Women's Catholic Order of F. v. Special School Dist., 11444.

Decision Date05 September 1939
Docket NumberNo. 11444.,11444.
Citation105 F.2d 716
PartiesWOMEN'S CATHOLIC ORDER OF FORESTERS v. SPECIAL SCHOOL DIST. OF NORTH LITTLE ROCK, PULASKI COUNTY, ARK., et al.
CourtU.S. Court of Appeals — Eighth Circuit

Thomas Mason, of Chicago, Ill. (Leo J. Hassenauer, of Chicago, Ill., and E. L. McHaney, Jr., of Little Rock, Ark., on the brief), for appellant.

Wallace Townsend, of Little Rock, Ark. (Thomas F. Digby, of North Little Rock, Ark., on the brief), for appellees.

Before GARDNER, and THOMAS, Circuit Judges, and WYMAN, District Judge.

GARDNER, Circuit Judge.

This was a suit in equity brought by appellant against the appellees, including the school district and all of its officers and directors, for the purpose of securing a judgment against the district for interest coupons past due and in default appurtenant to unmatured bonds issued by the district, and for a decree of specific performance requiring the district and its officers and directors to pay in full all of appellant's interest coupons unpaid and to pay in full all other of appellant's bonds and interest coupons as the same mature, or for a permanent injunction restraining the district, its officers and directors, and their successors, from diverting or using any revenues, funds or taxes belonging to the school district until the appellant shall have been paid in full.

It will be convenient to refer to the parties as they appeared below.

The defendants by their answer did not question the validity of the bonds, but denied the right of the plaintiff to any priority over other bondholders and alleged that plaintiff should be required to share ratably with the other bondholders in the funds available for the payment of bonded indebtedness.

On March 1, 1924, the defendant school district issued and sold its bonds amounting in the aggregate to $225,000. These bonds were issued for the purpose of building and equipping new school buildings. Plaintiff, on October 17, 1924, purchased $25,000 of these bonds. The defendant school district defaulted in the payment of interest on all plaintiff's bonds commencing with the interest coupons maturing on March 1, 1933, and all interest coupons thereafter maturing. The bonds were authorized by a resolution of the board of directors of the school district, which purported to pledge the "first revenues" of the district, derived from any and all sources, to the payment of said bonds and interest coupons. The resolution in form authorized the execution of a mortgage or deed of trust on the real estate of the school district. The mortgage or trust deed likewise pledged the "first revenues" of the district, derived from any and all sources, to the payment of the bonds and interest coupons.

Plaintiff's bonds mature in 1947, 1948 and 1949. The total annual collections of the district are not sufficient to pay the bonds and interest coupons as they mature, and continue operation of the schools, under the present levy voted by the district. The total outstanding bonds of the district is $1,045,500. Plaintiff's bonds are part of a senior issue. The electors of the district have voted a levy of seven mills for building purposes, but, as observed, this is insufficient to pay interest and principal according to the terms of the bonds of plaintiff, unless they be given priority.

The trial court found that the bonds were duly issued, but that at the time the district did not have authority to vote for a continuing millage tax for a building fund, and that there was no certain millage or other revenue that could be pledged for the bonds, but that their payment depended upon taxes being voted from year to year by the electors of the district. A judgment for the amount due was entered, but no other relief was granted, except to give plaintiff its pro rata share of money set aside to pay bonded indebtedness.

On this appeal plaintiff contends that there was a valid pledge of revenues of the district, with the right of priority of payment; and that the laws and decisions of the Supreme Court of Arkansas at the time of the issuance of plaintiff's bonds had established the right of the directors of a city special school district to create a building fund from the first revenues of the district and pledge that fund to the payment of such bonds, which laws and decisions became a part of the contract between it and the plaintiff which could not thereafter be impaired either by legislative enactment or judicial decision. Plaintiff relies largely upon the decisions of the Supreme Court of Arkansas in Schmutz v. Special School District, 78 Ark. 118, 95 S.W. 438, and American Exchange Trust Co. v. Trumann Special School District, 183 Ark. 1041, 40 S.W.2d 770.

By Act of the Legislature of Arkansas approved February 7, 1913, it was provided among other things as follows: "All special school districts in the State of Arkansas are hereby authorized and empowered, for the purpose of raising funds for the erection and equipment of necessary school buildings, to borrow money and mortgage the real property of the district as security therefor, under such conditions and regulations as to amount, time and manner of payment as the board of directors of said school district shall prescribe, and renew and extend from time to time any evidence of indebtedness or mortgage, or both, issued or made by virtue thereof, and to refund such indebtedness and execute new evidences of indebtedness and mortgages therefor." C. & M.Digest, 1921, § 8977.

The Act of May 6, 1905, as amended by Act of March 1, 1917, contained provision that: "The said evidences of indebtedness, whether warrants or promissory notes, or both, and mortgages, shall be in form in all respects as other investments of like kind are required by law to be, and shall have the same force and effect as they would if executed by natural persons, and the warrants shall have the same validity as they would if there were money in the county treasury to pay the same at the time they were drawn and may be drawn payable in the future, and need not be registered with the county treasury until the time for payment, but shall be drawn upon the building fund and paid out of it in the order of their date, as the building fund is provided and collected by the successive levy and collection, and said special school district shall be allowed in law or equity no defense merely by reason of the fact that it is a school district. * *" C. & M.Dig. 1921, § 8978.

By Act approved March 6, 1917, it was provided that: "The board of directors of any special, rural special or consolidated school district in the State of Arkansas shall have the power and they are hereby authorized to borrow money for the purpose of purchasing a school site or sites and building, erecting, constructing, repairing and equipping a school building or buildings and for other necessary purposes and for carrying into effect the purposes of this Act, and to that end any board of directors may issue bonds in any denominations that said board may designate, payable in lawful money of the United States of America; and said bonds shall be coupons bonds, bearing interest at a rate not exceeding six per cent per annum, interest payable annually or otherwise at a time agreed upon by the board. * *" Acts Ark.1917, p. 983, § 1.

In 1931, the Legislature adopted Act No. 169, p. 476. By Section 66 of this Act (page 518) it attempted to define building fund.

In Schmutz v. Special School District, supra, strongly relied upon by plaintiff, the court among other things said 78 Ark. 118, 95 S.W. 439: "Lastly, it is contended that the recitals in the bond pledge the revenues of the district for their payment. The act under which the bonds were issued provides that the evidences of indebtedness issued by the district shall be `paid out of the building fund in the order of their date as the building fund is provided and collected by successive levies.' This in effect pledges the building fund of the district whatever that may be to the payment of the bonds. Besides, as the bonds are valid obligations, it was evidently the intention of the Legislature that they should be paid out of the revenues of the district, and they are therefore a charge against such revenues as any other valid debt would be. But if we concede that the directors had no authority to pledge the revenues of the district in that way, this would not justify us in enjoining the issuance of the bonds, for if the directors exceeded their powers in that respect this provision of the bond would not estop the district or bind the successors in office of the directors who issued the bonds. For the question of whether the district has power to pledge its revenues was not committed to those directors for ascertainment and decision. Their decision on that matter is no more binding than their opinion on any other question of law affecting these bonds." (Italics supplied.)

In the Schmutz case, the court was considering Act No. 55 of 1905, p. 154. That Act contains substantially the same language as the Act of May 6, 1905, by authority of which the bonds in controversy were issued.

In American Exchange Trust Co. v. Trumann Special School District, supra, also relied upon by plaintiff, the court said 183 Ark. 1041, 40 S.W.2d 771:

"There is no doubt but that the board of directors could provide a building fund for the payment of bond issues for money borrowed by the district, but the statute does not require that it shall be done, except when warrants payable in future are issued as evidences of indebtedness for the money borrowed. This court held in construing a special act authorizing the borrowing of money by a special school district, which provided that the evidences of indebtedness issued by the district shall be `paid out of it in the order of their date, as the building fund is provided and collected by the successive levy' that it pledged in effect `the building fund'...

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3 cases
  • Turner v. Japan Lines, Ltd.
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • February 8, 1983
    ...of the state in which the district court sits. Kotsopoulos, 467 F.2d at 95 (by implication); Women's Catholic Order of Foresters v. Special School District, 105 F.2d 716, 722 (8th Cir.1939). Hence, Oregon law here At the time the verdict was rendered for plaintiff, the interest rate on judg......
  • Underwood v. Buzby
    • United States
    • U.S. Court of Appeals — Third Circuit
    • September 11, 1956
    ...by Federal courts at the rate applied by the law of the state where the Federal court sits. See Women's Catholic Order of Foresters v. Special School Dist., 8 Cir., 1939, 105 F.2d 716, 722. ...
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    • U.S. Court of Appeals — Eighth Circuit
    • June 30, 1941
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