Davis v. Phipps

• Decision Date: 23 September 1935
• Docket Number: No. 4-4006.,4-4006.
• Parties: DAVIS v. PHIPPS, Commissioner of Education, et al.
• Court: Arkansas Supreme Court

85 S.W.2d 1020

DAVIS v. PHIPPS, Commissioner of Education, et al.

No. 4-4006.

Supreme Court of Arkansas.

September 23, 1935.

Appeal from Pulaski Chancery Court; Frank H. Dodge, Chancellor.

Suit by C. D. Davis against W. E. Phipps, Commissioner of Education, and others. From a decree dismissing the complaint, the complainant appeals.

Affirmed.

John L. Carter, of Little Rock, for appellant.

Rose, Hemingway, Cantrell & Loughborough, of Little Rock, for appellees.

BAKER, Justice.

This suit, filed by C. D. Davis, as a citizen and taxpayer, against W. E. Phipps, as commissioner of education, is to enjoin the issuance of bonds by the state board of education. The effect of the suit is such that it challenges the legality of a proposed bond issue under Act No. 333 (page 969), which became a law upon the 4th day of April, 1935, having remained with the Governor for twenty days after the adjournment of the General Assembly, without approval or veto.

Act No. 333, if legal, is a grant of power to the state board of education, by which it is authorized to sell from time to time, and in such amounts as it may deem advisable, bonds in addition to those now authorized by law, to be known as revolving loan school bonds, to mature on such basis as the state board of education may determine, and to make a physical pledge to secure such bonds in such form as it sees fit of any school district bonds in the state treasury, on which loans were made from the revolving loan fund. The state board of education was granted power to execute a pledge by deed of trust, and by depositing the school district bonds in any bank or other safe place designated by the state board of education, and to designate a trustee for said pledge or deed of trust, who should have power to sell any of said pledged bonds should there be a default of the payment of principal or interest on the bonds authorized to be issued under section 1 of said Act No. 333.

The state board of education passed a resolution on June 10, 1935, pursuant to the authority granted, to issue $20,000 of revolving loan school bonds, as authorized, of the denomination of $1,000 each, and bearing interest at the rate of not exceeding 6 per cent. per annum, one bond to be payable on the 1st day of January, beginning with the year of 1936, and one bond of $1,000 payable each year thereafter, until the said $20,000 shall have been repaid. The said resolution especially provided that said bonds should be issued and executed in the name of the state board of education, by its chairman, attested by the seal of the state board, and that, as security for the payment thereof, there should be pledged in form a deed of trust, to be adopted by the state board of education, of which the Commercial National Bank of Little Rock was made trustee, with proper provisions for the sale of the pledged bonds, given as security, for payment of principal and interest of the said revolving loan school bonds.

To this suit filed by the appellant herein, seeking to enjoin the issuance of the aforesaid bonds, the defendants demurred. The demurrer upon hearing was sustained, and, plaintiff refusing to plead further, the complaint was dismissed. The appeal comes to this court challenging this action of the chancery court of Pulaski county.

It is urged upon this appeal that Act No. 333 of the Acts of 1935 violates Amendment No. 20 to the Constitution of Arkansas. Amendment No. 20 was adopted at the general election in November, 1934, and provides as follows: "Except for the purpose of refunding the existing outstanding indebtedness of the State and for assuming and refunding valid outstanding road improvement district bonds, the State of Arkansas shall issue no bonds or other evidence of indebtedness pledging the faith and credit of the State or any of its revenues for any purpose whatsoever; except by and with the consent of the majority of the qualified electors of the State voting on the question at a general election or at a special election called for that purpose."

The resolution adopted by the state board of education especially provides that the revolving loan school bonds shall not pledge the faith and credit of the state of Arkansas for their payment, but they shall be payable only from the proceeds of the bonds pledged as security therefor.

It must appear, even to the casual reader, that the question raised is whether these bonds may be issued and sold, "except by and with the consent of the majority of the qualified electors of the State voting on the question at a general election or a special election called for that purpose," as provided in Amendment No. 20.

It must be equally apparent that the bonds could not be issued and sold except when authorized by such election, as bonds issued by the state of Arkansas, if the faith and credit of the state, or any of its revenues, were pledged to secure the payment thereof.

It must be seen from the foregoing statement that said bonds do not purport to be state bonds, in the sense ordinarily implied by the use of such term. They purport to be issued only as revolving loan school bonds, issued by the state board of education. There is an express provision of Act No. 333 (section 7) that the faith and credit of the state shall not be pledged.

Do these bonds, as above described, come within the inhibition of this constitutional amendment?

If the answer to this question is such that the bonds must be decided to be direct obligations of the state, and for the payment of which the state must at all events be finally bound, we would not hesitate in determining that the bonds could not be legally issued in the face of the provisions of Amendment No. 20 aforesaid.

As stated above, they do not purport to be obligations of the state. They are issued by the state board of education to secure money for the revolving loan fund. There is no authority to bind the state for their payment in any respect or particular. Bonds must be paid out of the proceeds arising from the pledged securities. There is no other method or provision for...