B-181432, MAR 13, 1975

B-181432, MAR 13, 1975

SBA MAY PERMIT CERTAIN LENDING INSTITUTIONS THAT HAVE BEEN DELINQUENT IN PAYMENT OF REQUIRED GUARANTEE FEES TO PAY REQUIRED FEES AND THEREBY REVISE SBA'S GUARANTY OF AGREED PERCENTAGE OF REMAINING BALANCE OF LOANS, PROVIDED THAT SUCH WAIVER IS NOT EXTENDED TO LENDERS WITH LOANS ALREADY IN DEFAULT OR CONCERNING WHICH LENDER HAS REASON TO BELIEVE FUTURE DEFAULT LIKELY.

AUTHORITY OF SBA TO WAIVE DELINQUENT PAYMENT OF REQUIRED GUARANTY FEES:

THIS DECISION TO THE ADMINISTRATOR OF THE SMALL BUSINESS ADMINISTRATION (SBA) IS IN RESPONSE TO HIS REQUEST FOR OUR CONCURRENCE IN A PROPOSED "TEMPORARY" ADMINISTRATIVE ACTION BY SBA IN WHICH THE AGENCY WOULD, FOR A LIMITED TIME ONLY, ACCEPT THE PAYMENT OF DELINQUENT GUARANTY FEES BY LENDING INSTITUTIONS, INCLUDING PAYMENTS FROM INSTITUTIONS WITH LOANS IN DEFAULT.

THE ADMINISTRATOR STATES IN HIS LETTER THAT THE PROPOSED PROCEDURE IS NEEDED "IN ORDER TO ESTABLISH A MORE UNIFORM AGENCY COLLECTION PROCEDURE AND RECTIFY CERTAIN INADEQUACIES IN THE PRESENT COLLECTION PROCEDURE." SPECIFICALLY, IT IS STATED THAT OUR CONCURRENCE IS REQUESTED BECAUSE OF OUR RECENT OPINION B-181432, SEPTEMBER 20, 1974, IN WHICH WE ADVISED SBA THAT IT -

"WAS NOT OBLIGATED TO AND HAD NO AUTHORITY TO PURCHASE THE GUARANTEED PORTION OF THE LOAN MADE IN THE LAURENT OF THE SOUTH CASE BECAUSE THE LENDER HAD NOT COMPLIED WITH CERTAIN REQUIREMENTS OF THE GUARANTY AGREEMENT, PARTICULARLY THE REQUIREMENT FOR TIMELY PAYMENT OF THE GUARANTY FEE."

THE ADMINISTRATOR EMPHASIZES THAT SBA IS PRIMARILY CONCERNED WITH THOSE LENDERS SUCH AS "LAURENT OF THE SOUTH" WHO BECAME SUBJECT TO BUT WHO FAILED TO COMPLY WITH THE NEW COLLECTION PROCEDURE. THE ADMINISTRATOR'S JUSTIFICATION FOR THE PROPOSED ADMINISTRATIVE ACTION IS SET FORTH IN HIS DISCUSSION OF THE CIRCUMSTANCES SURROUNDING ADOPTION OF THE "ONE-TIME GUARANTY FEE" AND AN EXPOSITION OF THE LEGAL AUTHORITY AND PRECEDENT FOR SUCH ACTION. IN THIS REGARD THE ADMINISTRATOR'S LETTER READS, IN PART, AS FOLLOWS:

"FOR ALMOST 40 YEARS UNDER THE DEFERRED PARTICIPATION LOAN PROGRAMS OF THE RECONSTRUCTION FINANCE CORPORATION AND SBA, AND UNDER SBA'S GUARANTY LOAN PROGRAM, THE PAYMENT OF THE DEFERRED PARTICIPATION CHARGE OR THE GUARANTY FEE WAS NEVER A CONDITION PRECEDENT OR A MATERIAL PREREQUISITE FOR THE RIGHT OF THE PARTICIPATING INSTITUTION TO DEMAND PURCHASE BY THE GOVERNMENT OF THE DEFERRED PARTICIPATION OR GUARANTEED PORTION. THE DEFERRED PARTICIPATION AGREEMENT SIMPLY PROVIDED THAT THE LENDER WOULD PAY AT THE END OF EACH CALENDAR QUARTER FROM THE DATE OF FIRST DISBURSEMENT A PARTICIPATION CHARGE COMPUTED AT A RATE STATED IN THE AGREEMENT. THE AGREEMENT ALSO PROVIDED THAT WHEN THE DEFERRED PARTICIPATION WAS PURCHASED BY THE AGENCY THE AMOUNT TO BE PAID TO THE LENDER WOULD BE APPROPRIATELY ADJUSTED FOR ACCRUED INTEREST AND FOR UNPAID PARTICIPATION CHARGES DUE FROM THE LENDER.

"ATTEMPTS TO SIMPLIFY AND TO EXPEDITE COLLECTION OF THE GUARANTY FEE, PRIOR TO THE ADOPTION OF THE ONE-TIME GUARANTY FEE, INCLUDED CHANGING FROM A CALENDAR QUARTER TO A SEMI-ANNUAL PERIOD, AND TO HAVING THE LENDER REPORT ONLY THE SEMI-ANNUAL LOAN BALANCES; SBA THEN WOULD CALCULATE AND BILL THE LENDER WHICH WAS THEN REQUESTED TO PAY THE AMOUNT BILLED. BUT NEVER DURING THE PERIOD PRIOR TO THE ADOPTION OF THE ONE-TIME GUARANTY FEE WAS THE PURCHASE OF THE DEFERRED PARTICIPATION OR THE GUARANTEED PORTION REFUSED OR DENIED BY THE GOVERNMENT ON THE GROUND THAT THE PARTICIPATION CHARGE OR THE GUARANTY FEE DUE AND PAYABLE HAD NOT BEEN PAID. IF THE LOAN HAD BEEN PROPERLY DISBURSED TO THE SMALL BUSINESS CONCERN PURSUANT TO THE TERMS AND CONDITIONS OF THE LOAN AUTHORIZATION, AND PROPERLY SERVICED, THE GUARANTEED PORTION WAS PURCHASED WHETHER OR NOT THE GUARANTY FEE WAS FULLY PAID.

"THERE IS NO REQUIREMENT IN THE SMALL BUSINESS ACT FOR THE COLLECTION FROM THE LENDER OF A DEFERRED PARTICIPATION CHARGE OR A GUARANTY FEE. THE RATE UPON WHICH THE CHARGE OR FEE HAS BEEN CALCULATED HAS BEEN REDUCED OR CHANGED BY ADMINISTRATIVE ACTION FROM A HIGH RATE OF 2 PERCENT PER ANNUM AT THE BEGINNING OF SBA (AMENDMENT NO. 1, DATED SEPTEMBER 29, 1953, TO LOAN POLICY STATEMENT) TO ONE-QUARTER PERCENT PER ANNUM PRIOR TO THE ADOPTION OF THE 1 PERCENT ONE-TIME GUARANTY FEE. SEE 13 C.F.R. SEC. 120.3(B)(1). THE AMENDMENT TO THIS SUBPARAGRAPH OF PART 120 WHICH INCLUDED THE ONE-TIME GUARANTY FEE AND WHICH PROVIDES THAT IT '... IS PAYABLE AT FIRST DISBURSEMENT BY THE PARTICIPATING LENDER. ...' WAS PUBLISHED IN THE FEDERAL REGISTER JULY 17, 1973, 39 F.R. 19021.

"DURING 1972 THE ONE-TIME GUARANTY FEE PROCEDURE WAS DEVELOPED; IT PRESENTED THE BEST POSSIBLE SOLUTION TO ALL THE ADMINISTRATIVE COLLECTION PROBLEMS IF IT COULD BE PROPERLY IMPLEMENTED. WHILE THE COLLECTION PLAN WAS EXPLORED AND DISCUSSED IN GENERAL TERMS WITH REPRESENTATIVES OF THE BANKING COMMUNITY, THE DETAILS OF THE PLAN, ESPECIALLY THE NEW GUARANTY AGREEMENT, HAD NOT YET BEEN DEVELOPED. TO START THE NEW PROCEDURE ON A UNIFORM BASIS IT WAS INCORPORATED INTO A NEW BLANKET GUARANTY AGREEMENT WHICH WOULD HAVE TO BE SIGNED BY ALL PARTICIPATING LENDERS AND WOULD BECOME UNIFORMLY EFFECTIVE AS OF JANUARY 1, 1973.

"IN A MEMORANDUM DATED DECEMBER 5, 1972, TO ALL SBA FIELD OFFICES THERE WAS ATTACHED A SAMPLE LETTER THAT EACH FIELD OFFICE WAS TO SEND TO PARTICIPATING LENDERS TO ADVISE OF THE NEW COLLECTION PROCEDURE, THAT IT WOULD APPLY TO ALL GUARANTEED LOANS MADE ON OR AFTER JANUARY 1, 1973, AND THAT IT WOULD BE COVERED BY THE EXECUTION OF A NEW BLANKET GUARANTY AGREEMENT ***. THIS FORM LETTER DID NOT SPECIFICALLY ADVISE THE LENDING INSTITUTION OF THE RADICALLY NEW PROVISION IN THE GUARANTY AGREEMENT THAT A LOAN WOULD NOT BE COVERED BY THE GUARANTY IF TIMELY PAYMENT OF THE ONE- TIME GUARANTY FEE WAS NOT MADE. FURTHERMORE, IT IS DOUBTFUL THAT THIS CONDITION PRECEDENT REQUIREMENT WAS IN THE PROPOSED PLAN AS DISCUSSED WITH THE BANKING REPRESENTATIVES DURING THE COURSE OF THE YEAR; IT IS OUR BEST RECOLLECTION THAT THE DEVELOPMENT OF THIS PROVISION OCCURRED DURING THE DRAFTING PROCESS FOR THE NEW GUARANTY AGREEMENT WHICH OCCURRED AFTER SUCH DISCUSSIONS WITH THE BANKING COMMUNITY. FOLLOWING RECEIPT OF THE DECEMBER 5, 1972, MEMORANDUM, SBA'S DECENTRALIZED FIELD OFFICES EXERCISED INDEPENDENT JUDGMENT IN ADVISING LENDERS ABOUT THE NEW COLLECTION PROCEDURE AND IN THE MANNER IN WHICH THERE WAS A FOLLOW UP, IF ANY, ON DELINQUENT PAYMENT OF THE GUARANTY FEE. SOME OFFICES DID REMIND LENDERS OF SUCH DELINQUENCIES, BUT OTHER OFFICES EXERCISED NO FOLLOW UP PROCEDURE.

PERHAPS EVEN MORE CONFUSING, IN MANY LOANS THERE ARE MULTIPLE ADMINISTRATIVE INTERACTIONS BETWEEN LENDERS AND SBA OFFICIALS FOLLOWING CLOSING OF THE LOANS (FOR EXAMPLE, AGREEING TO CHANGE LOAN CONDITIONS, TO SUBSTITUTE OR RELEASE COLLATERAL, OR TO EXTEND THE DISBURSEMENT OR MATURITIES PERIODS) WITHOUT ANY REMINDER OR ACTION BY SBA OFFICIALS WHICH WOULD INDICATE TO THE LENDER THAT THESE LOANS MAY NOT BE COVERED BY THE GUARANTY AGREEMENT BECAUSE OF THE DELINQUENCY IN THE PAYMENT OF THE GUARANTY FEES. IT IS THIS DECENTRALIZED, DISSIMILAR AND OFTEN INCONSISTENT IMPLEMENTATION OF THE NEW COLLECTION PROCEDURE THAT RESULTS, IN OUR OPINION, IN THE CONCLUSION THAT FAIRNESS AND JUSTICE WARRANT A WAIVER OF FEE DELINQUENCY DURING THE PERIOD WHEN THE NOTIFICATION PROCEDURE WAS NOT CLEARLY DEFINED AND UNIFORM.

"IN THE SUMMER OF 1974 WE BECAME KEENLY AWARE OF THE GROWTH OF THE DELINQUENCY PROBLEM ARISING UNDER THE ONE-TIME GUARANTY FEE, OF THE LACK OF A UNIFORM FOLLOW UP PROCEDURE IN THE SBA FIELD OFFICES, AND OF THE NECESSITY TO DEVELOP A REMINDER PROCEDURE WHICH WOULD PROPERLY WARN THE LENDER OF THE CONSEQUENCES OF THE FAILURE TO PAY THE GUARANTY FEE. THIS UNIFORM FOLLOW UP PROCEDURE WAS ISSUED TO ALL FIELD OFFICES IN A MEMORANDUM DATED AUGUST 13, 1974 ***. THIS INSTRUCTION INCLUDED A SAMPLE FORM LETTER TO BE SENT TO A LENDER AS A REMINDER OF THE DELINQUENCY IN THE PAYMENT OF THE GUARANTY FEE AND TO ADVISE THAT IF THE FEE WERE NOT RECEIVED WITHIN 15 DAYS, SBA'S GUARANTY WOULD BE TERMINATED. THIS INSTRUCTION MEMORANDUM AND THE FORM LETTER TO THE LENDER CLEARLY STATES THAT THE DELINQUENT FEE WOULD NOT BE ACCEPTED BY SBA WHERE THE BORROWER WAS IN DEFAULT ON THE LOAN PRIOR TO THE PAYMENT OF THE GUARANTY FEE.

"AS OF OCTOBER 31, 1974, THERE WERE 531 GUARANTEED LOANS IN WHICH PAYMENT OF THE GUARANTY FEES WERE DELINQUENT. ON JULY 25, 1974, THE NUMBER OF UNPAID ONE-TIME FEE ACCOUNTS WAS 1,471. IF THE FEES IN THE 531 ACCOUNTS WERE PAID SBA WOULD RECEIVE $187,581. OF THE 531 OUTSTANDING ACCOUNTS, BORROWERS ARE IN DEFAULT ON EIGHT LOANS, AND THE LENDERS HAVE DEMANDED PURCHASE OF THE GUARANTEED PORTIONS; PURCHASE, HOWEVER, HAS BEEN WITHHELD PENDING YOUR CONCURRENCE HEREIN. WE ASSUME THAT THERE ARE OTHER LOANS AMONG THESE 531 ACCOUNT WHERE REQUESTS FOR PURCHASE WILL BE MADE BUT WHICH CANNOT NOW BE IDENTIFIED UNTIL SUCH DEMANDS ARE RECEIVED FROM THE LENDERS. PURCHASE BY SBA IN SUCH LOANS ARE ALSO SUBJECT TO YOUR CONCURRENCE HEREIN. WE HAVE BEEN SUCCESSFUL IN COLLECTING SUBSTANTIAL GUARANTY FEE PAYMENTS. IN FISCAL 1974 SBA RECEIVED FEE PAYMENTS TOTALLING $14,278,266.08. IN FISCAL 1975, THROUGH OCTOBER 31, 1974, COLLECTIONS HAVE TOTALLED $4,882,551.20.

"BECAUSE OF ALL THE ABOVE CIRCUMSTANCES WE FEEL THAT IT WOULD BE INEQUITABLE AND IMPROPER TO PENALIZE LENDERS WITH THE LOSS OF THE GUARANTY COMMITMENT FOR LOANS APPROVED AND DISBURSED DURING THIS INTERIM PERIOD WITHIN WHICH THE ONE-TIME GUARANTY FEE WAS NOT ADEQUATELY IMPLEMENTED; THAT THE WAIVER OF THE DELINQUENCY IN PAYMENT OF FEES DURING THIS LIMITED INTERIM PERIOD SHOULD APPLY EQUALLY; AND THAT PAYMENT OF THE FEE SHOULD BE ACCEPTED WHERE THE BORROWER WAS IN DEFAULT AS WELL AS IN THE CASE WHERE THE BORROWER WAS NOT IN DEFAULT."

THE PRIMARY THRUST OF THE LEGAL PRECEDENTS AND OPINIONS CITED IN THE ADMINISTRATOR'S LETTER, IS THAT GOVERNMENT AGENCIES HAVE INHERENT DISCRETION TO RELAX OR MODIFY PROCEDURAL RULES WHERE IT SERVES JUSTICE AND (IT) FURTHERS THE AGENCY'S STATUTORY FUNCTIONS AND OBJECTIVES TO DO SO. THE ADMINISTRATOR REFERS TO A LAW NOTE CAPTIONED "VIOLATIONS BY AGENCIES OF THEIR OWN REGULATIONS," 87 HARV. L. REV. 629 (1974), WHICH RECOGNIZES THE PRINCIPLE OF WAIVER OF PROCEDURAL REGULATIONS BY GOVERNMENT AGENCIES AND SUGGESTS THAT SUCH WAIVER SHOULD BE APPLIED TO ALL PARTIES SIMILARLY AFFECTED BY SUCH WAIVER. IN THIS REGARD THE LETTER NOTES THAT THE PROPOSED ADMINISTRATIVE ACTION OF WAIVING THE GUARANTY FEE DELINQUENCY FOR A LIMITED TIME PERIOD WOULD BE MADE AVAILABLE TO ALL PARTIES SIMILARLY AFFECTED. THE ADMINISTRATOR CONCLUDES HIS LEGAL ANALYSIS WITH REFERENCE TO THE -

"VERY BROAD DISCRETIONARY AUTHORITY IN THE SMALL BUSINESS ACT FOR THE ADMINISTRATOR OF SBA TO TAKE ANY ACTION DETERMINED TO BE NECESSARY OR DESIRABLE AS TO ANY LOAN MADE PURSUANT TO THE ACT." SEE 15 U.S.C. SEC. 634(B)(7).

THE ADMINISTRATOR'S LETTER SUMMARIZES SBA'S POSITION IN REGARD TO THE PROPOSED ADMINISTRATIVE ACTION AS FOLLOWS:

"WHEN AN AGENCY MAKES A RADICAL CHANGE IN A COLLECTION PROCEDURE AFTER MANY YEARS IN WHICH THE COLLECTION OF AN ADMINISTRATIVE FEE HAS BEEN A NON -CRITICAL PROCEDURE, THE AGENCY HAS A SPECIAL OBLIGATION TO MAKE ITS NEW PROCEDURE AND DRASTIC CONSEQUENCE UNMISTAKABLY KNOWN AND UNDERSTOOD BY ALL AFFECTED PARTIES. THIS OBLIGATION IS INTENSIFIED WHERE THE PARTIES ARE THOUSANDS OF LENDERS, WITH MULTIPLE BRANCHES, AND THE AGENCY IS ADMINISTERED THROUGH DECENTRALIZED OFFICES IN EVERY STATE. FINALLY, WHEN THAT AGENCY DECIDES, IN ITS JUDGMENT AND EXPERIENCE, THAT FUNDAMENTAL FAIRNESS AND EQUITY REQUIRE THAT ITS NEW COLLECTION PROCEDURE NEEDS MODIFICATION AND ADOPTS AN IMPROVED NOTIFICATION METHOD, IT MUST HAVE THE DISCRETION AND AUTHORITY TO WAIVE THE PROCEDURAL DEFECT FOR THE PERIOD PRIOR TO THE ADOPTION OF THE IMPROVED NOTIFICATION METHOD. IN OUR OPINION THE FOREGOING LEGAL PRECEDENTS CLEARLY AND FULLY SUPPORT THE PROPOSED ADMINISTRATIVE ACTION BY THIS AGENCY.

"IT SHOULD BE UNDERSTOOD THAT YOUR CONCURRENCE IN OUR PROPOSED ADMINISTRATIVE ACTION WILL NOT AUTOMATICALLY RESULT IN THE PURCHASE OF THE GUARANTEED PORTION OF EVERY DEFAULTED LOAN MADE DURING THE SELECTED TIME PERIOD. EACH SUCH LOAN WILL BE EXAMINED TO DETERMINE WHETHER THE LENDER COMPLIED WITH ALL SUBSTANTIVE REQUIREMENTS AND THE TERMS AND CONDITIONS OF THE LOAN AUTHORIZATION. FURTHERMORE, IF THE LOAN FILE DISCLOSES THAT THE LENDER WAS GIVEN SPECIFIC REMINDERS OF THE FAILURE TO PAY THE GUARANTY FEE AND SUCH WARNINGS WERE IGNORED THEN THE GUARANTEED PORTION WILL NOT BE PURCHASED. OR IF WE FIND THAT A LENDER HAS FOLLOWED A PRACTICE, BOTH BEFORE AND AFTER THE ADOPTION OF THE ONE TIME FEE PROCEDURE, OF WITHHOLDING PAYMENT OF THE FEE UNTIL AFTER DEFAULT BY THE BORROWER, THEN WE WOULD NOT WAIVE THE DELINQUENCY BY SUCH A LENDER. BECAUSE OF THIS INDIVIDUAL EXAMINATION PROCESS, AND BECAUSE OF POSSIBLE EVENTUAL RECOVERY FROM THE BORROWER, THE HYPOTHECATED COLLATERAL, OR FROM INDIVIDUAL GUARANTORS, IT IS IMPOSSIBLE TO CALCULATE OR ESTIMATE THE MONETARY OBLIGATION IF ANY THAT WILL BE INCURRED AS A RESULT OF THE WAIVER OF GUARANTY FEE DELINQUENCIES DURING THE SELECTED TIME PERIOD. OF COURSE, THE 1 PERCENT GUARANTY FEE WILL BE COLLECTED OR DEDUCTED FROM THE PURCHASE PRICE.

"SINCE THIS PROBLEM ADVERSELY AFFECTS LENDERS WHO HAVE ACTIVELY PARTICIPATED WITH SBA FOR MANY YEARS, THEIR CONTINUED PARTICIPATION IS VITALLY IMPORTANT TO THIS AGENCY'S PROGRAMS FOR THE FINANCIAL ASSISTANCE TO THE SMALL BUSINESS COMMUNITY. IF CONCURRENCE IN OUR PROPOSED ADMINISTRATIVE ACTION IS REJECTED, AND IF IT RESULTS IN THE REFUSAL TO PURCHASE LOANS MADE BY A SIGNIFICANT NUMBER OF LENDERS, IT COULD DRASTICALLY CURTAIL THE CONTINUED PARTICIPATION BY PRIVATE LENDERS. NOT ONLY WILL IT CAUSE RESENTMENT AND NONPARTICIPATION BY LENDERS DIRECTLY AFFECTED, BUT IT WOULD PROBABLY HAVE A RIPPLING AFFECT UPON OTHER LENDERS WHO COULD BECOME CONCERNED THAT SOME OTHER ESOTERIC CHANGE IN PROCEDURE OR POLICY BY SBA COULD ADVERSELY AFFECT THE VALIDITY OF THE GOVERNMENT'S COMMITMENT. IF THIS RESULTED IN A SIGNIFICANT LOSS OF PRIVATE PARTICIPATION IN THE GUARANTY PROGRAM SBA WOULD HAVE TO CONSIDER APPROPRIATE ACTION TO RESTORE CONFIDENCE IN THE GUARANTY COMMITMENT, AND THIS COULD RESULT IN AN ADMINISTRATIVE DECISION TO FURTHER REDUCE OR TO POSSIBLY ELIMINATE FROM THE PROGRAM THE PAYMENT OF ANY GUARANTY FEE. THE SUBSTANTIAL INCOME FROM COLLECTION OF THE GUARANTY FEE HAS BEEN IDENTIFIED HEREIN."

WITHOUT DISCUSSING THE RETROACTIVE WAIVER OF STATUTORY REGULATIONS, IT IS OUR VIEW THAT A DETERMINATION AS TO THE LEGALITY OF THE ADMINISTRATOR'S PROPOSAL MUST REST IN THE INSTANT CASE ON THE PERTINENT PROVISIONS OF THE CONTRACT INVOLVED, I.E., ON THE PROVISIONS OF THE GUARANTY AGREEMENT.

IT IS CLEAR UNDER PARAGRAPH 2 OF THE GUARANTY AGREEMENT THAT AN APPROVED LOAN IS NOT GUARANTEED THEREUNDER "UNTIL" THE LENDER HAS PAID "THE GUARANTY FEE FOR SAID LOAN AS PROVIDED IN PARAGRAPH 5" THEREOF. PARAGRAPH 5 PROVIDES, IN PERTINENT PART, THAT "WITHIN 5 DAYS OF THE FIRST DISBURSEMENT ON ACCOUNT OF EACH LOAN, LENDER SHALL PAY SBA A ONE TIME GUARANTY FEE AMOUNTING TO 1 PERCENT OF THE TOTAL AMOUNT GUARANTEED BY SBA." ALTHOUGH IT MIGHT APPEAR FROM READING PARAGRAPHS 2 AND 5 TOGETHER THAT UNLESS THE GUARANTY FEE IS PAID WITHIN 5 DAYS OF FIRST DISBURSEMENT OF THE LOAN, SBA'S OBLIGATION TO "GUARANTEE" AN APPROVED LOAN IS EXTINGUISHED, THE USE OF THE WORD "UNTIL" IN PARAGRAPH 2 IMPLIES THAT LENDING INSTITUTIONS CAN PAY THE REQUIRED FEE AFTER THE INITIAL 5-DAY PERIOD HAS ELAPSED. OF COURSE IN SUCH CASE THE LOAN WOULD NOT BE COVERED BY THE GUARANTEE UNTIL THE FEE IS PAID, SINCE PARAGRAPH 5 MODIFIES PARAGRAPH 2 ONLY TO THE EXTENT THAT IT PERMITS GUARANTY COVERAGE OF THE LOAN FROM THE DATE OF FIRST DISBURSEMENT PROVIDED THE GUARANTY FEE IS PAID WITHIN 5 DAYS OF SUCH DATE. THUS WHILE PARAGRAPHS 2 AND 5 OF THE GUARANTY AGREEMENT WHEN READ TOGETHER MAY BE SOMEWHAT AMBIGUOUS, WE DO NOT BELIEVE THAT SUCH PROVISIONS NEED BE CONSTRUED AS PRECLUDING SBA FROM GUARANTEEING THE APPROPRIATE PERCENTAGE OF THE BALANCE OF AN APPROVED LOAN OUTSTANDING ON THE DATE THE GUARANTY FEE IS PAID, PROVIDED, OF COURSE, THAT THE LOAN IS NOT IN DEFAULT AND THAT NEITHER SBA NOR THE LENDING INSTITUTION ARE AWARE OF, OR HAVE ANY INFORMATION INDICATING, THE LIKELIHOOD OF AN IMMINENT DEFAULT BY THE BORROWER.

WITH REGARD TO SBA'S ACCEPTING THE GUARANTY FEE AFTER A LOAN IS IN DEFAULT, IT IS CLEAR THAT SUCH ACTION WOULD MODIFY TO THE GOVERNMENT'S DETRIMENT THE TERMS OF SECTION 2 OF THE GUARANTY AGREEMENT REQUIRING PAYMENT OF THE GUARANTY FEE BEFORE THE LOAN IS COVERED BY THE GUARANTEE. THE STATED RULE IN THIS REGARD IS THAT NO OFFICER OR AGENT OF THE GOVERNMENT HAS THE AUTHORITY TO WAIVE CONTRACTUAL RIGHTS WHICH HAVE ACCRUED TO THE UNITED STATES OR TO MODIFY EXISTING CONTRACTS TO THE DETRIMENT OF THE GOVERNMENT WITHOUT ADEQUATE LEGAL CONSIDERATION OR A COMPENSATING BENEFIT FLOWING TO THE GOVERNMENT. SEE 46 COMP. GEN. 874 (1967); 45 ID. 224 (1965); 44 ID. 746 (1965); 41 ID. 169 (1961); AND DECISIONS CITED THEREIN.

AS TO ACCEPTANCE OF THE GUARANTY FEE ON A DEFAULTED LOAN (OR ON A LOAN IN DANGER OF IMMINENT DEFAULT) AFTER THE 5-DAY PERIOD HAS LAPSED ON THE THEORY THAT IT WOULD ADVANCE THE POLICY OBJECTIVES OF THE SMALL BUSINESS ACT AND THUS INVOLVE A COMPENSATORY BENEFIT FLOWING TO THE UNITED STATES, WE CALL YOUR ATTENTION TO 46 COMP. GEN. 874 (1965), WHEREIN WE STATED:

"INITIALLY, MR. RIMESTAD RECOGNIZES THAT WE HAVE DENIED AUTHORIZATION OF CONTRACTUAL MODIFICATIONS WITHOUT THE PRESENCE OF COMMENSURATE BENEFITS FLOWING TO THE GOVERNMENT. B-157241, AUGUST 27, 1965; 35 COMP. GEN. 56. HE SUGGESTS IN EFFECT, HOWEVER THAT THE PUBLIC POLICY FORMING THE BASIS OF THE STATUTE WOULD CONSTITUTE VALUABLE CONSIDERATION TO SUPPORT MODIFICATION TO COMPENSATE THE CONTRACTOR FOR ADHERENCE TO, AND COMPLIANCE WITH, THE REQUIREMENTS OF THE ACT. WHILE WE FEEL THAT THE GOVERNMENT IN ITS CAPACITY AS LAW MAKER WOULD RECEIVE MEASURABLE BENEFITS FROM THE CONTRACTORS IN THE FORM OF ADVANCEMENT OF THE POLICY OBJECTIVES OF THE REFERENCED ACT, WE FAIL TO SEE HOW THE GOVERNMENT, AS A CONTRACTOR, COULD BE SAID TO OBTAIN SUCH CONSIDERATION AS WOULD SUPPORT MODIFICATION OF THE CONTRACTS AS A MATTER OF LAW. IN CASES WHERE THIS OFFICE HAS HELD THERE WAS SUFFICIENT CONSIDERATION PRESENT TO SUPPORT MODIFICATION OF A CONTRACT, SUCH CONSIDERATION AROSE FROM THE PARTICULAR CONTRACT IN QUESTION AND BENEFITED THE GOVERNMENT IN ITS CONTRACTUAL CAPACITY. WE ARE THEREFORE UNABLE TO CONCLUDE THAT ANY FURTHERANCE OF THE POLICY SET OUT IN THE SERVICE CONTRACT ACT AS MAY RESULT FROM PAYMENT OF HIGHER WAGES THAN WOULD OTHERWISE BE REQUIRED CONSTITUTES SUCH CONSIDERATION AS WOULD SUPPORT MODIFICATION OF THE INSTANT CONTRACTS."

THE RATIONALE OF THAT CASE WOULD APPEAR TO BE EQUALLY APPLICABLE TO DEFAULTED LOANS (AND LOANS IN DANGER OF IMMINENT DEFAULT) IN THE INSTANT CASE.

WE NOTE THAT THE ADMINISTRATOR'S LETTER INDICATES HIS RECOGNITION OF THE DIFFICULTIES ASSOCIATED WITH SBA'S ACCEPTANCE OF LATE GUARANTY FEE PAYMENTS ON BEHALF OF LOANS ALREADY IN DEFAULT WHEN HE STATES THAT OUR CONCURRENCE IN THE PROPOSED ADMINISTRATIVE ACTION WOULD NOT AUTOMATICALLY RESULT IN THE PURCHASE OF THE GUARANTEED PORTION OF EVERY DEFAULTED LOAN. IN THIS REGARD THE ADMINISTRATOR ATTEMPTS TO DISTINGUISH BETWEEN THOSE LENDING INSTITUTIONS THAT INADVERTENTLY NEGLECTED TO PAY THE GUARANTY FEE IN ISOLATED INSTANCES AND THOSE INSTITUTIONS THAT WERE IN EFFECT GROSSLY NEGLIGENT IN WITHHOLDING PAYMENT OF THE FEE. IN VIEW OF THE PROVISIONS OF THE GUARANTY AGREEMENT WE SEE NO BASIS FOR SUCH A DISTINCTION.

IN LIGHT OF THE FOREGOING WE WOULD HAVE NO OBJECTION TO SBA ACCEPTING PAYMENT OF THE REQUIRED GUARANTY FEE SUBSEQUENT TO THE LAPSE OF THE 5 DAY PERIOD MENTIONED IN PARAGRAPH 5 OF THE GUARANTY AGREEMENT AND GUARANTEEING THE APPROPRIATE PERCENTAGE OF THE OUTSTANDING BALANCE OF THE LOAN FROM THE DATE SUCH GUARANTY FEE IS PAID, PROVIDED THE LOAN IS NOT IN DEFAULT AND THAT NEITHER SBA NOR THE LENDER IS AWARE OF, OR HAS ANY INFORMATION INDICATING, AN IMMINENT DEFAULT.

THE CONCLUSIONS EXPRESSED HEREIN DO NOT NECESSARILY CONTROL THIRD PARTY HOLDERS. THE PRESENT RECORD IS NOT SUFFICIENT FOR US TO ADDRESS THIS ISSUE WHICH COULD ONLY BE PROPERLY CONSIDERED ON A CASE-BY-CASE BASIS.