1. A six-director school district may enter into an agreement whereby a school bus is acquired by monthly payments so long as the district's obligation thereunder does not exceed income available for the calendar year in which the debt is contracted. 2. The obligation of a school district to return the school bus under the circumstances set forth in the agreement in question would be a "lien" or "encumbrance" under Sections 301.190, 301.600 and 301.620, RSMo 1969, and should be noted on the certificate of ownership. 3. A six-director school district may agree to pay, in addition to monthly payments, insurance premiums for property damage and liability insurance covering the buses except that the district may not use public funds to purchase liability insurance covering its own negligence.

SCHOOLS : SCHOOL BUSES: 1 . A six-director school district may enter into an a~reement whereby a school bus is acquired by monthly payments so lon~ as the district's obl1~at1on thereunder does not exceed income available for the calendar year in which the debt is contracted. 2 . The obl1~ation of a school district to return the school bus under the circumstances set forth in the agreement in question would he a "lien" or "encumbrance" under Sections 301.190, 301 . 600 and 301 . 620 , RSMo 1969, and should be noted on the certi- ficate of ownership. 3. A six-director school district may a~ree to pay, in addition to monthly payments, insurance nremiums for nrop- erty dama~e and liability insurance coverin~ the buses exceot that the district may not use public funds to purchase liability insur- ance coverin~ its own negli~ence . April 26, 1971 Honorable Harold J . Esser Representative, District 18 Room 235 A, Capitol Building Kansas City, Missouri 64114 Dear Representative Esser: OPINION NO. 3 F r LED 3 This official opinion is issued in resnonse to your reouest for a rulin~ on the followin~ three ouestions: ' "May a school district enter into an ag;reement whereby a school bus is ac0uired by monthly lease payments, which agreement does not obli- gate the district beyond one year, but ~ives the district the ontion to ourchase the bus at a soecified price at the end of the year or to renew the lease for another year, but there is no ohli~ation on the district to ex- ercise either option? This question assumes that the district has the money on hand to make the payments for the one year obli~ation , but not suff1cient funds at inception of the lease to exercise the purchase ontion. "fJfay the school district legally take title to such bus subject to a lien in favo r of the lessor or subject to an a~reement to re-assign title to such bus if' the ontion ·to nurchase is not exercised? Honorable Harold J . Esser "May the district ap:ree to provide property damage and liability insurance for such bus, naming the district and the lessor as insureds as their interest may appear? "This p;eneral subject is treated in Opinion No . 359 dated October 29 , 1968, but the langua~e of that opinion makes it difficult to tell if it applies to this situation. The Supreme Court case relied on in that opinion dealt with a contract which did obliv,ate the City for more than one year, and for which funds were not on hand." Question No . 1 The agreement in question is entitled "Lease Purchase Agree- ment ." For the purposes of this opinion, we are not determining whether it is a lease or a conditional purchase a~reement. Fur- thermore, we are acceptin~ and relying on your statement that the agreement did not obligate the school district for more than one school year. We assume your conclusion in this re~ard is based on the followinp: languap:e in the ap,reement -- "the length of this lease shall be for a period of not less than the school year of 1968- 1969, beginnin~ September 1 , 1968." Article VI, Section 26(a) of the Missouri Constitution states as follows: "Limitation on indebtedness of local govern- ments without popular vote. --No county , city, incorporated town or village , school district or other political corporation or subdivision of the state shall become indebted in an amount exceedin~ in any year the income and revenue provided for such year plus any unencumbered balances from previous years, except as other- wise provided in this Constitution." This provision of the Missouri Constitution is self-enforcin~ and limits the power of a school district t o become indebted in an amount exceeding its revenue for the calendar year. Hawkins v. Cox, 334 Mo. 640 , 66 S . W.2d 539 (1933); Clarence Special School Dist. v . School Dist . No. 67 , 341 Mo. 178, 107 S .W.2d 5, 7 (1937). If a school district incurs a debt as the result of a voluntary contract , the obligation is void if it exceeds the revenue actually provided for that year. Linn Consol. Hi~h School Dist . v. Pointer ' s Creek Public School Dist., 356 Mo. 79 , 203 S .W. 2d 721, 724 (1947). Sec- tion 26(a) does permit the antici~ation of curr ent revenues to the -2- Honorable Harold J. Esser extent of the income in the year in which the debt is contracted but prohibits anticipation of the revenues of any future year. Ebert v. Jackson County, 70 S.W.2d 918, 920 (Mo. 1934) . Whether Section 26(a) has been violated is determined by the financial condition of the school district at the time a debt is contracted or created. Pullum v. Consolidated School Dist. No. 5, 357 Mo. 858, 211 S.W . 2d 30, 34 (1948); Cla?ence Special School Dist . v. School Dist. No. 67, supra, at 6. Applyin12: the forep.:oinp; princinles to the "Lease Purchase Agree- ment" in question, 'lie have assumed that the school district ' s ob- lieation thereunder was for one school year which included parts of two calendar years. AssumtnR that the a~reement was entered into in 1968, it was void if the district's oblif,ation under the con- tract exceeded the income available for calendar year 1968. See, for instance, Ebert v. Jackson County, supra. You state that the school district had on hand sufficient revenues in the year in which the obligation was created to make the payments under the contract . Therefore, we conclude that Section 26(a) of Article VI was not violated in calendar year 1968 because the school d1.strict did not have to rely on revenues from any future calendar year to make the payments under this contract even though the term of the contract was for part of two calendar years. · Having concluded that, under the applicable le~al principles, the financial condition of the district in 1968 was such that Sec- tion 26(a) was not violat,ed , we must now determine Nhether the board of education of a six- director school district is authorized to enter into an agreement of the kind referred to in your opinion request. The ROVernment and control of a six- director school district is vested in a board of education. See Section 162.261 , RSMo 1969. Section 167.231, RSMo 1969, authorizes the board of education to provide free transportation for puoils under certain circumstances. That section states a& follows: "Transportation of pupils within all except metropolitan districts . --Wi thL1 all school districts except metropolitan districts the school board shall provide transportation to and from school for all pupils living more than three and one-half miles from school and may provide transportation for all pupils liv- in~ one mile or more from school ~ When the school board deems it advisable, or when re- quested by a pevition si~ned by ten taxpayers in the district, to provide transportation to - 3- Honorable Harold J. Esser and from school at the exnense of the district for pupils living more than one-half mile rrom school, the board shall submit the question at an annual or biennial meeting or election or a special meeting or election called for the purpose. Notice of the meeting or election shall be ~iven as provided in section 162.061, RSMo. If two-thirds of the vote~s, who are taxpayers, votin~ at the election or meeting, are in favor of providin~ the transportation the board shall arrange and provide therefor." There is no statutory direction to the board either in Section 167.231 or elsewhere settin~ forth the manner in which free trans- portation is to be provided. However, having been granted the au- thority to provide free transnortation under certain circumstances, the power to enter into contracts to carry out this erant is implied. McClure Bros. v. School District, 79 Mo .App. 80, 86 (K.C.Ct.App. 1899). Furthermore, the means and manner of providing free trans- portation is up to the discretion of the school board . State ex rel. Rice v. Tompkins, 203 S.W.2d 881 (St.L.Ct.Apn. 1947). Therefore, we believe that enterin~ into an a~reement with a company which will provide buses to the district upon the payment of a monthly fee is a reasonable means of obtaininr; the buses· necessary to pro- vide the transportation services authorized by Section 167.231. Question No . 2 ' Your second inquiry is whether the school district may legally take title to a bus subject either to a lien in favor of the "les- sor" or subject to an a.P.:reement to reassign the title to the "seller" if the option to purchase is not exer~ised. Section 301. 010( 21) defines "owner" for the purnoses of the registration and licensing of motor vehicles in the State of Mis- souri as follows: "'Owner', the term owner shall include any person, firm, corporation or association, who holds the legal title of a vehicle or in the event a vehicle is the sub~ect of an agreement for the conditional sale or lease thereo f with the right of purchase upon performance of the conditions stated in the a~reement and with an immediate ri~ht of possession vested in the conditional vendee or lessee, or· in the event a mortga~or of a vehicle is entitled to pos- session, then such conditional vendee or les- see or mort~a~or shall be deemed the owner for the purpose of this law;" -4- Honorable Harold J. Esser The agreement that the school district proposes to enter into is, as previously pointed out, either a condj_tional sale or a lease with the ri ~ht to purchase upon performance of certain conditions stated in the agreement and with the immediate riRht of possession vested in the school district. Therefore, for the ourooses of the statutes governing motor vehicle re~istration and licensing we con- clude that the school district would be an,"owner" of the vehicle as that term is defined in Section 301.010(21). The second paragrarh of Section 301.260, RSMo 1969, provides as follows: " ... and all other motor vehicles owned by municipalities, counties and other political subdivisions of the state shall be exemot from the provisions of sections 301.010 to 301.440 requirin~ re~istration, proof of ownership and display of number plates; ..• Provided, fur- ther, that when any motor vehicle is owned and operated exclusively by any school district and used solely for transnortation of school chil- dren, the commissioner shall assisn to each of such motor vehicles two plates bearing the words 'School Bus, State of Missouri, car no .•...••• . ' (with the number inserted thereon), which plates shall be displayed on such motor vehicles when they are being- used on the highways ..•• 11 [Emohasis supolied] If a school district is an "owner" of a motor vehicle for the purposes of the motor vehicle licensin~ and registration laws of Missouri, it is only reasonable to conclude that the school dis- trict "owns" that vehicle for the purposes of those laws. See Opinion No. 444, dated December 14, 1965, to Honorable J. R. Fritz (copy enclosed). Therefore, pursuant to the quoted portions of Section 301.260 any school bus owned by a school district and operated exclusively for transportation of school children is (l) exempt from the pro- visions of Sections 301.010 to 301.440 requiring re~istration, proof of ownership and display of number plates and (2) shall be assiP,ned two special license plates. We are advised by the Department of Revenue that, pursuant to Section 301. 260 , a certificate of owner- ship will be issued to any school district upon the payment of one dollar. May the obligation of the school district to return the buses to the company be indicated on the certificate of ownership? -5- Honorable Harold J. Esser Pursuant to paragraph 1 of Section 301.190, RSMo 1969, an ap- plication for certificate of ownership must include '' ... any liens or encumbrances on the motor vehicle ..•. " Paragraph 2 of that section states that the certificate of ownership shall con- tain, amon~ other things, " ... a statement of any liens or encum- brances which the application may show to be thereon ." See, also, Sections 301.600 throu~h 301.660 , RSMo 1969. Although no defini- tion of "lien" or "encumbrance" is set forth in Chapter 301, Sec- tion 301 . 620 requires that an "owner" of a motor vehicle show on his aoplication for certificate of ownershin, among other things, " ... the name and address of the lienholder and the date of his security agreement , .... " A "security aR;reement" is defined in Section 400.9-105(l)(h), RSMo 1969, as " ..• an agreement which creates or provides for a security interest;". The definition of "security interest" is found in Section 400.1- 201(37): "' Security interest ' means an interest in per- sonal oroperty or fixtures which secures pay- ment or performance of an obligation. The retention or reservation of title by a seller of ~oods notwithstandin~ shipment or delivery to the buyer (section 400.2-401) is limited in effect to a reservation of a 'securlty interest '. The term also includes any inter- est of a buyer of accounts , chattel paper , or contract ri~hts which is subject to article 9 . The special prooerty interest of a buyer of goods on identification of such r,oods to a contract for sale under section 400.2-401 is not a 'security interest', but a buyer may also acquire a 'security interest' by comply- ing with article 9. Unless a lease or consign- ment is intended as security, re servation of title thereunder is not a 'security interest ' but a consignment is in any event subject to the provisions on consignment sales (section 400.2-326). Whether a lease is intended as security is to be determined by the facts of each case; however, (a) the inclusion of an ootion to purchase does not of itself make the lease one intended for security; and (b) an a~reement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does make the lease one intended for security." -6- Honorable Harold J. Esser Regardless of whether tlle ar;reement betVIeen this district and the company is a conditional sale or lease agreement , t he oblication of the district to return the buses to the company under certain circumstances was des ic;ned to secure "payr.1ent or performance., of the district's oblieation . Therefore, we conclude that it would be a ''lien , " "encumbrance" or "security interest " and should be noted on the certificate of ownership . Sections 301 .190 , 301.600, and 101.620. ' Question No . 3 Your third question involves the propriety of a school dis- trict a~reeine to provice property damage and liability insurance for these tuses naming the district and the "company" as insureds as their interest may appear. The agreement in question pr ovided that the school district should furnish certain described insurance . "INSURANCE: The leasee shall furnish insurance accord- ing to the following provisions . . (A) Loss payable clause to DIVCO- WAYNE Sales Financial Corporation . (D) The loss payable clause shall cover fire , theft , and collision in the amount ,of $200 . 00 deductible . (C) The loss payable clause must provide a 10- day notice of cancellation to the lessor . (D) A minimum of $100,000 . public liability insurance naming the leasee, the lessor , and Divco-Wayne Sales Financial Corporation as the insured . •· We assume for the purposes of this opinion that the school board could and did deter mine the cost of the required insurance coverage before executing the agr eement . Under these circumstances , we believe that the agreement may contain a provision tha.t insurance premium payrnents are to be made by the school district in addition to a monthly payment . Pursuant to the agreement, the liability for damage to the buses rests with the school district . For the school district to insure its obli- gation in this reeard would be within its power . Similarly, the school board could, as part of the consideration for this agreement , ar;ree to pay the premium on a liability insurance policy namin1~ the "lessor" as the insured . However, the board could not expend public funds to purchase liability insurance covering its own negli~ence for the reasons stated in Opinion No . 93 , September 9, 1969, to Honorable William J . Cason (copy enclosed) . -7- Honorable Harold J. Esser CONCLUSION Therefore , it is t:1e conclusion of this office that: 1. A six- director school district may enter into an agrce~ent whereby a school bus is acquired by monthly payments so lon~ as the district ' s obligation thereunder does not exceed income available for the calendar year in which the debt is contracted. 2. The obligation of a school district to return the school bus under the circumstances set forth in the agreement in question would l>e a 11 lien" or "encumbrance" under Sections 301 . 190, 301.600 and 301 . 620 , RSI•1o 1969, and should be noted on the certificate of ownership . 3. A six-director school district may agree to pay, in addi- tion to monthly payments, insurance premiums for property damage and liability insurance covering the buses except that the district, may not use public funds to purchase liability insurance covering its own ne~ligence . The foregoing opinion , which I her eby approve, was prepared by my Assistant, D. Br ook Bartlett. Enclosures : Op . No . 4~4 12-14-65 , Fritz Op . No . 93 9- 9- 69 , Cason Yours very ~· JOHN C. DANFORTH Attorney General - 8-