Capital Bank of St. Paul v. School-Dist.

• Decision Date: 29 November 1890
• Docket Number: No. 53 of Barnes County.,53 of Barnes County.
• Citation: 1 N.D. 479,48 N.W. 363
• Parties: Capital Bank of St. Paul v. School-Dist.
• Court: North Dakota Supreme Court

1 N.D. 479

48 N.W. 363

Capital Bank of St. Paul

v.School-Dist.

No. 53 of Barnes County.

Supreme Court of North Dakota.

Nov. 29, 1890.

Syllabus by the Court.

1. A contract, authorized by the inhabitants of a school-district at a district meeting, to build a school-house for an amount in excess of funds on hand or subject to collection for that purpose and the amount that could be realized from the maximum tax which could be levied by the inhabitants for the current year and used for that purpose, is void. Therefore, held, that such a contract, void because the district board had no authority to make it, could not be made binding upon the district by subsequent ratification by the inhabitants. Whether there was sufficient evidence of such ratification not decided.

2. Such contract being impliedly prohibited by statute, the receipt by the district of the fruits thereof creates no liability either under the contract or for the value received.

3. A warrant creates no greater liability than the debt it represents, whether in the hands of the original party or of a purchaser before maturity and for value.

Appeal from district court, Stutsman county; Roderick Rose, Judge.White & Hewett, ( Bartlett Tripp, of counsel,) for appellant. F. H. Remington, John S. Watson, and C. M. Hertig, for respondent.

Corliss, C. J.

The plaintiff, seeking judgment in the court below, based its claim upon four alleged warrants, signed by defendant's clerk and director, and drawn in the usual form upon defendant's treasurer. When these papers were received in evidence they created a presumption of liability against the defendant and in favor of plaintiff, assuming that plaintiff had established its title to them. This apparent liability defendant claims to have over thrown by undisputed evidence, and the trial court so held, directing a verdict in favor of defendant. Defendant's successful defense was the illegality of the pretended warrants for want of power to contract the indebtedness which they represented. If the uncontroverted facts justify the conclusion against the defendant's power to incur the debt, then the warrants are void. Their issue adds nothing to the force of the original claim. They create no new debt. No estoppel can rest upon them. Their negotiation for value before maturity will not confer any greater rights upon the purchaser. All who deal with them, either originally or by subsequent purchase, are affected by every defense to the pretended debt they represent. Bank v. Willow Lake Tp., (N. D.) 44 N. W. Rep. 1002, and cases cited. The view we take of the law renders the statement of only a few facts important. The assessed valuation of the district at the time the warrants were issued and the contract on which they rest was made was $18,305. These pseudo warrants were given to Sargent & Germain on a contract between them and the defendant's school board to erect a school-house for the district for $6,000, which contract was fully performed by them. It does not appear that the district board was ever empowered to build any particular school-house, or, indeed, any school-house at all. The authority must come from the inhabitants at a district meeting. The minutes of such meeting disclose merely that a motion was made and carried to ballot to build a school-house. The school board was appointed a building committee, and a tax of 10 mills was levied for that purpose; but it nowhere appears that the inhabitants actually balloted to erect such a building or any school-house, or in any manner authorized its construction. Nor does it appear that any site was ever selected, either by the inhabitants or by the district board. It was undisputed that the district never had any title to the land on which the house was erected; nor were any proceedings ever taken by the district for the purpose of acquiring title to the land, or to secure the right to build the school-house thereon. That the action of the district board in making the contract to construct the building was wholly unauthorized and void cannot well be disputed. See Farmers' etc., Bank v. School-Dist. No. 53, (Dak.) 42 N. W. Rep. 767. The power to designate a site and to authorize the building of a school-house is vested exclusively in the inhabitants. But it is urged that, although not originally binding upon the district, the contract has been ratified by the conduct of the inhabitants since the erection of the school-house, and the issuing of the warrants representing the alleged contract price therefor. While we do not wish to be considered as assenting to this view of the evidence, we will assume for the purpose of this opinion that there was sufficient evidence of ratification to submit to the jury. Still we think the court would have been justified in rendering judgment for defendant. Nay, we hold it would have been the duty of the court to give such judgment. Ratification is equivalent only to original authority, and we are of opinion that the inhabitants under the statute had no authority to direct the building of a school-house whose cost would exceed the funds provided for that purpose. We hold that this contract was void, not only for want of power in the district to make it, but because prohibited by the spirit and necessary implication of the statute.

The sections of the act essential to the solution of this question are as follows: “Sec. 29. The inhabitants qualified to vote at a school-district meeting lawfully assembled shall have power * * * (4) to designate by vote a site for a school-house; (5) to vote a tax annually not exceeding one per cent. on the taxable property of the district as the meeting shall deem sufficient to purchase or lease a site, and to build, hire, or purchase a school-house, and to keep the same in repair.” “Sec. 56. The district board shall purchase or lease such site for a school-house as shall have been designated by the voters at a district meeting, in the corporate name thereof, and shall build, hire, or purchase such school-house as the voters of the district in a district meeting shall have agreed upon out of the funds provided for that purpose.” Laws 1879, c. 14. The manifest purpose of this legislation is to prevent the district, unless bonds are issued under chapter 24 of the Laws of 1881, from either mortgaging the future resources, or increasing beyond 1 per cent. of the assessed valuation the present burden of the inhabitants of the district. The inhabitants, in meeting lawfully assembled, select a site, direct the building of the school-house, and levy 1 per cent. tax to pay for the same. It is out of the funds provided for that purpose that the board is to build and pay for the house. The funds provided for that purpose are those on hand, or subject to collection for that purpose, and, in addition, the amount which can be raised by a levy of a tax of not exceeding 1 per cent. on the assessed valuation of the district; and the tax must be levied before it can be said that the funds are provided. The inhabitants cannot in any one year levy this maximum tax for any number of years in advance. No funds can be deemed as provided for that purpose which the district has not then on hand for that purpose, or subject to collection, or which it has not levied a tax to raise. As to future levies, the fund cannot be said to be a fund provided, but is a fund to be provided in the future. The contract price for the school-house in question was $6,000, or over 30 per cent. of the assessed valuation of the district. If this contract were valid, those inhabitants who were not willing that such an expense should be made would be forced to pay over 30 times the maximum tax that can be levied for that purpose in any one year, or the future taxing power of the district for that purpose would be anticipated and destroyed for years to come. The evils of an indebtedness in the form of warrants to be paid in the remote future is illustrated in this case. These warrants were sold at 70 cents on the dollar; and every contractor with a district who expects pay in warrants all of which cannot possibly be paid until after the lapse of years, and who is faced with the necessity of raising money upon them by a sale at a discount, must, to save himself, charge the district, in excess of what he would otherwise charge it, enough to make good his loss, and in this way the loss becomes the loss of the district. Moreover, such warrants bear a much higher rate of interest than bonds which can be sold usually at par, bearing a moderate rate of interest. That this evil was intended to be prevented by this statute, and that our interpretation of the statute is in harmony with the will of the legislature, is evinced by chapter 24 of the Laws of 1881, which authorizes school-districts to bond for the building of a school-house. This act was doubtless passed to enable a school-district to raise immediately for that purpose a sum which in many districts could be brought together only after years of maximum taxation. And this act contains a positive restriction against every district not in a town or city containing more than 1,000 inhabitants limiting its authority to bond to the amount of $1,500. No other district can bond for more than 5 per cent. of its assessed valuation. Why this limitation, if every district could build a school-house costing many times the sum limited, and create a valid indebtedness for such amount by the issue of warrants? These warrants in this case, if valid, created when issued a present liability, which could have been put in judgment to hang over the district as an incubus forever in the absence of legislative relief; for the annual interest upon this debt-$600-(10 per cent. on $6,000) would exceed yearly by over $400 the maximum tax which could be levied to apply thereon. The increase in the assessed valuation might ultimately enable the district to discharge the annual interest, but the payment of the...