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Hall v. Bd. of Educ. of City of Chicago

OPINION FILED MAY 5, 1977.

JOSEPH HALL ET AL., PLAINTIFFS-APPELLANTS,

v.

THE BOARD OF EDUCATION OF THE CITY OF CHICAGO ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Cook County; the Hon. DANIEL A. COVELLI, Judge, presiding.

MR. PRESIDING JUSTICE DIERINGER DELIVERED THE OPINION OF THE COURT:

This action was brought in the circuit court of Cook County by plaintiffs who are Chicago residents, taxpayers and parents of children in the Chicago public schools against the Board of Education of the City of Chicago (Board) and the City of Chicago (City). They sought injunctive and other equitable relief requiring the Board of Education as trustee for the benefit of schools (1) to determine the rental which should have been received by it from the City of Chicago for the Midway Airport land for each of the years 1969 through 1974, under the terms of the lease requiring that such rental be calculated at 6 percent of the true cash value of the land as determined by appraisal; (2) to account for said rentals; and (3) to require the City to pay rent calculated as set forth under the terms of the lease for the period January 1, 1975, to December 31, 1980. After a bench trial, the court found the plaintiffs had failed to sustain their burden of proof and entered judgment for defendants.

The issues for review are (1) whether the Board of Education failed to discharge its duty as trustee to exercise judgment and care in the administration of the Midway Airport property; (2) whether the Board of Education failed to discharge its duty as trustee to act with undivided loyalty with respect to the Midway Airport property; and (3) whether the trial court erred in admitting certain evidence offered by the defendants respecting the valuation of the Midway property.

The Board is the owner in trust of the parcel of property known as Midway Airport which is bounded by Cicero Avenue, 63rd Street, Central Avenue and 55th Street on the southwest side of the City of Chicago. The property is almost one mile square and consists of approximately 600 acres. It is "section 16" land within the meaning of section 15-1 of the School Code. Ill. Rev. Stat. 1973, ch. 122, par. 15-1.

In 1931, the Board entered into a written lease agreement with the City under which the Board leased the subject property to the City for use as an airport. The lease extends to December 31, 1980, and rent was to be computed as follows: For the first 20 years (1931-1950), the annual rent due was a graduated flat rate per acre plus 10 per cent of the City's gross annual receipts from the operation of the airport, and for the remaining period after January 1, 1951, the lease required that an appraisal of the property be conducted every 10 years to determine "the true cash value of the said demised land at the time of such appraisement exclusive of the improvements thereon and not taking into consideration any encumbrances, liens, clouds or charges of whatsoever kind standing against the premises." The rental for each year was to be computed at 6 percent of the appraised valuation.

The lease was modified through supplemental agreements executed in 1938, 1964 and 1970. Under the 1970 supplemental agreement the appraisement of the property for the purposes of fixing the annual rent was deferred for five years until the three month period preceding January 1, 1975, and the amount of rent to be paid during that period of time was $24,560.67 plus 10 percent of the gross annual receipts derived by the City from the demised premises.

The lease also provided that at the termination date all improvements become the property of the Board. At the time of trial the airport improvements consisted of a main terminal building, 15 hangar-type buildings, and underground fuel tanks with a capacity of 550,000 gallons. The property is covered with eight major runways 175 feet wide, and the 360,000 lineal feet of runways are constructed of concrete and asphalt to a depth of 36 to 40 inches.

The property was originally bisected by a 17-acre railroad right-of-way, but in 1938 the City arranged to have it relocated, and the property was conveyed in trust for the use of the schools without cost to the Board.

Rentals based on a fixed amount plus 10 percent the gross annual receipts increased from $16,000 in 1931 to $233,000 in 1958. Rentals then decreased to a low of less than $54,000 in 1965. The approximate rentals for the years 1967 to 1973 were as follows:

1967 $ 68,000 1968 $142,500 1969 $193,000 1970 $232,500 1971 $243,000 1972 $245,000 1973 $231,000

The plaintiffs first contend the Board breached its fiduciary obligation as trustee by failing to adequately investigate the value of the Midway land and by failing to act with an undivided loyalty with respect to the trust. In support of their arguments the plaintiffs point out that on January 29, 1969, Joseph McMahon, who was in charge of the division of real estate of the Board, wrote a letter to Frank M. Whiston, then president of the Board, informing him that an appraisal to determine a new rental for the remainder of the lease should be commenced, but he also stated:

"It is almost certain that with more than 26,000,000 square feet of land involved that an appraisal would send the rental beyond what the City would feel it could pay."

A report of the real estate committee which was adopted by the Board on August 26, 1970, stated the City had requested that the appraisal for the purpose of establishing rental be deferred for a five year period so that the "revitalization and stabilization of Midway could be achieved." The Board voted nine to one to adopt the resolution and in opposing the action Dr. Bernard Friedman stated the full value of the Midway Airport property would be between 20 and 40 million dollars, an informal estimate provided by Mr. McMahon. Friedman argued the Board had the obligation solely to the school system and not to the airport.

The plaintiffs argue that achieving economic stability for Midway Airport was not a goal which the Board could legally pursue given its duty to administer trust property solely for the benefit of the schools. They rely on the cases of City of Chicago v. Tribune Co. (1910), 248 Ill. 242; Lassen v. Arizona ex rel. Arizona Highway Department (1967), 385 U.S. 458, 17 L.Ed.2d 515, 87 S.Ct. 584, and United States v. 78.61 Acres of Land (D. Neb. 1967), 265 F. Supp. 564, in which the courts> held that land held in trust for specific charitable purposes must be used exclusively for the trust beneficiaries, and may not be used for the general public good. ...


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