Norton v. Lusk

• Decision Date: 20 June 1946
• Docket Number: 3 Div. 459.
• Citation: 248 Ala. 110,26 So.2d 849
• Parties: NORTON v. LUSK et al.
• Court: Alabama Supreme Court

26 So.2d 849

248 Ala. 110

NORTON v. LUSK et al.

3 Div. 459.

Supreme Court of Alabama

June 20, 1946

[Copyrighted Material Omitted]

Marion Rushton, Richard T. Rives, Rushton, Stakely & Johnston and Hill, Hill, Whiting & Rives, all of Montgomery, for appellant.

Wm. N. McQueen, Atty. Gen., Frank N. Savage, Asst. Atty. Gen., and R. E. Steiner, Jr., of Montgomery, for appellees.

Crampton, Harris and Harris & Brown, all of Birmingham, for appellee R.F.C.

Jas. A. Simpson, of Birmingham, for Alabama Medical Association, amicus curiae.

SIMPSON Justice.

The bill of appellant is, in essence, to enjoin the payment of, to wit, $1,200,000 to the Reconstruction Finance Corporation (R.F.C.) for the discharge and in liquidation of the revenue anticipation bonds (all callable) encumbering Jefferson Hospital, Birmingham, Alabama, which hospital with its equipment and assets had been previously delivered by Jefferson County, the owner, to the Medical College of the University of Alabama under a written contract of purchase whereby the University assumed the County's obligation on the bonds.

Appellees rest authority for payment on Act No. 418, General Acts of Alabama 1945, page 660, approved July 7, 1945, and effective October 1, 1945, which reads:

'An Act to make an appropriation for the payment of outstanding debts of the State of Alabama or any of its agencies or institutions.

'Be it Enacted by the Legislature of Alabama:

'Section 1. A sum of money, which shall be equal to but not in excess of the proceeds of income tax collections remaining at the close of the fiscal year ending September 30, 1945, after all appropriations and prior charges against such funds for such fiscal year have been paid and a sufficient amount has been set aside to comply with all provisions of law with respect to the creation of funds for the payment of the oustanding 'Income Tax Bonds' and the 'Old Bonded Debt', is hereby appropriated out of the State treasury, to be released upon the approval of the Governor, for the payment of any outstanding debt of the State of Alabama or any of its agencies or institutions.

'Section 2. This act shall become effective October 1, 1945.

'Approved July 7, 1945.'

The bill avers that acting under authority of this Act, the Governor of Alabama approved the release of the stated sum for payment to the R.F.C. in satisfaction of said bonds and that the State Comptroller, Hon. John Graves, has issued or will presently issue a warrant drawn on Hon. Walter C. Lusk, Treasurer, for said amount payable to the R.F.C. for that purpose.

The precise question is whether or not Act No. 418, above, authorizes this character of payment from the appropriation therein named, as an outstanding debt of one of the State institutions, here the University of Alabama.

By its averments, the bill asserts the negative of the proposition, contending that such a disbursement of public funds would be unauthorized and illegal for the reasons: first, that Act No. 418 is not applicable to a situation as here disclosed because (a) the bonds were not a 'debt' or 'outstanding' against the University of Alabama on its effective date, (b) the Act was passed in anticipation of the adoption of the (defeated) Income Tax Amendment, (c) the Act did not comprehend authority to so disburse any of the appropriation, power to deal with the specific matter having been previously irrevocably committed to the State Building Commission by Act No. 128, General Acts 1945, page 116, adopted June 16, 1945; and second, Act No. 418 violates §§ 72, 43, 44, 21, 71 and 45 of our State Constitution.

Before addressing discussion to the legal questions involved, it is necessary to refer to previous statutes dealing with the establishment and operation of the Medical College of Alabama and the relative bearing of these statutes on the consequences of the act now under consideration.

The Medical College of Alabama as an integral of the University of Alabama was created in 1943, General Acts 1943, page 89. On the Board of Trustees of the University was imposed the authority and duty of operating it according to the approved standards of the Council on Medical Education and Hospitals of the American Medical Association and of the Association of American Medical Colleges and to the Legislature was committed the matter of appropriating adequate funds for the program. A commission was created to locate the College and to establish, build and equip it at the best available place in accordance with the mentioned standards. This consequently carried with it the authority to acquire and set up a hospital in connection with the establishment of such Grade A Medical College. As stated, Jefferson Hospital was owned by Jefferson County and encumbered by the aforesaid bonds held by the R.F.C., the bonds being secured by the revenues from the Hospital's operation. So Birmingham in Jefferson County was selected as the location of the Medical College.

Thereafter on December 20, 1944, pursuant to the authority of the last named act, a written contract between Jefferson County and the University authorities was executed whereby Jefferson Hospital, including buildings, equipment, supplies, accounts receivable, bank accounts, bond accounts, and all other assets, was turned over to the Medical College, in consideration for which among other undertakings, the University assumed 'all outstanding obligations which are rightfully chargeable against the operating costs,' including of course the obligation existing under the R.F.C. bonds.

Act No. 80, Gen.Acts 1945, p. 77, approved June 9, 1945, presumably as an aid to the accomplishment of the contemplated program, was enacted authorizing the Board of Trustees of the University to acquire hospitals and to assume any revenue bonds thereon.

Then on June 16, 1945, an act was passed and approved by the same Legislature creating the state Building Commission (Act No. 128, page 116) with comprehensive authority to acquire property, construct and equip buildings, etc., for the State or any of its institutions or agencies. Section 5 embraced a prospective survey of a capital improvement program to be considered and undertaken by the Commission and listed the Medical College as one of the 'deferable projects.' It is noteworthy the R.F.C. bonds were described in this schedule as a 'Debt on Jefferson Hospital Building.' Subsection XIX, page 124. Thus it would seem that the Legislature signified the obligation which the University had assumed to be a 'debt.'

Reverting now to the legal propositions presented, we will give first consideration to the insistence that Act No. 418 cannot be applied to authorize disbursement of any of the appropriation to discharge the hospital bonds.

It has been argued with much force, both orally on submission of the cause and in brief, that the obligation under the bonds held by the R.F.C., which the University had assumed, could not be construed as a 'debt' within the meaning of Act No. 418 and were not outstanding on the effective date thereof; that, therefore, to utilize any of the appropriation in discharge thereof would be unlawful.

Debt.

Speaking now as to the meaning of the term, we note that 'debt' has not 'a fixed or invariable signification, but has several recognized meanings which vary greatly according to the subject matter and the language in connection with which the word is used. It is used in different statutes and constitutions in senses varying from a very restricted to a very general one.' 17 C.J. 1371, 1372, 26 C.J.S., Debt. page 1.

Section 213, Constitution, Amendment 26, prohibits the State from making a new debt. This requires, inter alia, the annual financial operations of the State to be on a balanced budget and prevents any department of the State from making a State debt. This cannot be done by any subterfuge as by appropriating money in excess of revenues, by expanding the functions of government, nor by enlarging the activities of its departments. Hall v. Blan, 227 Ala. 64, (13 and 14), 148 So. 601.

Nor can a fictitious corporation be given the power by the Legislature to create a debt to evade the requirements of said Section 213. In re Opinions of Justices, 225 Ala. 356, 143 So. 289; In re Opinions of the Justices, 227 Ala. 289, 149 So. 775.

But when a State corporation is set up to perform an important public purpose, it may be given the power to, and may, create a debt on its own account, without any liability or debt imposed on the State. Rogers v. Garlington, 234 Ala. 13, 173 So. 372; Long v. Alabama Highway Corp., 234 Ala. 142, 174 So. 41; Alabama State Bridge Corp. v. Smith, 217 Ala. 311, 116 So. 695; Harman v. Alabama College, 235 Ala. 148, 177 So. 747; Keller v. State Board of Education, 236 Ala. 400, 183 So. 268.

The Constitution has also made a limitation on the amount of indebtedness which a county (§ 224) or a city (§ 225) may create.

This has been construed to apply not only to an obligation to which the county or city pledges its full faith and credit called a general obligation, but also when the county or city pledges existing property or revenue from existing sources to be derived in the future. The rationale of these decisions is that such an arrangement would freeze funds or property already acquired, actually or potentially, and if a county or city could thus freeze a portion of its income, it might by different transactions freeze it all, and cripple its power to function as a governmental institution to the detriment of taxpayers. In re Opinions of the Justices, 226 Ala. 570, 148 So. 111; Town of Opp v. Donaldson, 230 Ala. 689, 163 So. 332; Oppenheim v. City of Florence, 229 Ala. 50, 155 So. 859; Fuller v. City of Cullman, 240 Ala. 309, 199...