In Re Opinions of the Justices , 225 Ala. 361 ( 1932 )

Response of the Justices of the Supreme Court to question propounded by the Senate, under section 10290, Code 1923.

Question answered.

Forney Johnston, of Birmingham, filed a brief in support of the validity of the proposed act.

Senate Resolution. S. R. 49. By Mr. Walker.

Whereas, the House of Representatives has passed an act, being House Bill No. 305, an exact copy of which is hereto attached, and the same has been sent to the Senate for its action, and Whereas, it appears to members of the Senate that there is doubt of the constitutionality of said act:

Therefore, be it resolved by the Senate of Alabama that the Justices of the Supreme Court be and they are hereby requested, as provided by Section 10290 of the Code of Alabama, to render an opinion to the Senate as to whether the said act offends section 213 of the Constitution of Alabama, or any other Section of the Constitution.

The following is a copy of House Bill No. 305:

A Bill to be entitled an act to provide for the emergency relief of teachers of State, County, and Municipal schools, colleges and educational institutions maintained in whole or in part by State appropriations, whose salaries or any portion thereof for services rendered prior to September 1, 1932, are due and unpaid and for the relief of governing boards of State, County and municipal schools, colleges and educational institutions, which may have borrowed money from any source to pay teachers' salaries due and unpaid prior to that date; and, to that end, to provide for and create Teachers' Emergency Relief Corporation, define its corporate powers and functions and provide for the payment of its expenses; also to provide for the issue of special revenue certificates in whole or in part in lieu of unpaid warrants issued by the State Auditor for educational purposes, as provided in the Act; also to define the characteristics of such special revenue certificates and the rights of the holders; and also to make provision for the payment of such certificates, with interest, out of the general fund; also to make the obligations of the corporation and said Special Revenue Certificates eligible for use in lieu of other security as provided in the Act, and to exempt said certificates and obligations from all taxes.

Be It Enacted by the Legislature of Alabama:

Section 1. The Governor, Lieutenant-Governor, and Speaker of the House of Representatives be and they are hereby constituted a public corporation of the State of Alabama under the name of Teachers' Emergency Relief Corporation, hereinafter called the Corporation, to constitute a body corporate, with power to sue and be sued, to enter into contracts, to purchase and acquire, hold, own, pledge, enter into contracts with reference to and otherwise deal in the special revenue certificates hereinafter provided for; to borrow moneys, and as security therefor, to pledge any of the assets of the corporation, and, in general, to do any and all things deemed necessary or appropriate by its Board of Directors in furtherance of the purposes of the Act; to negotiate or provide a market for said special revenue certificates or to obtain funds on the security of the same, for the purpose of taking up unpaid warrants in whole or in part heretofore issued by the State Auditor to the respective authorities of State, County and Municipal schools, colleges, and educational institutions maintained in whole or in part by State appropriations, and against or in respect to which notes, warrants or certificates have been issued to teachers in such institutions in payment in whole or in part of salaries for services rendered prior to September 1, 1932. Provided that the governing boards of State, county and municipal schools, colleges and educational institutions, which have borrowed money from any source, using state warrants as security, shall be permitted to share in the benefits of this Act.

Section 2. The Governor, Lieutenant-Governor and Speaker of the House of Representatives and their respective successors in office and their survivors are hereby constituted the Board of Directors of said Corporation, with power and authority as such Board by majority vote to exercise, direct and control all functions of the corporation hereby authorized, and upon the payment or provision for the payment of all obligations of the corporation, to cause the same to be dissolved by filing a resolution of the Board to that end with the Secretary of State.

Section 3. The primary function of the Corporation shall be to acquire and pay for the special revenue certificates for which provision is hereinafter made, hereinafter called Certificates, upon or after the issue thereof as hereinafter provided, and to obtain the necessary funds to that end (other than the expenses otherwise herein provided for), by issuing its own obligations in such form as the Board of Directors may approve, secured by pledge or else obtained by sale of such special revenue certificates, either or both, as the Corporation may determine. To that end the corporation shall be authorized to negotiate and enter into agreements with Reconstruction Finance Corporation or with any bank, savings bank, building and loan association, mortgage loan company, broker, person, firm or corporation, and to do any and all acts deemed by the Board of Directors in furtherance of said purpose and function. The amount of said certificates which said Corporation shall be authorized to acquire shall be limited to the principal sum of $6.000,000.

Section 4. The Superintendent of Education shall be Secretary of the Corporation, with such powers and functions as may be delegated by the Board, and the Corporation shall, by by-law or resolution of the Board, be authorized to appoint or employ other officers or agents; to prescribe their powers and duties, and to provide, where deemed necessary, for their compensation except as limited herein. All officers, agents and employees of the Corporation shall be subject to removal at any time by resolution of the Board.

Section 5. The personnel of the Department of Education shall be available for any services required by the Corporation, without further or additional compensation. No member of the Board of Directors, nor shall the Secretary, be entitled to receive any additional compensation for their services as such.

Section 6. For the payment of the expenses of the Corporation, its officers and agents, when and as approved, authorized or ratified by the Board, there is hereby appropriated the sum of $10,000, to be paid to the Corporation out of the first receipts set apart for the Alabama Educational Trust Fund, hereinafter mentioned, collected next after the approval of this Act.

Section 7. On notice by the Corporation to the State Auditor that the Corporation is prepared to acquire a stated amount of special revenue certificates hereunder, the State Auditor shall, in conference and agreement with the Corporation, notify the officer or agency to which said unpaid warrants shall have been issued, and apportion to them respectively the amounts of such warrants as shall be subject to re-issue hereunder, and thereupon, unless such warrants shall have been disposed of or for other reason shall not be subjected by the holder to the operation of this Act, for the purposes of exchange and payment in whole or in part as provided herein, the amount of warrants subject to re-issue as so allotted shall be surrendered by the respective officers or agencies to the State Auditor, who shall thereupon issue in lieu of the respective warrants so returned for re-issue special revenue certificates (to be issued by the State Auditor and countersigned by the State Treasurer) in the principal amount allotted as aforesaid in respect thereof, together with another warrant in the usual form for the face amount of the original warrant in excess of the amount of the special revenue certificates so issued in respect to the warrant so surrendered. The warrant for such excess amount, if any, shall thereupon be returned to or upon the order of the agency or authority surrendering the same, together with the amount of cash paid by the Corporation for the special revenue certificates issued in respect to such allotment, at the price provided in the notice to such officer or agency surrendering the original warrant and agreed to by the latter. On receiving payment from the corporation of the amount agreed to be transmitted to the officer or agent surrendering the respective original warrants, the State Auditor shall thereupon deliver the amount of special revenue certificates issued in whole or in part in lieu of the original warrant so surrendered to the corporation or its order or assigns. Provided, however, the Auditor may issue the special revenue certificates provided for herein to any firm, person or corporation which now holds any of said unpaid warrants as security for a loan to any county, municipality, board, institution, or agency sought to be benefited by this act; and in making all allotments, the corporations shall endeavor to equalize the benefits of this Act with all of the agencies and institutions sought to be benefitted.

Section 7A. The Boards of Education or other agency or authority to which shall have been issued or delivered the original warrants referred to above shall be authorized to discharge the functions in connection with the transaction contemplated by this Act.

Section 8. In addition to such other recitals as may by the auditor be found appropriate to the identification of the appropriation or purpose for which the original warrant has been issued, to be determined by the auditor, in agreement with the Corporation, the certificates shall contain the following provisions, which are hereby declared to be characteristics thereof when issued pursuant hereto, viz.:

"This special revenue certificate, issued pursuant to the Teachers' Emergency Relief Act of 1932, shall have the effect of a warrant upon the State Treasurer, and shall be payable out of the funds provided therefor by said Act. This certificate is one of a series of similar certificates issued under said Act, shall have the characteristics and be payable out of the special funds provided for by said Act, under and subject to the conditions therein stated. This certificate is payable to bearer and shall pass by delivery in all respects as a negotiable instrument. This certificate shall not, however, constitute an indebtedness of the State of Alabama or be a general charge against the faith and credit of this State, being payable, both as to principal and interest stipulated herein, only out of the special fund provided by said Act if when and as available. This certificate is payable at the office of the State Treasurer in gold coin of the United States of the 1932 standard of weight and fineness on or before the __________ day of __________, 193_.

"This certificate shall be payable in the principal amount of __________ Dollars ($ __________),"

the blanks to be filled in by the State Auditor. Such certificates shall also provide for the payment of interest at a rate of not to exceed six per centum per annum annually or otherwise as may be required by the Corporation and shall contain such other provisions or elaboration, consistent herewith, as may be required by the Corporation. The numbers and denominations of the certificates and additional place or places or payment shall be as required by the Corporation.

Section 9. All revenue collected after the thirtieth day of September, 1933 for the general fund, less interest on bonded debt, payable out of the general revenue, to the extent of One Million Five Hundred Thousand Dollars ($1,500,000.00) for fiscal year beginning October first 1934, and during each successive twelve (12) months thereafter, shall be and is hereby set apart for the special purpose of payment by the State Treasurer pro rata upon State Certificates; principal and interest, without preference of principal over interest or interest over principal, or of one certificate over another, until the face amount thereof, and the interest thereon shall be paid in full. No interest shall accrue on any of said certificates, for account of principal or interest, after the respective dates of maturity thereof if and to the extent that funds for the respective payments thereof shall be available on such dates of maturity at the office of the State Treasurer or other paying agency designated by the certificate.

Section 10. In order to further the negotiation of said certificates by the holders and the obligations of the Corporation secured thereby, all banks, savings banks, trust companies, building and loan associations, insurance companies, and other corporations qualified to borrow from the Reconstruction Finance Corporation are authorized to purchase, own, hold, pledge or sell said certificates or obligations. Said certificates and obligations so secured are hereby declared to be eligible as security, on a par basis, for all bonds required or authorized to be given by trustees, trust companies, by State, City or County officials, or depositaries of State, County or Municipal or educational funds, in whole or pro tanto, as the case may be, in lieu of bond with sureties or of deposit of other securities of like face amount unpaid, and all public officers are further hereby authorized to accept same as security for public funds or for the faithful discharge of public or fiduciary duties on a par basis and as fully as if same were bonds of the State of Alabama or of the United States or other surety or security approved or made eligible by law, to the extent of the face amount unpaid. The certificates and the obligations of the corporation secured thereby in this act authorized are hereby exempt from the payment of all State, county and municipal taxes, both as to principal and interest.

Section 11. If any section, clause, provision or portion of this Act shall be held to be invalid or unconstitutional by any court of competent jurisdiction, such holding shall not affect any other section, clause, provision or portion of this Act which is not in and of itself unconstitutional.

Section 12. All laws in conflict with the provisions of this Act are hereby repealed, provided that all provisions of existing law with reference to said Alabama Special Educational Trust Fund and appropriations thereof shall not be repealed and shall be modified or suspended only pending payment in full, principal and interest, of the special revenue certificates provided for herein and, pending such payment, only to the extent expressly provided hereby.

Section 13. This Act may be designated the Teachers' Emergency Relief Act of 1932.

Response of the Justices. To the Honorable Senate of Alabama:

House Bill 305 deals with the existing obligations of the state represented by outstanding warrants issued to county and municipal agencies and institutions for the purpose of paying teachers' salaries, etc.

It provides for the issuance of special revenue certificates by the state auditor in lieu of warrants now held. These certificates are to be negotiable paper and have the effect of a warrant on the state treasurer, payable at future dates with interest.

The bill declares the certificates shall not constitute an indebtedness of the state, nor be a general charge against the faith and credit of the state, but be payable only out of a special fund provided in the act.

To create such special fund the act provides that out of the general funds coming into the state treasury from and after September 30, 1933, the sum of $1,500,000 be set apart for the fiscal year beginning October 1, 1934, and a like sum for each subsequent fiscal year, and applied to the payment of such certificates or warrants, principal and interest. The total principal of these certificates is limited to $6,000,000. This special fund is to be a first charge on the general funds, less interest on the bonded debt, for a series of years running beyond the present quadrennial period and beyond the tenure of the present Legislature.

In essence the act seeks to fund the present warrants payable out of current revenue, by substituting interest-bearing time certificates, declared to have the effect of warrants, and by presently creating a charge on future revenues of the state for the payment of same, principal and interest.

We are impelled to hold the proposed bill violative of section 213 of the Constitution. In re Opinions of Justices,223 Ala. 130, 136 So. 489; In re Opinions of Justices, ante, p. 356, 143 So. 289.

The ends sought by the bill, the payment of the salaries of teachers who have rendered a highly favored public service, relying upon their state to meet its obligations to them, are most commendable. But we are not at liberty to strike down constitutional provisions, however meritorious the ends sought.

JNO. C. ANDERSON, Chief Justice.

WM. H. THOMAS, VIRGIL BOULDIN, JOEL B. BROWN, THOMAS E. KNIGHT, Associate Justices.

Justices GARDNER and FOSTER entertain the view the bill involved is not violative of section 213 of the Constitution, and submit the following opinion, prepared by Justice FOSTER:

In response to your Resolution No. 29, in connection with House Bill 305, we think your inquiry involves the discussion of important constitutional questions. Section 213 is explicit that no new debt shall be created against or incurred by this state or its authority, except as stated.

The question seems to be largely determined by the status of the provision for interest, as to whether there is thereby created a state debt.

"Interest" is compensation for the failure to pay money or to perform a contract at the time when performance was due by such contract. Section 8564, Code; Vincent v. Gilmer, 51 Ala. 387. Interest does not run against the state except by virtue of express contract entered into pursuant to constitutional authority. Many cases are collated in 22 Am. St. Rep. note, page 648, and others may be noted as follows: Molineux v. State, 109 Cal. 378, 42 P. 34, 50 Am. St. Rep. 49; 36 Cyc. 399, sec. (4 b); Schlesinger v. Wisconsin, 195 Wis. 366, 218 N.W. 440, 57 A.L.R. 352; 25 Rawle C. L. 405, § 38; Davis v. State, 121 Cal. 210, 53 P. 555; Jobe v. Urquhart, 102 Ark. 470, 143 S.W. 121, Ann. Cas. 1914A, 351.

It may be conceded to be contrary to our Constitution to donate funds to a private individual or corporation, without at least a moral obligation. State v. Clements, 220 Ala. 515,126 So. 162; sections 93 and 94, Constitution. But in that case we recognized the right of the state to make an appropriation to discharge a moral obligation, and showed that such right is sustained by the great weight of authority.

But an appropriation to charitable or educational institutions under the control of the state (section 73), or to the public schools (sections 256, 260), is not dependent upon a moral obligation. To them, the state may, and habitually does, make donations with full constitutional power. Opinion of the Justices, 215 Ala. 524, 111 So. 312; Harman v. Ide,224 Ala. 414, 140 So. 418. It is not important what may be the consideration which underlies such a donation. It is not only not prohibited but is authorized and directed, consistent with the condition of the treasury, and the resources of the state. Section 260. It is clear therefore that an appropriation simply in anticipation of funds to be received from revenue created by existing law may be made to or for the public schools of the state, without thereby creating a debt.

Appropriations have been made, and warrants are outstanding in the hands of the school authorities, or subject to their control. Does the proposed bill merely undertake to add to the appropriation for such public schools and institutions? If that were its form, its constitutionality would be well founded, if suitable provision is made by law to produce the revenue to meet such appropriation when payable. That seems to be a reasonable interpretation of the bill (No. 305), and we hold that such is its effect.

We do not think that the solution of the question depends upon the ordinary repealable nature of an appropriation. Section 22 of the Constitution, which preserves the obligations of contracts, applies to the state, as to an individual. State v. Cobb, 64 Ala. 127 (7), 152. See the discussion and authorities cited by Judge Mayfield in Town of New Decatur v. A. T. T. Co., 176 Ala. 506 et seq., 58 So. 613, Ann. Cas. 1915A, 875; 36 Cyc. 880 (H); Fletcher v. Peck, 6 Cranch, 87,3 L. Ed. 162.

The argument that, as by the appropriation a corporation is set up with authority to purchase and hypothecate the warrants or revenue certificates provided for in the act, it amounts to a contract for the benefit of those so receiving them that the appropriation will not be repealed, if sound, does not prove that thereby a debt is created as prohibited by section 213. The state may contract without creating a debt as there mentioned.

If the form of the act as a whole amounts to a contract not to revoke the appropriation, though an appropriation is ordinarily revokable (36 Cyc. 896, § 3), its nature as constituting a debt depends upon other considerations. A mere appropriation creates a debt only when the existing revenue laws are not reasonably adequate to raise sufficient funds to meet the appropriation when payable. 36 Cyc. 884; 25 Rawle C. L. 397; Brown v. GayPadgett Hardware Co., 188 Ala. 423,66 So. 161.

When therefore we are called upon to consider whether an appropriation payable in the future creates a debt under section 213, we must answer that it is conditioned upon whether reasonably adequate provision has been made by which it will be reasonable to anticipate sufficient funds in the treasury to meet it when payable.

The Teasley Bill, mentioned in Re Opinion of Justices (Ala. Sup.) 143 So. 289,¹ was we think subject to this defect in view of the condition of the state treasury which was then, and is now, a matter so generally known as to demand judicial notice.

The situation is inherently different from the Lapsley inquiry as reported in 223 Ala. 130, 136 So. 489. Here, there are not interest coupons, nor other obligations to pay interest, but essentially an appropriation of a sum payable in the future sufficient to pay interest and to be derived from existing revenue laws and thereby to make a donation authorized by sections 73 and 260. The Lapsley Resolution related to the general indebtedness of the state, and was not limited to those institutions to which donations are authorized by the Constitution, and was therefore within the principle asserted in Molineux v. State of California, supra.

Whereas the bill in question bears more resemblance in this respect to our case of Alabama State Bridge Corporation v. Smith, 217 Ala. 311, 116 So. 695, 699, in which the act made provision for the payment of interest out of any funds in the treasury, and it thus defined a "debt" within the meaning of section 213: "Our judgment is that 'debt,' within the meaning, the purview, the whole content, of the constitutional provision, is that which the state in any event is bound to pay, an obligation secured by the general faith and credit of the state. * * * There is no promise on the part of the state to pay in any event; there is no pledge that there will be a surplus of any fund; there is no pledge of the general credit of the state; there will be no debt within the meaning of section 213." In no sense is the state thus bound by House Bill 305 to pay in any event, nor does it pledge the general credit of the state therefor, nor does it obligate the state in any event to provide funds for the payment of the appropriation. It is only payable when and if funds are available.

Other questions pertaining to section 213 seem to be settled by the cases of Alabama State Bridge Corporation v. Smith, supra, and Heustess v. Hearin, 213 Ala. 106, 104 So. 273.

Our answer to your inquiry is that House Bill 305 is not in violation of section 213, assuming as we do that the revenue laws are reasonably sufficient to provide funds to meet the appropriation when due.

LUCIEN D. GARDNER, A. B. FOSTER, Associate Justices.

¹ Ante, p. 356.