People ex rel. Nelson v. West Englewood Trust & Sav. Bank

• Decision Date: 21 October 1933
• Docket Number: Nos. 21850-21859.,s. 21850-21859.
• Citation: 353 Ill. 451,187 N.E. 525
• Court: Illinois Supreme Court
• Parties: PEOPLE ex rel. NELSON, Auditor of Public Accounts, v. WEST ENGLEWOOD TRUST & SAV. BANK et al. and nine other cases. McDONOUGH, County Treasurer, v. GILRUTH et al.

353 Ill. 451

187 N.E. 525

PEOPLE ex rel. NELSON, Auditor of Public Accounts,

v.

WEST ENGLEWOOD TRUST & SAV. BANK et al. and nine other cases.

McDONOUGH, County Treasurer,

v.GILRUTH et al.

Nos. 21850-21859.

Supreme Court of Illinois.

Oct. 21, 1933.

Ten separate actions by the People, on the relation of Oscar Nelson, Auditor of Public Accounts, against the West Englewood Trust & Savings Bank and others, of which Irwin T. Gilruth was receiver, wherein Joseph B. McDonough, as county treasurer and ex officio collector of taxes of Cook county, filed an intervening petition. From the several decrees rendered, the intervening petitioner in each case appeals.

Decrees reversed, and causes remanded, with directions.Appeal from Superior Court, Cook County; William J. Lindsay, judge.

Kirkland, Fleming, Green & Martin and Arthur Abraham, all of Chicago (Weymouth Kirkland, Joseph B. Fleming, Adrian L. Hoover, and Dudley F. Jessopp, all of Chicago, of counsel), for appellants.

Thomas D. Nash, of Chicago (Michael J. Ahern and Martin J. McNally, both of Chicago, of counsel), for appellee.

JONES, Justice.

The consolidated cases involve ten actions instituted by the people of the state of Illinois, on the relation of Oscar Nelson, as auditor of public accounts, to wind up the affairs of the state banks referred to as the Bain banks, of which appellant Irwin T. Gilruth is receiver. Appellee, Joseph B. McDonough, as county treasurer and ex officio collector of taxes of Cook county, filed an intervening petition in each cause, asking that the claim filed by him as such official should have priority or preference in payment because his claim is for undistributed tax money. Appropriate pleadings were filed by the respective parties, and it was stipulated that, since the facts involved are substantially the same in each case except as to amounts, hearing would be had only in what is known as the West Englewood Trust & Savings Bank case, and that the certificate of evidence therein should be taken and considered as having been filed in each of the others, and that they should be considered upon the complete record as in case No. 21850, the West Englewood Trust & Savings Bank case. After a hearing in that case was completed the court entered a decree in each case finding that the claim of the county treasurer and ex officio collector (herein referred to as the petitioner) is a preferred claim, and ordered it be paid in preference to and priority of payment over all other creditors of the bank, including preferred and trust fund claimants. From these decrees appeals have been prosecuted and the causes consolidated.

The amount due the petitioner from the West Englewood Trust & Savings Bank on the day it closed was $235,683.23. The amount of cash on hand in the bank and due from correspondent banks was $53,404.59. The decree directed the receiver to pay the whole amount of the cash to the petitioner and to pay the balance of his claim from moneys realized from the collection and liquidation of all further assets of the bank which should come into the possession of the receiver, in preference and prior to any other payments or distributions to the creditors of the bank, including other preferred or trust fund claimants.

The intervening petition, as amended, alleged: That the bank was appointed a deputy collector and was directed to hold the tax moneys collected as trust funds and to remit the same to the petitioner; that such moneys were to be collected for remittance only, and not for deposit; that the moneys were not deposited in a general checking account; that they were in the possession of the bank and were held as a trust fund and not in a general deposit account when the bank closed; that no part of the moneys claimed had been distributed by the petitioner to any of the corporate bodies entitled thereto, and were therefore the property of the state.

The receiver and the Stock Yards Bank & Trust Company, administrator of the estate of Charles Haas, deceased, filed sworn answers to the intervening petition; answer under oath not having been waived. It is claimed by them that these answers have not been overcome by the testimony of two witnesses or the equivalent thereto, and therefore the answers must be taken as true. This contention is unavailing, because the answers were verified upon information and belief only. Deimel v. Brown, 136 Ill. 586, 27 N. E. 44. The answer of the receiver denied that the bank was directed to hold the money as trust funds and for remittance only. It alleged that the bank was directed to deposit the money received by it in an account opened in its books known as ‘Jos. B. McDonough, county collector; sub-station account,’ and in compliance therewith did deposit the money in a checking account. It denied that the money was undistributed tax money, and alleged that distribution had taken place, and that the money remaining in the bank was the property of the county treasurer of Cook county and not the property of the people of the state of Illinois. It further alleged that claims for preference have been filed against the estate of the bank for more than a million dollars, a large number of which claims were still unadjudicated. It denied that the petitioner was entitled to priority of payment out of any of the assets of the bank.

The answer of the trust company contained substantially the same allegations and denials as the receiver's answer. In addition thereto it alleged that the bank, at the time it closed, held the sum of $18,368.41 as executor of the will of Charles Haas, deceased, which sum constituted a trust fund, and that it is traceable into the assets of the bank which came to the possession of the receiver, and that a claim therefor is entitled to priority of payment over that of the petitioner. Considerable proof, both oral and documentary, was taken by the respective parties concerning instructions from the petitioner to the bank as to the method of making deposits in, and remittances by, the bank. No useful purpose can be served by setting out this proof in detail. It is sufficient to say that we have reached the conclusion that the moneys constituted a general deposit in the bank to the credit of the petitioner.

It is conceded by counsel for all parties that under the common law the state is entitled to the prerogative of prior payment of its claim against an insolvent bank for undistributed tax moneys, and it is admitted by counsel for appellantsthat under the doctrine laid down in People v. Farmers' State Bank, 335 Ill. 617, 167 N. E. 804, 65 A. L. R. 1327, if the petitioner is entitled to preference on account of a trust relationship he may avail himself of the cash funds on hand at the time the bank was closed, and that he is not limited to the cash actually in the bank, but may resort also to moneys due from correspondent banks.

It is the contention of appellants that the common-law right of the state to prior payment of its claims for undistributed tax moneys has been abandoned and abrogated by the enactment of the County Treasurer Act relative to counties having a population of more than 150,000. Smith-Hurd Rev. St. 1933, c. 36, § 17 et seq.; Cahill's Rev. St. 1933, c. 36, par. 17 et seq. This act was approved in 1915 and subsequently amended in 1925. Cook county and St. Clair county are the only counties in Illinois which come within the purview of that statute. The act provides that the county treasurer shall advertise for bids from all regularly established national and state banks doing business within his county for interest on county moneys to be deposited in said banks; that all bids shall be referred to the county treasurer, county clerk, and the president or chairman of the county board of such county, who shall have power, by a majority vote, to reject any or all bids, or to designate as many depositaries as they deem necessary for the protection of all county moneys, and make awards accordingly; that each bank so designated shall enter into a contract with the county treasurer for the deposit of moneys and shall give a bond to the people of the state of Illinois to secure the repayment of deposits. The act is mandatory upon the county treasurer, and contemplates a deposit of all tax moneys collected by him in designated banks.

Whether a depositary act, such as the socalled County Treasurer Act, effects a repeal or abrogation of the common-law prerogative of the state is a question which has been before the courts in a number of jurisdictions in the country, but has not been previously presented to this court. While a few courts have held that the prerogative does not exist by reason of the adoption of the common law of England as a part of the law of a state, the overwhelming weight of judicial opinion is that it does exist, with all its force and vigor, so far as it concerns the right of the people to a priority of payment of debts due them. This court has repeatedly held that the people of this state have succeeded to all the prerogatives of the sovereign as to such debts. Under the common law of England one of the prerogatives of the sovereign was the right to have debts due him by an insolvent person paid in preference to the rights of creditors whose claims were not secured by valid liens. This right of priority is a prerogative of the crown well known to the common law. It is founded not so much on any personal advantage to the sovereign as upon motives of public policy, in order to secure an adequate revenue to sustain the public burdens and discharge the public debts. United States v. State Bank of North Carolina, 6 Pet. 29, 8 L. Ed. 308. The crown of Great Britain, by virtue of a prerogative right, had priority over all subjects for the payment out of a debtor's property of all debts due it. The priority was effective alike whether the property remained in the hands of the debtor or had been placed in the possession of a third person, or was in...