State Of West Va. v. Conley.

• Citation: 118 W.Va. 508
• Decision Date: 03 April 1937
• Docket Number: (CC 574)
• Parties: State of West Virginia v. William G. Conley et al.
• Court: Supreme Court of West Virginia

118 W.Va. 508

State of West Virginia

v.William G. Conley et al.

(CC 574)

Supreme Court of Appeals of West Virginia.

Submitted February 24, 1937.

Decided April 3, 1937.

1.Schools and School Districts

Section 4, Article 12 of the constitution, and Chapter 49, Acts of the Legislature 1925, relating to the investment of the school fund by the Board of the School Fund, properly construed and interpreted, mean that said board has no power to invest said fund in solvent interest-bearing securities, other than the public securities mentioned in the constitution and statute referred to, when such public securities can be obtained.

2.Schools and School Districts

The Board of the School Fund is vested with a discretion as to the investment of the school fund, within the classes of securities it may legally purchase; but such discretion does not extend to the point where it may invest such fund in private securities, when public securities, of the class mentioned in the constitution and statutes as legal investments, can be obtained.

3.Schools and School Districts

Where the Board of the School Fund has invested the school fund in private securities, when public securities of the class mentioned in the constitution and statutes as legal investments could be obtained, the fact that their predecessors in office had, over a long term of years, made such investment, does not operate to relieve the members of the board from personal responsibility for losses sustained through investments, which, under the constitution and statutes the board had no right to make.

4.Schools and School Districts

An opinion and ruling of the attorney general, on the power of the Board of the School Fund to invest the school fund, while entitled to weight, does not relieve the members of the board from personal liability for losses to the fund, resulting from investments which they were not legally authorized to make.

5. Schools and School Districts

The individual members of the Board of the School Fund are personally liable to the state for losses to the school fund, resulting from investment of said fund in the securities of private corporations and individuals, when, at the time of such investment, public securities of the class designated by the constitution and statutes as legal investments for said fund could be obtained; and an action of assumpsit may be maintained, in the name of the state to recover for such losses.

Case certified from Circuit Court, Kanawha County.

Action by the State of West Virginia against William G. Conley and others, wherein the action of the circuit court in overruling demurrers to the declaration and to defendants' special plea was certified to the Supreme Court of Appeals.

Affirmed in part; reversed in part; remanded.

Maxwell, Judge, dissenting.

Clarence W. Meadows, Attorney General, and Ira, J. Partlow, Assistant Attorney General, for plaintiff.

Lee, Blessing & Steed, Blue, Dayton & Campbell and T. C. Townsend, for defendants.

Fox, Judge:

This case involves the personal and individual liability of the members of "The Board of the School Fund" for losses sustained by the plaintiff on account of a loan made by said Board to the Consolidated Fruit Company, a private corporation, on the 21st day of November, 1929. By reason of the nature of this controversy, involving as it does an interpretation of the constitution and statutes of the state, with respect to a matter of public importance, it is deemed appropriate, as a background for our decision, to give a brief history of the establishment and development of the fund, and the various constitutional and statutory provisions made with respect thereto, prior to the date of the loan.

Section 1, Article 10, Constitution of 1863, provides that all moneys accruing to the state from the proceeds of forfeited, delinquent, waste and unappropriated lands and other sources of revenue therein particularly mentioned,

"shall be set apart as a separate fund, to be called the School Fund, and invested under such regulations as may be prescribed by law, in the interest-bearing securities of the United States, or of this state: and the interest thereof shall be annually applied to the support of free schools throughout the state and to no other purpose whatever. But any portion of said interest remaining unexpended at the close of a fiscal year, shall be added to, and remain a part of, the capital of the School Fund."

Chapter 137, Acts of the Legislature, 1863, provides for the establishment of a system of free schools, and Section 53 of said chapter provides:

"The governor, auditor, treasurer, secretary of state, and the general superintendent of free schools, shall be a corporation under the name of 'the board of the school fund, ' and shall have the management, control and investment of said fund, under the first section of the tenth article of the constitution."

Section 58 provides:

"The board shall from time to time invest all the uninvested capital and interest of the school fund in interest bearing securities of the United States or of this state, as provided for in the constitution."

The general law governing free schools was amended by Chapter 74, Acts of 1866; also, by Chapters 66 and 98, of the Acts of 1867; and was embodied in Chapter 45 of the Code of 1868. No change was made by any of said enactments, or in the Code, from the sections of the stastute above quoted, so that the law remained as it was until the adoption of the new constitution in 1872.

Section 4, Article 12, of the Constitution of 1872 provides that the existing permanent and invested school fund and all money accruing to this state from forfeited, delinquent, waste and unappropriated lands, and from other sources specifically set out therein,

"shall be set apart as a separate fund, to be called the 'School Fund, ' and invested under such regulations as may be prescribed by law, in the interest-bearing securities of the United States, or of this State, or if such interest-bearing securities cannot be obtained, then the said 'School Fund' shall be invested in such other solvent interest-bearing securities as shall be approved by the Governor, Superintendent of Free Schools, Auditor and Treasurer, who are hereby constituted the 'Board of the School Fund', to manage the same, under such regulations as may be prescribed by law; and the interest thereof shall be annually applied to the support of free schools throughout the state, and to no other purpose whatever. But any portion of said interest remaining unexpended at the close of a fiscal year, shall be added to, and remain a part of, the capital of the 'School Fund: '."

This section of the constitution was amended by vote of the people in November, 1902; but the amendment only applies to the accumulation of the fund, and provides that such accumulation shall cease when the fund amounts to the sum of one million dollars, and that thereafter, the interest on said fund, and moneys accruing to the state required to be transferred thereto, shall be paid into the treasury to the credit of the general school fund, for the support of free schools.

After the adoption of the Constitution of 1872, the statutes were amended to conform thereto, and Section 69, Chapter 123, Acts 1872-73, provides:

"The governor, state superintendent of free schools, auditor and treasurer shall be a corporation under the name of 'the board of the school fund, ' and shall have the management, control and investment of said fund, under the fourth section of the twelfth article of the constitution."

Section 73 of said chapter, provides that:

"All such sums as have accrued, or shall hereafter accrue to this state, from the several sources enumerated in the fourth section of the twelfth article of the constitution, shall be set apart as a separate fund to be called 'The school fund', and it shall be the duty of the auditor to ascertain from time to time what sums have so accrued, or may hereafter accrue, and to pass the same to the credit of said fund; and it shall be the duty of the board of the school fund, from time to time, to invest the same in interestbearing securities of the United States, or of this state, or otherwise, as provided for in said fourth section of the twelfth article of the constitution. And it shall be the duty of said board to sell any investments on account of the school fund now made in other securities than those required in said fourth section of the twelfth article of the constitution, and invest the proceeds thereof in the interest-bearing securities of the United States, or of this state, or otherwise, as provided in the constitution aforesaid."

The last provision of section 73 may be explained by the fact that Chapter 66, Acts 1867, and Chapter 6, Acts 1889, transfer to the school fund certain stocks in banks and improvement companies, at that time held by the state; and the provision of the statute, last above quoted, was evidently meant to require the sale of such securities and the investment of the proceeds thereof in the character of securities provided for in the constitution.

Chapter 15, Acts 1881, amends Section 69, above quoted, by adding thereto a provision that a majority of the board shall constitute a quorum to transact business; and Section 152 of Chapter 27, Acts 1908, amends Section 69, Chapter 123, of the Acts of 1872-73 by putting into effect the constitutional provision limiting the school fund to the sum of one million dollars. Aside from these changes, the statute remained in the form in which it was written in 1873, until changed by Section 195, Chapter 49, Acts of the Legislature, 1925. This act reads as follows:

"All such sums as have accrued to this state from the several sources enumerated in the fourth section of the twelfth article of the constitution, not in excess of one million dollars, shall be set apart as a separate fund to be called 'the school fund' and the governor, state superintendent of free schools, auditor and...