State ex rel. Saxbe v. Brand

• Decision Date: 18 March 1964
• Docket Number: No. 38466,38466
• Parties: , 26 O.O.2d 309 The STATE ex rel. SAXBE, Atty. Gen., v. BRAND et al., Ohio Development Financing Commission.
• Court: Ohio Supreme Court

Page 44

176 Ohio St. 44

197 N.E.2d 328, 26 O.O.2d 309

The STATE ex rel. SAXBE, Atty. Gen., v. BRAND et al., Ohio Development Financing Commission.

No. 38466.

Supreme Court of Ohio.

March 18, 1964.

Syllabus by the Court

1. The word 'credit' as used in Section 4 of Article VIII of the Ohio Constitution includes within its meaning (1) a loan of money and (2) the ability to borrow, i. e., the ability to acquire something tangible in exchange for a promise to pay for it.

2. A creditor is one who gives credit to another or one to whom a debt is due.

3. The loaning or the borrowing of money by the Ohio Development Financing Commission would be the loaning or borrowing of money by the state.

4. The borrowing power of the Ohio Development Financing Commission would be the borrowing power of the state.

5. A private corporation for profit is included within the meaning of the words 'any individual association or corporation whatever' as used in Section 4 of Article VIII of the Constitution of Ohio.

6. There can be a giving or loaning of the credit of the state within the meaning of Section 4 of Article VIII of the Constitution of Ohio even where no debts of the state, either direct or contingent, are incurred.

7. Where the Ohio Development Financing Commission sells revenue bonds and uses the proceeds thereof to make a loan to a private borrower, there is a prohibited giving or loaning of the state's credit within the meaning of Section 4 of Article VIII of the Ohio Constitution even though the issuance and sale of those revenue bonds involve no indebtedness of the state.

This is an action in quo warranto instituted in this court on the relation of the Attorney General, pursuant to the direction of the Governor, against the Ohio Development Financing Commission and its members for the purpose of questioning their authority (a) to issue and sell ten million dollars of revenue bonds of the state and (b) to make certain loans from the proceeds received on the sale of those bonds.

Sections 122.13 to 122.36, inclusive, Revised Code, establish the Ohio Development Financing Commission 'in order to promote the welfare of the people of the state, to stabilize the economy, to provide employment, to assist in the development within the state of industrial, commercial, distribution, and research activities required for the people of the state, and for their gainful employment.'

Under those statutes, the commission is a body politic and corporate with the power to 'issue revenue bonds of the state,' to 'receive and accept grants, gifts, and contributions,' and to lend its funds to community improvement corporations and Ohio development corporations established under Chapters 1724 and 1726, Revised Code, and to other corporations, partnerships and persons for the purpose of procuring or improving real and personal property for the establishment, location, and expansion of industrial, distribution, commercial or research facilities in the state.

These statutes specifically state that they 'do not authorize the commission to incur indebtedness or to impose liability on the state or any political subdivision thereof,' and that the 'revenue bonds of the state' which the commission is authorized to issue 'do not constitute a debt, or a pledge of the faith and credit, of the state or of any political subdivision thereof.'

The commission proposes to make the following loans at this time:

(1) $351,000 to County Improvement Corporation of Jackson County, a corporation organized under Chapter 1724, Revised Code, to provide 90% of the funds needed to buy and expand the existing plant now being and to be leased by the Jackson Corporation, a corporation for profit. (This loan to be secured by a first mortgage upon the project.)

(2) $3,000,000 to provide a private corporation for profit with one-half of the funds to build a new office building and expand an existing manufacturing plant leased to and used by another private corporation for profit. (This loan to be secured by a second mortgage upon the project.)

(3) $250,000 to the T. J. Paisley Company, a private corporation for profit, to provide one-half of the funds required to build a new manufacturing plant. (This loan is to be secured by a second mortgage upon the project.)

The foregoing facts are alleged in the petition and admitted by the answer. The cause is now before this court on relator's demurrer to the answer, and both parties have agreed that the ruling on that demurrer will be dispositive of the case.

William B. Saxbe, Atty. Gen., and Larry H. Snyder, Columbus, for relator.

Squire, Sanders & Dempsey, Henry J. Crawford, John Lansdale, Jr., Richard K. Desmond and Eben Crawford, Cleveland, for respondents.

TAFT, Chief Justice.

Relator's first contention is that Sections 122.13 to 122.36, Revised Code, are invalid by reason of the limitations on legislative power set forth in Section 4 of Article VIII of the Constitution of Ohio, which reads:

'The credit of the state shall not, in any manner, be given or loaned to, or in aid of, any individual association or corporation whatever; nor shall the state ever hereafter become a joint owner, or stockholder, in any company or association in this state, or elsewhere, formed for any purpose whatever.'

In determining whether 'the credit of the state' will be given or loaned on the facts alleged and admitted in the instant case, we must first determine the meaning of the words 'the credit of the state.' Those words were used by the people in 1851 when Section 4 of Article VIII became a part of the Constitution.

In Burrill's Law Dictionary published shortly thereafter in 1859, 'credit' is defined as 'payment of money, in confidence of future repayment' (i. e., what Webster, infra, describes as 'a loan of money') and as 'ability to borrow'; and 'creditor' is defined as 'one who gives or has given credit to another' and as 'one to whom a debt is due.'

Somewhat similar definitions are contained in Webster's Third New International Dictionary published in 1961, where 'credit' is defined as 'a loan of money' and as 'an amount or limit to the extent of which a person may receive goods or money for payment in the future' (i. e., what Burrill, supra, describes as 'ability to borrow'); and 'creditor' is defined as 'one who gives credit' and as 'one to whom money is due.'

In deciding this case, it is not necessary to try to give an all inclusive definition of the word 'credit' as that word is used in Section 4 of Article VIII of the Ohio Constitution. It is sufficient to recognize that that word in that section includes within its meaning (1) a loan of money and (2) the ability to borrow or borrowing power (i. e., the ability to acquire something tangible in exchange for a promise to pay for it).

Likewise, it is sufficient to recognize that a creditor is one who gives credit to another or one to whom a debt is due.

The admitted allegations in the pleadings in the instant case contemplate that the commission will be a creditor of each of the borrowers to whom the commission proposes to give 'a loan of money' and will therefore be giving credit (i. e., a loan of money) to each of those borrowers.

There will also be a giving or lending of credit by the commission to each of those borrowers if the word 'credit' is considered as meaning 'the ability to borrow' or borrowing power.

In order to make two of the loans involved in the instant case, Section 122.17, Revised Code, required the commission to find that 'the proposed borrower * * * is unable to finance the proposed project through ordinary financial channels upon reasonable terms and at reasonable interest rates.' As to the 90% loan, that statute required the commission to find 'that 40% * * * cannot be financed' even by a first mortgage on the proposed project to a private financial institution, such as a bank, savings and loan company or insurance compamy.

It is apparent, therefore, that, as to each proposed borrower, its 'ability to borrow' or borrowing power (i. e., credit) is not sufficient to enable it to borrow the money which the commission proposes to loan to such borrower on terms as advantageous as the terms which the commission proposes to provide. In effect, therefore, each such borrower will be receiving more credit (or borrowing power) because of the commission's loan to it than it could otherwise get from any financial institution. At least to that extent, the commission is giving or loaning 'credit * * * to, or in aid of' that borrower.

The 'credit' so given or loaned is 'credit,' and the money that the commission has to lend is money, which credit and money the commission has by reason of the power conferred upon it by the state to 'issue revenue bonds of the state' and to receive 'grants, gifts, and contributions.'

Furthermore, Section 122.14, Revised Code, specifically provides that the 'commission is a body both corporate and politic in this state, and the exercise by it of the powers conferred by sections 122.14 to 122.36, inclusive * * * is an essential governmental function of the state.' Thus, no contention has been or could reasonably be made that the loaning or borrowing of money by the commission, which the pleadings admit will take place, would not be the loaning or borrowing of money by the state. It obviously would be. Neither is it contended nor could it reasonably be contended that the borrowing power of the commission is not the borrowing power of the state. It obviously is. In this respect, this case differs from the situation involved in Opinion of the Justices (1950), 254 Ala. 506, 49 So.2d 175, and Andres v. First Ark. Development Finance Corp. (1959), 230 Ark. 594, 324 S.W.2d 97, relied upon by the commission, where, under the statutes involved, the borrowing and loaning authorized were borrowing and loaning by an entity separate from the state and not borrowing and loaning by the state.

In two instances in this case, the...