Montana Attorney General Opinion 16-374

Opinion No. 374. State Insurance-Initiative and Ref- erendum-Contracts-Statutes -Counties-School Districts. HELD: 1. State Insurance Fund Law (Chapter 179, Laws of Montana, 1935), having been defeated by the people at referendum election becomes void, and all contracts of insurance issued thereunder are nullities. 2. ~tate officers are without legal authority to refund unearned portions o~ premiums, but such refunds give rise to a moral obligation which the legislature alone may discharge. 3. School districts and counties hll;ve ~oral obligation to pay pre- mmms 10 arrears for protection given at least on pro-rata basis, but upon refusal so to do, doubtful if recovery by the State may be had on quantum meruit basis. November 30, 1936. Hon. John J. Holmes State Auditor The Capitol We quote from your letter of No- vember 10th: "Where it now appears from in- formation released by the Associated Press that the people of the State of Montana declared by their vote on Referendum No. 37 that the State Insurance Fund Law (Chapter 179, Laws of Montana, 1935) is no longer to be continued in full force and effect on the statute books of this state, a goodly number of in- quiries are being received in the Montana Insurance Department rel- ative to the status of contracts of insurance issued by the department during the period of time the law was being administered by the de- partment. "Your opinion is respectfully re- quested as to the status of all con- tracts of insurance issued by the In- surance Department to the various political subdivisions under the pro- visions of Chapter 179, Laws of Montana, 1935, at and when the re- sult of the vote on Referendum No. 37 is proclaimed by the Governor of the State of Montana." Section 1 of Article V of the Con- stitution of Montana provides: "* * * but the people reserve to themsel,,:es * * * the power, at their own optlOn, to approve or reject at the polls any act of the legislative assembly, except as to laws neces- sary for the immediate preservation of the public peace, health or safety, and except as to laws relating to ap- propriation of money, and except as to laws for the submission of consti- tutional amendments, and except as to local or special laws as enumer- ated in Article V, Section 26 of this Constitution. * * * "Any measure referred to the peo- ple shall be in full force and effect unless such petition be signed by fifteen per cent of the legal voters of a majority of the whole number of the counties of the state, in which cas~ the 11l:w shall be inoperative, until such time as it ~hall be passed upon at an election, and the result has been determined and declared as provided by law. * * *." The effect of this constitutional provision has been considered by the Supreme Court of Montana in four cases: State ex reI. Hay v. Alderson 49 Mont. 387, Ann. Cas. 1916B, 39: 142 Pac. 210; In re McDonald, 49 Mont. 454, Ann. Cas. 1916A 1166, L. R. A. 1915 "B", 988, 143 Pac. 947; 368 OPINIONS OF THE ATTORNEY GENERAL State ex reI. Esgar v. District Court, 56 Mont. 464, 185 Pac. 157; State ex reI. Goodman v. Stewart, 57 Mont. 144, 187 Pac. 641. We invite your attention particu- larly to the opinions promulgated in the Esgar case and to the views ex- pressed there by Mr. Justice Hollo- way in his concurring opinion to the effect that a legislative enactment becomes void ab initio upon the pas- sage of a referendum measure by the people. Whether or not the Court would follow Mr. Justice Holloway's view and hold that Chapter 179, Laws of Montana, 1935, becomes void ab in- itio upon the proclamation of the Governor is not necessary for your purposes to determine at this time, . and we reserve our judgment on the matter. There can be no doubt, however, that upon the proclamation of the Governor said Chapter 179 is then and there repealed, and that at the same time all contracts executed thereunder are at an end, for the con- tracting parties are presumed to know that their agreement was afflicted with the infirmity created by Article V, Section 1 of the Constitution. "The Constitution is a part of all State contracts, and where a public officer is directed by law to contract for the State, the law under which he acts is as much a part of the con- tract made by him as if it were for- mally embodied in the contract." (59 C. J. 171.) The action of the people in refusing to approve said Chapter 179 prevents the state from perform~ng its promise to insure the property of the school districts and counties under the poli- cies issued (13 C. J. 646; 3 Williston on Contracts, 1938), and the Gover- nor's proclamation of the results of the referendum vote operates as a dis- charge of the contracts. (Sections 7407, 7452, R. C. M. 1935; 5 Page on Contracts, and 1919-1929 Supplement Section 2697. See also Stratford Inc. v. Seattle Brewing & Malting Co., 162 Pac. 31.) What, then, shall be done with the moneys received by the State as pre- miums, particularly the unearned portions thereof? We believe the problem is one which may be solved only by the legislature. It is too elementary to require cita- tion of authority that public officers have only the powers granted to them by law. Where is the authorization to any officer to refund the moneys paid to the State as premiums? We find none. On the contrary, Section 10 of Article XII of the Constitution of Montana provides: "No money shall be drawn from the (state) treas- ury but in pursuance of specific ap- propriations made by law," and again, in Section 34 of Article V it is de- clared: "No money shall be paid out of the treasury except upon appro- priations made by law and on warrant drawn by the proper officer in pur- suance thereof * * *." First National Bank v. Sanders County, 85 Mont. 450, 279 Pac. 247; In re Pomeroy, 51 Mont. 119, 151 Pac. 333; State v. Kenney, 10 Mont. 496, 26 Pac. 388; State ex reI. Journal Publishing Co. v. Kenney, 9 Mont. 389, 24 Pac. 96.) We have not overlooked Section 173.6, R. C. M. 1935, nor that part of the Montana Supreme Court's deci- sion in State v. Holmes, 100 Mont. 256, 47 Pac. (2d) 624, wherein the court held that said Chapter 179 did not violate either of these constitu- tional prohibitions because the act created a special fund for a specific purpose, but it will be observed that under the conclusion we expressed supra, each part of the act fails, as well as the whole thereof, and Section 173.6 as well as Section 173.12 be- come as inoperative as if they had never been written. Again we might add, even if it might be said that the Insurance Commissioner or the State Treasurer could return the premiums paid, upon what basis should such refunds be made? Should the full amount be returned, or should the state retain the customary short rate, or may the accounts be adjusted pro rata? Be- cause there is no law to follow, in solving these difficulties, the neces- sity for further legislative action be- comes more palpable. Clearly the legislature has full pow- er to deal with the matter. There is an obvious moral obligation upon the state to return at least the unearned portions of the premiums paid, either OPINIONS OF THE ATTORNEY GENERAL 369 upon a short term or pro rata basis, for it would be unconscionable for the state to retain the full three years' premium for a few months or less protection. Such a moral obliga- tion is ample justification to support an appropriation by the legislature. (1 Page on Contracts, Section 633.) What should be done concerning the premiums due and owing the state upon policies already issued? Possi- bly an a~tion quantum meruit might successfully be brought against the school districts and counties in ar- rears to recover at least the pro rata amount due for the protection given. (Section 7454, R. C. M. 1935; French v. Lewis and Clark County, 288 Pac. 455; School District 18 v. Pondera County, 297 Pac. 498.) But see 13 C. J. 647. Certainly the moral obliga- tion of the counties and school dis- tricts to pay for the protection given on the one hand weighs as heavily upon them as the obligation of the State on the other to refund the un- earned portions of the premiums paid.