McGuire v. Hammond

• Decision Date: 01 July 1966
• Citation: 405 S.W.2d 191
• Parties: Heman H. McGUIRE, Appellant, v. Roy HAMMOND et al., Appellees. W. E. STEVENS, d/b/a East End Motor Sales, Appellant, v. Roy HAMMOND et al., Appellees. W. L. GEARHART, Appellant, v. Roy HAMMOND et al., Appellees.
• Court: United States State Supreme Court — District of Kentucky

Page 191

405 S.W.2d 191

Heman H. McGUIRE, Appellant, v. Roy HAMMOND et al., Appellees.

W. E. STEVENS, d/b/a East End Motor Sales, Appellant, v. Roy HAMMOND et al., Appellees.

W. L. GEARHART, Appellant, v. Roy HAMMOND et al., Appellees.

Court of Appeals of Kentucky.

July 1, 1966.

H. R. Wilhoit, Grayson, for appellant McGuire.

W. H. Counts, Olive Hill, for appellant Stevens.

Ora F. Duval, Olive Hill, for appellant Gearhart.

Thomas P. Bell, Fowler, Rouse, Measle & Bell, John Y. Brown, Lexington, for appellees.

DAVIS, Commissioner.

Three separate appeals have been consolidated and will be disposed of in this opinion. The litigation before us arose from a taxpayers' suit instituted against numerous defendants, including the members of the Board of Education of Carter County. The complaint and amendments to it presented numerous charges of illegal expenditures of school funds by the Board of Education, and sought recoupment of the alleged illegal expenditures in behalf of the Board. One of the defendants in the action was appellant Heman H. McGuire, then superintendent of the Board of Education of Carter County. The special judge who tried the case heard the evidence without the intervention of a jury, and dismissed most of the claims which had been asserted. Judgments in substantial sums were awarded against the appellants on various facets of the case. These appeals challenge the judgments on several grounds which we shall discuss whthout first enumerating them.

At the outset of the case the appellants moved that the complaint be dismissed for its failure to allege that prior demand had been made of the Board of Education to prosecute the claims. An amended complaint was filed in which it was admitted that no prior demand for suit had been made, but in which it was asserted that such a demand would have been futile. The trial judge heard evidence touching the question of the futility of such a demand and concluded that the demand would have been futile. Our review of the voluminous record convinces us that the trial court was correct in this determination. It is apparent from the record that the Board was substantially under the domination of the appellant, McGuire, the superintendent. Inasmuch as McGuire was charged with deliberate misuse of his position for his own personal profit, it seems clear that a demand for the Board to institute the suit would have been unavailing. Farler v. Perry County Bd. of Ed., Ky., 355 S.W.2d 659, is urged by appellants as dispositive of this point in their favor. In Farler we observed that since the claims sued on included actions against persons and firms other than members of the Board, it could not be presumed that the Board would have declined to file suit. In this case the complaint sought recovery against persons other than Board members, but we have no matter of presumption that the Board would not sue. There is substantial evidence, supported by clear inferences, that the Board would not have undertaken any portion of the litigation. We hold that there is no merit in this assignment of error.

The next preliminary question presented by all appellants relates to their demand for trial by jury. CR 38.02. The trial judge denied the demand for trial by jury, and in doing so observed: '* * * but because of the long period of time anticipated necessary to hear the case, and the many and complicated issues of fact involved, this motion was denied.' Appellants 'The ancient mode of trial by jury shall be held sacred, and the right thereof remain inviolate, subject to such modifications as may be authorized by this Constitution.'

point to Section 7, Kentucky Constitution, in which it is provided:

Appellants also rely on Shatz v. American Surety Co. of N.Y., Ky., 295 S.W.2d 809 and Dairy Queen, Inc. v. Wood, 369 U.S. 469, 82 S.Ct. 894, 8 L.Ed.2d 44. We have no quarrel with those authorities. However, it is our view that by reason of the complicated issues involved in this proceeding, most of them interwoven with other phases of the litigation, and nearly all of them centering about alleged illegal acts by appellant McGuire, this action is one properly cognizable in equity rather than at common law. In a very definite sense this case may be designated as one involving complicated accounts and claimed violations of the fiduciary duties of appellant McGuire in his position as superintendent of the public schools of Carter County. In this posture, the case becomes one for determination by the judge without the intervention of a jury. See Hoaglin v. Carr's Administratrix, Ky., 294 S.W.2d 935; Commercial Union Assur. Co. v. Howard, 256 Ky. 363, 76 S.W.2d 246 and cases there discussed.

We turn now to the assignments of error as designated by appellant, McGuire, individually:

THE EXPENSE ACCOUNT OF APPELLANT McGUIRE

The trial court awarded judgment for appellees against McGuire in the sum of $9,031.30, being the aggregate sum of travel expenses paid to McGuire by the Board for the period beginning September 30, 1955, to June 30. 1960. (A plea of the five-year statute of limitation was considered to preclude any claim for expense items prior to September 30, 1955, KRS 413.120.) At pain of over-simplification, it may be said that the record discloses that the Board did pay McGuire the stated sum for travel expenses, and that there had been no express previous authorization for McGuire to incur the specific expenses. Claim vouchers for the expenses had been duly filed with the Board by McGuire during the period. These claims had been approved and paid by the Board in normal course. Many of the written claims as filed with the Board were no longer extant at the time of trial. It was explained that the Board's practice had been to preserve the vouchers until after an audit by the Auditor of Public Accounts, after which the vouchers were destroyed.

Many of the claims reflected travel by McGuire outside of Garter County. Appellees rely on Beauchamp v. Snider, 170 Ky. 220, 185 S.W. 868. That decision is not authoritative here because it was posited upon the then existing statute which precluded the Board's paying expenses for the superintendent outside the county. The present statute contains no such inhibition. KRS 160.410. In the main, appellant McGuire admitted his inability to give specific detail as to the nature of the school business he had performed while incurring the expenses. However, he insisted that in each instance he was performing school business, and there is no substantive evidence to the contrary. In a few instances the expense accounts reflected that the Board had paid hotel bills carrying charges for persons in company with McGuire. One or two of these hotel bills indicated a registration for 'Mr. and Mrs. McGuire' at times subsequent to McGuire's divorce, and while he was unmarried. He disclaimed detailed information as to these, and in some instances it is not determinable from the record whether the Board had actually paid some of these items.

In this state of the record it is our view that the trial court erred in simply awarding the appellees full recovery of the entire claim of $9,031.30. The contract between McGuire and the Board, as well as

the Board's minutes, reflect that McGuire was to be reimbursed for expenses incident to school business. Manifestly it would have been impracticable, and in our view unnecessary, for McGuire to have obtained prior Board authority for every item of expense. We hold that the appellees did not prove illegal expenditure of school funds incident to the allowed travel expenses, and reverse so much of the judgment as permits recovery of appellant McGuire of the item of $9,031.30 for travel expenses.

THE AUTOMOBILE INSURANCE

Judgment went against appellant McGuire in the sum of $1,510 based on a showing that McGuire had received that sum form an insurance company which carried collision and liability insurance on a Dodge automobile owned by the Board. It appears that McGuire had obtained the insurance and paid the premiums for it. The car was damaged in a collision; McGuire was driving it at the time of the accident. It was shown that McGuire had paid $250 of the insurance proceeds to the person whose vehicle was involved in the collision. However, it was also shown that approximately $1,100 of the insurance proceeds was paid on the purchase price of a substitute automobile and title to the new car was in the Board. We do not reach the question whether McGuire had an insurable interest, as that is not before us. In any event we consider that any funds he received from the insurance company would have been impressed with a constructive trust in favor of the Board. Consequently, it was proper to award judgment against McGuire for any portion of the insurance proceeds which he did not pay over to the use and benefit of the Board. Inasmuch as the record reflects that he did pay about $1,100 for this purpose, it was error to award judgment against him for the entire sum of $1,510. The judgment is reversed as to this item, with directions to allow credit to McGuire of $1,100 on this phase of the judgment, plus premiums paid.

THE CARPENTER CHECKS

The trial judge, as part of the findings of facts, stated:

'(6) That the Carpenter Body Works, of Indiana, from whom the Carter County Board had purchased school bus bodies, made refunds on undelivered bodies as follows:

                October 19, 1955   $4,079.80
                November 19, 1956  $2,026.56
                March 27, 1959     $2,147.89
                

and checks for these amounts were received by and cashed by the defendant, McGuire. Although defendant denied having seen the checks, the evidence including a handwriting expert was convincing.'

As a further part of the trial cour's findings of fact it was pointed out that during the course of the hearing, incident to a court-ordered physical inventory of shool buses, '(A) clandestine, covert effort was made to defeat the true findings of the inventory order by hastily moving...