Shaw v. Bd. of Educ. of Vill. (town) of Hobbs

• Decision Date: 16 April 1934
• Docket Number: No. 3955.,3955.
• Citation: 38 N.M. 298,31 P.2d 993
• Parties: SHAW, Commissioner of Banking of Texas, et al.v.BOARD OF EDUCATION OF VILLAGE (TOWN) OF HOBBS, N. M., et al.
• Court: New Mexico Supreme Court

38 N.M. 298

31 P.2d 993

SHAW, Commissioner of Banking of Texas, et al.

v.BOARD OF EDUCATION OF VILLAGE (TOWN) OF HOBBS, N. M., et al.

No. 3955.

Supreme Court of New Mexico.

April 16, 1934.

Error to District Court, Lea County; McGhee, Judge.

Suit by James H. Shaw, Commissioner of Banking of the State of Texas, and others, against the Board of Education of the Village (Town) of Hobbs, N. M., and others, in which certain defendants filed cross-complaints. To review an adverse decree, plaintiffs and certain defendants bring error.

Reversed and remanded.

Where school districts' certificates of indebtedness were invalid because irregularly issued, but proceeds went into construction of school buildings, fact that buildings were permanently annexed to sites belonging to districts before issuance of certificates held not to preclude bona fide certificate holders from obtaining relief by resort to the buildings removable without material injury to fee. Comp.St.1929, § 120-810; Const. art. 9, § 11.

Hervey, Dow, Hill & Hinkle and Brice & Sanchez, all of Roswell, W. B. Robinson, of Carlsbad, and Robert C. Dow, of Lovington, for plaintiffs in error.

John R. Brand, of Hobbs, Tom W. Neal, of Lovington, George T. Harris, of Hobbs, and J. W. Chapman, of Santa Fé, for defendants in error.

SADLER, Justice.

James H. Shaw, as commissioner of banking of the state of Texas, and others, as plaintiffs, instituted suit in the district court of Lea county against the boards of education of the town of Hobbs and the village of New Hobbs, N. M. A statement of the facts out of which the suit originates is necessary.

On July 3, 1930, municipal school district No. 16 of Hobbs, N. M., acting through its board of education and with the consent of the educational budget auditor of New Mexico, authorized the issuance and executed certificates of indebtedness aggregating the sum of $250,000 in denominations of $1,000 and $5,000, numbered consecutively 1 to 82, inclusive. The certificates were purportedly issued in anticipation of a tax levy pursuant to the provisions of 1929 Comp., § 120-810, of the New Mexico Statutes Annotated, for the purpose of raising funds with which to construct and equip two school buildings.

Subsequent to the execution of these certificates, the municipal school district of New Hobbs was created and incorporated from a part of old school district No. 16 of Hobbs. The issue of certificates was apportioned between the two districts, the newly created district taking certificates having a face value of $75,000, the balance remaining to the old district.

Certificates of the face value of approximately $200,000 of the total authorized issue were negotiated. As a result two school buildings were constructed and equipped. These buildings of the respective districts were erected upon real estate owned by such districts before the certificates were issued.

At the time said certificates were authorized and issued no levy had been previously made for the construction of any school buildings, nor had any contracts been entered into for such construction.

The budget as approved and certified by state tax commission for school district No. 16 for the year 1930 authorized the raising of the sum of $24,126.00 for direct charges and a levy of 5 mills to meet the same. This levy presumably was made at the regular October, 1930, session of the board of county commissioners of Lea county. The highest estimated sum anticipated from this levy was $25,395. Only $20,991.98 had been collected under the levy to the time of trial, from which certificates 1 to 7, both inclusive, aggregating $19,000 had been paid in redemption of certificates issued for equipment, leaving a balance of $1,991.98 in the hands of the treasurer of Lea county at the time of trial.

It appears that relatively only a small amount of money reached the hands of the county treasurer from the sale of these certificates. Whether this circumstance reflects a misappropriation of proceeds of direct sales or the exchange at a large discount of certificates for construction costs in lieu of a direct sale thereof, the trial court did not say, and the record fails to satisfy. But the existence of one or the other of these alternatives forms the basis of the trial court's expressed view that a fraud had been perpetrated on the district, as will be pointed out.

The plaintiffs in their complaint proceed upon two theories. The primary theory advanced in their first cause of action presupposes the validity of the certificates and seeks recovery thereon. It calls upon the county treasurer for an accounting of the proceeds derived from the collection of taxes in anticipation of which the certificates were issued, and asks that other defendants holding certificates be required to disclose the number and amount held by each, the payments received thereon, if any, and that they be declared trustees of any amounts received for the benefit of other certificate holders establishing their right to participate in funds arising from the levy. An injunction also was sought against the county treasurer to restrain him pendente lite from making further payments on the certificates.

The next cause of action advances a secondary or alternative theory of recovery. It presupposes the invalidity of the certificates and alleges that the certificates held by plaintiffs and some, if not most, of them held by defendants, actually went into the construction and equipment of the buildings possessed by the two school districts. It alleges that all bona fide holders of certificates, whose proceeds were used in the construction of said buildings, are the equitable owners thereof, and asks that the properties be decreed to a trustee in trust for the use and benefit of the plaintiffs and all other bona fide holders who might prove within a reasonable time their interests therein; that said trustee be authorized to sell the properties and apply the proceeds arising therefrom pro rata to the payment of the interests of the respective claimants who should establish their right to participate in the fund arising from such sale.

The two boards of education met the issues tendered by asserting the certificates to be wholly void because issued in contravention of N. M. Const., art. 9, § 11, in two respects: (1) That the question of borrowing money to construct the school buildings had not been submitted to the qualified electors of the district and approved by a majority voting thereon; and (2) that the purported debt created by these certificates exceeded 6 per cent. of the assessed valuation of taxable property within said school district, as shown by the last preceding general assessment. They also pleaded the invalidity of the certificates as violative of 1929 Comp., § 33-4241, N. M. Stats. Ann., commonly known as the “Bateman Act.”

Upon the issues as finally made up, most of the defendants, being certificate holders, by answer and cross-complaints placed themselves in substantial alignment with the original plaintiffs. Two taxpayers permitted to intervene in the cause, by their pleading, made alignment with the defendant school districts in respect of the claimed grounds of invalidity attaching to the certificates. Another defendant, New Mexico School Supply Company, which already had secured payment for certificates of the face value of $16,000, received in exchange for school equipment, by motion made during the progress of the trial, asserted the invalidity of the indebtedness evidenced by said certificates to the extent of any excess above delinquent tax collections applicable thereto after close of the fiscal year of 1930-31. The basis of its claim was the asserted application of the Bateman Act to the transaction.

The trial court when the evidence was in rendered its decree resolving the issues in favor of the defendant school districts, adjudging the certificates wholly void, and denying to plaintiffs any relief whatsoever. From the decree so rendered the matter comes before us for review upon writ of error. The plaintiffs in error here are the original plaintiffs below and such defendants as there made common cause with them. The same situation exists as to the defendants in error. Hence, it will be convenient to designate the parties in this court as plaintiffs and defendants.

The findings and conclusions of the trial court establishing the invalidity of said certificates were in large measure proposed by the plaintiffs themselves. Among other things it was found that the certificates were all issued on July 3, 1930, pursuant to 1929 Comp., § 120-810; that the tax levy in anticipation of which the certificates were issued actually had not been made by the board of county commissioners of Lea county at the time of their issuance; and that when issued there existed no contract for the construction or repair of any school buildings.

The trial court also found that the total value of the buildings sought to be reclaimed was not less than $45,000 nor more than $65,000, and that they were annexed to the real estate and could not be removed. It further found that the school buildings were erected and equipped from the proceeds of said certificates.

Upon conclusions of law proposed by the plaintiffs the court held:

“(a) That the issuance of said certificates of indebtedness was an attempt to borrow money for the purpose of erecting and furnishing permanent school buildings without submitting the proposition to create the debt to the qualified electors of the school district, and therefore contrary to the provisions of Section 11, Article 9 of the state Constitution.

“(b) That the issuance of said certificates was an attempt to create the indebtedness in an amount exceeding 6% of the assessed valuation of the taxable property within said school districts as shown by the preceding general assessments and therefore in violation of Section 11, Article 9 of the Constitution of New Mexico.

“(c...