Bauernfeind v. Nestos

Statement. Bronson, J. The plaintiff, a taxpayer, seeks to restrain the Industrial Commission and the adjutant general from entering into a certain contract concerning the soldiers’ compensation. The trial court overruled a demurrer to the complaint. The defendants have appealed from the order. — 1220 — The facts admitted by the demurrer and alleged in the complaint are as follows: The Industrial Commission made a resolution and order which recited that there were a large number of certificates issued to returned soldiers which, pursuant to the tax levied therefor, would not be paid for several years; that there was-no market for the sale of such certificates for the reason that they bore no interest, and the date of their maturity was uncertain; that the Commission had made negotiations with various investment companies so as to thereby procure for the holders of the certificates a price approximating the face value thereof, and so that all holders might be placed on the same basis of value thereof without regard to date of filing or approval of claims. This resolution ordered the members of the Commission to execute a proposed contract attached, if accepted by the investment companies. This contract, in its essential principles, provides: The Industrial Commission agrees to purchase all soldiers’ certificates issued to ,the amount of $6,500,000, the estimated amount outstanding or thereafter to be issued, which may be offered to it by the holder thereof on or before November 15, 1922, for the cash price of 82 per cent, of the face value thereof. The moneys to be paid therefor are to be received from certain investment companies, named as parties in the contract, in exchange for notes issued by the Industrial Commission. The Industrial Commission agrees to issue its negotiable coupon notes upon payment by the investment companies of the purchase price which it is agreed shall be 97 per cent, of the aggregate principal sum of such notes, plus accrued interest to the date of delivery. The investment companies agree to purchase and pay for such notes. It is provided, however, that the investment companies shall not be required to purchase such notes unless soldiers’ certificates had been previously purchased and deposited as collateral by the Commission in an aggregate amount sufficient to pay the principal and interest of such notes and unless such notes are tendered by the Commission before November 5, 1922. It is further agreed that each of the notes shall be dated July 1, 1922, and shall be for the sum of $1,000 or a multiple thereof, and shall bear interest at 6 per qent. per annum, payable semi-annually. $250,000 principal shall mature on the 1st day of April, May, and December, 1923, and January, 1924, and $250,000 principal thereafter on such days. They are made payable at the offices of the Empire Trust Company in New1 York City. It is also agreed that all soldiers’ certificates purchased by the Commission shall be deposited with — 1221 — the Minnesota Loan & Trust Company of Minneapolis, and the First National Bank of Bismarck, who, as trustees, shall hold the same as collateral security for the payment of the notes. The adjutant general, a party to the contract, the Industrial Commission giving consent, agrees that he will give priority to all soldiers’ certificates purchased by the Commission and will cause to be paid such certificates in their order as so purchased by the Commission before any other certificates now or hereafter issued excepting certificates now outstanding that will be regularly reached March i, 1923. Such will be governed by the plan now in operation excepting that any such certificate holders may sell the same to the Commission. The adjutant general and the Industrial Commission agree that they will make no similar contract or arrangement, during the term of such agreement, with any other party, and that no notes or obligations of the Commission secured by such soldiers’ certificates shall he sold, issued, or delivered to any other person whatever. The form •of the proposed notes is attached; likewise the form of the certificate to be executed by the joint trustees. The order and resolution of the Commission further provides that these notes and the interest thereon shall be paid at maturity, in accordance with the terms of the proposed contract from funds received by the State Treasurer out of the taxes heretofore or hereafter levied for the returned soldiers’ fund. In respect to these proceedings of the adjutant general and the Commission, it is alleged that they had no authority to enter into such contract, to purchase such soldiers’ certificates, to deliver the notes mentioned, or to deposit the soldiers’ certificates with the trustees; that the Commission has no authority, in law, to require the adjutant general to perform the acts specified in the contract; that the adjutant general has no authority to fix the •order of payment of such soldiers’ certificates; that the Commission has no authority to borrow money for the uses and purposes named in the contract. It is further alleged that the soldiers’ certificates are not valid obligations of the state; that the state is not obligated to continue the levy of the tax to pay such certificates; that there is no authority, in law, to •obligate the state to continue the levy and collection of the tax provided; and, that the laws providing for such fund are unconstitutional. Contentions The defendants maintain that the soldiers’ bonus law is constitutional and its purpose public. They maintain that the Industrial Commission — 1222 — as created by law, is a business board to whom has been granted, by law, a wide discretion; that in the management of the utilities, industries, and projects of the state the members w;ere given the powers o'f a board of' directors thereover and such powers as might be expedient in conducting any business intrusted to their management. They urge that, concerning" the proposed contract and notes, the Commission in reality does not purchase soldiers’ certificates. The Commission simply accepts, by assignment, the legal title for the sole purpose of holding such certificates in trust for the assignors until the investment company has paid a stipulated price; that the Commission does not borrow money to pay such certificates; it does not pay them; it simply acts as a trustee for the beneficiaries of the soldiers’ act; that in fact, the Commission does not agree to pay the notes excepting as they shall be paid out of the bonus fund; that in reality it is a trustee of two cestüis que trust holding the legal' title for the beneficiaries^ as trustee only; that the Commission, accordingly, may act as trustee, has authority so to do, and following the decision of this court in State ex rel. Bauer v. Nestos, (N. D.) 187 N. W. 233, it may, as such trustee, assist the adjutant general in carrying out the law; that, in any event, if the position be taken that the proposed contract amounts to a purchase by the Commission, it has that power; that, as a business board, dt has all discretion necessary to carry out the supervisory powers granted to it; that under the home builders law it may purchase soldiers’ certificates if it becomes necessary in order to facilitate the acquisition of farm homes by returned soldiers. The plaintiff urges that the act is unconstitutional because violative cf constitutional provisions concerning special privileges and immunities and because the taxes levied are not for a public purpose; that the Industrial Commission and the adjutant general have been granted no legislative authority to make the contract proposed; that the Commission and the adjutant general have no power, by contract, to bargain away the discretion awarded to them concerning the priority or manner of paying soldiers’ certificates. Decision. Chap. 206, Laws of 1919, first established a returned soldiers’ fund. It provided for the levy of one-half mill per dollar upon the assessed valuation of all taxable property. Its stated purpose was to enable returned soldiers to secure a home or a farm home or to complete their — 1223 — education. It entitled any returned soldier, a resident of the state, to receive $25 per month for each month of engaged service, for the purpose -of purchasing a home or farm home, or, in lieu thereof, to pursue or complete his educational training. It directed the adjutant general to make payment from the fund annually to such returned soldiers pro rata out of any funds available. It gave power to the adjutant general, under the supervision of the Industrial Commission, to have charge and supervision of all such payments. Chap. 55 of the Laws of the Special Session of 1919 amended the prior act. It provided for a levy of three-fourths of one mill and the creation of a special returned soldiers’ fund to be used for the following purposes: “(a) To secure a home or a farm home and improve, furnish or repair same; (b) To make payments on pre-existing indebtedness on such home or farm home or on any improvements or furniture connected therewith; (c) To procure farm machinery, seed grain, live stock, poultry and feed for same, and to pay off any pre-existing liens or mortgages against same; (d) To establish, or invest in, a business or .trade, including the tools of a craftsman or to pay off any pre-existing indebtedness, mortgage, or liens against same; (e) To complete or procure an education in any approved educational institution, including correspondence schools; (f) To secure medical care or treatment and surgical services.” Section 1. It provides that any returned soldier should be entitled to receive $25 per month for each month of engaged sendee; that payments should be made in one payment from such fund to such returned soldier in the •order in which their applications were received, filed, and approved, on vouchers issued by the adjutant general and approved by the State Auditor. It provided further that the adjutant general, with the consent of the Industrial Commission, might, in his discretion, give priority to claims under the act. Chap. 103, Laws of 1921, further amended the prior acts. It increased the levy to one mill. It provided that any returned soldier should be entitled to receive from the fund $25 per month for each month of engaged service; that payment should be made in one payment from such fund in the order in which applications were received, filed, and approved out of any funds available therefor. It provided further that the adjutant general, with the consent of the Industrial Commission, — 1224 — might, in his discretion, give priority to claims under the act. It empowered the adjutant general, under the supervision of the Industrial Commission, to have charge and supervision of all payments and the carrying out of the act. It provided that the compensation paid should be used within the state of North Dakota only, unless the adjutant, under direction and consent of the Industrial Commission, should otherwise direct. The returned soldiers’ fund is a public fund. The moneys therein are public moneys. They are collected directly by taxation. Necessarily, if the law be constitutional, they are so collected for a public purpose. The-legislature has prescribed a method for disbursing such fund to returned soldiers. This method requires the full payment to a returned soldier in the order in which the applications are received, filed, and approved, and that the compensation paid shall be used within the state-of North Dakota only. The exceptions are that the adjutant general, with the consent of the Industrial Commission, may, in his discretion, give priority to claims, and, further, that the adjutant general, under the direction and consent of the Industrial Commission, may otherwise-direct the use of the compensation paid without the state. The legislature has given a discretionary power to the adjutant general subject to the direction and supervision of the Industrial Commission. If, as the defendants contend, the proposed contract is not to be construed as a loan or borrowing of money, and not thereby in any manner, to bind the state and use its credit, then such proposed contract is to be given the same construction as if the adjutant general and the Industrial' Commission had agreed by contract to give priority to all claims purchased by the investment compami.es at 82 per cent, of their face value. Such contract does and would, in its essence, bargain away the right of the Industrial Commission to exercise its discretion concerning the priority of claims, not only for the present, but for the future. Such a contract, if valid, would automatically deprive the adjutant general and the Commission of the very discretion that the legislature had granted. For, concerning all claims not purchased by the investment companies, the discretionary right conferred by statute would be taken away. Furthermore, such contract, if valid, would be directly opposed to the. statutory requirement that payments shall be made from the fund in the order in which the applications are received, filed, and approved. It would reverse the statute and deprive the officers charged with the administra — 1225 — tion of the fund of all discretion not only the officers for. the present, but the officers for the future. Indeed, such a contract would permit public officers to disburse a public fund pursuant to the bargain of their •contract, with their sovereign discretionary power eliminated for the present and for the future. Manifestly this discretionary power, conferred by statute, is a continuing discretionary power. It is a sovereign delegated power termed quasi judicial. Throop on Public Officers, §§ 533, 553. It is subject to the rule of strict construction. It cannot be delegated: Mechem Public Officers, §§ 830; 567. Its purpose is obvious. A returned soldier, crippled, disabled in the service of his country, and needy, may, pursuant to this discretionary power, be given rights of priority over a returned soldier not needy and who has never been to the front. But it is urged that the claims of all returned soldiers, under the proposed contract, will now- be paid without delay at the average amount of their face value. This may be true; yet the alternative 'is presented whereby a returned soldier, disabled and needy, is necessarily required to discount 18 per cent, his claim, otherwise payable, perchance, upon March 15, 1923, in full under the proposed contract, in order to secure payment and avoid indefinite postponement of payment. But again it may be urged that this discretion is conferred by statute, and that such proposed contract is simply one of the methods of exercising such discretion. Plowever, if the nature of such discretion is to be so construed, what would be said of a contract made by the adjutant general and the commission to the effect that they would pay. the claim of Jones, a returned soldier, prior to the claim of Smith, another returned soldier, if Jones would accept 18 per cent, discount. The answer may be made that the proposed illustration would be unfair and unjust, whereas the proposed contract affords a .just and fair method of present disbursement; nevertheless, necessarily, in some cases under the proposed contract some of such returned soldiers must submit to a discount of 18 per cent, or thereabouts that they would otherwise not be compelled to pay under the present plan. The law requires the payment of the compensation awarded to the soldiers 100 cents on the dollar. The contract submitted proposes -to discount the award and pay to each soldier 82 cents on the dollar. The contract stipulates that the investment companies shall pay 97 per cent, of the principal sum of -the notes to be issued by the Industrial Commission. This grants a 3 per cent, commission to the investment companies. This must — 1226 — be paid either by the state or out of the soldiers’ claims. The statute confers no authority to pay a commission out of -the state funds or to deduct a commission from the soldiers’ claims. The statute permits the exercise of a discretion in determining priorities. The proposed contract takes away this, discretion and destroys all priority. The statute fixes,, ordinarily, the priorities. The contract destroys these priorities. The proposed contract, i'f valid, necessarily must bind this discretion of the Commission until all the assigned claims purchased thereunder are paid and destroys the right of the Commission to exercise any discretion preferential to such assigned claims until they are entirely paid. Supposing the legislature should desire to further amend the law by providing some method of paying these claims in full ioo cents on the dollar, or otherwise should desire to give certain priorities to needy and disabled soldiers ; would it be contended that by this contract the hands of the Legislature are tied, and all claims so purchased and assigned pursuant thereto must be paid out of the public funds exactly pursuant to such contract? The present law requires that the compensation paid shall be used within the state only. The adjutant and the Industrial Commission are granted a discretion to otherwise direct. Nothing is said in the proposed contract in this regard. Yet it necessarily follows that 18 per cent, of the public funds will necessarily be disbursed without the state and at the city of New York, the place of payment stated in the proposed notes. Furthermore, the resolution and proposed contract does not show that the beneficiaries, the holders of the soldiers’ certificates, either present or prospective, have consented to the arrangement by which the Industrial Commission, as the defendants contend, will act- as trustees. Manifestly broad questions of public policy are involved as well as general principles underlying the essentials of a valid contract. The legislature has conferred a continuing discretionary power. The proposed contract bargains this discretion and eliminates its continuing force. The- legislative act requires the payment of the award out of public funds in full. The proposed contract requires the certificate holder to accept a lesser amount. This borders upon the exercise of a legislative power which is contrary to the legislative mandate requiring payment to be made in full. See Lukens v. Nye, 156 Cal. 498, 105 Pac. 593, 36 L. R. A. (N. S.) 244, 20 Ann. Cas. 158; Brule County v. King, 11 S. D. 294, 300, 77 N. W. 107. Again, if it be conceded that such power to bargain the discretion conferred is permissible, the proposed contract operates — 1227 — to stifle competitive bidding upon all the certificates for all time to come. The-proposed contract gives to the investment companies the exclusive right to purchase all such certificates. If some other company, tomorrow or on the day thereafter, should offer a more favorable rate to the soldiers, the Industrial Commission have waived their discretion and abandoned their ri^ht to negotiate. The purposes of the proposed contract may, indeed, be highly laudable. The attempt to secure expeditious payment of the moneys to returned soldiers is deserving of commendation. Indeed, the returned soldiers each and every one of them, should receive ioo cents on the dollar awarded by statute to them. Clearly the purposes of the act is to secure compensation and disbursement of compensation, ioo cents on the dollar. The defects existing in the present law, which does not provide a method of financing the present payment of soldiers’ claims, is a matter addressed to the legislature. It is not a matter wherein the executive authority may assume a legislative power, nor the courts, by judicial fiat, create a legislative power. Praiseworthy as the effort may be, the majesty of the law must be upheld, as it is prescribed without emasculation by judicial fiat. For the reasons stated the proposed contract, considered as not pledging the state’s credit, cannot be upheld. If, as the defendants otherwise contend, the proposed contract be ' construed as a loan or borrowing of money, we are clearly of the opinion that no express legislative authority exists for the exercise of such power by the-adjutant general and the Industrial Commission. Although the Industrial Commission are given wide discretionary powers concerning state enterprises and utilities, nevertheless these powers, generally speaking, are concerned with such activities functioning separate from the state. Sargent County v. Bank of N. D. (N. D.) 182 N. W. 270. The funds involved herein are public funds raised by the state, directly through taxation, in its sovereign capacity, for a public purpose. These funds may not be impaired by hypothecation of the officers in charge, nor the state’s credit pledged, unless there exists express authority therefor. In the case of State ex rel. Bauer v. Nestos et al. (N. D.) 187 N. W. 233, express statutory authority was there conferred in the statute concerned. It is not conferred in the soldiers’ acts, and accordingly is not possessed by the officers concerned. It is entire — 1228 — ly unnecessary to consider the constitutional questions raised. In our opinion the trial court properly overruled the demurrer to the complaint.. Bird.zell, C. J., and Christianson, J., concur. ■Grace, J., not participating.