which is valid under the law of the state and gives the bank power to transfer title and possession, the bank as pledgee would have protection substantially equal to that provided by shipping documents or warehouse receipts. (5) Warehouse receipts issued by the borrower Warehouse receipts issued by the borrowerowner which is a grain elevator or warehouse company, duly bonded and licensed and regularly inspected by state or federal authorities, may be considered eligible collateral under exception 6 only when the receipts are registered with an independent registrar whose consent is required before the commodities covered thereby may be withdrawn from the warehouse. Warehouse receipts registered in this manner are issued only in a limited number of markets. (b) Nature of commodities (1) Law-12 U.S.C. 84(6) "Obligations *** secured by *** readily marketable nonperishable staples when such property is fully covered by insurance, if it is customary to insure such staples ***. (2) Readily marketable staples A readily marketable staple may be defined as an article of commerce, agriculture, or industry of such uses as to make it the subject of dealings in a ready market with sufficiently frequent quotations of prices as to make (1) the price easily and definitely ascertainable, and (2) the staple itself easy to realize upon by sale at any time. Although exception 6 is not limited to staples which are traded in constantly on an organized market, it does require the existence of sufficiently regular and continuous trading to assure the bank that, if it becomes necessary to sell the collateral in order to collect the loan, the staple could be readily sold by the bank at a price approximately ascertainable in advance and not involving any considerable sacrifice from the amount at which it is valued as collateral. Exception 6 is designed primarily to apply to such basic commodities as wheat and other grains, cotton, wool, basic metals such as tin, copper, and lead, and the like. With few exceptions, fabricated commodities, unlike such uniform staples, do not constitute standardized interchangeable units regardless of the manufacturer and, accordingly, they do not possess the same broad marketability and do not qualify as readily marketable staples. Whether a commodity is readily marketable necessarily depends upon existing conditions, and a commodity which qualifies at one time might cease to be such at a later date because of fundamental changes in supply or scope of usefulness, for example, by which the extent and steadiness of market demand were greatly reduced. (3) Nonperishable staples Commodities sometimes fail to qualify as nonperishable because of the manner in which they are to be handled or stored during the life of the particular loan, even though the same commodity, if handled and stored in a manner in which it is protected against spoilage for a period of the loan, may qualify as nonperishable. Accordingly, the question whether certain staples are nonperishable is a question of fact to be separately ascertained in each case. (4) Refrigerated or frozen staples Exception 6 expressly covers obligations secured by refrigerated or frozen readily marketable staples when such property is fully covered by insurance. (c) Lending limits (1) Law-12 U.S.C. 84(6) [Such limitation of 10 per centum shall be subject to the following exceptions:] "(6) Obligations *** secured by ** nonperishable staples * ** shall be subject under this section to a limitation of 15 per centum of such capital and surplus in addition to such 10 per centum of such capital and surplus when the market value of such staples securing such obligation is not at any time less than 115 per centum of the face amount of such obligation, and to an additional increase of limitation of 5 per centum of such capital and surplus in addition to such 25 per centum of such capital and surplus when the market value of such staples securing such additional obligation is not at any time less than 120 per centum of the face amount of such additional obligation, and to a further addi 9 tional increase of limitation of 5 per centum of such capital and surplus in addition to such 30 per centum of such capital and surplus when the market value of such staples securing such additional obligation is not at any time less than 125 per centum of the face amount of such additional obligation, and to a further additional increase of limitation of 5 per centum of such capital and surplus in addition to such 35 per centum of such capital and surplus when the market value of such staples securing such additional obligation is not at any time less than 130 per centum of the face amount of such additional obligation, and to a further additional increase of limitation of 5 per centum of such capital and surplus in addition to such 40 per centum of such capital and surplus when the market value of such staples securing such additional obligation is not at any time less than 135 per centum of the face amount of such additional obligation, and to a further additional increase of limitation of 5 per centum of such capital and surplus in addition to such 45 per centum of such capital and surplus when the market value of such staples securing such additional obligation is not at any time less than 140 per centum of the face amount of such additional obligation, but this exception shall not apply to obligations of any one person, copartnership, association or corporation arising from the same transactions and/or secured by the identical staples for more than ten months. centum of such capital and surplus when the market value of such staples securing such obligation is not at any time less than 115 per centum of the face amount of such additional obligation, but this exception shall not apply to obligations of any person, copartnership, association, or corporation arising from the same transactions and/or secured by the identical staples for more than six months." (2) Nonperishable staples; collateral required The lending limit applicable to loans made under exception 6 and secured by nonperishable staples depends upon the percentage by which the market value of the staples exceeds the amount of the loan or a portion thereof. That is, when the market value of the staples is not less than 115 per cent of the amount of the loan, the lending limit is 25 per cent of the bank's capital and surplus. The lending limit may be increased an additional 5 per cent when the market value of the staples securing the additional obligation is not less than 120 per cent of the face amount of such additional obligation. A further additional 5 per cent is permitted when the market value of the collateral for the additional obligation is not less than 125 per cent of such additional obligation. The lending limit increases in this manner to a maximum of 50 per cent when the market value of the collateral securing the final additional obligation authorized is not less than 140 per cent of such additional obligation. surplus 10% 15% Additional Additional 6,000.00 Additional (3) Refrigerated or frozen staples: collateral required A lending limit of 25 per cent of the bank's capital and surplus is applicable to loans under exception 6 secured by refrigerated or frozen readily marketable staples having a market value of not less than 115 per cent of the loan. (4) Time limit on applicability of collateral required Exception 6 is applicable to the obligation of any one person arising from a single transaction or secured by the same staples for not more than 10 months when the obligation is secured by nonperishable staples and for not more than six months when the obligation is secured by refrigerated or frozen staples. 1570. Exception 7: Loans secured by livestock and dairy cattle (a) Loans secured by livestock (1) Law-12 U.S.C. 84(7) [Such limitation of 10 per centum shall be subject to the following exceptions:] "(7) Obligations of any person * * * in the form of notes or drafts secured by shipping documents or instruments transferring or securing title covering livestock or giving a lien on livestock when the market value of the livestock securing the obligation is not at any time less than 115 per centum of the face amount of the notes covered by such documents shall be subject under this section to a limitation of 15 per centum of such capital and surplus in addition to such 10 per centum of such capital and surplus * * *” (2) Application This first sentence of exception 7 covers obligations which are secured by first liens on readily marketable livestock (dairy and beef cattle, hogs, sheep, goats, horses and mules, poultry, and fish) whether or not such livestock are held for resale. (3) Grazing lien on livestock Under the laws of certain states, a person furnishing pasturage under a grazing contract may have a lien on the livestock for the amount due for pasturage. If the lien which is based on pasturage furnished by the lienor prior to the making of the loan (1) is assigned to the bank by a recordable instrument and (2) is protected against being defeated by some other lien or claim, by payment to a person other than the bank, or otherwise, it would qualify under exception 7, provided the amount of such perfected lien is at least equal to the amount of the loan and the value of the livestock is at no time less than 115 per centum of the loan. Where the amount due under the grazing contract is dependent upon future performance thereunder, the resulting lien has merely prospective value and does not meet the requirements of exception 7. (b) Loans secured by dairy cattle (1) Law-12 U.S.C. 84(7) [Such limitation of 10 per centum shall be subject to the following exceptions:] "(7) * ** Obligations arising out of the discount by dealers in dairy cattle of paper given in payment for dairy cattle, which bear a full recourse endorsement or unconditional guarantee of the seller and are secured by the cattle being sold, shall be subject under this section to a limitation of 15 per centum of such capital and surplus in addition to such 10 per centum of such capital and surplus.” (2) Application This second sentence of exception 7 applies to obligations arising out of the discount by dealers in dairy cattle of paper given in payment for dairy cattle bearing the full recourse endorsement or unconditional guarantee of the seller and secured by liens on the cattle being sold. (c) Character of lien Liens of the type contemplated by exception 7 are generally in the form of recorded chattel mortgages or bills of sale but may arise in other ways if the security provided is substantially equivalent to that afforded by a recorded chattel mortgage. 1580. Exception 8: Loans secured by United States obligations (a) Law-12 U.S.C. 84(8) [Such limitation of 10 per centum shall be subject to the following exceptions:] "(8) Obligations *** secured by not less than a like amount of bonds or notes of the United States issued since April 24, 11 1917, or certificates of indebtedness of the United States, Treasury Bills of the United States, or obligations fully guaranteed both as to principal and interest by the United States shall (except to the extent permitted by rules and regulations prescribed by the Comptroller of the Currency * * *) be subject under this section to a limitation of 15 per centum of such capital and surplus in addition to such 10 per centum of such capital and surplus." (b) Comptroller's Regulation See Regulation 6 (12 CFR 6) and ¶1190. 1590. Exception 9: Loans to banks with the approval of the Comptroller of the Currency (a) Law-12 U.S.C. 84(9) [Such limitation of 10 per centum shall be subject to the following exceptions:] “(9) Obligations representing loans to any national banking association or to any banking institution organized under the laws of any State, or to any receiver, conservator, or superintendent of banks, or to any other agent, in charge of the business and property of any such association or banking institution, when such loans are approved by the Comptroller of the Currency, shall not be subject under this section to any limitation based upon such capital and surplus." 1600. Exception 10: Take-over commitment by an agency of the federal government (a) Law-12 U.S.C. 84(10) [Such limitation of 10 per centum shall be subject to the following exceptions:] "(10) Obligations shall not be subject under this section to any limitation based upon such capital and surplus to the extent that such obligations are secured or covered by guaranties, or by commitments or agreement to take over or to purchase, made by any Federal Reserve bank or by the United States or any department, bureau, board, commission, or establishment of the United States, including any corporation wholly owned directly or indirectly by the United States: Provided, That such guaranties, agreements, or commitments are unconditional and must be 12 performed by payment of cash or its Exception 10 applies to obligations, or portions thereof, with respect to which there is an unconditional guaranty, take-over agreement, or commitment by an agency of the Federal government to be performed by the payment of cash or its equivalent within sixty days after demand for payment is made. Exception 10 applies to loans insured by the Federal Housing Administration. (c) Definition of "unconditional" A Federal agency's guaranty, agreement, or commitment to takeover or purchase is unconditional if the protection afforded the bank is not substantially diminished or impaired in the case of loss resulting from factors beyond the bank's control. Protection against loss is not materially diminished or impaired by procedural requirements, such as an agreement to take over only in the event of default, including default over a specified period of time, a requirement that notification of default be given within a specified period after its occurrence, or a requirement of good faith on the part of the bank. 1610. Exception 11: Obligations of a local public agency (a) Law-12 U.S.C. 84(11) [Such limitation of 10 per centum shall be subject to the following exceptions:] "(11) Obligations of a local public agency (as defined in section 1460(h) of Title 42) or of a public housing agency (as defined in the United States Housing Act of 1937, as amended) which have a maturity of not more than eighteen months shall not be subject under this section to any limitation, if such obligations are secured by an agreement between the obligor agency and the Housing and Home Finance Administrator or the Public Housing Administration in which the agency agrees to borrow from the Administrator or Administration, and the Administrator or Administration agrees to lend to the agency, prior to the maturity of such obligations, monies in an amount which (together with any other monies irrevocably committed to the payment of interest on such obligations) will suffice to pay the principal of such obligations with interest to maturity, which monies under the terms of said agreement are required to be used for that purpose." 1620. Exception 12: Loans insured by the Secretary of Agriculture (a) Law-12 U.S.C. 84(12) [Such limitation of 10 per centum shall be subject to the following exceptions:] "(12) Obligations insured by the Secretary of Agriculture pursuant to the Bankhead-Jones Farm Tenant Act, as amended or the Act of August 28, 1937, as amended (relating to the conservation of water resources), or sections 1471-1485 of Title 42, shall be subject under this section to a limitation of 15 per centum of such capital and surplus in addition to such 10 per centum of such capital and surplus.” (b) Amendment The Consolidated Farmers Home Administration Act of 1961 superseded and repealed the Act of August 28, 1937 and repealed Titles I, II and IV of the Bankhead-Jones Farm Tenant Act. Exception 12 should be construed as also applying to obligations insured pursuant to provisions of the Consolidated Farmers Home Administration Act which amended or superseded provisions of the Bankhead-Jones Farm Tenant Act. 1630. Exception 13: Obligations as endorser or guarantor of installment consumer paper (a) Law-12 U.S.C. 84(13) [Such limitation of 10 per centum shall be subject to the following exceptions:] "(13) Obligations as endorser or guarantor of negotiable or non-negotiable installment consumer paper which carries a full recourse endorsement or unconditional guarantee by the [seller] *** shall be subject under this section to a limitation of 15 per centum of such capital and surplus in addition to such 10 per centum of such capital and surplus: * * * 99 [See proviso in paragraph 1630(e)(1).] (b) General scope of exception This exception applies to negotiable or non-negotiable installment consumer paper which carries a full recourse endorsement or unconditional guaranty by the seller transferring same. The obligations of an endorser or guarantor of such paper are subject to a limitation equal to 25 per centum of the bank's capital and surplus, except that no limitation is applicable to such obligations when the bank certifies that it is relying primarily upon the maker of the paper for the payment thereof. (c) Definition of "consumer" and "consumer paper" The term "consumer" includes the user of any product, commodity, goods, or service, whether leased or purchased. Such term does not include a user who purchases a product or commodity for the purpose of resale or for fabrication into goods for sale. For the exception and rulings applicable to such business or commercial paper, see exception 2 and 1520 et seq. The term "consumer paper" includes paper relating to automobiles, mobile homes, office equipment, household appliances, tuition fees and like consumer items, and similar paper executed for the purchase of insurance or of a residence. Also included is paper covering the lease (where the bank is not the owner or lessor) or purchase of equipment for use in manufacturing, farming, construction excavation. (d) Unconditional guaranty or The unconditional guaranty may be in the form of a repurchase agreement or a separate guaranty agreement. [See ¶1600(c) for definition of the term "unconditional".] A condition reasonably within the power of the bank to perform, such as, in certain cases, the repossession of the consumer product covered by a defaulted obligation, will not be considered to make conditional an otherwise unconditional agreement. (e) Reliance upon maker of paper: (1) Law-12 U.S.C. 84(13) "(13) ***Provided, however, that if the bank's files or the knowledge of its officers of the financial condition of each maker of such obligations is reasonably adequate, and upon certification by an officer of the bank designated for that purpose by the board of directors of the bank, that the responsibility 13 |