City of Humboldt v. Morris

• Decision Date: 25 August 1978
• Citation: 579 S.W.2d 860
• Parties: CITY OF HUMBOLDT, Tennessee, Plaintiff-Appellant, v. Guy MORRIS (Barbara Palmer), Defendant-Appellee.
• Court: Tennessee Court of Appeals

Page 860

579 S.W.2d 860

CITY OF HUMBOLDT, Tennessee, Plaintiff-Appellant, v. Guy MORRIS (Barbara Palmer), Defendant-Appellee.

Court of Appeals of Tennessee, Western Section.

Aug. 25, 1978 Certiorari Denied by Supreme Court Nov. 20, 1978.

G. Griffin Boyte, Humboldt, for plaintiff-appellant.

Hal Holmes, Trenton, for defendant-appellee.

EWELL, Judge.

On January 27, 1977, the Quarterly County Court of Gibson County, Tennessee, authorized the issuance and sale of school bonds in the total principal amount of $7,500,000.00 pursuant to the authority granted by Chapter 7 of Title 49, being Sections 49-701, et seq., of Tennessee Code Annotated. For the retirement of the bonds there was included in the financial budget for the fiscal year July 1, 1977-June 30, 1978, adopted by the Quarterly County Court on July 11, 1977, a tax of sixty cents per one hundred dollars assessed value of all assessable property in Gibson County. The anticipated revenue from this tax for the fiscal year was $648,000.00.

On August 23, 1977, the entire issue of $7,500,000.00 was sold at an average coupon rate of 5.1273 per cent per annum. The bonds were dated August 1, 1977, and provided for the payment of interest from date. On October 6, 1977, the County Judge delivered the bonds to the purchasers, receiving a total sum of $7,571,530.69 in two checks, one in the amount of $7,500,000.00 representing the principal amount of the bonds and another in the amount of $71,530.69 representing accrued interest on the bonds from August 1, 1977, to October 6, 1977.

The County Judge, on October 6, 1977, invested the funds in securities maturing thirty or thirty-one days from date, and upon maturity the original sum of $7,571,530.69 and earnings thereon of $40,468.06 were delivered to Guy Morris, Trustee of Gibson County, Tennessee. On October 10, 1977, and prior to receipt of any of the funds by the Trustee, the Quarterly County Court of Gibson County, without recommendation from the Gibson County Board of Education, directed the Trustee to transfer the $71,530.69, being the interest which accrued on the bonds from August 1, 1977, the date of the bonds, to October 6, 1977, the date of the delivery of the bonds, from the debt service account to the special school account for distribution, with the $7,500,000.00 principal, to the various school systems operating in the County pursuant to Section 49-711, Tennessee Code Annotated.

Following receipt of all of the funds on November 7, 1977, the Trustee disbursed the $7,500,000.00 principal and the $40,468.06 earnings to the cities and school districts operating schools in Gibson County independent of the County on the basis of average daily attendance as provided by statute, and he deposited the $71,530.69 accrued interest in the debt service account for use by the County during fiscal 1977-78 toward payment of the interest on the bonds in the total amount of $572,501.86.

The City of Humboldt, Tennessee, a municipal corporation situated in Gibson County, operates a school system independent of Gibson County, and it received from the Trustee of Gibson County its pro rata share of the funds disbursed but insisted that it was further entitled to its pro rata share of the $71,530.69 deposited by the Trustee to the debt service account. Upon the failure and refusal of the Trustee to disburse that portion of the funds, the City of Humboldt brought suit against Guy Morris, Trustee of Gibson County, Tennessee, in the Law Division of the Law and Equity Court of Gibson County, demanding that an order issue directing the defendant to pay over to plaintiff its pro rata portion of the undistributed funds, relying upon the provisions of Section 49-711, Tennessee Code Annotated. The defendant answered insisting that he was not required to distribute the $71,530.69 which was paid by the purchasers of the bonds as accrued interest to be held in trust for the eventual holders of the bonds in partial satisfaction of the liability of the County to such bond holders. In lieu of an evidentiary hearing the parties entered into a Stipulation of Fact which was filed in the case and constituted all of the evidence considered by the Trial Court. The case was heard by Judge Ralph R. Lawler without the intervention of a jury upon the pleadings and Stipulation of Fact, and he held that the funds in question should remain in the hands of the defendant as Trustee of Gibson County in the debt service account, dismissing the case at plaintiff's cost.

Plaintiff appealed assigning as error the action of the Trial Court in holding that the funds in question remain in the hands of the Trustee in the debt service account.

This case turns upon the construction of Chapter 7 of Title 49 of Tennessee Code Annotated entitled "Bonds for School Purposes" and specifically Sections 49-710 and 49-711, which are as follows:

49-710. Proceeds of sale. The money arising from said sale of school bonds...