATTER.

SECTION 3466 OF THE REVISED STATUTES, 31 U.S.C. 191, PROVIDES AS FOLLOWS:

"WHENEVER ANY PERSON INDEBTED TO THE UNITED STATES IS INSOLVENT, OR WHENEVER THE ESTATE OF ANY DECEASED DEBTOR, IN THE HANDS OF THE EXECUTORS OR ADMINISTRATORS, IS INSUFFICIENT TO PAY ALL THE DEBTS DUE FROM THE DECEASED, THE DEBTS DUE TO THE UNITED STATES SHALL BE FIRST SATISFIED; AND THE PRIORITY ESTABLISHED SHALL EXTEND AS WELL TO CASES IN WHICH A DEBTOR, NOT HAVING SUFFICIENT PROPERTY TO PAY ALL HIS DEBTS, MAKES A VOLUNTARY ASSIGNMENT THEREOF, OR IN WHICH THE ESTATE AND EFFECTS OF AN ABSCONDING, CONCEALED, OR ABSENT DEBTOR ARE ATTACHED BY PROCESS OF LAW, AS TO CASES IN WHICH AN ACT OF BANKRUPTCY IS COMMITTED.'

THE UNITED STATES COURT OF CLAIMS IN THE CASE OF CHERRY COTTON MILLS, INC. V. UNITED STATES, 103 C.CLS. 243, DECIDED MARCH 5, 1945, HELD THAT THE RECONSTRUCTION FINANCE CORPORATION IS AN AGENT OF THE GOVERNMENT, AND DEBTS OWING TO THE CORPORATION ARE OWED TO IT AS AGENT AND TRUSTEE FOR THE GOVERNMENT AND CLAIMS HELD BY THE RECONSTRUCTION FINANCE CORPORATION ARE ASSETS AND CLAIMS OF THE GOVERNMENT. THE SUPREME COURT GRANTED CERTIORARI AND THE JUDGMENT OF THE COURT OF CLAIMS WAS AFFIRMED, 327 U.S. 536, ON MARCH 25, 1946. SEE 28 COMP. GEN. 543. AS A RESULT OF SOME DOUBT CREATED BY THIS AND OTHER DECISIONS OF THE SUPREME COURT (SEE IN RE TEMPLE, 174 F.2D 145 AND RECONSTRUCTION FINANCE CORPORATION V. FLYNN, 175 F.2D 761), SECTION 3 (A) OF THE RECONSTRUCTION FINANCE CORPORATION ACT, WAS AMENDED ON MAY 25, 1948, 62 STAT. 262, 15 U.S.C. 603 (A), TO PROVIDE IN PERTINENT PART AS FOLLOWS:

"DEBTS DUE THE CORPORATION, WHETHER HERETOFORE OR HEREAFTER ARISING, SHALL NOT BE ENTITLED TO THE PRIORITY AVAILABLE TO THE UNITED STATES PURSUANT TO SECTION 191 OF TITLE 31 EXCEPT THAT THE CORPORATION SHALL BE ENTITLED TO SUCH PRIORITY WITH RESPECT TO DEBTS ARISING FROM ANY TRANSACTION PURSUANT TO * * * SECTIONS 4 (F) AND 9 OF THE ACT ENTITLED "AN ACT TO MOBILIZE THE PRODUCTIVE FACILITIES OF SMALL BUSINESS IN THE INTERESTS OF SUCCESSFUL PROSECUTION OF THE WAR, AND FOR OTHER PURPOSES" *

THE PURPOSE OF THE ABOVE QUOTED AMENDMENT IS CLEARLY SET FORTH ON PAGE 20 OF SENATE REPORT NO. 974, 80TH CONGRESS, 2D SESSION, ON THE BILL WHICH BECAME THE ACT OF MAY 25, 1948, AS FOLLOWS:

"BECAUSE OF RECENT UNITED STATES SUPREME COURT DECISIONS IT MAY BE THAT RFC IS ENTITLED UNDER THE PRESENT LAW TO THE SAME PRIORITY IN BANKRUPTCY WHICH IS ENJOYED BY THE UNITED STATES. THE COMMITTEE BELIEVES THAT RFC SHOULD NOT HAVE THIS PRIORITY WITH RESPECT TO THE RECOVERY OF FUNDS ADVANCED UNDER ITS REGULAR LENDING OPERATIONS. A SENTENCE IS THEREFORE ADDED TO THIS SECTION WHICH WILL REMOVE THAT PRIORITY EXCEPT WITH RESPECT TO OBLIGATIONS OWED TO RFC AS A RESULT OF CERTAIN OF ITS WARTIME ACTIVITIES.'

WE HAVE BEEN INFORMALLY ADVISED THAT THE DEBT IN QUESTION IS NOT A DEBT ARISING FROM ANY TRANSACTION UNDER THE ACT TO MOBILIZE THE PRODUCTIVE FACILITIES OF SMALL BUSINESS IN THE INTERESTS OF SUCCESSFUL PROSECUTION OF THE WAR OR THE WARTIME ACTIVITIES OF THE RECONSTRUCTION FINANCE CORPORATION BUT RESULTED FROM ITS REGULAR LENDING ACTIVITIES.

TITLE 5 U.S.C. 133S-7 (A) (1), UNDER WHICH REORGANIZATION PLAN NO. 1 OF 1957 WAS ADOPTED, PROVIDES, IN PERTINENT PART, AS FOLLOWS:

"ANY STATUTE ENACTED * * * IN RESPECT OF * * * ANY AGENCY OR FUNCTION AFFECTED BY A REORGANIZATION * * * BEFORE THE EFFECTIVE DATE OF SUCH REORGANIZATION, SHALL, EXCEPT TO THE EXTENT RESCINDED, MODIFIED, SUPERSEDED, OR MADE INAPPLICABLE BY OR UNDER AUTHORITY OF LAW OR BY THE ABOLITION OF A FUNCTION, HAVE THE SAME EFFECT AS IF SUCH REORGANIZATION HAD NOT BEEN MADE; BUT WHERE ANY STATUTE * * * HAS VESTED THE FUNCTION IN THE AGENCY FROM WHICH IT IS REMOVED UNDER THE PLAN, SUCH FUNCTION SHALL, INSOFAR AS IT IS TO BE EXERCISED AFTER THE PLAN BECOMES EFFECTIVE, BE CONSIDERED AS VESTED IN THE AGENCY UNDER WHICH THE FUNCTION IS PLACED BY THE PLAN.'

THE PRESIDENT IN HIS MESSAGE TRANSMITTING REORGANIZATION PLAN NO. 1 OF 1957, TO THE CONGRESS SAID IN PERTINENT PART AS FOLLOWS:

"THE FUNCTIONS TRANSFERRED BY THE REORGANIZATION PLAN ARE, IN GENERAL, SIMILAR TO, AND CAN APPROPRIATELY BE ADMINISTERED IN CONJUNCTION WITH, PRESENT ACTIVITIES OF THE RESPECTIVE TRANSFEREES.

"THE PLAN ALSO TRANSFERS THE PERTINENT ASSETS OF THE CORPORATION TO THE RESPECTIVE AGENCIES, TOGETHER WITH THE RELATED LIABILITIES, AND BY OPERATION OF LAW SUBSTITUTES THE PARTICULAR TRANSFEREE FOR THE CORPORATION WITH RESPECT TO ALL INSTRUMENTS OF EVERY KIND AND CHARACTER PERTAINING TO THE TRANSFERRED FUNCTIONS, ASSETS, AND LIABILITIES. IN ORDER TO PERMIT THE TRANSFEREES TO ADMINISTER THE TRANSFERRED MATTERS WITH THE SAME FLEXIBILITY OF OPERATION AS OBTAINS AT PRESENT, THE PLAN TRANSFERS TO EACH TRANSFEREE THOSE POWERS, AUTHORITY, RIGHTS, AND IMMUNITIES WHICH ARE NOW AVAILABLE OR APPLICABLE TO THE CORPORATION FOR CARRYING OUT THE RESPECTIVE FUNCTIONS. TO THE EXTENT THAT IT BECOMES NECESSARY OR DESIRABLE, THEREFORE, THE TRANSFEREES WILL BE ENABLED, WITH RESPECT TO THE TRANSFERRED FUNCTIONS, TO SUE AND BE SUED, TO ENGAGE PRIVATE ATTORNEYS IN CONJUNCTION WITH LITIGATION INVOLVING THE TRANSFERRED FUNCTIONS, AND TO AVAIL THEMSELVES OF ANY OTHER AUTHORITY, POWERS OR IMMUNITIES NOW AVAILABLE TO THE CORPORATION, WHETHER UNDER THE RECONSTRUCTION FINANCE CORPORATION ACT, AS AMENDED, OR OTHERWISE. * * *"

THERE APPEARS TO BE NOTHING IN THE PRESIDENT'S MESSAGE, TRANSMITTING REORGANIZATION PLAN NO. 1 OF 1957 OR ANY STATUTE WHICH HAS COME TO OUR ATTENTION RESCINDING OR MODIFYING THE INVOLVED FUNCTION OF THE RECONSTRUCTION FINANCE CORPORATION AND IT WOULD ACCORDINGLY APPEAR THAT THE TRANSFERRED FUNCTIONS WOULD CONTINUE TO BE PERFORMED IN ACCORDANCE WITH THE VARIOUS PROVISIONS OF THE RECONSTRUCTION FINANCE CORPORATION ACT, INCLUDING SECTION 3 (A) (15 U.S.C. 603 (A) ( QUOTED ABOVE.

IN VIEW OF THE EXPRESSED PURPOSE OF THE CONGRESS IN ENACTING SECTION 3 (A) OF THE RECONSTRUCTION FINANCE CORPORATION ACT; THE FACT THAT THE LOAN THEREUNDER WAS NOT SUBJECT TO THE PRIORITY AVAILABLE TO THE UNITED STATES PURSUANT TO SECTION 3466 OF THE REVISED STATUTES; AND THAT REORGANIZATION PLAN NO. 1 OF 1957 DID NOT BY EXPRESS LANGUAGE MAKE THE TRANSFERRED DEBTS SUBJECT TO SAID PRIORITY IT IS OUR VIEW THAT THE DEBT UPON TRANSFER TO YOUR AGENCY DID NOT BECOME ENTITLED TO PRIORITY UNDER SECTION 3466 OF THE REVISED STATUTES.

SINCE, IT IS OUR VIEW THAT THE FIRST QUESTION CONTAINED IN YOUR LETTER PROPERLY IS FOR ANSWERING IN THE NEGATIVE, NO ANSWER TO THE SECOND QUESTION APPEARS NECESSARY. OF COURSE, AS TO LOANS MADE UNDER THE WARTIME LENDING ACTIVITIES OF THE RECONSTRUCTION FINANCE CORPORATION, AND AS TO WHICH IT HAD PRIORITY UNDER 15 U.S.C. 603 (A), IT IS OUR VIEW THAT YOUR ADMINISTRATION ALSO HAS SUCH PRIORITY AND SUCH PRIORITY PROPERLY MAY BE ASSERTED BY YOU WHERE DEEMED APPROPRIATE IN THE INTERESTS OF THE UNITED STATES.