B-88920, SEPTEMBER 20, 1949, 29 COMP. GEN. 136

B-88920, SEPTEMBER 20, 1949, 29 COMP. GEN. 136

BONDS - PERFORMANCE - VESSELS CHARTERED UNDER MERCHANT MARINE ACT OF 1936, AS AMENDED INASMUCH AS THE MARITIME COMMISSION HAS ADOPTED, PURSUANT TO THE PROVISIONS OF SECTION 710 OF THE MERCHANT MARINE ACT, 1936, AS AMENDED, A PROCEDURE WHEREBY INDIVIDUAL PERFORMANCE BONDS ARE TO BE ISSUED ON NEW VESSELS CHARTERED FROM THE COMMISSION, THIS OFFICE WILL RECOGNIZE THE RELEASE OF SURETIES FROM LIABILITY UNDER THE BLANKET PERFORMANCE BONDS ON NEW VESSELS WHICH WERE BROUGHT UNDER THE COVERAGE OF SUCH BLANKET BONDS DURING THE PERIOD OF FORMULATION OF THE PROCEDURE, PROVIDED AN INDIVIDUAL BOND IS ACCEPTED BY THE COMMISSION FOR EACH VESSEL WITHDRAWN FROM THE BLANKET BOND COVERAGE DURING THE INTERIM PERIOD.

COMPTROLLER GENERAL WARREN TO THE CHAIRMAN, UNITED STATES MARITIME COMMISSION, SEPTEMBER 20, 1949:

REFERENCE IS MADE TO YOUR LETTER DATED AUGUST 25, 1949, WITH RESPECT TO THE BLANKET PERFORMANCE BONDS FURNISHED BY CHARTERERS UNDER CHARTER AGREEMENTS WARSHIPDEMISEOUT 203 AND SHIP SALES DEMISE 303 TO MEET THE REQUIREMENTS OF SECTION 710 OF THE MERCHANT MARINE ACT OF 1936, AS AMENDED, INCORPORATED BY REFERENCE INTO SECTION 5 (C), MERCHANT SHIP SALES ACT, 1946, 60 STAT. 43, AND TO THE INDIVIDUAL BONDS PROPOSED IN SOME INSTANCES TO BE SUBSTITUTED THEREFOR.

BOTH OF THE REFERRED-TO FORMS OF CHARTER COVERED THE HIRE OF ONE OR MORE VESSELS AND THE PENAL SUMS OF THE BLANKET BONDS HERETOFORE USED HAVE BEEN DETERMINED BY MULTIPLYING THE SUM OF $25,000 BY THE NUMBER OF VESSELS WHICH HAD BEEN DELIVERED UNDER A PARTICULAR CHARTER. UPON DELIVERY OF ADDITIONAL VESSELS UNDER THE CHARTER, THE PENAL SUM WAS AUTOMATICALLY INCREASED, RETROACTIVELY TO THE DATE OF THE DELIVERY OF THE FIRST VESSEL THEREUNDER, BY $25,000 FOR EACH SUCH ADDITIONAL VESSEL UP TO A MAXIMUM LIABILITY WHICH THE SURETY WAS PERMITTED TO STIPULATE IN THE BOND. INSTANCES WHERE THE NUMBER OF VESSELS MULTIPLIED BY $25,000 EXCEEDED SAID MAXIMUM LIABILITY, THE CHARTERER WAS REQUIRED TO FURNISH AN INDORSEMENT TO THE BLANKET BOND INCREASING THE MAXIMUM PENALTY TO THE REQUIRED AMOUNT.

YOUR LETTER POINTS OUT THAT, BECAUSE THE CHARTER OPERATIONS HAVE BEEN EXTENDED FROM TIME TO TIME AND ADDITIONAL VESSELS DELIVERED DURING THE EXTENDED PERIODS, THE AMOUNTS OF THE BLANKET BONDS HAVE REACHED CONSIDERABLE PROPORTIONS WITH CORRESPONDING INCREASES IN THE PREMIUM COSTS; THAT A LARGE NUMBER OF THE CHARTERED VESSELS HAVE BEEN REDELIVERED TO THE COMMISSION, WITH RESPECT TO WHICH VESSELS THE CHARTERERS HAVE PERFORMED A SUBSTANTIAL PART OF THEIR CHARTER OBLIGATIONS; AND THAT YOUR COMMISSION HAS A DIRECT FINANCIAL INTEREST IN REDUCING THE BOND COVERAGE, AND CORRESPONDINGLY THE PREMIUM COSTS, SINCE THE CHARTERS PROVIDE FOR PAYMENT TO YOUR COMMISSION OF ADDITIONAL CHARTER HIRE CONSISTING OF A PERCENTAGE OF PROFITS IN EXCESS OF 10 PERCENT OF THE CAPITAL NECESSARILY EMPLOYED IN THE VESSEL OPERATIONS.

YOUR LETTER FURTHER POINTS OUT THAT ON JANUARY 18, 1949, THE MARITIME COMMISSION ADOPTED A PROCEDURE WHICH PROVIDES THAT EACH VESSEL THEREAFTER DELIVERED SHALL BE COVERED BY AN INDIVIDUAL PERFORMANCE BOND IN THE PENAL SUM OF $50,000, AND THAT THE PENAL SUM OF THE BLANKET BONDS SHALL BE REDUCED, EFFECTIVE AS OF THE LAST PREMIUM ANNIVERSARY DATE OF THE PARTICULAR BLANKET BOND CONCERNED, TO THE SUM OF $25,000 MULTIPLIED BY THE NUMBER OF VESSELS BEING OPERATED UNDER THE CHARTER AS OF SUCH PREMIUM ANNIVERSARY DATE, AND, WITH RESPECT TO VESSELS REDELIVERED TO THE COMMISSION SUBSEQUENT TO THE LAST PREMIUM ANNIVERSARY DATE, BY A FURTHER REDUCTION OF $25,000 FOR EACH VESSEL SO REDELIVERED, EFFECTIVE AS OF THE DATE OF RECEIPT BY THE SURETY OF THE COMMISSION'S CONSENT TO SUCH REDUCTION IN LIABILITY UNDER THE BOND, PROVIDED THAT PRIOR TO REDELIVERY OF ALL VESSELS DELIVERED UNDER THE CHARTER NO REDUCTION WILL BE PERMITTED WHICH BRINGS THE MAXIMUM PENALTY BELOW THE SUM OF $50,000. THE REDUCTION IN PENAL SUM IS ACCOMPANIED BY A CORRESPONDING REDUCTION IN BOND PREMIUMS, EITHER BY CANCELLATION OR PRO RATA SCALING DOWN THEREOF. IT IS UNDERSTOOD THAT PENDING ADOPTION OF THIS PROCEDURE--- SUBSEQUENT TO THE LAST PREMIUM ANNIVERSARY DATE OF THE BONDS BUT PRIOR TO THE DATE AFTER WHICH THE COMMISSION REQUIRED AN INDIVIDUAL BOND IN THE PENAL SUM OF $50,000--- CERTAIN ADDITIONAL VESSELS WERE DELIVERED UNDER THE CHARTER AND ADDED TO THE BLANKET BONDS AND THAT IN SUCH CASES THE SURETY COMPANIES HAVE BEEN UNABLE TO AGREE TO A REDUCTION OF THE BOND PENALTY OR A CANCELLATION OR REDUCTION OF PREMIUMS DUE TO THE FACT THAT SUCH DELIVERIES, UNDER THE TERMS OF THE BLANKET BONDS, AUTOMATICALLY INCREASED THE PENAL SUM THEREOF RETROACTIVELY TO THE ORIGINAL EFFECTIVE DATE OF THE BOND.

YOUR COMMISSION NOW PROPOSES TO AUTHORIZE, IN APPROPRIATE CASES, THE WITHDRAWAL OF SUCH ADDITIONAL VESSELS FROM THE COVERAGE OF THE BLANKET BOND, THE REDUCTION OF THE PENAL SUM OF SUCH BLANKET BONDS BY $25,000 FOR EACH VESSEL SO WITHDRAWN, AND THE SUBSTITUTION OF AN INDIVIDUAL BOND ON EACH SUCH WITHDRAWN VESSEL, WITH LIABILITY ATTACHING AS OF THE DATE OF DELIVERY OF THE PARTICULAR VESSEL CONCERNED. IT APPEARS THAT BEFORE CONSENTING TO THIS PROCEDURE THE SURETY ASSOCIATION OF AMERICA, AN ASSOCIATION REPRESENTING A NUMBER OF SURETY CORPORATIONS UNDERWRITING THE BONDS INVOLVED, WISHES TO BE ADVISED THAT THIS OFFICE CONSENTS TO THE SUBSTITUTION OF THE INDIVIDUAL BONDS AND WILL RECOGNIZE THE REDUCTION OF THE PENAL SUMS OF THE BLANKET BONDS EFFECTIVE AS OF THE EFFECTIVE DATE OF EACH SUCH BLANKET BOND CONCERNED, IN SUCH AMOUNT AS SHALL BE AUTHORIZED BY YOUR COMMISSION.

SECTION 710, MERCHANT MARINE ACT, 1936, AS AMENDED, 46 U.S.C. 1200, PROVIDES AS FOLLOWS:

EVERY CHARTERER OF THE COMMISSION'S VESSELS SHALL BE REQUIRED TO DEPOSIT WITH THE COMMISSION AN UNDERTAKING WITH APPROVED SURETIES AS SECURITY FOR THE FAITHFUL PERFORMANCE OF ALL OF THE CONDITIONS OF THE CHARTER, INCLUDING INDEMNITY AGAINST LIENS ON THE CHARTERED VESSELS, IN SUCH AMOUNT AS THE COMMISSION SHALL REQUIRE. ( ITALICS SUPPLIED.) ACCORDINGLY, SINCE THE AMOUNT OF THE PENAL SUM OF THE BONDS HERE INVOLVED IS A MATTER WITHIN THE DISCRETION OF THE MARITIME COMMISSION AND SINCE THE PROPOSED PROCEDURE APPEARS TO BE IN THE INTEREST OF THE UNITED STATES AS TENDING TO DECREASE THE OPERATING COSTS OF THE CHARTERERS AND TO INCREASE THE AMOUNTS RECAPTURABLE BY THE MARITIME COMMISSION AS ADDITIONAL CHARTER HIRE, THIS OFFICE WILL RECOGNIZE THE RELEASE OF THE SURETIES FROM LIABILITY UNDER THE BLANKET BONDS IN CONNECTION WITH EACH VESSEL WITH RESPECT TO WHICH THE COMMISSION ACCEPTS A NEW INDIVIDUAL BOND UPON THE BASIS OUTLINED IN YOUR LETTER. THERE SHOULD BE FORWARDED TO THIS OFFICE, FOR FILING WITH THE CHARTERS INVOLVED, A COPY OF THE NOTICE AUTHORIZING THE SURETY TO WITHDRAW FROM THE COVERAGE OF THE BLANKET BOND EACH VESSEL SO WITHDRAWN, TOGETHER WITH THE ORIGINAL OF THE INDIVIDUAL BOND TO COVER SAID VESSEL.