McClain v. Regents of the University

• Decision Date: 20 March 1928
• Parties: MCCLAIN v. REGENTS OF THE UNIVERSITY ET AL.
• Court: Oregon Supreme Court

265 P. 412

124 Or. 629

MCCLAIN v. REGENTS OF THE UNIVERSITY ET AL.

Supreme Court of Oregon

March 20, 1928

In Banc.

Appeal from Circuit Court, Lane County; Walter H. Evans, Judge.

Suit by Marion F. McClain against the Regents of the University, and J. W. Hamilton and others, constituting said Board of Regents. Decree of dismissal, and plaintiff appeals. Affirmed.

John W. Shuler, of Portland (Teal, Winfree McCulloch & Shuler, of Portland, on the brief), for appellant.

L. T Harris and E. O. Potter, both of Eugene (Potter & King, of Eugene, on the brief), for respondents.

BELT J.

This is a suit to enjoin the issuance and sale of bonds in the amount of $400,000, the proceeds to be used in the construction of a dormitory on the campus of the University of Oregon. The regents of the University propose to issue and sell these bonds under authority of chapter 289, Laws of Oregon for 1927, which, omitting the title to the act, provides as follows:

"Section 1. The board of regents of the Oregon State Agricultural College and/or the board of regents of the University of Oregon is (or are) hereby authorized to enter into contracts with persons, firms or corporations for the erection of buildings for dormitory, housing and boarding purposes and for student activities; and either of said boards are (is) further authorized to purchase or lease lands and other appurtenances necessary for the construction of such buildings, and to purchase or lease lands with buildings constructed thereon suitable for the purposes aforesaid; and either of said boards of regents are (is) also authorized to lease to any persons, firms or corporations such portions of the campus of the said Oregon State Agricultural College and/or of the said University of Oregon as may be necessary for the construction of buildings for the purposes aforesaid and the reasonable use thereof; provided, that the state of Oregon shall incur no liability by reason of exercise of the authority hereby granted to either of the said boards of regents aforesaid other than as hereinafter specifically set forth; and provided further, that such lands, buildings or appurtenances shall be used solely for such dormitory, housing, boarding or student activities in said college or said university. Said boards of regents are hereby respectively authorized to contract to pay as rental or otherwise a sum sufficient to pay, on the amortization plan, the principal and interest thereon, of the purchase price of said lands and buildings or the erection costs of said buildings or appurtenances, such contracts to run not over twenty years. The rate of interest on the principal on any such purchase or erection cost shall not exceed 7 per cent. per annum, payable semiannually or annually, as determined respectively by said boards of regents.

"Section 2. Either of said boards of regents is hereby authorized to expend on the amortization plan any part of the rentals on any or all rooms, dormitories, dining rooms housing or student activity buildings, lands or the appurtenances, thereon, and to pledge on behalf of said college and/or said university aforesaid, the net income from said rentals for the payment of all rentals or erection or other contract charges agreed to be paid on account of such dormitory or dormitories, dining room, housing, and student activity buildings, lands or appurtenances."

After the passage of the above act the board of regents adopted a resolution providing that the erection cost of the dormitory be financed by the issuance and sale of bonds to an amount not in excess of $400,000, "to be payable on the amortization plan over a period not exceeding 20 years' time, * * *" and that the payment thereof should be limited "to the special fund to be derived from the net income from said building, and from that fund only." It was further provided:

"That said board of regents expend the net income of the rentals from said building for the payment of said bonds and the interest thereon issued to secure funds with which to pay said erection costs of said building and that said board of regents pledge said net income for such payment, and agree to use its best efforts to the end that said fund will be sufficient to pay said bonds and the interest thereon, when due." Plaintiff contends that the issuance and sale of these bonds creates an indebtedness of the state of Oregon in violation of article 11, § 7, of the Constitution of Oregon, which, so far as material herein, provides:

"The Legislative Assembly shall not loan the credit of the state, nor in any manner create any debt or liabilities which shall singly or in the aggregate with previous debts or liabilities exceed the sum of fifty thousand dollars. * * *"

It is the theory of the plaintiff that whatever indebtedness the above act authorizes the regents of the University to contract is a liability against the state of Oregon. It is also urged that the act, in any event, does not authorize the issuance of bonds.

Defendants answer that "the regents of the University" is a corporation constituting a distinct and independent legal entity, and that, by reason thereof the state in no way has undertaken to lend its credit or create any liability in violation of the constitutional limitation of indebtedness. Furthermore, the defendants say if it is held that the constitutional provision applies to the University, since the cost of the building is to be paid from the net rentals to accrue in the future, no indebtedness within the meaning of such provision is created.

From a decree upholding the validity of the bonds and dismissing the suit for injunction, the plaintiff appeals.

The University of Oregon is a state institution. It is not an independent legal entity. It was created by an act of the Legislature in 1876; its regents are appointed by the Governor with the advice and consent of the Senate, and their powers and duties are specified by statute. Since its creation, the University has been maintained largely from public funds. Its management and control has never been surrendered by the state. Section 5417, Or. L., provides in part that:

"All funds received by the University of Oregon from any source, applicable to the payment of current expenses, shall be paid into the state treasury * * * and shall be paid out only on warrants of the secretary of state, based on duly verified vouchers as other claims are paid, for the support and maintenance of the University. * * *"

The Legislature, by chapter 157, Laws of Oregon for 1923 provided that:

"Legal title to all real property heretofore or hereafter conveyed to the regents or board of regents of the State University or University of Oregon, or to the University of Oregon, or to the State University, is and shall be deemed to be conveyed to and vested in the state of Oregon."

If our conclusion be sound that the "Regents of the University" is not an independent legal entity and is merely an administrative agency vested by the Legislature with certain corporate powers to carry out the educational policy of the state, it follows that any indebtedness authorized by statute is an indebtedness of the state. Article 11, § 7, of the Constitution, was adopted by the people as a protection against burdensome and excessive taxation. The state government must respect this wholesome constitutional provision as must such subordinate agencies.

This court, in the early decision of Dunn v. State University, 9 Or. 357, held that the Legislature had impliedly designated the "Regents of the University" a corporation. The court, however, refused to decide...