The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
85 BOARD OF GOVERNORS OF" THE FEDERAL RESERVE SYSTEM R-695 WASHINGTON ADDRESS DF"F"ICIAL CDRRESPDNDENCE TD THE BDARD August ;~3, 1940 Dear Sir: There is enclosed for your information a copy of H.R. 10365, "A bill to facilitate preparation for national defense by amending section 3477 of the Revised Statutes", which was introduced in the House of R.epresenta.tive.s on August 15 "b.r Mr. Sumners, Chairman of tho Judiciary Committee; together with a colJ.Ir of the Beard's letter of August 21, 1940, to Mr. Sumners expressing the belief that the enactment of the bill is desirable and in the public interest for tho reasons stated therein and calling attention to the fact that tho Federal Advisory Council ha.d advised the Board prior to the introdud,ion of this bill that i t favored a proposal of this character. Ver; truly yours, ~m~ Chent0r N!orrill, Secretary. Enclosures 2 (Copy of bill sent only with addressed copies) TO THE PRESIDE.t\fTS AND CHAIRMEN OF ALL FEDEHAL RESERVE BANKS AND THE MEMBERS AHD SECHETARY OF THE FEDERAL ADVISORY COUNCIL 86 H-695-a August 21, 1940 Honorable Hatton W. Su.·nrwrs, Chairmar1, Committee on the Judiciary, House of RepreseJ.ltatives, Washington, D. C. Dear Mr. Sumnel's: This is lll requesting the views Reserve System on H. for nationl.'~ defense Statutes". reRponse to your letter of August 19, 1940 of the Board of Governors oi· the F'e1eral R. 10.365, "A bill to facilitate preparation by amending section .3!~77 of the Revised The bill ~vould Ulnend soction .3477 of the Revised Statutes so as to permit the assignment of the entire amcunt of anf claim of ~10,000 or more upon the United States to a bank or · other lend~1g agenc,y as security for a loan or credit whenever such claim is based up.:m a c:)ntract entt:;red into on behalf of the United States by the w~~.r Department, the Ne.vcJ Department or the Procurement Division o1 the Trcasur.r Do:partm~mt. Section .3477 of the Revised Statutes makes assignments of claims against the 1Jnited States null and void unless the,r are made after the claims have been allowed and warrants iesued. This statute, which dates back to 1846, was enacted solely for the pro~ tection of the Government; but it is so strictly worded and has been so strictly construed that an attempted assignment which does not comply with the exact terms of the statute has been held void even as between the assignor and the assignee, so that it confers no rights in the assignee as against a truf.l·tee in be..'"lkruptcy of the assignor. National Bunk of Commerce v. Dovtnie, 218 cr. S. 345. As a consequence, banks and other lending agencies which might otherwise be willing to extend credit to finance the performance of contracts with the Gover.i.1.IIlent are unable to rely upon assignments of amounts p~able under such contracts as security, because they would find themselves in the position of general creditors of the contractors in the case of bankM1ptcy even though the funds which they advanced may have made the fulfillm.;;nt of the contracts possible. There are !lllll\Y manufo.ctur.ers and other businesses, particularly the smaller ones, which m~ be deterred from bidding on 87 R-695-a -2·· contracts arising out of the pro&ram for national defense because they have inadequate amounts of working capital a..'YlC: mey encount.er difficulties itl financing the performance of such contracts. If such businesses could 0f'fer cecurity in the form of assignments of clai.ms against the Goverill!lent growing cut of such contracts, they would in ma.zw instances be able to obtain the necessary credit from their own local banks and other financing i.'Ylotitutions, which have large amounts of idle funds awaiting employment. In maqy h1stances su.ch credit could be obtained more sirnpzy and quickly from local hlstitutions thnr1 from the l~nding agencies of the Government, whose commitr.1ents usually t:.ave to be passed upon in Wnshington. The Federal Advisory Council, establisheJ "lUld.er section 12 of the Federal Resarve Act,, ndvised the Boo.rO., prior to the introduction of this bill, in reglll'd to a proposr..l •)f this chllracter, as follows: "The Cotmcil boJ.ievos this suggested o.rnendment to the law especial]J importnnt at ·t;his time, si::1ce th0 Government's prepnrednet=:s rrogrnm when..:ver put into e!'f&ct will result in the nem;ssit-y of placing large orders for muterials of all kinds. Mnrzy- $mull und med:!uia sized buriuoss enterprises would. h.; i•:l a. bet"'~.~,~r pooitic:::1 to c.cccpt and execute Govern.'ll.ont ord·:::rs if they vmrr.: r-!:>1.; tv u:.::e c.ssignments o1' their claims a;-so.in.st th0 G:Y\ie:rn;:,ant o.s col.latoral for loru1s. 11 It is believed, therefore, trw:(, the enactment of this bill would facilitate financing the peri'orme:ace of Governmemt contracts, would encourage additional business ~on-Jer~ls to bid for such contracts and, by increasing the number of' bidders, would tend to expedite, and reduce the cost of, the dc,feuse program. For these reasons, the Board of Governors of the Federal Re3erve System believes tha~~ the enactment of the till H. R. 10365 is desirable and in the public interest. Ver,r ( Sj.g11ed) t~y yours, ChestGr Morrill Chester Morrill, Secrctar-.r.
@FedFRASER