American Nat. Bank and Trust Co. v. Indiana Dept. of Highways

• Citation: 439 N.E.2d 1129
• Decision Date: 17 September 1982
• Docket Number: No. 582S203,582S203
• Parties: AMERICAN NATIONAL BANK AND TRUST COMPANY, Appellant, v. INDIANA DEPARTMENT OF HIGHWAYS, Appellee.
• Court: Supreme Court of Indiana

Page 1129

439 N.E.2d 1129

AMERICAN NATIONAL BANK AND TRUST COMPANY, Appellant, v. INDIANA DEPARTMENT OF HIGHWAYS, Appellee.

No. 582S203.

Supreme Court of Indiana.

Sept. 17, 1982.

Warren A. Deahl, John L. Carey, Thomas L. Murray, Barnes & Thornburg, South Bend, for appellant American National Bank and Trust Co.

Linley E. Pearson, Atty. Gen., William E. Daily, Asst. Atty. Gen., Virgil L. Beeler, Thomas G. Stayton, Baker & Daniels, Indianapolis, for appellee Indiana Dept. of Highways.

PIVARNIK, Justice.

This appeal arises from the appellee's action for declaratory judgment in the Marion Circuit Court. Although this case was originally filed in the Court of Appeals under Cause No. 2-282 A 48, this Court entertains jurisdiction pursuant to Ind.R.App.P. 4(A)(10), upon the grounds that this appeal involves a substantial question of law of great public importance and that an emergency exists for speedy determination. Appellee, the Indiana Department of Highways, filed the petition for transfer; the appellant, American National Bank & Trust Co., later joined the petition, which was granted on May 27, 1982.

The original plaintiff, the Indiana Toll Road Commission, was created by the Indiana Legislature in 1951. Ind.Code Sec. 8-15-2-3 (Burns 1973). The Commission was authorized and empowered "[t]o construct, maintain, repair, police and operate toll road projects ... and to issue toll road revenue bonds of the state of Indiana, payable solely from revenues, as herein provided, for the purpose of paying all or any part of the cost of any one or more toll road projects...." Ind.Code Sec. 8-15-2-5(e) & (f) (Burns 1973). The Commission was a body both corporate and politic in the state and separate from the state in its sovereign capacity. In 1954, the Commission issued bonds for the construction and operation of a toll road across the northern portion of Indiana.

On September 1, 1980, the Indiana Toll Road Commission executed a trust agreement for the issuance of revenue bonds in the amount of $259,500,000 to pay the cost of construction on the toll road of six new interchanges, the completion of a seventh interchange, the purchase of land for two possible additional interchanges, and the reconstruction and modernization of toll collection facilities. The defendant, American National Bank and Trust Company, a national banking association with its principal banking office in South Bend, was a party, as original trustee, to the trust agreement. The 1980 trust agreement provides in Sec. 3.15 that if proceeds from the sale of the 1980 bonds are not sufficient to pay the entire cost of the construction of the 1980 project, the Indiana Toll Road Commission is required to "issue Completion Bonds in such amount as is necessary to yield net proceeds to the Construction Fund sufficient ... to pay such deficit...." Record, p. 58. In order for the Toll Road Commission to issue completion bonds, it is necessary for American National Bank, as trustee, to authenticate and deliver the completion bonds. Under the provisions of Secs. 3.15 and 3.12(a), before the trustee can authenticate and deliver the completion bonds, it must receive an unqualified opinion of bond counsel to the effect, among other matters, that the bonds of the particular series are valid and binding upon the Commission.

On March 30, 1980, Public Law 74 of the 1980 Session Laws (the Transportation Act) was approved which, in part, created the Indiana Department of Highways. Ind.Code Sec. 8-9.5-4-1 et seq. (Burns Supp.1982). Effective July 1, 1981, the new Department of Highways was to assume all the powers, duties and liabilities of several Indiana agencies, among which were the Indiana Toll Road Commission and the Indiana State Highway Commission. Ind.Code Sec. 8-9.5-4-10 (Burns Supp. 1982).

After the Transportation Act was passed by the legislature, but prior to the signing by Governor Bowen, Attorney General Sendak, in his official capacity, advised the governor that the act was unconstitutional. The Attorney General felt that the portions of the Transportation Act which would permit the newly created state agencies to issue revenue bonds conflict with Art. 10, Sec. 5 of the Indiana Constitution, the ban against state bonded debt. Later, when it appeared that there would be cost overruns on the 1980 toll road project which would require an additional issue of completion bonds, American National Bank refused to authenticate and deliver additional bonds until bond counsel delivered its opinion about the proposed move, and bond counsel refused to deliver an opinion until the power and authority of the Department of Highways to issue revenue bonds is judicially determined to be valid. Accordingly, on June 19, 1981, the Indiana Toll Road Commission brought suit against American National Bank and Trust Co., seeking a declaratory judgment that the "issuance by the Department of Highways subsequent to June 30, 1981, of toll road revenue bonds in accordance with IC 8-15-2, payable solely from revenues of the Toll Road or from the proceeds of other toll road revenue bonds and the earnings thereon, will not create a debt of the State, and that the provisions of the Transportation Act, which authorize the Department of Highways to issue such bonds, do not violate Article 10, Section 5 of the Indiana Constitution...." Record, p. 8. Because the Indiana Toll Road Commission was abolished as of July 1, 1981, the Indiana Department of Highways was substituted as plaintiff.

The case was submitted for a decision on the pleadings and stipulated facts along with briefs filed by both parties. The trial court found that the questions presented, involving a grant of authority and the administration of a trust, affected the legal relations of the parties and presented a justiciable controversy appropriate for determination under the Uniform Declaratory Judgments Act, Ind.Code Sec. 34-4-10-1, et seq. (Burns 1973). After reviewing the submitted materials, the trial court ruled that bonds may be issued by the Indiana Department of Highways without violating Art. 10, Sec. 5 of the Indiana Constitution. The court held that the purpose of Art. 10, Sec. 5 was to protect the credit and solvency of the state and because the revenue bonds were stipulated to be payable solely from a special fund, there was no obligation on the state to make payments on the bonds from a general fund or through its taxing power, and therefore the issuance of completion bonds by the Department of Highways would not constitute a debt of the state within the meaning of Art. 10, Sec. 5. The court also felt that the status of the issuer, whether an agency of the state, such as the Department of Highways, or as a public corporate entity separate from the state in its sovereign capacity, such as the Toll Road Commission, was immaterial to the matter. Appellant American National Bank now appeals, alleging that the grant of authorization to the Indiana Department of Highways to issue toll road revenue bonds violates Art. 10, Sec. 5 of the Indiana Constitution.

Appellant contends that the assumption by the state of Indiana, through the Department of Highways, of the obligation of the Toll Road Revenue Bonds, including the completion bonds, constitutes the assumption of debt by the state within the meaning and prohibition of Art. 10, Sec. 5 of the Indiana Constitution. Appellant's contentions are based on the following facts and circumstances: 1) the Department of Highways is a state agency and is not an independent corporate entity in the nature of the Toll Road Commission; 2) the Indiana Department of Highways, by the statute and by terms of the trust agreement, is obligated to maintain the toll road and at the same time is obligated to receive tax monies for the maintenance of all roads in the state; 3) the state has contracted in Sec. 7.08 of the Trust Agreement to go to the Legislature for funds if the toll road revenues are insufficient to pay for its maintenance and operation; 4) the state itself is operating the Toll Road and therefore fixes the toll revenues, and if there are not sufficient revenues to pay the completion bonds, the state is obligated under the trust agreement to submit the request for the needed funds to the Legislature; and, 5) it is not sufficient to show that the bond obligations are designated to be paid from a special fund created by the revenues received in view of the fact that the obligor of the bonds is not an independent corporate entity but is the state of Indiana itself.

Department of Highways contends that whether the issuing entity is a department of the state or an independent corporate entity is immaterial to a determination of whether the bonds constitute debt of the state within the meaning of Art. 10 Sec. 5, of the Indiana Constitution since the statute, the trust agreement, and the bonds themselves, provide that they will be paid from a special fund created by the revenues of the toll road.

This Court has always deemed it prudent and necessary to exercise self-restraint when called upon to review the constitutionality of a statute. We must always remember that while we have the duty to guard the constitution, we are nevertheless a court and not a legislature. Therefore, every statute upon review is clothed with the presumption of constitutionality, and such presumption continues until clearly overcome by a showing to the contrary. Sidle v. Majors, (1976) 264 Ind. 206, 209, 341 N.E.2d 763, 766. The burden of overcoming such presumption is placed upon the challenger to the statute. Id.

We have previously interpreted Art. 10, Sec. 5 of the Indiana Constitution in cases involving the undertaking of public projects necessitating the appropriation of funds and the issuing of bonds of indebtedness. In all of those cases, the project was being managed and paid for by bonds issued by a separate corporate entity or agency that committed the payment of the bonds out of a...