DISTRICTS ‑- PORT ‑- CONTRACTS ‑- BUILDING CONTRACTS ‑- PORT COMMISSIONER AS STOCKHOLDER AND OFFICER

DISTRICTS ‑- PORT ‑- CONTRACTS ‑- BUILDING CONTRACTS ‑- PORT COMMISSIONER AS STOCKHOLDER AND OFFICER.

(1) Unless one of the specific exemptions found in RCW 42.23.030 is applicable, a port district in this state may not lawfully enter into a building construction contract with a corporation in which one of the port commissioners is a stockholder and officer.

(2) If a contract is executed in violation of RCW 42.23.030, the contract is void and the penalty upon the public officer in question is prescribed in RCW 42.23.050 and 42.20.080.

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                                                                October 10, 1963

Honorable Jack C. Hood
State Representative, 41st District
P.O. Box 61
Ferndale, Washington

                                                                                                                Cite as:  AGO 63-64 No. 63

Dear Sir:

            By letter previously acknowledged, you have requested the opinion of this office on two questions which we paraphrase as follows:

            (1) May a port district in this state lawfully enter into a building construction contract with a corporation in which one of the port commissioners is a stockholder and officer?

            (2) If such a contract is unlawful, what are the legal consequences?

            We will proceed to answer your questions in the analysis.

                                                                     ANALYSIS

            The applicable statutes are for the most part found in chapter 268, Laws of 1961, now codified as chapter 42.23 RCW.  RCW 42.23.030 provides in material part 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  [[Orig. Op. Page 2]] 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.  This section shall not apply in the following cases:

            "(1) The furnishing of electrical, water or other utility services by a municipality engaged in the business of furnishing such services, at the same rates and on the same terms as are available to the public generally;

            "(2) The designation of public depositaries for municipal funds;

            "(3) The publication of legal notices required by law to be published by any municipality, upon competitive bidding or at rates not higher than prescribed by law for members of the general public;

            "(4) The designation of a school director as clerk or as both clerk and purchasing agent of a school district;

            "(5) The employment of any person by a municipality, other than a county of the first class or higher, a city of the first or second class, or a first class school district, for unskilled day labor at wages not exceeding one hundred dollars in any calendar month; and any other contract in such a municipality except a sale or lease by the municipality as seller or lessor:  Provided, That the total volume of business represented by such contract or contracts in which a particular officer is interested, singly or in the aggregate, as measured by the dollar amount of the municipality's liability thereunder, shall not exceed two hundred dollars in any calendar month:  Provided further, That a port district as lessor may lease port district property to a municipal officer or to a contracting party in which a municipal officer may be beneficially interested, if in addition to all other legal requirements, a board of three disinterested appraisers, who shall be appointed from members of the American institute of real estate appraisers by the presiding judge of the superior court in the county where the property is situated, shall find and the court finds that all terms and conditions  [[Orig. Op. Page 3]] of such lease are fair to the port district and are in the public interest."

            Certain further exceptions are provided in RCW 42.23.040, 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:

            "(1) That of a nonsalaried officer of a nonprofit corporation;

            "(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;

            "(3) That of a landlord or tenant of a contracting party;

            "(4) That of a holder of less than one percent of the shares of a corporation or cooperative which is a contracting party.

            "None of the provisions of this section shall be applicable to any officer interested in a contract, though his interest be only remote, who influences or attempts to influence any other officer of the municipality of which he is an officer to enter into the contract."

            From the definitions of "municipality" and "municipal officer" in  [[Orig. Op. Page 4]] RCW 42.23.020, it is clear that a port district commissioner is included under this statute.

            Although the purpose and policy of the statutes are quite evident from their provisions, for emphasis we quote from the opinion of the supreme court of this state inNorthport v. Northport Townsite Co., 27 Wash. 543, 549, 69 Pac. 204 (1902), construing the provisions of a similar statute:

            "Long experience has taught law makers and courts the innumerable and insidious evasions of this salutary principle that can be made, and therefore the statute denounces such a contract if a city officer shall be interested not only directly, but indirectly.  However devious and winding the chain may be which connects the officer with the forbidden contract, if it can be followed and the connection made, the contract is void.  It would seem that the interest of a stockholder of a corporation brings such stockholder within the reason of the rule prohibiting an officer from being interested in the city's business.  [Citations omitted.]"

            In that case the municipal officer was a shareholder and the business manager of a lumber company which sold materials to a contractor who had received a contract with the city of Northport for street improvements.  The court specifically held that:

            ". . . the interest of a stockholder of a corporation brings such stockholder within the reason of the rule prohibiting an officer from being interested in the city's business."  (Citations omitted.) (P. 549)

            The interest of a corporate officer has been held to be an interest within the meaning of the rule.  InPeople ex rel. Schenectady Illuminating Co. v. Schenectady County, 151 N.Y.S. 830 (1914), the New York court indicated that the primary evil to be avoided was the situation where an individual bargained with himself as the agent of two conflicting interests.  See, also, the previous opinion of this office (informal) to the prosecuting attorney of Yakima County, September 24, 1959, a copy of which is enclosed, indicating that under similar statutes prohibiting direct or indirect conflicting interests, a contract between a school district and a cooperative marketing association would be invalidated by the fact that a member of the  [[Orig. Op. Page 5]] board of directors of the school district was also a member of the marketing cooperative.  Finally the statute itself indicates its intent to include the interest of a salaried officer as a prohibited interest, simply by its exclusion under certain circumstances of the "remote" interest of a "nonsalaried officer of a nonprofit corporation."

            In a prior opinion we concluded that the prohibition of such statutes cannot be avoided merely because the interested officer refrained from taking part in the making of the contract by the municipality.  See, AGO 53-55 No. 317 [[to Prosecuting Attorney, King County on September 17, 1954]], a copy of which is enclosed; also 63 C.J.S. 553, et seq., M.C.C. § 990, stating the general rule as to the invalidity of a municipal contract in which an officer of the municipality is personally interested even though the officer took no part in the negotiating or voting for the contract.

            Accordingly, it is our conclusion that if none of the above‑quoted exceptions to RCW 42.23.030,supra, are applicable; there would appear to be a conflict of interest in the duties of this municipal officer as defined by the statutes cited in the opinion.

            The result of such a conflict of interests is stated first of all in terms of its effect upon the contract, and then in terms of penalties upon the officer who disobeys any provision of the statute.  RCW 42.23.050 provides:

            "Any contract made in violation of the provisions of this act shall be void and the performance thereof, in full or in part, by a contracting party shall not be the basis of any claim against the municipality.  Any officer violating the provisions of this act shall be liable to the municipality of which he is an officer for a penalty in the amount of three hundred dollars, in addition to such other civil or criminal liability or penalty as may otherwise be imposed upon him by law.

            "In addition to all other penalties, civil or criminal, the violation by any officer of the provisions of this act shall work a forfeiture of his office."

             [[Orig. Op. Page 6]]

            In addition, RCW 42.20.080 declares wilful misconduct of a public officer to be a gross misdemeanor.

            We trust this information will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

ROBERT F. HAUTH
Assistant Attorney General