Case Name: SPENCE v. UTAH STATE AGR. COLLEGE et al.
Court: Utah Supreme Court
Jurisdiction: Utah
Decision Date: 1950-12-08
Citations: 119 Utah 104
Docket Number: No. 7573
Parties: SPENCE v. UTAH STATE AGR. COLLEGE et al.
Judges: WADE and McDONOUGH, JJ., concur.
Reporter: Utah Reports
Volume: 119
Pages: 104–142

Head Matter:
SPENCE v. UTAH STATE AGR. COLLEGE et al.
No. 7573.
Decided December 8, 1950.
(225 P. 2d 18)
See 14 C. J. S. Colleges and Universities, Sec. 16. Resort to debates of constitutional convention as aid in construing constitution, see note, 70 A. L. R. 6. See, also, 11 Am. Jur. 706.
Benjamin Spence, Salt Lake City, for plaintiff.
Clinton D. Vernon, Atty. Gen., for defendant.
Wm. H. Leary, Salt Lake City, amicus curiae.

Opinion:
LATIMER, Justice.
This is an original action commenced in this court by plaintiff to restrain the Utah State Agricultural College, a corporation, and its Board of Trustees, from proceeding further in the proposed issuance of bonds authorized to be issued and sold by Chapter 126, Laws of Utah, 1947.
In view of the importance of the questions originally suggested, and because the University of Utah believed it might be adversely affected by a decision in this case, permission was granted by this court to have counsel for that institution file a brief as amicus curiae..
In 1947, the legislature of this state enacted Chapter 126, Laws of Utah, 1947, which authorized and empowered the Board of Trustees of the Utah State Agricultural College to construct, equip and furnish buildings, or additions to existing buildings, on the campus of the Utah State Agricultural College; to issue revenue bonds to finance the cost of the construction; to fix rents, charges ánd fees to assure payment of principal and interest on such bonds; to enter into agreements to effect the purposes of the act; to make agreements with the United States of America or any agency or instrumentality thereof; and to lease or contract with certain non-profit corporations.
.The Board of Trustees of the college, pursuant to this act, complied with the provisions necessary to issue bonds in the sum of $750,000 for the purpose of erecting a Student Union Building. Plaintiff seeks.to restrain the sale and disposal of the bonds. ' ;
In the original petition filed by plaintiff it was sought to limit the court to a determination of one question only, namely, whether or not the proposed bonds constituted a debt within the meaning of the provisions of Section 2, Article XIII, and Section 1, Article XIV of the Constitution of the State of Utah, and therefore, invalidly authorized and issued because of violating the provisions of the two sections. Amicus curiae, however, sought to enlarge the issues and bring into focus all of the constitutional questions which have arisen in connection with numerous attempts by the legislature to control and supervise the fiscal policies, operations and functions of the two state institutions.
After giving consideration to the questions presented by the brief of amicus curiae, we have concluded that the principles therein discussed, with one exception — namely, is the Board of Trustees of the college legally constituted.? —are severable from the issues presented by the Agricultural College and need not be discussed in this opinion.. We dispose of this one question to set at rest any uncertainty as to the powers of the present Board to act within statutory or constitutional limits.
The legislation pertaining to the Utah State Agricultural College up to the time of statehood is substantially as follows: By Chapter II, Compiled Laws of Utah 1888, page 663, § 1852-1857, 1862, 1868, 1870, the Agricultural College of Utah was created. For convenience of the reader, sections of the chapter important to this decision are set out in full:
"s. 1. There shall be established the Agricultural College of Utah, to be located at any place in Cache county that may be designated by the trustees.
"s. 2. For the purpose of erecting suitable school buildings and purchasing land on which to conduct agricultural experiments, the sum of twenty-five thousand dollars, or so much thereof as is necessary, is hereby appropriated out of any money in the Territorial treasury not otherwise appropriated.
"s. 3. The Governor and secretary of the Territory, and the assessors of the counties of Cache, Davis, Utah, Salt Lake and Sanpete counties and their successors in office shall be ex-officio trustees of the agricultural college.
"s. 4. The trustees shall elect one of their number a president, and shall appoint a superintendent, a secretary, and treasurer. Said trustees shall take charge of the general interests of the institution, and shall have power to enact by-laws and rules for the regulation of all its concerns, not inconsistent with the laws of the Territory. They shall have the general control and supervision of the agricultural college, the farm pertaining thereto, and such lands as may be vested in the college by Territorial legislation, of all appropriations made by the Territory for the support of the same, and also of lands that may hereafter be donated by the Territory, or the United States, or by any person or corporation, in trust for the promotion of agricultural and industrial pursuits. They shall be required to immediately enter upon the duties of their office, and shall, with the exception of the Governor and secretary, qualify by giving bonds with security to the people of the Territory of Utah in the penal sum of one thousand dollars each, conditioned for the faithful performance of the duties of their office, to be approved by and filed with the auditor of public accounts.
"s. 5. The trustees shall have supervision of the erection of the college buildings, and shall make all purchases and contracts for said buildings in accordance with such plans, drawings and specifications as the said trustees shall have adopted. They shall, in all contracts entered into, require bonds to be given for the faithful performance of the same, and shall keep an accurate record of their proceedings, which shall embrace copies of all contracts entered into, and a minute and accurate record of all expenditures showing the amount paid, to whom paid, and for what service rendered, and materials purchased, and whether paid on account or in performance of contract; and for all payments made vouchers shall be taken.
"s. 6. The trustees shall make a report to the next general Assembly of the Legislature, showing the amount of work done, the condition of the buildings, a detailed account of the expenditures on the same, the amount of land bought, its cost and condition and the improvements thereon.

"s. 11. When the said college shall be ready for organization the trustees shall establish the proper professorships, and appoint the professors and officers with their salaries and compensations. They can remove such officers at their pleasure.

"s. 17. The trustees shall with the advice of the faculty prescribe the books to be used in the institution, and confer for similar or equal attainments, similar degrees and testimonials to those conferred by agricultural colleges elsewhere.
*
"s. 19. The trustees of the agricultural college shall take charge of the agricultural experiment station, purchase suitable lands, erect needed buildings and appoint necessary officers and assistants to conduct the experiments mentioned in the preceding section. They shall cause Bulletins and reports of progress to be published and mailed as required in the act of Congress aforementioned."
In 1892 the Legislative Assembly for the Territory of Utah, Laws 1892, c. 37, amended the Act of 1888, the amendment of importance being that which affected Section 3, dealing with who were to be the trustees. After the amendment, the section read as follows: "The governor shall appoint, subject to confirmation by the Council, seven trustees of the college."
The foregoing acts are the only legislative pronouncements up to and including the year 1896. It was with this legislative history as a background that the Constitutional Convention considered Article X, Section 4, of the Constitution of the State of Utah, which, as enacted, provided as follows:
"The location and establishment by existing laws of the University of Utah, and the Agricultural College are hereby confirmed, and all the rights, immunities, franchises and endowments, heretofore granted or conferred, are hereby perpetuated unto said University and Agricultural College respectively." (Italics ours.)
For the purposes of this case we need not determine with refinement or nicety what the Constitutional Convention intended to grant to the Agricultural College when it used the phrase "all rights, immunities, franchises and endowments heretofore granted or conferred." We need only discuss whether, by the use of this terminology, the framers of the Constitution intended to freeze the size and composition of the Board of Trustees of the College so that its membership could not be increased by subsequent legislatures. In this connection we call attention to the fact that the trustees of the college are not contesting the acts of the legislature. Over the years they have accepted the legislative mandates, reorganized the board to comply with a number of legislative changes including those prescribed by Chapter 41, Laws of Utah, 1929, which vested control and supervision of the college in a board of trustees consisting of the Secretary of State and twelve resident citizens to be appointed by the Governor, and more recently reorganized to comply with the provisions of Chapter 90, Section I, Laws of Utah 1945, which provides for a board of fourteen members. Furthermore, they are presently acting in accordance with the legislative provisions which authorized the issuance of bonds.
In order to determine whether the legislative acts changing the number of trustees are constitutional, so that the board of trustees can exceed seven members, it becomes necessary to determine whether or not the amending sections in any way contravene the provisions of Article X, Section 4, previously quoted. If the legislative acts are not in conflict with the constitutional provision, it becomes our duty to give the latest one force and effect.
Prior to the adoption of the constitutional provision, the territorial legislative assembly had majde changes in the composition of the board of trustees. During the early days of its existence the college was not set up as a separate public corporation and the Legislative Assembly assumed the power to change its governing body. In the discussions on the constitutional provision by members of the Constitutional Convention no reference was made to the number of members which would constitute the board and no discussions or statements axe recorded which would in any way indicate an intent to fix the size and composition of the board in perpetuity. The constitutional article does not specifically fix the number of members, and, while the article does make mention of perpetuating the rights, franchises, immunities and endowments previously granted, its wording does not, even by implication, suggest an intent to oust the legislature from ever dealing with any affairs of the college, be the dealing favorable or prejudicial to its welfare. In addition, we have a contemporaneous construction by the 1896 legislature as it concluded the constitutional provision did not prevent a change in the board of regents of the state university. The legislative guide-posts further show that the territorial assembly and the Constitutional Convention were solicitous of the welfare of the school and it would appear unreasonable for us to contrarily assume the convention intended to fix with finality a board of seven members and thus prevent subsequent legislatures from granting to the college an opportunity to obtain additional help and advice if the institution developed in size and importance. Such an intent might be considered as contrary to the best judgment of ordinary men and inimical to the welfare and advancement of the college. Accordingly, it Would require positive pronouncements in the Consti tution before we would find that the members of the Constitutional Convention intended to forever close the door on the right of subsequent legislatures to increase the number of trustees.
A doctrine firmly established in the laws of most jurisdictions is that a state constitution is in no manner a grant of power, it operates solely as a limitation on the legislature, and an act of that body is legal when the constitution contains no prohibition against it. This state is committed to that doctrine. In the case of Salt Lake City v. Christensen Co., 34 Utah 38, 95 P. 523, 525, 77 L. R. A., N. S., 898, Mr. Justice FRICK supported the rule in the following language:
"It is too well settled to require more than passing mention that state Constitutions are mere limitations and not grants of powers."
Another doctrine of constitutional law which is applicable in the present instance is referred to by Mr. Justice FOLLAND in the case of Tintic Standard Mining Co. v. Utah County, 80 Utah 491, 15 P. 2d 633, 637. In that case he stated:
"We are restricted to this definition because of another canon of constitutional construction that terms used in the Constitution must be taken to mean what they meant to the minds of the voters of the state when the provision was adopted."
With these rules in mind, we search the enactments of the Territorial Assembly to determine whether there was an express or implied limitation on the power of the legislature to change the board of trustees and what the terms "rights" and "franchises" meant to the people of the territory and the state when the constitutional article was adopted. We have eliminated immunities and endowments as not being involved in this action and thus limit our discussion to rights (powers) and franchises. We assume for- the purposes of this case that all rights and franchises which had been granted prior, to statehood were per petuated; that the Constitution did not enlarge upon those which had been granted, but merely recognized the ones in existence at the time the Constitution was adopted.
Dealing first with the rights, the Territorial Assembly authorized the existence and operation of the college, but it was not created as a separate public corporation. The act, as amended in 1892, provided for a board of trustees and clothed it with the following powers: To enact bylaws and rules for the regulation of the college not inconsistent with the laws of the territory; to control and supervise the college, the farm pertaining thereto, and such lands as the college might obtain; to control and supervise all appropriations made by the territory for the support of the college; to supervise the erection of the college buildings; to purchase and contract for buildings; to select and appoint professors, instructors and other officers and assistants of said college; to prescribe the books to be used in the institution; to establish an agricultural experiment station; and to exercise such other powers as might be incidental or necessary to carry out the expressed powers.
In this specific enumeration of powers there was no mention made of the right of the board of trustees to select its personnel and that right is specifically exempted by the provision of the act of 1892 which prescribes that the Governor shall appoint the trustees, subject to confirma-, tion by the legislative council.
From the wording and structure of the two acts passed prior to the adoption of the Constitution we conclude that when the members of the Constitutional Convention use the words "rights heretofore granted or conferred" and when the people of the territory ratified the Constitution they intended to grant to the board of trustees the same rights to cbntrol the affairs of the college as might be granted to; the goyérning bodies of other unincorporated institutions or departments of the state, but that they did not intend to grant to the trustees the right to form and operate as a corporate entity. All acts dealing with the college are silent as to the entity created and so, by failing to expressly form a corporation and by failing to vest the usual corporate powers in the board of trustees, there was indicated an intention to continue the college as an arm of the state. The grant to the trustees was to supervise and control the college activities, not to determine the personality of nor the number necessary to constitute the board, unless those rights and privileges can be considered as having been granted because they are the essence of and included in a franchise.
In discussing the nature and extent of any franchise that might have been granted by our constitutional provision, we desire first to direct attention to the dissimilarity in the cases cited by amicus curiae and the present action. The states of Minnesota and Idaho have a constitutional provision similar to Article X, Section 4, supra, and each jurisdiction has considered the extent of the franchise granted. In those jurisdictions, prior to the time the constitutions were adopted, the legislative bodies created the colleges as public corporations with all corporate rights and privileges. In the state of Michigan the constitutional provision continued the university as a public corporation which had been previously granted corporate powers.
The act creating the University of Minnesota, Laws 1851, c. 3, § 7, which is quoted in State ex rel. Peterson, Atty. Gen. v. Quinlivan, 198 Minn. 65, 268 N. W. 858, 860, provides as followá:
"Sec. 7. The regents .of the university and their successors in office, shall constitute a body corporate, with the name and style of the 'Regents of the University of Minnesota,' with the right as such, of suing and being sued, of contracting and being contracted with, of making and using a common seal, and altering the same at pleasure."
The Constitution of the state of Michigan, as quoted in the case of Sterling v. Regents of the University of Michigan, 110 Mich. 369, 382, 68 N. W. 253, 256, 34 L. R. A. 150, Article 13, Sec. 7, of the Constitution of 1850, provides:
"The regents of the university, and their successors in office, shall continue to constitute the body corporate, known by the name and title of the 'Regents of the University of Michigan.' "
The Act creating the University of Idaho, as quoted in the footnote in the case of Dreps v. Board of Regents of the University of Idaho, 65 Idaho 88, 139 P. 2d 467, 468, provides as follows:
"Sec. 3. The Board of Regents and their successors in office, shall constitute a body corporate, by the name of 'The Regents of the University of Idaho,' and shall possess all the powers necessary or convenient to accomplish the objects and perform the duties prescribed by law, and shall have the custody of the hooks, records, buildings and other property of said University. " 15th Territorial Sess. Laws (1888-89) pp. 17-21.
To illustrate why the courts of last resort of those jurisdictions concluded their state constitutions created a constitutional corporation untouchable by subsequent legislatures we quote from the case of State ex rel. Peterson, Atty. Gen., v. Quinlivan, 198 Minn. 65, 268 N. W. 858, 861, supra:
"We come next to evaluation (to the extent presently needed) of the 'franchises' confirmed and perpetuated by the State Constitution. If government by 12 regents, elected by joint convention of the Legislature, is part of such franchises, as we hold it is, there is an end of the matter. It may or may not be important that the plural 'franchises' was used. The mere right to be a corporation is seldom, if ever, all there is of the principal franchise of a corporation. It includes also the quality of durability, and the manner chosen to insure succession for a limited period or in perpetuity.
"The regents at the time being were the 'body corporate.' (Laws 1851, c. 3, § 7.) How was it to be perpetuated? What was the mechanism of corporate succession? How was its proper working assured? If the Constitution has answered, it is not for the Legislature, but only for the people themselves, by amendment, to change the answer. What are the scope and context of a franchise to be a corporation is not to be answered by affirming merely that it confers the right to be a corporation. Remains consideration of, and answers to, the queries: What kind of a cor poration? How to be governed and for what purpose? In what manner and to whom is succession to go?
"We are considering a 'primary or creating franchise' (3 Thompson, Corporations £2d Ed.J § 2863) and not 'secondary or special franchises' (Id. § 2865). 'The right to be a corporation' is the primary franchise, residing 'in the corporation itself. Unlike a conventional contract between natural persons, the state is a party to it, and when the legislature has prescribed the nature and extent of the franchise, and how it shall be exercised, the courts will never permit it to be enlarged or changed by a usage or custom in violation of the statute.' State ex rel. Brun v. Oftedal, 72 Minn. 498, 514, 75 N. W. 692, 697. It is but axiomatic that, if the franchise be granted by a Constitution, it cannot be diminished by a statute. It is the primary franchise that gives corporate life. Hence, its inclusions cannot be delimited without determining what kind of life is given, to what purpose it is to be lived, and by what members. The organ designated by the 'creating franchise' for insuring corporate functioning and continued life is as much part of the franchise as are its organs part of that unit known as the human body."
As previously mentioned the acts passed by the territorial legislative assemblies of the Territory of Utah did not create a public corporation and so the Constitution could not perpetuate one. This poses the question as to why the Constitution was worded to include the term "franchises." To escape the claim that a legislative body is presumed not to have used useless words and phrases, we look to the acts of the legislative assembly to determine what that body intended to grant when it used that term. While the right to be, or to exercise the powers of, a corporation may be one element of a franchise, the term is often used in a broader sense. It has been said that a franchise is a right or privilege granted by the sovereignty to one to do some act or acts which he could not do without the grant. The exact line of demarcation between a right and a franchise granted by a state may not be clearly drawn, but in view of the fact that Article X, Section 4, deals with both the Agricultural College and the University of Utah (which was a public corporation), and that legislative acts prior to the Constitution had conferred many rights and privileges upon the trustees or regents of the institutions, the members of the Constitutional Convention may have concluded that in order to assure perpetuation of those things which had been previously granted, all-inclusive language should be used. Even though all-inclusive language was used it is contrary to the expressions of a contemporaneous legislature to hold that the word "franchise" included a right to fix the size of the board of trustees. In 1896 the size and manner of appointing regents to the University of Utah was changed and this definitely indicates a belief by the people who were familiar with the subject that this right to mold the governing body to meet changing conditions had been reserved to the people and not granted to the institution.
At the time of statehood the Agricultural College did not have autonomy but was merely a state institution and any franchise granted by the Constitution did not perpetually fix the form nor nature of its governing body nor limit the number of trustees that might be appointed to administer its affairs. At least these two matters were left free for subsequent legislatures to deal with. This being so, we hold the board of trustees is legally constituted. We need not and do not pass on the right of the legislature to deal with any other or different rights, immunities, franchises or endowments which might have been granted to the colleges by the Constitution.
The principal issue which precipitated this litigation revolves around the question of whether the bonds when issued create a debt against the State of Utah. In the year 1947, there was duly passed and enacted by the legislature of this state an act providing for the construction of certain buildings on the campuses of the University of Utah and the Utah State Agricultural College, with certain restrictions of liability, for payment of the bonds.
Chapter 126, Laws of Utah, 1947, insofar as necessary to this decision, is as follows:
"That for the purpose of paying all or part of the cost of the construction, equipment, and furnishing of any such building or any addition to or remodeling of existing buildings, the Board of Regents and/or the Board of Trustees of the institution for which such building or addition to or remodeling of existing buildings (hereinafter referred to as 'the building') is to be constructed, furnished, and equipped (which Board of Regents or Board of Trustees are hereinafter referred to as 'the Board') is authorized to borrow money on the credit of the income and revenues to be derived from the operation of • the building, and on the imposition of student building fees or both, or from other sources other than by appropriations by the Legislature of the State of Utah to such issuing institutions and in anticipation of the collection of such income and revenues, to issue negotiable bonds in such amount as may in the opinion of the Board be necessary for such purposes, and is authorized to provide for the payment of such bonds and the rights of the holders thereof as hereinafter provided.
"That the bonds issued hereunder shall not be an indebtedness of the State of Utah or of the institution for which they are issued or the Board of Regents or Board of Trustees thereof, but shall be special obligations payable solely from the revenues to be derived from the operation of the building and student building feés, etc., and the Board is authorized and directed to pledge all or any part of such revenues to the payment of principal of and interest on the bonds. "
In accordance with this act the Board of Trustees of the Utah State Agricultural College enacted appropriate resolutions authorizing the issuance and sale of the bonds and prepared a form of bond which substantially complies with the legislative act. There is included in' the resolution the statement that "the bonds are issued under and pursuant to Chapter 126 of the Laws of Utah, 1947," and in the body of the bond it provides that the bonds are special obligations payable solely from revenue to be derived from the operation of the union building, including the proceeds of student fees, and that the bond is not an indebtedness of the State of Utah, or the Utah State Agricultural College, or the Board of Trustees.
Plaintiff complains that the issuance of the bonds in the manner proposed is in contravention of Article XIII, Section 2, and Article XIV, Section 1, of the Constitution of this State. These sections are as follows:
"All tangible property in the State, not exempt under the laws of the United States, or under this constitution, shall be taxed in proportion to its value, to be ascertained as provided by law. The property of the United States, of the State, counties, cities, towns, school districts, municipal corporations and public libraries, lots with the buildings thereon used exclusively for either religious worship or charitable purposes, and places of burial not held or used for private or corporate benefit, shall be exempt from taxation. Water rights, ditches, canals, reservoirs, power plants, pumping plants, transmission lines, pipes and flumes owned and used by individuals or corporations for irrigating lands within the state owned by such individuals or corporations, or the individual members thereof, shall not be separately taxed as long as they shall be owned and used exclusively for such purposes. Power plants, power transmission lines and other property used for generating and delivering electrical power, a portion of which is used for furnishing power for pumping water for irrigation purposes on lands in the State of Utah, may be exempted from taxation to the extent that such property is used for such purposes. These exemptions shall accrue to the benefit of the users of water so pumped under such regulations as the legislature may prescribe. The taxes of the indigent poor may be remitted or abated at such times and in such manner as may be provided by law. The legislature may provide for the exemption from taxation of homes, homesteads, and personal property, not to exceed $2,000 in value for homes and homesteads, and $300 for personal property. Property not to exceed $3,000 in value, owned by disabled persons who served in any war in the military service of the United States or of the State of Utah and by the unmarried widows and minor orphans of such persons may be exempted as the legislature may provide.
"The legislature shall provide by law for an annual tax sufficient, with other sources of revenue, to defray the estimated ordinary expenses of the state for each fiscal year. For the purpose of paying the state debt, if any there be, the legislature shall provide for levying a tax annually, sufficient to pay the annual interest and to pay the principal of such debt, within twenty years from the final passage of the law creating the debt." Article XIII, Section 2, as amended Nov. 5, 1946.
Article XIV, Section 1, of the Constitution of Utah, provides:
"To meet casual deficits or failures in revenue, and for necessary expenditures for public purposes, including the erection of public buildings, and for the payment of all Territorial indebtedness assumed by the State, the State may contract debts, not exceeding in the aggregate at any one time, an amount equal to one and one-half per centum of the value of the taxable property of the State, as shown by the last assessment for State purposes, previous to the incurring of such indebtedness. But the State shall never contract any indebtedness, except as in the next Section provided, in excess of such amount, and all monies arising from loans herein authorized, shall he applied solely to the purposes for which they were obtained. (As amended November 8, 1910.)"
For the purposes of this case we will assume, but not decide, that if the bonds are an obligation of the state their issuance would be prohibited by the constitutional provisions.
Plaintiff relies principally upon the holding of this court in the case of State ex rel. University of Utah v. Candland, 36 Utah 406, 104 P. 285, 24 L. R. A., N. S., 1260. In that case the legislature passed an act which permitted the regents of the University of Utah to expend $250,000 to erect a central building on the University campus. The State Board of Land Commissioners was directed to convert sufficient investments of the University permanent land fund into cash and to loan the same, as well as other cash on hand, to the University, with the provision that the loan would create a debt on the part of the University but not of the State of Utah. The act further provided that interest on the investments of - the University land fund should be paid to the University of Utah; and, that the Board of Regents of the University was authorized and empowered to pay the principal and interest due on the obligations out of funds appropriated for its general maintenance.
The contention in that case was that the act violated certain constitutional provisions and the important principle there announced was that that act created an obligation which must be paid by the state. The following language of Mr. Justice FRICK points to the reason for that holding, 36 Utah at page 427, 104 P. at page 294:
" The legal effect of the act of 1909, so far as it affects the relations of the university and the state, may be said to be that while the obligation authorized by the act is in terms made the debt of the university, yet, in the same act, the university is entirely absolved from the duty and burden of paying it, while the state is made to assume this duty, and is thus made the real debtor. If this be so, it becomes entirely immaterial whether the board of regents executed the notes provided for in the name of the university or not. The state must, nevertheless, pay both the principal and interest of those notes, if they are paid at all. These notes, therefore, both in law and fact, are state obligations. But it is nevertheless contended that the notes are in fact the notes of the university and thus do not constitute a state indebtedness, and hence do not fall within the constitutional debt limit any more than debts of counties, cities, school districts, and other like agencies of the state come within this limit. We cheerfully concede that county, city, and school district debts are not state obligations, and do not come within the constitutional inhibition. Prom the facts and circumstances disclosed, however, it seems clear that the debt in question is not analogous to an ordinary county, city, or school district debt.
"But apart from all that has been said, we think it is a state obligation for other reasons. The legislative act itself placed the duty upon the state to pay it out of state funds, all of which are to be obtained from future tax levies. Again, in section 2 of the act it is provided that the interest upon the very fund, which it is claimed is loaned to the university, shall continue to be paid to the university. It is thus in effect provided that the interest upon the loan shall be paid to the alleged borrower. Who is it that must pay this interest? It can be no one but the state of Utah. The state of Utah is therefore obligated to pay the accruing interest upon a debt declared to be the debt of the university. Moreover, if we consider the nature of the funds that are authorized to be loaned by the act and the relation of the state to those funds, by reason of the express constitutional provision referred to, then there remains no doubt as to whose obligation it is. The funds authorized to be turned over to the university are all trust funds which the state is obliged to protect against loss or diversion. The state, by an express pledge in the Constitution, therefore, must maintain the fund intact.
"If the state, therefore, authorizes any one to use $250,000 of this fund, the state, impliedly at least, guarantees the repayment thereof. The state is thus always obligated as a guarantor of the fund. If this were all, however, and it were clear that the obligation to pay the debt rested upon some other agency than the state, we would not be inclined to hold that it is the state's obligation although the state stands in the relation of guarantor. When the whole act is considered, however, it is very clear that it was declared to be the debt of the university for no other purpose than to avoid coming in conflict with the debt limit contained in the Constitution. This purpose is so manifest from the act itself that it hardly needs to be pointed out. "
The reasons for holding that act unconstitutional' are not present in this instance. Here, we have a bona fide attempt by the legislature to free the state from liability for repaying the bonds. This act provides the indebtedness shall not be a debt of the state, the Utah State Agricultural College, or the Board of Trustees. The resolution authorizing the issuance of the bonds has the same provisions. The bonds which will be sold to the public show on their face that they shall not become an obligation of the state, the college, or the board; that money necessary for repayment cannot be obtained from sources other than from the revenue and income derived from the operation of the student union building and the student fees paid by students of the college; and that the income and revenue from such sources is all that is pledged to payment of the principal and interest of the bonds. There is no requirement that the state contribute any funds to the project; that it be required to guarantee the payment of the loan in the event the revenues are insufficient; or that any purchaser of the bonds can in any way hold the state liable for repayment of the sum realized from the sale of the bonds. Furthermore, there is no guarantee on the part of the state that the sources of revenue will be sufficient to meet the bonded indebtedness and that if the funds are insufficient the state will in any way help to malee up the deficit.
Questions similar to those presented by this litigation have in recent years been answered by courts of last resort of many jurisdictions. In the case of State ex rel. Fatzer v. Board of Regents of State of Kansas, 167 Kan. 587, 207 P. 2d 373, 376, the legislature authorized the board of regents of the state of Kansas to issue and sell bonds to obtain funds for the construction of facilities connected with the Kansas State College of Agriculture and Applied Science. The act authorized the board to limit the sources of repayment to the income and revenue from the constructed facilities. Mr. Justice WEDELL, speaking for that court, answered one of the contentions made in this case in the following language:
"In the second place, if the debt represented by the bond technically could be designated as a debt of the state, which we think it cannot, it is nevertheless not a debt prohibited by the constitution. Debts, within the contemplation of constitutional provisions, are debts to be paid by a general property tax'and not from funds to be raised in some other manner. State ex rel. v. Kansas State Highway Comm., 138 Kan. 913, 917-918, 28 P. 2d 770; State ex rel. Boynton v. City of Kansas City, 140 Kan. 471, 476-477, 37 P. 2d 18; State ex rel. Beck v. Kansas City, 149 Kan. 252, 256-257, 86 P. 2d 476. These bonds do not pledge the faith and credit of the state. They do precisely the contrary. The' bondholder knows he may look only to the revenue and income from the building, or buildings, for payment. Whether he desires to make such an investment is a matter left entirely to his own discretion and judgment."
In the case of Loomis v. Keehn, 400 Ill. 337, 80 N. E. 2d 368, 371, the Supreme Court of Illinois held that a public corporation could pledge the income from property and limit the bondholder to a claim against the income without creating a state obligation. In that case the Illinois legislature created the Illinois State Armory Board and authorized it to borrow money and issue bonds and to pledge any and all property and income of the board to secure the payment of the bonds. In connection with the question as to whether or not the bonds would constitute a debt against the state of Illinois, that court announced the following rule:
"We consider the provisions of the State Armory Board Act, authorizing a pledge of the income or property of the Board, as creating a debt against the property of the Board, and to which, alone, the holders of its bonds may look, and this does not create a debt against the State, as the statute does not so designate and we have frequently held that under similar statutes the public body benéfiting from such a corporation is in no way obligated to pay the bonds secured by income, such projects being self-liquidating, and the pledge of the property partakes of the nature of the purchase-money mortgage. People ex rel. City of Chicago v. Barrett, 373 Ill. 393, 26 N. E. 2d 478; Hairgrove v. City of Jacksonville, 366 Ill. 163, 8 N. E. 2d 187; Rockford Savings & Loan Ass'n v. City of Rockford, 352 Ill. 348, 185 N. E. 623; Ward v. City of Chicago, 342 Ill. 167, 173 N. E. 810; Krause v. Peoria Housing Authority, 370 Ill. 356, 19 N. E. 2d 193; Maffit v. City of Decatur, 322 Ill. 82, 152 N. E. 602."
For the benefit of the reader we cite the following additional cases supporting the general rule that payments from income and revenue are not state obligations: Board of Regents of University of Arizona v. Sullivan, 45 Ariz. 245, 42 P. 2d 619; State ex rel. Wilson v. State Board of Education, 102 Mont. 165, 56 P. 2d 1079; Arthur v. Johnston, 185 S. C. 324, 194 S. E. 151; Hopkins v. Baldwin, 123 Fla. 649, 167 So. 677; State ex rel. Miller v. Board of Education, 56 Idaho 210, 52 P. 2d 141; State v. Regents of University, 32 N. M. 428, 258 P. 571; Arnold v. Bond, 47 Wyo. 236, 34 P. 2d 28; State ex rel. Curators of University of Missouri v. McReynolds, 354 Mo. 1199, 193 S. W. 2d 611; Keller v. State Board of Education, 236 Ala. 400, 183 So. 268; Van Hooser v. University of Kentucky, 262 Ky. 581, 90 S. W. 2d 1029; Fanning v. University of Minnesota, 183 Minn. 222, 236 N. W. 217; State ex rel. Public Institutional Building Authority v. Griffith, 135 Ohio St. 604, 22 N. E. 2d 200; Baker v. Carter, 165 Okl. 116, 25 P. 2d 747; McClain v. Regents of University, 124 Or. 629, 265 P. 412.
While this court has not passed on the identical problem, we have suggested that corporate municipalities may, by limiting payment of bonds to a special fund, escape the provisions of the Constitution which limit municipal debts. In the case of Utah Power & Light Co. v. Ogden City, 95 Utah 161, 79 P. 2d 61, 65, we considered the propositions of law involved when a municipality seeks to build a municipal power plant and finance the construction from the sale of bonds which are to be repaid out of the revenue received from the operation. In that case Mr. Justice HANSON, speaking for the court, reaffirms the rule of previous cases and states our holding in the following language:
"Further provisions of the contract may he referred to as we proceed with our discussion. Manifestly, the quoted provisions of the contract, bonds, and controlling ordinance bring this case directly within the 'special fund' doctrine as recognized by this court in Barnes v. Lehi City, 74 Utah 321, 279 P. 878, and our subsequent decisions in the cases of Fjeldsted v. Ogden City, 83 Utah 278, 28 P. 2d 144; Wadsworth v. Santaquin City, 83 Utah 321, 28 P. 2d 161; and Utah Power & Light Co. v. Provo City, 94 Utah 203, 74 P. 2d 1191. In harmony therewith, it must be held that the proposed revenue bonds in this case will not, if or when issued, be an indebtedness of the defendant City, and will not be invalid or void because of the limitation of debt contained in sections 3 and 4 of article 14 of the State Constitution. In no event will the City be legally or morally obligated for their payment. If the earnings of the proposed plant shall at any time prove insufficient to meet the obligations charged thereon, neither the defendant Ogden City nor any of its property, revenues, taxes, or other sources can be called upon to make good the deficiency.
"We are not here concerned with the limitation upon the special fund doctrine recognized by this court in the Fjeldsted and Wadsworth Cases, supra, to .the effect that the revenues or income from an existing plant or utility cannot be pledged in addition to the revenues of an enlarged, improved or extended plant, to pay the cost of the improvements. In the instant case, Ogden City has no electric light or power plant or system. It is starting out to acquire one and to pay for it solely out of the earnings of that which it does not now possess even in small part. There is no place in the present plan for the contention that these earnings of the proposed plant are to be fed or fattened upon any revenues or resource the city now has or would have without the fruits of the contract and ordinance under attack in this case. The proposed plant must earn and pay for itself. To its earnings alone the holders of the proposed revenue bonds must look for payment. All contentions to the contrary must be overruled."
In keeping with the principles of law announced in the previously cited cases, petitioner's contention that the bond issue constitutes a debt against the State of Utah must be overruled. The legislative act expressly provides the bonds shall not be or become an obligation of the state and this stipulation is carried on the face of the bond. We are unable to see how the State of Utah could ever be called upon to pay these bonds or the interest thereon or be under any obligation to levy any tax for the purpose of paying any loss that might result to the bondholders. Under the terms of the act, the resolutions and the bonds, no bondholder could legally contend that the state, the college, or the board was obligated to pay the indebtedness represented by the bond. Neither can the state, the college, or the board be estopped to rely on the limitations contained in the legislative act as every purchaser of a bond is charged with actual knowledge that his security is limited to the revenue derived from the building or the students' fees. If, knowing this, the purchaser elects to purchase the bonds, he cannot claim he is entitled to rely on the credit or taxing power of the state as his agreement is to the contrary.
The alternative writ of prohibition heretofore issued is recalled, and the motion to dismiss is granted. Each party will bear his or its own costs.
WADE and McDONOUGH, JJ., concur.