American Legion Post No. 279 v. Barrett

• Citation: 20 N.E.2d 45,371 Ill. 78
• Decision Date: 05 April 1939
• Docket Number: No. 24874.,24874.
• Parties: AMERICAN LEGION POST NO. 279 et al. v. BARRETT et al.
• Court: Supreme Court of Illinois

371 Ill. 78

20 N.E.2d 45

AMERICAN LEGION POST NO. 279 et al.

v.BARRETT et al.

No. 24874.

Supreme Court of Illinois.

Feb. 15, 1939.

Rehearing Denied April 5, 1939.

Appeal from Circuit Court, Sangamon County; Victor Hemphill, judge.

Representative suit by the American Legion Post No. 279 and others, as creditors of the Ayers National Bank of Jacksonville, Illinois, against Edward J. Barrett and John C. Martin, former State Treasurers, Roy K. Adair, receiver of the bank, and others, to recover, for distribution among the creditors, the proceeds of certain securities deposited with Barrett as State Treasurer as a pledge for state funds deposited with the bank by him and later liquidated by Barrett and Martin as State Treasurers, wherein Roy K. Adair, receiver, filed a counterclaim. From a decree of dismissal, plaintiffs appeal.

Affirmed.William McKinley, of Chicago, R. L. Northcutt, of Beardstown, and Carl E. Robinson, of Jacksonville (Paul E. Price, of Chicago, of counsel), for appellant Roy K. Adair, receiver.

Brown, Fox & Blumberg, of Chicago, and Bellatti Samuell & Arnold and Vaught, Foreman & Cleary, all of Jacksonville (Jacob Logan Fox, of Chicago, and Orville N. Foreman, Edward W. Cleary, and Walter Bellatti, all of Jacksonville, of counsel), for other appellants.

Otto Kerner, Atty. Gen. (A. B. Dennis, of Danville, and Joseph A. Londrigan, of Springfield, of counsel), for appellees Edward J. Barrett and John C. Martin.

Moses, Kennedy, Stein & Bachrach, Brown, Hay & Stephens, and Wilson & McIlvaine, all of Chicago, Barber & Barber, of Springfield, and Lowenhaupt & Wolff and Thomas E. Keane, all of Chicago (Walter Bachrach, of Chicago, Logan Hay, of Springfield, J. F. Dammann, Herbert Kennedy, and George Fiedler, all of Chicago, Clayton J. Barber, of Springfield, Oscar M. Wolff, of Chicago, and Alton G. Hall, of Springfield, of counsel), for other appellees.

STONE, Justice.

Appellants, as creditors of the Ayers National Bank of Jacksonville, Illinois, filed a representative suit against appellees Edward J. Barrett and John C. Martin, former State Treasurers, Roy K. Adair, receiver of the bank, and the appellee insurance companies as sureties on the bonds of Barrett and Martin as State Treasurers, to recover, for distribution among the creditors of the bank, the proceeds of certain securities deposited with Barrett as State Treasurer as a pledge for State funds deposited with it by him and later liquidated by appellees Barrett and Martin as such State Treasurers.

The receiver filed an answer admitting the allegations of the complaint except such as charge a refusal on his part to institute proper suit to recover for the creditors, and filed a counter-claim setting out that on December 9, 1937, he had filed a claim against the State of Illinois in the court of claims and adopting the allegations of the amended bill admitted by him, prayed that the sums found due from appellees be paid over to him as receiver for distribution in due course of administration. All other defendants filed motions to strike the amended complaint and dismiss the suit. These motions were ordered to stand as like motions to the counter-claim of the receiver. On hearing, the motions to strike were sustained and the complaint and counter-claim were dismissed. Appellants come directly here because, they say, a constitutional question is involved.

The sufficiency of the complaint is the matter in issue on this review. The following facts are by it averred: The Ayres National Bank, hereinafter designated as the bank, closed its doors on November 19, 1932. It had more than six thousand creditors and an indebtedness exceeding $5,000,000, with assets available for payment of creditors amounting to about $2,600,000. A receiver was appointed by the Comptroller of the Currency, to whom appellant Adair is successor. At the time of the closing of the bank Edward J. Barrett, as State Treasurer, had on deposit therein the sum of $1,803,615.89, and had in his possession securities, pledged by the bank as collateral security for the deposit of State moneys, of a par value of $2,814,630. When the bank closed he, as State Treasurer, made demand upon the receiver for payment in full of the amount of the deposit of State funds, and notified him that unless payment be made he would proceed to sell the securities he held as collateral to the deposit. The receiver refused to pay and Barrett proceeded to sell the securities and credit the proceeds in reduction of the deposit liability of the bank. At the close of his term of office he had liquidated all but about $300,000 par value of the collateral, which he delivered to appellee Martin as his successor in office as State Treasurer. Martin continued to liquidate the securities so held as collateral until he had received sufficient money to repay the deposit account to the State in full, and delivered the remaining securities to the receiver. In liquidating the affairs of the bank the receiver has paid to the general creditors twenty-five per cent of their claims, which, with payment in full of the State's claim, reduced unpaid claims to about $2,400,000, with remaining assects in his hands of about $150,000.

On December 6, 1937, appellants, as creditors of the bank, in their representative capacity, made demand upon appellant receiver of the bank, that he take action against Barrett and Martin, and the sureties on their bonds, to recover the value of the securities pledged with the State Treasurer. As he did not do so, they, on December 14, 1937, brought this present proceeding.

The amended complaint consists of eleven counts. With the exception of counts 7 and 8, which declare upon moneys had and received, all the counts proceed upon the theory that the bank had no power to pledge assets with the State Treasurers to secure deposit of State funds, and that the State Treasurers, in disposing of the collateral and applying it to the State's claim, were guilty of conversion. The prayer is that an accounting be had concerning the disposition of the securities and that the defendants be ordered to pay to a special depositary or receiver such amounts as may be found due the creditors of the bank, and that the same be disbursed ratably among all creditors of the bank, under court order.

Appellants' contentions, made here, are: (1) The trial court erred in holding that an act entitled: ‘An Act in relation to State moneys,’ approved June 28, 1919 (Ill.Rev.Stat. 1937, chap. 130, §§ 20 to 42), is constitutional. (2) That the court erred in holding that, even though that act be invalid, the defendants, the State Treasurers, are not personally liable upon the facts alleged. (3) The court erred in sustaining the motions of the defendants to strike and in dismissing the amended complaint.

Appellees, to sustain the decree, contend: (1) That the State has a sovereign right of priority to payment of the State's debts by virtue of which the bank was authorized to pledge assets with the State Treasurers, and the State Treasurers were authorized to sell the assets of the bank to pay its deposit with the bank. (2) That the Deposit act of 1919 is constitutional. (3) That this is in fact a suit against the State, and that the supposed cause of action is barred by the Statute of Limitations and laches. They also question the authority of the appellants to prosecute this cause for the reason that the receiver did not refuse to institute legal proceedings. Other questions are raised on the record but these constitute the controlling issues.

The first section of the Deposit act of 1919 (Ill.Rev.Stat. 1937, chap. 130, § 20, p. 3102), requires that the State Treasurer depositall moneys received by him on account of the State, within five days after receiving it, in such banks in the State as may be authorized to receive deposits under the terms of the act. Section 10 of the act provides: ‘No moneys in the State Treasury shall be deposited in any bank approved as a depositary under the terms of this Act until such bank shall have deposited securities with the State Treasurer equal in market value to the amount of moneys deposited.’ By section 11 of the act the State Treasurer is empowered, in his discretion, to accept bonds of the United States or other securities therein designated, and the bank is authorized to demand the return to it of securities in excess of those required to protect the deposits of State money. Under section 12: ‘All securities deposited by approved banks under the provisions of this Act shall remain the property of the banks depositing such securities. Should the depositary refuse or fail to pay over the moneys, or any part thereof, deposited with it when due and payable, the State Treasurer may sell such securities in accordance with the terms of any agreement between the State Treasurer and the depositary bank. * * * The surplus, if any, over the amount due to the State and the expenses of the sale shall be paid to the depositary,’ etc.

The grounds upon which appellants urge the invalidity of this act are that it is an amendment of the Banking act which has not been submitted to a vote of the People, as required by section 5 of article 11 of the constitution of 1870, Smith-Hurd Stats., and that it constitutes an attempted limitation on the powers of the State Treasurer, a constitutional officer. The pertinent language of that section is: ‘No act of the general assembly authorizing or creating corporations or associations with banking powers, whether of issue, deposit or discount, nor amendments thereto, shall go into effect or in any manner be in force unless the same shall be submitted to a vote of the people at the general election next succeeding the passage of the same, and be approved by a majority of all the votes cast at such election for or against such law.’

Appellees reply to the first contention that, by reason of the sovereign right of priority of the State, which has an equitable...