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AGO 1957 No. 119 - September 13, 1957
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John J. O'Connell | 1957-1968 | Attorney General of Washington


County treasurer may not deposit public funds in a mutual savings bank.

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                                                              September 13, 1957

Honorable Cliff Yelle
State Auditor
Legislative Building
Olympia, Washington                                                                                                              Cite as:  AGO 57-58 No. 119


Attention:  !ttMr. A. E. Hankins, Chief Examiner

            Division of Municipal Corporations

Dear Sir:

            By letter, previously acknowledged, you requested an opinion of this office on a question which we paraphrase as follows:

            May a county treasurer deposit public funds in a mutual savings bank?

            We answer your question in the negative.


            RCW chapter 36.48, entitled "Depositaries," concerns the qualifications and requirements to be necessarily complied with in order that public funds can be deposited in banks that qualify thereunder.  RCW 36.48.020 reads, in part, as follows:

            "Before any such designation shall become effectual and entitle the treasurer to make deposits in such bank, the bank designated shall, within ten days after the designation has been filed,  [[Orig. Op. Page 2]] file with the county clerk of the county a surety bond to the county treasurer, properly executed by some reliable surety company qualified under the laws of the state to do business therein, in the maximum amount of deposits designated by the treasurer to be carried in the bank,conditioned for the prompt and faithful payment thereof on checks drawn by the treasurer."  (Emphasis supplied.)

            The case ofAberdeen v. National Surety Co., 151 Wash. 55, concerned a similar statute regarding the proper deposit of funds of cities or towns whereby the security to be posted by the depositary was to be "conditioned for the prompt payment thereof on checks duly drawn by the treasurer."  (See RCW 35.38.040; then Rem. Comp. Stat. § 5572.)  Since in that case the particular city had purchased an interest-bearing time certificate of deposit by the deposit of public funds which were not, therefore, subject to check and withdrawal, and thus did not comply with the above‑quoted statutory condition, the court concluded that such was, in fact, a loan of public funds prohibited by Article VIII, § 7, of the state constitution, the appropriate part of which reads:

            "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, . . ."

            RCW 32.12.020, regarding mutual savings banks, reads, in part, as follows:

            "The sums deposited with any savings bank, together with any dividends credited thereto, shall be repaid to the depositors thereof respectively, or to their legal representatives, after demand in such manner, and at such times, and under such regulations, as the board of trustees shall prescribe, subject to the provisions of this section . . .

            "(1)Such bank may at any time by a resolution of its board of trustees require a notice of not more than six months before repaying deposits, in which event no deposit shall be due or payable until the required notice of intention to withdraw the same shall have been personally given by the depositor:  Provided, That such bank at its option may pay any deposit or  [[Orig. Op. Page 3]] deposits before the expiration of such notice.  But no bank shall agree with its depositors or any of them in advance to waive the requirement of notice as herein provided."  (Emphasis supplied.)

            Thus, a mutual savings bank may by resolution require that deposited funds may not be withdrawn for a maximum period of six months after notice of the depositor, which requirement, if invoked, may not be waived by prior agreement although the bank has the option to repay the deposit prior to the end of the required period.  The purpose of such a requirement is to protect the bank and its depositors in case of public excitement.  Mierke v. Jefferson County Savings Bank, 208 N.Y. 347, 101 N.E. 889.

            Therefore, if a deposit of public funds by a county is not subject to withdrawal for a definite period of time due to a resolution restricting repayment of deposits, it falls within one of the objections to a deposit raised byAberdeen v. National Surety Co., supra, and may be a loan prohibited by our constitution, since it constitutes a deposit of public funds not in compliance with the statutory requirement that the surety bond securing such deposits must be "conditioned for the prompt payment thereof on checks duly drawn by the treasurer."

            The case ofAberdeen v. National Surety Co., supra, is authority for the proposition that if the deposit is not subject to withdrawal by check, the deposit does not meet the requirement of the statute.  Savings accounts in mutual savings banks, unlike commercial bank accounts, are not subject to withdrawal by check.

            ". . . Generally speaking, the passbook, which evidences the contract between the bank and the depositor, must be produced whenever a transaction occurs."  ("Savings Banking," American Institute of Banking, Copyright 1951, page 7.)

            The pertinent statutory provision relative to withdrawals from mutual savings banks is found in RCW 32.12.020 (2) as follows:

            "(2) Except as provided in subdivision (3) of this section the savings bank shall not pay any dividend, or deposit, or portion thereof, or any check drawn upon it by a depositor unless the passbook of the depositor is produced, and the proper entry is made therein at the time of the payment."  (Emphasis supplied.)

            An enunciation of the basic principle is found in 7 Am.Jur., Banks, § 614, to the following effect:

             [[Orig. Op. Page 4]]

            ". . . As a general rule, under the by-laws [[bylaws]]of savings banks, when money is to be drawn out, the savings bankbook must be brought to the bank to have payment entered thereon; depositors must usually take out the money themselves, except in case of sickness, or other infirmity, or absence, in event of which it may be paid to their order, properly witnessed and accompanied by the book.  Such orders are not considered the same as regular checks upon a commercial bank, and are generally held not to be negotiable instruments."

            Subdivision (3) allows a mutual savings bank by law to honor withdrawals where passbooks have been lost, or in other instances where the requirement of producing the passbook would be of extreme inconvenience to the depositor.

            RCW 62.01.185 reads in part as follows:

            "A check is a bill of exchange drawn on a bank, payable on demand. . . ."

            A bill of exchange, and thus a check, to be negotiable must conform with the requirements set forth in RCW 62.01.001, subsection (2) of which reads:

            "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;"

            It is required by statute that in order to honor a check drawn upon it, a mutual savings bank must, in ordinary circumstances, demand to see and make entry in the passbook of a particular depositor.  This is such a condition imposed by statute as to render such an instrument not negotiable, and thus it is merely an order to pay.  Therefore, the directive of RCW 36.48.020 that requires the surety bond posted by a depositary to be "conditioned for the prompt and faithful payment thereof on checks drawn by the treasurer," is not met since the "checks" there mentioned contemplated negotiability under the provisions of RCW 62.01.185, supra.

            However, RCW 36.48.020, cited above, further provides:

             [[Orig. Op. Page 5]]

            "In the event repayment of deposits in any such depositary is insured by the Federal Deposit Insurance Corporation, or by any other corporation, agency, or instrumentality organized and acting under and pursuant to the laws of the United States, the execution and filing of a bond with the treasurer shall be required only for so much of the designated maximum amount of deposits as such designated maximum amount of deposits exceeds the amount of such insurance, and if the depositary elects to deposit securities in lieu of the bond, it shall be required to deposit securities only to the amount necessary to secure the excess of the moneys on deposit with it over the amount covered by such insurance."

            Furthermore, RCW 32.12.010 states, in part, as follows:

            "When the aggregate amount of deposits and dividends to the credit of any depositor . . . is ten thousand dollars or more, such aggregate shall not be increased by the receipt from the depositor of any further deposit . . .Provided, That notwithstanding anything contained in this section, mutual savings banks may accept deposits to the fullest extent that such deposits are insured by the United States government, or any agency thereof, including the Federal Deposit Insurance Corporation."

            Thus, a surety bond need not be posted to the extent that a deposit is insured by the F.D.I.C.  The maximum deposit a mutual savings bank can allow for a depositor is ten thousand dollars.  F.D.I.C. insures deposits made with member banks up to ten thousand dollars.  It then appears that a mutual savings bank that is insured by F.D.I.C. need not post a surety bond to secure the deposit of public funds and, therefore, the requirement that such a bond be conditioned for the prompt and faithful payment of the deposit by check would not apply, thereby lifting any objections discussed above.

            Nevertheless, since it appears that public funds deposited in a mutual savings bank are not subject to withdrawal by check and are always subject to the bank's regulations restricting withdrawal for a period of up to six months, a deposit of public funds in such a bank might be construed to be a loan of public funds underAberdeen v. National Surety Co., supra, which is prohibited by Article VIII, § 7, of our constitution.  Since such a deposit could be rendered illegal by the action of the board of trustees, and in view of the fact that it is a requirement which may not be waived prior to attempted withdrawal, the deposit of public funds in a mutual savings bank does not meet present requirements.

             [[Orig. Op. Page 6]]

            Furthermore, a required condition of the bond posted by a depositary is that it be available for the faithful and prompt payment by checks drawn by the treasurer.  Mutual savings banks do not maintain accounts for depositors subject to negotiable checks but only as to orders to pay.  Thus the county treasurer should deposit public funds only in banks which can comply with the condition that must necessarily be attached to the surety bond filed by the depositary if such a bond be necessary.

            It is, therefore, our conclusion that county treasurers may not deposit public funds in mutual savings banks.

Very truly yours,

Attorney General

Assistant Attorney General

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