Montana Trust and Legacy Fund, In re, 10732

• Decision Date: 13 January 1964
• Docket Number: No. 10732,10732
• Citation: 388 P.2d 366,143 Mont. 218
• Parties: In re MONTANA TRUST AND LEGACY FUND.
• Court: Montana Supreme Court

Page 366

388 P.2d 366

143 Mont. 218

In re MONTANA TRUST AND LEGACY FUND.

No. 10732.

Supreme Court of Montana.

Submitted Oct. 25, 1963.

Decided Jan. 13, 1964.

PER CURIAM.

This is an advisory opinion requested by the Montana Legislative Council with respect to the administration of the Montana Trust and Legacy Fund. While this court does not issue opinions except in matters in which a justiciable controversy exists, with respect to this fund such an opinion is required of us under the provisions of Article XXI, § 17, of the Montana Constitution which provides:

'The justices of the supreme court of the state of Montana are hereby made and constituted a supervisory board over the entire administration of all the funds created or authorized by this article and the income therefrom. During January of each year, this board shall review the administration for the preceding year. It shall decide all uncertain or disputed points arising in the administration of the funds whenever requested to do so by a beneficiary, by a state official charged with some part of the administration of the fund, or any other interested party; and it may do so upon its own initiative. It shall be the duty of the supervisory board to do and perform all acts and things that it may deem necessary in order to cause the board and officers having direct charge of these funds to administer the same carefully and wisely in full compliance with the provisions of this article and such further legislation as may be enacted relating thereto. The clerk of the supreme court shall be exofficio clerk of this supervisory board.'

Under this provision certain questions are propounded by the Legislative Council, being:

(1) May securities held by the Montana Trust and Legacy Fund be sold or traded when the sale price is less than face value?

(2) May securities held by the Montana Trust and Legacy Fund be sold or traded when the sale price is less than the price paid for such securities?

(3) If the answer to either question (1) or (2) is 'no', would it be possible to overcome such constitutional prohibition by enacting a law which permitted the sale of securities in either instance only for the purpose of investing the proceeds at a higher rate of return, and which provided that all such losses be repaid to the Trust and Legacy Fund from interest and income?

(4) If the answer to either question (1) or (2) is 'no', would a constitutional amendment permitting the sale of securities at less than face value or purchase price be prohibited by any provisions of the Enabling Act?

(5) May the responsibility for investing the Trust and Legacy Fund be removed from the State Board of Land Commissioners by statute and vested in some other state agency?

These questions will be answered in the order presented.

Questions (1) and (2). The Montana Trust and Legacy Fund was created by Article XXI, Constitution of Montana, and consists of a variegated assortment of subdivisions. As envisaged by the Constitution and implementing statutes, these subdivisions may be roughly divided into six principal categories, to wit:

(1) Permanent funds created from inter vivos or testamentary donations from natural persons (the 'state permanent revenue fund', 'state permanent school fund', and 'permanent revenue fund for the University of Montana'). (Section 1, Article XXI, Constitution of Montana);

(2) Funds created from donations by natural persons earmarked for particular scientific, educational, benevolent and charitable work (Section 1, Article XXI, Constitution of Montana);

(3) The public school permanent fund and other permanent funds, subject to investment, originating in land grants from the United States for the support of educational and other state institutions (Section 6, Article XXI, Constitution of Montana);

(4) Funds of political subdivisions when accepted by the state for the purposes of investment and administration (Section 7, Article XXI, Constitution of Montana);

(5) Escheated estates not transferred to the public school permanent fund (R.C.M.1947, § 79-1202); and

(6) All other public funds subject to long term investment when not by law administered by another repository (R.C.M.1947, § 79-1202). In the interest of clarity these categories will be considered separately.

With respect to category (1) the Montana Constitution provides:

'The original amounts of all contributions for the state permanent revenue fund, for the state permanent school fund, and for the permanent revenue fund for the University of Montana, shall be added to such funds respectively and become inseparable and inviolable parts thereof.' (Section 3, Article XXI, Constitution of Montana). We construe the words 'The original amounts [of contributions to the permanent funds] * * * shall * * * become inseparable and inviolable parts thereof' as meaning that the principal of each of the three funds may not be reduced below the total amount of the donations from which the fund was established. For present purposes, we use the term 'principal' as meaning the total cash on hand in a particular fund, plus the redemption value, upon maturity, minus accrued interest, of the investments allocable to that fund. Therefore if the principal of a fund were to equal the amount of the donations from which it was created, and all of the investments allocable thereto were purchased at a price equal to their face value, the sale or trade of securities belonging to the fund at less than face value would not be permissible. On the other hand, if the price paid for securities were less than their face value, it would be permissible to sell the securities at less than face value, provided the sales price was not less than the purchase price. While such a sale would reduce the principal of the fund, it would not reduce the principal below the aggregate amount of the contributions from which the fund was created. In keeping with the above rule, and again assuming that the principal of a particular fund remains constant, it would not be permissible to purchase securities at a premium.

The examples in the foregoing paragraph assumed, for the purpose of illustration, that the principal of a particular fund equals the aggregate of the donations of which it is composed. However, because of the requirement that income produced from investments allocable to the three funds under consideration be used to enhance principal (Sections 12, 13, 14, Article XXI, Constitution of Montana), the above assumption probably does not reflect the true status of the funds. Thus, the rule of inviolability of the initial donations of which the funds are composed will not, in all likelihood, preclude the sale of securities at less than their purchase price or the purchase of securities at a premium.

Inherent in the above discussion, and in the discussion to follow, is the conclusion that there is no legal objection to the exchange of investments contained in the Trust and Legacy Fund prior to their maturity date. We point this out because an argument to the contrary might be made, based upon Section 39, Article V of the Montana Constitution, which provides in relevant part:

'* * * no obligation or liability of any person, association or corporation, held or owned by the state, or any municipal corporation therein, shall ever be exchanged, transferred, remitted, released or postponed, or in any way diminished by the legislative assembly; nor shall such liability or obligation be extinguished, except by the payment thereof into the proper treasury.' In our opinion, the words 'person, association or corporation' embrace only nongovernmental entities, since they are commonly understood in that light, and since we can perceive no reason for the framers of the Constitution intending a different meaning to be imputed to them. Consequently, section 8, Article XXI, Constitution of Montana, becomes relevant to the question of whether securities may be sold or traded before maturity; that section provides in part:

'The Montana trust and legacy fund shall be safely and conservatively invested in public securities within the state, as far as possible, including school district, county and municipal bonds, and bonds of the state of Montana; but it may also be partly invested in bonds of the United States, bonds fully guaranteed by the United States as to principal and interest, and federal land bank bonds. * * * The legislative assembly may provide additional regulations and limitations for all investments from the Montana trust and legacy fund. * * *' The implementing statute (R.C.M.1947, § 81-1001) does not exercise the option granted the Legislature by the Constitution to provide for investment in 'bonds fully guaranteed by the United States'; thus the securities in the Trust and Legacy Fund comprise only bonds issued by governmental entities (The Federal Land Banks are instrumentalities of the Federal Government. Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 41 S.Ct. 243, 65 L.Ed. 577 (1921)). Accordingly, those securities are not within the scope of the prohibition of section 39, Article V, of the Constitution.

We reach a conclusion different from that of the Supreme Court of Idaho, which held that the Idaho department of public investments had no authority to sell or exchange securities purchased with permanent educational funds before their maturity date. Parsons v. Diefendorf, 53 Idaho 219, 23 P.2d 236 (1933). The Idaho decision was based upon statutes which the court construed as circumscribing the authority of the board to powers expressly conferred. The statutes involved are not akin to those of this state, but the case does stand for the principle that no implied authority exists in a state agency to transfer, before maturity,...