OFFICIAL OPINION No. 29

OFFICIAL OPINION No. 29 Departrnent of Property and Suppl ies-Competitive bidders' good faith money - Investment of bid rnoney-State Depositories-Fiscal Code, 72 P.S. §301 et seq. 1. Bidders' good faith money can be placed in interest bearing State de- pository accounts even though such money is thereafter returned to the bidders where such provisions are made part of the contractural arrange- ment entered into between the bidders and the Commonwealth as part of the bidding process. 2. The bailment contract between bidders and the Department of Property and Supplies can be modified in order to provide for the useage of bid· ders' money by the Commonwealth to earn interest in State depository accounts even though the original bailment contract was silent on such usage. 3. In using bidders' good faith money to earn interest on behalf of the Com- monwealth, the Department of Property and Supplies must comply with the requirements of the Fiscal Code, 72 P.S. §304, namely, the money must be deposited in approved State depositories, interest must be pay- able at the rate provided for by the Board of F inance and Revenue, the requisite bond must be posted by the State depository to secure payment of deposits and interest, and the limitations on the amount of the deposit in designated State depositories must be followed. Honorable Frank C. Hilton Secretary Department of Property and Supplies Harrisburg, Pennsylvania Dear Secretary Hilton: Harrisburg, Pa. April 2, 1973 This is in response to your request for our opinion regarding the legality of depositing certified checks made payable to the Commonwealth in an interest bearing state depository account where such money is given to the Commonwealth not as owner of the money but merely as good faith money in tendering a competitive bid. It is our opinion that such money can be placed in interest bearing accounts with the interest payable to the Commonwealth even though the good faith money is thereafter returned to the bidder. Such a procedure may be followed if it is made part of the contractual arrangement entered into be- tween the bidders and the Commonwealth as part of the com- petitive bidding process. OPINIONS OF THE ATTORNEY GENERAL 69 The nature of the Commonwealth's possessory interest in bid- der's good faith money deposited with the Commonwealth is that of a bailee of bailed property. See, Scott On Trusts, 3d Ed., §5.1; and Bernstein v. Northwestern National Bank in Philadel- phil, 157 Pa. Super. 73 ( 1945) which characterizes possession of money owned by one party but possessed by another as a bailment. Given this possessory interest, the question involves what usage a bailee can mal\:e of bailed property. As indicated in Swift v. Green, 80 D&C 109, 111, 112, 68 Montg. 7 4 ( 1952), absent a specific contractual limitation on bailee's usage of bailed property, the law will imply reasonable terms and limitations to the bailee's right to the use of such property. But where there is a specific contractual provision be- tween bailor and bailee regarding the bailee's usage of the bail- ed property, that contractual arrangement governs. Loeb v. Fer- ber, 346 Pa. 348 (1943); Kennedy v. R.&L. Co., 224 Mass. 207, 112 N.E. 872 (1916); Wamsley Pontiac v. Glassow, 47 D&C 2d 337 (1969); and Kaiser v. Glassow, 19· Bucks 169 (1969). Under present procedures, the arrangements between the Commonwealth and competitive bidders are silent on interim usage of good faith money which is thereafter returned to bid- ders. The prudent course of action would be for the Department of P roperty and Supplies to incorporate as part of the bidding procedure a reference to depositing such money in an approved interest bearing state depository account with interest being made payable to the State Treasury. This can be done at the time of soliciting bids by advising the bidder as follows: "Money deposited with the Commonwealth as a statu- tory prerequisite to competitive bidding shall be placed in authorized state depositories as required by the Fis- cal Code, 72 P .S. §301 and interest shall be payable to the State Treasury as mandated by the Fiscal Code, 72 P.S. §304, with the original deposit returned to bidders as soon as practicable." Under this approach, the Commonwealth, as bailee, would be authorized to deposit the bailed property in interest bearing ac- counts by the explicit terms of the bailment contract. It is there- fore recommended that the Department of Property and Sup- plies modify its bidding practices to accommodate this new ar- rangement.I l. Section 2409 of the Administrative Code, 71 P .S. § 639 addressess the quest- ion of return of unsuccessful bidders' money: " ... certified checks of all unsuccessful bidders shall be returned to such bidders as soon as practicable after contracts have been awarded and approved, but not later t hat sixty days after the date of opening the proposals." 71 P.S. § 639. As indicated in M utchler v. Easton, 148 Pa. 441 (1892), where the bid- ding procedure refers to return of checks deposited by bidders, it is mere- lv contemplated that the bidder " . .. is entitled to his check, or i ts equiv- alent i n rnoney," 148 Pa. at 44_6. ConsequenUy, 1:1nder 71 P .S .. §639, the Commonwealth is given the option of returnm g either the certified check as deposited or its equivalent in money. 70 OPINIONS OF THE ATTORNEY GENERAL With regard to the legality of depositi~g biddei;s' money held by the Commonwealth prior to t~e adopt10D; o~ this ~ew proced- ure, the parties can legally modify the ex1stm~ ba1lment con- tract in order to provide for the usage of the bailed property by the bailee. Consolidated Tile & Slate Co. v. Fox, 410 Pa. 336 ( 1963). Such a modification can be effected by words or con- duct. Barr v. Deiter, 190 Pa. Super. 454 ( 1959); Muschow v. Schaffner, 180 Pa. Super. 413 ( 1956). It is, therefore, recommen- ded that, in order to use bidders' money deposited under the existing bailment contract such bidders should be advised that their money will be deposited in a State depository with interest accruing to the benefit of the Commonwealth unless the indivi- dual bidder objects to such usage of his money within 20 days of receipt of the notice to modify the contract. In this manner, any bidder who fails to object will have, in fact, acquiesced in the modification of the contract, and the Commonwealth will then have authority to use the bailed property. With regard to the proper procedure for opening interest bear- ing accounts in state depositories, the Commonwealth can de- posit such monies in state depositories approved by the Board of Finance and Revenue. Fiscal Code, 72 P.S. §301. The interest from such accounts shall be made payable to the Treasury De- partment under such rates of interest as the Board of Finance and Revenue shall prescribe. Fiscal Code, 72 P.S. §304. Fur- thermore, in selecting such deposits, it is imperative that the requirements of the Fiscal Code, 72 P.S. §505, regarding the posting of bond to secure payment of deposits and interest, the payment of interest at the requisite rate, and the limitation on the amount of the deposit in designated state depositories be followed. Under such terms and conditions, the Commonwealth can use bidders good faith money to earn interest for the Com- monwealth. Very truly yours, RICHARD J. ORLOSKI Deputy Attorney General ISRAEL P ACKEL Attorney General