SB 5801 — Uniform Special Deposits Act (effective July 1, 2024)
Status: Chapter 23, 2024 Laws. Effective date: July 1, 2024.
Primary sponsor / source: Senate Committee on Business, Financial Services, Gaming & Trade; by request of the Uniform Law Commission.
Purpose / intent
Establishes a statutory framework — the Uniform Special Deposits Act (SDA) — to govern “special deposits”: bank accounts that hold funds to be paid only upon the occurrence of one or more contingencies. The SDA standardizes definitions, allocation of rights, bank duties, creditor access, and limits on bank setoffs to promote predictability in transactions such as escrow, security deposits, settlement and margin arrangements.
Key definitions and scope
- Special deposit: a deposit in a bank under an account agreement that:
- is for the benefit of at least two beneficiaries (one or more may be the depositor),
- is denominated in a government-authorized medium of exchange,
- is established for a stated permissible purpose, and
- is subject to a contingency (an event that must occur before payment is due).
- The Act applies to account agreements that expressly state they are governed by the SDA. Agreements dated on or after July 1, 2024, are subject to the SDA; pre‑existing agreements may be brought under the SDA if all parties agree and the statutory requirements are met.
Permissible purposes
A special deposit must serve at least one permissible purpose stated in the account agreement. Examples include:
- holding escrow funds (purchase/sale, earnest money), security deposits, funds for distribution to a defined class, or funds to satisfy court-ordered payments;
- providing assurance under contract (earnest money);
- settling obligations arising in payment systems, securities settlement systems, or other financial market infrastructure;
- holding margin or cash collateral to support market infrastructure or obligations.
If a bank or court finds a special deposit no longer serves its permissible purpose before termination, the bank may terminate the special deposit and certain protections cease to apply.
Termination and unclaimed balances
- Default termination: five years after initial funding unless the account agreement states otherwise.
- If, on termination, a beneficiary entitled to payment cannot be identified or located and a balance remains, the bank must pay the balance to the depositor.
Bank duties, liabilities, and rights
- A bank does not owe a fiduciary duty with respect to a special deposit.
- When the bank is obligated to pay a beneficiary (contingency occurred and bank has knowledge), a debtor–creditor relationship arises between the bank and that beneficiary; payment is required if sufficient funds exist unless the agreement provides otherwise.
- If funds are insufficient, beneficiaries may elect to take available funds pro rata.
- Banks must comply with the account agreement and the SDA; liability for noncompliance is limited to damages proximately caused (no consequential, special, or punitive damages).
- If payment requires presentation of a record, the bank must determine if the record is sufficient. Unless the agreement says otherwise, the bank is not required to monitor whether the permissible purpose continues.
Creditor access and property interests
- Neither depositor nor beneficiary has a property interest in the special deposit itself; their interest is the right to payment when the bank is obligated to pay.
- Creditor process (garnishment, lien, levy, etc.) is generally not enforceable against the bank holding the special deposit.
- Exception: the portion the bank is obligated to pay to a beneficiary may be subject to creditor process, but only if the bank is properly served, sufficient evidence identifies the depositor/beneficiary from bank records, and the bank has a reasonable opportunity to act.
Limitations on recoupment and setoff
A bank may not recoup or set off against a special deposit except in limited situations:
- when the account agreement expressly authorizes a debit (and the bank becomes obligated to pay a beneficiary in an amount not exceeding what's necessary to discharge the obligation);
- overdraft fees in the special deposit account;
- costs directly incurred by the bank related to the special deposit;
- reversal of an earlier credit where reversal is authorized under mistake/restitution law.
The bank may, however, recoup or set off against an obligation to pay a beneficiary even if payment is funded from the special deposit.
Forum selection
Parties may choose Washington as the forum for disputes related to a special deposit even if the deposit or parties have no other connection to Washington, provided the presiding judicial officer approves.
Who is affected
- Banks and other depository institutions holding special deposits;
- Depositors and beneficiaries using special deposit structures (escrows, security deposits, settlement and margin arrangements, court-ordered funds);
- Creditors and claimants seeking to reach funds held as special deposits;
- Courts adjudicating disputes over special deposits.
Practical impact
- Provides legal clarity and uniform rules for special-deposit arrangements—benefits escrow agents, market infrastructures, landlords, courts, and banks using contingent-payment accounts.
- Strengthens protection of funds earmarked for contingencies by limiting creditor reach and bank setoffs, while also capping bank liability and clarifying bank obligations.
- May affect creditor collection strategies and require changes in drafting of account agreements to reflect SDA provisions and permitted bank rights.
For full statutory language and detailed mechanics (definitions, procedural requirements, exceptions, and drafting rules), see the enacted Uniform Special Deposits Act (new chapter added to Title 30A RCW), effective July 1, 2024.
