SAVINGS AND LOAN ASSOCIATIONS ‑- DEPOSIT OF PUBLIC FUNDS AVAILABLE FOR INVESTMENT
Article VIII, section 7 and Article XII, section 9 of the state constitution do not prohibit the deposit of public funds available for investment, in savings and loan associations, in an amount up to that insured by the Federal Savings and Loan Insurance Corporation.
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January 25, 1951
Honorable A. O. Kent, Supervisor
Division of Savings and Loan
Public Lands ‑ Social Security Building
Olympia, Washington Cite as: AGO 49-51 No. 437
By letter of January 4, 1951, as supplemented by your letter of January 16, 1951, you request our opinion on the following question:
Does our state constitution prohibit the placing of public funds available for an investment in accounts of savings and loan associations insured by the Federal Savings and Loan Insurance Corporation?
Our conclusion may be summarized as follows:
The provisions of the Washington State Constitution do not prohibit the deposit of public funds which are available for investment, in savings and loan associations to the extent to which such accounts are insured.
The material provisions of our state constitution are Article VIII, section 7. which reads:
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"No county, city, town, or other municipal corporation shall hereafter give any money or property, or loan its money or credit, to or in aid of any individual, association, company, or corporation, except for the necessary support of the poor and infirm, or become directly the owner of any stock in or bonds of any association, company, or corporation."
and Article XII, section 9, providing that:
"The state shall not in any manner loan its credit, nor shall it subscribe to or be interested in the stock of any company, association or corporation."
Our opinion of March 28, 1946 was concerned with the question of whether or not there was statutory authority under section 44 of the "Savings and Loan Association Act of 1945," chapter 235, Laws of 1945 (§ 3717-163 Rem. Supp. 1945). That section provides that:
"The State of Washington and the municipal corporations thereof * * * may become members in savings and loan associations."
In our opinion to the state auditor we concluded that the enactment of section 44 was ineffective to amend the existing public statutes relating to the deposit of public funds. In addition to the result arrived at as to the statutory question there considered, that opinion further concluded that the elements of mutual aid, and the proportionate sharing of losses among members of the savings and loan association would, as to municipal corporations, amount to a giving of money or property, or the lending of money or credit "to or in aid of" the association in violation of Article VIII, section 7 of the state constitution. A similar objection would be involved as to the deposit of state funds, in view of that portion of Article XII, section 9, which prohibits the state from in any manner lending its credit.
The scope of our opinion to the state auditor was not limited to public funds which are available for investment, nor did it involve the insurance of such deposits by the Federal Savings and Loan Corporation. The additional element of such insurance as set forth in your inquiry would, we believe, eliminate the objection that such deposits of public funds would amount to the giving of money or property, or the lending of money or credit, in [[Orig. Op. Page 3]] violation of Article VIII, section 7, with respect to counties, cities, towns, or other municipal corporations; or that it would constitute in any manner the lending of the state's credit in violation of Article XII, section 9, where state funds are so deposited.
As applied to public funds which are available for investment, and to the extent that such insurance is involved, any hazard or risk which could conceivably arise as the result of the manner in which savings and loan associations are operated is eliminated. The payment of the full amount of the deposit is assured and guaranteed.
Article VIII, section 7 of the constitution, further directs that counties, cities, towns and other municipal corporations shall not "become directly or indirectly the owner of any stock in * * * any association, * * *." Similarly, Article XII, section 9, also further provides that the state shall not "* * * subscribe to or be interested in the stock of any * * * association * * *."
Although, under the Savings and Loan Act of 1945, depositors are "members" of the association, it would not appear that a depositor is directly or indirectly the owner, a subscriber to, or interested in the "stock" of an association as that term is used in the constitutional provisions here under consideration. On the contrary, the terminology of the act would seem to affirmatively show a legislative intent and purpose to definitely distinguish the interest of a depositor from an interest in "stock of an association" as that term is ordinarily understood. The act nowhere refers to a depositor as a "shareholder" or "stockholder." The deposits of a "member" or "savings member" are repeatedly and consistently referred to throughout the act as "savings" or "savings accounts." Section 15 of the act (3717-134 Rem. Supp. 1945), for example, requires that a director shall have and maintain "savings" in the association in a specified amount, according to the total "savings accounts" of the association.
Subdivision "1" of section 29 (3717-148 Rem. Supp. 1945) gives savings and loan associations authority "to procure insurance of its mortgages and of its savings accounts from any state or Federal corporation or agency authorized to write such insurance * * *;" (Emphasis supplied) By making such provision for the insuring of the "savings accounts" of a savings and loan association on the same basis as its "mortgages" the legislature must have considered and intended the interest of a depositor in the association to be of an entirely different nature and character than that of "an interest in the stock of an association" referred to in the constitutional prohibitions.
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The case ofIn re Krueger's Estate, 180 Wash. 165, 39 P. (2d) 381, involved the authority of an executor of a nonintervention will to deposit funds of the estate in a savings and loan association. It was contended that the executor of a nonintervention will was a "trustee" and, therefore, had no authority to invest the estate's funds in the stock of a private corporation. The court agreed that the executor was, in fact, a "trustee" but held that the depositing of funds in a savings and loan association did not constitute the investing in the stock of a private corporation, saying:
"The appellants quote authorities to the effect that trustees are not allowed to invest trust funds in the stocks of private corporations. This is a good rule, in the sense in which it is applicable. We think it not applicable here, however. While it is true that members of a savings and loan association are called stockholders, and have issued to them pass books representing their shares in the capital and earnings of the association, these associations are essentially different in character and operation from the ordinary stock companies. * * *"
It is to be noted that the Savings and Loan Act in effect at the time of the deposit involved in this case, used the terms "shares," "shareholders" and "stock" in various of its provisions (Rem. Rev. Stat. 3716 et seq.).
In the case ofRummens v. Home Savings and Loan Association, 182 Wash. 539 at page 541, 47 P. (2d) 845, the court said:
"* * * While the members of savings and loan associations may sometimes be referred to as stockholders, they are depositors rather than investors in corporate stock, * * *"
SeeState ex rel. Wicks v. Puget Sound Savings and Loan Association, 8 Wn. (2d) 599 at page 602, 113 P (2d) 70, where it was held that the depositors in a savings and loan association did not have an interest as "stockholders" in the corporation which would entitle them to examine the corporate books.
We are, therefore, of the opinion that the provisions of our state constitution do not prohibit the depositing of public funds which are available for investment, in savings and loan associations, to the extent that such deposits are insured by the Federal Savings and Loan Insurance Corporation.
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It should be borne in mind that this opinion is limited to a consideration of the provisions of our state constitution as they relate to such deposits. No opinion is expressed herein as to what funds may properly be designated as "available for investment."
Very truly yours,
FRED L. HARLOCKER
Assistant Attorney General