AGO 1954 No. 317 - Sep 17 1954
PUBLIC OFFICERS ‑- SCHOOL DIRECTORS ‑- INTEREST IN CONTRACT OF DISTRICT AS AVOIDING CONTRACT ‑- EFFECT OF NON-PARTICIPATION BY OFFICER IN OFFICIAL ACTION ON CONTRACT WHEN SO INTERESTED
1. Where school director's husband is officer of private corporation and holds stock therein for marital community, director has pecuniary interest in contract between corporation and district, and contract is invalid.
2. The size of the interest is immaterial.
3. The fact that the interested public officer does not participate in any official action on the contract is also immaterial; the existence of the interest, rather than participation or its absence, is controlling as to the validity of the contract.
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September 17, 1954
Honorable Charles O. Carroll
County City Building
Seattle 4, Washington Cite as: AGO 53-55 No. 317
Attention; Mr. V. D. Bradeson, Civil Deputy
By letter as previously acknowledged, you have requested the opinion of this office upon the prospective validity of a contract currently under consideration by the directors of Seattle School District No. 1 for possible execution with a private corporation. We wish to say that we appreciate your courtesy in forwarding a detailed summary of your research and thinking upon the basic question presented.
The following pertinent facts are set out as we have them from the correspondence attached to your request and from counsel for the corporation involved. The corporation desires to purchase the right to broadcast or telecast certain high school athletic events within the jurisdiction of the school district. One of the directors of the district is a lady whose husband is an executive vice president of the corporation. The husband holds for the marital community about one percent of the outstanding stock of the corporation.
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In these circumstances, you ask
1. if a contract as indicated between the corporation and the district would be valid; and if not,
2. whether such a contract would be valid if the director in question did not participate in any action taken by the board with regard thereto.
In our opinion, the contract would be invalid in either event.
1. RCW 28.58.290 provides in relevant part that
"It shall be unlawful for any school director to have any pecuniary interest, directly or indirectly, in the purchase of school sites or in the erection of schoolhouses or in the warming, ventilating, furnishing, repairing or insuring thereof, or to be in any manner interested or connected with the furnishing of supplies for the maintenance of schools, or to receive or accept any compensation or reward for services rendered as director or be employed for hire by the district or by any person having a contract with the district; * * *"
Construed strictly, this language might not directly cover the instant case. Yet in Directors of School District No. 302 v. Libby, 135 Wash. 233, at 238, the court said:
"* * * It is not contended here that a contract of the nature of these contracts does not fall within the ban of the statute above quoted. Indeed, we do not think it could be successfully so contended in view of the broad provisions of the statute, though contracts for the transportation of children are not specifically mentioned therein. * * *"
Nor does the section expressly provide that contracts in which the forbidden interest exists are void. But inMiller v. Sullivan, 32 Wash. 115, the court held it had that effect. These decisions treat the statute as being declarative of the general rule, whether obtaining by statute or common law, stated in 78 C.J.S., Schools and School Districts, § 279:
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"Ordinarily an officer of a school district should not contract with it in a matter wherein he is personally interested, and if he does so in violation of statute or public policy the contract will be invalid."
See also 47 Am.Jur. 329et seq., Schools, § 49.
RCW 42.20.010 provides that:
"Every public officer who:
"* * *
"(2) Is beneficially interested, directly or indirectly, in any contract, sale, lease, or purchase 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 accepts, directly or indirectly, any compensation, gratuity or reward from any other person beneficially interested therein; or
"* * * shall be guilty of a gross misdemeanor, and any contract, sale, lease or purchase mentioned in subdivision (2) hereof shall be void."
Under RCW 42.04.010, as explained in effect by State ex rel. McIntosh v. Hutchinson, 187 Wash. 61, we believe the director of a school district is a public officer.
Although RCW 42.20.010 (2) is somewhat broader in its terms than RCW 28.58.290 we find no conflict between them. Assuming‑-and we do so for the sake of argument only‑-that RCW 28.58.290 would not impair the proposed contract because the list of transactions prescribed therein is exclusive for purposes of that section, it does not follow that a school director could safely take an interest, forbidden to all other public officers, in a slightly different transaction. We think that RCW 42.20.010 (2) and RCW 28.58.290 must be considered supplementary and equally applicable to the acts of a school director.
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If the director is interested, the contract will be invalid. It is well settled that a financial community interest is sufficient to call RCW 28.58.290 or RCW 42.20.010 (2) into operation where one spouse deals as a public officer with the other. See, respectively,Directors of School District No. 302 v. Libby, supra, andState v. Miller, 32 Wn. (2d) 149. Under the rule ofMumma v. Brewster, 174 Wash. 112, it may not be enough that the public officer is also an officer of the corporation with which he deals‑-although he might be biased in its favor‑- if his private compensation is not affected by the public contract. But courts find the requisite interest where the officer owns shares in the corporation. SeeCity of Northport v. Northport Townsite Co., 27 Wash. 543, and the extensive annotation in 140 A.L.R. at page 344. On the facts stated, the director here would have such an interest.
It is true that this interest is very small. A court might possibly apply the rule ofde minimis to uphold the contract. But inState v. City of Cape May, 60 N.J.L. 78, 36 Atl. 1089, one share in an unprosperous corporation taken by a councilman as collateral security was held to be a disqualifying interest. In RCW 35.24.170 an interest up to $100 per month is allowed to officers of a third class city by specific exception; a similar lesser interest is permissible in towns under RCW 35.27.150. These built-indeminimis provisions raise an implication that no latitude is to be taken in other cases. InMiller v. Sullivan, supra, under what is now RCW 28.58.290, the court refused ademinimis argument where the director's interest, being the amount of the contract, was $25.30. If a rule of degree is to be fixed for such situations, it cannot be done by our office.
From what has been said, we conclude that the proposed contract would be void, under RCW 42.20.010 (2), if not under RCW 28.58.290.
2. It is suggested that a valid contract might be executed if the interested director did not participate in the school board's action thereon. We presume that the director would act in the best interest of the district, whether sitting or by disqualifying herself on the matter. The latter course would at least partially serve that policy of the statute which aims to prevent the appearance of evil though it may not exist. But the statutes go farther, we think. They are based on the view, necessarily cynical in the light of experience, that official participation is not the only means to a corrupt end. RCW 28.58.290 operates upon the presence of interest, and does not mention participation. RCW 42.20.010 (2) avoids contracts made by or through an interested officer; but also avoids contracts "which may be made for the benefit of his office". We believe the quoted phrase would apply to contracts made for a school district where a director is interested, without regard to participation.
This view is apparently the general rule. Thus it is said in 63 C.J.S. 553etseq., Municipal Corporations, § 990:
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"The general rule as to the invalidity of a municipal contract in which an officer of the municipality is personally interested is of general application and is so inflexible that no inquiry into the good or bad intention of the officer or as to the fairness or unfairness of the contract is permitted. The rule applies whether the officer acted alone on behalf of the municipality or as a member of the council or a board; and, in the absence of a statute providing otherwise, it applies even though the officer took no part in negotiating or voting for the contract, or procuring others to vote for it, or received no benefit therefrom, and even though he voted against the contract, and it was more advantageous to the city than other contracts proposed by other bidders. * * *" (Emphasis supplied)
To the effect that participation is immaterial, see also 37 Am. Jur. 895etseq., Municipal Corporations, §§ 274, and 275; and 10 McQuillin, Municipal Corporations (3rd ed. 1950) 399, 400, § 29.99, above notes 83-85. A school district is of course a municipal corporation. State ex rel. Griffiths v. Superior Court, 177 Wash. 619.
We have found little authority in the Washington decisions on this point. A school board member may be disqualified to act in a matter where he is prejudiced, although not financially interested. State ex rel. Barnard v. Board of Education, 19 Wash. 8. An alternative ground for the invalidation of a city ordinance was stated by the court inSmith v. Centralia, 55 Wash. 573, at 577, as follows:
"The ordinance is invalid for another reason. A councilman who cast the deciding vote for the passage of the ordinance was one of the petitioners for the ordinance, and one of the persons who would profit by its enactment. He was, therefore, in effect adjudicating his own cause, in violation of a maxim as old as the law itself."
That was not a case of contract, however, but of the vacation of a street. Neither of these cases involved the present problem.
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We think that it must be concluded that the contract would be invalid in the presence of interest, whether or not the director participated in action by the board upon it.
The rule is a harsh one. On occasion its effect may be more unfortunate than the harm it prevents. It is nonetheless the policy of the law, and in our opinion applies on the facts stated.
We hope the foregoing analysis will be of assistance to you.
Very truly yours,
A. J. HUTTON, JR.
Assistant Attorney General