Herrin v. Erickson

Decision Date06 July 1931
Docket Number6889.
Citation2 P.2d 296,90 Mont. 259
PartiesHERRIN v. ERICKSON, Governor, et al.
CourtMontana Supreme Court

Rehearing Denied Sept. 9, 1931.

Original action by Thomas H. Herrin against John E. Erickson Governor, and others to enjoin the issuance and sale of state bonds.

Injunction granted.

Rehearing denied; Ford, J., dissenting.

FORD J., dissenting.

E. G Toomey, of Helena, for plaintiff.

L. A. Foot, Atty. Gen., and C. N. Davidson, Asst. Atty. Gen., for defendants.

Howard Toole, of Missoula, and Brown, Wiggenhorn & Davis, of Billings, amici curiae.

PER CURIAM.

This is an action to enjoin the issuance and sale of state bonds to the extent of $2,096,500 under authority of chapter 126, Laws of 1929, and chapter 186, Laws of 1931.

Chapter 126 was passed by the Legislature, approved by the Governor and ratified by the people at the general biennial election held on November 4, 1930. Section 1 of the act authorizes and empowers the Legislative Assembly to direct the state board of examiners to issue bonds in an amount not exceeding $3,000,000 for the purpose of constructing, repairing, and equipping necessary buildings, acquiring necessary grounds, and for other permanent improvements at fourteen specified state institutions. Section 2 provides that the bonds shall be issued in series and at such time and in such amount as appears to the Legislative Assembly to be necessary and for the best interests of the state. Section 3 specifies the time of the maturity of the bonds and their interest rate, and contains this proviso: "and provided further that interest only shall be paid on said bonds for the first ten (10) years after their issuance, and that thereafter provision shall be made for a sinking fund adequate for the redemption of said bonds pursuant to their terms." By section 4 the state board of examiners is authorized to prescribe the form of the bonds subject to certain requirements therein specifically made. Section 5 prescribes the manner of disposing of the bonds. Section 6 directs that the proceeds from the sale of the bonds shall be paid into the state treasury and be expended for the purposes enumerated in section 1 of the act. Section 7 provides: "That there shall be levied annually upon all property in the State of Montana subject to taxation an ad valorem tax upon each dollar of the assessed valuation of such property sufficient to pay the interest accruing on said bonds for the first ten (10) years after their issuance, and sufficient thereafter to pay the interest on said bonds and to provide an adequate sinking fund for their redemption. The tax when collected by the County Treasurers of the several counties of the State shall be by them accounted to and paid into the State Treasury of the State of Montana, and by the State Treasurer placed in the 'State Institutions Bond Sinking and Interest Fund,' which fund shall be used exclusively for the payment of the interest on said bonds, and to constitute a sinking fund for their redemption." Section 8 provides for the submission of the act to the people.

Chapter 186 of the Laws of 1931 authorizes the state board of examiners to issue and sell bonds contemplated by chapter 126, Laws of 1929, in the aggregate amount of $2,096,500, and allocates to each of the institutions named in chapter 126 a definite sum of money, and itemizes with particularity the purposes for which the money allocated to each institution shall be expended, and specifies a definite amount of money for each unit of work to be done at each institution.

Plaintiff's right to enjoin the issuance and sale of the bonds is grounded upon the claim that there has been no compliance with section 2 of article 13 of the state Constitution, which provides: "The legislative assembly shall not in any manner create any debt except by law which shall be irrepealable until the indebtedness therein provided for shall have been fully paid or discharged; such law shall specify the purpose to which the funds so raised shall be applied and provide for the levy of a tax sufficient to pay the interest on, and extinguish the principal of such debt within the time limited by such law for the payment thereof; but no debt or liability shall be created which shall singly, or in the aggregate with any existing debt or liability, exceed the sum of one hundred thousand dollars ($100,000) except in case of war, to repel invasion or suppress insurrection, unless the law authorizing the same shall have been submitted to the people at a general election and shall have received a majority of the votes cast for and against it at such election."

This section contemplates the borrowing of money for some state purpose, and the repayment thereof by some method of taxation. As applicable to the present situation, it contemplates the creation of a debt, the incurring of a debt, by the Legislative Assembly upon compliance with certain definite conditions and restrictions, and in consequence contemplates an increase in the rate of taxation for a state purpose. (1) The debt must be created by a law which shall be irrepealable until the indebtedness therein provided for shall have been fully paid and discharged; (2) such law shall specify the purpose (not purposes) to which the funds so raised shall be applied; (3) and provide for the levy of a tax sufficient to pay the interest on, and extinguish the principal of such debt within the time limited by law for the payment thereof. If the amount of the debt exceeds $100,000, except in case of war, to repel invasion or suppress insurrection, it must receive the affirmative vote of the people. This being regularly ascertained and declared, the law is operative in all its provisions. The debt is created by (1) the act of the Legislative Assembly complying in all respects with the constitutional requisites; (2) the approval of the people; (3) the receipt of the money borrowed, for which the state issues its promise, or promises, to pay, usually in the form of bonds, redeemable after a definite period, and payable at a certain time with interest, as authorized by the law. Necessarily the creation of the debt goes back to the legislative act.

In State ex rel. Campbell v. Stewart, 54 Mont. 504, 171 P. 755, 756, Ann. Cas. 1918D, 1101, this court had before it an act appropriating $500,000, "or so much thereof as may be necessary," to aid the United States in prosecuting the war against Germany. It empowered the board of examiners to borrow "any sum not exceeding $500,000" to be used for that purpose, and to issue bonds therefor. The act made provision for levying a tax, but only for the year 1918. It was held that the act came within the exception provided for in section 2 of article 13, as a war measure, and for that reason did not create a debt within the purview of that section. In that case the court, in speaking of section 2, used this significant language: "The very terms of the section imply and contemplate a specific obligation created by the Legislature itself, of such a character that computation will disclose in advance what tax levy is requisite to pay the interest on and to extinguish the debt at its certain maturity."

This statement in the Campbell Case correctly interprets section 2 of article 13.

That section clearly contemplates that the law which requires the approval of the people shall itself create the debt subject to their approval. The legislative power with respect to the debt shall be exhausted by the passage of the law creating it, and, if approved by the people, it passes beyond further legislative control. Morton-Bliss Co. v. Comptroller, 4 S. C. (4 Rich.) 430. The irrepealable law contemplated by the Constitution is one entirely complete in itself and self-executing. It must provide a tax for the retirement of the indebtedness, and nothing is to be left for subsequent legislative discretion. The act must be and remain inviolate in its provisions until the bonds are completely redeemed. The constitutional requirement is that the law creating the debt shall specify (point out) the purpose to which the funds shall be applied. It does not say that such law shall indicate in a general way the purpose or purposes for which the funds will be used. The Constitution contemplates that such a law shall embrace but a single purpose. Hollinger v. King, 282 Pa. 157, 127 A. 462, 464; People ex rel. Hopkins v. Board of Supervisors, 52 N.Y. 556. This fact was assumed in the case of State ex rel. Bonner v. Dixon, 59 Mont. 58, 195 P. 841.

Furthermore, it was clearly contemplated, and as to this all members of the court agree, that such law shall levy a tax sufficient to pay the interest and principal when due, and not attempt to shift that responsibility to succeeding Legislative Assemblies. This was to assure protection to bondholders and in so doing to operate as a guaranty to the state that it would obtain a fair market for its bonds. So viewing section 2 of article 13, we come then to the question whether chapter 126 meets with its requirements.

Plaintiff's principal contentions are that chapter 126 fails to provide for the levy of a sufficient tax, or any tax, as required by this section of the Constitution; that it does not specify the purpose to which the funds shall be applied; and that it does not authorize the creation of a debt but undertakes to delegate to future Legislative Assemblies that power.

In the first place, does it authorize the creation of a debt, or does it seek to obtain the consent of the people for future assemblies to create one? Measured by the standard prescribed in the Campbell Case, it obviously does not create a debt. There is no specific obligation, or any obligation, created until and unless a subsequent Legislative Assembly...

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