First National Bank v. City of Elgin

136 Ill. App. 453

• Court: Appellate Court of Illinois
• Decided: October 10, 1907
• Docket: Gen. No. 4,843
• Status: Published

Opinion

Mr. Justice Dibell

delivered the opinion of the court.

The First National Bank of Chicago, appellant, is not an innocent purchaser of negotiable paper for value without notice. Whether the paper it holds, Exhibits “A” to “E,” inclusive, are certificates, vouchers or bonds, they are' not negotiable instruments, and the bank holding them has no greater rights than the contractors to whom they were issued. There is no presumption that they were rightfully issued. The holder occupies the same position as the contractors. Any defense good against the contractors is good against the holder of such paper. If any defense thereto or any defect therein exists, because of the fraud or wrong of the contractors in failing to put in the pavement which the ordinance specified, the holder of the paper is equally affected thereby. National Bank of LaCrosse v. Petterson, 200 Ill., 215; Morrison v. Austin State Bank, 213 Ill., 472; Northern Trust Co. v. Village of Wilmette, 220 Ill., 417.

The city occupies the position here of the owner in an ordinary mechanic’s lien suit. It is the party to pay. It does not here dispute the correctness of the decree awarding prior liens to the subcontractors. Appellant is the only one here questioning that portion of the decree which is in favor of the subcontractors. It is not claimed by appellant that the sums awarded the subcontractors are excessive or that there is any lack of proof to support the decree in their favor, except the alleged failure of the subcontractors to give notice to the city of their claims in time. Section 23 of the Lien Law gives a subcontractor on a public improvement “a lien on the money, bonds, or warrants due or to become due such contractor for such improvement: provided, such person shall, before payment, or delivery thereof is made to such contractor notify the officials of the * * * city or municipality whose duty it is to pay such contractor, of his claim by a written notice.” The subcontractors gave notices to the proper officials, but these notices were not given until after Exhibits “A” to “E” inclusive were received by the contractors and by them assigned to appellant. These documents, Exhibits “A” to “E,” inclusive, were not money. Were they bonds or warrants within the meaning of the lien law, and was it necessary to entitle the subcontractors to liens that they should serve their notices upon the officials of the city before said documents were received by the contractors?

Section 88 of the Local Improvement Act of 1897, as amended, provides that payment for any improvement under that act, to be paid out of any special assessment levied in instalments as therein provided, may be made in the bonds in said article provided for and that if the first instalment is not collected when payments fall due, vouchers therefor may be issued payable out of the first instalment when collected, and that said vouchers shall bear no interest and shall he paid from the first instalment when collected. Section 86 provides for the issue of bonds by such city payable out of the second and succeeding instalments, hearing interest at the rate of 5 per cent per aijnum, payable annually, and sign by such officers as may be prescribed by ordinance; w bonds shall be issued in sums of $100 or some mult‘ thereof. It requires that each bond shall state on its f; out of which instalment it is payable, and that the h' shall be divided into as many series as there are deft' •• 1 instalments. A form for the bond is given. That fc; plainly indicates that each bond is to be drawn against a .-gle instalment to be specified in the bond. Said section 86 also permits payment of a voucher or bond out of any instalment having a surplus to its credit, other than the instalment against which it is drawn. Section 91 provides for payments from time to time as the work progresses, upon certificates by the board of local improvements or by some officer designated by said board, which payments “may be made either in money, vouchers or bonds, as herein provided.”

The ordinary meaning of “voucher” is a document which shows that services have been performed or expenses incurred. It covers any acquittance or receipt discharging the person or evidencing payment by him. When used in connection with the disbursement of moneys it implies some instrument that shows on what account or by what authority a particular payment has been made, or that services have been performed which entitle the party to whom it is issued to payment. It vouches for the truth of accounts or estimates. After a note or a bond has been paid or cancelled or taken up, it becomes a voucher in the hands of the party paying it. In no proper sense can an instrument for the payment of money be called a voucher while it is outstanding and unpaid. It is doubtful whether this distinction has been fully observed in the use of the word “voucher” in this statute. It seems to be intended by the sections above referred to that vouchers shall be issued only against the first instalment provided for in the local improvement act, and then only when payments on the contract fall due and the first instalment has not been collected. These vouchers were intended by the statute to be informal papers bearing no interest, and having no special form prescribed. Exhibits “A” and “B” are obviously vouchers' within the meaning of the statute. They are certificates that the contractor is entitled to a certain sum out of the first instalment of the special assessment when collected and without interest. They do not contain any promise to pay any money. They are not accompanied by any estimates or certificates of the board of local improvements, as the statute seems to contemplate. Exhibits “C,” “D” and “E” do not conform to the definitions we have given of a voucher, nor do they comply with the requirements of section 86 as to the contents of the bonds which the city is authorized to issue. They are drawn against a number of different instalments, while the bond is to be drawn against a single instalment. They are not in sums of $100 or a multiple thereof. They are not drawn in the form prescribed by that section. They profess in their heading and in the language in the body thereof to be vouchers and not bonds. They are described as vouchers in the assignments thereof to appellant. Each of them contains a provision that it is exchangeable for bonds as provided in the law and the ordinance. That strongly shows'that they were not issued as bonds. We conclude that it was not the intention of the city to issue these documents as bonds, but as temporary papers evidencing the amount of the respective estimates then made, notwithstanding the fact that they contain an express promise to pay money. If these exhibits are not bonds neither are they warrants within the meaning of the lien statute; and there had been no payment or delivery of money, bonds or warrants to the contractor at the time the subcontractors gave the city notice of their claim for liens. If there had been no such delivery, then the subcontractors gave the notice in time, and the court properly recognized their rights to liens. Appellant calls each of its five exhibits “vouchers” in all its pleadings in this case, namely, in its answer to the original bill and to the cross-bill of the Home National Bank, and in its own cross-bill and amended cross-bill.

But if exhibits “O,” “D” and “E” should be regarded as promises to pay money, and the distinction between them and bonds treated as unimportant, still these instruments were irregularly issued. If they were intended to be bonds or to be issued under the authority of section 86, they failed in almost every particular to comply with that section. Moreover, it was intended, as appears by section 85 and other provisions of the act, that the Board of Local Improvements should cause the work to be carefully inspected during its progress and that the contractors should comply fully with the contract and specifications. The order of the County Court, in a matter within its jurisdiction (People v. Cohen, 219 Ill., 200; Case v. City of Sullivan, 222 Ill., 56), establishes, as against the original contractors, and therefore as against appellant, that the contract had not been performed. But if that order is not conclusive, still the oral proof on that subject (wholly omitted from appellant’s abstract) justified the finding by the master, set out at length in the foregoing statement, which shows that before any of these instruments were issued to the contractors, it was clear that the work done entirely failed to comply with the contract. Moreover, appellant, in its answer to the cross-bill of the Home National Bank, admitted that the original contractors failed to complete the work according to contract, though in its answer to the original bill it professed to be not informed on that subject, and in its amended cross-bill it declared that the contract had been substantially performed by the original contractors. In the exceedingly defective condition in which the work then was, no instruments attempting to bind the city to pay the contractors ought'to have been issued. The vice-president of appellant was a heavy stockholder in the Federal Asphalt Company, and he was present at an interview between the mayor and the president of the Federal Asphalt Company in which the defects in the work were discussed and assurances were given by the contractors to the mayor that the work was all right (when in fact it was in a very defective condition), coupled with a promise that the contractors would make it right or complete it the following spring. The latter was a mere promise; but the mayor in that interview told the contractors, that he was no judge of such work, and the assurances of the character of the work then done, given by the contractors to the mayor at that time, were unfounded under the proofs. It was because of these statements and assurances that the mayor was induced to cause these documents to be issued to the contractors, and appellant purchased these instruments afterwards. Moreover, Exhibits “O,” “D” and “E” show on their face that to make them complete the contractors were required to sign a certain agreement attached to each of said exhibits, -which was in express terms made binding upon themselves, their successors, heirs,, executors, administrators and assigns. Perhaps it was unnecessary to require such an agreement from the contractors, but the city and board of local improvements had a right to require such an agreement from the contractors as a part of the voucher, if they saw fit, and they did require it, and wrote that requirement into each of the three vouchers. The contractors did not sign these agreements. These three vouchers therefore were incomplete, and the act of the mayor in placing them in the hands of the contractors was for that further reason premature and ineffective, and there was no delivery of them as completed instruments. That was obvious upon the face of the instruments when received by appellant. They are just as incomplete in the hands of appellant as if the contractors still held them and were seeking to enforce them. We think it clear that they were improperly issued, and that section 23 of the lien law means that the subcontractor shall give notice to the city before a lawful and proper delivery of bonds or warrants to the contractor, and that the subcon: tractor should not be deprived of his lien by the act of the city in issuing instruments to the contractor at a time when he was not entitled to receive them. If the mayor and other officers of the city had withheld these documents from the contractor until the state of the work entitled him to receive them, they would not have been delivered when the several subcontractors served their notices upon the city. We therefore hold that the notices were in time.

But there is another view of this subject. The provision of section 23 of the lien law requiring subcontractors to notify the city officials of their claims before the money due the contractor is paid to him, or the bonds or warrants are delivered to him, is enacted for the benefit of the city, and to prevent any effort to impose a further liability on the city after it has paid its money or delivered up its bonds or warrants therefor. But the city does not complain here of any lack of notice. The contractors owe these subcontractors. The work and materials for which the subcontractors sought liens were upon the foundation of the improvement, and that foundation was laid according to the contract and was not defective. Why should the original contractors be heard to question the notice given by the subcontractors? The provisions of section 23 of the lien law were not inserted for the benefit or protection of the original contractors. We question whether they could be heard to make this defense against the subcontractors. Appellant stands in the shoes of the original contractors and has no greater rights than they. For these various reasons we conclude that the decision of the court below properly directed the payment of the subcontractors out of the fund remaining unexpended in the hands of the city.

Appellant contends that the court had no jurisdiction except to dispose of the claims of the subcontractors to liens, and that there was no pleading which authorized the court to determine the other matters covered by its decree. The cross-bill of the Home National Bank gave the court jurisdiction to determine whether that bank was entitled to the surplus which would be left after the liens of the subcontractors were discharged, and that made it necessary for the court to adjudicate upon the character and effect of the five vouchers set up and relied upon by appellant in its answer to the cross-bill of the Home National Bank. In its answer to the original bill also appellant alleged that it had a lien upon the fund. It is obvious that under its cross-bill the Home National Bank is entitled to the balance of the fund unless appellant is entitled to the whole or some part thereof by virtue of its five vouchers. Therefore the court was compelled to adjudicate upon the rights of appellant. Appellant contends that the court should have found that none of the subcontractors were entitled to liens, and that the lien of the Home National Bank was subordinate to that of appellant, and that appellant’s lien exceeded the amount of the fund, and should then have dismissed the bill and all the cross-bills, and should have left appellant to enforce its five vouchers in such way and manner as it might hereafter select. It may well be that, if the court had so found the facts, it would have been its duty to dismiss the bill and all the cross-bills, and thus leave appellant to pursue its own course hereafter. But when the court determined that the subcontractors were entitled to prior liens and that the Home National Bank was entitled to a lien, it then became necessary for the court to settle the rights of all the parties. If the court had found that appellant was entitled to some portion but not to all of the surplus left after the subcontractors were paid, it would have been compelled to decide the amount to which it was so entitled and to have fixed that amount in its decree, notwithstanding that appellant did not ask or desire any affirmative relief, hut only to be let alone to enforce its vouchers hereafter as it saw fit. The necessity of acting upon the claims of appellant, as incidéntal to and inseparable from the relief sought by the subcontractors and by the Home National Bank, is sustained by the principle underlying Dillman v. Will County National Bank, 138 Ill., 282, and Rock Island National Bank v. Thompson, 173 Ill., 593, 612. When a court has obtained such jurisdiction the other parties have a right to have the entire matter in controversy settled in the pending equitable proceeding, notwithstanding a party to whom something may be found due and who claims the whole fund, declares that it does not ask any affirmative relief but only wishes to be dismissed and left to enforce its rights in some other manner.

The master’s report against appellant, as between- it and the Home National Bank, seems to he based chiefly upon the theory that by the course" of appellant’s counsel in stating to the master that it did not desire any affirmative relief, the master was precluded from finding in appellant’s favor. We think this conclusion unsound, and that such disclaimer did not enlarge the rights of the Home National Bank, and that if anything was justly due appellant out of said fund, the state of the case required the master to so decide and the court to so decree.

In assailing the vouchers held by appellant the Home National Bank seems to ns to have overlooked the fact that its order for $8,000 is subject to similar criticisms.

When that order was issued and accepted by the mayor in his dual capacity as mayor and president of the board of local improvements, the work under the contract was unfinished and in a very defective condition. The contractors had no right to have any payments made to them then nor to receive any bonds, warrants or orders of any kind. ■ The power to determine whether the improvements had been completed in compliance with the contract so as to authorize the issue of bonds had been vested in the County Court by section 84 of the act as amended in 1903. Case v. City of Sullivan, supra. The mayor had no authority to bind the city by an acceptance. He ought not to have attempted to accept the order. The master found that the Home Rational Bank, -when it received the order, knew, the defective condition of the street. It ought not to have attempted to bind the city by an acceptance by the mayor. We conclude that the instruments held by appellant and by the Home Rational Bank were all irregular and were irregularly obtained, and that nothing has occurred to give the one any preference over the other in the distribution of the surplus and that it should have been divided pro rata between the two banks upon the amounts named upon the face of their respective papers.

The court directed that the costs should first be paid out of the fund. Section 17 of the lien act provides that the costs shall be taxed equitably against the losing parties. The decree in that respect was beneficial to appellant, in the view the court took of its rights, as appellant lost everything and no costs were adjudged against it. But as we now determine that appellant is entitled to a part of the fund, it becomes necessary to direct how the costs of the court below should be apportioned. The following parties filed answers and cross-bills, claiming liens for the amounts stated, and were entirely defeated, viz.: George S. Chisholm, $1,577.67; R- G. Early, $577.92; Moore & Hawkins, $501.36; and McClure & Struckman, who filed the original bill, were allowed less than their claim of lien by $251.34. They were “losing parties” in the total sum of $2,908.29 and we see no reason why section 17 of the lien law does not require that they pay a part of the costs. The Home National Bank and appellant are also losing parties in large sums, the latter in about double the amount of the former. . We accordingly direct that $50 of the costs of the court below should be taxed against and paid by Chisholm, Early, Moore & Hawkins and McClure & Struckman, in proportion to the several amounts claimed and lost by them as above stated; and that the rest of the costs of the court below and all the costs of this court be paid as follows: one-third by the Home National Bank and two-thirds by appellant. The additional abstract filed by the city of Elgin will be taxed as costs.

The decree provided that appellant’s five vouchers should be delivered up and cancelled as against the city of Elgin. The assignment of these vouchers by the original contractors may have bestowed upon appellant some rights against the original contractors, and for the purpose of enforcing those rights, if any, it ought to be permitted to retain said vouchers. For the same reason the Home National Bank ought to be permitted to retain its order. But the decree should definitely provide that the city of Elgin and the fund arising from the special assessment under this ordinance and under these contracts shall be relieved from all further liability, both to appellant and to the Home National Bank, and also to all other parties to this suit.

So much of the decree of the court below as is in favor of the subcontractors, and so much as directs what shall be included in the costs, is affirmed; and in all other respects said decree is reversed; and the cause is remanded with directions to enter a decree pursuant to this opinion.

Affirmed in part, reversed in part, and remanded.