Ohio Nat. Life Ins. Co. v. Bd. of Educ. of Grant Cmty. High Sch. Dist. No. 124

• Decision Date: 14 September 1944
• Docket Number: No. 27330.,27330.
• Citation: 387 Ill. 159,55 N.E.2d 163
• Parties: OHIO NAT. LIFE INS. CO. et al. v. BOARD OF EDUCATION OF GRANT COMMUNITY HIGH SCHOOL DIST. NO. 124.
• Court: Illinois Supreme Court

387 Ill. 159

55 N.E.2d 163

OHIO NAT. LIFE INS. CO. et al.

v.BOARD OF EDUCATION OF GRANT COMMUNITY HIGH SCHOOL DIST. NO. 124.

No. 27330.

Supreme Court of Illinois.

May 16, 1944.

Rehearing Denied Sept. 14, 1944.

Action by the Ohio National Life Insurance Company against the Board of Education of Grant Community High School District No. 124 to recover on bonds issued by the defendant, which brought in other bondholders as parties defendant to its counterclaim. From an adverse judgment defendant appealed to the Appellate Court which transferred the cause to the Supreme Court, 318 Ill.App. 646, 48 N.E.2d 432, on motion of some of the bondholders on ground that a constitutional question was involved.

Reversed and remanded, with directions.Appeal From Circuit Court, Lake County; Ralph J. Dady, Judge.

B. F. Langworthy, of Chicago, for appellant.

Holland M. Cassidy, Schroeder & Simpson. Werner W. Schroeder, and Theodore W. Schroeder, all of Chicago, and A. F. Beaubien, of Waukegan, for appellees.

MURPHY, Justice.

This is an appeal from judgments entered in the circuit court of Lake county. The legal questions submitted arise out of the facts surrounding the issuance of fifty-four bonds of $1,000 each by the Board of Education of Grant Community High School District No. 124 of that county. It is the same issue of bonds, the validity of which was considered in connection with certain validating acts in People ex rel. Morse v. Orvis, 358 Ill. 408, 193 N.E. 213, and People ex rel. Leaf v. Orvis, 374 Ill. 536, 30 N.E.2d 28, 132 A.L.R. 1382. The questions in those cases arose on a taxpayer's objection to the taxes which had been levied to pay interest on the bonds in question. The Ohio National Life Insurance Company held thirty-three of these bonds and started this suit May 8, 1941. Pleadings filed by the board of education brought Leslie C. Small and May Small Inglesh, who collectively held fifteen bonds and Unity of Bohemian Ladies, who held six, into the action as parties defendants to its counterclaim. After a trial before the court without a jury, judgments were entered in favor of the holders proportionate to their respective interests in the bonds. The board appealed to the Appellate Court. On the motion of a part of the bondholders, the cause was transferred to this court on grounds that a constitutional question was involved. The jurisdictional fact arises out of the bondholders' claim that they were not parties to the tax objection suits (the two Orvis cases) and that the holding of this court in the last of those cases, that the act of 1935 was invalid, is not conclusive against them. The board of education contends that under the doctrine of res judicata the holding in the tax objection suit that the act of 1935 was invalid, and that the bonds in question are void, is conclusive against the bondholders in this case.

The conclusion has been reached that by the application of well-established principles, the opinions filed in the two Orvis cases are not res judicata as to the holders of the bonds and that, therefore, the validity of the 1935 validating act will have to be reconsidered in the light of the claims of the new parties, the new facts presented and the argument advanced in support thereof.

It was stipulated that the parties waived the necessity of formal pleadings but the bondholders' theory of their right of recovery will be better understood if a brief outline of the six counts of the complaint is set forth. The factual background as pleaded in the first count, and incorporated into some of the others by reference, shows that on February 16, 1931, the board of education adopted a resolution authorizing the execution and sale of fifty-five bonds of $1,000 each and made provision therein for annual levies sufficient in amount to meet the semiannual interest payments and the principal of the bonds as they matured.

The interest was payable March 1 and September 1 of each year. Four of the bonds were to mature September 1, 1941, and five September 1 each year thereafter, to and including September 1, 1952. When this suit was filed, all interest which had become due on and prior to September 1, 1939, had been paid.

The first count sought a recovery of the interest becoming due in 1940 and 1941. It was alleged that, pursuant to the resolution authorizing the issuance of the bonds, taxes had been extended annually and that there was sufficient money in the hands of the school treasurer to pay the interest becoming due in 1940 and 1941. The prayer was that a writ of mandamus issue commanding the school officials to pay such interest from the money so collected. The second count differed from the first in the relief asked, in that it alleged that prior to the suit the school officials had repudiated liability on the bonds, and that the county clerk would not extend taxes pursuant to the resolution adopted February 16, 1931. They prayed for a writ of mandamus to compel the county clerk to extend the tax in accordance with said resolution. The third count was premised on substantially the same facts as the first and alleged that the school officials had refused to make further payments of interest or principal on the bonds and were threatening to use the money collected for other purposes. The prayer was for an injunction to enjoin such misappropriation of the moneys collected. In the fourth count it was alleged that the board of education had repudiated liability for interest becoming due in 1940 and 1941 and disaffirmed the liability for principal on the bonds maturing September 1, 1941, and that, therefore, all other bonds had become due and payable at once, notwithstanding the date of later maturities as contained in the bonds. The prayer was for a money judgment. The fifth was for money had and received and the sixth for equitable subrogation. It was predicated on an alternative, namely: if the bonds were held invalid then the holders of the same should be subrogated to the rights of the creditors of the defendants whose claims had been paid from the proceeds of the bonds.

The board of education filed an answer and counterclaim. The board asked for a recovery of the money paid to the bondholders as interest during the year 1931-1939, inclusive. It was further alleged that the annual levies had produced more than was necessary to meet the annual payments of interest and that these balances for the several years 1931-1939, and the amounts levied for the years 1940 and 1941 to include interest and principal, the aggregate of which was about $12,000, were in the treasury of the school district and that the Life Insurance Company was making demands, which if allowed, would give it priority over the Smalls and the Unity of Bohemian Ladies, and therefore, asked that there be an adjudication as to the disposition of such fund.

By the judgments appealed from the court held the bonds void and dismissed counts 1, 2 and 3 of the complaint but found that the bondholders were entitled to recover and entered judgments as follows: The Ohio National Life Insurance Company, $32,422.50, the Small interests collectively, $14,737.50 and Unity of Bohemian Ladies, $5,895. The counterclaim was dismissed. The theory adopted by the trial court was that the school district was liable for money had and received, or as equitable subrogees for the amounts representedby the bonds held by the respective holders thereof. The bonds provided for interest at 5 1/2 per cent per annum, but the bonds being void, the court fixed the interest at 5 per cent and after allowing credit for interest previously paid on the higher rate as fixed by the bonds, the judgments were entered for the amounts stated.

The Ohio National Life Insurance Company and the Smalls will be referred to as plaintiffs. The Unity of Bohemian Ladies have not followed this appeal. The board of education will be designated as defendant.

Defendant seeks to invoke the doctrine of res judicata against plaintiffs' claim by applying the principles announced in People v. Orvis, 374 Ill. 536, 30 N.E.2d 28, 132 A.L.R. 1382. The conclusions reached in that case, which defendant now seeks to assert against plaintiffs, were that the validating act of June 6, 1935, was unconstitutional and that the bonds which are in question were illegal and did not furnish a proper basis for a tax levy. The principle that underlies the doctrine of res judicata is, that the court will not relitigate a matter which has been previously determined in an action between the same parties. It is a fundamental principal of law that controls the application of said rule that one is not bound by a prior judgment if he was not a party to such action or does not stand in the relation of privy to one who was a party.

Plaintiffs were not parties to either of the Orvis cases and the interests represented in those cases by the county collector and the taxpayer were not such as to support the principle that representation of one of a class is sufficient to bind all members of the class. The objecting taxpayer, whose property was assessed to raise money to pay plaintiffs' bonds had an interest decidedly adverse to plaintiffs and the county collector was but an agency named by law to collect the tax. Nor can it be said that plaintiffs were in privity to the county collector. In People ex rel. Graff v. Chicago, Burlington & Quincy R. Co., 247 Ill. 340, 93 N.E. 422, 424, in discussing a similar question it was said: ‘Where a right is asserted against a municipality and a judgment is recovered, it is binding on taxpayers, although they are required, as individuals, to pay the judgment; but a decree enjoining the collection of a tax to pay a demand against a town in a suit by taxpayers against the town is not res judicata against the holder of the demand, who is not a party to the suit. * * * The interest of the holder of the demand is adverse to that of the town and the taxpayers, and he is not represented...