Pacific Northwest Bell Telephone Co. v. Department of Revenue

481 P.2d 556, 78 Wash. 2d 961, 1971 Wash. LEXIS 570

• Court: Washington Supreme Court
• Decided: March 4, 1971
• Docket: 41078
• Status: Published

Opinions

McGovern, J.

The State Department of Revenue appeals from a declaratory judgment which held invalid a rule adopted by the department presumably under its statutory rule-making power.

The hearing before the trial court was upon stipulated facts. In 1955 our legislature enacted in substantial part the Uniform Disposition of Unclaimed Property Act, hereinafter called the act, RCW 63.28;¹ Laws of 1955, ch. 385, p. 1619. The act was patterned after a uniform act, but omitted from the act as adopted was section 16 of the uniform act, which provides:

§ 16. Periods of Limitation Not a Bar. — The expiration of any period of time specified by statute or court order, during which an action or proceeding may be commenced or enforced to obtain payment of a claim for money or recovery of property, shall not prevent the money or property from being presumed abandoned property, nor affect any duty to file a report required by this act or to pay or deliver abandoned property to the [State Treasurer].

Uniform Disposition of Unclaimed Property Act, § 16, 9A U.L.A. 435 (1965).

Respondents admit that they have not reported to the state as abandoned property those items which they hold and against which they claim to have a valid defense of the bar of the statute of limitations. That is so despite the language of RCW 63.28.170 which appears to make such reports mandatory.

Cognizant of the refusal of respondents and others to make those reports, the Department of Revenue caused House Bill 546 to be introduced during the 1963 session of the Washington State Legislature. That bill would have amended RCW 63.28.150 which describes abandoned property as all intangible personalty unclaimed by the owner for more than 7 years after it was payable or distributable. The amendment would have reduced the prescribed period of time from 7 to 5 years for some claims and to 2 years for others. In either event, the new period of time for the presumption of abandonment would have been 1 year less than the period of time which gives rise to the defense of the statute of limitations. The bill failed of passage.

Then, in 1967, H.B. 509 was introduced during the state’s fortieth legislative session. That bill was also caused to be introduced by the State Department of Revenue and would have added section 16 of the uniform act to our unclaimed property act, RCW 63.28. It, too, failed of passage.

Thereupon, January 17,1968, the Department of Revenue adopted administrative rule UCP 1, which reads as follows:

The expiration of any period of time specified by statute or court order, during which an action or proceeding may be commenced or enforced to obtain payment of a claim for money or recovery of property shall not prevent the money or property from being presumed abandoned property under chapter 63.28 RCW, nor affect any duty to file a report required by that chapter or to pay or deliver abandoned property to the department of revenue. This rule shall not apply to property presumed abandoned prior to June 9, 1955.

WAC 458-65-010. Respondents then instituted this action in declaratory form, asking the trial court to declare the rule invalid on the ground that it exceeds the statutory rule-making authority of the Department of Revenue, the agency which promulgated it. The trial court adopted the legal argument of respondents and, accordingly, entered such an order. This appeal followed.

Appellant asserts that the rule was adopted to administratively carry out the provisions of the unclaimed property act and that it simply declares existing law. It states that the rule is not intended to fill 'a legislative omission, but rather to put into regular written form the administrative interpretation of the act and to make clear to all holders of abandoned property that the statute of limitations has no application to the unclaimed property act. As authority for its proposition, appellant refers us to RCW 4.16.160, which provides:

That there shall be no limitation to actions brought in the name or for the benefit of the state, and no claim of right predicated upon the lapse of time shall ever be asserted against the state . . .

We affirm the trial court and hold that the statute of limitations may be a bar to the state’s claim of right under the unclaimed property act, RCW 63.28. That being so, Department of Revenue rule UCP 1 which declares that the bar of the statute of limitations may not be successfully urged against the department under any circumstances is therefore invalid.

The state’s rights under the act are derivative and it succeeds, subject to the act’s provisions, to whatever rights the owner of the abandoned property may have. If the owner may proceed against the holder of the abandoned property and legally obtain that property, then the state may also effectively enforce that same claim against the holder. If, however, the holder of the property possesses the valid defense of the bar of the statute of limitations, then that holder may successfully assert that bar against either the owner or the state, which stands in the position of the owner. The rights of the state are not independent of the rights of the owner and are therefore no greater than those of the person to whose rights it succeeds. That being so, RCW 4.16.160, which states that there shall be no limitation to actions brought in the name of the state is not applicable.

The state’s rights under the act are derivative because our act, unlike the uniform act, makes provision for escheat. See RCW 63.28.280. Proceedings under the act affect title to the property and not mere custody of the property as claimed by the Department of Revenue. Under our law of escheats, RCW 11.08, title to the escheat property vests in the state, subject to other provisions of the act.

It should be observed that the prefatory note to the Uniform Disposition of Unclaimed Property Act bears 'an acknowledgment by the National Conference of Commissioners on Uniform State Laws that the escheat-type statute, like ours, creates a title change to the property involved whereas the uniform act does not. It says:

The Uniform Act is custodial in nature, — that is to say, it does not result in the loss of the owner’s property rights. The state takes custody and remains the custodian in perpetuity. Although the actual possibility of his presenting a claim in the distant future is not great, the owner retains his right of presenting his claim at any time no matter how remote. State records will have to be kept on a permanent basis. In this respect the measure differs from the escheat type of statute, pursuant to which the right of the owner is foreclosed and the title to the property passes to the state.

Uniform Disposition of Unclaimed Property Act, pref. n., 9A U.L.A. 412, 413 (1965).

Other progressive state courts agree with this analysis that the rights of states under acts similar to our act are only derivative. The New Jersey unclaimed property act, like ours, does not contain a provision similar to section 16 of the uniform act. In State v. Standard Oil Co., 5 N.J. 281, 74 A.2d 565 (1950), aff’d sub nom., Standard Oil Co. v. New Jersey, 341 U.S. 428, 95 L. Ed. 1078, 71 S. Ct. 822 (1951), the New Jersey court in construing the act held, at page 298:

where all remedy upon the intangibles has been barred by the statute of limitations, there is no property to escheat under the act now before us. The State’s right is purely derivative; it takes only the interest of the unknown or absentee owner. If the remedy has been extinguished by the statute of limitations, the State is under like incapacity. The State takes only the creditor’s right . . .

And the California unclaimed property act was considered in Bank of Am. Nat’l Trust & Sav. Ass’n v. Cranston, 252 Cal. App. 2d 208, 211, 60 Cal. Rptr. 336 (1967). That court said: “The Controller’s rights under the act are derivative. He succeeds, subject to the act’s provisions, to whatever rights the owners of the abandoned property may have”.

In Guaranty Trust Co. v. United States, 304 U.S. 126, 82 L. Ed. 1224, 58 S. Ct. 785 (1938), the then Russian government had assigned to the United States government the right to certain bank accounts in the state of New York, against which the statute of limitations had run. It was argued that the bar of the statute of limitations is not operative against our national government. In disposing of that argument, the United States Supreme Court outlined the facts before it, similar to those here, and then applied the appropriate law, as follows, at page 141:

If the claim of the Russian Government was barred by limitation the United States as its assignee can be in no better position either because of the rule nullum tempus or by virtue of the terms of the assignment. We need waste no time on refinements upon the suggested distinction between rights 'and remedies, for we may assume for present purposes that the United States acquired by the assignment whatever rights then survived the running of the statute against the Russian Government, and that it may assert those rights subject to such plea of limitations as may be made by petitioner.

As has already been noted, the rule nullum tempus rests on the public policy of protecting the domestic sovereign from omissions of its own officers and agents whose neglect, through lapse of time, would otherwise deprive it of rights. But the circumstances of the present case admit of no appeal to such a policy. There has been no neglect or delay by the United States or its agents, and it has lost no rights by any lapse of time after the 'assignment. The question is whether the exemption of the United States from the consequences of the neglect of its own agents is enough to relieve it from the consequences of the Russian Government’s failure to prosecute the claim. Proof, under a plea of limitation, that the six-year statutory period had run before the assignment offends against no policy of protecting the domestic sovereign. It deprives the United States of no right, for the proof demonstrates that the United States never acquired a right free of a preexisting infirmity, the running of limitations against its assignor, which public policy does not forbid.

We believe that rationale to be particularly applicable to the matter before us.

In conclusion, we find that the State Department of Revenue trespassed into the arena of the legislative prerogative when it adopted rule UCP 1. [The fact that our legislature willfully omitted section 16 of the uniform act from our act and the fact that H.B. 546, in the year 1963, and H.B. 509, in the year 1967, both subsequently failed to pass the legislature, we think, gives concrete evidence of a legislative intendment contrary to the rule adopted by the Department of Revenue. What constitutes a reasonable time limitation within which a matured contractual obligation may be legally enforced against another is primarily a question for the legislature and not for an agency within the executive branch of government. Rand v. Bossen, 27 Cal. 2d 61, 162 P.2d 457 (1945).

We 'also reaffirm the age-old principle that the bar of the statute of limitations is a defense that must be asserted and cannot be used as a means for acquiring affirmative relief. Lovell v. Reid, 34 Wn.2d 847, 210 P.2d 803 (1949). If the respondents, or others, believe that they are entitled under the act to assert the legal defense of the bar of the statute of limitations against the state, let them assert such claim in their required report. In that way the issue can be drawn and thereafter appropriately presented to a court of competent jurisdiction under an existing set of facts.

The judgment of the trial court is affirmed.

Finley, Rosellini, Neill, and Stafford, JJ., concur.

1 The constitutionality of the act was upheld by this court in In re Monks Club, Inc., 64 Wn.2d 845, 394 P.2d 804 (1964).