Case Name: J. Lindsay Almond, Jr., etc. v. Henry G. Gilmer, etc., et. al.
Court: Supreme Court of Appeals of Virginia
Jurisdiction: Virginia
Decision Date: 1948-09-08
Citations: 188 Va. 1
Docket Number: Record No. 3424
Parties: J. Lindsay Almond, Jr., etc. v. Henry G. Gilmer, etc., et. al.
Judges: Present, All the Justices.
Reporter: Virginia Reports
Volume: 188
Pages: 1–52

Head Matter:
Staunton
J. Lindsay Almond, Jr., etc. v. Henry G. Gilmer, etc., et. al.
September 8, 1948.
Record No. 3424.
Present, All the Justices.
J. Lindsay Almond, Jr., Attorney General, Kenneth C. Patty and Walter E. Rogers, Assistant Attorneys General, for the petitioner.
C. O’Conor Goolrick and Stuart G. Christian, for the respondents.

Opinion:
Miller, J.,
delivered the opinion of the court.
By resolution adopted April 16, 1947, the Board of Trustees of the Virginia Retirement System agreed to purchase from the State Board of Education five million dollars face value of bonds, notes and other evidences of debt to be issued to and acquired by the State Board of Education for loans to be made by it out of the literary fund to various school boards.
It is contemplated and intended that the trustees will use the reserve assets of the retirement fund to purchase the securities and obligations issued by the school boards and from them acquired by the State Board of Education. To effect this, the trustees of the retirement fund will make available to the State Board of Education, as trustee and manager of the literary fund, money to lend the school boards. The Board will, by that means, acquire the bonds for the literary fund. They will then be passed on to the trustees of the Virginia Retirement System for the money so available and such trustees will thereafter be the holders of the securities for the purposes of and on the trusts set forth in the Virginia Retirement Act.
Upon being advised of this commitment on the part of the trustees of the Virginia Retirement System to so purchase that amount of securities and believing that the literary fund's current money might be so augmented from the reserve assets of the retirement fund with which it could actually make loans to the school boards, the State Board of Education approved various loans to school boards in excess of four million dollars. When finally consummated, this contemplated transaction would have imposed long-term financial obligations upon the several counties obtaining such loans. That is proposed to be done without submitting the matter to the qualified voters for their approval or rejection.
Such obligations or debts to be so incurred by the respective school boards, which are in fact county obligations and which are ultimately to be held as a part of the retirement fund, will bear interest at three per cent per annum. This conclusively establishes that they are to be bought with the money of the retirement fund only temporarily colored as literary funds for, under existing law, literary funds proper can only be loaned to school boards at two per cent per annum.
Under Code sec. 2672 (20) of the Virginia Retirement Act, as amended, the State Treasurer is made the "custodian of the several trust funds of the Retirement System" and "all payments from said funds shall be made by him on warrant of the Comptroller issued upon vouchers" of the Virginia Retirement Board.
The State Comptroller and the Treasurer were apprehensive of their legal authority to pay to the literary fund for the purchase of such securities money from the State Treasury belonging to the Virginia Retirement Fund. Their apprehension was caused by doubt of the constitutionality in that respect of the recent acts of the General Assembly. These acts undertake to authorize such transactions and payments without the approval of the qualified voters of the respective counties or county districts affected thereby. They declined to make such payments from the treasury and by written communication of April 8, 1948, to the Attorney General of Virginia, requested him to secure an adjudication by this Court of their duties in the premises.
A proceeding by mandamus to determine the proper construction, interpretation or constitutionality of an act of the General Assembly which directs payment of money out of the State Treasury is provided for by Acts of 1944, p. 425. This action was therefore instituted by the Attorney General against the Treasurer and Comptroller to determine the question at issue.
It is insisted by the petitioner that the recent Act of the General Assembly, Acts 1946, p. 522, whereby sec. 18 (appearing as section 2672 (20) in Virginia Code, 1942, Supplement 1946, p. 210) of the Virginia Retirement Act was amended, and the Act of the General Assembly of 1947, Acts 1947, p. 68, which amends sec. 643 of the Code of Virginia (such last mentioned section being a part of the Literary Fund Act), when read together authorize the purchase by the State Board of Education, on behalf of the literary fund, of bonds, securities and evidences of debt of local school boards, and the transfer and sale of the same to the trustees of the Virginia Retirement System contravene no constitutional provision.
On the other hand, it is asserted by respondents that such transaction and loans to the county school boards impose upon the counties involuntary indebtedness; that . money must be raised by taxation to pay the annual interest upon such securities and ultimately to pay the principal of such obligations, and that these obligations constitute long-term debts within the meaning of sec. 115-a of the Constitution and that the contracting of such obligations violates this constitutional provision.
It should also be observed that sec. 134 of the Constitution dedicates the literary fund to school purposes and sec. 135 directs the use of the interest thereon for the same purpose. Yet if this contemplated transaction be consummated, the annual interest to be paid upon these proposed obligations will not go into the literary fund as required of loans of that fund, but will go into the retirement fund.
Thus the question presented is: Can this contemplated transaction and use of the reserve assets of the retirement fund by channeling them into the literary fund and then lending them to the counties as literary funds, when in fact they are retirement funds, be legally consummated without violation of the above provisions of the Constitution?
The pertinent parts of the Retirement Fund Act and the Literary Fund Act, respectively, as amended, are as follows:
Sec. 18 of the Retirement Act: "The Board (trustees of the Virginia Retirement System) may also, in its discretion, invest such trust funds in bonds, notes and other evidences of debt of the school boards of the several counties, cities and towns of the State held in the Literary Fund evidencing loans made from such Literary Fund by the State Board of Education, pursuant to the provisions of sections six hundred thirty-two to six hundred forty-four, both inclusive, of the Code of Virginia, and the State Board of Education is hereby authorized to assign such bonds, notes and other evidences of debt to the Board whenever the Board desires to invest any of such trust funds therein and the State Board of Education consents thereto: and when such bonds, notes or other evidences of debt are so acquired by the Board the same may not be sold or otherwise disposed of except to a State Governmental agency." (Acts 1946, Ch. 309, p. 522, Michie Code, sec. 2672 (20) )
Sec. 643. (Literary Fund Act). "Rate of interest on loans; payment of installments; evidences of debt. All loans whether made on or before January first, nineteen hundred forty-seven shall bear interest at the rate of two per centum a year, payable annually; provided, however, that after January first, nineteen hundred forty-seven when loans have been approved by the State Board of Education from time to time in such amounts that no sufficient balance shall have been left in the literary fund from which to make additional loans to the school boards of counties, cities and towns making application and qualifying for such loans, then the State Board of Education is authorized in its discretion to fix the rate of interest as low as .possible not less than two per centum and not to exceed four per centum a year on such additional loans which may be made by selling the bonds of the cities and counties for which such loans are approved, for investment of the reserves of the Virginia Retirement System in such amount as may be approved by the Virginia Retirement Board in accordance with the provisions of section eighteen as amended, of the 'Virginia Retirement Act', in order to provide additional funds to make loans to the school boards of the several counties, cities and towns for the purposes for which such loans are legally authorized to be made; # * #. The principal shall be payable in annual installments from five to thirty years #. Payments' of interest and principal shall be made to the State Treasurer and evidence of debt taken for such loans shall be deposited with the State Treasurer and kept by him. # # (Acts, 1947, Ch. 27, p. 68.)
The following three constitutional provisions are also pertinent:
Sec. 115-a. "No debt shall be contracted by any county, #? or by or on behalf of any school board of any county, except in pursuance of authority conferred by the General Assembly by general law; and the General Assembly shall not authorize any county, # , or any school district of any county, to contract any debt except to meet (1) casual deficits in the revenue, (2) a debt created in anticipation of the collection of the revenue of the said county, board or district for the then current year, (3) or to redeem a previous liability, unless in the general law authorizing the same, provision be made for the submission to the qualified voters of the proper county or district, for approval or rejection, by a majority vote of the qualified voters voting in an election, on the question of contracting such a debt. No script, certificate or other evidence of county or district indebtedness shall be issued except for such debts as are expressly authorized in this Constitution or by laws made in pursuance thereof."
Sec. 134. "The General Assembly shall set apart as a permanent and perpetual literary fund, the present literary fund of the State; the proceeds of all public lands donated by Congress for public free school purposes; of all escheated property; of all waste and unappropriated lands; of all property accruing to the State for forfeiture, and all fines collected for offenses committed against the State, and such other sums as the General Assembly may appropriate * #
Sec. 135. "The General Assembly shall apply the annual interest on the literary fund; to the schools of the primary and grammar grades, for the equal benefit of all the people of the State
As the trustees of the Virginia Retirement Fund have given their commitment to purchase five million dollars of school board bonds or securities from the literary fund, by this contemplated undertaking the State Board of Education, as trustee for and manager of the literary fund, intends to obligate itself to actually purchase bonds or securities of the school boards, receive the money into the literary fund from the retirement fund with which to consummate such purchase, and as a part of the same transaction pass the bonds and obligations of indebtedness so issued by the school boards on to the retirement fund. By that method it is claimed and asserted that the State Board of Education is using the literary fund to acquire the bonds and securities and therefore lending its funds to the school boards for school purposes. But reduced to its essentials, it is, in fact and reality, the mere channeling of the funds of the Virginia Retirement System'into and through the literary fund to the local school boards. To effect such transaction, an attempt is made to temporarily transfer reserves of the retirement fund into the literary fund so that it may assume the qualities of that fund and be loaned for school purposes. Actually the State Board of Education, by resort to and through the provisions of sections 632 to 646, inclusive, of the Code enacted solely to effect the investment, use and preservation of the literary fund proper, seeks to lend millions of dollars of the retirement fund to the localities for school purposes as if they were literary funds, thereby imposing involuntary obligations and debts upon the counties.
By this method and procedure, on the authority of the decision in the case of Board of Supervisors v. Cox, 155 Va. 687, 156 S. E. 755, it is sought to escape the prohibition contained in sec. 115-a of the Constitution of Virginia which forbids the incurring by a county of a long-term bonded debt except upon proper referendum.
Upon examination of the provision contained in sec. 115-a forbidding the imposition of long-term indebtedness upon the counties or their school districts without submission of such matter to a vote of the qualified voters, and the requirement of sec. 135 as to the application of interest on literary funds, it is our view that such a transaction and attempted use of the vast resources of the retirement fund for investment as literary funds is in violation of the spirit and letter of these sections of the Constitution. It imposes a debt forbidden by the former and directs the payment of interest into a fund not allowed by the latter.
It is appropriate to observe that the case of Board of Supervisors v. Cox, supra, so heavily relied upon by petitioner as controlling in the present instance even in dealing with investment of actual literary funds lacked unanimity of judicial opinion. There the majority decided only that the State Board of Education was empowered to make long-term loans from and of the literary fund to counties or county school boards without first submitting the matter to a vote. In so far as the literary fund was concerned, it having, since its creation in 1810, been dedicated to school purposes and the legislative construction having been that it could be so used without first resorting to a vote to determine the desire of the electorate affected, a majority of the court was of the opinion that the loan of that fund did not fall within the prohibitive provision of sec. 115-a.
From an examination of the record and briefs in that case, it appears that subsequent to the adoption of sec. 115-a and before institution of that suit which involved a loan to a county school board of some five thousand dollars, about one-half million dollars had been loaned by the State Board of Education from the literary fund to various school boards without first obtaining sanction of the imposition of such burden upon the counties involved by submission of the matter to a vote of the qualified voters. The court was dealing factually with a fund which was at the time of its creation in 1810, as appears from the Acts of the General Assembly, 1809-1810, p. 15, dedicated to school purposes.
Upon the adoption of the Constitution of 1869, this fund which had been of legislative origin, was more basically set apart for its declared purposes. Sections 7 and 8 of Article 8 of that Constitution are in substance and form substantially similar to sections 134 and 135 of our present Constitution. In 1931 when the Cox Case was decided, the literary fund Bad been used exclusively for educational purposes for a period of more than one hundred years.
In 1928, the same year sec. 115-a of the Constitution was adopted, the legislature provided for the literary fund to be loaned for school purposes without the vote of the electorate as a condition precedent. Therefore, at the time of the Cox Case decision, sec. 115-a had been given both administrative and legislative interpretation and sanction as permitting the borrowing by the county school boards for periods in excess of one year, and the lending thereof by the State Board of Education without submission of the matter to a vote of the people, of a fund set apart and dedicated for the object contemplated.
In judicially approving such practice, the court limited its decision to the literary fund as clearly appears from these «excerpts from that opinion:
"The principal question in this case is whether the school board of King and Queen county is permitted, under the Constitution and the Acts of the General Assembly, to borrow $5000.00 from the literary fund, which is under the custody and supervision of the State Board of Education, for the purpose of building, remodeling, or making additions to a schoolhouse in that county without first holding an election and procuring a majority vote of the qualified voters in favor of securing the loan." (155 Va., at p. 693.)
"The sections of the school code which have any relation to the subject under discussion will be briefly referred to. It will be observed by reference to them that the act makes provision for two separate and distinct kinds of loans for building schoolhouses. First: loans from the literary fund, which do not require a vote of the people, and second, loans from other sources realized from the sale of bonds, which do require a vote of the people." (155 Va., at p. 695).
"On the other hand, with reference to debts to be contracted by counties for building schoolhouses, in the form of bond issue, by which it is contemplated that the money will be derived from sources other than the literary fund, there appears the express provision that an election shall be held and a majority vote obtained in favor of such a bond issue, as a condition precedent to the issuance of bonds." (155 Va., at pages 695, 696).
"No election or bond issue is contemplated in making loans from the literary fund." (155 Va., at p. 701).
In that case the court declared valid and permissive without the vote of the taxpayers mentioned in sec. 115-a, only loans from the literary fund proper. No other funds were involved except those constitutionally and legislatively dedicated to school purposes and from which loans the interest would be paid into that fund. By such use, the literary fund was made a revolving fund for school purposes and the interest on the loans made to the school boards augmented and increased the fund.
The Virginia Retirement System, whose funds are partially contributed by the beneficiaries and held upon and for an entirely different trust and purpose, was not then in existence.
That sec. 115-a applies to and prohibits loans to county school boards when the same are made otherwise than from the literary fund and are not within the express exceptions contained in sec. 115-a such as to meet casual deficits in the revenue, etc., is made abundantly clear by the opinion in American-LaFrance, etc., Industries v. Arlington County, 164 Va. 1, 178 S. E. 783, 99 A. L. R. 929.
In declaring invalid obligations incurred by the county of Arlington for the purchase of fire equipment which were represented by notes and contracts payable over a term of years, and therefore not within the express exceptions set forth in sec. 115-a or authorized by sec. 2727 of the Code enacted in pursuance. of such constitutional mandate, the now Chief Justice Hudgins quotes pertinent - parts of sec. 115-a and then says:
"Prior to 1928, there was no limitation upon the General Assembly as to the amount of indebtedness that it, by local bills, or otherwise, might authorize the different counties to incur. The local governing bodies of these political subdivisions of the State would frequently contract debts which •could not be paid out of the revenue for the current year, and then, without submitting the question to the qualified voters, would ask the General Assembly to authorize bond issues to pay debts already contracted, or for other expenditures desired to be made." (164 Va., at p. 7).
"Both the Constitution and the statutory law of this Commonwealth prohibit any and all boards of supervisors from incurring any debt for any purpose which is not payable out of current revenue, unless the question of the proposed expenditure is submitted to the qualified voters for their approval. The intent of the Constitution is unmistakable." {164 Va., at p. 8).
"An approval by a majority of the citizens voting on the question properly submitted to them is a prerequisite to the power of the board of supervisors to create an obligation for any purpose, payable at some future time beyond the termination of the current fiscal year. In no other way, directly or indirectly, can the board bind the county on any such obligation." (164 Va., at p. 9).
Further light is given upon the purpose and intent of that section in an address by the Honorable William Meade Fletcher who was an advocate of its adoption in 1928. He interpreted it as purporting and intending to correct and prevent the growing tendency to impose financial burdens upon the counties or their districts without the approval of the taxpayers who must ultimately pay the same. He said:
"The proposed section 115-a is a new amendment, restricting the power of the counties and districts to borrow money. Under the present Constitution the members of the House and Senate representing a particular county, under a rule of courtesy prevailing in the General Assembly, may secure the passage of an act authorizing a bond issue for a county or district without a vote of either the Board of Supervisors or of the people of the county or district. At the recent session of the General Assembly, in several instances, it authorized certain counties to bond' themselves without any action on the part of the Local Board of Supervisors or of the people. I have examined the Acts of the General Assembly of 1926, and find that in a great many instances the General Assembly authorized counties or school districts to issue bonds without any vote of the people. The proposed amendment provides that before any county or district shall borrow money by the issuance of bonds, the question shall be voted upon by the people of the county or of the district and approved by a majority of the voters. I regard the proposed amendment as one of the greatest safeguards to the rights of the people against the incurrence of indebtedness by bond issues binding upon counties and districts without the consent of those who will have to be taxed to meet the interest and pay off the principal." See page 7 of the record in Board of Supervisors v. Cox (Rec. No. 1029).
Since the decision in the Cox Case on January 26, 1931, milhons of dollars have been loaned from the literary fund to counties and county school districts. We are not disposed to and do not impair the force and effect of that decision which we construe as limited solely to loans from that fund. But as the facts of that case are materially distinguishable from those here presented and the issue or point decided fundamentally different, the doctrine of stare decisis does not apply. Chesapeake, etc., R. Co. v. Martin, 154 Va. 1, 143 S. E. 629, 152 S. E. 335; Morison v. Dominion National Bank, 172 Va. 293, 1 S. E. (2d) 292; Home Brewing Co. v. Richmond, 181 Va. 793, 27 S. E. (2d) 188.
Since that adjudication, further consideration and interpretation have been given to sec. 115-a in American-LaFrance, etc., Industries v. Arlington County, supra. We there refused to further liberalize its provisions or to remove its plain restriction when applied to a transaction and obligation incurred by a county which did not involve loans from and of the literary fund as in the Cox Case.
It is asserted that these obligations will not constitute debts because they cannot be sold by the trustees of the Retirement System "except to a State Governmental agency." The simple answer to that contention is that an obligation in a fixed and certain amount bearing interest at a predetermined rate, principal and interest of which are made • payable at stated intervals, is no less a debt because its holder or holders are classified and its negotiability is limited. It will be necessary to levy and collect the same tax as would be imposed if the securities were held by other parties. Though these monetary obligations be held by the Comm on - wealth or one of its agencies, the transaction will not assume an eleemosynary character, nor its substance become shadow when the taxpayers are called upon to pay the higher tax levy made necessary to raise the required funds to liquidate the long-term indebtedness imposed upon them.
The words of sec. 115-a as applied to the circumstances of this case are clear and definite; they leave nothing for interpretation.
"The province of construction lies wholly within the domain of ambiguity." Hamilton v. Rathbone, 175 U. S. 414, 421, 20 S. Ct. 155, 158, 44 L. Ed. 219.
"It is elementary that it is not permissible to interpret that which needs no interpretation." Fairbanks, etc., Co. v. Cape Charles, 144 Va. 56, 131 S. E. 437.
The words of Justice Holt, later Chief Justice, in Title Ins. Co. v. Howell, 158 Va. 713, at p. 718, 164 S. E. 387, are most fitting: "Ambiguities may be cleared away and weasel words explained, but that which is plain needs no explanation."
While the General Assembly has plenary power to raise and allocate adequate funds to the State Board of Education for teachers salaries, for the construction of schoolhouses, and other school purposes, yet the clear and plain language of section 115-a of the Constitution prohibits the General Assembly from imposition of any long-term debt upon any county without giving the taxpayers of that county an opportunity to express their approval of the proposed debt which they have to pay. The opinion in the Cox Case went no further than to say that this constitutional mandate did not apply to any sums which had actually been paid into the literary fund. When a sum had been allocated to the retirement fund, it is no longer a part of the literary fund but becomes earmarked for another and distinct purpose. That the literary fund was created and held for a special purpose and had been exclusively and completely dedicated to educational use was recognized by the legislature. Before any part of the principal could be set aside for teachers retirement fund, it was necessary to amend sec. 134 of the Constitution by adding the following provision:
" provided that when and so long as the principal of the literary fund amounts to as much as ten million dollars, the General Assembly may set aside all or any part of the moneys thereafter received into the principal of said fund for public school purposes including teachers retirement fund to be held and administered in such manner as may be provided by general law."
That amendment was finally ratified November 7, '1944, and the legislature so empowered to use the principal so long as it was not reduced below ten million dollars.
Upon adoption of sec. 115-a, Virginia, by plain and direct promise, extended and gave to its taxpayers and citizens at large through and in. that fundamental law its plighted faith that, praiseworthy though the ultimate object to be attained might be, it would not permit the imposition upon them, their counties or school districts of obligations and indebtedness of this character unless and until the opportunity to adopt or reject the same had been extended to the voters.
By equally simple and understandable language, it proclaimed in'like solemn manner in sections 134 and 135 that its literary fund and interest thereon be set apart for school purposes. For 138 years through legislative enactment, and for more than 75 years under constitutional mandate, the principal of that fund has been so dedicated and its interest so used.
It is our opinion that complete and strict fulfillment of that promise and undertaking should and must now be observed, and that the consummation of the proposed transaction would be a departure from that course and violative thereof.
We find nothing in the long history, purpose and use to which the literary fund has been applied, nor in the express or implied provisions of sections 134 and 135, to justify the belief that retirement funds may be made literary funds for a transitory period and purpose; that they can temporarily become literary funds in color and form but not in substance, to the end that they may be momentarily imbued with such literary fund qualities as to allow their investment or loan as such to the local school boards and, upon accomplishment of that undertaking, they shall thereupon return to their former status in full and absolute character. To the contrary, the strong and compelling implications, if not the express terms of those constitutional provisions, definitely negate any such conclusion.
In addition, the plain and expressed intent of sec. 115-a forbids the imposition of these long-term obligations upon the counties or school districts unless and until submission thereof to the vote of the qualified voters is had and their approval obtained.
Due weight has been given to the presumption of constitutional validity that attaches to acts of the General Assembly. Blake v. Marshall, 152 Va. 616, 148 S. E. 789.
And rightful consideration has been accorded the rule of construction that the Constitution and acts of the legislature be harmonized, if possible so to do, without doing violence to their purpose and intent. Yet we are constrained to conclude that when the actual literary fund has been exhausted by loans or use of such funds, it may not then be employed as a conduit or outlet, a mere banking house or brokerage institution, through which funds of the retirement system may be passed as if they were literary funds to the county school boards and the prohibition of sec. 115-a so circumvented and avoided. Nor can the reserve of the retirement system be loaned through and as literary funds to county school boards, and the interest, required by sec. 135 to be' paid into the literary fund when its principal is invested, diverted and paid to a fund distinctly different in object and purpose.
We are not unmindful of the fact that the plan proposed is one of the means by which the State Board of Education desires to build a more efficient public school system. But the fact that sec. 129 of the Constitution imposes the duty upon the legislature to "establish and maintain an efficient system of public free schools throughout the State" does not justify the violation of other constitutional provisions. We are in hearty accord with the desire to attain these benefits. However, it is the duty of this court, when questions of this nature are submitted to it, to see that the means to accomplish the end desired are within the framework of the Constitution, the fundamental law of the land.
For the reasons stated, we conclude that the amendments to sec. 18 of the Retirement Act by Acts of 1946, p. 522, and the amendment to sec. 643 of the Code by Acts of 1947, p. 68, in so far as they attempt to allow the purchase of securities of the literary fund with reserve assets of the retirement fund for the purpose of permitting the State Board of Education to transmit and loan money so obtained in that manner from the State Treasury belonging to the retirement fund to county school boards as literary funds, contravene sections 115-a and 135 of the Constitution of Virginia and are unconstitutional and inoperative for that purpose.
The prayer for mandamus is denied.
Mandamus denied.
Code of 1873, p. 695, note 7 to sec. 66 of Chap. 78.