VETERANS -- BONUS BONDS -- NEGOTIABILITY
Bonds issued under the World War II veterans bonus act may be made negotiable by an act of the legislature.
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December 19, 1949
State Finance Committee
Olympia, Washington Cite as: AGO 49-51 No. 183
Attention: Mr. Ernest Minor, Secretary
In answer to your verbal request as to whether the bonds authorized by section 7, chapter 180, Laws of 1949, may be made negotiable by an act of the next session of the legislature, it is our conclusion that the legislature may make these bonds negotiable.
Section 7, chapter 180, Laws of 1949, authorizes the sale of limited obligation bonds of the state to be repaid from a fund designated the War Veterans Compensation Bond Retirement Fund into which shall be paid the proceeds of certain taxes on cigarettes. The act expressly provides that they shall not be a general obligation of the State of Washington, but shall be payable from the proceeds of the cigarette taxes in the manner prescribed in the act. The Negotiable Instruments Act, chapter 149, Laws of 1899 [Rem. Rev. Stat. 3392, et seq.] defines the conditions that make an instrument negotiable. Section 1 of that chapter reads in part:
"An instrument to be negotiable must conform to the following requirements: * * *
"2. Must contain an unconditional promise or order to pay a sum certain in money; * * *"
Section 3 of the same act provides:
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"An unqualified order or promise to pay is unconditional within the meaning of this act, though coupled with -
"1. An indication of a particular fund out of which reimbursement is to be made, or a particular account to be debited with the amount; or
"2. A statement of the transaction which gives rise to the instrument.
"But an order or promise to pay only out of a particular fund is not unconditional."
The bonds authorized by chapter 180, Laws of 1949, are, like state and municipal warrants, non-negotiable, because of the fact that they are payable from a special fund. Customarily such non-negotiable instruments are permitted by their form to be transferred by endorsement, and there is no reason that the same arrangement could not be made for the bonds issued under chapter 180, Laws of 1949. However, if negotiability is desired the legislature may make such instruments negotiable by statute which will overcome the Negotiable Instruments Act. This has been done in a similar situation for revenue bonds of the Washington Toll Bridge Authority. Section 8, chapter 173, Laws of 1937 [Rem. Rev. Stat. 6524-8] authorizing bonds payable from certain revenues and not a general obligation of the state contains the following statement:
"* * * All bonds issued under the terms of this act shall be negotiable instruments under the law merchant. * * *"
Chapter 182, Laws of 1941 in section 11 [Rem. 1941 Supp. 11611-11] provides that bonds of public utility districts which are not general obligations and are payable only from a special fund shall be negotiable. The validity of this statute was recognized by our supreme court in the case ofReiss v. Public Utility District No. 1 of Clark County, 26 Wn. (2d) 733, 175 P. (2d) 624, in which the court upheld the statute making such bonds negotiable instruments. It is, therefore, our opinion that the legislature may, by a [[Orig. Op. Page 3]] special act, make negotiable public bonds payable from a special fund.
If your committee feels that the saleability of the bonds authorized under chapter 180, Laws of 1949 would be enhanced by legislation declaring them negotiable this office will be happy to prepare and sponsor at the next session of the legislature a bill to make these bonds negotiable.
Very truly yours,
LYLE L. IVERSEN
Assistant Attorney General