State Ed. Assistance Authority v. Bank of Statesville

• Decision Date: 12 June 1970
• Docket Number: No. 44,44
• Citation: 276 N.C. 576,174 S.E.2d 551
• Court: North Carolina Supreme Court
• Parties: STATE EDUCATION ASSISTANCE AUTHORITY v. BANK OF STATESVILLE.

Page 551

174 S.E.2d 551

276 N.C. 576

STATE EDUCATION ASSISTANCE AUTHORITY v. BANK OF STATESVILLE.

No. 44.

Supreme Court of North Carolina.

June 12, 1970.

Atty. Gen. Robert B. Morgan, Deputy Atty. Gen. Harry W. McGalliard, and Staff Atty. James L. Blackburn, Raleigh, for plaintiff appellee.

Bailey, Dixon, Wooten & McDonald, by Kenneth Wooten, Jr., Raleigh, and Sowers, Avery & Crosswhite, by Isaac T. Avery, Jr., Statesville, for defendant appellant.

BOBBITT, Chief Justice.

Whether defendant is legally obligated to accept and pay for the three $1,000.00 Series B Bonds is the ultimate question for decision. The answer depends upon whether The validity of the Series B Bonds is subject to successful challenge by defendant on any of the grounds asserted by it.

Defendant's offer to purchase was made with full knowledge of the provisions of the Bond Resolutions of August 29, 1968, and of August 21, 1969, and of the tripartite contracts referred to therein. Hence, we pass without discussion whether 'the operating procedures followed by the Authority' are 'in violation of the enabling legislation' as now contended by defendant. Nothing appears to indicate that defendant is adversely affected by 'the operating procedures followed by the Authority.'

As stated in Nicholson v. State Education Assistance Authority, 275 N.C. 439, 448, 168 S.E. 401, 407: 'The fact that both parties to an action, as in the present case, desire the determination of the constitutionality of an entire act of the Legislature and stipulate that certain questions, leading to such determination, are presented by the action for the determination of the Court is not binding upon the Court. Such stipulation does not require, or authorize, the Court to pass upon the constitutional questions Not necessary to the determination of the right of the party who denies the validity of the legislation.' (Our italics.)

Three basic constitutional questions are presented, Viz.:

1. Do 'students loans' made pursuant to Chapter 1177 constitute a use of public funds for a public purpose?

2. May the General Assembly constitutionally exempt from taxation revenue bonds issued pursuant to Chapter 1177?

3. Does Chapter 1177 provide sufficient legislative standards for making such 'student loans?'

The Authority is an agency of the State. Its affairs are governed by a board of directors of seven members, each appointed by the Governor for a prescribed term. G.S. § 116--203.

The sole function of the Authority is to facilitate college (and vocational) education of residents of this State at institutions of higher education (and post-secondary business, trade, technical, and other vocational schools). G.S. § 116--202. It was authorized to 'acquire' from banks or other lending institutions 'a contingent interest' not exceeding 80% (100%) of any individual obligation. G.S. § 116--206. (Note: The words and figures enclosed by parentheses indicate amendments made by Chapter 955, Session Laws of 1967.) The Authority is empowered, Inter alia, '(t)o receive and accept from any federal or private agency, corporation, association or person grants to be expended in accomplishing the objectives of the Authority * * *' G.S. § 116--204(6). The Authority is authorized '(t)o make and enter into all contracts and agreements necessary or incidental to the performance of its duties and the execution of its powers under this article.' G.S. § 116--204(4). G.S. § 116--209 provides that '(t)he State Treasurer shall be the custodian of the assets of the Authority.'

The facts concerning the status of the Foundation as 'a North Carolina nonprofit public educational service corporation' and the membership of its governing board, are set forth sufficiently in the agreed statement of facts.

The 1965 Act which created the Authority provided for an appropriation of $50,000.00 from the Contingency and Emergency Fund. The $50,000.00 so appropriated, together with money obtained from other sources, including grants 'from any federal or private agency, corporation, association or person,' (G.S. § 116--204(6)) was constituted a trust fund. G.S. § 116--209. This trust fund was for use 'exclusively for the purpose of acquiring contingent or vested interests in obligations' which the Authority was authorized to acquire.

The assets of this trust fund, now referred to as the 'Reserve Trust Fund,' were available and used solely or primarily as a guaranty fund in respect of student loans made by banks or other lending institutions through the College Foundation, Inc. (Foundation) and serviced by the Foundation.

Prior to the enactment of Chapter 1177, the Foundation had qualified as an 'eligible lender' under the federal statutes. The term 'eligible lender' is defined in 20 U.S.C.A. § 1085(g). The student loans it made in behalf of banks or other lending institutions qualified for federal interest subsidy benefits, for federal guaranty benefits and for guaranty benefits provided by the Authority. The nature and extent of these benefits will be discussed in our consideration of loans made to students from the proceeds of sale of the Authority's Revenue Bonds.

The authority to issue and sell revenue bonds was conferred by Chapter 1177. It was provided that '(b)onds issued under the provisions of this act (Chapter 1177) shall not be deemed to constitute a debt, liability or obligation of the State or of any political subdivision thereof or a pledge of the faith and credit of the State or of any such political subdivision, but shall be payable solely from the revenues and other funds provided therefor.' G.S. § 116-- 209.12. It also provided that revenue bonds issued under its authority 'shall at all times be free from taxation by the State or any local unit or political subdivision or other instrumentality of the State, excepting inheritance or gift taxes.' G.S. § 116--209.13.

Chapter 1177 provides that the Authority shall deposit the proceeds derived from the sale of its revenue bonds to the credit of a trust fund designated 'State Education Assistance Authority Loan Fund' (Loan Fund). The Loan Fund is for use by the Authority in making student loans and in acquiring by purchase promissory notes or other legal instruments evidencing student loans made by banks, educational institutions, nonprofit corporations or other lenders. G.S. § 116--209.3.

Pursuant to Chapter 1177, the Authority adopted the Bond Resolution of August 29, 1968, which provided for an initial issue of $3,000,000.00 of Revenue Bonds, Series A, and for additional bonds, 'the aggregate principal amount * * * outstanding at any time * * * not (to) exceed Twelve Million, Five Hundred Thousand Dollars ($12,500,000).' The provisions of the Series A Bonds and attached interest coupons are set forth with particularity. The Series A Bonds are dated July 1, 1968, mature July 1, 1988, and bear interest from date at the rate of 5% Per annum payable semiannually on the first days of January and July of each year. This Bond Resolution is set forth on Pages 27--100 of the record.

The $3,000,000.00 of Series A Bonds were sold to investors through the Wachovia Bank & Trust Company, which was designated in the Bond Resolution of August 29, 1968, as Fiscal Agent for the Authority, and the proceeds were used, pursuant to the terms of a 'Tripartite Contract' dated August 29, 1968, between the Authority, Wachovia Bank & Trust Company and College Foundation, Inc.

The 'Tripartite Contract' of August 29, 1968, referred to in the Bond Resolution of that date, provides for the purchase by the Authority from the Foundation of 'student obligations,' listed on an attached inventory and evidencing 'student loans,' for a total purchase price of $1,900,000.00, 'to be paid solely from the proceeds of Series A Bonds.' It also provides for the purchase by the Authority from the Foundation of 'additional student obligations,' evidencing 'student loans' to be made by the Foundation during the period of twelve months commencing September 1, 1968, 'the purchase price of which shall not exceed the lesser of (i) One Million, One Hundred Thousand Dollars ($1,100,000) or (ii) an amount equal to the balance of the proceeds of the Series A Bonds available therefor.' A recital preceding the contractual provisions recites that 'the additional student obligations will bear interest at the rate of six percent (6%) per annum.'

The Bond Resolution adopted by the Authority on August 21, 1969, provided for an additional issue of Revenue Bonds, Series B, of $1,500,000.00, 'on a parity with the Series A Bonds,' consisting of 1,500 bonds of $1,000.00 each, dated July 1, 1969, maturing July 1, 1989, and bearing interest from date at the rate of 5 1/2% Per annum, payable semiannually on the first days of January and July of each year. It was provided that, except as to designation (Series B instead of Series A), the amount of the issue, the date, the maturity, and the interest rate, and the change of name from Wachovia Bank & Trust Company to Wachovia Bank & Trust Company, N.A., Series B Bonds were to be in the form prescribed in the Resolution of August 29, 1968, for Series A Bonds.

A 'Supplemental Tripartite Contract' of August 21, 1969, between the Authority, the Foundation and Wachovia Bank & Trust Company, N.A., relates specifically to the Series B Bonds. It provides for the purchase by the Authority from the Foundation of '1969--1970 student obligations,' evidencing student loans made by the Foundation during the period of twelve months commencing September 1, 1969, 'the purchase price of which shall not exceed the lesser of (i) One Million, Five Hundred Thousand Dollars ($1,500,000) or (ii) an amount equal to the balance of the proceeds of the Series B Bonds available for the purchase thereof.' The recital in the preamble preceding the contractual provisions states that the additional funds for student assistance activities are available for loans 'to students who are...