Mr. PEACOCK. On loans for foreign shipping, the actual experience in many of the contracts is, they run, I think, anywhere from oneeighth of 1 percent up to 3.5 percent.

The CHAIRMAN. Was that in accordance with the law?

Mr. PEACOCK. That is a controversial question as to which litigation has been pending, and in which litigation is now in the making, because of the fact that the circuit court of appeals threw out the previous test case on the grounds of jurisdiction, if I recollect rightly.

Senator GUFFEY. Wasn't that case decided in the Baltimore court before Judge Coleman, and later went to the circuit court of appeals of the fourth district?

Mr. PEACOCK. No. As I recall it, Judge Coleman did hold that he had jurisdiction of the case and decided on the merits that the interest rate was too low in some of those contracts. But the court of appeals, if I recall rightly, handed down that opinion in which they agreed with him in substance and then proceeded to say that neither he nor they had any jurisdiction of the case, as the result of which the whole matter had to start over again, and I believe now is under consideration by the Department of Justice for that purpose.

Senator GUFFEY. Just so that the committee may have it in the record, I shall offer in evidence here the opinion by Judge Coleman of April 20, 1934, and the court of appeals' opinion of the fourth district.

The CHAIRMAN. Very well. I suppose those both refer to the past. (The opinions referred to are as follows:)

In the District Court of the United States for the District of Maryland: Baltimore Mail Steamship Co. v. United States of America. Revised opinion filed April 20, 1934.

COLEMAN, District Judge: On June 15, 1933, a hearing was had on the demurrer of the Government to the declaration filed in this case. As a result of this hearing this court overruled the demurrer for the reasons set forth in the court's oral opinion, and only two questions were left for decision on the merits: (1) Whether the protest of the plaintiff company, which was made at the time that it paid the interest demanded of it by the Government at the rate of 3 percent per annum and which it claimed to be excessive and illegal, was sufficient in law to constitute the payment of this interest an involuntary payment, so as to entitle it to recover such part of this interest as might be determined to have been unlawfully exacted; and (2) what is the maximum rate of interest which the Government was entitled to exact from the plaintiff company on the loan in question, pursuant to the terms of section 11 (d) of the Merchant Marine Act of 1920, as amended by the Merchant Marine Act of 1928 (45 Stat. 690, ch. 675), this court having found, as set forth in its oral opinion rendered when the demurrer was overruled, that this statute, and not the provisions of the contract pursuant to which the loan was made or the amendment of 1931 to the Merchant Marine Act, controls. As a result of the demurrer being overruled, the Government, in due course, filed general issue pleas to the declaration; issue was joined, and evidence taken and arguments heard on November 13 and 14, 1933, bearing upon the two questions above named.

Taking up the first of these questions, we find that the evidence fully substantiates the allegations of the declaration that payment of 3-percent interest was made "not voluntarily but by compulsion of necessity to prevent an immediate seizure of the vessel without legal process (under color of provision in the preferred mortgage to the same effect as provision in the loan agreement for such seizure for default in payment of interest) and was expressly made under protest and without prejudice" to the right of the steamship company to have refunded to it the amount found to be excessive.

Both the preferred mortgage and the loan agreement expressly empowered the Government, in case of any of default in the payment of any part of any

interest, to take the vessel without legal process, wherever it might be, and hold, lay up, lease, charter, operate, or otherwise use or sell it. Mortgage, article II, section 1, paragraphs (3) and (4); loan agreement, sections 28 and 29. The correspondence between the steamship company and the Government as evidenced by a series of letters which were transmitted in June 1931 discloses very definitely that the rate of interest provided in the contract was protested against and was paid only because to have withheld payment would have been confiscatory of the steamship company's property and business at that time. For example, in the steamship company's letter of June 13 to the United States Shipping Board we find the following:

"Such rate was placed in the agreement over the protest of this company, which was, however, obliged to sign the agreement and, subject to said protest, accept the terms fixed by you, as the company had already purchased the ships, incurred heavy obligations with respect to the reconstruction thereof and with respect to the mail contract with the Postmaster General.

"This company now again protests the rate of interest fixed in said agreement as illegal and contrary to the express terms of the act of Congress above quoted, and your attention is respectfully called to the fact that the Attorney General of the United States has definitely ruled that your board had no power at that time to fix by agreement or otherwise a rate of interest to be carried by such loans differing in any respect from the rate fixed by the aforesaid section 11 (d) of the Merchant Marine Act of 1928, thus putting beyond question the validity of this protest.

"It is thus clear that the rate purported to be fixed in the agreement of September 11, 1930, is illegal and that this company is entitled to the rate prescribed by section 11 (d) of the above Merchant Marine Act of 1928.

"We are accordingly writing to request you to secure from the Secretary of the Treasury on your request a certificate showing the lowest rate of yield on Government obligations as defined in said section 11 (d), so that the legal interest rate to be borne by this loan, contracted for in the aforesaid agreement, may be inserted in the notes."

Again, on June 15, the steamship company wrote to the Shipping Board as follows:

"We now again protest the illegal rate exacted by you in violation of said act of Congress and respectfully state that this company is signing the notes for the same under protest and specifically reserves all its rights with respect to the validity of said rate and of the notes given in evidence thereof." It is true that thereafter, on June 19, as a result of the Shipping Board advising the steamship company that no money under the loan agreement could be obtained by it unless its protest against the rate of interest was withdrawn, the steamship company did authorize the return of the aforementioned letters of June 13 and June 15. Such return was made and advances under the loan began. But under date of December 14, in making remittance, the steamship company wrote as follows:

"The Baltimore Mail Steamship Co. makes the application for foreign trade interest rate and the payment enclosed herewith under protest and without prejudice to its contention that the rate of interest to be paid while the vessel is operated in foreign trade is one-half of 1 percent, which was the lowest rate of yield (to the nearest one-eighth of 1 percent) of any Government obligation bearing a date of issue subsequent to April 6, 1917 (except postal savings bonds) and outstanding on June 15, 1931, when the loan was made by the Board to this company."

At the same time the company forwarded an affidavit on form prescribed by the construction loan committee of the United States Shipping Board for the operation of the Steamship City of Baltimore in foreign trade. While this affidavit, taken independently, may appear to be a waiver of any further protest against the requirement for 3 percent interest, nevertheless, if read in connection with the letter with which it was transmitted, as it must be read, we construe it otherwise.

Such circumstances clearly connote an involuntary payment. Swift & Co. v. United States (111 U. S. 22); Cheeseborough v. United States (192 U. S. 253); United States v. Cuban Mail S. S. Co. (200 U. S. 488); Atchison etc. Ry. Co. v. O'Connor (223 U. S. 280); Gaar Scott & Co. v. Shannon (223 U. S. 468).

Taking up the second question, the applicable provision of section 11 (d) of the Merchant Marine Act of May 22, 1928 (45 Stat. 690, ch. 675), reads as follows:

frequently than annually:

During any period in which the vessed is operated in foreign trade the rate shall be the lowest rate yield (to the nearest one-eighth of one per centum) of any Government obligation bearing a date of issue subsequent to April 6, 1917 (except postal-savings bonds), and outstanding at the time the loan is made by the board, as certified by the Secretary of the Treasury to the board upon its request. The board may prescribe rules for determining the amount of interest payable under the provisions of this paragraph."

In order to determine the correct rate of interest made applicable by this statutory provision, it is necessary to determine, first, the exact date when the loan was "made by the Board", and second, what is meant by "the lowest rate of yield", as that phrase is embodied in the statute.

As to the first point, it seems entirely clear that the loan was made on June 15, 1931, because that is the date of the notes representing the loan, and the date when the mortgage securing the loan was executed, as well as the date when the steamship City of Baltimore, having been completed, was redelivered by the builders to the company pursuant to the reconstruction contract. We are unwilling to accept the Government's contention that the controlling date is September 11, 1930; that is, the date when the loan agreement was executed, although, as decided by this court in its previous opinion rendered on the demurrer, this earlier date is controlling with respect to the question as to when the agreement between the parties became effective for the purpose of determining another and different question, namely, whether the provisions of the contract itself are binding, or whether they are supplanted by the provisions of the Merchant Marine Act. The contract has no express provision as to precisely when the loan shall become effective but provides "all of said notes shall be dated the date of the pre ferred mortgage securing their payment."

THE LI

THE LI

N

The second point is the one around which revolves greater controversy, the steamship company contending that it is entitled to the benefit of the lowest rate of yield on June 15, 1931, on any type of Government obligation bearing a date of issue subsequent to April 6, 1917, except postal-savings bonds, which would include Treasury certificates of indebtedness and Treasury bills, the latter noninterest bearing, both of which have a maturity of 1 year or less at the time of issue. On the other hand, the Government contends that the language of the statute means to include, for purposes of arriving at a prescribed rate of yield, only long-term obligations, outstanding on June 15, 1931, bearing a date of issue subsequent to April 6, 1917, and a coupon rate of interest in excess of 21⁄2 percent, and, second, because it is not to be presumed, without a very clear intention expressed by Congress, that Congress would lend money for long periods at a rate of return so much less than the Government itself is required to pay when it borrows for long periods.

On June 15, 1931, that is, the date when the loan was made and therefore the determining date under the statute, there were three different kinds of Government obligations outstanding. First, Treasury bonds, having a maturity in excess of 5 years from date of issue; second, Treasury notes, having a maturity of from 1 to 5 years from date of issue; and, third, Treasury certificates of indebtedness and Treasury bills, having a maturity of 1 year or less from date of issue. All of these obligations are interest-bearing except Treasury bills; that is, they carry coupons specifying a given rate of interest. Treasury bills, on the other hand, are non-interest-bearing obligations, sold on a discount basis, the Treasury asking for bids on the various amounts of these bills to be sold at a discount and accepting the lowest bids; that is to say, they are sold at a flat price and are payable at a fixed amount without interest, the discount representing the lender's income. The issuance of these bills was not authorized by Congress until June 17, 1929 (Ch. 26, 46 Stat. 19, 31 U. S. C. A. sec. 754), that is, subsequent to the passage of the Merchant Marine Act of 1928, with which we are hero concerned. The Government argues that this fact alone is sufficient to refute the steamship company's contention that Congress, in passing the Merchant Marine Act of 1928, could have intended that non-interest-bearing, short-term obligations, none of which were outstanding at the time the act was passed, should be included for the purpose of fixing the interest rate on long-term loans.

If the contention of the steamship company be adopted, it would be entitled to invoke a rate as low as one-half of 1 percent, because that was the yield

to the nearest one-eighth of 1 percent to a purchaser on June 15, 1931, of certificates of indebtedness, series TS, issued on September 15, 1930, and having a maturity of 1 year later, although the coupon rate on these certificates was 2% percent; and, also, the same rate of yield existed with respect to Treasury notes, series C, issued January 16, 1928, and maturing December 15, 1932, but which were called June 8, 1931, for redemption December 15, 1931. These had a coupon rate of 32 percent. If the non-interest-bearing, short-term Treasury bills be also included, we find that two of these issues, that is, series issued April 2, 1931, and April 3, 1931, and maturing July 1, 1931, and July 2, 1931, respectively, had a yield to the purchaser on June 15, 1931, as low as three-quarters of 1 percent. On the other hand, if the Government's theory be adopted, namely, that the excepting of postal-savings bonds from the act can have no other purpose than to require that the rate shall be greater than the 22 percent of postal-savings bonds, we find that the lowest interest or coupon rate next highest to 21⁄2 percent-taken to the nearest one-eighth of 1 percent-on any of the three classes of obligations was 3% percent, which was carried by Treasury bonds issued June 15, 1931, with a maturity date of June 15, 1949, but redeemable on or after June 15, 1946.

To the extent of saying that the excepting of postal-savings bonds from the act should be interpreted as having no other purpose than to require that the rate of interest shall be greater than that of postal-savings bonds, we believe that the Government's contention is correct. To place any other construction upon the statute would clearly nullify the exception. That exception we must assume, was inserted for a definite purpose and the only purpose must have been to set a low level of yield above which the yield on loans must be kept. Also, the provision that only obligations issued subsequent to April 6, 1917, could be considered confirms this interpretation, because, presumably, prior to that date there were some long-term obligations with yields as low as, if not lower than, that of postal-savings bonds, although the testimony in the present case does not disclose what such obligations were. We are not impressed with the argument that the reason for excluding obligations issued prior to April 6, 1917, as well as postal-savings bonds, was that the excluded obligations, at least most of them, had special circulation or deposit privileges and that, consequently, the rate of yield of such obligations did not represent the price of money as such, but the price of money coupled with these special circulation or deposit privileges. The part of the statute with which we are here concerned was obviously dealing only with the fixing of a minimum rate, of which the borrower might obtain the benefit.

But it does not necessarily follow that the rest of the Government's contention is correct, namely, that the word "yield" as used in the statute, must be construed as synonymous with interest or coupon rate. This word has a well-established meaning in the investment world. It is generally understood to mean the proportionate rate which the income upon an investment bears to the total cost, interest excepted, on that investment, taking into consideration the time when the investment may be outstanding before being paid off. Stocks as a rule, have no definite date of maturity. Therefore, they are usually figured as perpetual, but bonds and most other classes of investments have a fixed time to run. Therefore, the problem of determining the yield is somewhat more complicated with respect to bonds, and special tables are in use to which investors usually turn to ascertain what the net return of yield is upon bonds. Thus, for example, on a bond bearing 5 percent interest, having exactly 10 years to run before maturity, if it is sold at 108.18, that is to say $1,081.80 for each $1,000 bond, the net yield to the investor would be 4 percent per annum which is 4 percent for each of the 10 years and is 4 percent upon the entire sum-$1,080.80-invested. See Lagerquist's Investment Analysis 1921, page 152, et seq; Rollins' Municipal and Corporation Bonds 1919, pages 118 to 120.

In addition to this customary, but at the same time rather technical use of the word "yield", and to the definition which the Government would have us apply, there is still a third, or layman's interpretation, namely, that as used in the statute, the word "yield" must be taken to mean the net return to the original subscriber; that is to say, the cost to the Government of securing the money by issuing the securities. Except in cases where a given security is issued at a premium or a discount, that is, above or below par, this net return will, of course, be the coupon rate. It is this third, or what may be called intermediate, definition of the word "yield" as used in the statute which we think must be applied, for the following reasons: First, as has already been pointed out, it seems clear that it was the intent of the statute to put the return on

these Government loans, made through the Shipping Board, on a virtual parity with the cost to the Government of borrowing money under substantially similar conditions as to duration of the loan obligation; that is to say, as will be hereinafter emphasized, to offer an opportunity for substantial aid to American shipping without cost to the Public Treasury. This being true, it follows that the intent of the statute must have been to obviate daily market fluctuations in Government securities, and to adopt as the criterion the cost of the Government at the date of issue of any given security. Second, if interest or coupon rate as opposed to "yield" were intended, the proviso in the statute that the rate shall be the lowest rate of yield to the nearest one-eighth of 1 percent of any Government obligation as specified, would appear to be useless because, as disclosed by the analytical tables of securities placed in evidence, there was no security bearing a coupon rate expressed in fractions of less than oneeighth; whereas, Government obligations have been issued at a premium. For example, the tables in evidence disclose that Treasury bonds issued June 15, 1927, bearing coupon rate of 3% percent, were issued at 1002, which represented a return to the original subscriber of 3.316 percent.

It thus appears that we must reject the definition of the word "yield", as used in the statute, contended for by the Government, and also the definition contended for by the steamship company, because by adopting this third and different definition, we more completely carry out the apparent intention of Congress as embodied in the statute. It is true that for the purposes of the present case we arrive at the same result as though the Government's theory of the flat interest or coupon rate were adopted, because, as already shown, the yield nearest above the 22 percent rate of postal-savings bonds was 3% percent, namely, the yield upon 3% percent Treasury bonds issued at par June 15, 1931, maturing June 15, 1949, and redeemable on or after June 16, 1946. The result is that we thus find that the rate of 3 percent exacted by the Government in the present case was not only not in excess of the amount authorized by the statute, but was one-eighth of 1 percent less than what might have been exacted. However, the present suit is not one brought by the Government because of any alleged underpayment, but it is a suit by the steamship company because of alleged overpayment, and there is no counterclaim advanced by the Government. Therefore, we are not in the present suit concerned with what might be the right of the Government upon a different state of facts and pleadings, to assert a claim for more than has actually been claimed.

While with respect to the loan here under consideration, no request was made by the Shipping Board of the Secretary of the Treasury to certify the rate of yield, and while the Board has not, as the statute also authorized, prescribed rules for determining the amount of interest payable under the statute's provision, we are urged by the steamship company that the custom which has prevailed in both the Shipping Board and the Treasury Department should control. With respect to this custom, the testimony discloses that for 9 years prior to the passage of the Merchant Marine Act of 1928, and subsequent thereto, it has been the uniform practice of the Treasury Department, as well as of the Shipping Board, to ignore the foregoing limitations and for the Treasury Department, whenever requested by the Shipping Board, to certify the lowest rate of yield on any outstanding obligation of any sort, including Treasury certificates, and also including since 1929 Treasury bills, thereby totally disregarding the rate of postal-savings bonds.

The Commissioner of Accounts and Deposits of the Treasury Department testified that whereas he had not been called upon, in connection with this particular loan, to make a certification, nevertheless he had constantly made similar certifications at the request of the Shipping Board and testified that on June 15, 1931, the lowest rate of yield was one-half of 1 percent, if calculated in the manner he had always been accustomed to calculate the yield on previous occasions for the Shipping Board, namely, on the basis of daily reports, received in the Treasury Department from the Federal Reserve Bank of New York, of current bid-and-ask prices for all of the various types of Government obligations traded in on the New York market. It further appears that this method of computation, while the result of instructions issued in the Treasury Department, was never formally passed upon by the Solicitor of that Department, or by the Attorney General.

We are not unmindful of the fact that when words have received an established construction by administrative officials, such will not be disturbed except for weighty reasons. (See Brewster v. Gage, 280 U. S. 327; U. S. v. Jackson,