SAVINGS AND LOAN ASSOCIATIONS ‑- INCORPORATORS ‑- INITIAL EXPENSE FUND ‑- UNDERTAKING WITH SUPERVISOR AS TO ADDITIONAL CONTRIBUTIONS ‑-REIMBURSEMENT

SAVINGS AND LOAN ASSOCIATIONS ‑- INCORPORATORS ‑- INITIAL EXPENSE FUND ‑- UNDERTAKING WITH SUPERVISOR AS TO ADDITIONAL CONTRIBUTIONS ‑-REIMBURSEMENT

Undertaking of incorporators of building and loan association with Supervisor as to additional contributions to expense fund may provide for reimbursement of contributions on same general basis as is provided with respect to contributions to contingent fund, except as to dividends thereon.

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                                                                   June 12, 1952

Honorable A. O. Kent
Supervisor
Division of Savings and Loan
Public Lands-Social Security Building
Olympia, Washington                                                                                                              Cite as:  AGO 51-53 No. 324

Dear Sir:

            We are in receipt of your letter of May 22, 1952, enclosing a proposed form of agreement between the Supervisor of Savings and Loan and the incorporators of a newly incorporated association relative to contributions to be made by the incorporators for the purpose of creating an expense fund for the association pursuant to the provisions of § 13 of the Savings and Loan Act of 1945 (§ 13, chapter 235, Laws of 1945, Rem. Supp. 1945 § 3717-132, now codified as RCW 33.12.140).

            From your letter and enclosure, as supplemented by our oral discussion, the question involved may be stated as follows:

            May the undertaking or agreement entered into between the supervisor and the incorporators of an association, with respect to additional contributions which the incorporators are required to make to the expense fund of the association, provide for the refund of all contributions to such fund, including both original  [[Orig. Op. Page 2]] and additional contributions, on the same general basis as is prescribed by the Savings and Loan Act with respect to contributions to the contingent fund?

            Our conclusion is that the agreement may contain such a provision, except that incorporators may not receive dividends on their contributions to the expense fund.

                                                                     ANALYSIS

            Section 13 of the act is as follows:

            "Before an association may receive savings or transact any business, its incorporators shall create an expense fund, in such amount as the supervisor may determine, from which the expense of organizing the association and its operating expenses may be paid until such time as its earnings are sufficient to pay its operating expenses and the incorporators shall enter into an undertaking with the supervisor to make such further contributions to the expense fund as may be necessary to pay its operating expenses until such time as it can pay them from its earnings.

            "Before an association may receive savings or transact any business, its incorporators shall create a contingent fund for the protection of its savings members against investment losses, in an amount to be determined by the supervisor.  The contingent fund shall consist of payments in cash made by the incorporators as herein provided and of all sums credited thereto from the earnings of the association as hereinafter required.

            "Prior to the liquidation of any association, the contingent fund shall not be encroached upon in any manner except for losses and for the repayment of contributions made by the incorporators.

            "No repayment of such contributions shall be made until the net balance credited to the contingent fund from earnings of the association, after such repayment, equals five percent of the amount due savings members.

             [[Orig. Op. Page 3]]

            "The incorporators may receive dividends upon the amount of their contributions to the contingent fund at the same rate as is paid, from time to time, to savings members.

            "The amounts contributed to the contingent fund by the incorporators shall not constitute a liability of the association except as hereinafter provided, and any loss sustained by the association in excess of that portion of the contingent fund created from earnings may be charged against the contributions pro rata."

            The provisions of this section thus contemplate that before an association may receive savings or transact any business, its incorporators shall:

            (1) create anexpense fund in such amount as the supervisor may determine from which the expenses of organizing such association and its operating expenses may be paid until the association's earnings are sufficient to pay its operating expenses;

            (2) enter into an undertaking with the supervisor to make suchfurther contributions to the expense fund as may be necessary to pay its operating expenses until the association can pay the same from its earnings;

            (3) create acontingent fund for the protection of the savings members of the association against investment losses in an amount to be determined by the supervisor.

            It will be noted that the initial expense fund and the contingent fund, in such amounts as the supervisor shall determine, are to be created and established as a condition precedent to the right of the association to receive savings or to transact any business.  No express provision for an agreement with the supervisor relative to the creation of these funds is contained in the statute.  These two funds must have been created and established, pursuant to the supervisor's determination as to the amount of each fund, before the association may begin operations.

            With respect to theadditional contributions to the expense fund over and above the original amount of such fund, the statute specifically directs that the incorporators shall enter into "an undertaking" with the supervisor.  This is the only undertaking or agreement with the supervisor to which express statutory reference has been made.

             [[Orig. Op. Page 4]]

            Section 13 does not set out the terms and conditions under which the incorporators are to be reimbursed for their initial or additional contributions to the expense fund as it does with regard to the contributions to the contingent fund, and in fact makes no express reference to reimbursement of contributions to the expense fund.  The purpose of the initial expense fund and the additional contributions thereto is to make certain that the burden of expenses is not imposed upon the deposits of savings members.  It would be unreasonable and inequitable to conclude that no reimbursement is authorized once the objectives and purposes underlying the requirement that such contributions be advanced by the incorporators have been attained.  We believe that it must be implied that the incorporators are entitled to such reimbursement out of the profits of the association when such profits have reached the point where the contingent fund has been built up to 5% of the amount due savings members, as required by the fifth paragraph of § 13, and the payment of operating expenses out of earnings has been assured.  However, in the absence of an express provision similar to that which allows dividends to be paid on contributions to the contingent fund, we do not believe that dividends may be paid on contributions to the expense fund.

            The provisions of § 13 of the act directing that the incorporators shall enter into an "undertaking" with the supervisor with respect to "further contributions" to the expense fund indicates that the obligation of the incorporators is a continuing one, and, further, that the supervisor has discretion in determining the conditions and terms of such undertaking.  In the exercise of such discretion we are of the opinion that the undertaking or agreement contemplated by the statute may properly provide that all the contributions to the expense fund, including both the initial and additional contributions made by the incorporators, may be refunded on the same general basis as is prescribed with respect to contributions to the contingent fund, except that dividends on contributions to the expense fund may not be allowed.

            Accordingly, we have redrafted the proposed agreement as submitted by you, making some suggested changes therein, and enclose the same herewith.

Very truly yours,

SMITH TROY
Attorney General

FRED L. HARLOCKER
Assistant Attorney General

             [[Orig. Op. Page 5]]

                                                                  AGREEMENT

The undersigned, being all the incorporators of the        Savings and Loan Association, recently incorporated under the Washington Savings and Loan Act of 1945, as amended (Rem. Supp. 1945, §§ 3717-120 et seq.; now codified as RCW 33.04.010 et seq.), and having heretofore created and contributed to an expense fund of said association in the original amount of $       as determined by the Supervisor of Savings and Loan Associations of the State of Washington, and for the purpose of complying with the provisions of section 13 of said Savings and Loan Act (Rem. Supp. 1945 § 3717-132; RCW 33.12.140);

            Do Hereby, jointly and severally undertake and agree with said Supervisor as follows:

            1. That we, the undersigned incorporators, will make such further contributions to the expense fund of said association at such times, and in such amounts, as the Supervisor shall direct and determine to be necessary to pay the operating expenses of said association until the association can pay them from its earnings;

            2. That the contributions made by the incorporators to the expense fund of the association (including original contributions heretofore made and the additional contributions to be made pursuant to this agreement), shall not constitute a liability of the association: PROVIDED, HOWEVER, That at such time as:

            (a) the net balance credited to the contingent fund of the association from earnings of the association, after repayment of contributions made by the incorporators to saidcontingent fund, shall equal five percent of the amount due savings members, and

            (b) the net balance of the expense fund created from earnings (exclusive of any contributions of incorporators), has attained such amount as the Supervisor may prescribe,

            Then, and in such event, the contributions made by the incorporators to the expense fund (including the original contributions), may be refunded to the incorporators pro rata or in full as the earnings of the association shall, from time to time, permit.

            Dated this        day of      , 195      .

             [[Orig. Op. Page 6]]

                        (signature lines for incorporators)

                        Incorporators of the        Savings and Loan Association of       , Washington.

            Approved and accepted this        day of      , 195      .

                        Supervisor, Division of Savings and Loan Department of Public Institutions State of Washington.

            (This Agreement is identified as being that discussed in Attorney General's Opinion 51-53-324) [[to Honorable A. O. Kent, Supervisor, Division of Savings and Loans]]