Merritt v. Dermott Special School Dist. , 188 Ark. 243 ( 1933 )

STATEMENT BY THE COURT.

This appeal is by the county treasurer' from a decree of the chancery court approving the budget of the directors of the Dermott Special School District, allocating a certain amount of all the revenues of the district available for supporting the school during the year 1932-33, and enjoining the treasurer from paying out funds in the treasury to its credit for any other purpose than as designated in the decree.

The allegations of the complaint set out the amount of revenue on hand, and what will be available during the 1932-33 term, with the liabilities of the district to be met, including interest on bonds, the amounts due on what are called "floating warrants," expenses for insurance, etc.

The decree reads as follows: "On this day this cause is submitted to the Hon. E. G. Hammock, chancellor of the Second Chancery District of Arkansas, in vacation, by agreement of counsel in writing, the plaintiff appearing by its attorney of record, John Baxter, and the defendant as county treasurer appearing in person, and by his attorney of record, O. C. Burnside, and the court, after hearing the oral testimony of C. R. Bates, L. B. Hawkins and J. B. Griswood, members of the Dermott School Board, and other testimony, and being well and sufficiently advised in the premises, finds that the Dermott School Board has on hand, as of July 1st approximately $7,500; that said amount is the amount paid into the hands of the county treasurer by the sheriff in his annual settlement for taxes collected in 1933 for 1932.

"The court further finds from the evidence that the Dermott Special School District voted a tax in May, 1933, of eighteen mills, fifteen mills to be used exclusively for school purposes, and three mills to be set aside for debt service.

"The court further finds that the annual income of the Dermott Special School District for the fiscal year of 1932-33 was over $22,500; that it will take $12,500 to conduct a school in the Dermott Special School District for both colored and white for eight months and pay insurance on the school property; that all the money that comes into said district, over and above the amount required to conduct a school on a very economical basis as outlined above, ought to be used for the payment of debts and warrants due by the district, except the 15 mills voted for school purposes and one-sixth of said redemptions from July 1, 1933, to July 1, 1934; and the court orders the treasurer to handle the funds of said district as shall be hereinafter set out in the order of this court.

"It is therefore considered, ordered, adjudged and decreed by the court that the sum of $12,500 be set aside by the county treasurer out of the first available funds, as provided in this decree, for the exclusive use of school purposes and insurance on the property of said district for the year 1933-1934, and out of said sum the school board of said district is ordered to immediately pay the sum of approximately $1,000 for insurance upon the school property for one year; the other $11,500 shall be used exclusively for school purposes.

"Second: That the treasurer shall immediately pay $525 to the trustee as interest on bonds due in February, 1933.

"Third: That, out of the apportionment of funds received from the State apportionment, the treasurer shall pay the sum of $2,325 to the trustee for interest due on bonds, due in April, 1933.

"Fourth: That, out of any redemptions that may come into the hands of said treasurer from July 1, 1933, until July 1, 1934, five-sixths of said amount shall be set aside for the use and benefit exclusively for school purposes; that three mills shall be set aside for debt service.

"Fifth: That all taxes that may be collected by the sheriff from January 1, 1934, through the tax collecting time, up to July 1, 1934, and paid to the county treasurer, that five-sixth of said amount shall be set aside for the exclusive use of school purposes for the school year 1933-34; that one-sixth of said amount shall be set aside exclusively for debt service; that any warrants that may be now outstanding may be used for the payment of taxes to the extent of one-sixth of the amount of school taxes due, and warrants that may be issued exclusively for school purposes for the school term of 1933-34 may be used for the payment of school taxes for the year 1934 to the extent of five-sixths of the school taxes that may be due.

"Sixth: That, after there has been set up by the county treasurer the sum of $12,500 exclusively for school purposes and the payment of insurance for the year 1933-34, then all other funds that may come into his hands shall be set apart for the payment of debts of said district, said debts to be paid in the manner now provided by law, provided that the fifteen mills voted for school purposes and five-sixths of the redemptions mentioned herein shall never be used for debt service.

"Seventh: The county treasurer is ordered to open, up accounts to carry the funds of the Dermott Special school District in separate accounts as provided in this decree.

"Done in vacation this the 19th day of August, 1933."

Montgomery Ward Company, a corporation, came in and moved to set the decree aside, alleging it was the owner and holder of $885 in warrants issued to teachers — the teachers of the Dermott Special School District — and other employees between March, 1931, and February, 1932, which remained unpaid; that its rights as holder of such warrants were prejudiced by the adjudication of said decree; that it was not a party to said cause, and had no notice that said cause was pending at the time said hearing was had and said decree was entered; that the decree was contrary to law, and void because of a nonjoinder of necessary parties defendant; that their rights were prejudiced by said decree, and it had a meritorious defense to the plaintiff's action. Prayed that the decree be set aside and the court enter an order making it a party defendant in said cause and permit it to plead to said petition for general relief.

The chancellor overruled the motion, and denied the intervention. (after stating the facts). Neither the bondholders nor the trustee named in the pledges securing the bonds of the district, nor the holders of the $40,000 in outstanding warrants issued by the district, were made parties to the suit.

Counsel for appellee alleges in the complaint: "It is contended by the bondholders that the county treasurer should set aside funds to pay certain maturing interest on bonds outstanding of the district, and the registered warrant holders contend that the money now in the hands of the treasurer should be paid on warrants."

Act 169 of 1931 is a very comprehensive school law, but does not seem to enter into this controversy, except as to the amount to be set aside to be used for school purposes from the taxes of 1934 for 1933, and the amount to be used for bond purposes.

The effect of the decree herein is to impound the $7,500 now on hand to the credit of appellee district, except as to the payment of the two interest items approximating $2,600, and the money to be derived from redemptions for the purpose of enabling appellee to operate the school in 1933-34, notwithstanding the fact that the holders of the $40,000 of outstanding warrants, some registered under the law, then existing at the time and pressing for payment, and in the face of the fact that there is interest due on the bonds of the district. The teachers and other employees holding the past-due warrants of the district are deprived of their money, because, under the decree herein, there can be no money used to pay same. The fact that the court ordered the moneys impounded indicated that there are holders of warrants pressing for payment out of the little money on hand in the treasury, and what little is to be collected.

The law provides for boards of directors for managing the affairs of the school, protecting the property of the school district and carrying on and operating the schools. It also provides for the issuance of warrants, how they should be issued, and by whom, and the liability thereunder. These boards are given plenary power, and have ample discretion in the conduct and management of the business of the district, the operation of the schools and the allowance and payment of claims for which the district may be liable.

(1). The directors of this school district made an investigation of its assets and liabilities, and allotted a certain part of the revenues on hand and arising for expenses of conducting the school, and this without regard to some of the other debts and liabilities. They determined the amount for which the school could be operated, how the accounts should be kept, and that a certain amount of the school funds should be allocated to the payment of operating expenses of the school, without regard to whether other obligations of the district could be paid in accordance with their terms. They, then, without notice to other warrant holders and creditors, went into chancery court and had it approve the budget as estimated, and the treasurer enjoined from paying other outstanding warrants or moneys, except such as were included in the budget. It made no difference to them that the operation of the school with the expense incident thereto, would cost and require the expenditure of so much of all the school revenues, present and future, that it would not leave enough in the treasury to take care of the registered warrants, fixed expenses, etc. The effect of such an order is to deprive other warrant holders of the opportunity to collect, or be paid some of their warrants, and must, of necessity, result in long delay in the collection thereof. The boards of directors are provided for by law, and selected to manage and conduct the affairs of the district in accordance with law and the best interests of the district. It was never contemplated that the chancery court should supervise or direct the conduct of the school and board of directors in the operation of the school and the creating of indebtedness and payment thereof. The chancery court has no such power or jurisdiction in fact.

(2). The intervener had the right to notice of the hearing of the court for approval of the budget, or schedule of expenses submitted by the directors, since the claims of other creditors were to be affected, and the payment of them necessarily delayed by the action taken by the court, and it is undisputed that no notice of such hearing was given to the intervening creditors, and interveners had the right to come in and present the matter of their claims before such liability was fixed about the expenses necessarily delaying and preventing the payment of their claims, if they otherwise could have been paid.

If the chancery court had such jurisdiction, they would doubtless be in charge, directing, supervising and controlling the expenses of operation of the schools in half the districts in the State of Arkansas. This would produce an intolerable condition, and impose on the courts as well as the districts, notwithstanding the exercise of such jurisdiction might result beneficially to many of the schools.

Intervener's petition should have been heard and granted, that the parties interested might have had an opportunity to protect their rights, which were materially affected by the unwarranted order of the chancery court of which they had no notice. The chancellor erred in not granting the motion for setting aside the decree that the rights of the intervener might be determined; and, not having authority to exercise this supervising and controlling power over the district's directors and affairs, and against the interest of all others of those to whom the district was indebted, the decree is reversed and the cause dismissed.