Vermont Home Mortg. Credit Agency v. Montpelier Nat. Bank

• Decision Date: 15 January 1970
• Docket Number: No. 131-69,131-69
• Citation: 262 A.2d 445,128 Vt. 272
• Parties: VERMONT HOME MORTGAGE CREDIT AGENCY v. MONTPELIER NATIONAL BANK.
• Court: Vermont Supreme Court

Page 445

262 A.2d 445

128 Vt. 272

VERMONT HOME MORTGAGE CREDIT AGENCY v. MONTPELIER NATIONAL BANK.

No. 131-69.

Supreme Court of Vermont.

Jan. 15, 1970.

James L. Oakes, Brattleboro, for plaintiff.

Paterson, Gibson, Noble & Brownell, Montpelier, for defendant.

Before HOLDEN, C. J., and SHANGRAW, BARNEY, SMITH and KEYSER, JJ.

HOLDEN, Chief Justice.

The defendant agreed to buy five notes to be issued by the plaintiff in the amount of $10,000 each, bearing annual interest at the rate of five and one-half percent. The plaintiff Agency is an instrumentality of the State of Vermont which is established and derives its authority from Chapter 11B of the Vermont Statutes Annotated. 1967 (Adj.Sess.) No. 282, effective March 14, 1968. The defendant is a national bank, doing business in Montpelier.

The obligations of the plaintiff to sell, and the defendant to purchase the notes are subject to the provision specified in the contract-'(t)hat such Notes, when issued, shall be valid obligations of the Agency duly and constitutionally authorized by Chapter 11B of Title 10, Vermont Statutes Annotated.'

When the plaintiff called upon the defendant to fulfill its commitment to purchase, the defendant declined, citing the opinion of its counsel that the notes will not be constitutionally authorized obligations of the Agency. The present proceedings in equity for a declaratory decree were instituted to determine the rights of the parties under their contract. The defendant admitted the principal facts, except its default, whereupon the plaintiff moved for judgment on the pleadings. Before entering judgment for the plaintiff, the chancellor certified two questions to this Court.

First does the enactment serve a private rather than a public purpose?

Our state constitution establishes that * * * 'no part of any person's property can be justly taken from him, or applied to public uses, without his own consent, or that of the Representative Body of the freemen, * * * and previous to any law being made to raise a tax, the purpose for which it is to be raised ought to appear evident to the Legislature to be of more service to community than the money would be if not collected.' Vt. Const. Ch. I, Art. 9. Thus the power of the Legislature to raise and appropriate public funds is limited to public uses. In searching that question, if the general public benefit is the dominant interest served, the restraint of the constitution is not exceeded even though the administration of the act confers a benefit on private institutions or persons. Vermont Educational Buildings Financing Agency v. Mann, 127 Vt. 262, 266, 247 A.2d 68; Gross v. Gates, 109 Vt. 156, 165, 194 A. 465; City of Burlington v. Central Vermont Railway Co., 82 Vt. 5, 10, 71 A. 826.

The avowed objective of the legislation in question is stated in its opening sections:

Sec. 1. Purpose

The purpose of this chapter is to create a Vermont home mortgage credit agency as a body corporate and politic with power to acquire from banks and savings and loan associations within the state first mortgage loans on dwelling house properties within the state and exercise all the rights and powers of a first mortgagee, including the power to sell, convey or otherwise dispose of any real or personal property acquired or owned by it; to guarantee to the extent herein provided the repayment of certain loans secured by home mortgages; and to authorize the issuance of bonds or notes of the agency and to provide that the full faith and credit of the state of Vermont be pledged to the payment of those obligations.

Sec. 2. Findings

It is hereby found and determined that the creation of the agency and the carrying out of its purposes is in all respects for the benefit of the people of the state of Vermont in furtherance of their health, safety, welfare and prosperity, and is a public purpose, and that the agency will be performing an essential governmental function in the exercise of the powers conferred upon it by this act (chapter). It is specifically found and determined that this act (chapter) is necessary to assure an adequate supply of capital to provide safe, adequate and sufficient housing for the state's growing population, as well as to promote the intent, purpose and public policy expressed in 10 V.S.A. chapters 11 (Vermont Industrial Building Authority Act) and 11a (Vermont Industrial Park Authority Act). 1967, No. 282 (Adj.Sess.) (§§ 1 and 2; 10 V.S.A. § 241 and Revision Note.)

The provisions of the enactment which follow create the Vermont Home Mortgage Credit Agency and define its authority as a corporate entity and public instrumentality of the state. The agency is composed of the state treasurer, the commissioner of administration and the commissioner of banking and insurance. It has the capability to sue and be sued, acquire, hold and convey real estate. It is authorized to make bylaws for the management and regulations of its affairs, appoint officers, agents and employees and specify their responsibilities. It may enter contractual obligations and execute all instruments necessary and convenient to fulfill its corporate responsibilities.

To finance home ownership, the agency is authorized to purchase from banks and savings and loan associations, lawfully doing business in Vermont, interest bearing obligations secured by first mortgages on one and two family dwelling house units at interest rates not to exceed the lawful rates established under the banking law. 10 V.S.A. §§ 242-242a. The agency also is authorized to issue negotiable notes and bonds to provide resources for the purchase of mortgage obligations. The plaintiff may also commit itself to certificates of guaranty. 10 V.S.A. §§ 244, 244a, 245 and 247.

By the terms of the enactment, lending agencies may make loans on the security of real estate first mortgages in excess of 80% of the appraised value, provided the principal amount of the loan does not exceed the appraised value, or $20,000 in any event. 10 V.S.A. § 247. The full faith and credit of the state is pledged to the bonds and in support of the guaranties extended by the agency. 10 V.S.A. §§ 246 and 247. The aggregate liability of the agency is limited to one million dollars. 10 V.S.A. § 250a. The agency cannot at any time hold purchase loans in excess of ten million dollars. 10 V.S.A. § 246a.

The declaration of purpose puts the statute in the domain of the police power. Each statute which traverses the area must be measured in the context of the facts upon which it is brought to bear to determine whether the power it conveys is addressed to a legitimate governmental objective. As for the purpose of the act and the legislative intent, we must take the lawmakers at their word, as stated in the statute. Berman v. Parker, 348 U.S. 26, 75 S.Ct. 98, 99 L.Ed. 27, 37. And what is a public purpose within Article 9 of our Bills of Rights-'is a question for the Legislature to decide, and concerning which it has a large discretion, which the courts can control only, if at all, in very exceptional cases.' Rowell, C. J., in City of Burlington v. Central Vermont Railway Co., supra, 82 Vt. at 10, 71 A. at 827. And while the legislative declarations and findings are subject to judicial review, they are of controlling importance unless it can clearly be seen that a law purporting to protect the public welfare bears no rational relation to that purpose. See State v. Auclair, 110 Vt. 147, 159, 4 A.2d 107.

The participation of government in projects designed to improve housing conditions has long been recognized as a proper objective of the police power. Expenditure of public funds and the extension of the credit of the sovereign to municipal agencies and private individuals to meet the increasing demand for housing units have been generally confirmed against constitutional challenge in both federal and state jurisdictions. City of Cleveland v. United States, 323 U.S. 329, 65 S.Ct. 280, 89 L.Ed. 274, 279; New York City Housing Authority v. Muller, 270 N.Y. 333, 1 N.E.2d 153, 105 A.L.R. 905, 909; Opinion of Justices, 331 Mass. 771, 120 N.E.2d 198, 202; Velishka v. City of Nashua, 99 N.H. 161, 106 A.2d 571, 44 A.L.R.2d 1406, 1413 and annotation at 1416. See also, 172 A.L.R. 966, 130 A.L.R. 1069; In re Advisory Opinion, 380 Mich. 554, 158 N.W.2d 416, 424.

Notwithstanding a prior advisory opinion to the contrary, (Opinion of Justices, 351 Mass. 716, 219 N.E.2d 18, 26), the Supreme Judicial Court sustained the validity of a Massachusetts enactment, similar in design and purpose to our statute. The constitutional issues were litigated, as here, by lending institutions against their contractual commitments. The Court held that the primary purpose of the act was to provide proper housing for families of low income. In reaching this result, it determined that 'any benefits to persons of moderate income is only incidental to the primary objective, although contributing to its achievement.' Massachusetts Housing Finance Agency v. New England Merchants National Bank of Boston (June 11, 1969), Mass., 249 N.E.2d 599, 606.

The defendant contends that the aid available to middle income families is not incidental, but a part of the main purpose of the Vermont act. It suggests the distinction, in not relating specifically to low income needs and slum clearance projects, constitutes a service to private, rather than public needs.

An argument of the same tenor was urged upon the Court in an attack upon the constitutionality of an act of the Legislature in 1867 which authorized the towns of Bennington and Rutland counties to acquire bonds of the Lebanon Springs Railroad Company to advance communication by railroad for the towns concerned. It was said-'that the aid authorized by the act in question enures to the benefit of a private corporation, and therefore the taxation proposed is for a private purpose. This objective might be raised to almost every species of taxation that is...