Court Opinion

ID: 9650050
Source: CourtListenerOpinion
Date Created: 2023-08-23 15:21:53.288024+00
Date Added: 2024-06-11T18:12:17.657725
License: Public Domain

MURRAY, Justice,
dissenting.
At the outset I emphatically note that this case does not impair any contract obligation owed by RISLA to SLMA, which is, after all, the creditor that provides the funding to purchase student loans. Nor is the underlying collateral in any manner whatsoever impaired.3 Indeed, RISLA and NELS have stipulated in their agreed statement of facts that RISLA does not question the validity of the underlying debt and obligations owed by RISLA to its creditor, SLMA.4
In my view this case centers on the simple question of whether RISLA has the power, pursuant to existing contracts and the underlying statutory scheme, to replace its loan-servicing agent. Said contracts, a financing agreement and a custodian agreement, explicitly provide that RISLA has the power to delegate a different loan servicing agent as long as it obtains the prior written approval of SLMA. See infra. It is unfortunate that the majority misreads the RISLA enabling act as providing that the functions of RISLA are proprietary, and not governmental, in view of G.L. 1956 (1981 Reenactment) § 16-62-4(b), as amended by P.L. 1981, ch. 44, § 1 (if majority opinion so holds) and further misreads said enabling act as specifically authorizing contracts in excess of the unexpired terms of the RISLA board of directors. Even if one assumes, arguendo, that the board of directors possessed such power, the mem*629bers contracted in a manner that enables them to terminate their relationship with NELS at any time with the acquiescence of SLMA, which point renders the majority opinion an exercise in futility.
I
Long-settled case law in this jurisdiction holds that when a public corporation enters into a contract involving an exercise of a governmental function, such contract is void as against public policy if the contract is for a term in excess of the unexpired terms of the members of the governing body. Vieira v. Jamestown Bridge Commission, 91 R.I. 350, 354, 163 A.2d 18, 20-21 (1960); Parent v. The Woonsocket Housing Authority, 87 R.I. 444, 143 A.2d 146 (1958). Parent held that the aforesaid rule applies to public corporations. 87 R.I. at 448-49, 143 A.2d at 147. RISLA is a public corporation, one to which the rule enunciated in Vieira and Parent is applicable.
A crucial distinction articulated in both Vieira and Parent is the distinction between a function that is governmental in nature andone that is proprietary. A governmental function is generally one that requires an exercise of discretion on the part of an official acting as such. See Xavier v. Cianci, 479 A.2d 1179, 1182 (R.I.1984). As mentioned earlier, contracts involving an exercise of a governmental function are void if they extend beyond the unexpired terms of the members of the governing body because governmental bodies and public corporations may not by contract impair or prevent a succeeding entity from performing such governmental function. See Parent, 87 R.I. at 447, 143 A.2d at 147. In contrast, when the function to be performed is proprietary, a governmental body or public corporation may bind its successors for as long a period as is reasonably necessary to accomplish a legal purpose. Bair v. Layton City Corp., 6 Utah 2d 138, 148, 307 P.2d 895, 902 (1957).Proprietary functions do not require an exercise of discretion on the part of a governmental official. By way of illustration, this court has previously held that street sweeping is a proprietary function that may be performed by either the government or a private contractor. Xavier, 479 A.2d at 1182.
The General Assembly has conclusively articulated its view on the question of whether the functions performed by RIS-LA are proprietary or governmental. Section 16-62-4(b) of the RISLA enabling act provides that “[t]he exercise by [RISLA] of the powers conferred by this chapter shall be deemed and held to be the performance of an essential governmental function of the state for public purposes.”
In enacting a statute, the Legislature is presumed to know the state of existing relevant law, State v. Reis, 430 A.2d 749 (R.I. 1981), including the common law affecting a subject on which legislators undertake to legislate. Loretta Realty Corp. v. Massachusetts Bonding & Insurance Co., 83 R.I. 221, 225-26, 114 A.2d 846, 849 (1955). Where, as here, the language of the statute is plain and unambiguous and expresses a single, definite, and sensible meaning, such meaning is presumed to be the Legislature’s intended meaning and the statute must be interpreted literally. Rhode Island Chamber of Commerce v. Hackett, 122 R.I. 686, 411 A.2d 300 (1980). NELS purports to construe § 16-62-4(b) to mean merely that money spent by RISLA is to be spent for public purposes and that RISLA is subject to the rules of public corporations. I find the thought that the General Assembly would view it as necessary to stipulate that moneys to be used to purchase student loans must be spent for “public purposes” to be preposterous. The phrase “essential governmental function,” when used in legislative draftsmanship, is a term of art. It clearly expresses the intent of the Legislature that acts of RISLA be deemed governmental in nature, not proprietary. To hold otherwise would render § 16-62-4(b) nugatory. “Such an interpretation would run directly counter to the canons of statutory construction, that will not ascribe to the Legislature an intent to enact provisions which are devoid of any purpose or without effect.” State v. Ricci, 533 A.2d 844, 848 (R.1.1987). As a result, I would hold the servicing agreement entered into by RISLA and NELS to be void *630on grounds of public policy because it purports to bind the hands of succeeding RIS-LA boards of directors in the performance of an essential governmental function.
II
The majority holds that the RISLA enabling act expressly authorizes a term of years for the servicing agreement to run that is coextensive with the fifteen-year note issued by RISLA to SLMA. I disagree.
Although the majority cites to several statutes within the RISLA enabling act, its argument, that the fifteen-year contract entered into with RISLA was specifically authorized by statute, appears to rest upon its interpretation of § 16-62-10.5
According to the majority, the contract between RISLA and NELS was entered into pursuant to a resolution authorizing the issuance by RISLA of a promissory note to SLMA (the SLMA note). Such resolution could and did permit an agreement with regard to loan servicing, in accordance with § 16-62-10(b). Furthermore, § 16-62-10(c) provides that an agreement made for the security of the SLMA note shall continue in effect until the principal and the interest on the note have been fully paid.
This argument is persuasive, up to a point. However, it ignores other provisions contained in the enabling act, namely, § 16-62-4(b) and the language of § 16-62-10(c) itself. Because both provisions contained in the enabling act, namely, § 16-62-4(b) and the language of such a manner that they are in harmony with each other and are consistent in their general scope and purpose. See Rhode Island State Police Lodge No. 25 v. State, 485 A.2d 1245 (R.I. 1984). Section 16-62-2 states that the purpose of the RISLA enabling legislation is to authorize a system of financial assistance for qualified residents to enable them to obtain a postsec-ondary education. The power to substitute one provider of administrative services for another is at best a subsidiary consideration.
As mentioned earlier, § 16-62-4(b) provides that the functions performed by RIS-LA are deemed to be the performance of an essential governmental function. By enacting § 16-62-4(b), the Legislature has conclusively articulated its intention that the RISLA board of directors not be prevented from exercising discretion in the future.
Even if we assume that the SLMA note was a security for whose benefit a servicing agreement envisioned by § 16-62-10 could be entered into, the ambit of such agreement was circumscribed by the last part of § 16-62-10(c) and by the financing agreement and the contents of the servicing agreement itself. Although § 16-62-10(c) states in part that “each * * * agreement * * * made for the benefit or security of * * * notes of [RISLA] shall continue in effect until the principal of and interest on the * * * notes shall have been fully paid,” the sentence continues “or until provision shall have been made for such payment in the manner provided in the resolution * * (Emphasis added.) The underscored language clearly evinces the legislative intent that *631agreements made for the benefit of notes or bonds continue until other provisions have been made for payment. Thus the language of the statute recognizes the possibility that a substitution of service providers might occur. Additionally, the financing agreement entered into between SLMA and RISLA and the servicing agreement to which NELS was a party both explicitly provide that RISLA has the power to contract with a service provider other than NELS, as required by said financing agreement.6 In other words, the servicing agreement that is the subject of this dispute is for the benefit of the SLMA note, not for NELS. As a result, RISLA is free to contract with another service provider at any time, as long as it complies with section 7 B(2) of the financing agreement with SLMA. Because RISLA is free under the terms of the financing agreement to replace NELS, it is all the more regrettable that the majority felt itself constrained to reach the conclusion that it did. My conclusion would harmonize the language contained in both parts of § 16-62-10(c), and it would harmonize § 16-62-10 with § 16-62-4(b). Furthermore my construction of both of the aforementioned provisions accords with the purpose of the RIS-IA enabling act, as set forth in § 16-62-2. Finally my conclusion effectuates the intent of the parties as manifested in the servicing agreement, which specifically provides a mechanism for the replacement of NELS as service provider.
As a result of the foregoing, I would reverse the judgment of the trial court insofar as it held the servicing agreement to be valid.
APPENDIX

Summary of NELS’s Servicing Agreement Duties

a. Maintain a file on each loan sufficient to allow separate identification of each loan securing the bonds.
b. Maintain insurance or guarantee coverage on each loan.
c. Allow forbearance on loans only in accordance with RISLA’s forbearance policy.
d. Exercise due diligence in servicing the loans.
e. Collect all payments of principal and interest and deposit them (net of servicing fees) with the trustee (Fleet National Bank) in the final account pursuant to the custodian agreement, the trust agreement, and the financing agreement within five days of collection.
f. Provide RISLA with a written statement indicating the amount billed for interest, subsidy payments, and special allowance payments.
g. Be responsible, if discrepancies or disputes arise with respect to amounts billed and/or received, for representing the interest of RISLA in effecting a settlement with the Secretary of Education — but any settlement must be approved by a duly authorized officer of RISLA.
h. Mail a statement to Fleet National Bank ten days after each deposit indicating the amount of principal and interest deposited.
i. Retain summary records of all collection contracts and of changes for which records are required.
j. Prepare and maintain appropriate accounting records with respect to all transactions relating to each loan.
k. Handle processing of all adjustments and address changes.
l. Take all necessary steps, when default occurs, to file and prove a claim for loss with the guarantee agency (RIHEAA) and assume responsibility *632for all communications with the guarantee agency as required to accomplish recovery.
m. Take all actions necessary when a claim for loss is denied by the guarantee agency to allow RISLA to cause the lender to repurchase the loan or substitute a new one therefor.
n. Prepare and file with the guarantee agency a lender’s manifest on all new accounts, accounts paid in full, and accounts converted to a repayment basis.
o. Prepare and make available to RIS-LA and Fleet National Bank by the fifteenth of each month the following reports:
(1) Unaudited summary statement of all transactions of the preceding month
(2) Report showing unpaid principal at end of the preceding month
(3) Delinquency report for the preceding month showing all past-due accounts
(4) Report of loans paid in full for the preceding month
(5) Report of amount of unpaid principal on defaulted loans
(6)Copies of all formal reports filed or made by NELS
p. Maintain duplicate files on all loans at a separate location.
q. Maintain in a fireproof vault the original promissory notes to each loan.
r. Maintain insurance for loss or damage to the files and NELS shall be liable for costs or loss resulting from reconstruction of data in the event of a computer malfunction.
s. Maintain fidelity bonds upon all of its personnel.
t. Answer all reasonable inquiries from interested parties and resolve or notify RISLA of complaints within a reasonable time.
u. Provide services to RISLA to enable it to comply with the financing agreement and all other obligations of NELS or RISLA pursuant to the custodian agreement or trust agreement.

. SLMA did not ask leave to submit an amicus brief, apparently viewing its interests as adequately protected by its contractual relationship with RISLA.

. The agreed statement of facts, No. 19, provides:
“RISLA has never questioned and does not now question the validity of the Financing Agreement or the Promissory Note. Nor, if the 1984 Servicing Agreement is valid, does RIS-LA question that it is required to deliver to NELS for servicing student loans purchased with monies advanced pursuant to the Financing Agreement with SLMA, dated May 8, 1984."

. General Laws 1956 (1981 Reenactment) § 16-62-10, as amended by P.L. 1981, ch. 44, § 1, provides in pertinent part:
"Security for bonds and notes. — (a) The principal of and interest on any bonds or notes issued by the authority may be secured by a pledge or assignment of any revenues and receipts of the authority and may be seemed by a security interest or other instrument covering all or any part of one or more eligible loans made or acquired by the authority pursuant to the provisions of this chapter.
(b) The resolution under which the bonds or notes are authorized to be issued and any such security interest or other instrument may contain agreements and provisions respecting the servicing of the loans covered thereby, the fixing and collection of payments or repayments or other revenues therefrom, the creation and maintenance of special funds from such revenues and the rights and remedies available in the event of default, all as the authority shall deem advisable.
(c) Each pledge, assignment, agreement, security interest or other instrument made for the benefit or security of any of the bonds or notes of the authority shall continue in effect until the principal of and interest on the bonds or notes for the benefit of which the same was made shall have been fully paid, or until provision shall have been made for such payment in the manner provided in the resolution under which such bonds or notes were authorized." (Emphasis added.)

. The financing agreement, section 7 B(2), provides in pertinent part: "With the prior written approval of [SLMA], the borrower [RISLA] may delegate to another, upon terms satisfactory to [SLMA], the functions of administering, servicing, collecting and maintaining appropriate books and records for such Insured loans.” Furthermore, the very servicing agreement that NELS seeks to enforce for a term of fifteen years contains a provision establishing a mechanism for its replacement as servicer of said loans, pursuant to section 7 B(2) of the financing agreement. See servicing agreement § 10(iv).