AUTHORITY OF FINANCE COMMITTEE IN PURCHASING WARRANTS

AUTHORITY OF FINANCE COMMITTEE IN PURCHASING WARRANTS

The State Finance Committee does not exceed its authority in designating agents for the purchase of warrants or in purchasing warrants drawn against an invalid appropriation.

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                                                                     July 3, 1951

Honorable Tom Martin
State Treasurer
Legislative Building
Olympia, Washington                                                                                                                Cite as:  AGO 51-53 No. 81

Dear Sir:

            We have your request for our opinion on the following question:  Is the State Finance Committee in danger of acting beyond its authority in either of the following:

            1. In designating the members of the Washington Bankers' Association as agents of the State to disburse money in acquiring warrants on its behalf for purchase under chapter 232, Laws of 1951.

            2. In purchasing warrants in case it should be held that the appropriation against which they were drawn is invalid?

            It is our opinion that there is no risk of the State Finance Committee exceeding its authority either in designating the members of the Washington Bankers' Association as agents of the State to disburse money in acquiring warrants on its behalf for purchase under chapter 232, Laws of 1951, or in purchasing warrants in case it should be held that the appropriation against which they were drawn is invalid.

                                                                     ANALYSIS

            At the present time pursuant to an agreement, which has been confirmed by several letters from the Finance Committee to the Washington State Bankers' Association, State General Fund warrants when presented to member banks  [[Orig. Op. Page 2]] of that Association are endorsed by the banks which pay the face value of the warrants to the holders thereof and then forward the warrants to the office of the State Treasurer where they are purchased from State money available for investment.  The agreement provides that the banks are acting as agents for the State in making disbursements of the amount of the warrants and shall be reimbursed by the State for the amounts disbursed.

            The purchase of the warrants is authorized by chapter 232 of the Laws of 1951.  This act should be considered supplemental to chapter 91 of the Laws of 1935 (Rem. Rev. Stat., § 5408-1, et seq.) authorizing the State Finance Committee to invest money in the treasury not needed for current expenditures.  By section 1 of chapter 91, Laws of 1935, the Finance Committee is authorized to make such purchases "at such prices and upon such terms as they may determine."  This office has previously ruled that the State Finance Committee has authority to delegate to a secretary the right to actually complete the transactions necessary to accomplish the purchase of securities.  In an Opinion to the State Finance Committee dated November 29, 1945, we held that it was entirely proper that there be delegated to the Committee's secretary the authority to do the work necessary to complete such purchases.  We believe that the same principle is applicable here.  Our Supreme Court in the case of State ex rel. Hartley v. Clausen, 150 Wash. 20, 272 Pac. 22, said:

            "It is a well recognized rule of law that, if a board is charged with a specific duty and the means by which the duty is to be accomplished are not specified or provided for, the board so charged has the implied power to use such means as are reasonably necessary to the successful performance of the required duty."

            As an incident to the purchase of warrants by the State Finance Committee it is necessary that they be collected into the Treasurer's office and for that purpose it is essential that the services of the banks be utilized.  While there is no express authority in the statute for the designation of the banks as agents, such employment of agents, we believe, is necessarily implied from the power to purchase the warrants.  In the same manner that a state agency authorized to perform a given function has the power to employ such assistance and obtain such facilities as shall be necessary to carry out that function, so, in our opinion, the Finance Committee as an incident to obtaining  [[Orig. Op. Page 3]] the warrants for purchase may authorize the banks to act as the State's agent and such a contract is binding and the State is liable for payment to the banks of any amount which they disburse pursuant to such agreement.

            Chapter 232 of the Laws of 1951 specifically authorizes purchase by the State Finance Committee of warrants of the State of Washington.  The statute makes no further specification as to the character of the warrants and in making such purchases the State Finance Committee is doing precisely what the statute prescribes notwithstanding that there may be a possibility that the appropriation against which the warrants were drawn might be declared invalid.  The issuance of warrants is for the purpose of evidencing an obligation of the State.  Under section 2581 of the Code of 1881, as amended (Rem. Rev. Stat., § 11015) provision was made for the circumstances under which warrants will be drawn.  That section reads:

            "In all cases of grants, salaries, pay, and expenses ascertained and allowed by law, found due to individuals from the state when audited, the auditor shall draw a warrant upon the treasury for the amount, but in cases of unliquidated accounts and claims the adjustment and payment of which are not provided by law, no warrant shall be drawn by the auditor or paid by the treasurer, unless the previous appropriation shall have been made by law for that purpose, nor shall the whole amount drawn by and paid under any head ever exceed the amount thus appropriated: Provided, that where an appropriation is made by law to be paid out of the state treasury, it shall be the duty of the state auditor to draw a warrant or warrants upon the state treasurer in accordance with the provisions of such law in favor of the person or persons entitled to the same."

            It has been held by our Supreme Court that the auditor is required to draw warrants where a liquidated obligation exists notwithstanding that no appropriation has been made from which the warrant may be paid.  In the case ofState ex rel. Shuff v. Clausen, 131 Wash. 119, 229 Pac. 5, a contention was made that certain warrants could not be drawn because there was no appropriation from which the amounts could be paid.  The Supreme Court referred to section 11015, Rem. Rev. Stat., and said:

             [[Orig. Op. Page 4]]

            "These statutory provisions, we think, fully authorize the allowing and auditing of claims of the nature here drawn in question, and the further evidencing of the right of claimants in that behalf to the amounts so allowed and audited by the issuance of warrants therefor against the accident fund, regardless of whether or not there be any appropriation from the accident fund available for the payment of such warrants.  We think that such a claim, when allowed by the department of labor and industries in pursuance of our workmen's compensation act, against the accident fund, becomes a claim which is a 'grant' or 'pay . . . ascertained and allowed by law' within the meaning of the language of § 11015, above quoted.  Our decision inState ex rel. Helander v. Clausen, 98 Wash. 253, 167 Pac. 947, it seems to us, is decisive in favor of relator upon this question.  Our prior decisions having some bearing upon the question are cited and reviewed in that decision.  We conclude that it is the duty of respondent auditor to audit the claim in question, and, if found duly authenticated, to issue a warrant against the accident fund therefor in favor of the claimant, though there be no monies available for its payment because of want of a legislative appropriation."

            InState ex rel. Pacific Bridge Company v. Washington Toll Bridge Authority, 8 Wn. (2d) 337, 112 P. (2d) 135, our Supreme Court affirmed the same principle and held that a lack of money in the fund against which a warrant was drawn did not make the issuance of the warrant illegal.  Thus, if there is a valid ascertained claim against the State for which payment is due, the issuance of warrants is legal notwithstanding that the warrants may not be paid until an appropriation is made by the legislature.  These warrants, in our opinion, represent the chose in action for which they were drawn and when purchased, amount to the acquisition of that chose in action.  Although payment might be delayed until the passage of an appropriation to make the warrants payable, the Finance Committee has by no means purchased a worthless item when it has acquired a warrant issued under authority of law or for a valid consideration.  Warrants are not negotiable instruments but by endorsement may be transferred from one holder to another and when so endorsed, the  [[Orig. Op. Page 5]] chose in action which they represent is transferred to the assignee.  An assignment and delivery of a warrant on the State treasury is in equity an assignment of the debt and an authority to the assignee to receive the money.  National Bank v. Herold, 74 Cal. 603, 16 Pac. 507, 43 Am.Jur. 404, n. 19.

            It is, therefore, our opinion that in no possible way could it be held that the act of the State Finance Committee in purchasing warrants was ultra vires notwithstanding that the appropriation against which the warrants were drawn might be held invalid since warrants may be legally issued even without an appropriation and represent the chose in action for which they are issued and constitute a valuable asset even without an appropriation.  Other considerations also are important in this connection.  There is no doubt that if the Omnibus Appropriation Bill should be held invalid, the Legislature in special session could ratify the act and thereby make all outstanding warrants drawn against it payable.  As a practical matter, we are fully confident that our Legislature would not repudiate the State's obligations.  In this case when the State purchases its own warrants, it is both maker and holder of the securities.  Under these circumstances the failure of the Legislature to provide for payment of the warrants would be a matter entirely within the scope of the State's financial business and would not involve intermediate holders of the warrants.  There could be no effective charging back of unpayable warrants since such action would end where it has begun, namely, at the State Treasury, which is under the control of the State Legislature both with respect to the obligations which brought about the drawing of the warrants and the funds which are invested in them.  The endorsement by agent banks of these warrants constitutes under the agreement with the State Finance Committee only a guarantee of the validity of prior endorsements and is not a guarantee of the payment of the warrants; consequently, such endorsers assume no liability other than that of guaranteeing the endorsements.

            To summarize, it is our opinion that the State Finance Committee has authority to utilize the services of the banks in gathering in warrants for payment and to contract that their liability shall be limited to guaranteeing the validity of prior endorsements and that they shall be reimbursed for sums  [[Orig. Op. Page 6]] disbursed in acquiring warrants on behalf of the State.  There is no possibility of the State Finance Committee exceeding its authority in the purchase of state warrants notwithstanding that the Appropriation Act against which they were drawn may be declared invalid.

Very truly yours,

SMITH TROY
Attorney General

LYLE L. IVERSEN
Assistant Attorney General