Board of Education of Town of Carmen, Okl. v. James

• Citation: 49 F.2d 91
• Decision Date: 30 March 1931
• Docket Number: 336.,No. 335,335
• Parties: BOARD OF EDUCATION OF TOWN OF CARMEN, OKI., et al. v. JAMES. BOARD OF EDUCATION OF TOWN OF HELENA, OKL., et al. v. SMITH.
• Court: U.S. Court of Appeals — Tenth Circuit

49 F.2d 91 (1931)

BOARD OF EDUCATION OF TOWN OF CARMEN, OKI., et al. v. JAMES.

BOARD OF EDUCATION OF TOWN OF HELENA, OKL., et al. v. SMITH.

Nos. 335, 336.

Circuit Court of Appeals, Tenth Circuit.

March 30, 1931.

W. Adelbert Dillon, of Cherokee, Okl., M. K. Cruce and Ben Franklin, both of Oklahoma City, Okl., and A. J. Titus and Ira A. Hill, both of Cherokee, Okl., for appellants.

Eugene Jordan, of Tulsa, Okl., and Chas. E. McPherren, J. D. Lydick, and Hayes, Richardson, Shartel, Gilliland & Jordan, all of Oklahoma City, Okl., for appellees.

Before COTTERAL, PHILLIPS, and McDERMOTT, Circuit Judges.

PHILLIPS, Circuit Judge.

Opinion in No. 335.

Heberd James, as the owner and holder of ten funding bonds and interest coupons attached thereto, dated January 25, 1921, and issued by the board of education of the town of Carmen, Alfalfa county, Oklahoma, brought this suit against such board of education, the excise board of Alfalfa county, and the officers and individual members of such boards to secure a mandatory injunction enjoining and restraining such boards, officers and individual members from taking funds in the sinking fund of such board of education created to pay the principal and interest of such bonds and diverting them to other purposes; from refusing to perform their legal duty to make an itemized statement of the estimated needs of such board of education to pay the interest maturing on such bonds and to create a sinking fund for the purpose of paying the principal thereof at maturity; from refusing to make an appropriation for such sinking fund; from refusing to compel the collection of tax levies to pay such interest and create such sinking fund; from asserting any defense to such funding bonds under the decision of the Supreme Court of Oklahoma in Eaton v. St. Louis-San Francisco Ry. Co., 122 Okl. 143, 251 P. 1032; and from refusing to pay such principal and interest according to the tenor of such bonds, and for a decree establishing the validity of such bonds and plaintiff's title thereto.

Jurisdiction is predicated upon diversity of citizenship.

The facts, as disclosed by the admissions in the pleadings and the agreed statement of facts, are as follows: On January 25, 1921, in a cause pending in the district court for Alfalfa County, Oklahoma, entitled "Buxton v. Independent School Dist. No. 77" (the Carmen district), and numbered 2046, a judgment was entered in which the court found that the school district was indebted to Buxton in the sum of $13,500, and adjudged that Buxton have and recover judgment against the school district for that amount, with interest at 6% from the date thereof. The board of education voluntarily entered its appearance in that cause and admitted that the indebtedness sued on was due and unpaid.

On March 7, 1921, there was filed in the district court of Alfalfa County an action styled "In The Matter of the Application of Board of Education of Town of Carmen, Alfalfa County, in the State of Oklahoma, to Determine the Existence, Character and Amount of Its Legal Outstanding Judgment Indebtedness, and to Issue Its Bonds to Fund the Same," and numbered 2066. On the same day, a judgment was entered in such proceeding which, with the exception of the caption, is fully set out in marginal note 1.

Plaintiff is the holder and owner of bonds Nos. 3 to 12, inclusive, and coupons Nos. 14 to 40, inclusive, attached to each of said bonds.

Bond No. 3 of the thirteen bonds authorized by such judgment, the certificates affixed thereto, and coupon No. 14 attached thereto, are set out in marginal note 2.

Coupons Nos. 15 to 40 matured consecutively January 1 and July 1 in each of the years 1929 to 1941, inclusive.

No proceeding or action of any kind was instituted within thirty days from June 4, 1921, the date such bonds were approved by the Attorney General and ex-officio bond commissioner of Oklahoma, for the purpose of contesting in any manner the legality of such bonds.

About July 5, 1921, such bonds were delivered to the owners and holders of such judgment indebtedness. On December 14, 1921, plaintiff purchased bonds Nos. 3 to 12, inclusive, from the Fidelity National Bank of Kansas City and paid therefor par and accrued interest. Before purchasing such bonds, plaintiff made no inquiry or investigation of any kind of the records of Alfalfa county to ascertain other outstanding indebtedness or the assessed valuation of the school district. At the time of such purchase, plaintiff relied upon the recitals in such bonds and certificates attached thereto, and upon such funding bond judgment.

At the times judgments in No. 2046 and No. 2066 were rendered, there was on file in the office of the county clerk of Alfalfa county an assessment of school district No. 77 which showed that the assessed valuation of such district for the year 1920, approved by the excise board of that county on September 3, 1921, was $1,435,682.

At the time such funding bonds were issued and delivered, there was an outstanding bond issue of such school district dated April 1, 1920, aggregating $72.000, and such facts were shown in school District Bond Register No. 2, an official record in the office of the county treasurer of Alfalfa county.

Defendants offered to prove that the indebtedness sued upon in No. 2046 had not been included in the financial statement and estimate filed by the school board and approved by the excise board for the year in which such indebtedness was incurred. Upon objection of plaintiff, this offer was denied.

Since July 1, 1928, such boards and officials have refused to make the necessary estimates and tax levies to pay the interest on, and to create a sinking fund for the payment of the principal of such bonds, and will continue to do so in the future because of the decision of the supreme court in Eaton v. Railway Co., supra.

The trial court entered a decree granting the relief prayed for, and the defendants have appealed.

Section 26 of article 10 of the Oklahoma Constitution in part provides:

"No county, city, town, township, school district, or other political corporation, or subdivision of the State, shall be allowed to become indebted, in any manner, for any purpose, to an amount exceeding, in any year, the income and revenue provided for such year, without the assent of three-fifths of the voters thereof, voting at an election, to be held for that purpose, nor in cases requiring such assent, shall any indebtedness be allowed to be incurred to an amount including existing indebtedness, in the aggregate exceeding five per centum of the valuation of the taxable property therein, to be ascertained from the last assessment for State and county purposes previous to the incurring of such indebtedness. * * *"

Section 28 of article 10 of the Oklahoma Constitution in part provides:

"Sinking funds of town, counties, etc. Counties, townships, school districts, cities, and towns shall levy sufficient additional revenue to create a sinking fund to be used, first, for the payment of interest coupons as they fall due; second, for the payment of bonds as they fall due; third, for the payments of such parts of judgments as such municipality may, by law, be required to pay."

Section 29 of article 10 of the Oklahoma Constitution in part provides:

"No bond or evidence of indebtedness of this State shall be valid unless the same shall have endorsed thereon a certificate, signed by the Auditor and Attorney General of the State, showing that the bond or evidence of debt is issued pursuant to law and is within the debt limit. No bond or evidence of debt of any county, or bond of any township or any other political subdivision of any county, shall be valid unless the same have endorsed thereon a certificate signed by the County Clerk, or other officer authorized by law to sign such certificate, and the County Attorney of the county, stating that said bond, or evidence of debt, is issued pursuant to law, and that said issue is within the debt limit."

Section 4267, C. O. S. 1921 (section 362, Revised Laws Okla. 1910), provides that municipalities, including towns, townships and school districts, are empowered to refund "indebtedness, including bonds, judgments and warrants," but the same "shall not exceed in amount the actual amount of outstanding indebtedness, inclusive of attached coupons."

Section 4269, C. O. S. 1921, provides that the officers of the municipality shall give at least ten days' notice by publication and by posting of the time when the municipality will present to the state district court an application to determine the amount of the legal outstanding indebtedness of the municipality and ask the court to hear and determine the same, and to fix, sign and issue funding bonds in an amount sufficient to pay such indebtedness; and that any person interested in the proceedings may appear and remonstrate against the issuance of such bonds.

Section 4270, C. O. S. 1921, provides that on the date so fixed, the authorized officer of the municipality shall appear before the court named and make due proof of the "existence, character and amount of the outstanding legal indebtedness of said municipality" to the "satisfaction of the court"; that "on such proof being made the court shall cause to be made, upon the records of the court, a statement and finding to that effect and shall then, in open court, proceed to sign each bond to be issued, up to the amount of said indebtedness so proven and approved, and shall, after expiration of the time for taking appeals, if no appeal be taken, deliver the same to the treasurer of said municipality issuing the same, who shall be chargeable therefor, and shall be liable on his official bond for said bonds."

This section further provides for an appeal from the judgment of the district court, and that, in the event of an appeal, the bonds shall not be delivered to the treasurer of the municipality until the final determination of such...