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70 BOARD OF GOVERNORS OF" THE FEDERAL RESERVE SYSTEM S-551 WASHINGTON ADDRESS OF"F"ICIAL CORRESPONDENCE TO THE BOARD Septemb~ 16, 1942 Dear Si.r: The Board has received from the War Department a memorandum dated September 14, 1942, signed by Lieutenan.t Colonel Paul Cleveland, regarding the necessity for including in guarantee agreements, in stnJtnary f'')rm, all of the terms und conditions of the loan requirea by the War Department's instructions. A copy of this memorandum is enclosed for your information and guidance. We are·informed by the War Department that the word "substantially" as u::wd in paragraph 2 of the enclosF;d memorandum is to be read in the light ol the mernorf;JndUJil from the War Department dated August 1;.;, 1942, referred to in our letter of August 18, 1942, with rogard to minor changes in condHions prescribed. ~yours, ~,::::-~ik~,.__ L. P. Bethea, Assistant Secretary. Enclosure TO TJ:-lE PRESID&~TS OF ALL :&'EDERAI.. RES]~RVE BAl'JKS 71 WAR DEPARTIVJENT Headquarters, Services of Supply Washington, D. C. September 14, 1942 UEMORANUJ.M: From the War Department to the Board of Governors of the Federal Reserve System SUBJECT: Review of executed guarru1tee agreements: omission of terms and conditions required by the War Department's instructions to the Federal Reserve Banks 1. As the result of a review of a certain number of executed guarantee agreements, and of correspondence with some of the Federal Reserve Banks on the subject, it has become apparent to the War Department that there is some misunderstanding between it and the Federal Reserve Banks about the procedure to be followed in executing guarantee agreements that have been authorj.zed by the War Department. It is hoped that this memorandum will serve to explain the position of the War Department on this subject. 2. All of the terms and conditions of the loan substantially as specified in the War Department's instructions (which in almost all cases are the terms and conditions recommended by the Federal Reserve Bank) should always be stated in sunnnary form in the guarantee agreement or in some document expressly referred to in the guarantee agreement. The reasons for this procedure are: a. The terms and conditions are a part of the description of the kind of loan that the War Department is willing to guarantee. They thus constitute an important part of the contract of guarantee between the War Departlllent and the financing institution, and they should therefore appear in the for.nwl guarantee agreement, which·is the sole contract between the War Department and the financing institution. Otherwise, there may be some doubt whether they constitute a part of the contract between the War Department and the financing institution. b. In those cases where S0111e of the terms and conditions are transmitted by the Federal Reserve Bank to the financing institution, but 72 Page MElViORANDill•l To Board of Governors 2 September 14, 1942 are not included in the formal guarantee agreement, it may always be possible for the financing institutions, without bad faith, to modify or waive these conditions after the guar~ntee agreement has been executed. 3. In those cases where a review of the guarantee agreement shows that sonte of the required terms and conditions have been o.mitted, it is necessary for the War Department to ask the Federal Reserve Bank whether or not the terms and conditions in question have been covered outside of the guarantee agreement. The War Department must always be prepared to respond to any request that may come to it from the General Accounting Office for information as to the entire guarantee transaction between the War Department and the financiilg institution. 4. Kindly transmit the foregoing to all of' the Federal Reserve Banks. War Department of the United States By: (Signed) P&ul Cleveland PAUL CIJ:VELAND Lt. Colonel, A.u.s. Chief, Loan Section. Advance Payment and Loan Branch
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