Estate of Ramsay v. Whitbeck , 183 Ill. 550 ( 1900 )

Mr. Chief Justice Cartwright

delivered the opinion of the court:

On November 8, 1892, Rufus N. Ramsay was elected Treasurer of the State, of Illinois for two years from the second Tuesday of January, 1893. On December 20, 1892, he, with ten sureties, executed a bond in the sum of $500,000 to the State of Illinois," conditioned for the faithful discharge of his duties as such treasurer. He entered upon the duties of his office January 10, 1893, and died during his term, on November 11, 1894. At that time there should have been in the treasury $1,510,383.14, and an examination showed that there was but $1,031,843.62, leaving a deficit of $478,539.52. This deficit was paid, on behalf of the sureties, by check drawn by F. M. Blount upon the Chicago National Bank, of which he was cashier. The bank was reimbursed by the sureties. After makingnip the deficit the,sureties received $115,000 thereon by the collection of notes of individuals and securities found in the vault of the treasury. For the balance, $363,539.52, the sureties filed a claim in the county court of Clinton county against thd estate of Ramsay, and applied to the court to be subrogated to the rights of the State of Illinois and to have the claim allowed as a preferred claim of the sixth class. The estate being insolvent, the general creditors of the seventh class, with the administrator, objected to the claim and resisted its allowance. The defense made was, that by reason of an unlawful consideration moving to the claimants for. becoming sureties upou the bond, the transaction as between them and Ramsay was vitiated, and in consequence thereof they had no right to reimbursement winch the law would recognize or enforce. This illegality was alleged to consist in a mutual agreement of the Treasurer and his sureties for the unlawful use of the money of the State for the benefit of the Treasurer and certain banks, of which the sureties were officers and representatives, contrary to the public policy of the State and in contravention of its statutes. The county court decided in favor of the claimants and entered judgment for the amount of the claim as of the sixth class, and ordered it paid in due course of administration. From that judgment an appeal was taken to the circuit court, and there was a hearing which resulted in a reversal of the order of the county court and a disallowance of the claim. On appeal to the Appellate Court for the Fourth District the judgment of the circuit court was reversed, and the cause was remanded generally for further proceedings. A petition for rehearing was filed and granted. A change had taken place in the membership of the court, and the cause was re-considered by the present members of that court, but the judgment was adhered to and the opinion re-filed. The case was re-docketed in the circuit court and additional testimony was taken/ On the first trial certain officers of the bank testified, by deposition, and under advice of counsel refused to answer whether there was any arrangement between Ramsay and the sureties by which Ramsay was to furnish money for the banks of the sureties, in consideration of which he was to receive any benefit, directly or indirectly, from the banks. In the additional evidence they testified to the circumstances under which the bond was given. The case was again heard on the original testimony and the additional evidence, and the claim was allowed as of the sixth class. The amount was reduced somewhat by credits and the allowance was for $351,948.41. The judge filed a written opinion in the case, stating that the Appellate Court had held there were two contracts, one lawful and the other unlawful, — two considerations, one lawful, the other unlawful, — for executing the bond, and that the unlawful contract and consideration did not taint the one which was lawful, and this conclusion he felt bound to follow from the obedience due to the superior court. He stated that but for the opinion of the Appellate Court on substantially the same evidence he should adopt a different view, but was constrained to accept the conclusion of the Appellate Court, which he would not do if free to act otherwise. The death of Edson Keith and William A. Hammond, two of the claimants, was suggested, and judgment was entered in favor of the surviving claimants, for the amount of the claim. An appeal was again _ ■so taken to the Appellate Court for the Fourth District and the judgment was affirmed. This further appeal has been prosecuted from the judgment of the Appellate Court.

It was a controverted question of fact before the circuit court whether there was an illegal contract between Ramsay and the sureties, and appellees contend that the judgment of the Appellate Court has settled that question in their favor, and that such finding is conclusive and not open to review in this court. All claims against estates of deceased persons are presented to the county court, and such claims are sometimes legal and sometimes equitable in character. Those courts, therefore, hear and decide upon claims of both classes. If the claim be of an equitable character, it is, of course, governed by the principles of equity and the rules of equity procedure. It calls for the exercise of the equitable jurisdiction of the county court, which may adopt the forms of equity procedure. The hearing of causes of that character upon appeal has always been upon the merits on the evidence in the record. In such cases we review and determine the facts for ourselves, and they are not within the meaning of the statute which makes the judgment of the Appellate Court conclusive as to matters of fact. In this case, Ramsay had received money as Treasurer of the State, and his sureties contend that, having so received it, he held it in trust within the meaning of the statute, so that a claim for the money was a preferred claim against his estate. They say that if a claim had been presented by the State of Illinois the State would have been entitled to have it classified as of the sixth class, and as they had made the loss good to the State they are entitled to be subrogated to its rights. By the principles of equity a surety who has paid his principal’s debt becomes the equitable assignee of securities which the creditor held, and is entitled to be substituted. This subrogation is a creature of equity and the operation of the doctrine is controlled exclusively by the principles of equity. The power of the county court to grant such equitable- relief was invoked, but appellees claim that the jurisdiction of that court was divisible; that their claim was a common law claim until it was allowed and then became an equitable claim for classification. They propose to divide their suit into sections, and have part of it at law and part in equity. That cannot be done. There are no artificial divisions of a chancery suit. If a party asks relief which a court of equity alone can grant, his suit is in equity. The record is before us both upon questions of fact and of law. Bliss v. Seaman, 165 Ill. 422.

The unlawful agreement, the existence of which is affirmed on the one hand and denied on the other, is, that the sureties on the bond, who were officers of five banks in the city of Chicago, representing said banks and in their interest, became sureties because of an agreement that the Treasurer should loan to said banks a large amount of the State funds, upon which they were to allow and pay him interest monthly, at the rate of two and one-half per cent per annum, and that pursuant to such an agreement over $1,500,000 was loaned to said banks about- the time the Treasurer went into office, and substantially that sum remained in said banks until his death, and the stipulated interest was regularly paid to him according to the agreement. The evidence in the record upon that subject is as follows:

Ramsay lived at Carlyle, in Clinton county, and had a bank there. John A. King was president of the Port Dearborn National Bank in Chicago, and that bank was the Chicago correspondent of the Carlyle bank and had done business with it for some time. Ramsay was a candidate for State Treasurer, and King was his strong personal friend and worked for him and with him to secure his election. After Ramsay was elected he said to King that the question was whether he should make his bond in Chicago or at Springfield, and King offered to make the bond. Ramsay seems to have had in mind the place where the bond would be made rather than who would sign it, and was undecided. He made no reply to King, but after going home he decided upon Chicago as the place, and either came back of sent the bond to King at Chicago to be executed. King, being a warm friend of Ramsay, would have signed the bond with no other motive than to aid him and without any pay or other consideration. At that time Wilson was State Treasurer, and five banks in Chicago had each received from him $350jP00 of State money. These, banks were the Port Dearborn National Bank, of which King" was president; the Metropolitan National Bank, the Chicago National Bank, the National Bank of Illinois and the Corn Exchange Bank. Officers of these banks were sureties on Wilson’s bond. King thinks that about this time representatives of one or two of these banks came to him and asked him if he was going to make Ramsay’s bond, and he said he thought he was, or wasn’t sure yet, or something to that effect. The moneys of the State in these banks were represented by certificates of deposit, reciting that some officer of the particular bank had deposited in such bank the sum of money, payable to his order on the return of the certificate, and this was endorsed by such officer. None of the certificates bore interest upon their face, and they were not issued to the Treasurer but to some one connected, with the bank. The defendant sought to prove that the banks were paying interest to Wilson on this State money, but the court sustained objections to such questions and there is no direct evidence on the subject. When King received the bond he signed it and had another officer of his bank sign it, and then went to some of the other banks and sent a messenger to the remainder, and requested them to have representatives of the banks sign the bond. He says: “The ten bondsmen were directors of five banks, divided up, — officers or something. * * * They represented those five banks. Two would represent a bank.” The president of the Chicago National Bank testifies that King told him he wanted to make Ramsay’s bond in Chicago, and wanted the witness to sign it and get somebody else of the bank people to sign. The witness selected McNally, who was a director, and they signed the bond. Ramsay had no talk with any of the sureties except King, and nothing was said between him and King about the State money or the payment of any interest. Ramsay assumed office January 10, 1893, and when he received the State money he took the certificates issued by these banks as money and brought them to King, at Chicago, on January 12, 1893. He told King to have the dates changed, and to pay over any interest coming due him, to his brother, Dr. Ramsay, or send it to his bank at Carlyle. There were two of these certificates issued by the Fort Dearborn National Bank, and instead of changing the date King made two new certificates exactly the same, reciting that he had deposited the money in the bank payable to his order. He took or sent the other certificates to the other banks, where the same thing was done and like changes were made at all the banks. The certificates bore no in-' terest, but the banks paid interest monthly, at the rate of two and one-half per cent per annum. King told the other banks the rate of interest that they had to pay, which he says he thought was about right. Nothing was ever said about it except in that way. The certificates were in the same form, and this is a copy of one of them:

“$250,000.00. The Chioago National Bank.

No. 16966. Chicago, January 12, 1893.

‘ ‘P. M. Blount, assistant cashier, has deposited in this bank two hundred and fifty thousand dollars, payable to his order on the return of this certificate. F- M. Blount, Cashier.” “$250,000.00.

(On margin):

«0. L. Day, Teller.”

(Indorsed on back):

“Pay Chicago Nat. Bank. — P. M. Blount, Cashier.

(Stamp.) Credit of R. N. Ramsay, State Treasurer.

“Chicago National Bank, Oct. 10, ’93. — Paid.”

Although nothing was said on the subject, it is not necessary that the understanding should be established by something that was said, but it may be arrived at from all the circumstances, in the light of experience and common observation. That the banks understood that what was done would be done is unquestionable. Although one of the witnesses says that the interest was paid to King because he requested it, he also says that they did not pay out money simply on the score of friendship. The president of the Metropolitan National Bank testifies that the bond was brought to him and he signed it, and he “supposed there would be a deposit in the bank of some kind; there never was any deposit there in Ramsay’s name, but there was money belonging to the State Treasurer; supposed it did; never knew it positively; we never had an account with Rufus N. Ramsay as State Treasurer; all the money which we had, which I supposed at the time was the State Treasurer’s, was taken in certificates of deposit.” The president of the Chicago National Bank testifies that “when I went on that bo'nd I had no assurance from anybody that we could get the use of the State money in doing so; we did not talk about guch"things, — would not be likely to; there was nothing said on the subject; there might have'been something understood; I did not have very much understanding about it; I knew if it led to any deposit we would have to pay for it, and I was indifferent about it; knew if the money was deposited we would have to pay interest on it.” It is true that King testifies that there was no understanding between him and Ramsay under which they paid interest on the money; but that statement is a mere conclusion of the witness that what occurred would not amount to an understanding. It is a mere inference from the manner in which he construed the effect of what occurred. The facts are before us, and it is for the court to draw the conclusion as to whether there was a mutual understanding when the bond was executed. It is equally clear that Ramsay had the same understanding as the banks. It was a question with him where the bond was to be made — whether in Springfield or Chicago. The money was in the banks in Chicago, and although there is no direct evidence that they were paying interest on it to the State Treasurer, it is clear that Ramsay understood that they were, for he brought the certificates, which bore no interest on their face, to Chicago, and all he said about them to King was to have the dates changed and have the interest paid to his brother or sent to his bank at Carlyle. His conduct shows that he understood if he' decided to have the bond made in Chicago the money was to stay there, and that interest was being paid and would be paid. That these things happened without any understanding would be contrary to common experience. There are too many coincidents to be accounted for except upon the assumption of an original understanding, whatever the conclusion of any witness may be as to what constitutes an understanding. It is true that King was inspired by friendship for Ramsay and that such friendship was one of the springs of his action; but that was not true as to any of the rest of the bondsmen, and if it were, it would not make any difference as to him or them. The motive of an act and the consideration for it are not necessarily the same; and even if the banks had motives arising out of the highest regard for Ramsay and a beneficent desire to aid him and to protect the State from loss, yet if the contract was in consideration of interest, profit or benefit accruing under the illegal arrangement the whole transaction was void. The agreement may as well have been tacit as expressed in words, and that it existed there is no doubt.

This agreement which was made and executed was in direct and palpable violation of section 81 of the Criminal Code, which prohibits any State officer from using, by way of investment or loan, for his own use, except as authorized by law, with or without interest, any portion of the money entrusted to him for safe keeping, disbursement, transfer or any other purpose. ° (Rev. Stat. p. 363.) It was also against the public policy of the State. Section 23 of article 5 of the constitution provides as follows: “The officers named in this article shall receive for their services a salary to be established by law, which shall not be increased or diminished during their official terms, and they shall not, after the expiration of the terms of those in office at the adoption of this constitution, receive, to their own use any fees, costs, perquisites or office, or other compensation. And all fees that may hereafter be payable by law for any service performed by any officer provided for in this article of the constitution, shall be paid in advance into the State treasury.” Section 1 of chapter 53 of the Revised Statutes, (p. 500,) entitled “Fees and Salaries,” provides:. “That there shall be allowed and paid an annual salary, in lieu of all other salary, fees, perquisite, benefit or compensation, in any form whatsoever, to each of the officers herein named, the following sums respectively: * * * Treasurer, the sum of $3500.”

Nothing is better settled in the law of contracts than that if any part of the consideration upon which a promise rests is illegal the entire promise fails. (Nash v. Monheimer, 20 Ill. 215; Henderson v. Palmer, 71 id. 579; Tenney v. Foote, 95 id. 99; Tobey v. Robinson, 99 id. 222.) No one can gain any right by obtaining a promise founded upon considerations in violation of the law, and the courts will not destroy the respect due to the law by enforcing such a promise, but will leave the parties where they have placed themselves by their own conduct. This is not denied, and it is agreed by all the counsel in the case that where parties are eng'aged in illegal agreements or transactions courts will not enforce their promises. But while the rule of law is not questioned by appellees, they insist that there was no illegal contract by 'the sureties, but that the agreement is divisible as to parties between them and the banks. The supposed division is, that the illegal transaction was between Ramsay and the banks and not between him and the sureties; that he never agreed at any time with the sureties that if they signed the bond he would deposit State money with them; that whatever Ramsay agreed to do in the way of loaning State funds was with the banks, which were entities in law, and not with the individuals who signed the bond; that there was no agreement of the banks themselves prior to January 12, 1893, when the certificates were issued; that they were'not certificates of the bondsmen; that the banks, and not the bondsmen, paid the interest and paid back the principal. This is a refinement in separating the parties to the transaction that we are not able to appreciate or approve. The sureties signed the bond as representatives of the banks, and they all understood it in that way. A bank cannot, as such, become a surety upon a bond, and it cannot have any understanding or make a contract except as its officers understand and make the promise. Upon the examination of the president of the Metropolitan National Bank he was asked if the banks were not the real sureties and not the individuals, and if the benefits which the banks received from the State funds were not the consideration for becoming sureties, and his answer was, “There is no way of a national bank becoming surety on a bond.” Again, he was asked if it was not the understanding that the officers would not have to pay anything, and answered, “We could not make such an agreement — it would not be legal.” The president of the Chicago National Bank testifies that when he drew his check to make good the deficit he drew it with the expectation that he would be reimbursed, because the profits that would have accrued from the use of the money would have benefited the bank and he expected the bank to stand the loss. The officers signed the bond for the benefit of the banks, as their officers and representatives, and at least three of the banks have reimbursed them. This suit is being prosecuted for the benefit of the banks, and what the officers did in signing the bond and are doing now is by virtue of their official'relations as agents of the bank. We cannot say that the banks are guilty, and that their officers, who made the bargain and did the business, are innocent.

Another division of the contract into legal and illegal parts is insisted upon for the purpose of bringing the claim within the rule that if there is a single legal consideration for two promises, one of which is legal and the other illegal,, the lawful promise may be enforced. The rule has been stated as follows: “A distinction must be taken between the cases in which the consideration is illegal in part and those in which the promise founded on the consideration is illegal in part. If any part of a consideration is illegal the whole consideration is void, because public policy will not permit a party to enforce a promise which he has obtained by an illegal act or an illegal promise, although he may have connected with this act or promise another which is legal. But if one gives a good and valid consideration, and thereupon another promises to do two things, one legal and the other illegal, he shall be held to do that which is legal, unless the two are so mingled and bound together that they cannot be separated, in which case the whole promise is void.” (Parsons on Contracts, 457.) When a surety signs a bond the law raises an implied promise by the principal to reimburse the surety for any loss which he may sustain, and when a loss occurs this implied contract of indemnity relates back and takes effect from the time when the surety became responsible. (Chotean v. Jones, 11 Ill. 300.) Under this rule, when the sureties signed the bond of Ramsay the law implied a promise on his part to indemnify and save them harmless from all loss which they might sustain by reason of such signing, and when they made up the deficit this implied promise related back to the date of bond. This implied promise was perfectly lawful and legal, and it is said that if there was a separate promise on the part of Ramsay to keep the money in the banks it would not prevent a recovery by the sureties upon the lawful promise to reimburse them. This argument loses sight entirely of the consideration upon which Ramsay’s promise rested. On the one side there was the implied promise of indemnity and the promise to deposit the money with the banks. The consideration on the other side was that the sureties wpuld execute the bond and the banks which they represented would pay the interest. The consideration upon which the implied promise now sought to be enforced was made was the signing of the bond and the payment of interest to the Treasurer. The consideration moving from the sureties was not a single one, free from unlawful taint, but included pecuniary gain and advantage to the Treasurer by an unlawful agreement, under which they paid interest to him. Ramsay would not have wanted the sureties to sign the bond or allowed them to do it except for the unlawful agreement for his own pecuniary advantage. The arrangement, whether it resulted in gain for the banks or not, was made for that purpose and upon that consideration, and the transaction on the part of Ramsay, on the other hand, was for his benefit, and it involved a violation of the criminal law and the public . policy of the state. The promises are connected and so 'mingled and bound together that they are not separable. The claim cannot be brought within the exception stated. The law will not enforce the lawful implied promise of indemnity resting upon the illegal consideration that the banks would borrow money and pay interest on it. The parties were all engaged in the illegal enterprise and all are equally involved.

It is especially urged that we should adopt the view of the appellees that they did not enter into a contract forbidden by law, but that, at most, they had a mere hope or expectation that the law would be violated by deposits of money with their banks, which did not amount to an agreement to that effect, and it was this hope or expectation which was afterwards realized. It is said that they occupy honorable positions in the business world,- and presumption against them should not be lightly indulged. We are slow to impute to any person a violation of the law unless the evidence requires, — and this rule applies to all persons, whether distinguished in the ranks of business life or not. The law is the same for all, and we cannot find these parties guiltless when the facts show the contrary. The whole evidence on the subject of the agreement came from thenf. They were called as witnesses by the defendant, and the facts we have stated are found in their-testimony. We have given the case our best attention, both upon the original argument and the re-argument which was allowed, and are unable to reach any other conclusion.

The judgments of the Appellate Court and the circuit court of Clinton county are reversed and the cause is remanded to the circuit court, with directions to enter an order disallowing the claim.

Reversed and remanded.