Peabody v. Sanitary Dist. of Chicago

• Decision Date: 06 June 1928
• Docket Number: No. 16718.,16718.
• Citation: 330 Ill. 250,161 N.E. 519
• Parties: PEABODY v. SANITARY DIST. OF CHICAGO et al.
• Court: Illinois Supreme Court

330 Ill. 250

161 N.E. 519

PEABODY

v.SANITARY DIST. OF CHICAGO et al.

No. 16718.

Supreme Court of Illinois.

April 21, 1928.

Rehearing Denied with Modification June 6, 1928.

Bill by Augustus S. Peabody against the Sanitary District of Chicago and others. Decree dismissing bill was reversed and remanded by the Appellate Court, and, on certificate of importance being granted, defendants appeal.

Affirmed.Appeal from Third Branch, Appellate Court, First District, on Appeal from Superior Court, Cook County; Denis E. Sullivan, Judge.

Hector A. Brouillet, McCormick, Kirkland, Patterson & Fleming, and Mayer, Meyer, Austrian & Platt, all of Chicago (Warwick A. Shaw, Weymouth Kirkland, and Frederic Burnham, all of Chicago, of counsel), for appellants.

Walter F. Dodd, of Chicago, for appellee.

PER CURIAM.

The controversy presented by the record in this case was heard in the superior court of Cook county upon a taxpayer's bill for accounting, on the amended bill, answers, replications, and evidence heard in open court. The chancellor found the issues for the defendants, and entered a decree dismissing the bill for want of equity. Complainant appealed to the Appellate Court, where the decree was reversed and the cause remanded to the superior court, with directions to order an accounting in accordance with the prayer of the bill. The Appellate Court granted a certificateof importance, and an appeal was perfected to this court by the defendants.

The commissioners of the district, on the 7th day of November, 1921, made proposals for bids for the construction of the North Side intercepting sewer, contract No. 1, and gave notice that they would receive bids until 10 o'clock a. m. on November 17, 1921, and that the bids would be publicly opened by the board of trustees on that day or at the first meeting thereafter. The proposals described the location of the sewer and the approximate length of 7,400 lineal feet of sewer 6 feet six inches internal diameter, and 14,800 lineal feet of sewer 4 feet 6 inches internal diameter, and other miscellaneous work. Full instructions to bidders accompanied the proposals, with a blank form to be filled and signed by bidders. The bid of the Illinois Improvement & Ballast Company (hereafter called the ballast company) was accepted, and a contract for construction of the sewer, with specifications attached, was entered into November 23, 1921.

The ballast company for some time previous to 1919 had been engaged in the contracting business. Emil Seip was its president and Walter E. Schmidt its vice president, and owner of 1,200 of the 5,000 shares of its capital stock. In 1919 it disposed of its plant and equipment and all of its contracts and accounts payable on account of operations subsequent to May 1 of that year, together with good will and all property rights of every kind owned by it, to a newly organized corporation known as the Illinois Improvement & Construction Company, for which the ballast company received all of the capital stock of the construction company. Since that time the construction company has been a subsidiary of the ballast company, both having the same offices. It appears from the testimony of Seip that the object in organizing the construction company was to separate the contracting business from the other business of the ballast company. For that reason, the latter turned over all of its contracts and equipment to the former company. The ballast company was a holding company, and held bank stocks and corporate stocks of various corporations to the value of $1,000,000. Schmidt handled the banking and investment end of the ballast company's business, and was president of the Roseland State Bank. One of the regular customers of that bank was the Byrne Bros. Construction Company, engaged in the contracting business. Schmidt testified that his bank's relations with the Byrne Bros. Company had always been satisfactory, and that it was regarded by his bank as financially responsible.

In January, 1921, Schmidt was appointed treasurer of the sanitary district by the trustees, the power of appointment being vested in them by section 4 of the Sanitary District Act (Smith-Hurd Rev. St. 1927, c. 42, § 323). By virtue of that section, the board of trustees adopted rules governing the conduct of its business. Section 25 of the rules relates to the duties of the treasurer. Among others, he ‘shall receive all moneys of the district and make such payments as shall be ordered by the board, upon warrants signed by the chairman of the committee on finance and the clerk; shall sign all warrants and checks drawn for the account of the district; make all payments of principal and interest on bonds issued by the district when due; pay into the treasury of, and account to the district for, all sums received as interest on any deposit of funds of the district; make such reports as are required and act as the financial adviser of the board.’ The rule also provides:

‘The selection of depositaries for the funds of the district in the hands of the treasurer shall be entirely in the control of said treasurer, and no action of the board shall be considered as ratifying the selection of any depositaries by the treasurer or in any way waiving the strict liability of said treasurer for the custody of said funds and his accountability to the board therefor.’

It also provides that the salary of the treasurer shall be $2,500 per annum, and he shall give bond in the sum of $3,000,000, and shall file a supplemental bond to cover any liability in excess of this amount when required by the board of trustees. Schmidt testified that the only financial matter concerning which the board ever consulted him was ‘as to the market value of bonds at 4 per cent. or 4 1/2 per cent., whatever they think of issuing.’ This statement is not denied, and, so far as deemed material, it is assumed as a fact.

Early in the month of November, 1921, and previous to November 7, when bids for construction work were called for by the district, Seip had a talk with a member of the Byrne Company about doing the work of constructing the sewer. He testified that at that time he only knew of the contract for the sewer in a general way. November 9, two days after proposals for bids were made by the district, he entered into a written contract with the Byrne Company reciting that the latter was desirous of constructing certain work for the sanitary district, known as contract No. 1 for the North Side intercepting sewer, and that it desired him (seip) to finance the work. It provided that said work, if secured, was to be contracted for in the name of the ballast company, and that the work was to be done by the Byrne Company; that all of the money was to be collected by the ballast company, and that it would pay the Byrne Company all such money as it may need from time to time to carry on said work, out of the money received from the sanitary district, and, upon the completion of the work and final payment therefor, the ballast company would pay the balance of the money received by it from the district to the Byrne Company. It further provided that the Byrne Company was to reimburse the ballast company for any expenditures it might make in connection with the work, and that Seip was to receive from the Byrne Company $1 per lineal foot of sewer for his services in connection with financing the contract. As to the contract between Seip and the Byne Company, Seip testified at the trial that it was never formally assigned to the ballast company; that he was the head of that company, and ran it in his own way; that the contract was considered that of the ballast company and not his personal contract, and that the dollar per lineal foot was to go to that company, and not to him personally; that the Byrne Company had not been in business very long at that time, and that it was a question of its need of financing, and that the contract was more a matter of financing it than anything else; that the Byrne Company borrowed money from the Roseland bank from time to time; and that his connection with that bank, and the fact that the ballast company was financing the job, had something to do with the bank advancing the

Four contractors submitted bids in response to the proposal of the district; the to the proposal of the district; the its bid, Seip, as its president and managing officer, made an affidavit, as required by rule of the trustees, that its bid was made ‘without reference or regard to any other proposal or proposals, and without agreement, understanding or combination, either directly or indirectly, with any other person or persons with reference to such bidding in any way or manner whatsoever.’

The proposal of the district upon which the bids were based did not call for lump sum bids. Fourteen items were specified, and bids were required to be submitted for each. Item 1 covered the larger, and item 2 covered the smaller, sewer. Items 10, 11, and 14 are the only specific items directly involved and passed on by the Appellate Court. It declined to reverse the finding and decree of the superior court upon the charges in the bill relating to the specific items in the contract. In the opinion it held that the action of the corporate authorities as to changes relating to materials in those items was within the terms of the contract, and that the contention of the appellee here was without foundation. The reversal of the decree was based upon Schmidt's relation to the district as its treasurer, his connection with the contractors, and with the bank financing them. It held that Schmidt, as treasurer, was holding an office within the provisions of the statute hereinafter considered, and that his relation to the sanitary district and the contractor rendered the contract null and void.

Five points were urged in the Appellate Court by appellee, who was appellant in that court. They are, first, that the contract was void because Schmidt, as...