Sherlock v. Village of Winnetka , 59 Ill. 389 ( 1871 )

Mr. Justice McAllister

delivered the opinion of the Court:

The bill in this case is not very artificially drawn, but upon a critical examination of it, we find the defects to be simply the want of chronological order in the statement of facts, and of logical order in the arrangement of the matters of its contents. NotAvithstanding these defects in form, Ave find facts scattered through it, sufficiently stated to entitle the complainants to relief, and the gravamen of the Avhole is A’ery apparent. The substance of the matters alleged is, that ivhile the council were authorized by section 1 of article 4 of the charter, to purchase land and erect buildings thereon for an educational institution of a high grade, to borroiv money, issue bonds and levy taxes for that purpose, still, such institution was designed by the act to be for corporate uses only, or else that portion of the act must be held unconstitutional and void; that the council, though pretending to act under the authority of this act, purchased the land and erected the building thereon, as set forth, with the original design of not having the same appropriated to the corporate uses of the village as an institution of learning, but of directly appropriating it to private use, for the purposes of private gain and emolument—a portion of the members of the council being incorporators and trustees of the Winnetka academy; that, in pursuance of such design, the land was purchased of one of the trustees of the academy, and the building and other improvements placed upon it; bonds of the village were issued to the amount of $18,500, bearing ten per cent interest, payable semi-annually at a national bank in Chicago ; $2500 of these bonds were delivered to the trustee of the academy of whom the land was purchased, in payment thereof. The balance of $15,000 in bonds, the council sold at the rate of seventy-five cents on the dollar, to certain individual, members of the council, of which Carter, the president of the council, took the largest share. Three members of the council being also trustees of the academy corporation, the council passed an ordinance to lease said land, and the buildings and improvements so purchased and constructed by said bonds, or their proceeds, to said academy—a private corporation, to be carried on as such, for private gain, for the term of three years, upon condition that such academy corporation' should pay all taxes and assessments, when such land and property were not legally liable to taxation—the three members of the council, who were trustees of the academy, voting for said ordinance at its passage.

Then, as a crowning act, the council, ivhile certain of its members were purchasers of these bonds at a sale by the council, and must be presumed, in the absence of anything to the contrary, to be still the holders of them, passed an ordinance directing the levy of a tax upon the inhabitants of the village, and owners of property therein, to pay themselves the interest upon said bonds.

Nor is this all. The bill alleges, and we are bound to take all allegations of fact well pleaded as admitted by the demurrer, that the council are about to erect a boarding house on said land, for the use of said academy, and to that end have passed an ordinance to issue the bonds of the village to the amount of $8000 for that purpose.

Such, substantially, are the grounds, presented by the bill, for prevention and relief. The court below sustained a general demurrer to the bill, dismissed it, dissolved the temporary injunction which had been allowed and issued upon it, and awarded damages against complainants for having obtained the injunction.

Relief may be granted by courts of equity against a municipal corporation, as well as against a natural person. The first section of the charter of the “village of 'Winnetka” declares “that by said name, the corporation may sue and b.e sued in all courts of law and equity in this State.”

There are some acts which a municipal corporation, while acting within the limits of its charter, may do, without being subject to the supervision of any court. Such acts are those done under its legislative and discretionary powers.

The question as to the true boundary line between exemption from supervision, and liability to it, has received a thorough and critical examination in the courts of New York. Milhau v. Sharp, 15 Barb. 194; Davis v. Mayor, 1 Duer, 453. In these cases, it Avas held that a municipal corporation, in reference to its priA’ate property, stands upon the same footing of other corporations; that its corporate property is held in trust for the benefit of its constituents, and the corporation is bound to administer such property faithfully, honestly and justly, and if it is guilty of a breach of trust by disposing of its valuable property, without any, or for a nominal, consideration, it Avill be regarded in the same light as if it Avere the representative of a private individual, or of a private corporation ; that the mere fact in such a case, that the forms of legislation are used in committing such breach of trust, will make no difference in the character of the act. It will not be, in any sense, the exercise of a political power delegated for public purposes, and the privilege of exemption from judicial interference terminates where legislative action ends.

See, also, Attorney General v. Utica Insurance Co. 2 Johns. Ch. R. 389.

The council had no authority to purchase land, erect buildings, and issue bonds pledging the corporate property, and the faith and credit of the corporation, for any but corporate purposes. If the original design was, as is alleged, and which the facts stated seem to warrant, to purchase the land, erect the building and issue the bonds, for private uses, to the exclusion of corporate purposes, and for private gain, it was a gross breach of trust, a fraud upon the law and the tax payers of the village, and a court of equity should take cognizance of the case, by virtue of its inherent jurisdiction over fraud and trusts.

The sale of the bonds of the village, by the council to its own members, was void, irrespective of the principles of equity applied to the dealings of parties holding a fiduciary relation to each other, or of considerations arising from the fact that it was part of a scheme to pervert the property of the corporation from its legitimate corporate uses to mere private ends. It was void, on the ground that no man can contract with himself.

“It is said that the contracts of trustees are of two classes: One class consists of contracts made by trustees with themselves, or with a board of trustees or directors of which they are members. These contracts are void, from the fact that no man can contract with himself. If, therefore, a board of directors should convey all the property of a corporation to themselves, the conveyance would be void without any inquiry into its fairness, or whether it was beneficial to the corporation or not; and the same rule applies, if a board of directors convey the property of a corporation, or any part of it, to one of their members, he being one of the trustees negotiating the contract with himself.” Perry on Trusts, sec. 207, and cases cited in notes supporting the text.

And inasmuch as three members of the village.council were also trustees of the academy, and participated in negotiating the contract for the lease from the former to the latter, it is difficult to perceive any reason why that transaction does not also fall within the principle of the authorities holding void a contract made by trustees with a board of trustees or directors of which they are members. However that may be, the contract should, under the circumstances stated in the bill, be held void, on the ground of its being a fraudulent perversion of the private property of the village, held in trust for corporate uses, from such uses, to those of a mere private enterprise.

It follows, from the views expressed, holding the sale of the bonds by the council to its own members to be void, that such bonds could not be enforced in the hands of such holders, for either principal or interest, and this, upon the ground that, the sale being void, there was nothing due to such supposed holders. If no interest was due upon the bonds in such hands, then it also follows that the levy of the tax by the council to pay it, was illegal, unjust and oppressive, as to the tax payers.

' It is insisted, on behalf of appellees, that the demurrer to the bill was properly sustained, on the ground of multifariousness. Ho such cause is assigned by the demurrer, and we shall not stop' to investigate the question of practice, whether the specification of this ground was indispensable; for we are of opinion that the bill is not obnoxious to demurrer for that cause, even if it had been specified.

It is an established rule, that where chancery takes jurisdiction for one purpose, it will retain it for all purposes necessary to complete justice between all parties interested in the subject matter. The policy of the rule is, the prevention of a multiplicity of suits, and from it has sprung the other rule, which requires all persons interested to be made parties ; so, that to do adequate and complete justice between all parties interested, may be said to be a prevailing motive of equity. This motive, together with a conceded absence of technical rules in respect to the statements of the bill, has ever afforded a fruitful source of perplexing questions as to the proper unity of the matters set forth, their relations to persons and to each other. As civilization advances, and the subtlety of the human intellect increases, the transactions of mankind become more complicated; but, from a variety of causes, attention to the principles of correct pleading seems to become more lax. From these causes, the difficulty of the questions mentioned seems to continually increase. '

It was said by Lord Cottehham, that it was utterly impossible, upon the authorities, to lay down any rule or abstract proposition, as to what constitutes multifariousness, which can be universally applicable. 1 Dan. Ch. Pr. 384. So our own great equity judge: “The conclusion,” says Story, “to which a close survey of all the authorities will conduct us, seems to be that there is not any positive, inflexible rule, as to what, in the sense of courts of equity, constitutes multifariousness, which is fatal to a suit, on demurrer.” Story Eq. PI. sec. 539, Still, in the same work, sec. 271, he gives the following definition : “By multifariousness in a bill, is meant the improperly joining in one bill, distinct and independent matters, thereby confounding them; as, for example, the writing in one bill of several matters perfectly distinct and unconnected, against one defendant, or the demand of several matters of a distinct and independent nature against several defendants in the same bill.”

The charge of multifariousness is based, in this case, principally upon the fact of making the collector a party, and the matters alleged as ground for restraining the enforcement of the tax warrant in his hands.

This was not a distinct, independent matter. The tax warrant was the very instrument by which the wrong was to be consummated. The illegal sale of the bonds, by the council to its own members, to raise money to pay for property which they were appropriating to private use, and levying a tax to pay themselves interest upon such bonds, were the matters set forth, showing the wrong and oppression of the tax payers. Making the collector, who had the warrant for the collection of this tax, a party, was upon the same principle that a defendant to a judgment, who should file a bill to set it aside for fraud, would be compelled to make the sheriff a party, if an execution was in his hands, upon the judgment, although the latter in no manner participated in the original fraud.

So, also, the allegations of the bill that the council were proceeding to erect a boarding house for the use of the academy, and for that purpose had passed an ordinance to issue bonds of the village to the amount of $8000, which would be a charge upon the property of tax payers. To build such a boarding house, would, under the facts stated, be an act in furtherance of the fraudulent scheme of appropriating the private property of the corporation, held in trust for corporate uses, to private uses, and is so connected with the substantive matter of the bill, that, as a branch, it must perish with the trunk.

We are of opinion, however, that the facts stated in regard to the alleged diminution of valuation by the assessor, of property assessed, are not sufficient to defeat the whole tax. There is no allegation that the property in respect to which the council directed the clerk to make the diminution, was subject to taxation by the village authorities, or that Goss, as a member of the council, participated in having the change made as to his property.

Nor is there a case shown for rescinding the purchase of block 50 from Wilson. Improvements have been made upon the land at great expense. Authority was given by the village charter to purchase the land and erect the building for corporate uses; so that the purchase was not made without authority. Even if the members of the council designed, from the beginning, to pervert the land and building to private uses, for their own private benefit, and there was fraud in the purchase, the contract with Wilson should not be rescinded, because the parties can not be placed in statu quo. He can not be compelled to take the building and pay for it, and it would be inequitable for him to have it, as he would if he took his land back, without paying for it. If the village corporation have title to the land, neither Wilson nor the individual members of the' council can ask to have it divested. As to the equities between the corporation and the individual members of the council who illegally assumed to purchase the bonds, we express no opinion, but simply hold, that as the facts appear in this record, such sale was void, and no title acquired by it ,• that the tax levied to pay the interest on the bonds was illegal, and to that extent the collector should be restrained in the execution of the tax warrant; that the appropriation of the private property of the corporation, held in trust for corporate uses, to the mere private uses disclosed by the bill, was a fraud and breach of trust which calls for tfie interference of a court of equity ; that the bill is not bad for multifariousness, and as it contains matters showing fraud and breach of trust, it can properly be met only by answer.

For these reasons, the decree and order of the court below sustaining the demurrer, dismissing the bill and awarding damages, will be reversed and the cause remanded, with directions to that "court to - overrule the demurrer and permit the defendants to answer.

Decree reversed.