Engelking v. Investment Bd.

• Decision Date: 30 June 1969
• Docket Number: No. 10444,10444
• Citation: 93 Idaho 217,458 P.2d 213
• Parties: D. F. ENGELKING, Plaintiff, v. The INVESTMENT BOARD of the State of Idaho, Defendant.
• Court: Idaho Supreme Court

Page 213

458 P.2d 213

93 Idaho 217

D. F. ENGELKING, Plaintiff, v. The INVESTMENT BOARD of the State of Idaho, Defendant.

No. 10444.

Supreme Court of Idaho.

June 30, 1969.

Rehearing Denied Aug. 18, 1969.

Roberts & Poole, Boise, for plaintiff.

Parry, Robertson, Daly & Larson, by Thomas G. Nelson, Twin Falls, and Wallis & Churchill, Boise, amici curiae.

Robert M. Robson, Atty. Gen., and Richard H. Greener, Asst. Atty. Gen., Boise, for defendant.

McQUADE, Justice.

This case arises from an original proceeding in this Court under its original jurisdiction to issue writs of prohibition. ¹ Thus there are no disputed issues of fact. The basic question of law presented is whether or not S.B. 1277 (S.L.1969), which would permit the Idaho Endowment Fund Investment Board to invest permanent endowment fund assets in bonds, notes, convertible debt securities, and common or preferred stock of private corporations, is unconstitutional.

The facts relevant to this main issue and several subsidiary issues are as follows. In 1863 Congress enacted the Organic Act of the Territory of Idaho, 12 Stat. 808 (1863). That act provided in § 14:

'And be it further enacted, That when the lands in the said Territory shall be surveyed, under the direction of the government of the United States, preparatory to bringing the same into market, sections numbered sixteen and thirty-six in each township in said territory shall be, and the same are hereby, reserved for the purpose of being applied to schools in said Territory, and in the states and territories hereafter to be erected out of the same.'

Then in 1890 Congress enacted the Idaho Admission Bill, 26 Stat. 215 (1890), as amended 56 Stat. 48 (1942). That act provided in part:

'Sec. 4. That sections numbered sixteen and thirty-six in every township of said State, and where such sections, or any parts thereof, have been sold or otherwise disposed of by or under the authority of any act of Congress, other lands equivalent thereto, in legal subdivisions of not less than one quarter section, and as contiguous as may be to the section in lieu of which the same is taken, are hereby granted to said State for the support of common schools, such indemnity lands to be selected within said State in such manner as the legislature may provide, with the approval of the Secretary of the Interior.

'Sec. 5. That all lands herein granted for educational purposes shall be disposed of only at public sale, the proceeds to constitute a permanent school fund, the interest of which only shall be expended in the support of said schools. But said lands may, under such regulations as the legislature shall prescribe, be leased for periods of not more than five years, and such lands shall not be subject to pre-emption, homestead entry, or any other entry under the land laws of the United States, whether surveyed or unsurveyed, but shall be reserved for school purposes only.'

The proceeds of these lands form a part of the public school fund of Idaho. ² Plaintiff D. F. Engelking, as State Superintendent of Public Instruction and ex officio a member of the State Board of Education, is charged by law with the responsibility of enforcing the rules and regulations of the Board of Education concerning schools and institutions under its control, ³ and thus, is a person beneficially interested in the administration of school fund assets.

Until 1968, the public school fund, which forms part of the permanent endowment funds of the State, could be placed only in a limited group of investments. In this respect, Idaho Const. art. 9 § 11 provided:

'Loaning permanent endowment funds.-The permanent endowment funds other than funds arising from the disposition of university lands belonging to the state, shall be loaned on United States, state, county, city, village or school district bonds or state warrants, under such regulations as the legislature may provide.'

However, on November 8, 1968, the people of the State of Idaho approved an amendment to Idaho Const. art. 9 § 11, which changed that provision to provide as follows:

'The permanent endowment funds other than funds arising from the disposition of university lands belonging to the state shall be loaned on United States, state, county, city, village or school district bonds or state warrants, and on such other investments as may be permitted by law.'

The Fortieth Legislature acted to implement this amendment by passing S.B. 1277, which was approved by the governor on March 25, 1969. That act inter alia repealed Chapter 7, Title 57, Idaho Code, and established an Investment Board which was given authority to determine the investment policy for endowment fund assets. The portion of the act which expands the number of investment vehicles available for the permanent endowment funds pursuant to the constitutional amendment is as follows:

'Section 9. The board or its trustees may, and they are hereby authorized to, invest the permanent endowment funds of the state of Idaho in the following manner and in the following investments or securities and none others:

'(3) Bonds, notes, or other obligations of the United States or those guaranteed by, or for which the credit of, the United States is pledged for payment of the principal and interest or dividends thereof.

'(4) Bonds, notes, or other obligations of the state of Idaho and its political subdivisions, or bonds, notes, and other obligations of other states and their political subdivisions, provided such bonds, notes or other obligations or the issuing agency for other than the state of Idaho and its political subdivisions have an AAA rating or higher by a commonly known rating service.

'(5) Bonds or notes of any corporation organized, controlled and operating within the United States which have an A rating or higher by a commonly known rating service.

'(6) Corporate obligations designated as corporate convertible debt securities, but within the limits hereinafter provided for the investment of stock, upon conversion.

'(7) Obligations secured by mortgages constituting a first lien upon real property in the state of Idaho which are fully insured or guaranteed as to the payment of the principal by the government of the United States or any agency thereof.

'(8) Common or preferred stocks of corporations, provided that no more than twenty-five per cent (25%) of the principal amount of any one permanent endowment fund may be invested in common or preferred stock of corporations in the first year following the enactment hereof. Thereafter, the per cent of the principal amount of the fund invested in common or preferred stock of corporations may be increased at the direction of the investment board by no more than ten per cent (10%) in any one calendar year except that at no time shall the per cent of the principal amount of any endowment fund invested in common or preferred stock of corporations exceed fifty per cent (50%). In computing the per cent of the principal amount of the fund which may be invested in common or preferred stock of corporations, the board shall consider the cost of common or preferred stocks which the fund is holding at the time of computation and not the current market value thereof.'

On April 11, 1969, the Endowment Fund Investment Board held its initial meeting and determined to invest the permanent endowment fund assets in accordance with Section 9 of S.B. 1277.

Plaintiff Engelking thereafter filed a petition for an alternative writ of prohibition to prohibit the Investment Board from making those investments with public school endowment fund assets. This Court granted the alternative writ of prohibition on May 1, 1969. The question now is whether the prohibition should be made absolute.

Plaintiff Engelking first broadly challenges S.B. 1277 on the ground that its provisions allow state investment in the private sector of the economy contrary to Idaho Const. art. 8, § 2. It should be noted that this attack, if successful would invalidate all proposed investment by the Endowment Fund Investment Board (Board) in securities of private corporations, not only those made with public school fund assets. Idaho Const. art. 8, § 2 provides in pertinent part:

'Loan of state's credit prohibited-Holding stock in corporation prohibited-* * *.-The credit of the state shall not, in any manner, be given, or loaned to, or in aid of any individual, association, municipality or corporation; nor shall the state directly or indirectly, become a stockholder in any association or corporation * * *.'

This provision was part of the original constitution adopted in 1890 and was amended to its present form in 1920.

Plaintiff asserts that, as against this provision, S.B. 1277 must fall. However that assertion fails to consider the fact that S.B. 1277 was authorized by the 1968 amendment to the Idaho Const. art. 9, § 11. Thus, the real conflict, if any, is between two constitutional provisions, one original and general and the other a recent and specific amendment, not between a statute and a constitutional provision. This Court has held that '(t)he general rules of statutory construction apply to the amendment of a constitution' ⁴ as well as to constitutional provisions generally. ⁵ In this respect, '(t)he fundamental object to be sought in construing a constitutional provision is to ascertain the intent of the framers(,) and the provision must be construed or interpreted in such manner as to fulfill the intent of the people, never to defeat it.' ⁶ One method of determining constitutional or legislative intent which has both ancient heritage and modern relevance was succinctly stated by Lord Coke:

'* * * that for the sure and true interpretation of all statutes in general * * * four things are to be discerned and considered:--

1st. What was the common law before the making of the Act.

2nd. What was the mischief and defect for which the common law did not provide.

3rd. What remedy the Parliament both resolved and...