pledge of interest accruing on state balances, which was not placed in state treasury, to state certificates of indebtedness issued to construct capital improvements at state universities did not violate constitution
How later courts described this case
- pledge of interest accruing on state balances, which was not placed in state treasury, to state certificates of indebtedness issued to construct capital improvements at state universities did not violate constitution
- unless lawfully separated from the principal, the interest on public funds becomes an accretion thereto and may be used for the purposes for which the principal may be used.
- "[T]he Legislature is not prohibited by our Constitution from separating the interest from the principal and pledging it. . . ."
Written by the judges who cited it.
The opinion
Ed. F. McFaddin, Associate Justice, concurring. For a long time it has been recognized in this State that there is a great need for additional buildings and equipment at the University of Arkansas and the other State supported schools. The 1961 General Assembly made a step in the direction of meeting such needs by the passage of Act No. 442 of 1961; but that Act was declared unconstitutional in the case of Cottrell v. Faubus on June 5, 1961, 233 Ark. 721 , 347 S. W. 2d 52 . As a direct result of that decision, the Legislature was called into special session in August 1961, and undertook to find ways to take care of some of the building needs of the University and the other State supported schools.
Several acts were passed to make money available out of one of the cushion funds set up under the Revenue Stabilization Law; and then in Act No. 65 of the First Special Session 1 of 1961 (which is the Act here before us) the Legislature undertook to set up a commission to provide money for an additional cushion fund. The question now before us is the validity of this Act No. 65 which creates the State Reserve Fund Commission and authorizes it to issue certificates up to the total amount of $8,574,000.00, which certificates will be due on or before fifteen years and will bear interest at three per cent per annum.
The point that gave me the greatest concern in this case was the negotiability of these certificates, because the Act No. 65 provides in § 6: “The certificates shall have all of the qualities of negotiable instruments under the negotiable instrument laws of this State.” I envisaged: that the State Reserve Fund Commission would sell the certificates to the State Board of Finance (under § 10 of this Act No. 65); that if the State Board of Finance so desired, it could sell the said certificates by proceeding under § 13-406 Ark. Stats.; that the certificates of the State Reserve Fund Commission would be on the general market; and that if a default occur then the State’s credit or at least its good name would be hurt. We had such a horrible occurrence in the Road Improvement District Bonds, and also in the Depression of 1932. “A burned child fears the fire”; and I wanted to make sure that a similar situation did not occur again.
However, after much serious study, I have reached the conclusion that my fears can be remedied only by the Legislature and not by the courts. I find nothing in the Constitution that prohibits the Legislature from setting up a commission like the one here, which can issue certificates like these. Such procedure was directly approved in McArthur v. Smallwood, 225 Ark. 328 , 281 S. W. 2d 428 . If the said certificates issued under the Act No. 65 reach the hands of holders for value before maturity, and if there should be a default: it “just occurs.” As we said in Gipson v. Ingram, 215 Ark. 812 , 223 S. W. 2d 959 :
“In determining the answer to the posed question, we emphasize that the Legislature, as the supreme lawmaking body, possesses all legislative powers except those expressly or impliedly prohibited by the Constitution. State v. Ashley, 1 Ark. 513 ; Straub v. Gordon, 27 Ark. 625 ; Bush v. Martineau, 174 Ark. 214 , 295 S. W. 9 . So we examine the Constitution to see if the Legislature is prohibited from allowing the state agencies and institutions to have and disburse cash funds.”
In short, I find nothing in the Constitution that prohibits the Legislature from doing what it has done in said Act No. 65. Gipson v. Ingram, supra, and McArthur v. Smallwood, supra, point to such a result. Of course, .any purchaser of these certificates from the State Board of Finance knows that these certificates are not State obligations and that only a specific fund 2 is pledged to the payment of these certificates, and snch purchaser would take with his eyes open. Because of all this, I concur in the conclusion that the Act No. 65 is not unconstitutional.
This Act may be found in § 13-327 et seq. of Ark. Stats.
The new Uniform Commercial Code of Arkansas, as found in § 85-3-105 Ark. Stats., says: “A promise or order otherwise unconditional is not made conditional by the fact that the instrument ...(g) is limited to payment out of a particular fund or the proceeds of a particular source if the instrument is issued by a government or governmental agency or unit.” The same section further says: “A promise or order is not unconditional if the instrument . . . (b) states that it is to be paid only out of a particular fund or source except as provided in this section.” The interplay of these provisions is not now before us.