B-145038, APRIL 11, 1961, 40 COMP. GEN. 571

B-145038: Apr 11, 1961

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SINCE THE SALE OF THE GRAIN TO PRODUCERS WOULD BE PURSUANT TO THE AUTHORITY IN THE 1959 ACT AND A SEPARATE PROGRAM FROM THE PROGRAM PURSUANT TO WHICH THE GRAIN WAS ACQUIRED BY CCC. PRODUCERS WERE PERMITTED TO EXTEND THE MATURITY DATE OF THEIR LOANS UNTIL VARIOUS DATES IN 1961 AND ARE REQUIRED EITHER TO REPAY THEIR LOANS WITH INTEREST ON OR BEFORE MATURITY OR DELIVER UP THE MORTGAGED COMMODITIES. WHETHER THE LOANS ARE REPAID OR THE COLLATERAL DELIVERED. THE PRODUCER IS ENTITLED TO RECEIVE STORAGE PAYMENTS FOR THE PERIOD OF TIME THE GRAIN WAS UNDER RESEAL LOAN. CCC WILL ACCELERATE THE MATURITY DATES OF THE RESEAL LOANS AND TITLE TO AS MUCH GRAIN AS THE PRODUCER IS APPROVED TO PURCHASE UNDER PUBLIC LAW 86-299 WILL BE ACQUIRED BY CCC ON THE FARM WHERE STORED.

B-145038, APRIL 11, 1961, 40 COMP. GEN. 571

AGRICULTURE - COMMODITY CREDIT CORPORATION - PRICE SUPPORT PROGRAM - SALE OF STORED GRAIN TO SAME PRODUCER- TRANSACTION VALIDITY A PROPOSED ARRANGEMENT WHEREBY THE COMMODITY CREDIT CORPORATION WOULD SELL GRAIN PURSUANT TO THE ACT OF SEPTEMBER 12, 1959, 7 U.S.C. 1427 NOTE, RELATING TO EMERGENCY AREAS, TO THE SAME PRODUCER WHO HAD PREVIOUSLY DELIVERED THE STORED GRAIN TO THE CCC IN SATISFACTION OF A PRICE SUPPORT RESEAL LOAN NEED NOT BE REGARDED AS LACKING IN GENUINENESS WITHIN THE INTERPRETATION IN SWIFT AND COMPANY V. UNITED STATES, 257 F.2D 787, SINCE THE SALE OF THE GRAIN TO PRODUCERS WOULD BE PURSUANT TO THE AUTHORITY IN THE 1959 ACT AND A SEPARATE PROGRAM FROM THE PROGRAM PURSUANT TO WHICH THE GRAIN WAS ACQUIRED BY CCC.

TO THE SECRETARY OF AGRICULTURE, APRIL 11, 1961:

BY LETTER OF FEBRUARY 9, 1961, YOU REQUESTED OUR OPINION AS TO WHETHER THE COMMODITY CREDIT CORPORATION MAY, WITH RESPECT TO GRAIN MORTGAGED TO THE CORPORATION BY A PRODUCER AND STORED BY HIM UNDER A PRICE SUPPORT RESEAL LOAN, ACCEPT DELIVERY OF THE GRAIN ON THE FARM WHERE STORED IN SATISFACTION OF THE LOAN AND THEREAFTER SELL SUCH GRAIN PURSUANT TO PUBLIC LAW 86-299 TO THE SAME PRODUCER AT THE APPLICABLE CURRENT SUPPORT RATE. PUBLIC LAW 86-299 AUTHORIZES THE SECRETARY OF AGRICULTURE TO SELL AT CURRENT SUPPORT PRICES ANY DESIGNATED FEED GRAINS OWNED BY CCC TO PROVIDE FEED FOR LIVESTOCK IN AREAS DETERMINED BY HIM TO BE EMERGENCY AREAS, NOTWITHSTANDING THE RESTRICTION THAT CCC GENERALLY SHALL NOT SELL COMMODITIES AT LESS THAN 5 PERCENT ABOVE CURRENT SUPPORT PRICE PLUS CARRYING CHARGES.

FROM INFORMATION CONTAINED IN YOUR LETTER, FACTORS PERTINENT TO THE QUESTION RAISED MAY BE SUMMARIZED AS FOLLOWS:

THE COMMODITY CREDIT CORPORATION MADE NONRECOURSE PRICE SUPPORT LOANS SECURED BY THE CHATTEL MORTGAGES ON THE GRAIN IN QUESTION DURING THE PERIOD 1955 THROUGH 1959. UNDER RESEAL LOAN PROGRAMS, PRODUCERS WERE PERMITTED TO EXTEND THE MATURITY DATE OF THEIR LOANS UNTIL VARIOUS DATES IN 1961 AND ARE REQUIRED EITHER TO REPAY THEIR LOANS WITH INTEREST ON OR BEFORE MATURITY OR DELIVER UP THE MORTGAGED COMMODITIES. WHETHER THE LOANS ARE REPAID OR THE COLLATERAL DELIVERED, THE PRODUCER IS ENTITLED TO RECEIVE STORAGE PAYMENTS FOR THE PERIOD OF TIME THE GRAIN WAS UNDER RESEAL LOAN. THE AMOUNT DUE ON RESEAL LOANS FAR EXCEEDS CURRENT MARKET PRICES.

UNDER THE PROPOSED PLAN, CCC WILL ACCELERATE THE MATURITY DATES OF THE RESEAL LOANS AND TITLE TO AS MUCH GRAIN AS THE PRODUCER IS APPROVED TO PURCHASE UNDER PUBLIC LAW 86-299 WILL BE ACQUIRED BY CCC ON THE FARM WHERE STORED. THIS GRAIN WILL THEN BE RESOLD TO THE PRODUCER AT CURRENT SUPPORT PRICES UNDER THE PROVISIONS OF PUBLIC LAW 86-299, WITHOUT BEING MOVED FROM STORAGE. CURRENT CCC REGULATIONS PROVIDE FOR DETERMINING BY WEIGHT THE QUANTITY OF GRAIN DELIVERED UNDER A FARM STORAGE LOAN; BUT IF THE PROPOSED PROGRAM IS ADOPTED, THE REGULATIONS WILL BE AMENDED TO PROVIDE THAT WHERE DELIVERY OF GRAIN UNDER RESEAL LOAN IS TO BE EFFECTED ON A FARM WHERE STORED, THE QUANTITY WILL BE DETERMINED BY MEASUREMENT. PROVISION WILL ALSO BE MADE FOR A WEIGH-UP WHERE QUESTION ARISES UNDER THE MEASUREMENT PROCEDURE. YOU POINT OUT THAT SALES ON THE BASIS PROPOSED WOULD RESULT IN SAVINGS TO BOTH THE CORPORATION AND THE PRODUCERS IN THAT MOVING AND HANDLING CHARGES WOULD BE OBVIATED AND THE CORPORATION WOULD REALIZE AN ADDITIONAL SAVING IN STORAGE CHARGES UNDER THE ACCELERATED LOAN MATURITY DATES.

PUBLIC LAW 86-299, APPROVED SEPTEMBER 21, 1959, 73 STAT. 574, 7 U.S.C. 1427 NOTE, PROVIDES AS FOLLOWS:

THAT, NOTWITHSTANDING THE PROVISIONS OF SECTION 407 OF THE AGRICULTURAL ACT OF 1949, THE SECRETARY OF AGRICULTURE IS AUTHORIZED TO SELL, AT CURRENT SUPPORT PRICES, ANY WHEAT, CORN, OATS, BARLEY, RYE, OR GRAIN SORGHUMS (HEREINAFTER REFERRED TO AS FEED GRAINS), OWNED BY THE COMMODITY CREDIT CORPORATION, TO PROVIDE FEED FOR LIVESTOCK IN ANY AREA DETERMINED BY HIM TO BE AN EMERGENCY AREA UNDER SECTION 2.

SEC. 2. THE SECRETARY MAY, AFTER CERTIFICATION BY THE GOVERNOR OF THE STATE IN WHICH SUCH AREA IS SITUATED OF THE NEED THEREFOR, DESIGNATE ANY AREA AS AN EMERGENCY AREA FOR THE PURPOSES OF THIS ACT IF HE DETERMINES THAT, AS A RESULT OF FLOOD, DROUGHT, HURRICANE, TORNADO, EARTHQUAKE, OR OTHER CATASTROPHE INCLUDING DISEASE OR INSECT INFESTATION, THERE IS A SHORTAGE OF FEED FOR LIVESTOCK IN SUCH AREA.

SEC. 3. THE SECRETARY SHALL NOT SELL FEED GRAINS UNDER THIS ACT TO ANY PERSON UNLESS HE IS SATISFIED THAT SUCH PERSON DOES NOT HAVE, AND IS UNABLE TO OBTAIN THROUGH NORMAL CHANNELS OF TRADE WITHOUT UNDUE FINANCIAL HARDSHIP, SUFFICIENT FEED FOR LIVESTOCK OWNED BY HIM AND UNLESS SUCH PERSON AGREES TO USE THE FEED GRAINS ONLY FOR FEED FOR SUCH LIVESTOCK.

SEC. 4. ANY PERSON WHO FAILS TO CARRY OUT AN AGREEMENT ENTERED INTO UNDER SECTION 3 WITH RESPECT TO ANY FEED GRAINS PURCHASED UNDER THIS ACT, OR WHO DISPOSES OF ANY SUCH FEED GRAINS OTHER THAN BY FEEDING TO LIVESTOCK OWNED BY HIM, SHALL BE SUBJECT TO A PENALTY EQUAL TO BUT NOT IN EXCESS OF THE MARKET VALUE OF THE FEED GRAINS INVOLVED, TO BE RECOVERED BY THE SECRETARY IN A CIVIL SUIT BROUGHT FOR THAT PURPOSE, AND IN ADDITION SHALL BE GUILTY OF A MISDEMEANOR AND UPON CONVICTION THEREOF SHALL BE SUBJECT TO A FINE OF NOT MORE THAN $1,000 OR IMPRISONMENT FOR NOT MORE THAN ONE YEAR.

APPARENTLY, DOUBT CONCERNING THE PROPOSED PROGRAM ARISES SOLELY IN CONNECTION WITH WHETHER THE LOAN ACCELERATIONS AND SALES THEREUNDER MAY BE CONSIDERED BONA FIDE IN VIEW OF THE RULINGS IN SWIFT AND COMPANY V. UNITED STATES, 257 F.2D 787 (1958), CERT. DENIED, 358 U.S. 837; LAND O LAKES CREAMERIES, INC. V. CCC, 265 F.2D 163 (1959); AND KRAFT V. CCC, 266 F.2D 254 (1959), CERT. DENIED, 361 U.S. 832. IN EACH OF THESE CASES THE COURT HELD THAT PURPORTED PURCHASES BY CCC OF MILK PRODUCTS FROM CORPORATIONS UNDER AGREEMENTS PURSUANT TO WHICH THE CORPORATIONS COULD REPURCHASE THE PRODUCTS AT A LOWER PRICE WERE NOT PURCHASES WITHIN THE MEANING OF THE PROVISIONS OF THE AGRICULTURE ACT OF 1949, WHICH AUTHORIZED THE SECRETARY TO PROVIDE PRICE SUPPORT BY "PURCHASES" OF MILK PRODUCTS. IN THE SWIFT CASE THE COURT STATED, AT PAGE 794, THAT:

* * * THE SO-CALLED SALES OF CHEESE AND BUTTER BY THE PROCESSORS WERE NOT PURCHASES BY CCC IN ANY NORMAL SENSE OF THE WORD. THE PRODUCTS NEVER LEFT THE POSSESSION OF THE PROCESSORS OR CAME INTO THE HANDS OF THE UNITED STATES AND WERE NEVER INTENDED TO DO SO. IN SHORT, THE PRODUCTS NEVER MOVED AND THERE WAS NO DELIVERY OR INTENTION TO DELIVER. STORAGE, HANDLING AND TRANSPORTATION CHARGES CONNECTED WITH THE SALE OR RESALES WERE "FOR THE ACCOUNT OF THE OFFEROR" (PROCESSOR), AND THE OFFEROR ASSUMED ALL RISK OF LOSS. THE GOVERNMENT THROUGH CCC OBTAINED NO RIGHT TO SELL THE GOODS TO OTHER PARTIES BUT WAS OBLIGED TO RESELL THEM AT A LOSS TO THE PROCESSOR. ON THE OTHER HAND, THE PROCESSOR NOT ONLY RETAINED PHYSICAL POSSESSION OF THE PRODUCTS BUT FULL POWER TO DISREGARD HIS CONTRACT TO SELL AND REPURCHASE AND TO DISPOSE OF OR SELL THEM TO ANYONE HE PLEASED WITHOUT INCURRING ANY LIABILITY TO THE GOVERNMENT. CCC DID NOT PAY FOR THE PRODUCTS WHICH IT PURPORTED TO BUY AND THE PROCESSOR DID NOT PAY FOR THE PRODUCTS WHICH THEY PURPORTED TO BUY BACK. BOTH TRANSACTIONS WERE SETTLED BY ONE CHECK OF THE CCC FOR THE LOSS INCURRED IN THE TRANSACTION, WHICH IT AGREED ON ADVANCE TO ASSUME.

THE DECISIONS REACHED IN THE CITED CASES--- THAT THE TRANSACTIONS INVOLVED WERE NOT AUTHORIZED--- THUS RESTED SQUARELY ON THE PROPOSITION THAT PRICE SUPPORT OPERATIONS AUTHORIZED TO BE CONDUCTED THROUGH PURCHASES COULD NOT BE PROPERLY CARRIED OUT UNDER PURCHASE ARRANGEMENTS THAT ARE NOT GENUINE. BUT UNDER THE PROPOSED PROGRAM AS OUTLINED ABOVE, THERE DOES NOT APPEAR TO BE ANY LACK OF GENUINE ARRANGEMENTS.

IN THE INSTANT SITUATION THE DELIVERY OF GRAIN TO CCC AND SUBSEQUENT RESALE TO THE PRODUCER ARE INDEPENDENT TRANSACTIONS TO BE EFFECTED UNDER TWO SEPARATE PROGRAMS. THE RESEAL LOANS WERE MADE UNDER PRICE SUPPORT PURSUANT TO WHICH FUNDS HAVE BEEN DISBURSED TO PRODUCERS FOR THE PRICE SUPPORT VALUE OF THEIR COMMODITIES. THE LOANS ARE NONRECOURSE LOANS UNDER WHICH THE PRODUCER CAN SATISFY HIS OBLIGATIONS BY DELIVERING THE COMMODITY. CCC HAS OUTSTANDING CHATTEL MORTGAGES ON THE COMMODITIES INVOLVED AND A RIGHT TO ACCELERATE THE MATURITY DATE OF THE LOAN UNDER THE TERMS OF THE NOTES SIGNED BY THE PRODUCERS. CCC HAS ALSO THE RIGHT TO ELECT TO DESIGNATE THE PLACE OF DELIVERY OF GRAIN FORFEITED TO CCC UNDER SUCH PRICE SUPPORT LOANS; AND IF A PRODUCER DELIVERS GRAIN IN SATISFACTION OF HIS LOAN, CCC HAS THE RIGHT TO DISPOSE OF IT IN THE SAME WAY AS ANY GRAIN IT HAS IN INVENTORY, SUBJECT TO GENERAL STATUTORY RESTRICTIONS. CCC IS NOT REQUIRED TO SELL THE GRAIN TO THE PRODUCER FROM WHOM IT IS OBTAINED, AND THE PRODUCER HAS NO RIGHT TO DISPOSE OF THE GRAIN WHILE UNDER MORTGAGE AND IS REQUIRED TO REIMBURSE CCC FOR SHORTAGES OCCURRING AT THE TIME OF DELIVERY OF THE GRAIN EXCEPT IN CERTAIN LIMITED CIRCUMSTANCES APPLICABLE TO ALL DEBTORS, AS SPELLED OUT IN THE NOTES AND IN THE REGULATIONS. SALE OF THE GRAIN TO THE PRODUCERS WOULD BE PURSUANT TO AUTHORITY CONTAINED IN PUBLIC LAW 86-299, A SEPARATE PROGRAM FROM THE PROGRAM PURSUANT TO WHICH THE GRAIN IS TO BE ACQUIRED BY CCC. IF CCC SELLS GRAIN TO THE SAME PRODUCER FROM WHOM IT IS ACQUIRED, IT WOULD BE PURSUANT TO ITS OWN ELECTION UPON A DETERMINATION THAT SUCH SALE IS IN ITS OWN BEST INTEREST.

ACCORDINGLY, WE DO NOT FIND ANY BASIS FOR RAISING OBJECTION TO THE PROPOSAL SET FORTH IN YOUR LETTER.