APPEAL from the Circuit Court of Cook County; the Hon.
CORNELIUS J. HARRINGTON, Judge, presiding.
MR. JUSTICE SIMPSON DELIVERED THE OPINION OF THE COURT:
Certain individuals and corporations, plaintiffs-appellants herein, have appealed directly to this court from the circuit court of Cook County to reverse two separate orders or decrees, one in favor of the Board of Education of the City of Chicago and the other in favor of the parties doing business as Goldman, Sachs & Co., defendants-appellees herein. The cause was dismissed as to the Board of Education after motion for that purpose was allowed and appellants elected to stand by their complaint. A constitutional question is involved under the first count. The decree on the second count was rendered after a hearing before the master and after objections and exceptions to his report were overruled.
The first count was against the Board of Education of the City of Chicago by the owners and holders of certain of its 1935 refunding bonds, second series, to enforce their rights as alleged successors to the owners of 1928 tax anticipation warrants issued by the Board and thereafter funded by certain bonds which in turn were refunded by bonds some of which were owned by the appellants, being the ones here in question.
The second count is against members of Goldman, Sachs & Co. municipal bond dealers, from whom one of the appellants, Irving S. Florsheim, purchased certain of the bonds in question, and is based upon the statutory warrant that the bonds were in all respects what they purport to be. The second count is alleged to be alternative to the first and need not be considered if appellants recover on the first count. Only two of the parties doing business as Goldman, Sachs & Co., Albert E. Hamill and James C. Hemphill, were served with summons; the others were nonresidents and were neither served nor appeared in the case.
Hamill and Hemphill filed a motion to transfer the cause based upon the second count to the Appellate Court for the reason that this court is without jurisdiction to pass upon the matters involved in that count. Their motion was taken with the case and will be passed upon later in this opinion.
The complaint, as concerns the Board of Education, is based upon the following pertinent facts as alleged: January 25, 1928, at the request of the Board of Education, the city council of Chicago levied $57,600,000 of educational purpose taxes for the year 1928 and later authorized the issuance of educational purposes tax anticipation warrants against the taxes levied in an amount not to exceed seventy-five per cent of the levy. These anticipation warrants were sold, but, due to the reassessment of real estate in Cook County for the years 1928, 1929 and 1930, the extension of the 1928 taxes was greatly delayed and the assessed value was materially reduced. It was feared that sufficient taxes would not be collected on the levy to meet the payment of the anticipation warrants drawn against them.
At its 1930 First Special Session the General Assembly authorized the Board of Education, by reason of these conditions, to issue bonds in an amount not exceeding $5,700,000 for the purpose of paying tax anticipation warrants levied for educational purposes for the years 1928 and 1929. (Laws of 1930, 1st Spec. Sess., p. 93.) Of these bonds, $2,300,000, dated February 1, 1931, were issued and sold to Halsey, Stuart & Company for the purpose of paying anticipation warrants issued against the levy for the year 1928 for educational purposes. The ordinance authorizing them provided that the proceeds from the sale of the bonds should be used solely for the purpose of paying the 1928 anticipation warrants bearing numbers 116 to 123, and that any surplus should be used in paying other warrants of that issue. After the designated warrants were paid there was a balance of $80,888.23 which, with certain moneys collected from the 1928 taxes, was applied to the payment of anticipation warrant number 13.
When $900,000 of these bonds bearing numbers 1401 to 2300, both inclusive, fell due on February 1, 1935, the Board did not have funds to pay them, and under legislative provision (Laws of 1933-34, 3rd Spec. Sess., p. 246,) issued $900,000 of refunding bonds of 1935, second series, bearing date February 1, 1935, for the purpose of refunding the principal of said educational fund bonds numbered 1401 to 2300, inclusive. All of this second series of bonds were sold originally to the First National Bank of Chicago at par and accrued interest, and the proceeds were applied in payment of the said designated funding bonds. Appellants later purchased some of the refunding bonds of 1935, second series, upon which the Board paid interest until February 1, 1943, but refused to pay the interest falling due on the bonds thereafter.
March 21, 1945, this court reiterated its former holdings that the funding bonds and refunding bonds were invalid as general obligations of the Board of Education upon the ground that general obligation bonds could not constitutionally be issued for the purpose of paying tax anticipation warrants. Newberry Library v. Board of Education, 390 Ill. 48.
All of the tax anticipation warrants were paid and cancelled by August, 1932, through application of taxes received on the levy against which they were issued, certain money borrowed from the Board's other funds and from proceeds of the sale of the original funding bonds. After the tax anticipation warrants were paid and cancelled, other taxes were collected against which they were issued which were used for other corporate purposes.
The complaint in referring to payment of warrants and the cancellation of them used the words "purported payment" and "purported" cancellation, apparently so as not to admit the validity of payment or of cancellation.
It is claimed by appellants that although the tax anticipation warrants in question numbered 116 to 123, inclusive, have been paid and cancelled, nevertheless, because the payment was not made exclusively from the taxes against which they were drawn, they are still valid, outstanding and unpaid. They further claim that because the money from the original funding bonds purchased by Halsey, Stuart & Company was applied in payment of the anticipation warrants and because the proceeds of the refunding bonds purchased by them took up some of the original bonds purchased by Halsey, Stuart & Company, they are entitled to declare upon and enforce said tax anticipation warrants and to be subrogated to the rights of the warrant holders and to receive payment on the warrants notwithstanding the fact that they were surrendered, cancelled and marked paid fifteen years prior to the filing of this suit.
Appellants further contend that because the Board used a portion of the taxes when collected after the warrants had been paid for other corporate purposes, the Board was thereby unjustly enriched and has become liable to appellants for the return of the money paid in the purchase of said refunding bonds, second series, and must account to appellants as trustee of the tax fund collected after the warrants had been paid; and, further, that as successors in interest to the rights of owners of anticipation warrants, the Board of Education has taken their property for public use without compensation in violation of section 13 of article II of the Illinois constitution, and has deprived them of property without due process of law in violation of section 2 of article II of the Illinois constitution and of the fourteenth amendment to the constitution of the United States.
We have held, and it is conceded, that the Board of Education refunding bonds of 1935, second series, are void and are not liabilities of the school district. (See Newberry Library v. Board of Education, 390 Ill. 48, and, also, People ex rel. Toman v. Granada Apartment Hotel Corp. 381 Ill. 41, together with the cases cited therein.) The law is well settled that tax anticipation warrants are not liabilities of the municipality or school district ...