Parsons v. Diefendorf

• Decision Date: 01 June 1933
• Docket Number: 6038
• Parties: HARRY C. PARSONS AND HARRY C. PARSONS, as Auditor of the State of Idaho, Plaintiff, v. BEN DIEFENDORF, as Commissioner of Public Investments of the State of Idaho, Defendant
• Court: Idaho Supreme Court

23 P.2d 236

53 Idaho 219

HARRY C. PARSONS AND HARRY C. PARSONS, as Auditor of the State of Idaho, Plaintiff, v. BEN DIEFENDORF, as Commissioner of Public Investments of the State of Idaho, Defendant

No. 6038

Supreme Court of Idaho

June 1, 1933

SCHOOLS AND SCHOOL DISTRICTS-EDUCATIONAL FUND, INVESTMENT OF-PROHIBITION-MOTION TO QUASH.

1. Motion to quash admits truth of well-pleaded allegations of application for prohibition and supporting affidavit.

2. State commissioner of public investments held without authority to sell authorized securities purchased with permanent educational funds, but funds can be re-invested only on payment of securities originally purchased (I. C. A secs. 55-704, 65-2901; Const., art. 9, sec. 3).

Original proceeding for Writ of Prohibition. Motion to quash denied. Peremptory writ issued.

Motion to quash denied and peremptory writ issued.

Edwin Snow, for Plaintiff.

The state department or board which is authorized by law to loan and invest the permanent endowment funds of the state possesses only such limited powers as are conferred by law. (State v. Fitzpatrick, 5 Idaho 499, 51 P. 112.)

The Department of Public Investments has no authority to speculate in securities. It cannot resell bonds or mortgages in which it has once invested the endowment funds.

The general powers and duties of the Department of Public Investments are prescribed by section 65-2901, Idaho Code Annotated.

A reading of the Idaho statutes compels the conclusion that the legislature deemed it wiser to set up a "fixed" rather than a "trading" trust.

Powers of sale with respect to trust estates are rarely created or extended by implication. (Bremer v. Hadley, 196 Mass. 217, 81 N.E. 961.)

The fact that the Department of Public Investments is given "control" over the endowment funds does not imply that it has power to sell bonds and mortgages once purchased. (Randall v. Josselyn, 59 Vt. 557, 10 A. 577; Blanton v. Mayes, 58 Tex. 422.)

Bert H Miller, Attorney General, and D. Worth Clark, Assistant Attorney General, for Defendant.

Our permanent educational funds constitute a trust in the hands of the state for the benefit of our educational institutions. (Const., art. 9, secs. 3, 4 and 11; chap. 7, I. C. A.)

A primary purpose of this trust is that its funds be "securely and profitably invested," and it is the duty of the state, acting through its Department of Public Investments, to carry out this purpose. (Const., art. 3, sec 65-2901, I. C. A.)

The proper fulfillment of the purposes of the trust and the duties of the state in connection therewith necessitates an implied power in the state to sell trust securities, as otherwise it might be impossible to keep the trust assets "securely and profitably invested." (Throop on Public Officers, sec. 540; 26 R. C. L. 1285, sec. 136; 2 Perry on Trusts and Trustees, 7th ed., p. 1314, sec. 766. Cases cited under next point.)

Such an implied power of sale is recognized by sec. 65-2901, I. C. A., wherein the Department of Public Investments is expressly given "control" over the trust funds and the power to "invest" the same. (Sec. 65-2901, I. C. A.; Robinson v. Robinson, 105 Me. 68, 72 A. 883, 134 Am. St. 537, 32 L. R. A., N. S., 675; Boston Safe Deposit & Trust Co. v. Mixter, 146 Mass. 100, 15 N.E. 141; Jones v. Atchison etc. Co., 150 Mass. 304, 23 N.E. 43, 5 L. R. A. 538.

BUDGE, C. J. Givens, Morgan, Holden and Wernette, JJ., concur.

OPINION

BUDGE, C. J.

This is an original proceeding in this court for writ of prohibition. The affidavit in support of the application for the writ, after setting out that the proceeding is brought by plaintiff as state auditor and in his individual capacity, contains substantially the following averments: That the defendant is the duly elected, qualified and acting commissioner of public investments of the state of Idaho, and as such commissioner is in charge of the Department of Public Investments; that in such official capacity he has and claims power to control, loan and invest all the permanent funds of the state in such securities as are designated in the state Constitution, and to have the care and custody of all loans, bonds, warrants and other securities in which the permanent funds of the state shall be invested; that said Department of Public Investments and the said defendant as commissioner thereof have in their custody certain specified bonds issued by the state of Idaho, the property of said state, having theretofore been acquired by the Department of Public Investments upon open competitive bidding, at not less than par or face value thereof, plus accrued interest, and were purchased with moneys from the public school fund of the state of Idaho; that defendant in his official capacity aforesaid is now negotiating the sale of said bonds at 98 per cent of the par or face value thereof, plus accrued interest to date of sale, and has found a purchaser ready, able and willing to buy said bonds at said price, with the agreement that the Department of Public Investments, at its option, may repurchase said bonds on September 1, 1934, at the same price for which they are now to be sold, plus 5 per cent interest per annum from the date of said sale to the date of said repurchase; that said proposed sale is wholly without authority of law and wholly in excess of the jurisdiction and of the power of defendant in the following respects:

(a) That the Department of Public Investments and the defendant, as commissioner thereof, have no authority in law to sell the securities in which the permanent funds of the state have been invested;

(b) That the act of the legislature under which such bonds are authorized and issued provided that they should not be sold for less than the par or face value thereof, plus accrued interest; and

(c) That the Constitution of the state of Idaho prohibits the purchase of said bonds or any of them with the permanent educational funds of the state, other than funds arising from the disposition of university lands belonging to the state.

It is further averred that the defendant threatens to and will, unless prohibited and restrained by the writ prayed for, consummate and complete said unlawful transaction to the irreparable injury of the plaintiff as a taxpayer of the state and all other taxpayers similarly situated and also to the irreparable injury of this plaintiff as state auditor and of said state. It is also averred that defendant claims and plaintiff admits the fact that the price aforesaid is the best price obtainable for said bonds and that defendant further claims to have and does have the opportunity forthwith to re-invest and keep invested, between now and September 1, 1934, in securities authorized by the Constitution and statutes, the money derived from said sale, on a basis such that while so re-invested, part of said moneys will bear interest at not less than 5 1/2 per cent per annum and part at not less than 6 per cent per annum, and defendant gives the aforesaid reason and justification for said proposed sale; that plaintiff has demanded of defendant that he desist from said proposed sale and defendant has refused and still refuses to desist therefrom.

Upon the foregoing application, alternative writ of prohibition and order to show cause were issued, to which defendant filed a motion to quash, upon the following grounds:

1. That said petition for said writ and the affidavit upon which it is based do not show sufficient or any facts to entitle the plaintiff to any relief;

2. That said petition and affidavit show on their face that the defendant, as commissioner of public investments of the state of Idaho, in the matters referred to in said petition and affidavit, is regularly pursuing the authority vested in him by the Constitution and statutes.

The motion to quash admits the truth of the well-pleaded allegations of the application and affidavit in support thereof (50 C. J. 705, sec. 127), but is directed to the proposition that such allegations do not warrant the relief sought. The question is therefore squarely presented as to whether or not, under the Constitution and statutes, defendant, as commissioner of public investments, has the implied authority to sell said authorized investments theretofore purchased by him with moneys of the public school fund of the state, and to re-invest the proceeds thereof in like authorized securities, it being admitted that there is no constitutional or statutory authority expressly conferred.

We will first take up the contention that permanent educational funds (except funds arising from the disposition of university lands belonging to the state), which includes public school funds (Pike v. State Board of Land Commrs., 19 Idaho 268, 113 P. 447, Ann. Cas. 1912B 1344), cannot be legally invested in state bonds, and hence, in so far as such securities are concerned, the defendant not only has the right, but possibly the duty,...