298 DAVIS V. PHIPPS. [191 DAVIS V. PHIPPS. 4-4006
OPinion delivered Septeniber 23, 1935. 1. STATES-,-ISSUANCE OF BONDS.—Bonds issued by the State Board of Education under 'Acts 1935, No. 333, authorizing issnance of bonds to be secured with school district bonds which had 'been delivered to the State Board of Educaion as * security for loans from the revolving fund, but expressly providing that the board is not authorized to pledge the faith and credit of the State for payment of such bonds, held. not within Amendment 20 to the Constitution prohibiting the issuance . of bonds by r the State except with consent of a majority of the electors. STATES—PLEDGE OF REVENUES.—Bonds 'issued by a school district and delivered to the State Board of Education as security - for loans from the Reyolving Loan Fund held not , "revenues" of the State within Amendment 20 to the State .Constitution providing that the State shall not pledge its revenues for any purpose without the consent of a majority of the electors. Appeal from Pulaski Chancery Court; Frank H. Dodge, Chancellor ; affirmed. • John L. Carter, for appellant: . Rose,. Hemingway, Cantrell & Loughborough . , for a ppellee. BAKER, J. This suit, filed by C. D. Davis, as a citizen and taxpayer, againSt W. E. Phipps, as Commissioner of Education, is to enjoin the issuance of .bonds by the State Board of Education. The effect of the suit is such that it challenges the -legality of a proposed bond issue under act No. 333, which became a law upon the 4th day of April, 1935, having remained with the Governor for twenty dayS after the adjournment of the General Assembly, without approval or veto. Act No. 333, if legal, is a grant of power to the State Board of Education, by which it is authorized to sell from time • to •time, and in such amounts as it may deem: advisable, bonds in addition to those now authorized by law, to be known as revolving loan school bonds, to mature on such basis as the State Board of Education may determine, and to make a physical pledge to secure such bonds in such form as it sees fit of any school district bonds in the State Treasury, on which loans were
ARK.] DAVIS V. PHIPPS. 299 made from: the revolving loan fund. The State Board of Education wAs granted poWer tO execute a.pledge by deed of trust, and by depositing the school district bonds in any bank or other • safe plaee designated by the.State. Board of Education, arid to designate a trustee for said pledge or deed of truSt,• Who 'should haVd;pbwer id sell . any of said pledged bonds, should . there be a default' Of the paymeht of principal- or intereSt on the bonds -authorized to be issued . u . nd . er • §:1 , of said act 333. • • The State Board of Education , passed a resolution. on June 10, 1635, pursuant , tO ' the authoritY granted, , to issue $20,000 . of revolving ' . loan school bonds, as authorized, of the denonrination of $1,000 each, and bearing . interest at the rate of not exceeding six per cent;per an-num, one bond to. be payable on the first day . of Janu-ary, beginning with the year of 1936, • nd one bond of $1,000 payable each year thereafter until the . said $20,000 shall have been repaid. The said resolution especially provided that . said bonds Should be issued and executed in the name of the . State Board of Education, by its chairman, attested by the seal of the State Board, and that, as security for the payment, thereof, there should be pledged in form . a deed of trust, to be adopted by the . State Board of Education, of which tbe Commercial National Bank of Little ROck wasmade trustee, with proper pr6visions for the sale of the pledged bonds, given as security, for payment of principal and interest of the said revolving loan school bonds: . - TO this suit filed by the appellant herein seeking to enjoin the issuance of the aforesaid bonds, the defend- • ants deMurred. The derimirer upon hearing was sustained, and, plaintiff refusing to: plead further, the complaint was dismisSed.. The appeal -comes to this: Court challenging this action of the . Chancery, cOurt of Pulaski County. his urged upon this appeal that act 833 of : the Acts of 1935 violates Amendment •20 to . the ConstitUtiori of Arkansas. Amendment No, 20 was adopted at 'the general election in November, 1934, and provides as follows : "Except for the purpose of refunding the exist-
300 DAVIS V. PHIPPS. [191 ing outstanding indebtedness of the State and for assuming and refunding valid outstanding road improvement district bonds, the State of Arkansas shall issue no bonds or other evidences of indebtedness pledging the faith and credit of the State or any of its revenues for any purpose whatsoever, except by and with the consent of the majority of the qualified electors of the State voting on the question at a general election or a special election called for that purpose." The resolution adopted by the State Board of Education especially provides that the revolving loan school bonds shall not pledge the faith and credit of the State of Arkansas for their payment, but they shall be payable only from the proceeds of the bonds pledged as security therefor. It must appear, even to the casual reader, that the question raised is whether these bonds may be issued and sold, "except by and with the consent of a majority of the qualified electors of the State voting on the 'question at a general election, or a special election, called for that purpose," as provided in Amendment No. 20. • It must be equally- apparent that the bonds could net be issued and sold except when authorized by such election as bonds issued by the State of Arkansas, if the faith and credit of the State, or any of its revenues were pledged to secure the payment thereof. It must be seen from the foregoing statement that said bonds do not purport to be State bonds, in the sense ordinarily implied by the use of such term. They purport to be •ssued only as revolving loan school bonds, issued by the State Board of EduCation. There is an express provision of act No. 333 that the faith and credit of the State shall not be pledged. Do these bonds, as above described, come within the inhibition of this constitutional amendment. If the answer to this question is such that the bonds must be decided to be direct obligations of the State, and for the payment of which the State must at all events be finally bound, we would not hesitate in determining that the bonds could not be legally issued, in the face of the provisions of Amendment No. 20 aforesaid.
ARK.] DAVIS 'O.; PHIPPS. 301 As stated above, they do not purport to be obligations of the State. They are issued by the State Board of Education to secure money for the revolving loan fund. There is no authority to .bind the State for their pay- . ment in any respect . or particular.. Bonds must s be• paid out of the proceeds arising •from the pledged securities. There is no other method pr provision for. the _repay-. ment of suckfunds as may be borrewed upon these bonds. No 'holder of . said bonds can in good faith, at any time,, legally assert any . claim against the State for their payment, upon default , of the security pledged therefor. They are not, in fact, State bonds. The remaining question to be decided is one that has -given us much . more concern. • Amendment No. 20 provides that the State of Ark-ansas shall issue no bonds, • or other evidences 'of indebtedness, pledging any of the revenues of the State; except when authorized bY -a majority vote of the quali-tied electors of the State. • If . the securities • pledged for the payment of these bonds, which the State Board of, Education- desires to issue,. may be deemed revenues of the State ;of Arkansas, then it is doubtful if such security could be legally pledged. There should not bhvery Much difficulty in a:proper understanding and interpretation of what is : meant by the language of Athendment NO. 20, 'which prohibits the pledging . of the State's revenues. Citizens *of the State Who have been interested in its welfare and Who have attempted to keep theinselves reasonably well-informed knew What the evils were for Which Amendment 'No: 20 was framed te cure. It must be a fact well recognized' in State history that, at the time Amendment No. 20 'was being considered by the electors of the State, the financial affairs of- our •Commonwealth had been Well-nigh wrecked by iss inánce of bonds far ih.excess of the amount justified by the liquid resources of the State. High taxes had been imposed to raise revenues to meet these enormous obligations. 'It was well understood then, as it is • now, that a continuation, of these practices that had grown up were pyramiding debts and tapping -every
-302 DAVIS•1).- PHIPPS: [191 source of revenue for payment thereof and could not continue without practical bankruptcy. It was Well understood, of &Muse, that theSe tets do not appear from anything that may be connected' with Aniendment No. 20; 'nOr is the language used therein such as to justify any such conclusion, but such conclusions as have been ainidunded 'above, as are Well known' and reeognized, play be • considered iri a proper interpre-. tation of the amendment, to aid us in understanding its purposes in Curing the evils 'then preValent. However, in• recOgnizing these* conditiOns as an aid in the interpretation of the meaning of the language used, we are in 'no-sense justified in violating the express terms or •prOvisions of the amendment. But to follow the strict 'language of the amendment, without regard to the . purposes of it,-which.are well known and recognized, would be as erroneous .on the, one hand in, the rendition of.an . pretation; as,it . would be to interpret wholly from rec-ogniied purposes:and conditions,. without regard.,to the. language. used ,in framing the amendment. . When we: refer to the revenues of the State, we usually iilean . the' annual or periodic yield ,of taxes, excises, customs, etc., which the State collects and receives into.the treasury for public nse, but the word "revenues" may be much broader than . that, as it may include rent, yield, as of land,.profit. It includes annual and.period-. ical . rent, profits, interest, or issues otany species of property, real , or personal,. income,. , The yield ,from taxes is one of the last meanings giyen in Webster's . In-, ternational DictiOnary, yet it . is the one , with which 7e have most to do in questions such as are presepted - • It must be remembered that the bonds pledged in this case as security were bonds issued by' school districts delivered to the: State Board of Education as security for Money obtained from the revolving loan fund. This is not, in fact, strictly a part of the State's revenues, as distinguished from school funds.- It is a part of the assets belonging-to this revolving- loan. finid, but is, for practical purposes, as distinct from the State. as are school districts, or improvement districts, abOut
ARK: DAVIS • v.. PHIPPS. 303 which- no question -is ever raised as to their individual entity,' as', distinguished from the State. These school districts and improvement' districts are in some senses, at JeaSt, merely agendies of the State, organized- under proper authority to rendbr a certain Service •to 'particular localities.. • . . . • • - The revolv-ing loan . fund is net confined 'to any 'in.- dividual _loCality, • but is limited to . A. 'particular And in= dividual purpoSe, designed to . render 'a • serVice • not' otherwise provided-for. •• If, by a Strained , cOnstrUction, we should say that these funds in the ;hands -0 'the- State Bdard of Eduea-tion Are funds. ''of . 'the' State, \\*can with' the same parity Of reas'onifigy saY . that , the' State' Board 'of .EdUcatiOn, through thO 'revolVing 'lean ' . ftnid, • Alan ' not'isüea h bondS, becatiSé- it iS ; 'only an agenq of' 'the State, and, by the same process of deduction, if we . hold one"agericy of 'the St -AO withont . power''or 'autherity, We 'mA,y : in like Manner 'hold all Otbe'r: ag. 'encie'S 'of the' State, - as' . school districts and improveinent distriets . ; • itnp6tent .in borrow-Money Or issuing. bends: ' . , 8ut, aside frOM : . fnrther speculation; we, may sAy that AmendmeUt' No'. 2:0 prohibitS bonds or • ,instrinnentS' iS-sited bY the' StateAtSelf for' the , Security' Of which . - IS 'Pledged the' State 18faith and credit. , bond 'is' a 'Writ-- ten promise , to pay,money, and we halie said, in the'fOregOing disen g sion; that the State is not iSsning theSe bonds, and it would not be bound for their 'Payment. • There' fore these bonds, which the State Board - of Edncation is about to issue, are not within the prohibited class. In the second 'proposition Our -conclusions are not without quite eminent anthority to the effect that revenues mentioned , in Amendment No. ' , 20 as revenues of the State de -not include' the securitieS pledged with the State Board of Education, nor,the interest derived-from those securities. An imPosing array of authorities show-hig the distinctiOn between revenue's Collected bYthe' State ' for itS SuPpOrt 'and' MainteUanee, and those colleeted by State agencies or :subdivisions, could, easily be, cited. A few; however, should. suffice:-
304 [191 "The word 'revenue' as used in the act has Veen construed by the Supreme Court to embrace public revenue, whether State or municipal—it-embraces- all taxes and assessments imposed by public authority.' ." Gunning v. People, 76 Ill. App. Ct. 574. Again in a Missouri case, it was held that a fund accumulated by a college from tuition •charges and used for payment of insurance on the college buildings was no part of the State revenue, nor was insurance collected such, though the school was a State school. State v. Board of Regents for Northeast Missouri Stale Teachers' College, 305 Mo. 57, 264 S. W. 699. A definition of revenue is given in the case of Commonwealth v. Brown, 91 Va. 762, 21 S. E. 357 : "It is the income which a State collects and receives into its treasury, , and is appropriated for the payment of its expenses." Also in Welch v. Hotchkiss, 39 Conn. 140, 12 Am. Rep. 383, and United States v. Wright, 28 Fed. Cases, 789. . Finally, it may be suggested that the pledges contemplated by the State Board of Education are not within the forbidden class for another reason ; that is, under Amendment No. 20 it would seem that pledges of revenue are forbidden only when such pledges are to secure State bonds. This seems tO be in accordance with the language of Amendment No. 20. • , It must follow that the chancellor 's decision was correct. It is therefore affirmed.
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