1954 by the addition of sections 201-206 (22 U.S.C. 18711876). Section 201 consists of a declaration of the purposes which the Fund is to carry out and in general lays down a policy of furthering the security and general welfare of the United States by rendering assistance to free peoples who need it in connection with their efforts to develop their economies. Section 202(b) grants the Fund broad authority to render such assistance by making loans, credits, or guaranties, or engaging in certain financing operations or transactions. More particularly, it enables the Fund, subject to one prohibition, "to make *** guaranties * * to *** such nations, organizations, persons or other entities, and on such terms and conditions, as it may determine * * *.” The prohibition embraces "guaranties of equity investment against normal business-type risks." Section 205 (c), which lists specific but not exclusive powers conferred upon the Fund, includes the powers to "acquire and dispose of *** with *** endorsement or guaranty, any property, *** and [to] guarantee payment against" mortgages, bonds, debentures, and a wide variety of other instruments. Neither these nor any other provisions in the statute expressly designate the liabilities on Fund guaranties as obligations of the United States.

The monies required by the Fund for its programs are appropriated by Congress pursuant to authorizations granted by section 203 without fiscal year limitations.

Although initially an organization within the International Cooperation Administration, the Fund has been since 1958 a Government corporation created as "an agency of the United States of America, subject to the direction and supervision of the President," and may sue and be sued in its own name. It is subject to the provisions of the Government Corporation Control Act, as amended. The chief executive officer of the Fund is a Managing Director, appointed by the President by and with the advice and consent of the Senate.*

• Mutual Security Act of 1954, secs. 202(a) and 205(c), as amended, 72 Stat. 262, 264, 22 U.S.C. 1872(a), 1875(c).

Mutual Security Act of 1954, sec. 204 (c), as amended, 72 Stat. 263, 22 U.S.C. 1874 (c); 31 U.S.C. 846-852, 866-870.

4 Mutual Security Act of 1954, sec. 205(b), as amended, 72 Stat. 264, 22 U.S.C. 1875(b).

Management is vested in a Board of Directors consisting of the Under Secretary of State for Economic Affairs, who is the Chairman, the Director of the International Cooperation Administration, the Chairman of the Board of Directors of the Export-Import Bank, the Managing Director of the Fund, and the United States Executive Director of the International Bank for Reconstruction and Development. The Board carries out its functions "subject to the foreign policy guidance of the Secretary of State." "

As originally enacted, the provisions of section 202(b) relating to guaranty powers were silent on the matter of the Fund's maintenance of reserves with respect to its guaranties. An amendment to that section passed in 1959 broke the silence by specifically recognizing the authority of the Fund to maintain merely fractional reserves against the guaranties it makes but requiring that the reserve for each guaranty be at least 50 percent of the contractual liability thereunder.s The total of such liabilities outstanding at any one time is limited to $100,000,000.

For the reasons set forth below, I am of the opinion that a holder of a Fund guaranty may look for protection beyond the assets of the Fund to the full faith and credit of the United States.

9

A series of opinions of the Attorney General issued between 1953 and 1959 has established that a guaranty by a Government agency contracted pursuant to a congressional grant of authority for constitutional purposes is an obligation fully binding on the United States despite the absence of statutory language expressly pledging its "faith" or "credit" to the redemption of the guaranty and despite the possibility that a future appropriation might be necessary

• Mutual Security Act of 1954, sec. 205(a), as amended, 22 U.S.C. 1875(a); 74 Stat. 135, P.L. 86–472, May 14, 1960. Although the statute designates the Secretary of State as a member and chairman of the Fund's Board of Directors, he has delegated these functions to the Under Secretary of State for Economic Affairs (State Department Delegation of Authority No. 85-10, February 2, 1961, 26 F.R. 1313).

• Mutual Security Act of 1954, sec. 205(a), as amended, 22 U.S.C. 1875(a). 771 Stat. 357.

873 Stat. 248, 22 U.S.C. 1872 (b)..

There can be no doubt of the constitutionality of the Development Loan Fund legislation. United States v. Butler, 297 U.S. 1, 64–67 (1936); Helvering v. Davis, 301 U.S. 619, 640-641 (1937); and see Ashwander v. TVA, 297 U.S. 288, 326-328 (1936).

to carry out such redemption.10 Thus it must be held that unless sterilized by some other provision in its governing statute, the Fund is enabled by the above quoted language of section 202(b) to beget general obligations of the United States. Only two possibilities of sterilization present themselves: the transformation of the Fund into a corporation in 1958 and the imposition of a 50 percent minimum level of reserves in 1959.

The 1958 legislation was passed in accordance with the following recommendation of the President to Congress:11 "The [Development Loan] fund's long-term character set it apart from economic assistance elsewhere provided in the mutual security program. I believe it is wise, therefore, to identify the fund as a separate entity. I am accordingly requesting incorporation of the fund***.”

The report of the Senate Foreign Relations Committee on the amendments by which the President's request was carried out stated that it agreed to the request because "a Government corporation has many advantages of business management and stability." 12 It is apparent that the incorporation of the Fund was accomplished to increase its effectiveness and was completely unrelated to the backing of its guaranties. The change in its form may therefore be disregarded here.13

In connection with the 1959 legislation concerning reserves for guaranties, it should be noted first that in hearings on the initial appropriation bill to provide money for the Development Loan Fund, the then Director of the Inter

10 41 Op. A.G. 138; id. 363; id. 403; id. 424; see also National Cored Forgings Co. v. United States, 132 F. Supp. 454 (Ct. Cl. 1955), in which it was held that a suit could be brought against the United States based on a Reconstruction Finance Corporation guaranty even though that Corporation itself was subject to suit thereon.

11 Special message of President on mutual security, February 19, 1958, 104 Cong. Rec. 2422.

12 S. Rept. 1627, 85th Cong., 2d sess., p. 13.

13 Inland Waterways Corp. v. Young, 309 U.S. 517 (1940). In that case the issue was whether a national bank has the power to pledge assets as security for the deposits of a Government corporation as well as for the deposits of Treasury funds. The Court stated (p. 523):

"So far as the powers of a national bank to pledge its assets are concerned, the form which the Government takes *** is wholly immaterial. The motives which lead Government to clothe its activities in corporate form are entirely unrelated to the problem of safeguarding governmental deposits, and therefore irrelevant to the issue of ultra vires *

national Cooperation Administration stated that the Fund would maintain 100 percent reserves for its guaranties at least during the early years of its existence.1 Nothing in the statute establishing the Fund necessitated 100 percent coverage, and it was to encourage the Fund to use its guaranty powers and thus expand the role of private enterprise in the development program that Congress specifically confirmed the Fund's authority to set aside merely fractional reserves against its guaranties. The 50 percent minimum was deemed reasonable in view of the Fund's lack of experience in guaranty transactions up to that time.16 The purpose of the enactment was well expressed in the testimony of a State Department consultant before the Foreign Relations Committee of the Senate:17

"We are also recommending that the Government lending agencies, that is, the Development Loan Fund and the Export-Import Bank, be required to maintain only fractional reserves against Government guarantees of private loans. Such authority would stretch the resources of Government financing agencies. Our reasoning behind this recommendation was that it should not be necessary to back the Government's contingent liability under such guarantees by fully appropriated funds for the Development Loan Fund or the full 100 percent of its drawing power on the Treasury in the case of the Export-Import Bank. No cash payment by the Government is involved in a guarantee of a private loan unless and until default occurs; and it is highly unlikely that defaults would occur on all or even a substantial portion of such loans.

"We were informed that the DLF has the power to maintain fractional reserves, but that it has assured certain legislative committees of the Congress that this authority would not be used without further consultation. * *

14 Hearings before House Committee on Appropriations, on Mutual Security Appropriations for 1958, 85th Cong., 1st sess., p. 833.

15 H. Rept. No. 440, 86th Cong., 1st sess., p. 29; Conference (House) Rept. No. 695, 86th Cong., 1st sess., pp. 21-22.

16 Ibid.

17 Testimony of Ralph I. Straus, Hearings on Mutual Security Act of 1959. 86th Cong., 1st sess., Part 2, p. 957. Mr. Straus, as consultant to the Under Secretary of State for Economic Affairs, had supervised a study of the role of private investment in the Mutual Security Program made in accordance with sec. 413(c) of the Mutual Security Act of 1954, as amended, 72 Stat. 267, 22 U.S.C. 1933 (c).

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To construe the 1959 amendment as narrowing the Government's liability to the limits of the Fund's assets would tend to discourage private investors' participation in the foreign development program and thus militate against the congressional purpose of stimulating such participation. Moreover, had Congress intended that the liability of the United States be restricted to those limits it hardly would have left that result to inference.18 In my opinion, the specific approval by Congress of partial reserves evidences only a recognition of the feasibility and propriety of maintaining a less than full reservoir of funds available for prompt tapping in the event of calls on guaranties. Such approval did not curtail the contingent liability of the United States.

Inasmuch as neither the 1958 nor the 1959 action of Congress deprived the Development Loan Fund of the power to bind the United States by the guaranties it is authorized to contract, I conclude that a Fund guaranty constitutes a general obligation of the United States and, to repeat the words employed by the Fund in its inquiry, is backed by the full faith and credit of the United States.

Respectfully,

ROBERT F. KENNEDY.

18 For an example of a statute where Congress has expressly disclaimed general liability, see 41 Op. A.G. 363, 369.