Board of Education of Chicago v. Norfolk & Western Ry. Co.

EVANS, Circuit Judge

(after stating the facts as above).

The questions presented on this appeal are:

(1) In case the 1929 taxes are insufficient to pay all the warrants in full, do all holders share pro rata?

(2) If (1) be answered in the affirmative, should appellant, Board of Education, personally account to appellee for moneys improperly paid to other warrant holders in excess of their pro rata share? „

(3) Was appellee guilty of laches so as to preclude recovery?

(4) Did the failure of appellee to protest against the Board of Education’s method of paying these warrants create an estoppel against it?

(5) Should the injunction have been granted in addition to the decree for accounting ?

(1) Each warrant issued by the Board of Education provided:

“This warrant is issued in anticipation of said taxes so levied for the year 1929 for educational purposes, to provide a fund to meet and defray the ordinary and necessary expenses of the public schools of the City of Chicago, and is payable, both principal and interest, solely from said taxes when collected, and not otherwise, which taxes are hereby assigned and pledged to the payment of this warrant and of all warrants issued against and in anticipation of such taxes, * *

It is true the warrants were numbered, but such numbering was for the convenience of the parties. The numbers did not fix the order of payment of the warrants or give preference of lien to the lower numbered warrants. The language of the warrant pledged the 1929 taxes to the payment “of this warrant and of all warrants.” The situation was not unlike that of a mortgage which secures several notes. The notes might be numbered, but the mortgage secures them all equally. In the absence of language in the warrant indicating a different understanding we must hold that the money received in the way of taxes was for the payment of all warrants. Jewell v. City of Superior, 135 F. 19 (C.C.A.7); Norris v. Montezuma Valley Irrigation Dist., 248 F. 369 (C.C.A.8). See, also, Sibley v. Mobile, Fed.Cas.No.12,829; Rothschild v. Calumet Park, 350 Ill. 330, 183 N.E. 337; Thomas v. Patterson, 61 Colo. 547, 159 P. 34; Meyers v. Idaho Falls, 52 Idaho, 81, 11 P.(2d) 626; U. S. v. Macon County Court Justices and Treasurer, (C.C.) 75 F. 259.

It is too clear and obvious to need argument to support the legal conclusion that the passage of the Illinois statute (SmithHurd Ill.Stats. c. 122, § 155) could not and did not modify or restrict the contract rights of holders of warrants issued and sold before the enactment of said statute.

(2) We must answer this question also in the affirmative. The taxes received by the Board constituted a trust fund for the payment of all warrants. The Board held the funds as a trustee. It became liable personally when it distributed this fund among warrant holders in full payment of their warrants to the damage of other warrant holders who received nothing or a sum less than they would have received had the fund been distributed pro rata among all warrant holders (Rothschild v. Village of Calumet Park, 350 Ill. 330, 183 N.E. 337). The exact amount of this liability can only be determined by an accounting which the District Court directed.

(3) (4) The findings of the court are inconsistent with facts upon which either the defense of laches or estoppel may be predicated. The court found that the appellee never had knowledge and was not cognizant of the facts shown by the books and records kept by appellants relating to the amount of taxes received, the amount outstanding and uncollected taxes, or disbursements, or funds received in the payment of warrants and the interest thereon, or the rate at which said respective levies were being exhausted by the appellants.

The court further found that the appellee when it discovered- the true situation notified the Board of Education of its ownership of warrants and demanded that taxes collected be applied pro rata to the payment of all outstanding warrants. Suit was begun as soon as the Board of Education refused to recognize the validity of appellee’s claim.

(5) We are of the opinion that a mandatory injunction should have been entered directing the payment of the taxes collected and on hand, or hereafter to be collected, to the satisfaction of outstanding warrants. In other words, the taxes should be promptly distributed. The money should be distributed among the warrant holders in the proportion which each warrant holding interest bears to all the outstanding unpaid bonds. In other words, we think that the court, instead of enjoining payment except in a certain manner, should have ordered payment by the Board of all taxes collected. For the balance which may be due on accounting, a money decree should be entered in appellee’s favor against the Board.

As so modified, the decree is affirmed. Each side will pay its own costs.