POSTAL SAVINGS SYSTEM-PLEDGING OF LOANED

SECURITIES.

It is immaterial, under the postal savings depositories act of June 25, 1910 (36 Stat. 814), from what source the bank obtains the securities furnished the board of trustees as collateral to postal savings deposits, provided the board takes them in pledge on a valuable consideration with no other notice than that they are being used in the exact manner authorized by the owners thereof; and hence a bank may be permitted to pledge with the board of trustees as collateral to postal savings funds bonds loaned to it for that purpose.

When such bonds are transferred to the board of trustees by the bank in consideration of the deposit with the bank of postal savings funds, the board acquires a good title thereto as pledgee, since said bonds are negotiable instruments and the board is a purchaser for value without notice of any flaw in the title thereto.

DEPARTMENT OF JUSTICE,

February 27, 1912.

SIR: I have the honor to acknowledge the receipt of your letter of the 12th instant, referring to my opinion to you of the 3d November last, in which I held that the board of trustees of the postal savings depositary offices established by the act of June 25, 1910 (36 Stat. 814), were authorized, under section 9 thereof, to take from State banks of Wisconsin as collateral to postal savings deposits, public bonds, or other securities supported by the taxing power owned, not by said banks but by individual directors or stockholders thereof, and entrusted by them to such banks for the purpose of being pledged as such collateral.

You now inquire whether it is essential that the bonds so pledged shall be owned by the directors or stockholders of the banks concerned, and whether a bank may not be permitted to pledge bonds loaned to it for the purpose by a correspondent or bond firm under an arrangement by which the bank would give to the concern furnishing the security a surety bond conditioned to cover any loss which might result from the pledge of the bonds as security for postal savings funds; and, further, whether under such an arrangement the board of trustees would be amply protected.

The law of Wisconsin to which reference is made in your letter is sections 2024-36, chapter 94, of the Supplement to

the Wisconsin Statutes of 1898, and the pertinent part thereof is as follows:

"No bank, banker, or bank officer shall give preference to any depositor or creditor by pledging the assets of the bank as collateral security; *

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There is evidently nothing in this provision which prohibits the State bank from pledging, as collateral to postal savings deposits, bonds loaned to it for that purpose, since such bonds do not become part of its "assets," but are merely bailed to it for a limited purpose (Bowers v. Evans, 71 Wis. 133; Nonotuck Silk Co. v. Flanders, 87 Wis. 237; Boyle v. National Bank, 125 Wis. 498; Bank v. Gillespie, 137 U. S. 411; Hart, Law of Banking, pp. 381– 388). It is equally clear that the board of trustees, when such bonds are transferred to it by the State bank in consideration of the deposit with said bank of postal savings funds, acquires a good title thereto as pledgee, since such bonds or securities are negotiable instruments and the board is a purchaser for value without notice of any flaw in the title thereto (Murray v. Lardner, 2 Wall. 110). The deposit of postal savings funds in the bank furnishes the consideration, and the only notice the board has is that the bank is lawfully in possession of the bonds and authorized to use them for this very purpose. My former opinion that the bonds need not be the property of the bank necessarily involved the conclusion that the source from which the bank obtains them is immaterial, provided the board takes them in pledge on a valuable consideration with no other notice than that they are being used in the exact manner authorized by the owners of them.

Respectfully,

GEORGE W. WICKERSHAM.

THE POSTMASTER GENERAL.

POSTAL SAVINGS SYSTEM-SPECIAL IMPROVEMENT BONDS OF PORTLAND, OREG.

Certain special improvement bonds of the city of Portland, Oreg., which are not limited in their obligation to any special fund, are public bonds supported by the general taxing power of the city within the meaning of section 9 of the postal savings depositories act of June 25, 1910 (36 Stat. 816).

DEPARTMENT OF JUSTICE,

March 2, 1912.

SIR: I have the honor to acknowledge the receipt of your letter of the 12th ultimo requesting my opinion whether certain bonds of the city of Portland, Oreg., are "public bonds or other securities supported by the taxing power" within the meaning of section 9 of the act of June 25, 1910, chapter 386 (36 Stat. 816).

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In his opinion, inclosed with your letter, the Treasurer of the United States states that the above words have been construed by the board of trustees, under the discretion given them by section 9 supra, to mean “an obligation of a legally constituted municipality, constituting a proper charge that may be paid out of taxes levied against all the property, both real and personal, that is contained within the limits of the place that issues the bonds without any restrictions or limitations." I assume this construction of section 9 supra, and, furthermore, since no objection to these bonds is suggested to me other than that, not being payable out of the general tax levy of the city of Portland, but only out of a special-assessment fund, they are not, therefore, the absolute obligations of that city. I confine myself in this opinion to the sole question, viz, whether these bonds are the absolute obligations of the city of Portland, in the sense that they are payable out of the general fund raised by the ordinary tax levies, and I do not undertake to pass on their validity in any other respect.

These bonds belong to the class known as "special improvement bonds," and the conditions under which they are binding generally on the municipality issuing them are thus

stated by the Supreme Court of Oregon in Avery v. Job (25 Ore. 512, 520):

66* * * As a general rule, when the legislature authorizes a municipality to contract a debt, and issue bonds therefor, it is to be inferred that it intended to authorize the payment of such bonds out of the money raised by general taxation, unless there is something in the act itself, or some general limitation upon the power of taxation, which repels such an inference; and, although a special tax or fund may be provided, the bondholders' remedy is not limited to such tax or fund, unless it is provided that the bonds shall not be paid in any other way. The bonds, when issued, become a debt of the corporation for which it is primarily liable, and for any balance due thereon after the application of the special fund the holders are entitled to payment out of the general fund of the corporation.

And this view is reiterated in Eaton v. Mimnaugh (43 Ore. 465, 476).

This statement of the law is in accord with the weight of authority. (United States v. County of Clark, 96 U. S. 211; United States v. Fort Scott, 99 U. S. 152, 159, 160; Bank v. City of Clinton, 111 Fed. 439, 443; Morrison v. Bernards, 36 N. J. Law 219, 222; Commonwealth v. Pittsburg, 88 Pa. 66, 85, 86; Dillon on Municipal Corporations, ed. 1911, vol. 2, p. 1390.)

The bonds of the city of Portland to which you call my attention do most certainly (according to the copy submitted by you) purport to bind the municipality absolutely. They state that the city agrees to pay them, principal and interest, in gold coin of the United States; they are signed by the proper city authorities as such and are sealed with the seal of the city; and the faith and credit of the city are pledged to their payment. Nothing is said in them to the effect that they are payable only out of a special fund, unless the bare reference to the acts under authority of which they were issued can have that effect. But those acts (act of Feb. 22, 1893, Laws of Oregon, p. 171; act of Feb. 21, 1901, Laws of Oregon, p. 372; Lord's Oregon Laws, Vol. II, sec. 3248), commonly known as the Bancroft

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Act, provide for bonds of this very character. Section 4 of the act provides that the city shall issue "its bonds" "and such bonds shall, by the terms thereof, mature in 10 years from the date thereof, and be payable in gold coin of the United States, and bear interest not to exceed 6 per cent per annum.' They shall be "signed by the mayor or other executive head of such city," countersigned by the recording officer of such city and authenticated by its seal. They are redeemable (according to sec. 9) by such city. In no place in the act is it provided that they are payable only out of a special fund. The contrary is clearly implied. For one thing, assessments are not usually paid in gold coin; and, for another, interest runs on the bonds as soon as they are issued, while interest on the assessments runs only as they are actually levied from time to time during the 10-year period. (Mall v. City of Portland, 35 Ore. 89, 93, 96.) It is true that a special fund is provided for, and undoubtedly the expectation is that it will be sufficient to take care of the bonds, but that is a matter which concerns the city and its tax payers; it can not affect the bondholders. The same circumstance in the cases cited supra in this opinion did not prevent the courts from holding the bonds to be the obligations of the municipality generally and payable out of its general tax levy.

It is urged, however, that the bonds in question can not be the general obligations of the city of Portland, because (it is said) the Supreme Court of Oregon has decided in the cases of Ladd v. Gambell (35 Ore. 393) and Stratton v. Oregon City (Ibid, 409) that the provisions of the charters of Portland and Oregon City, the one limiting the indebtedness of the municipality in various ways, the other excluding the general liability of the city for the cost of street and sewer improvements, were not repealed by the Bancroft Act of 1893 supra. If not repealed (it is argued), it can only be because the bonds issued under the authority of the Bancroft Act are not the general obligations of the municipalities, and are therefore not within the scope of their charters. This, however, is wholly to misapprehend

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