Northern Trust Co. v. Village of Wilmette

Mr. Justice Wilkin delivered the opinion of the court: It is claimed by appellants that the bonds in question were negotiable instruments, and that they were purchasers of the same in good faith for value, without notice, before any of the defenses arose; that the bonds thus issued and sold can not be defeated by the subsequent acts of the village or the contractor, or both; that the village is liable to complete the improvement out of its general fund, because its officers were guilty of a flagrant breach of their obligation to the bondholders ; that the village is estopped from claiming that the bonds are invalid, because of the false acts and representations of its officers in issuing the estimates, accepting the work and issuing the bonds. As we view the case its disposition turns upon the question as to whether or not the bonds were negotiable instruments, so as to vest the holders with rights superior to those of the contractor and which can be enforced against the village. The bonds were issued in payment of a public improvement authorized by statute. The statutory provisions stamp upon this proceeding certain characteristics which must be taken into consideration in the determination of the case. Section 73 of chapter 24 of the Local Improvement act (Hurd’s Stat. 1903, p. 408,) provides that no person or body corporate taking any contract from a city, to be paid out of special tax or special assessment, shall have any claim or lien upon the city in any event, except from the collection of the special assessments or special taxes made for the work contracted for, and in case it appears that such assessment or tax cannot be levied or collected the municipality shall not, nevertheless, be in any way liable to such contractor in case of failure to collect the same, but shall, so far as it can legally do so, cause a valid assessment to be levied and paid. Section 86 of the same act (Hurd’s Stat. 1903, p. 412,) gives the form of bond to be issued by the city, as follows: “State oe Ieeinois, ) County of...............j "M* $........ Series No.......... Bond No........ .............................. of ........................... Improvement Bond. “The............of....... .....in............county, Illinois, for value received, promises to pay to the bearer on the .... day of .........., A. D...., the sum of----dollars, with interest thereon from date hereof, at the rate of five percentum, payable annually on presentation of the coupons hereto annexed. “Both principal and interest of this bond are payable at the office of the treasurer of said......of............ “This bond is issued to anticipate the collection of a part of the ......installment of special assessment No.... levied for the purpose of............, which said installment bears interest from the .....day of............, A. D...., and this bond and the interest thereon are payable solely out of said installments when collected. “Dated this... .day of.........., A. D.....” It will be observed that this bond is payable to bearer, and the latter part provides that “this bond and the interest thereon are payable solely out of said installments when collected.” Section 90 of the same act (Hurd’s Stat. 1903, p. 413,) provides that no person accepting the bonds issued for a local improvement shall have any claim or lien upon the city, in any event, for the payment of such bonds or interest thereon, except from the collection of the assessment against which said bonds are issued, and the municipality shall not, nevertheless, be in any way liable to the holder of said bond in case of failure to collect the same, but it shall do everything required of it in order to collect the assessment which the bond is given to secure. In the case of Hewitt v. Board of Education of Normal School District, 94 Ill. 528, we held that municipal corporations, unless authorized by their charters or by statute, have no power to make and place in the market commercial paper, and all persons dealing in municipal bonds issued by officers of a school district must see that the power to issue them exists; that there is no presumption that such paper has been issued within the scope of their power, as is the case with corporations created for business purposes, and that municipal bonds issued without power are void in whosesoever’s hands they may be found. It was evidently the intention of the legislature to make these bonds payable solely out of the assessment, and not to make the municipality liable in any way for the failure to collect the same. The full faith and credit of the city were not given to the bondholders. The city in no way guaranteed their payment. All it was required to do was to exercise the power given it by the statute to see that the proper assessment was made and that such assessment was collected after it was made. In the American and English Encyclopedia of Law (vol. 4, p. 87,) it is held that where instruments are drawn payable out of a particular fund, whether the fund has already accrued or is to accrue in the future, such instruments are not negotiable, since they do not carry the general personal credit of the maker, and since they are contingent upon the sufficiency of the fund out of which they are-drawn. In volume 21 of the same work, on page 26, it is held that municipal warrants or orders, though in form negotiable when they are drawn payable to the payee, his order or to bearer, do not possess the incidents and qualities of paper negotiable by the law merchant, so as to preclude the inquiry, where held by a bona ñde purchaser, as to their legality, and thus shut off defenses available between the original parties, but that such a purchaser stands merely in the shoes of the original payee. On page 54 of the same volume it is held that statutory authority to issue municipal bonds which are to run for a long period of time and bear interest and which are to be put upon the market and sold, impliedly authorize the municipality to make the bonds negotiable in form, this being the usual form of such security. Where negotiable bonds are expressly authorized, a bond payable to bearer has been sustained as valid, though the statute also requires the bonds to state on their face to whom they were issued. So, also, where negotiable bonds were authorized, the bonds may be made payable to the payee or bearer. But if the municipality had no power to make the bonds negotiable in form, the fact that they are so made will not invalidate the bonds but simply render them non-negotiable. In the case of National Bank of LaCrosse v. Petterson, 200 Ill. 215, the question of the negotiability of bonds of this character was before this court, and we said: “The improvement was to be paid for by special assessments to be levied in five installments, against the last four of which installments the city issued improvement bonds or vouchers under the provisions of section 86 of chapter 24. These bonds or vouchers were not negotiable, and had no effect to invest the appellant with any right superior to that of the contractor to whom they were issued.” In the case of Morrison v. Austin State Bank, 213 Ill. 472, the same question was before this court, and we there said (p. 487) : “There is another insuperable reason why the warrants here in question cannot be deemed or held to be commercial paper. They were given for work done under the Local Improvement act of 1897 and payable out of special assessments, and so state upon their face. By sections 73 and 90 of that act the contractor or other person holding such .warrants has no claim against the municipality issuing them, other than the fund arising from the assessments that may be collected. Instruments drawn upon a particular fund, whether "the fund has already accrued or is to accrue in the future, are not negotiable bills or notes, since they do not carry the general personal credit of the maker and since they are contingent upon the sufficiency of the fund upon which they are drawn.” • Under these many authorities it is no longer an open question in this State as to whether or not these bonds are negotiable. As the bonds were not negotiable, their holders occupied the same position as did the contractor to whom they were issued. The appellants’ rights are no higher or greater than the contractor’s, and any defense which was good as to him is also good as to them. If his actions foreclosed him from pursuing a certain remedy they also foreclosed them. (Union Nat. Bank v. Hines, 177 Ill. 417; Barker v. Barth, 192 id. 460.) The ordinance passed by the city authorized a public improvement of a certain kind. The contract for this improvement was let by the board of local improvements, and it appears, that the contractor did not perform the work according to the ordinance but made an entirely different improvement. The bonds were issued in payment of this work. The work was not done according to contract by reason of the fraud or wrong of the contractor. He being at fault, it certainly would not be claimed that he could maintain a writ of mandamus to compel the village, at its own expense, to remedy something for which he was directly responsible. If he should seek to do such a thing he would be immediately confronted with the fact that he was trying to take advantage of his own wrong. Under the authorities above cited the purchasers of these bonds, which were originally issued to the contractor, now occupy the same position which he occupied. The bonds were not negotiable. This fact was known to the purchasers. They cannot enforce any other or additional right than could the contractor. They are therefore liable for his fraud or wrong in failing to put in the improvement which the ordinance specified. Under this state of facts they had no right to a writ of mandamus, and the court committed no error in so holding. The judgment will therefore be affirmed. Judgment affirmed.