BENEFICIAL INTERESTS

CONTRACTS ‑- MUNICIPAL ‑- OFFICERS ‑- BENEFICIAL INTERESTS

The provisions of RCW 42.23.010, et seq., prohibiting certain municipal contracts because of "beneficial interests" therein by officers of the municipality do not apply where the officer's interest is not of a pecuniary or financial nature.

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                                                                 January 10, 1973

Honorable Christopher T. Bayley
Prosecuting Attorney
King County Court House
Seattle, Washington 98104                                                                                                                 Cite as:  AGLO 1973 No. 6

Dear Sir:
 
            This is written in response to your letter, previously acknowledged, requesting our opinion on a question which we paraphrase as follows:
 
            Do the provisions of RCW 42.23.010, et seq., prohibiting certain municipal contracts because of "beneficial interests" therein by officers of the municipality, apply in the following described circumstances:
 
            "1. A member of the board of directors of a first class school district is employed in a sales capacity on a commission basis by company X.
 
            "2. Company X is awarded a contract by the school district board of directors following compliance with competitive bidding procedures required by statute for amounts of $2500 or more.  (Alternatively, the contract is awarded without competitive bidding for an amount less than $2,500.)
 
            "3. The board member who is employed by company X:  does not participate in the procurement of the contract; does not vote to award the contract to company X; does not attempt to influence the vote of any other board member; and does not receive any compensation as a result of the contract award."?
 
            We answer this question in the negative for the reasons set forth in our analysis.
 
             [[Orig. Op. Page 2]]
                                                                     ANALYSIS
 
            Chapter 42.23 RCW codifies the provisions of chapter 268, Laws of 1961, commonly referred to as the municipal officers code of ethics.  Section 1 (RCW 42.23.010) contains a general declaration of purpose, and § 2 (RCW 42.23.020) sets forth the definitions of various terms used in the chapter.  The basic substantive prohibition of the act is set forth in RCW 42.23.030 as follows:
 
            "No municipal officer shall be beneficially interested, directly or indirectly, in any contract which may be made by, through or under the supervision of such officer, in whole or in part, or which may be made for the benefit of his office, or accept, directly or indirectly, any compensation, gratuity or reward in connection with such contract from any other person beneficially interested therein.  . . ."
 
            Thereafter, this section proceeds to list a number of situations to which the foregoing prohibition does not apply, none of which are germane to your immediate inquiry.  Following this, RCW 42.23.040 (codifying § 5, chapter 268, supra) provides as follows:
 
            "A municipal officer shall not be deemed to be interested in a contract, within the meaning of RCW 42.23.030, if he has only a remote interest in the contract and if the fact and extent of such interest is disclosed to the governing body of the municipality of which he is an officer and noted in the official minutes or similar records of the municipality prior to the formation of the contract, and thereafter the governing body authorizes, approves, or ratifies the contract in good faith by a vote of its membership sufficient for the purpose without counting the vote or votes of the officer having the remote interest.  As used in this section 'remote interest' means:
 
            ". . .
 
            "(2) That of an employee or agent of a contracting party where the compensation of such employee or agent consists entirely of fixed wages or salary;
 
            ". . ."
 
             [[Orig. Op. Page 3]]
            In your letter you have expressed concern that subsection (2) of this last-quoted statute, because it is limited to salaried employees or agents only, might, by negative implication, be read to mean that the individual described in your hypotical situation would be deemed to have more than a remote interest in the subject contract.  In our judgment, however, a court considering this matter would not ever reach this point because, as we view it, the individual described in your letter would not be deemed to be "beneficially interested" in the contract in the first place.
 
            You have stated in your letter that the subject individual ". . . does not receive any compensation [either by way of a commission or salary] as a result of the contract award."  Assuming the correctness of this statement, we think a court today would view this situation in much the same light as our state supreme court viewed the situation involved in Mumma v. Brewster, 174 Wash. 112, 24 P.2d 438 (1933).  There, in a case involving a statutory predecessor to RCW 42.23.030, supra, the court limited the applicability of the statute to those interests which were of a pecuniary or financial nature ‑ as distinguished from sentimental or philosophical interests.  In holding that the mayor of a city whose only compensation from a company by which he was also employed was a stated salary was not beneficially interested in a contract between the city and his employer, the court said:
 
            "Downing as an employee to the public service corporation is paid a stated salary and no commissions based on receipts or earnings.  His position and his salary, no doubt, depend upon the prosperity of his employer, and perhaps, in a remote degree, that prosperity in some small part depends upon the profitable furnishing of supplies to the town, but to hold that this constitutes an indirect interest in Downing would be to base a presumption upon a presumption, which may not legally be done.
 
            "To come within the statutory prohibition, it must appear that Downing directly or indirectly profited from the relation between his employer and the town of which he is an officer.  The facts found utterly fail to show any such situation.  It cannot be presumed, without any proof on the subject, that Downing owes his employment to  [[Orig. Op. Page 4]] the fact that he is the mayor, or that, if the town should cease to deal with his employer, he would lose his position or receive less compensation for his services.  This situation, coupled with the finding,
 
            "'That said Downing exercises no judgment, discretion, power or option in furnishing said electric power to said town, nor the rates charged or paid therefor,' makes very plain the fact that the evils which the statute is designed to prevent are not here shown to be present."
 
            Similarly, in the instant case, it does not appear to us that the evils which chapter 42.23 RCW1/ is designed to prevent are present in the factual situation which you have described.
 
            We trust that the foregoing will be of some assistance to you.
 
Very truly yours,
 
SLADE GORTON
Attorney General

PHILIP H. AUSTIN
Deputy Attorney General

                                                         ***   FOOTNOTES   ***
 
1/A statute notably, which was originally drafted by this office in 1961 in order to consolidate and make uniform a large number of preexisting "interest in contract" statutes covering separate categories of municipal corporations or taxing districts.