United States v. Shimer

PETITIONER:United States
RESPONDENT:Shimer
LOCATION:Circuit Court of Montgomery County

DOCKET NO.: 392
DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Third Circuit

CITATION: 367 US 374 (1961)
ARGUED: Apr 27, 1961
DECIDED: Jun 12, 1961

Facts of the case

Question

Audio Transcription for Oral Argument – April 27, 1961 in United States v. Shimer

Earl Warren:

Number 392, United States, Petitioner, versus George E. Shimer.

Mr. Barnett.

Wayne G. Barnett:

Mr. Chief Justice, may it please the Court.

Under the Pennsylvania Deficiency Judgment Act, if a mortgagee forecloses on property and purchased the property himself at the foreclosure sale, then the debtor and his guarantors are released from any further liability to the mortgagee.

Unless within six months, he petitions to the Court to have the fair market value of the property he determined and credits that against the indictment.

In effect, a purchasing mortgagee is required to give credit against the indebtedness for the fair market value of the property he acquires which is deemed to be equal to the full indebtedness unless he proves it to be otherwise within six months.

The basic question in this case is whether that statute relieves the United States of its liability as guarantor on loans to veterans guaranteed by the Veterans’ Administration under the Servicemen’s Readjustment Act of 1944, that’s commonly known — known as the GI Bill.

The — on January — in January, 1948, the respondent, a World War II veteran borrowed $13,000 from the Pennsylvania Bank for the purchase of a home in Pennsylvania.

On his application, the Veterans’ Administration guaranteed $4000 of that loan.

Because of the guarantee, he was not required to make a down payment and the loan was given for the full purchase price of the property.

After the first three monthly payments, the respondent defaulted in his payments on the loan.

And a year later, on May 12, 1949, the bank entered judgment in the state court to foreclose the abandoned mortgage.

Execution was had on the judgment at a share of sale on June 29th, that’s six weeks later, at which the bank bought in the property on a bid of $250.

That’s the nominal amount covering cost.

A few weeks later on July 8th, the bank submitted its claim for payment of the guarantee under the Servicemen’s Readjustment Act.

The VA in due course paid the bank $4000 on the guarantee.

Now, at no time did the bank follow the procedure under the Pennsylvania Deficiency Judgment Act to have the fair market value of the property determined.

William O. Douglas:

Did the Government at any time ask the bank —

Wayne G. Barnett:

No, we do not.

William O. Douglas:

(Voice Overlap)

Wayne G. Barnett:

We do not.

This action is an action brought by the United States against the respondent, the veteran to recover indemnity from him for the $4000 payment that we have paid the bank.

The District Court granted summary judgment for respondent and the Court of Appeals for the Third Circuit affirmed.

It agreed that the respondent was liable to the United States for indemnity for any amounts that we were required to pay the bank.

But it held that the VA was relieved of liability to the bank by virtue of the Pennsylvania Deficiency Judgment Act.

Therefore, we should not have paid the bank the $4000 and accordingly, we’re not entitled to recover it from the veteran.

Potter Stewart:

Do I understand (Inaudible) that you were, therefore, looking for volunteer?

Wayne G. Barnett:

Yes.

Oh, we — we have — we agreed that if we were not liable to the bank, we can’t recover from the veteran.

What it held was we weren’t liable to the bank and our position is that we were liable to the bank.

Wayne G. Barnett:

We are here then in the position of asserting our own liability.

Our position is that United States does not relieve of liability on the GI loan guarantee by the Pennsylvania —

Potter Stewart:

Mr. Barnett, your pack — our position is — is not here and I — I —

Wayne G. Barnett:

Yes.

Potter Stewart:

I — do you understand that they agree that if you were liable to the bank then you have a claim against the respondent or I — I —

Wayne G. Barnett:

No, no, (Voice Overlap) but they contest that.

Potter Stewart:

They make an argument that even at those —

Wayne G. Barnett:

They contest that.

Potter Stewart:

— even if you were liable to that.

Wayne G. Barnett:

Yes, that’s right.

That’s right.

Potter Stewart:

They’re not liable to you.

Wayne G. Barnett:

The Court of Appeals’ decision was based solely on the lack of our liability —

Potter Stewart:

Yes.

Wayne G. Barnett:

— to the bank.

The Court of Appeals agreed that the veteran would be liable to us if we were liable to the bank.

Potter Stewart:

But the respondent —

Wayne G. Barnett:

Now, the respondent — respondent does not agree with that.

Yes, sir.

Earl Warren:

You asked us to hold that you are liable to the bank.

Wayne G. Barnett:

That is right.

The reason we do that, although it involves a very large liability on the Government, the reason we — we assert that, is that in our view, it’s essential to the contingent — continued functioning of the GI loan program that the liability under the guarantee not be impaired.

We think it’s — without our liability in these circumstances, the guarantee as I hope to show would not be worth anything and wouldn’t do the veterans any good.

The veterans couldn’t get loans under the GI loan program.

Charles E. Whittaker:

But maybe good for the policy, though it wouldn’t be enough the question (Inaudible)

Wayne G. Barnett:

Yes, yes.

Charles E. Whittaker:

— to authorize (Inaudible)

Wayne G. Barnett:

Yes.

We were — I’m not sure that whole figures involved.

The total loans, I think that have added up to about $30 billion and — and we would not assert a — the result and guaranteed liability on that amount unless we were satisfied at least that that that was required by — by the statute.

Wayne G. Barnett:

Now, I think the question in the case turns entirely upon a construction of the — the question of our liability — our liability to the bank, I will deal with first, turns entirely upon the construction of the Federal Act and the VA regulations issued under it.

The Court of Appeals turn to state law, as we understand its opinion, not because it thought state law was controlling of its own force, but only because it thought that the federal regulations did not provide for the matter and were intended to leave its state law.

So the question really is only what the federal regulations do provide.

And what I hope to do primarily is simply to show how the Federal Act and the regulations fit together in how the guarantee does operate.

John M. Harlan II:

Was there any claim by your opponents that the regulation has construed to say that should be authorized?

Wayne G. Barnett:

There is such a claim on the indemnity regulation, his liability over to us which is the second question.

On the first question, our liability to think — I would like to state what the respondent’s argument is but I don’t think I can do a justice.

We are — we really are speaking in an entirely different terms and I’m not sure that I understand really what he is arguing about our liability to the bank.

So I prefer just to state or might argue what the regulations provide.

As they say — said, the VA originally guarantee at the respondent’s request, $4000 of the $13,000 loan.

Now, in fact, the — the guarantee does not remain at a fixed amount during the life of the loan.

Section 500 (b) of the Act which is set forth in our brief at pages — at page 62, the appendix to our brief.

Provides that the — that the guarantee show a decrease or increase pro rata with any decrease or increase in the amount of the outstanding indebtedness.

Now, the effect of that is to convert the guarantee from a guarantee of a fixed amount to a guarantee of a percentage of the indebtedness that’s outstanding.

Now, in this case, the — the percentage works out to be 30.76%.

So what the guarantee really was, was a guarantee of 30.76% of the indebtedness outstanding from time to time not to exceed the original amount of $4000.

Potter Stewart:

That’s the ratio of $4000 to $13,000?

Wayne G. Barnett:

Yes, yes.

It’s 30.76%.

Potter Stewart:

Yes.

It was 30.76% with the maximum of $4000.

Is that right?

Wayne G. Barnett:

That’s right.

Now, the — that variable nature of the amount of the guarantee, the fact that it’s a percentage introduces one complication, because you have to then provide at what time the amount becomes fixed when you — it is liquidated to a fixed amount of guarantee.

That is performed by Section 506 of the Act and the regulations under that Section.

Section 506 is at page 64 of our brief.

Well, that — that provides that in the event of default, the holder shall notify the administrator who shall thereupon pay to such holder the guarantee.

Now, without more — let’s take that that part of — of 506.

That would mean that the guarantee becomes fixed at the date of default as the specified percentage of the indebtedness outstanding on that date and is then absolutely payable.

However, the second proviso of the 506 goes on to say that the administrator may permit forbearance on the part of the lender and for that purpose, may authorize interest in other charges to continue to accrue on the indebtedness for purposes of computing the guarantee beyond the date of default.

Wayne G. Barnett:

Though, he cannot — he — he has to provide a cut-off date for that percentage computation no later than the date of judgment and decree of foreclosure.

The regulations under that — now, I’m just taking about the time at which one computes the amount of the guarantee, the percentage computation.

The regulations under that authority are at page 73 of our brief, Section 4321 (a), subsection (a) of that Section.

Now, those provide that the guarantee shall be computed as the specified percentage applied to the indebtedness computed as of the date of claim but not later than the date of judgment or of decree of foreclosure.

Now then, if the claim is filed as it maybe any time after default and if it’s in fact filed before foreclosure then the date on which the claim is filed controls the computation for this indebtedness outstanding on that date.

However, if the claim is not field until after foreclosure, then the guarantee is computed not when the claim is filed but rather back at the date of judgment of foreclosure.

So, the — the guarantee originally variable becomes fixed on the date of judgment of foreclosure.

In this case, that date was May 12, 1948 when the judgment was entered.

On that date, there were no proceeds of foreclosure because the corp — the sale, the execution, — the sheriff’s sale didn’t take place until six weeks later.

So the proceeds of foreclosure do not affect the computation of the principal or face amount of the guarantee.

As of May 13th — May 12, 1948, the indebtedness outstanding in fact with all the accrued interest in other charges exceeded $13,000.

The 30 — 30.76% of that which was the guarantee, exceeded $4000.

So the guarantee became fixed at $4000 and it — it is now a liquidated amount of $4000 as the face amount of the guarantee.

Now, all of that —

Potter Stewart:

Mr. Barnett, this is seemed quite complicated at least to me —

Wayne G. Barnett:

Yes.

Potter Stewart:

— it might be at the end of the day, but it’s a — as I understand it, the bank subsequently sold this property for $10,500.

Does that — that fact (Voice Overlap) —

Wayne G. Barnett:

That — that is correct.

Potter Stewart:

— play — doesn’t play any part in — in —

Wayne G. Barnett:

Well —

Potter Stewart:

— computing the amount of the guarantee.

Wayne G. Barnett:

I —

Potter Stewart:

And if it doesn’t, doesn’t this give —

Wayne G. Barnett:

Yes.

Potter Stewart:

— the bank a windfall?

Wayne G. Barnett:

Well, the answer — first of all, I haven’t gotten to the point at which the proceeds of foreclosure are taken into account.

The proceeds for foreclosure do have to be taken into account.

They — they do — don’t affect the — the face amount of the guarantee, i.e. the $4000 penalty amount — that that’s our maximum liability is $4000.

The — the foreclosure proceeds don’t affect that and the reason they don’t is —

Felix Frankfurter:

I don’t know what you mean by business, they don’t affect that.

Wayne G. Barnett:

The — they copied —

Felix Frankfurter:

Protect the liability for —

Wayne G. Barnett:

They —

Felix Frankfurter:

— for the amount.

Wayne G. Barnett:

Yes.

The —

Charles E. Whittaker:

You read Section subparagraph B on this regulation, that coverage is not a suit.

Wayne G. Barnett:

Yes, that does.

That does.

That is the final accounting.

Now, is it — even if we started out with a guarantee liability fixed at $4000, we guarantee $4000 of the debt.

That’s the usual — that’s —

Felix Frankfurter:

Up to guarantee, up to (Voice Overlap)

Wayne G. Barnett:

Up to, yes.

Felix Frankfurter:

That’s a very different thing.

Wayne G. Barnett:

Well, you would normally state the guarantee is $4000.

What you would have to pay — what would you have to pay would be limited to the loss.

I — I think if I go ahead and show where you do take into account the foreclosure proceeds, it will clear — it will clear this up.

The reason you don’t take the foreclosure proceeds into account in this first percentage computation is that the result would be to make this not a guarantee but a share — share — sharing of the loss agreement, because if you take the foreclosure proceeds into account first and then take a percentage, really owe into paying is a percentage of the ultimate loss.

And what the guarantee is designed to do is for us to bear with the entire loss up to amount of guarantee.

And that’s —

Felix Frankfurter:

But does it —

Wayne G. Barnett:

— that’s why it’s important to compute the — the amount of the guarantee before you take into account the foreclosure proceeds.

Now, the —

Felix Frankfurter:

But this isn’t the gain — this is the gain — you may state the question your way, but why don’t you state it Justice Stewart’s way —

Wayne G. Barnett:

Well —

Felix Frankfurter:

— that the guaran — guarantee —

Wayne G. Barnett:

Yes.

Felix Frankfurter:

— the beneficiary of the guarantee did not entirely have a windfall suppose you start that way —

Wayne G. Barnett:

The — the —

Felix Frankfurter:

— then you might end up (Voice Overlap) —

Wayne G. Barnett:

Yes.

Let —

Felix Frankfurter:

You finish your way —

Wayne G. Barnett:

Alright.

Felix Frankfurter:

— I just want to suggest this isn’t the gain.

Wayne G. Barnett:

The — as I say that the — the fact that we haven’t considered the proceeds of foreclosure in determining the principal amount of the guarantee does not mean that we don’t take them into account.

We do take them in — into account.

The Section 506 provides that if he does demand, aim into the guarantee immediately upon the default and we pay it.

We are then subrogated to his rights, to the lender’s rights.

That means that if the lender then forecloses and then sells the property that he has to repay to us any proceeds that he realizes an excess of the unguaranteed part of the debt.

So, he doesn’t get a windfall on the judicial sale of the property.

Felix Frankfurter:

Let me ask you this question of that side.

I don’t mean to break into the architecture of your argument but suppose the guarantor would not be United States or the Veterans’ Administration or a private — a private financing company of Philadelphia, would you make it — be making the same argument?

Wayne G. Barnett:

No, I would not, sir.

Felix Frankfurter:

Alright.

Wayne G. Barnett:

As I understand it, we don’t question the interpretation of the Pennsylvania law as relieving a private guarantor.

Now, the — going back to —

Earl Warren:

Can the bank — can the bank get a windfall here?

Wayne G. Barnett:

The bank cannot get a windfall depending upon how one makes evaluation of what the bank gets.

The — the — Mr. Justice Stewart spoke of the proceeds on the bank’s ultimate resale.

I think everyone would agree and I think anyone makes an argument to the contrary that the profit or loss on the resale isn’t — is never relevant.

We never take into account what happens in subsequent sale.

The problem is —

William J. Brennan, Jr.:

You mean they paid $250 and they brought it in.

Wayne G. Barnett:

Yes.

William J. Brennan, Jr.:

Therefore, this $4000 do — do — (Inaudible) guarantee.

Now, they hold it and sell it for $25,000, in a couple of years, it’s not wasted.

Wayne G. Barnett:

That — that is right.

Wayne G. Barnett:

That is basically right.

If a third party buys the property at the sheriff’s sale, we can’t go after him for the profit loss when he resells it a year later.

The problem is how you account for it —

Felix Frankfurter:

You can guarantee —

Wayne G. Barnett:

— at the date of the sheriff’s sale?

That’s the time of which we have to make our final accounting.

Felix Frankfurter:

You can guarantee anything to the third party, is it guaranteed to with the — with the mortgages?

Wayne G. Barnett:

Yes, yes.

Let me say, the way this is done — section — turning to — back to the regulations, I think if I follow up through the regulations, I — I will show you exactly where our procedure differs from the state procedure.

Section 4321, subsection (b) is the section which directly governs this case.

This applies to the situation where the — the guarantee is not claimed until after the foreclosure sale, after the — the realization on the proceeds of the security.

It provides that credits accruing from the proceeds of a sale or other disposition of the security subsequent to the date of computation, that’s this case, we’ve already fixed the principal amount of $4000.

And prior to the submission of the claim, here the claim wasn’t submitted until after the sheriff’s sale, shall be reported to the administrator and the amount payable on the claim — on the claim shall at no event exceed the remaining balance of the indebtedness.

That is, we agreed, we were liable to pay the bank only an amount equal to the indebtedness less the credits for the proceeds of foreclosure —

William J. Brennan, Jr.:

We’re talking in figures.

Wayne G. Barnett:

— i.e. the loss — the loss.

Now, well I can’t —

William J. Brennan, Jr.:

But we have figures here.

We had — wasn’t the — the indebtedness was $13,000?

Wayne G. Barnett:

$13,000 it was over that actually at this time.

William J. Brennan, Jr.:

And now, the proceeds to the sale were $250.

Wayne G. Barnett:

Well, that’s the question.

The question is what are the credits we have to give for the — for the sale?

That’s where — we agreed with the Court of Appeals that you have to first allow a credit for the sale of the security.

The point at which we depart from the Court of Appeals is, “How do you determine what that credit shall be?”

The Court of Appeals said that, “The regulations don’t provide for it, we have to turn to state law.”

Under the Pennsylvania Deficiency Judgment Act, the dollars bid at the sale if the mortgagee buys, are — are irrelevant.

The mortgagee, the purchasing mortgagee, has to give credit for the full balance of the indebtedness unless he filed the petition in the state court to — to appraise the property, then he has to give a credit for the fair market value of the property.

Since the bank didn’t file a petition, under the Pennsylvania law, he would have to give credit for the full indebtedness.

There’ll be nothing remaining due and we would have to pay nothing under the guarantee.

Wayne G. Barnett:

That is what the Court of Appeals held.

Potter Stewart:

How is the– in — under Pennsylvania law, how is this fair market of value determined?

Is it a — is it a long retracted litigation or is it a —

Wayne G. Barnett:

I don’t really know of how likely in practice that is to be contested.

If it’s contested, you have a full hearing with expert witnesses on value.

Now, whether in practice, these things can be put through without a great contest, I — I am really not informed.

Now, the point which we think the Court of Appeals went wrong was in thinking that the — the federal regulations do not themselves provide for the credits.

It is our position that the regulations do specifically provide what credit shall be made upon the disposition of the security.

That regulation is Section 4320 which appears at page 68 through 72 of our brief.

Felix Frankfurter:

(Voice Overlap) what statutory provision, what regulations was made?

Wayne G. Barnett:

I think — I think Mr. —

Felix Frankfurter:

(Voice Overlap)

Wayne G. Barnett:

If I may — if I may — if I can tell you first what they do then I — I can — I can tell you how I justify it in terms of the statute.

Well, I think it will help — I — if I first state what they do.

This provision, 70 — 4320 and in fact provides that upon the administrators receiving notice of a proposed sale of the security, the administrator may specify an upset price.

If he specifies an upset price, the mortgagee, the bank, the lender, must give credit for that upset price unless in fact it’s sold for more in which case he has to credit the actual proceeds but he must give credit for the upset price.

In return for that, he has an option to resell the property to the VA at that price.

And if we do not set an upset price, the regulation specifically provide that he need credit against the indebtedness for purposes of the guarantee only the actual proceeds.

Now, I — I — I’d like to explain what the function is of the upset price and how it works.

The reason we have that authority is to minimize our liability on the guarantee.

Well, the only thing that will reduce our liability on the guarantee is a credit that exceeds the unguaranteed balance of indebtedness, in this case, $9000.

The indebtedness was $13,000, guarantee of $4000.

We still have to pay $4000 unless the credit on the sale of the security is more than $9000.

Therefore, we have no interest in establishing an upset price unless we’re willing to establish one higher than $9000.

It doesn’t make any difference to us how much less than that is realized so long as it’s less than that.

So, we establish an upset price only when it’s on our appraisal — we — we make a — have appraisal reports made of the property and determined in our view what the realizable value of the property is.

If the realizable value exceeds the unguaranteed part of the debt, so we’ll reduced our liability in the guarantee, we establish an upset price.

William J. Brennan, Jr.:

Let me see if I get this clearly Mr. Barnett, having instead about $250.

It’s a usual mortgagee who’s trying to bid.

Wayne G. Barnett:

Yes, yes.

William J. Brennan, Jr.:

Then the — that that had not been the proceeds, but there had in fact when the sheriff’s sale in a price of, say $11,000 had been realized.

Wayne G. Barnett:

Yes.

William J. Brennan, Jr.:

And the mortgagee would have to credit that $11,000 because —

Wayne G. Barnett:

Yes.

William J. Brennan, Jr.:

— the indebtedness of $13,000.

Wayne G. Barnett:

Yes.

William J. Brennan, Jr.:

And then the Government’s obligation would have been reduced at two.

Wayne G. Barnett:

That’s right.

William J. Brennan, Jr.:

Is that right?

Wayne G. Barnett:

That’s right.

William J. Brennan, Jr.:

But since in this instance, the Government couldn’t fix an upset, that didn’t happen —

Wayne G. Barnett:

That’s right.

William J. Brennan, Jr.:

— $250.

If the Government had fixed an upset price of $11,000, —

Wayne G. Barnett:

Yes.

William J. Brennan, Jr.:

— it would’ve been the same result.

Wayne G. Barnett:

That’s right.

William J. Brennan, Jr.:

But since it couldn’t fix one, an excess of $9000 will fix none.

Wayne G. Barnett:

This — since we were unwilling to, we could have.

William J. Brennan, Jr.:

Unwilling about —

Wayne G. Barnett:

Yes, yes.

William J. Brennan, Jr.:

Unwilling to.

Wayne G. Barnett:

Yes, that — that is correct.

William J. Brennan, Jr.:

Is that?

That’s the obligation that became forth though.

Wayne G. Barnett:

That — that is right.

William J. Brennan, Jr.:

And independently, the fact that the bank later in fact sold the property for $10,500.

Wayne G. Barnett:

Oh no, think — we get the benefit of the actual proceeds.

William J. Brennan, Jr.:

Now, didn’t the bank actually sell —

Wayne G. Barnett:

Oh, I’m sorry.

Wayne G. Barnett:

The — this all goes to the sheriff’s sale —

William J. Brennan, Jr.:

That’s what I thought.

Wayne G. Barnett:

— the sheriff’s sale.

William J. Brennan, Jr.:

So that —

Wayne G. Barnett:

Yes.

William J. Brennan, Jr.:

— the $10,500 ultimate sale has nothing to do with it.

Wayne G. Barnett:

That is correct.

And — and an unknown theory couldn’t have anything to do with it.

Everyone agrees that it is solely the sheriff’s sale that we’re concerned with.

Now, the upset price provisions of the regulations are we think the — the heart of the protection provided by the guarantee.

They are essential to the perform — to the function of the guarantee and encouraging lenders to make loans to veterans.

The purpose of the GI loan programs is to — is to provide a substitute to the down payment for veterans who can’t afford a down payment.

The guarantee, under the regulations with the upset price provisions, do just that.

The worst that can happen to a lender under the guarantee as we construe the regulations is that you’ll be paid the guarantee in full and we’ll have to accept the house for the rest of the indebtedness.

That’s what happens to him when he has a down payment.

If you have a 30% down payment, the lender advances only 70%.

The house stands are only 70% and if he buys it in under the Pennsylvania law and has to accept it in full payment, it still stands for only 70% so he has a 30% cushion.

Our guarantee works exactly the same way.

He gets the guarantee unless he’s, otherwise, made whole by either the actual cash proceeds or the offer of the VA in the form of the upset price.

He always had — he established an upset price, he has the option selling it to us and can be made whole.

But unless he is otherwise made whole, we are liable on the guarantee and it’s that function of the guarantee that makes it the equivalent of a down payment.

Now, under the Pennsylvania law, under decisions below I think that it is demonstrable that the guarantee is virtually no protection to lenders.

Now, we’re not issuing protecting lenders for their own sake.

We want to protect the lenders in order to get them to lend money.

And veterans — the — the VA guaranteed loans are not particularly attractive investments or generally a low interest rate.

And to induce 100% financing to the veterans, we have to provide security and protection to lenders.

Now, on —

Felix Frankfurter:

Are you saying — are you saying that in Pennsylvania, down payment of your 30% make your figures —

Wayne G. Barnett:

Yes.

Felix Frankfurter:

— for the guarantee by private guarantors —

Wayne G. Barnett:

We — you — you probably wouldn’t have both the down payment and the guarantor.

We might —

Felix Frankfurter:

Well, if you have —

Wayne G. Barnett:

Yes.

Felix Frankfurter:

— exactly the same situation —

Wayne G. Barnett:

Well here, we have no down payment.

There’s no down payment.

Felix Frankfurter:

No, but the guarantee —

The guarantee is —

— would be operates —

Wayne G. Barnett:

Yes.

Felix Frankfurter:

— operate in place.

Wayne G. Barnett:

Yes.

Felix Frankfurter:

And are you saying that therefore therein that — well, if you have a guarantee situation or get down payment, after all, there’s a good deal of — I assume, I don’t know, correct if I’m wrong with the flight offenses.

That in Pennsylvania, properties acquired by people — by this kind of arrangements without down payment who guarantors it, isn’t it?

Wayne G. Barnett:

I would —

Felix Frankfurter:

Is that unknown?

Wayne G. Barnett:

I would think that’s fairly unlikely in Pennsylvania.

I think the effect of this kind of —

Felix Frankfurter:

Why, why is it unlikely?

Wayne G. Barnett:

The effect of this kind statute in cutting off the liability of the guarantor.

This cuts off the liability of the guarantor.

Felix Frankfurter:

Only if — if the — only if the mortgagee is — is made whole by — by the property.

Wayne G. Barnett:

Well, I —

Felix Frankfurter:

He — he is (Voice Overlap) —

Wayne G. Barnett:

I — I think I was specific, yes —

Felix Frankfurter:

He’s made — he’s made whole by the guarantee under Pennsylvania laws, it satisfied its laws.

Wayne G. Barnett:

Yes, but I don’t think you’ll find many lending institutions willing to rely, make out 100% loan and willing to rely upon a —

Felix Frankfurter:

Because your arguments —

Wayne G. Barnett:

— court’s evaluation of the property in payment of that loan.

Felix Frankfurter:

(Voice Overlap) —

Wayne G. Barnett:

They rely upon the down payment cushion.

Felix Frankfurter:

Do you think the guarantee of the genitive Girard Trust Company in Philadelphia isn’t put as (Inaudible) VA guarantee?

Wayne G. Barnett:

Oh, it is except that ours is not cut off by Pennsylvania law.

William J. Brennan, Jr.:

That doesn’t mean (Voice Overlap) doing those guarantees, I take it out, the Girard Trust Company?

Wayne G. Barnett:

They are not giving the guarantees?

William J. Brennan, Jr.:

No, no, I mean making arrangements such as Uncle Sam has made that will enable people to buy a property —

Wayne G. Barnett:

Well that’s right, that’s right.

William J. Brennan, Jr.:

— without paying anything, none at all?

Wayne G. Barnett:

I — I doubt that they are.

William J. Brennan, Jr.:

I might not.

Wayne G. Barnett:

But — and on the — the question of — of indemnity, I — I will rely on our brief’s treatment of that.

Thank you.