Matthews v. Bailey, Governor

131 S.W.2d 425, 198 Ark. 830, 1939 Ark. LEXIS 121

Opinions

Grieein Smith, C. J.

Act 130, approved February 24,1937, authorized the refunding of Arkansas state highway bonds aggregating $140,537,253.20. There 'were amendatory and supplemental acts affecting the original purposes expressed in act 130, pertinent parts of which are referred to in Roy Matthews v. Carl E. Bailey, Governor, et als., ante p. 703, 130 S. W. 2d 1006.

In the opinion in the Matthews Case it was held that until the General Assembly should act, there was no power in the governor and the state board of finance (a) to issue non-calla-ble bonds; (b) to give a pledge on highway’ revenues prior, to highway and toll bridge maintenance; (c) to pay interest on $2,253,013.64 of “B” bonds which, under the provisions of act 11 of 1934, were interest free; (d) to pay overlapping interest during October, November, and December, 1939, on bonds not callable until January 1, 1940; and (e) to pledge revenues affecting turnback percentages.

Thereafter, acting under constitutional authority, the governor convened the General Assembly in extraordinary session, as a consequence of which act No. 4 was passed. The measure was approved August 5,1939.

Act No. 4-authorizes issuance of general refunding bonds “. . . in an amount not exceeding in the aggregate the principal amount of obligations [of the state of Arkansas] issued and authorized to be issued under authority of act 11 of the Second Extraordinary Session of the Forty-ninth General Assembly, approved February 12, 1934.” It was further provided that the new bonds should be sold at not less than par and accrued interest, and should bear interest . . averaging over the life of such issue less than the average rates of interest borne by the obligations to be redeemed out of the proceeds of such sale over the life of those issues; provided, however, that such general refunding bonds shall include a principal amount of bonds, bearing interest at a rate not to exceed two per cent, per annum, and maturing not later than three years from their date, equal to the amount of outstanding obligations, to be redeemed out of the proceeds of such sale, which now bear no interest.”

An additional provision is that the refunding bonds “. . . may be issued and delivered not more than three months prior to the date upon which the obligations to be redeemed out of the proceeds of the sale of such general obligation bonds, or any of them, shall be redeemable. Such general refunding bonds shall mature, with or without option of prior redemption, in annual installments, beginning not later than the year 1942 and ending not later than the year 1977.”

It will be observed that express authority is granted for refunding, at 2 per .cent, interest, redeemable within three years, the so-called ‘ ‘ B ” bonds identified in the opinion of July 10th, amounting to $2,253,013.64; that power is conferred to pay overlapping interest for three months, estimated to be $475,346.69, 1 and that the bonds may be issued “with or without option of prior redemption”—in other words, callable, or non-callable.

Other provisions of the act will be commented on.

Machinery by which refunding operations may be carried out includes delegation to the governor of power to issue an executive order, to be filed with the secretary of state. In the order the governor must find that refunding would be to the best interest of the state. Certain definite pledges are authorized, language of the act being that the governor, with approval of the board of finance, “. . . is hereby authorized and empowered to make the following covenants and pledges in trust, which shall constitute an irrevocable contract between the state of Arkansas and the holders of such general refunding bonds. ’ ’

First, the governor may pledge to set aside, in trust, for the payment of principal and interest of the bonds, the first $7,500,000 or lesser sum payable annually into the state liighwaj' fund on and after October 1, 1939, from the revenues arising from any motor vehicle license fees or taxes, and from a tax on gasoline or other motor vehicle fuel of 5% cents per gallon, “. . . sufficient to pay bond and interest requirements and to create such sinking fund reserve as may be agreed upon by the governor with approval of a majority of the members of the board of finance.” The executive is further empowered to covenant, on behalf of the state, that while the bonds or interest are outstanding, neither motor vehicle license fees nor taxes shall ever be reduced below the rates prevailing as of the effective date of the act, “. . . nor shall the tax upon gasoline or other motor vehicle fuel, payable into the state highway fund, be reduced below 5% cents per gallon, except that whenever the revenues of the state highway fund shall exceed $15,000,000 per annum for three successive years, the General Assembly of the state of Arkansas may reduce the said motor vehicle license fees or taxes below the rate now prevailing, or may reduce the tax upon gasoline or other motor vehicle fuel, so long as such fees and taxes are estimated to certainly produce for the state highway fund not less than $15,000,000 per annum.”

The power is delegated to covenant that if reductions should be made, ixi consequence of which revenues fell below $15,000,000, the General Assembly will restore the reduced tax or license fees, or both, so that the original revenues will be attained. The governor may also covenant that when the revenues exceed $15,000,000, fifty percent. of the amount of such excess shall be paid as collected into a sinking fund. He may further covenant for the creation of a sinking fund into which shall be payable annually the difference between the amount of the principal and interest of the refunding bonds in any fiscal year, and the sum of $7,500,000, together with the amounts payable into the sinking fund reserve.

Section 5 of the act provides for the disposition of revenues not pledged for debt service, and certain appropriations are made from such contingent revenues. Other provisions of the act are not material to this opinion. Mention is made of the preceding pledges because they form the basis of controversial points.

Appellant alleges issuance of an executive order and its approval by the board of finance, then charges: (a) That the governor, the board of finance, and the state refunding board are without power to consummate the refunding plan because act No, 4 was not passed iix compliance with §§ 21 and 22 of art. 5 of the Constitution of Arkansas, and therefore the appropriations contained therein are void because the bill was not considered by the Committee of the Whole of the House of Representatives. (b) That at the time the executive order was signed, act No. 4 was not in effect because, notwithstanding the purported enactment of an emergency clause, such emergency clause failed on account of constitutional prohibitions, (c) That Paul Gutensohn, whom the governor had undertaken to appoint as a senator from the Fourth District, was one of 24 in the Senate who voted for adoption of the emergency clause; that the constitutioixal membership of the Senate was and is 35; that two-thirds of the full membership was necessary to enactment of the emergency clause, and that, eliminating Gutensohn’s vote, only 23 senators voted for such emergency. (d) That the act is a special act, and therefore prohibited by the Constitution, (e) That the order is void because it attempts to fund obligations authorized by act No. 11 of 1934, but which have never been funded, (f) That the act, in authorizing interest to be paid at 2 per cent, on certain bonds not presently drawing interest, violates Amendment No. 20 to the Constitution; and also that the same provision of the Constitution is violated through payment of interim interest on $47,534,-668.72 of bonds.

A sufficient answer to the allegation contained in subdivision “a” is that the Constitution does not require appropriation measures to be voted on by a committee of the whole. Each branch of the General Assembly may make its own rules and adopt its own procedure, subject only to the requirements expressed in the Constitution.

Subdivisions “b” and “e” will be discussed separately.

The act is not special, as alleged in subdivision “d.” The state may legislate with respect to its own affairs. Amendment No. 14 to the Constitution has no application here.

The objection urged in subdivision “e” is disposed of in the first footnote to- this opinion.

Questions raised in subdivision “f ” were determined adversely to appellant’s contentions in the Matthews-Bailey Case, supra.

In an amicus mriae brief filed by John P. Vesey, and in other briefs, it is insisted that act No. 4 is void because it delegates legislative powers to the governor. Specifically, complaint is made that the General Assembly did not authorize issuance of callable, or non-callable, bonds. The provision relating to callability has been quoted, supra. While constitutional questions may be raised for the first time on appeal, it is our view that this phase of the controversy should be more exhaustively briefed, and we therefore decline to pass upon the issue at this time. •

The remaining matters of controversy are: (1) Does act No. 4 create vested rights, and (2) was the Senate’s vote on the emergency clause sufficient to enact it ?

A provision of Amendment No. 7 to the Constitution is that “. . . axx emergency shall not be declared oxx axxy franchise or special privilege or act creating any vested right, or interest, or alienating any property of the state.”

It is urged b}^ appellees that four things are set up in the constitutional amexxdmexit, affecting which axx emergency clause would be ixxvalid: A franchise, a special privilege, an act'creating a vested right or interest, axx act alienating any property of the state. Admittedly, act No. 4 does xxot create a franchise, a special privilege, or alienate any property of the state. If the measure falls withixx aixy of the elassificatioxis as to which an emergency caxxnot be declared, it must be the third division'—an act creating a vested right or interest. Appellant says that if one has a vested right or interest, he has fixed, settled, or absolute right; that “vested” is primarily interpreted as meaning “free from all contingencies.” In Steers v. Kinsey, 68 Ark. 360, 58 S. W. 1050, it was said: .“A vested right must be something more than a mere expectatioxx based upon the anticipated continuaxrce of existing laws. It must have become a title to the present or future enjoyment of the property in some way or another. Parties have ixo vested rights in remedies or matters of procedure.” It is also well settled that no one has a vested right in a public law. Robinson v. Robinson, 193 Ark. 669, 101 S. W. 2d 961.

After citing the foregoing language, appellees say:

“In other words, before an act would come under the classification of granting a vested right or interest, it must be one that grants or transfers to an individual, person, or corporation, some right or interest which he or it is immediately entitled to use. . . It is true that various steps can be taken by the governor and by the board of finance which will ultimately result in the sale of the bonds, which bonds will be secured by a pledge of revenues. The holders of these bonds will have vested rights, as was said in the case of Hubble v. Leonard, 6 F. Supp. 145, cited in appellant’s brief, but they do not receive those vested rights upon the passage and approval of this act, because the act does not grant any vested rights. Any right that anyone may obtain under this act will be contingent upon action being, taken by the governor and board of finance. A vested right is one that does not depend upon any contingencies; therefore, the act itself creates no vested rights or interests.”

In another paragraph appellees say: ‘-‘If the act created a vested right, then, unquestionably, the Legislature would have no authority to enact it as an emergency measure. ’ ’

Appellees also insist that act No. 4 is not subject to referendum because Constitutional Amendment No. 7, which authorizes such procedure in proper cases, was repealed by Amendment No. 20 to the Constitution. Amendment-No. 20 is:

“Except for the purpose of refunding the existing 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 evidence 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 at a special election called for that purpose.”

Appellees’ comment is: “While Amendment No. 20 does not positively or affirmatively say that refunding-bonds are not to be approved by a vote of the people, it absolutely negatives any requirement that they must receive such approval. The right to vote on a question can be taken away either by a positive statement to that effect or by a negation of the right.. Before Amendment No. 20- was adopted, the people were given the right by Amendment No. 7, under certain conditions (filing necessary petitions by a certain time) to vote on an act of the Legislature authorizing issuance of refunding bonds, but Amendment No. 20 takes this right away—not by a positive, but by a negative statement'.”

Our view is that the two amendments do not conflict in the slightest degree—suggestively, remotely, inferentially, or by any other method of construction. We do not think that when Amendment No. 20 was written, Amendment No. 7 was even thought of by authors of the new proposal; and certainly the people in adopting the last amendment did not visualize or meditate the refinement of language here urged. There is no implication that repeal was intended, or that there was a purpose to supersede the referendum.

At the time Amendment No. 20 was proposed, and when it was adopted, enormous public obligations were outstanding. It was recognized that (short of a miracle which was not expected and has no't materialized) the state could not pay its highway obligations and provide for payment of road improvement district bonds according to the tenor of the numerous promises. Hence, funding and refunding were essential. Because the state’s direct obligations were largely involved, and because property of citizens in half of the counties of Arkansas was pledged, it was felt that these liabilities should be recognized without the formality of referendum or referenda; but as to future pledges, the plan was to circumvent them unless there should be' public approval. Hence, Amendment No. 20.

In preceding paragraphs we have copied from appellees’ brief their argument in refutation of the contention that act’No. 4 creates a vested interest. Appellees, however, concede correctness of appellant’s position, but seek to avoid the consequences through interjection of Amendment No. 20. Before this amendment was adopted, appellees say, the people had a right to vote on legislative measures authorizing issuance of refunding-bonds. Appellees further say that such right arose because of Amendment No. 7, and that the right was perfeeted when petition was filed “by a certain time.” The right to refer and thereby to suspend operation of a legislative act extends only to measures to which the emergency clause is not attached. Measures carrying the emergency clause may be referred, but the law is in force until an adverse vote has been registered by the people in the manner provided by the amendment. But, as appellees have pointed out, under Amendment No. 7 the people were given the right to vote on an act authorizing the issuance of refunding, bonds, and that right exists because an act creating vested interests is not subject to the emergency clause, and because refunding bonds' which pledge revenues in trust, executed under the plan of act No. 4, are sustained by vested interests. If the bonds were not so secured there would be no purchasers, and an attempt to refund would be futile.

In seeming disregard of the foregoing declaration —a declaration which necessarily carries an admission that Amendment No. 7 provides for a vote by the people “on an act of the Legislature authorizing issuance of refunding bonds”—appelleesUrge that act No. 4 does not create vested interests because there must be an acceptance of the governor’s offer to sell bonds before an investiture is completed; and before such acceptance is possible the period of 90 days within which petitions may be filed shall have expired. Therefore, by lapse of time which cannot be prevented, the right of the people to move in their own interest becomes barred, and the Vested interest of bond purchasers arises through a process of construction wholly lacking in logic, and entirely devoid of that degree of common sense which mature minds ordinarily apply in dealing with serious matters.

To say that an act of the Legislature does not create a vested interest, but that such status occurs only when under terms of the act which delegates to an official plenary power to contract on behalf of the state, to pledge its full faith and credit and all of its resources, and particularly to set aside annually in trust millions of dollars arising from excise and other taxes—to say that the act itself does not create a vested interest within the meaning of Amendment No. 7, hut that acceptance of the official’s offer is necessary before the relationship in question arises, is to argue that the greater does not include the lesser. It is to insist that intent may be warped at the call of interest, and it is to admit that words and phrases may be mutilated and deprived of their symmetry at the instance of convenience, and distorted if need be to create a breach in reason.

The next question is, Was Paul Gutensohn a member of the Senate, either de jure or de factof

Fred Armstrong was elected senator in 1938 to represent the Fourth Senatorial District. He died December 10th of the same year. Paul Gutensohn was appointed by the governor to succeed Armstrong, and took the oath of office. The record does not disclose a finding by the Senate that he was a member of that body, although he served actively. He was not paid as members are ordinarily paid, but received compensation as the result of an act passed by-more than two-thirds of both branches of the General Assembly, and signed by the governor. Act 81 of 1939.

Amendment No. 7 to the Constitution contains the following provision: “If it shall be necessary for the preservation of the public peace, health and safety that a.measure shall become effective without delay, such necessity shall be stated in one section, and if upon a yea and nay vote two-thirds of all the members elected to each house . . . shall vote upon a separate roll call in favor of the measure going into immediate operation, such emergency measure shall become effective without delay. It shall be necessary, however, to state the fact which constitutes such emergency.”

After the bill which became act No. 4 had finally passed the Senate, a separate vote was had upon the emergency clause. Twenty-three senators and Mr. Gutensohn voted in favor of the emergency, and it was declared carried.

It is now insisted that 35 members were elected to the Senate-; that two-thirds of that number is 24; that Gutensohn’s vote was not the vote of a senator and should not be counted, and that without such vote the emergency failed.

It will -be conceded' that the governor has not the power to appoint members of the Legislature, and has never had. But the practice of making such appointments has persisted. As an express condemnation of the policy of appointing, Amendment No. 29 to the Constitution was adopted November 8,1938, and became effective thirty days thereafter. By § 1 it provides: “Vacancies in the office of United States senator and in all elective state, district, circuit, county and township offices, except those of lieutenant governor, members of the General Assembly and representatives in the Congress of the United States, shall be filled by appointment by the governor.” The attempt to appoint Gutensohn was made January 4, 1939.

Appellees contend that even though the power of appointment was wholly lacking, the appointment was in fact made, and that Gutensohn entered upon his duties, and thereby became a member of the Senate, de facto. If indeed his status was that of de facto officer, third parties affected by his activities are not to be penalized. By quo warranto proceedings his right to act should have been questioned. It has been held that the chancery court lacks jurisdiction to pass upon the qualification of a member of the General Assembly. Davis v. Wilson, 183 Ark. 271, 35 S. W. 2d 1020. There are other similar decisions, and the rule seems to be that if an official acts under color of office, even though he is not in fact an officer, proceedings in which he participates are not rendered invalid, even though the majority by which determination of a question was arrived at may have depended upon his vote. He may not, however, profit personally by his own -misconduct.

Appellees direct attention to § 11 of art. V of the Constitution, which provides that ‘ ‘ Each house shall appoint its own officers and shall be sole judge of the qualifications, returns and election of its own members.” It is urged that inasmuch as Gutensohn was apparently accepted by the Senate, the effect was a determination by that body that he had a right to membership; therefore, in spite of the Constitution and the known fact of his status, the question of eligibility, it is argued, cannot be raised collaterally.

No court should be so technically hide-bound. The Constitution was made to be interpreted and enforced. When the judiciary was created there was no intent that it should side-step responsibility and hide behind precedent in an effort to promote a harmonious confluence of incompatible elements.

We find no case of our own holding that legislation enacted by the vote of a stranger to the Senate or the House is sacrosanct. There are no instances where it has been said that designation by appointment contrary to the Constitution shall have the force of election, or that the admitted right of the Senate and the House to judge of the qualifications, returns and election of members goes to the extent of nullifying the Constitution. Those elected to the General Assembly take an oath to support the Constitution, and there is no presumption that senators and representatives do not intend to adhere to the basic law, and they do attempt to obey it.

At page 589, § 307, of 22 Ruling Case Law, it is said :

“The de facto doctrine was introduced into the law as a matter of policy and necessity, to protect the interests of the public and individuals, where 'those interests were involved in the official acts of persons exercising the duties- of an office, without being lawful officers. It was seen that it would be unreasonable on all occasions to require the public to inquire into the title of an officer, or compel him to show title, especially since the public has neither the time nor the opportunity to investigate the title of the encumbent.”

At page 596, § 318, the same authority says:

“One of the important classes of de facto officers consists of those who enter into the possession of an office and exercise its functions by reason of an appointment which is informal or defective. As already seen, the defective appointment constitutes color of title or color of appointment. Therefore, the general rule is that when an official, person or body, has apparent authority to appoint to public office, and apparently exercises such authority, and the person so appointed enters on such office, and performs its duties, he will be an officer de facto, notwithstanding there was want of power to appoint in- the body or person who professed to do so, or although the power was exercised in an irregular manner.”

In the instant case there was no apparent authority to appoint Gutensohn; and, although the latter served energetically and with a high degree of intelligence, the-service was not that of a senator; nor could he have been a de facto officer in view of the want of apparent authority by the appointive agency.

In Oliver v. Southern Trust Company, 138 Ark. 381, 212 S. W. 77, it was held that a valid appropriation of money to pay the cost of an exhibit for Arkansas at the Panama-Pacific Exposition in 1915 required a vote of two-thirds of the members elected to each branch of the General Assembly. This case is authority for the holding that where, by the plain language of Amendment No. 7 two-thirds of the members elected to each branch of the General Assembly are necessary to enactment of the emergency clause, two-thirds of 35 elected members must vote in the -Senate, else such emergency has failed. When Gu'tensohn’s vote (which was not in fact a vote) is subtracted from the total of 24, it follows that the remaining 23 votes fell short of the required two-thirds. Cases from other (jurisdictions sustain this holding, although there is some authority to the contrary.

The chancellor’s decree in sustaining appellee’s demurrer to the complaint is reversed, and the cause is remanded with directions to' proceed in a manner not inconsistent with this opinion.

■Smith, MoHaney, JJ., and Holland, Special J., dissent.

1 The term “estimated” is used because experience has shown that interest coupons on bonds are not always presented for payment. They become lost, or are destroyed, or through indifference the holders do not act. Under Item III of appellant’s brief (the brief signed by Milton McLees, O. H. Nixon, and E. Charles Eichenbaum), beginning at page 55, it is urged that the executive order is void for the reason that direction is given for issuing bonds aggregating $568,-452.01 “. . . that have not been refunded under the provisions of act 11.” Appellant seemingly overlooks the fact that act No. 4 authorizes not only the refunding of obligations funded by act 11, but it also authorizes the funding of obligations authorized to be issued.