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Village of Brookfield v. Pentis

January 4, 1939


Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; Willaim H. Holly, Judge.

Author: Lindley

Before SPARKS and TREANOR, Circuit Judges, and LINDLEY, District Judge.

LINDLEY, District Judge.

Plaintiff, a municipal corporation organized under the laws of Illinois, appeals from an order dismissing, upon joint motion of all defendants, its third amended bill of complaint.

Plaintiff's averments were in substance as follows: Pentis was the village treasurer from May, 1927 to April, 1929, and again from May, 1930 to April, 1934. For the year 1927 the treasurer, as principal, and defendant American Bonding Company, as surety, executed a bond in the sum of $50,000 whereby they were obligated to pay plaintiff that sum if the conditions should be broken. The instrument provided that the treasurer should faithfully discharge the duties of his office, justly pay out all moneys that might come to him, render true account when required by the village and well and truly perform his duties under the laws of Illinois and the ordinances of the village. Similar bonds were executed, each year, differing only as to surety, those acting in that capacity in other years being defendants United States Fidelity and Guaranty Company and National Surety Corporation.

During and prior to this period, the village issued special assessment bonds in anticipation of collection of special assessments. It was the duty of the village to collect the assessments and to apply the money collected toward payment of the bonds. The money was received with other village funds in trust by the treasurer as agent for the village and could properly be used only for the purpose of paying the bonds. It was the treasurer's duty to apply all funds to the purposes for which they were collected, but in violation of his duty, he misappropriated and failed to account for the funds and for the profits resulting from his wrongful use. Pentis purchased at a discount assessment bonds for his own account, paying therefor from special assessment funds of the city. He subsequently redeemed such bonds with special assessment funds at par, although there were not at any time moneys in any installment involved sufficient to redeem all outstanding bonds against the same at par. He failed to account to the village for the ensuing profit and should be compelled to make full discovery as to each and every such transaction with assessment funds.

The treasurer misappropriated to his own use and refused to account for assessment funds in an amount unknown to plaintiff. Violating his statutory duty, he illegally redeemed some bonds at par and accrued interest in full, although there were not sufficient funds collected to redeem all the issue. He did not issue any call for bonds for retirement or pay any part of the funds so collected upon other bonds drawn upon the same installment, to which a portion of such funds was properly applicable. One Kennedy had secured judgment against the village on account of excessive illegal prorations made by Pentis in the sum of $28,768.77, which the village paid out of its general corporate funds.

All these acts constitute breaches of conditions of the bonds and the principal and sureties are liable to pay the village whatever may be found due upon an accounting. The amount of illegal proration of special assessment funds cannot be determined without complete examination of the records involving transactions in excess of 20,000 in number and an accounting is necessary to determine the amount of liability of each of the sureties. Some misappropriations began under one surety and ended under another. There are no records disclosing just what illegal profits were realized and the relief sought can be obtained only by resorting to a court of equity in order that a full accounting may be had and discovery of all the facts involved obtained from Pentis.

Upon these averments, plaintiff prayed that Pentis be required to set forth a just and true account of his acts and doings as treasurer; that plaintiff be granted discovery from him as to the facts involved; that an accounting be taken under the direction of the court of all moneys received from the various assessments involved; that it be determined whether Pentis and his sureties are responsible to plaintiff for the amount of the judgment recovered in Kennedy's case; that the exact amount of unlawful profits made by Pentis be ascertained; that he be ordered to make restitution of all misappropriated and misapplied funds and that, upon his failure so to do within a reasonable time, plaintiff as trustee have a decree against defendant and his sureties directing them to repay and restore the trust funds, viz., moneys misappropriated, misapplied or lost and profits illegally retained by Pentis.

Defendants, in their motion to dismiss, insisted that plaintiff had an adequate remedy at law; that he complaint failed to state a cause of action; that Pentis was not required to account for alleged profits; that the village is not a trustee of the funds; that it was not the duty of Pentis to pay to plaintiff any special assessment funds; that plaintiff might not maintain this suit for the reason that it has no interest in the funds and has sustained no damage; that plaintiff was not entitled to a discovery, for the reason that that relief would violate the constitutional privilege of Pentis against self-incrimination, and that the complaint is multifarious in violation of Equity Rule 26, 28 U.S.C.A following section 723.

The court found defendants' motion well founded, held that the complaint states no cause of action, sustained the motion and dismissed the bill.

Plaintiff insists that the court had jurisdiction of the bill in view of the fact that it sought an accounting, discovery and restoration of trust funds; that the failure of the treasurer to account for special assessment funds held by him as agent for the village constituted a breach of his bond; that public officers must account for all profits made through use of public funds; that the village holds legal title to special assessment funds as trustee therefor and is the proper party plaintiff in an action to recover and restore the same and that the complaint was not multifarious.

Under Chapter 24, sections 109 and 665 of Ill.Rev.Stat. 1937, the village treasurer is required to keep all moneys belonging to the municipality in his hands, separate and distinct from his own moneys and forbidden to use them for his own "use and benefit." Under section 112, he is required to keep special assessment moneys "as a special fund" and his official bond is fixed, under section 87, in an amount in part measured by the anticipated collections of such assessments. The latter funds are to be applied solely to the payment of the cost of the improvements for which the assessments are made.

Persons holding assessment bonds have no claim or lien against the village or its general funds; their remedies are against the special assessment moneys. In other words, it is the duty of the municipality, under the statutes of the State of Illinois, in instituting proceedings to create a local improvement and pay therefor by special assessment, to initiate and conduct the proceedings in county court, levy an assessment roll against property owners to recover from them the amount of benefits they receive from the improvement, to collect the assessments and hold them as a trust fund, and to disburse them in accord with the statutory provisions to those holding bonds payable out of the assessments. These provisions furnish a complete code of procedure for the construction of local impovements by special assessments from the beginning of the improvement to its completion, including the final disbursement of money. The municipality is a trustee of the fund, charged with all the duties of such a fiduciary, including the obligation to spread the assessment, collect it and make disbursement thereof in conformity with the statute. The funds are the ...

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