Eastern & Western Lumber Co. v. Patterson

BROWN, J. The plaintiffs specifically point out that the act' in question offends against the constitutional provision reading: ‘ ‘ The Legislative Assembly shall not lend the credit of the state nor in any manner create any debt or liabilities which shall singly or in the aggregate with previous debts or liabilities exceed the sum of $50,000 * * . ” Or. Const., Art. XI, § 7. Are the plaintiffs proper parties to question the validity of the act under consideration? This is the first question to be determined. It is well settled in this state that only persons who may be injured by its operation may question the validity of a statute: McKinney v. Watson, 74 Or. 220 (145 Pac. 266). The constitutionality of a legislative enactment will not be adjudged when the party who asserts its invalidity has no interest therein and the question is merely academic. The Workmen’s Compensation Law (Or. L., 6605, et seq.) is an industrial insurance law, optional in character. It was framed and enacted in response *119 to the demands arising ont of modern industrial conditions. It was asserted that it would limit economic waste and that its adoption would be for the common welfare. The law is administered by an agency of the state known as the State Industrial Accident Commission. While the state has appropriated money to forward the purpose of that act, the industrial accident fund largely represents the contributions of employers in the nature of insurance premiums exacted by the provisions thereof. The investment of the fund is secondary, its primary purpose being to compensate workmen or their dependents. With full faith in the promises held forth by the terms of the act, the employer and employee have voluntarily come under its wholesome provisions and have complied therewith. The workman having elected to substitute this compensation for all other remedies, if any, existing to him against his employer, it follows that he is entitled to compensation from the industrial accident fund for accidental injuries sustained in the course of his employment. Under such a state of facts, the plaintiffs have some interest in the industrial accident fund that cannot be diverted by a mere legislative act. In the consideration of this case, we commence with the presumption that the statute in question is a valid law. Until overcome, this presumption prevails. In determining the validity of a statute that has been assailed, the courts will resolve all doubts in favor of its constitutionality; and, if the enactment is reasonably susceptible of two constructions, one of which would render it constitutional, the other unconstitutional, the former would prevail. So, throughout our deliberations, we shall bear in mind the following principle underlying statutory construction: *120 “When courts are called upon to pronounce the invalidity of an act of legislation, passed with all the forms and ceremonies requisite to give it the force of law, they will approach the question with great caution, examine it in every possible aspect, and ponder upon it as long as deliberation and patient attention can throw any new light upon the subject, and never declare a statute void, unless the nullity and invalidity of the act are placed, in their judgment, beyond reasonable doubt.” 1 Cooley’s Constitutional Limitations (8 ed.), p. 371. But the exercise of the power to hold a law to be invalid because of its conflict with the Constitution is the ultimate and supreme function of courts: Chicago etc. Ry. Co. v. Wellman, 143 U. S. 343 (36 L. Ed. 176, 12 Sup. Ct. Rep. 400, affirming 83 Mich. 592, 47 N. W. 489). In determining the validity of this statute, our decision must be predicated upon the terms thereof and by what it authorizes, and not by what has been done or probably will be done thereunder: Hood River Lumbering Co. v. Wasco County, 35 Or. 498 (57 Pac. 1017); Sterett & Oberle Packing Co. v. Portland, 79 Or. 260 (154 Pac. 410); Purple Truck Garage Co. v. Campbell, 119 Or. 484 (250 Pac. 213); State v. Clement Nat. Bank, 84 Vt. 167 (78 Atl. 944, Ann. Cas. 1912D, 22); Minneapolis Brewing Co. v. McGillivray, 104 Fed. 258; New York v. Kelsey, 158 App. Div. 183 (143 N. Y. Supp. 41); Cleveland v. Watertown, 99 Misc. Rep. 66 (165 N. Y. Supp. 305); McCarthy v. Moore, 215 App. Div. 97 (214 N. Y. Supp. 104); Stuart v. Palmer, 74 N. Y. 188 (30 Am. Rep. 289); People v. Klinck Packing Co., 214 N. Y. 138 (108 N. E. 278, Ann. Cas. 1916D, 1051). See the case of Kinney v. Astoria et al., 108 Or. 514 (217 Pac. 840). *121 However, in the recent case of Weaver v. Palmer Bros. Co., 270 U. S. 402 (70 L. Ed. 654, 46 Sup. Ct. Rep. 320), Mr. Justice Butler, speaking for the Supreme Court of the United States said: “Invalidity may he shown hy things which will be judicially noticed (Quong Wing v. Kirkendall, 223 U. S. 59, 64 (56 L. Ed. 350, 32 Sup. Ct. Rep. 192), or by facts established by evidence. The burden is on the attacking party to establish the invalidating facts. See Minnesota Rate Cases, 230 U. S. 352, 452 (57 L. Ed. 1511, 33 Sup. Ct. Rep. 729, Ann. Cas. 1916A, 18, 48 L. R. A. (N. S.) 1151).” A state Constitution is not a grant, but a limitation, of power, and the legislative assembly may enact any law not forbidden by the fundamental law of the state or federal government. In adjudging the validity of the statute involved in this case, it is not our privilege to consider the desirability, expediency, policy, justice or wisdom of its enactment. The fundamental law of this commonwealth is expressed in a written Constitution. Under this scheme of government, enacted by the people, the governing powers were divided into three departments: “The legislative, the executive, including the administrative, and the judicial.” That Constitution prescribes the confines within which the several departments shall function, and expressly forbids the encroachment of one department upon the powers of another. Or. Const., Art. III. It defines to a certainty the powers of the legislative department with reference to the creation of an indebtedness or liability. With jealous care it guards the property and the productive industries of the people from the payment of large debts at a future time. The Constitution of Oregon as originally enacted was the expression of *122 a fundamental law by a conservative people. This must be so. In their earnest endeavor to protect posterity from the burdens of indebtedness, the framers of the original Constitution limited the powers that the legislative department might assert, and for more than forty years after its adoption the people refused to alter or amend it. No one idea stands out more clearly than that the framers of the Constitution sought to set up a barrier against the creation of a voluntary indebtedness by the state, or by the counties or municipalities thereof, in excess of specified amounts. There is much discussion in the briefs as to whether the funds proposed to be invested in an office building for the State of Oregon are the property of the state, or a trust fund in the possession of the state to be administered in accordance with the terms of the Workmen’s Compensation Law. The act in question does not treat the industrial accident fund as the absolute property of the state, but as a trust fund, subject to investment. From the title we take the following excerpt: “An act providing for # * the investment of part of the industrial accident fund. ’ ’ The term “invest” is thus defined: “Invest. * * As used in connection with money or capital, to apply money in the purchase of some property from which interest or profit is expected and which property is purchased in order to be held for the sake of the income which it will yield.” 33 C. J., p. 807. In the case of Stramann v. Scheeren, 7 Colo. App. 1 (42 Pac. 191), a case where the money was advanced to go into a building, the court said: *123 “The words ‘invest’ and ‘investment’ have a well-defined legal definition. And, Law Diet.: ‘ “Invest.” ’ To place money so that it will yield a profit. * * In common parlance, putting out money on interest, either by the way of loan or by the purchase of income-producing property.’ Cent. Diet.: ‘To employ for some profitable use; convert into some other form of wealth, usually of a more or less permanent nature, as in the purchase of property or shares, or in loans secured by mortgage.’ It will be seen that, in all cases of investment, although the specific character of the property is changed, the title a/nd control remain with the investor.” Section 2 of the act under consideration uses the terms “invested” and “uninvested” in the sense as defined above, and Section 4 provides that the “office building shall stand for and be an investment of the industrial accident fund.” Section 5 provides for the payment of interest at the rate of 4% per cent per annum on the unrefunded amount of the industrial accident fund diverted for the purposes of the act. Finally, Section 6 appropriates from the general fund $60,000 annually for the repayment to the industrial accident fund. So we have here an enactment providing for the temporary investment of a fund, for the payment of interest as compensation for the use of the fund at the rate of 4y2 per cent per annum, and for the ultimate repayment of the original fund so invested at the rate of $60,000 per annum, principal and interest. The payment of interest at a given time and at a given rate is one of the unerring tests of a loan of money. In support of this proposition, note the following from Rodman v. Munson, 13 Barb. (N. Y.) 63: “The presence of interest in the transaction is a feature of most significant import. Interest proceeds *124 from money or property lent by one person to another, or from debts, legacies or sums of money due or to grow due and payable from one person to another. Whenever there is interest payable, there exists a corresponding obligation, somewhere, to pay it. ‘Interest is the sum paid by the borrower of a sum of money, or of some sort of valuable produce, to the lender for its use.’ (2 McCullough’s Com. Die. 96.) Interest is the ‘premium paid for the use of money; the profit per cent, derived from money lent, or property used by another person, or from debts remaining unpaid.’ (Webster’s Die.) * * For what consideration are these persons to receive this interest periodically from the public treasury? In consideration that the state has the use of their money, and upon no other consideration that has yet been named. The money is paid over to the state at its request and applied to its use. There is an agreement to pay the interest regularly, and repay the principal at an appointed time. If it is not a loan, what is it? It is not a gift. It is not a mere deposit for safe keeping, at the risk of the depositor. # * As it is neither a gift, a deposit, the payment of a debt, or an equivalent for property purchased, and as it lacks none of the essential properties of a loan, I cannot do otherwise than regard it as a loan.” The case of Coulson et al. v. Portland, 6 Fed. Cas. 629 (Case No. 3275), a leading case on the question involved herein, opinion by Judge Deady, president of the Constitutional Convention of Oregon that adopted as a part of the fundamental law the constitutional provision invoked by the plaintiff, is illuminating. The eminent judge, in discussing the charter provision prohibiting the City of Portland from incurring an indebtedness in excess of $50,000, says: “The second objection raises the question: Can the city lawfully issue interest coupons to railway bonds, *125 payable half yearly through, a period of twenty years, and amounting in the aggregate to over $300,000? The charter (section 135) seems to answer this question in the negative when it substantially declares in pursuance of section 5, article 11, of the Constitution, that the indebtedness or liability of the city must never exceed in the aggregate one sixth of that sum. But the defendants insist that, as the ordinance providing for the issue of these coupons also provides for raising revenue and appropriates it to the payment of them as they fall due, no indebtedness or liability is thereby created or incurred. In support of this extraordinary proposition, they cite the single case of People v. Pacheco, 27 Cal. 175 * * . I have never been able to bring my mind to assent to the reasoning by which the court arrived at the conclusion that the act in question did not create a debt. By means of such artificial reasoning and unlooked.for construction of popular and plain terms and phrases, constitutions may be purged of every prohibition upon the legislative power of taxation and creating indebtedness which the wisdom or fears of the people may place in them. “These constitutional provisions restraining the creation of public debts are the gradual outgrowth of the last twenty or thirty years. * * To say that a sum of money due or owing from A to B is not a debt because A has promised to appropriate, or has appropriated, a portion of his future income to its payment, is a proposition in legal metaphysics that I cannot comprehend. A debt exists against the city whenever the city agrees to pay money in return for services or for money borrowed. Every one of these interest coupons, when issued by the mayor and auditor as presented in the ordinance, is a promise by it to pay to the holder so much money. If this is not a debt, or evidence of one, then an ordinary promissory note is not. The fact that the ordinance appropriates money to pay these coupons as they fall due makes no difference. There is no magic in the legislative *126 formula — ‘there is hereby appropriated.’ That does not change the fact that the city owes these coupons, and what it owes to another is a debt due that other. Besides, there is no money in fact set apart by this formula of appropriation until it is collected. The ordinance, by providing for the levy and collection of taxes to pay these coupons, recognizes the fact that their issue creates a debt against the city and thereby undertakes to provide means of payment. But the object of the prohibition in section 135 of the charter is to prevent the council from pledging the future resources of the city beyond the sum of $50,000. The language of the prohibition is explicit and comprehensive. It includes all forms of indebtedness, ‘whether incurred by borrowing money, loaning the credit of the city, or otherwise.’ ” The case of State ex rel. University of Utah v. Candland, 36 Utah, 406 (104 Pac. 285, 140 Am. St. Rep 834, 24 L. R. A. (N. S.) 1260, involves the validity of an act of the legislature of Utah authorizing the loan of $250,000 from the university permanent land fund for the construction of a building for the university of that state. The validity of the act was assailed upon the ground that it was in violation of a constitutional inhibition against the state’s contracting any debts or liabilities exceeding in the aggregate at one time the sum of $200,000. We here quote largely from the body of the opinion because of its valuable discussion of the phrase “shall never contract any indebtedness”: “The phrase ‘shall never contract any indebtedness,’ in our judgment includes any obligation which the state undertakes or is obligated to pay or discharge out of future appropriations; that is, appropriations not made by the legislature creating the debt or obligation, and to be paid from moneys derived from levies other than those made by the *127 then existing legislature, and which must necessarily he raised by levying a tax upon the property of the entire state, as contradistinguished from a mere city, county or district levy. In other words, in order to constitute an indebtedness within the provisions of the constitutional limitation, it is not necessary that the debt be evidenced by bonds, notes or other usual evidences of indebtedness, but it is sufficient if, in order to discharge the debt, the state is obligated to pay it at some future time, and that it casts a future burden upon the taxpayer to the extent of a debt or obligation which must be paid by the state of Utah with funds derived from general taxation. In the following cases, the general question of what constitutes an indebtedness within a constitutional limitation clause similar to ours is fully discussed and applied. A careful perusal of these cases will, we think, convince anyone that the method adopted by the act of 1909 makes the debt or obligation authorized by the act a debt of the state of Utah pure and simple. Among other cases which might be cited, we specially refer to the following: People v. Johnson, 6 Cal. 503; Nougues v. Douglass, 7 Cal. 77; Coulson v. Portland, 6 Fed. Cas. 629 (Case No. 3275); Sloan, Stevens & Morris v. State, 51 Wis. 632 (3 N. W. 393); State v. McMillan, 12 N. D. 300 (96 N. W. 316); McNeal v. City of Waco, 89 Tex. 83 (33 S. W. 324); State v. City of Helena, 24 Mont. 521 (63 Pac. 99, 81 Am. St. Rep. 453, 55 L. R. A. 336); Council Bluffs v. Stewart, 51 Iowa, 385 (1 N. W. 628); French v. Burlington, 42 Iowa, 614; City of Springfield v. Edwards, 84 Ill. 632; Law v. People, 87 Ill. 385; Prince v. City of Quincy, 128 Ill. 443 (21 N. E. 768); Buchanan v. Litchfield, 102 U. S. 278 (26 L. Ed. 138, see, also, Rose’s U. S. Notes); Litchfield v. Ballou, 114 U. S. 190 (29 L. Ed. 132, 5 Sup. Ct. Rep. 820). * * “There is not the slightest attempt in the act to conceal the fact that the debt authorized by it must be paid, both principal and interest, from appropriations made from the funds of the state, which are obtained by general taxation. * * *128 “As is well said by tbe Supreme Court of California in referring to a similar constitutional provision in the case of Pattison v. Board etc., 13 Cal. 183: ‘The intent of tbis clause of tbe Constitution is plain enough; it was designed as a check on legislation, and on sucb legislation as might create a charge upon tbe property of tbe entire state.’ Is it not palpable that tbe obligation in question creates a charge upon tbe entire property of tbe state in tbe form of interest alone amounting to more than $130,000, and as principal and interest aggregating a sum in excess of $380,000, all of which must be paid within tbe time limit fixed in tbe act, and must be paid with moneys obtained from general taxation and appropriated out of tbe general funds of the state? If tbis does not constitute a state indebtedness, we cannot conceive bow one can be created unless it would be by issuing state bonds. If an attempt bad been made to issue state bonds to tbe amount of $250,000, no one would question their unconstitutionality because in excess of tbe constitutional debt limit, yet tbe necessary money for tbe payment of sucb bonds, both principal and interest, would have to be, and would be, obtained precisely in tbe same manner as tbe money must, and is, in fact, directed to be obtained for tbe payment of tbe obligation in question.” With certain exceptions, tbe Constitution forbids counties from creating ‘ ‘ any debts or liabilities which shall singly or in tbe aggregate with previous indebtedness or liabilities exceed tbe sum of $5,000.” O'r. Const., Art. XI, § 10. In 1905, tbe legislature passed an act authorizing tbe construction of a courthouse for Clatsop County, which was intended to evade the prohibition just quoted. In tbis connection, tbe opinion of Mr. Justice Bean, speaking for tbis court in tbe case of Brix v. Clatsop County, 46 Or. 223 (80 Pac. 650), which grew *129 out of that legislation, is enlightening. The justice wrote: “The Constitution plainly prohibits a county from contracting debts or liabilities which singly or in the aggregate shall exceed $5,000, except for a specific purpose. A contract by it to pay a certain sum of money in the future, with interest, out of money to be thereafter raised by general taxation from all the people,' whether the levy be made at one time, covering that future, or has to be made yearly, is manifestly a debt or liability against the municipality; and no technical process of reasoning, legal acumen or jugglery of words can make the fact otherwise. The moment an obligation to pay money is voluntarily incurred by a municipality with no funds or assets in its treasury,1 nor current funds or revenue collected or in process of collection, for the payment of the same, that moment such obligation must be considered in determining its indebtedness, however carefully the law or the contract under or by which it was incurred may attempt to shift the burden from the corporate entity to the taxpayers.* * The money must come from the taxpayers, whatever may be the language of the law authorizing its exaction, or of the contract providing for its payment, and the Constitution cannot be avoided by providing a special tax to be levied in advance for a series of years, and making such contract payable alone therefrom. * * “The Constitution was intended to protect the taxpayers. Its language is plain and unambiguous, and the court is not justified in giving it a strained or astute interpretation to avoid individual or local hardship. It is its duty to enforce the provisions as written, according to their plain and obvious meaning, and not to permit it to be circumvented by shifting the burden of a debt from the municipal entity to the taxpayers.” Subsequent to the enactment of the law forming the subject matter of the litigation now pending, the leg *130 islature passed Chapter 383, Ueneral Laws of Oregon, 1927, entitled: “An Act providing for the use and occupancy of state buildings in Oregon by state officers, boards, and commissions.” The act provides for the collection of rentals from the various boards and commissions, which shall be paid into the general fund. It does not, however, remove the constitutional objection to the enactment assailed. In passing the act involved herein, the legislature well knew that it was making appropriations beyond the revenues in sight, and, to aid the situation, passed Chapter 383, providing for additional revenue. This is evidenced by the statement contained in the official pamphlet, and emanating from the joint committee of the Senate and House of Representatives, in explanation of the proposed constitutional amendment popularly known as the State Tax Limitation Amendment. This statement, made by the committee for the information of the voters, reads, in part: “Under the Constitution as it stands today, the total tax levy for 1928 cannot exceed $2,289,600, or oyer $1,200,000 less than the 1923 levy. The state has grown and is growing, and the cost of government in 1928 must necessarily be more than it was in 1923. If the credit of this state is to be maintained, this amendment is absolutely essential. Surely we do not wish to go upon a warrant basis, run the state into debt and pay six per cent, interest on such indebtedness. That would only be deferring taxes which must eventually be levied to re-establish the credit of the state. It would not be economy, but a burden which must be lifted later. * * The legislature passed appropriations at the 1927 session of approximately $4,000,000 in excess of available revenues un *131 der the present constitutional limit, and Governor Patterson was compelled to veto approximately $1,300,000 thereof, still leaving a deficiency of about $2,700,000 at the end of 1928, unless the income tax measure carries. The appropriations vetoed were practically all necessary, and consisted largely of capital investment in new buildings, etc., which we will have to manage to get along without. * * Oregon must pay her bills and conduct her state affairs on a businesslike basis.” Voters’ Pamphlet, p. 31. The foregoing are facts presumed to be known, and the court will take judicial knowledge thereof: Or. L., § 729, subds. 3, 8. It is palpably clear to the mind of the writer that certain provisions of the statute forming the subject matter of this litigation are in direct conflict with the constitutional inhibition against the creation of “any debts or liabilities” in excess of $50,000. Both cannot stand. The statute must yield to the supreme law of the state. This applies to the statute in its entirety, because its provisions are so related in purpose and substance that it is not reasonable to suppose that the legislature would have enacted the section relating to the investment of the industrial accident fund without making valid provision for the repayment thereof. “If the obnoxious section or part is of such import that the other sections or parts without it would cause results not contemplated or desired by the legislature, then the entire statute must be held inoperative.” 1 Lewis’ Sutherland on Statutory Construction, § 297. See, also, Portland v. Coffey, 67 Or. 507 (135 Pac. 358). *132 "We hold the statute in question to be unconstitutional. This case is affirmed. Affirmed, Burnett, 0. J., and Band and Bean, JJ., concur.