Wells v. Village of Wilmette

Mr. Justice Gridley delivered the opinion of the court. Counsel for the respective parties agree that the action of assumpsit for money had and received is an equitable action and lies to recover moneys to which a plaintiff is equitably entitled; that a special assessment when collectéd is a trust fund; that a municipality is a mere instrumentality for the collection of such assessment and its proper distribution among the parties equitably entitled thereto; and that "a municipality incurs no general liability except where it unlawfully withholds moneys actually collected and equitably due the contractor, bondholder or property owner. Counsel for the village does not deny that the' second and succeeding instalments of the special assessment in question, when collected, became trust funds for the retirement of the bonds issued against said instalments respectively, but counsel contends that the village, as trustee, can only be liable for the moneys collected on the sixth and seventh instalments where it appears it has diverted such moneys to purposes other than the payment of the bonds, and interest thereon, issued against said instalments respectively, and that as it appears from the stipulated facts that the amounts of both instalments as confirmed, together with all interest thereon legally collectible, have been collected, and have been disbursed only for the payment of bonds, and interest thereon, issued against said instalments respectively, the village is not liable to plaintiff in this action in any amount on the unpaid bonds held by him. In other words, counsel contends that the village, as trustee, in the present case did its full duty when it paid bonds, and interest thereon, out of the proper instalment fund in the order of presentation to the extent of the fund, and that the remedy of plaintiff, a bondholder who did not present his bonds for payment until after other bondholders had been paid and the respective funds became exhausted, is by way of a supplemental assessment. Counsel for plaintiff argue that the position taken by counsel for the village is too narrow; that it assumes that if the entire trust fund of a particular instalment of an assessment is used in the payment of bonds and interest there can be no misappropriation of the funds; that it ignores the well-established rules which govern in the disbursement of trust funds; and that, in effect, it prefers certain claimants to the fund, who happen to present their claims first, instead of treating all claimants having equal rights alike. Counsel further argue that any misappropriation of the fund of a particular instalment of an assessment will render a municipality generally liable; that this may take the form of paying bonds or vouchers issued against another assessment, or of paying’ for items of work and labor not properly chargeable to the assessment, etc.; or that it may take the form, as here, of-over-paying interest to certain interest coupon holders, thereby depleting the fund available for the payment of the principal of the bonds issued against a particular instalment. And counsel contend that under the provisions contained in article IX of the Cities and Villages Act (J. & A. ¶ 1388 et seq.) and sections 1, 2, 3 and 4 of the Act of June 17, 1893, it was evidently contemplated by the legislature that each instalment of an assessment should constitute a trust fund for the retirement of the principal of the bonds issued against such instalment, and that the interest collected on each instalment should constitute a trust fund for the payment of the interest on the bonds issued against such instalment; in other words, that the instalment is pledged to the retirement of the principal of the bonds issued against the instalment and that the interest collected on the instalment is pledged to pay interest on those bonds. It appears from the stipulated facts in the present record that the village received the full amount of the sixth and seventh instalments as confirmed, viz.: $2,813.68 for each instalment; that, as the bonds issued against each instalment amounted to. $2,800, the village received enough from each instalment to pay the principal of all of the bonds issued against the particular instalment; that the village received $305.11 as interest on the sixth instalment, which was all that was legally collectible from the property owners on said instalment; that the village paid out $890.78 as interest on all the bonds issued against said instalment; that the village received $216.24 as interest on the seventh instalment, which was all that was legally collectible from the property owners on said instalment; and that the village paid out $782.78 as interest on- all the bonds issued against said instalment. It thus appears that the village did not collect enough money in interest on each instalment to pay all the -■interest (that was actually paid out) on the bonds issued against each instalment, and that the deficiency in each case was caused thereby. And counsel for plaintiff contend that because of these facts it was the duty of the village to see to it that the principal of plaintiff’s bonds be paid in full out of the proper fund, as well as the principal of the other bonds payable out of the fund, and that it was the duty of the village to prorate the interest actually collected from the property owners among the coupon holders entitled thereto, and that because the village did not do this, but paid the bonds and interest on the principle “first come first served,” it is liable in this action to plaintiff, as the holder of the two bonds sued on, for the plaintiff’s proper proportionate share of the respective funds. After careful consideration we have reached the ■conclusion that, under the facts disclosed, the trial court did not err in its finding and that the judgment appealed from should he affirmed. In Village of Wilmette v. People, 214 Ill. 107, 112, (which was an action arising before the Act of June 17, 1893, was passed) it is said: “The interest which the holder of the vouchers was entitled to receive was that, and that only, which the statute required the property holder to pay in order to discharge the lien against his property.” And the rule seems to be firmly established that it is the duty of a trustee, in case the fund in his possession is insufficient to satisfy all the claimants having equal rights, to prorate the fund among them. In Colby v. Copy, 35 N. H. 434, 436, it is said: “But if he (the trustee) holds the different claims among which he is by law entitled to make the appropriation, not in his own right but as agent or trustee for others, he owes to them the duty to make a just and reasonable application of the money according to their respective equitable claims. Equality is equity' ordinarily between parties, who stand in similar relations. The general rule, therefore, clearly should be, that when an agent or trustee receives money generally, and he holds claims of different persons, to each of whom he is under the same obligations, he should apply the money ratably to the discharge of all the claims, and this obligation would be in no way affected by the circumstance that if the debts were all his own, he would have the undoubted right to apply the money to either of them at his election.” In Hewitt v. Hayes, 205 Mass. 356, 365, the court says: “If the total amount that can be held by all the claimants who are entitled to a charge upon the fund thus determined exceeds the amount of the fund, then that amount is to be divided among them in proportion to the amounts of their respective charges.” In 27 Cye., page 1765, it is stated: “Several debts or claims, all equally secured by the same mortgage, are as a general rule entitled to share ratably in the proceeds of its foreclosure, whether they are all held by the mortgagee, or belong to as many different owners, * * *. And the rule is applied as between the holders of a series of bonds all secured by the mortgage, and is also applied for the benefit of holders of interest coupons detached from the bonds. ’ ’ In Dillon on Municipal Corporations, vol. 2 (5th Ed.) p. 1390, sec. 893, that author says: “Under special improvement bonds the municipality was held to be a statutory trustee for collection, bound to the exercise of due diligence to collect according to law, enforcing the same through municipal machinery as an agent of the owners of the bond and answerable for failure to perform this duty, or not paying over, or failing to pay the money collected. * * * None of the bondholders has any right of priority in the fund derived from the assessments. This is a trust fund pledged to the payment of all of the bonds, and the right 'of the holder of a part of the bonds is only to such portion of the fund realized as the sum of his bonds bears to the entire amount of the issue of bonds.” We are of the opinion that the acts of the village complained of amounted to a wrongful diversion or misappropriation by the village of plaintiff’s proportionate share of, funds collected from the sixth and seventh instalments of said assessment, and that the village is liable in this action for such proportionate share. In Donohue v. Village of La Grange, 183 Ill. App. 222, 226 (affirmed 263 Ill. 607), this court said: “If, however, the village wrongfully diverted any of the special fund, or used it to pay claims not legally chargeable against the fund, then the village is liable in assumpsit to. the extent of such wrongful use or payments, to the person to whom the moneys so used were rightfully due. Conway v. City of Chicago, 237 Ill. 128.”. Counsel for the village further urges that it was impracticable and difficult in this case to prorate the interest among the interest coupon holders. We do not think so. The village treasurer is required to keep special assessment moneys in separate funds and to keep a separate account of each fund. Dolese v. Mc-Dougall, 78 Ill. App. 629, 644. If his books are properly kept he knows at the end of any year how much assessment he has received on an instalment, and how much interest thereon, and how much interest on other instalments. When interest coupons are presented he can easily ascertain whether he can pay them in full or whether he must prorate the interest fund. And we do not think that it is material that the village treasurer did not know who owned the outstanding bonds, or that the matter of the payment of any of the bonds was not brought to the attention of the board of trustees until after January 3, 1905. The village treasurer knew what bonds were unpaid and how much was on hand to the credit of each fund, and the village through its treasurer made the payments at its peril. Counsel for the village says that if municipalities are required to apportion the fund on hand, in cases where deficiencies exist, instead of being required to levy a supplemental assessment, difficult questions will arise in the administering" of these funds. And counsel asks what would be the duty of the village treasurer in case certain lands were sold at tax sale for delinquent special assessments and certificates of sale issued to the village? This question does not arise on this record. And whether a supplemental assessment would lie is not now material. The question is, was there an improper distribution or diversion of certain funds of the original assessment as collected? Under the facts disclosed we think the village misapplied the trust funds of the two instalments in question by paying out more interest than was collected from the property owners, which it had no right to do to the prejudice of plaintiff, and to that extent it failed in its duty as trustee and should account to plaintiff in this action for his proportionate share of said funds. While it is true that special assessment bonds are not negotiable and the bondholder has no greater rights than the contractor to whom they were issued (Northern Trust Co. v. Village of Wilmette, 220 Ill. 417; National Bank of La Crosse v. Petterson, 200 Ill. 215), we do not think that this should abrogate the equitable doctrine as to the duty of a trustee to prorate trust funds and the corresponding right of various beneficiaries standing in similar relations to be treated alike. If the contractor, or one purchasing from him, holds all the bonds, there is no necessity for the application of said doctrine of prorating, but it would be applicable if there was more than one contractor, and no good reason is perceived why it should not be applicable to several persons who have purchased bonds which were originally issued to one contractor. By section 2 of the Act of July 1, 1893, the corporate authorities, issuing bonds such as were issued in this case, are given the privilege of redeeming the bonds at the time of any annual payment of interest upon twenty days’ notice by publication, and by section 4 of said act it is provided that any property owner may pay his assessment wholly or in part with the bonds issued under the act on account of such assessment, and that in making such payment such bonds shall be taken at their par value and interest accrued to the date of making the same. Counsel argues that from these provisions it would appear that it was not the theory of the law that there should be any prorating of the bonds or interest under any circumstances. We do not think that this follows. And it does not appear front this record that any of the bonds redeemed before maturity were redeemed on any annual interest payment dates or after a proper notice. Neither does dt appear that any property owner purchased any of the bonds and paid, or attempted to pay, his assessment wholly or in part therewith. While the statute (section 56, ch. 24, Hurd’s R. S. 1895, J. & A. ¶ 1482) gave to the property owner the option to pay any instalment or instalments which may have been assessed against his land, at any time before maturity and thereby stopping the further running of interest, and while it would appear that it was the intention that bonds issued against any instalment should be paid in full as soon as there was money available for that purpose, it nevertheless appears from the facts in this record that when plaintiff presented his 6th instalment $500 bond for payment a day or two after its maturity there was only the sum of $57.34 left in the fund for the payment of the principal of the bond, and when he presented his 7th instalment $500 bond for payment there was nothing -left in that fund. And it does not appear that this was occasioned through any fault of plaintiff. It is true that plaintiff was paid more interest on his bonds than his pro rata share, but counsel for plaintiff state that such excess interest so paid was taken into consideration by the court in reaching the finding made in this ease, and no complaint is made by counsel for the village as to amount of the finding. Counsel for the village further argues that this judgment must be paid out of the general funds of the village and that the present board of trustees cannot lawfully use moneys raised by general taxation to pay any part of the special assessment bonds sued upon. We think it is a sufficient answer to say that such general funds would not be used to pay special assessment bonds as such but to pay a judgment based on a violation of the duty of the village as trustee. City of Chicago v. McNichols, 98 Ill. App. 447. The judgment of the Circuit Court is affirmed. Affirmed.