Kenmare School District No. 28 v. Cole

Birdzell, J. This is an appeal from an order of the district court of Ward county sustaining a demurrer to a complaint. The action was brought by a school district for the recovery from the defendants, who are former members of the school board, of various sums of money which were paid out by the treasurer of the school district on warrants approved by them. The warrants were issued in fulfilment of certain contracts which are alleged to have been void by reason of the fact that they involved the creation of an indebtedness in excess of . the debt limit and beyond the ability of the district to meet, by levying taxes within the maximum rate prescribed by § 2218 of the Compiled Laws of 1913. The complaint alleges all facts necessary to show that the indebtedness created by the contracts referred to exceeded the debt limit and also the limitation of the power to levy taxes, and predicates the liability of the defendants upon the alleged wrongful issuance and [35] payment of the warrants required to discharge the obligations of the void contracts. The contracts alleged in the complaint were entered into to- secure the construction of a new high school building, and, while the complaint does not directly allege the performance of the contracts to the extent of showing that the building has been constructed and equipped and is being used by the district, the fair inference from the facts alleged is that the building has long since been completed and equipped, and is in use by the district. The appellant’s counsel relies upon § 2218 of the Compiled Laws of 1913 as establishing the proposition that the contracts made by the defendants for the building and equipping of the schoolhouse created no obligations whatsoever on the part of the school district, and from this premise he argues the payments made in pursuance of the contracts necessarily involved an illegal expenditure of public moneys such as would render the defendants personally liable for repayment to the district. Section 2218 of the Compiled Laws of 1913, in so far as applicable to the appellant’s contention, is as follows: “It shall be unlawful for any . . . officers of any school district ... to contract any debt . . . for the payment . . . for which during the current year, or any subsequent year, it shall be necessary to levy on the taxable property of such . . . school district, a higher rate of tax than the maximum rate prescribed by law, and every contract made in contravention of the provisions of this section shall be utterly null and void in regard to any obligation thereby imposed on the corporation on behalf of which such contract purports to be made. . . .” It cannot be doubted that by reason of this statute the school district was not placed under any legal obligation to perform the contracts entered into by the school board in so far as their performance involved the necessity of levying taxes in excess of the maximum rate; neither can it be doubted that they were equally void to the extent that they created indebtedness in excess of the limitations prescribed by law; but in our opinion the test of the personal liability of the officers who acted on behalf of the corporation in entering into such contracts is not measured by the binding force of' the contracts or the absence thereof. The school district in its corporate capacity can only act through its individual officers, and in so far as the officers of the corporation in good faith and without fraud exercised [36] tbe powers vested in the corporation by law, they are not personally liable for their action. The defendants while acting in their official capacity did not purport to act individually, and could not, in the absence of statute, be held liable to those who dealt with the corporation. Neither could they, in our opinion, bo held liable individually to the corporation on whose behalf they had purported to act, unless their actions were ultra vires the charter powers of the corporation, or unless they were guilty of fraud. The plaintiff claims neither in this case. The appellant bases the liability of the respondents primarily upon an alleged breach of trust. The contention is that the officers of the corporation are, as such officers, invested with a public trust, and that the field of permissive action as such trustees is prescribed by the various statutes limiting their power to bind the corporation, and that any action in excess of such powers amounts to a breach of trust which renders the officers personally liable. The fallacy of this argument is that it ignores the position of the beneficiary of the trust, namely, the corporation, or, in the last analysis, the individuals making up the corporation. If we pursue the analogy of the trust as it is administered in favor of individuals, the fallacy becomes apparent. Should the trustees of .a trust for the benefit of a third person unlawfully invest trust funds in corporate stocks and the investment turn out to be a profitable one,-it could not be contended that the beneficiary, while enjoying the benefits of the investment, could call upon the trustee to repay the money invested. The plaintiff district is organized for the purpose of advancing the educational interests of the people residing in the district, and through the action of the defendants the people of the district are enjoying better educational facilities. The building belongs to the district and cannot bo taken from it. Thus, while enjoying the fruits of the alleged breach of trust, the plaintiff contends for the right to recover moneys necessarily expended to procure these advantages, and claims that it must be returned to the treasury so that the district may have both the property and the money with whicli it was acquired. No authority with which we are familiar has gone far enough to sanction this method of enabling a municipal corporation to both have its cake and eat it. ■ It cannot be successfully contended that a remedy similar to that contended for in this case is necessary to protect a municipal corporation [37] from tlic extravagant action of its officers. Tbe law is very prone .to remedy excesses of official action ■when the interests of the taxpayers are involved, but it does not place a premium upon the quiescent indulgence of interested taxpayers by encouraging them to stand by and watch the expenditure of largo sums in their behalf in the assurance that they can come into court later and secure the assistance of the law: to make a public improvement on unintended private donation. The judgment is affirmed.