State ex rel. Graham v. City of Olympia
| Citation | 497 P.2d 924,80 Wn.2d 672 |
| Decision Date | 01 June 1972 |
| Docket Number | No. 41975,41975 |
| Parties | STATE of Washington on the relation of Robert V. GRAHAM, Appellant, v. CITY OF OLYMPIA et al., Respondents, Washington Mutual Savings Bank, Respondent-Intervenor. |
| Court | Washington Supreme Court |
Slade Gorton, Atty. Gen., Robert F. Hauth, Asst. Atty. Gen., Olympia, for appellant.
Ashley, Foster, Pepper & Riviera, Louis H. Pepper, Seattle, for respondent-intervenor.
Davis, Wright, Todd, Riese & Jones, Richard A. Derham, Seattle, Ernest L. Meyer, Olympia, Graham, McCord, Dunn, Moen, Johnston & Rosenquest, Charles L. Sayre, Seattle, Gordon, Thomas, Honeywell, Malanca, Peterson, O'Hern & Johnson, James A. Furber, Tacoma, for respondents.
This is a declaratory judgment action brought by the plaintiff (appellant), Robert V. Graham, State Auditor, to test the constitutionality of certain statutes which authorize the deposit of public funds, in this case by a municipal corporation, in interest-bearing time deposits with banks, mutual savings banks, and savings and loan associations, and seeking injunctive relief. 1
There is no controversy as to the facts. On or about January 9, 1970, the state auditor, through the division of municipal corporations, commenced a regular examination of the defendant (respondent), City of Olympia, as required by law. During the course of the examination, it was discovered that the city of Olympia had deposited or invested certain of its funds in interest-bearing time deposits with the defendants (respondents), Seattle-First National Bank, National Bank of Commerce, and Thurston County Federal Savings and Loan Association. For each deposit, the city of Olympia received a certificate of deposit evidencing either a 90-day or a 6-month maturity date from the date of issue.
The time deposits made by the city of Olympia are expressly authorized under the provisions of Laws of 1951, ch. 6, § 1, p. 22 (RCW 33.52.010); Laws of 1965, ch. 111, § 3, p. 1328 (RCW 32.12.100); and Laws of 1969, Ex.Ses., ch. 193, p. 1457 ().
The provision of our constitution asserted by the plaintiff to be violated by these statutes is Const. art. 8, § 7, which is as follows:
Credit Not To Be Loaned. No county, city, town or other municipal corporation shall hereafter given 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 or indirectly the owner of any stock in or bonds of any association, company or corporation.
By stipulation and order, Washington Mutual Savings Bank (respondent-intervenor), was allowed to intervene--it being the recipient of a 12-month time deposit made by the city of Olympia in June of 1970.
Upon a trial to the court, a judgment was rendered in favor of the defendants, upholding the constitutionality of all the contested laws and denying the requested injunctive relief. The plaintiff now prosecutes this appeal.
The plaintiff contends that time deposits of municipal funds in banks, mutual savings banks and savings and loan associations are unconstitutional loans of public funds or credit and that the statutes authorizing such deposits or investments are unconstitutional. It is argued that the framers of our constitution intended to prohibit such deposits of public funds when they enacted Const. art. 8, § 7. We do not agree.
We have previously looked into the genesis of this provision of our constitution and found that the inclusion of article 8, section 7, was a response to loans and gifts made by other states and local governments to private companies to stimulate railroad development which, in many instances, became an improvident investment leaving the governments without recourse. PUD 1 v. Taxpayers of Snohomish County, 78 Wash.2d 724, 479 P.2d 61 (1971); Rauch v. Chapman, 16 Wash. 568, 48 P. 253 (1897).
It is apparent from the constitutional prohibitions in article 8, section 7, that the framers had in mind the security and protection of public funds. It is significant that prohibitions in this section of the constitution do not extend to the United States government, implicitly indicating that the framers were satisfied that investments of public funds in securities of the United States government would be adequately protected, and that no prohibition was necessary as required in the case of individuals, companies or corporations. We see no distinction in the security of public funds by their investment in United States government securities as compared to the security of those public funds deposited in banks, mutual savings banks, and savings and loan associations, Which are insured by an agency of the United States government, about which we will discuss more in detail later in this opinion.
Also, it is significant in considering the intentions of our constitutional fathers, in the prohibitive language against loans, that this was not meant in the sense of prohibiting deposits in banking institutions, as it is clear from Const. Art. 11, § 15, that it was their direction that municipal funds be deposited with the treasurer or other Legal depositary. It reads:
Deposit of Public Funds. All moneys, assessments and taxes belonging to or collected for the use of any county, city, town or other public or municipal corporation, coming into the hands of any officer thereof, shall immediately be deposited with the treasurer, Or other legal depositary to the credit of such city, town, or other corporation respectively for the benefit of the funds to which they being.
(Italics ours.)
The constitutional delegates unquestionably had banking institutions in mind as legal depositaries as evidenced by their knowledge of banking practices from the references to banking institutions in other sections of the constitution.
This being true, they also knew it was a banking practice that monies deposited in banking institutions would be used by those institutions for banking purposes, creating the relationship of debtor and creditor. We believe, therefore, that the prohibition was against loans as used in the ordinary and popular sense, between a lender and a borrower, where a question of the security of funds in such transactions would be involved, rather than as in a debtor-creditor relationship arising from the deposit of funds in a banking depositary.
In the interpreting of our constitution the language employed must be taken and understood in its natural, ordinary, general, and popular sense. State ex rel. O'Connell v. PUD of Klickitat County, 79 Wash.2d 237, 484 P.2d 393 (1971); State ex rel. State Capitol Comm'n v. Lister, 91 Wash. 9, 156 P. 858 (1916). In the ordinary and popular sense, a loan of money or credit is at once understood to mean a transaction creating the customary relation of borrower and lender. People take their money to banks, mutual savings banks, or savings and loan associations for deposit, and the institutions accept the money as Deposits, and not as Loans. It is doubtful that anyone ever takes money to a banking institution for deposit under the impression that the transaction is to constitute a 'loan,' in the ordinary and popular sense of that word.
It is obvious that the motivating cause of the transactions by the city of Olympia was to turn idle funds into interest-bearing deposits and to deposit those funds so as to receive a maximum return. The city of Olympia therefore deposited those funds in time deposits which provided a higher return for its deposits. The primary purpose was not to aid the banking institutions, but to benefit the city by availing itself of the maximum return incidental to the deposit of its funds, in a legal depositary as contemplated by Const. art. 11, § 15. This is inconsistent with a Loan in the ordinary and popular sense. See the extensive discussion of the distinction between loans and deposits made for the benefit of the depositing agency in: Utah State Land Board v. Utah State Finance Comm'n, 12 Utah 2d 265, 365 P.2d 213 (1961); Valley Nat'l Bank v. First Nat'l Bank, 83 Ariz. 286, 320 P.2d 689 (1958); Almond v. Day, 197 Va. 419, 89 S.E.2d 851 (1955); Bannock County v. Citizens Bank & Trust Co., 53 Idaho 159, 22 P.2d 674 (1933).
It was the risk of endangering public funds from the loanding of money in the ordinary and popular sense that the framers of our constitution interdicted, and not the risk of loss from deposits in banking institutions which they had authorized under Const. art. 11, § 15. It would appear that if there are adequate protections for the security of such deposits from loss, the purposes and objectives of Const. Art. 8, § 7, would unquestionably be fulfilled.
We now therefore turn our attention to the protection of public deposits in banks by the public funds deposit and investment act, and the statutes protecting such deposits in mutual savings banks and savings and loan associations. In the passing of this legislation, the legislature undoubtedly had in mind the afore-stated purposes and objectives of our constitutional fathers in article 8, section 7.
Laws of 1969, Ex.Ses., ch. 193, p. 1457 (), is a comprehensive public funds investment and protection act, applicable to state banks, trust companies and national banking associations located in this state. The act provides a method for deposits, investments, and investment deposits (time deposits) of public funds in qualified public depositaries and establishes an elaborate system to collateralize against loss. We quote at length the following important sections of the act: RCW 39.58.010.
(1) 'Public deposit' means moneys of the state or of any county, city or town, or other political subdivision of the state or any commission, committee, board or officer thereof or any court of the state deposited in any qualified...
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