Berman v. Bd. of Educ. of City of Chicago, 22834.

CourtSupreme Court of Illinois
Citation360 Ill. 535,196 N.E. 464
Docket NumberNo. 22834.,22834.
Decision Date11 June 1935

360 Ill. 535
196 N.E. 464


No. 22834.

Supreme Court of Illinois.

April 17, 1935.
As Modified on Denial of Rehearing June 11, 1935.

Bill by Jeanne C. Berman against the Board of Education of the City of Chicago and others. From a decree dismissing the bill after sustaining a motion in the nature of a demurrer, complainant appeals.

Reversed and remanded, with directions.

SHAW, J., dissenting.

[360 Ill. 536]

[196 N.E. 465]

Appeal from Circuit Court, Cook County; John Prystalski, judge.
Markman, Donovan & Sullivan, of Chicago (Henry O. Nickel, of Chicago, of counsel), for appellant.

William H. Sexton, Corp. Counsel, and Richard S. Folsom, both of Chicago (Frank S. Righeimer, Joseph F. Grossman, Ralph W. Condee, and Frank R. Schneberger, all of Chicago, of counsel), for appellees.

ORR, Justice.

Jeanne C. Berman, appellant, filed her bill of complaint in the circuit court of Cook county to enjoin the board of education of the city of Chicago from issuing bonds in the sum of $10,000,000 for the purpose of paying tax anticipation warrants. The bonds were to be issued under the provisions of an act of the General Assembly purporting to authorize the board of education of any school district, in any city having a population exceeding 500,000 inhabitants, to issue bonds to pay tax anticipation warrants where the taxes anticipated had not been collected. A motion in the nature of a demurrer was sustained and the bill was dismissed for want of equity. From that decree the present appeal was taken.

Appellant, a citizen, resident, and taxpayer of Chicago, alleged in her bill that Chicago comprises one school district;[360 Ill. 537]that she owns both real and personal property within the district which has been subject to all past taxes and will be subject to all future taxes levied therein; and that she has fully paid all of her taxes, including those anticipated by the tax warrants in question. She alleged that pursuant to the supposed authority given by the act in question the board of education on January 24, 1934, passed a resolution for the issuance and sale of bonds in the amount of $10,000,000 for the purpose of paying outstanding tax anticipation warrants drawn against the taxes for the years 1928 and 1929, and that at the request of the board of education the city of Chicago passed, and the mayor signed, a certain ordinance ratifying the resolution of the board and providing for the issuance of the bonds. The bill further alleged that the tax anticipation warrants in question were not obligations of the board of education, but, on the contrary, were payable solely out of the taxes anticipated by them, if and when collected, and not otherwise; that the use of the proceeds of the sale of such bonds, or their exchange in retirement of tax anticipation warrants, would amount to an appropriation of money for the purpose of paying a contract which by its terms is not an obligation of the board of education, and that the act of the General Assembly, the resolution of the board and the ordinance of the city of Chicago are each in direct violation of section 2 of article 2, section 14 of article 2, and section 9 of article 9, of the Constitution of this state. The bill further alleged that defendants were preparing to carry out these objects and would do so unless enjoined; that the ordinance and the act of the Legislature should be decreed to be void as violative of the constitutional provisions above mentioned; that the act was by its terms retroactive and authorized the appropriation and use of moneys by municipalities for private rather than corporate purposes; that it altered the obligation of contracts created by tax anticipation warrants, and by implication attempted to give municipalities[360 Ill. 538]the right to create a debt, within the constitutional meaning of section 12 of article 9 of the Constitution, without any consideration therefor.

[196 N.E. 466]

The act relied upon as authority for issuance of the bonds in question was passed by the Legislature in 1933 (Smith-Hurd Ann. St. c. 122, §§ 327i-327p; Cahill's Rev. St. 1933, c. 122, par. 410(4) et seq.), and sections 3 and 6 thereof were amended in February, 1934 (Laws of 1933-34, First, Second and Third Special Sess. p. 241 [Smith-Hurd Ann. St. c. 122, §§ 327k, 327n]). The act provides that where the corporate authorities of a school district in a city having a population exceeding 500,000 inhabitants shall have levied taxes for educational or certain other purposes and shall have sold anticipation warrants against such taxes, and where the taxes have not been paid or collected in amount sufficient to pay the warrants and interest thereon, the board of education may, with the consent of the city counsel, subject to certain limitations, issue bonds for an amount sufficient to pay the warrants, with interest, remaining outstanding and unpaid twelve months following the month in which the taxes became due. The bonds are to bear interest at a rate of not more than 6 per cent., to mature within twenty years, and may be issued without submitting the question to a vote of the people. The city council is required to levy a tax, to be paid annually, upon all taxable property of the district sufficient to pay the principal and interest of the bonds. The proceeds of the bonds are required to be kept separate for payment of the proper warrants and for placing the excess in the bond and interest sinking fund of the board of education, to be used for paying the principal and interest of the bonds, and for the proportionate abatement of subsequently levied taxes with such money as may remain after the payment of all warrants. It is stated that the authority granted by the act shall be considered as cumulative and not as repealing any existing laws. Section 8 (Smith-Hurd Ann. St. c. 122, § 327p) states the purpose of the act in the following language:[360 Ill. 539]‘This Act is adopted for the purpose of empowering the corporate authorities of such school district to recognize the moral, equitable and honorable obligation resting upon such school district and its inhabitants to pay such tax anticipation warrants in spite of the non-collection of the taxes constituting their source of payment and to assume as a legal obligation such moral obligation in like manner as a just person recognizes in his own affairs, the duty to repay money received and used for his own benefit, having in mind the benefits to said school district and its inhabitants resulting from the purchasers of such tax anticipation warrants furnishing money to maintain and operate the public schools therein.’

Tax anticipation warrants are issued pursuant to statutory authority, which provides the circumstances under which they may be issued, the amount permitted to be outstanding, and, in part, prescribes the form and wording of the warrants themselves. Smith-Hurd Ann. St. c. 146 1/2, § 2. They may be issued only against taxes already levied, and the statute in mandatory terms requires ‘that warrants drawn and issued under the provisions of this section shall show upon their face that they are payable solely from said taxes when collected and not otherwise,’ etc. Such warrants do not constitute, and cannot be construed as constituting, any promise of payment, either express or implied, on the part of the taxing body issuing them, but the holder thereof ‘must rely solely upon the ability and fidelity of the revenue officers in the collection and payment of the money mentioned in the warrant.’ Fuller v. Heath, 89 Ill. 296. We have held that it was the intention of the Legislature, in so providing, to make it clear that tax anticipation warrants do not constitute an obligation between the taxing body and the purchaser or holder thereof. City of Springfield v. Edwards, 84 Ill. 626;Coles County v. Goehring, 209 Ill. 142, 70 N. E. 610. The legal effect of the transaction is that the person receiving such [360 Ill. 540]warrant discharges the corporation from all liability on account of the services or obligation for which it was drawn. Law v. People, 87 Ill. 385;Hodges v. Crowley, 186 Ill. 305, 57 N. E. 889. When the warrant is issued and accepted or sold the transaction is closed on the part of the municipality, leaving no future obligation upon it, either absolute or contingent, whereby its debt may be increased. Booth v. Opel, 244 Ill. 317, 91 N. E. 458;People v. Nelson, 344 Ill. 47, 176 N. E. 59. The transaction is similar to that of a bank selling a note ‘without recourse.’ The holders of tax anticipation warrants must look to the specific fund set apart for the payment of their warrants, as the cases above cited are authority that tax anticipation warrants are not contracts and the municipality is not indebted as a result of their issuance. The Legislature itself recognized

[196 N.E. 467]

that the outstanding tax anticipation warrants were not legal obligations of the board of education, for it clearly appears from language used in section 8 of the act that authority to issue bonds was based upon the satisfaction of a moral, rather than a legal, obligation. It therefore becomes necessary to inquire whether the Legislature has the power to authorize a school district to issue bonds and assume a legal liability for the payment of what it characterizes as ‘a moral, equitable and honorable obligation.’ The determination of this question will settle the principal issue in this case.

It is claimed by appellees that section 1 of article 8 of the Illinois Constitution imposes a mandatory duty upon the Legislature to ‘provide a thorough and efficient system of free schools,’ by which, as a matter of public policy, they say it is required to enact legislation authorizing the payment of a debt for which the city was at first only morally liable, but which, upon validation by legislative enactment, the courts are powerless to question. Their basic argument is that...

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