Almond v. Day

• Decision Date: 05 March 1956
• Docket Number: No. 4501,4501
• Citation: 91 S.E.2d 660,197 Va. 782
• Court: Virginia Supreme Court
• Parties: J. LINDSAY ALMOND, JR., ATTORNEY GENERAL OF VIRGINIA v. SIDNEY C. DAY, JR., COMPTROLLER OF VIRGINIA. Record

Page 660

91 S.E.2d 660

197 Va. 782

J. LINDSAY ALMOND, JR., ATTORNEY GENERAL OF VIRGINIA v. SIDNEY C. DAY, JR., COMPTROLLER OF VIRGINIA.

Record No. 4501.

Supreme Court of Appeals of Virginia

March 5, 1956.

J. Lindsay Almond, Jr., Attorney General; Kenneth C. Patty, Assistant Attorney General and R. D. McIlwaine, III, Assistant Attorney General, for the petitioner.

David J. Mays and Tucker, Mays, Cabell & Moore, for the respondent.

J. Elliott Drinard and John P. McGuire, Jr. amici curiae, for the city of Richmond.

JUDGE: MILLER

MILLER, J., delivered the opinion of the court.

The object of this mandamus proceeding brought by the Attorney General against the State Comptroller is to determine whether or not the Board of Trustees of the Virginia Supplemental Retirement System may invest funds under its control in certain securities which it desires to purchase. The constitutionality of § 51-111.24(a), Code of 1950, under which the Board acted when it determined to purchase the securities, is questioned, and we must decide if that section violates § 185 of the Constitution of Virginia and if the contemplated investment may be made.

Section 185 of the Constitution of Virginia and Code § 51-111.24(a) follows:

'Sec. 185. Lending of credit to, or subscription to stock of corporations or persons by state, county, city or town prohibited; State shall become interested in no work of internal improvements except public roads and public parks; exceptions as to counties, cities and towns. -- Neither the credit of the State, nor of any county, city or town, shall be, directly or indirectly, under any device or pretense whatsoever, granted to or in aid of any person, association, or corporations, nor shall the State, or any county, city, or town subscribe to or become interested in the stock or obligations of any company, association, or corporation, for the purpose of aiding in the construction or maintenance of its work; nor shall the State become a party to or become interested in any work of internal improvement, except public roads and public parks, or engage in carrying on any such work; nor assume any indebtedness of any county, city or town, nor lend its credit to the same; but this section shall not prevent a county, city, or town from perfecting a subscription to the capital stock of a railroad company authorized by existing charter conditioned upon the affirmative vote of the voters and freeholders of such county, city, or town in favor of such subscription; provided, that such vote was had prior to July first, nineteen hundred and three.'

'Section 51-111.24(a). The Board shall be the trustee of the several funds created by this chapter and of those resulting from the abolition of the Virginia Retirement System, and shall have full power to invest and reinvest such funds, subject to the limitation that no investment shall be made except, upon the exercise of bona fide discretion, in securities which, at the time of making the investment, are, by statute, permitted for the investment of reserves of domestic life insurance companies. Subject to such limitation, the Board shall have full power to hold, purchase, sell, assign, transfer or dispose of, any of the securities or investments in which any of the funds created herein have been invested, as well as of the proceeds of such investments and any moneys belonging to such funds.'

The Virginia Supplemental Retirement System, hereinafter called the System, was created in 1952 by Title 51, Chapter 3.2 et seq., Code 1950, as amended. ¹ This legislation declared the System to be a body corporate, broadened the scope of the Virginia Retirement System which had theretofore existed but was abolished by Acts 1952, Chapter 1, page 3, provided for transfer of the members and funds in the abolished System to the new System, fixed the basis of employer and employee contributions and employee retirement benefits and created a board of trustees with power to invest funds held in the System as authorized by law.

Funds in the System now amount to more than seventy-five million dollars. By resolution of September 12, 1955, the Board of Trustees authorized investment of these funds in an amount to be thereafter determined by it 'in bonds of public utilities and private corporations with a recognized bond guide rating of at least A and which meet requirement for investment of reserves of domestic life insurance companies.'

The bond guide rating referred to is that established by Standard and Poor Corporation, Moody's Investors Service, and Fitch Investment Service, recognized authorities on investments.

The State Comptroller was doubtful of the validity of § 51-111.24(a) and advised the Attorney General to that effect. He expressed unwillingness to issue warrants investing the funds in the System in bonds of public utilities and private corporations until the validity of that section was determined. The Attorney General instituted the mandamus proceeding under authority of § 8-714, Code of 1950, to determine if the contemplated investment can be made and thus the constitutionality of § 51-111.24(a) is drawn into question.

Petitioner asserts that funds in the System that are proposed to be invested by the Board are not State funds, and for that reason the prohibitive provisions of § 185 do not apply.

With this contention we do not agree. The Virginia Supplemental Retirement System is an agency of the State to which the State contributes, as well as the employees; the trust fund thus created is exempted from taxation, and the System is subject to abolition at the will of the General Assembly. In addition and conclusive of the fact that the State holds and enjoys a proprietary interest in the fund is the provision found in § 51-111.16(d), which is that if the State abolishes the System, 'Any funds remaining in the assets of this retirement system after all of the vested benefits provided by this section have been paid shall revert to the general funds.'

Section 51-111.24(a) expressly provides that funds in the System may be invested in securities in which reserves of domestic life insurance companies are permitted to be invested.

SECTION 38.1-183 OF TITLE 38.1, CHAPTER 5², states that the funds and assets of insurance companies other than their minimum capital and surplus and excess capital and surplus, may be invested in securities or property made eligible for such investments under other provisions of Title 38.1, Chapter 5. An examination of §§ 38.1-192 through 38.1-214, Code of 1950, discloses that the funds and assets mentioned in § 38.1-183, (other than minimum and excess capital and surplus) which constitute the reserves of domestic life insurance companies may be invested in United States, State, county, city and district obligations, and in various other kinds of securities. Among these other securities in which such funds may be invested are railroad bonds or securities, bonds, notes and preferred stock of solvent corporations meeting certain requirements and other designated securities and evidences of debt and real estate, in amounts indicated and permitted by these respective sections of the Code of 1950.

However, the different kinds of securities in which reserves of domestic insurance companies may be invested need not be particularized for it is conceded that the securities mentioned in the Board's resolution meet the requirements imposed by Title 38.1, Chapter 5, Code of 1950, 'for the investment of reserves of domestic life insurance companies.'

Thus the question presented for decision may be briefly stated as follows:

Is the investment by the Board of funds in the System in bonds of public utilities and private corporations violative of § 185 of the Constitution?

The restrictive provisions of § 185 were first incorporated into the Virginia Constitution in 1869. They appeared as §§ 12, 14, and 15, Article X, under the title 'Taxation and Finance,' and read as follows:

' § 12. The credit of the state shall not be granted to or in aid of any person, association, or corporation.

* * *

' § 14. The state shall not subscribe to or become interested in the stock of any company, association, or corporation.

' § 15. The state shall not be a party to, or become interested in, any work of internal improvement, nor engage in carrying on any such work, otherwise than in the expenditure of grants to the state of land or other property.'

In 1902 upon revision of the Constitution of 1869 (called the Underwood Constitution), §§ 12, 14, and 15 were consolidated, enlarged and incorporated into § 185, the pertinent parts of which declare:

'The credit of the state, or of any county, city or town, shall not be, directly or indirectly, under any device or pretense whatsoever, granted to or in aid of any person, association or corporation, nor shall the State nor any county, city or town subscribe to or become interested in the stock or obligations of any company, association, or corporation, for the purpose of aiding in the construction or maintenance of its work, nor shall the state become a party to or become interested in any work of internal improvement * * *. ' (Emphasis added.)

In the revision of §§ 12, 14, and 15, accomplished by adoption of § 185, counties, cities and towns were brought under its terms and the other italicized language was also added.

The three restrictive provisions in § 185 are commonly referred to as the 'credit clause', the 'stock or obligation clause,' and the 'internal improvement clause.'

The history of the development of works of internal improvement in Virginia showing the financial obligations of the State resulting from its having extended credit and aid to corporations engaged in development and operation of works of internal improvement is revealing and helpful in determining the purpose and meaning of all the provisions of § 185.

"It is settled by very high authority that in placing a construction on a...