CEO 89-5 -- March 2, 1989
DISCLOSURE OF LIABILITY ON NOTE
WHERE PROCEEDS OF LOAN NOT RECEIVED
BY DISCLOSING OFFICIAL
To: (Name withheld at the person's request.)
Where an elected constitutional officer signed a note and was jointly and severally liable for the balance, he must disclose the note on his financial disclosure forms under Article II, Section 8(a) and (h), Florida Constitution, even though the loan proceeds were used and the loan was repaid by a partnership in which he had no interest. The amount of the liability reported where liability is joint and several should be equal to the total amount due on the note.
Under Article II, Section 8(a) and (h), Florida Constitution, is a public official required to disclose a note he signed as a liability on his financial disclosure forms, when the loan proceeds were used and the loan was repaid by a partnership in which he had no interest?
Your question is answered in the affirmative.
In your letter of inquiry, you advise that . . . serves as the Sheriff of Okaloosa County. You also advise that his wife entered into a limited partnership with her brother and sister in April of 1972 and that this partnership continuously has engaged in business since its inception. The Sheriff has no interest in the partnership, other than through his family relationship to the partners. On September 30, 1981, the partnership borrowed $300,000 from a bank in Alabama. The bank required the Sheriff, as husband of one of the partners, to sign the note. A copy of the note is enclosed with your letter of inquiry, and it is evident from that copy that the Sheriff's wife did not sign. It also appears that the husband of another partner also signed the note instead of his wife.
This note was reduced in principal by $200,000 on April 2, 1982, and was paid completely on February 7, 1984. The note no longer exists as a legal obligation of anyone mentioned above.
This note was not listed as a liability on the Sheriff's 1982 Form 6, "Full and Public Disclosure of Financial Interests." This is because the Sheriff sought the advice of his certified public accountant at the time of the 1982 disclosure, and the accountant opined that disclosure was not necessary since the Sheriff held no interest in the partnership. The accountant further opined that if the liability is disclosed, a corresponding asset would also need to be disclosed, which would be a loan receivable from the partnership. This would result in no change in the Sheriff's net worth.
We must disagree with the accountant's advice. It is our opinion that the Sheriff should have listed this note as a liability on his Form 6 in 1982 and on his financial disclosure forms for any other period during which he was liable in the note.
Article II, Section 8, of the Florida Constitution requires all elected constitutional officers to file full and public disclosure of each asset and liability in excess of $1,000. One of the purposes served by this disclosure requirement is to inform the public of potential conflicts of interest the official may face as a result of his financial interests, whether in the form of obligations others may owe him (assets) or obligations he may owe to others (liabilities). Although "liability" is not defined under Article II, it is defined in Section 112.313(11), Florida Statutes, as follows:
'Liability' means any monetary debt or obligation owed by the reporting person to another person, except for credit card and retail installment accounts, taxes owed, indebtedness on a life insurance policy owed to the company of issuance, contingent liabilities, or accrued income taxes on net unrealized appreciation. Each liability which is required to be disclosed by s. 8, Art. II of the State Constitution shall identify the name and address of the creditor.
Since the Sheriff signed the note in his individual capacity, he and the two other co-signers are jointly and severally liable for the entire amount of the note under Florida law. Section 673.118(5), Florida Statutes. Since Alabama also has adopted the Uniform Commercial Code, presumably he would be personally liable for the entire balance under Alabama law, also. See 15A Am Jur 2d, Commercial Code, s. 1 (1976). It does not appear from the face of the note that this liability was contingent. See CEO 86-40. Therefore, he must disclose the full value of the note as a personal liability for any applicable disclosure periods.
Our explanatory notes to Form 6, under "Liabilities," state that if a person is jointly responsible for payment of a liability, he need only list his pro rata share of the indebtedness. If an individual is jointly and severally liable, however, he is individually liable for the entire amount of the debt and must list the entire amount as a liability. Since the concept of joint and several liability may not be widely understood, we plan to revise the explanatory note on Form 6 to state that persons jointly and severally liable must disclose the full value of their debt.
An "asset" has been defined in CEO 78-1 as anything which can be sold to be applied to one's debts. We have not been provided with any information that your client made a loan to the partnership or had any other tangible or intangible property which relates to this note so as to be listed as an asset.
Accordingly, we are of the opinion that the value of the note should have been disclosed as a liability during applicable disclosure periods.