Whitbeck v. Estate of Ramsay ( 1897 )

Mr. Presiding Justice Sample

delivered the opinion of the Court.

The court below refused to allow the claim of appellants on the ground that they signed the official bond of Ramsay as sureties because certain banks, in which the sureties were interested, were to have the use of the public money in consideration of the payment by said banks to Ramsay of two and one-half per cent interest on monthly balances. The appellants deny that there was any unlawful or corrupt agreement between them, as sureties, and Ramsay, and assert if there was an unlawful agreement between Ramsa)7 and the banks in regard to the use of the public money, their rights are' not affected thereby.

Without reviewing the evidence here, it is considered it fairly shows that the banks had an arrangement with Ramsay to secure the deposit with them of a large amount of the public funds, for which they were to pay him therefor the rate of interest stated, and that because of such arrangement said banks secured for Ramsay said sureties.

Does such a state of facts bar the sureties of their legal right to recover in this case ?

The bond was in the usual official form and created, as between Ramsay and the sureties, by operation of law, an implied contract of indemnity (Pritchett et al. v. People, 1 G-ilm. 525; Baylis on Sureties, 23) at the time of its execution (Id. p. 340) that the former would pay to the latter whatever sum of money they had to pay for him. Ridgeway v. Potter, 114 Ill. 457. The consideration that supported the express contract as between the State and Ramsay, supported the implied contract as between the sureties and Ramsay. This is the conceded rule of law. Am. & Eng. Ency. of Law, Vol. 24, p. 773. Those contracts, therefore, both expressed and implied, in and of themselves, as well as the considerations that supported them, were lawful. If the principal contract of-the bond was lawful, which is con-c xled, and there was an implied contract arising therefrom by operation of Jaw, as between Ramsay and the sureties, it must also have been lawful, for it would be illogical to hold that an unlawful contract could arise by operation of law, or that a contract could so arise upon which there could be no right of action. But at this point it is insisted that there was a superadded consideration to the already adequate and lawful consideration, as between the sureties and Ramsay, which tainted and vitiated the consideration supporting the implied contract, which unlawful consideration is said to be the agreement of Ramsay to deposit a portion of the State funds in certain banks.

This theory attempts to mingle and give two considerations to the bond itself: one, that fixed by law, viz., the attainment of the object for which the bond was given (Baylis on Sureties, p. 60); the other, as claimed, that above referred to, viz., the deposit of State funds in certain banks. Row, according to appellees’ claim, two contracts were made: one with the State, as evidenced by the bond; the other between Ramsay and the banks, as evidenced by the contract to deposit the State money; and the sureties signed the bond because of the agreement of Ramsay to deposit money in the banks. That is, the sureties agreed to make one contract with the State, having its own consideration, if Eamsay would make another separate and distinct agreement with the banks, having its own consideration, viz., the payment to him of two and one-half per cent interest on the monthly balances of such deposits. Therefore the consideration that entered into the bond itself, was not the same consideration that entered into the contract for the deposit of money, as each had its own consideration. In short, the consideration that entered into the bond was not ' the consideration of the unlawful contract. The fact that one contract was the inducing cause of the making of the other, does not constitute the consideration of either contract, though, as to the sureties and Eamsay, one was the motive for the other. There is a distinction between motive and consideration. Philpot v. Gruninger, 14 Wall. 570.

It will be observed in this connection that the contract to deposit the State money on the one hand and to pay interest on the other, existed between the banks and Eamsay and not between the sureties and Eamsay. There is no pretense the sureties were to pay or guarantee the payment of the interest, nor is there any evidence to induce the belief such contract would have been made to deposit money in said banks except for the agreement to pay interest thereon. The agreement to deposit money on the part of Eamsay, and the agreement to pay interest on the part of the banks were the concurrent considerations of that contract, no part of which consideration, as such, proceeded from the sureties.

But if it may be said that the promise to deposit said money in the banks was made in consideration of the execution of the bond by these sureties. Then this is the legal situation: 1. That the sureties, in the execution of the bond, did a lawful act, based on a lawful consideration. 2.. In consideration of which Eamsay, by operation of law,, impliedly agreed to reimburse them for any money they had to pay on account of signing said bond, and also agreed to deposit said money in the banks. Here we have a lawful act or consideration supporting two promises on the part of Ramsay, one of which is lawful and the other unlawful, which brings the case within the rule of law that where a party makes two independent promises based upon one lawful consideration, one of which promises is lawful and the other unlawful, the contract itself is enforcible as to the valid promise. Widoe v. Webb, 20 Ohio St. 435; Doty v. Knox County Bank, 16 Ohio St. 142; Kerrison v. Cole, 8 East. Rep. 231; Parson on Contracts, Vol. 7, p. 455-6.

The rule is stated differently and a little more broadly that if any part of a contract, void by the statute or common law, be mixed up with good matter, which is entirely independent of it, the good part stands and the rest is void. See note c to Pigot’s case, Vol. 6, Coke’s Rep., part 11, 49, citing various authorities.

The test in such cases is whether the demand can be enforced without ■ the aid of the illegal transaction. Holt v. Green, 73 Pa. St. 198; Swan v. Scott, 11 S. & R. 164; Thomas v. Brady, 10 Barr (Pa. St.), 164; Scott v. Duffy, 2 Harris (Pa. St.), 18; Armstrong v. American Exchange Nat. Bank, 133 U. S. 433.

The principles above announced are clearly stated in effect in Corcoran v. Lehigh & F. Coal Co., 138 Ill. 390. Ap plying such test to this case, and it is clear the sureties require no aid of the illegal transaction to establish their rights under the bond.

The point is made that each surety should have filed his claim separately.

The law is, in an action at law, that when each surety furnishes money to pay the debt of the principal, the action to recover the same must be separate and not joint. Ross v. Allen, 67 Ill. 317; Gould v. Gould, 8 Cowen, 168; 1 Chitty on Pleadings, No. 11; Appleton v. Bascom, 3 Metcalf, 169. But the same authorities hold that if the debt is paid by an agent of the sureties out of his own funds on the joint credit of the sureties, then the action by the sureties is joint.

In this case the evidence is that Mr. Blount and Moll, as the representatives of the sureties, went to Springfield to investigate as to the deficit and to settle the same. Mr. Blount testified that he was cashier of the National Bank, and said: “ I represented only part of them (the sureties); Mr. Moll represented the other part; we two represented them all. The governor informed me that there was a shortage and told me that we would be obliged to make it up. I informed the governor that it would be impossible for me to remain in Springfield on the day the transfer would be made, but that Mr. Moll, my representative, would remain there and act for all of us. And I left the check with Mr. Moll to pay the deficiency, whatever it might be. The governor made a demand on me, as representative of the bondsmen, to make good the deficiency.” The check on the National Bank, which was introduced in evidence, shows payment of the deficiency. Mr. Blount further testified that afterward the sureties paid the amount of the check.

There is also other evidence which shows these payments were made good to the sureties, or at least to some of them. But this fact does not affect the legal question involved. The sureties, and not the banks, were contractually liable, and as such made good the deficit in the manner above stated.

What the banks promised to do for the sureties, or actually did for them, in the way of reimbursement, is legally immaterial. In our opinion the claims were properly presented against the estate in a joint form.

But in addition to this view, it may be said the proceeding in the Probate Court to adjust these claims was an equitable proceeding, where equitable rules apply, as has been frequently held. Hurd v. Slaten, 43 Ill. 348; Hales v. Holland, 92 Ill. 494; Wadsworth v. Connell, 104 Ill. 369. Therefore the strict rules of law, even if applicable to the facts of this case, would not be applied so as to require each surety to file separate claims.

The claimants insist the public funds in the hands of the State treasurer are a trust fund, and therefore the State would have the right to the preference provided by the sixth paragraph of Sec. 70, Chap. 3 of the statute on the classification of claims, which is as follows: “ Where the decedent has received money in trust for any purpose, his executor or administrator shall pay out of his estate the amount thus received and not accounted for.”

It appears to be held in Wilson et al. v. Kirby, Ex’r, 88 Ill. 566, Svanoe v. Jurgens, 144 Ill. 507, and Shipherd v. Furness, 153 Ill. 590, that a public officer, into whose keeping a public fund is intrusted,'is acting in a fiduciary character, and such fund is regarded as a special trust fund by operation of law and not by implication from a contract.

If this view of those decisions is correct, have these sureties, under the doctrine of subrogation, the right to the benefit of this statute in the classification of their claims ? The general rule is that sureties who pay the debt of their principal are entitled to be subrogated to the rights and remedies of the principal. Foss et al. v. City of Chicago, 34 Ill. 488.

In Richeson et al. v. Crawford et al., 94 Ill. 165, it is held the sureties on collector’s bond are entitled to be subrogated to the lien given by the statute; and on page 174 the cases of Hunter v. The United States, 5 Peters, 173, and United States v. Hunter, 5 Wash. 466, are cited with approval, which hold that “ the same priority which belongs to the government attaches to the claim of an individual who, as surety, has paid money to the government.” True, as appellees claim, the priority was given by a legislative act to the government, but the same is true in this case as to the State, if the fund is technically a trust fund.

In Lochenmeyer et al. v. Fogarty et al., 112 Ill. 572, several cases are cited on page 583 expressive of the views of the court as to the rights of subrogation, viz., Eddy v. Traver, 6 Paige, 521: “ That sureties who pay a debt are entitled to stand in the place of the creditor, or to be subrogated to all his rights as to any fund, lien or equity which he may have against any other person or property on account of the debt ” (City of Keokuk v. Love, 31 Iowa, 119); “ that the equities of sureties extend to all the rights of the creditors respecting the debt which the sureties pay” (1 Leading Cases in Equity, p. 144); that “ he (the surety) is considered as at once subrogated to all the rights, remedies and securities of the creditor—as substituted in the place of the creditor—and entitled to enforce all his liens, priorities and means of payment.” See also Sheldon on Subrogation, Sec. 88; A. & E. Ency. of Law, Vol. 24, p. 220.

It is earnestly urged by appellees’ counsel that these statements of the doctrine of subrogation—that the surety is entitled to “ all the rights and remedies of the creditor ”—are inaccurate; that his rights and remedies are limited to those arising out of the contract of the principal, or to collaterals or other indemnity. We understand the doctrine of subrogation to be primarily that of substitution, or the placing of the sureties in the shoes of the creditor, invested with all the rights of the creditor to secure payment. It is an equitable doctrine, founded upon natural justice, that one who pays the debt of another should be substituted for and have all the rights and remedies transferred to him that were afforded by law to the one whose debt is thus paid. “ The substitute is put in all respects in place of the party to whose rights he is subrogated.” Orem v. Wrightson, 51 Md. 34; Sheldon on Subrogation, Sec. 1; Am. & Eng. Ency. of Law, Vol. 24, p. 187.

This interpretation of the doctrine works no hardship, for the surety only resorts to those means of collecting his debt that were already afforded by law to the creditor.

If the fund held by the State treasurer is a special trust fund, then the State, as a creditor, under the 6th paragraph of Sec. 70, Chap. 3 of the administration act, would be entitled to the classification thereby provided. That it is such a fund, we understand our Supreme Court has in principle decided in the Wilson and other cases cited. The case of Chapman v. Forsyth, 2 How. 202, is cited and commented on in various decisions, and the language approved, which held, “ The cases enumerated, ‘ the defalcation of a public officer,’ ‘ executor,’ ‘ administrator,’ ‘ guardian ’ or ‘ trustee,’ are not cases of implied but special trusts, and the ‘ other fiduciary capacity ’ mentioned must mean the same class of trusts. The act speaks of technical trusts, and not those which the law implies from the contract.”

This language clearly indicates that the bankrupt act quoted was regarded as a legislative declaration of what constituted legally a technical trust, rather than, as claimed by appellee’s counsel, a legislative definition or creation of technical trusts for the purposes of that act. Prior to the act of 1871-2 of our statutes, money in the hands of an executor, administrator or guardian was by the legislature, in effect, declared to be technical trusts, and that act, it is said in Wilson case, supra, p. 569-570, “ by the use of the phrase ‘ in trust for any purpose,’ intended to extend the class of preferred claims, but how far admits of question; ” and then follows in the decision a definition of the word “ trusts,” in a broad sense, from Perry on Trusts, and the declaration of what is a technical trust, within the meaning of the act of 1871-2, as held in the Chapman case, the language of which is above quoted.

Certainly the State treasurer, as the custodian of the public money, is acting in a fiduciary capacity, and is as clearly a trustee as an administrator or guardian, and concededly, money in the hands of either the guardian or administrator would be trust money. Therefore, our conclusion is that the public money in the custody of the State treasurer was money technically held in trust, and as the State would have had the right to the benefit of the classification provided by law in such cases, so, in this equitable proceeding, the sureties have the same rights as the State would have had in case it had proved its claim.

As to the sum of $11,591.11, made up of interest on deposits and uncollected salary of the deceased treasurer, which by appellees it is contended should be deducted from the aggregate claims filed, and by appellants contended that only the residue after deducting some $8,000 for expenses should be credited, we -hold that all moneys in the hands, or under the control of the sureties belonging to the estate of the deceased should be deducted, without any allowance for expenses taken therefrom. The expenses mentioned, relating principally to the adjustment and settlement of the Seiter collaterals, are assumed to have been taken into consideration in making that settlement. Those expenses should not be charged to the estate in this proceeding.

As to the $15,000 paid to Mr. Blount, a representative of the sureties, by the First National Bank of Springfield, on the 16th day of November, 1894, it does not appear to have .been accounted for, though it does not appear to have been a controverted matter, and is not mentioned in appellants’ argument. It is not mentioned by the court below in his statement of the controverted, questions, and therefore it is resubmitted to the court below for further investigation, with the statement that we are unable, to discover where it is credited.

As to the $10,000 deposited in a St. Louis bank by the State treasurer shortly before his decease, and ivhich was drawn out by his administrator and placed with the general funds of the estate, which is claimed by the appellants to be a special trust fund that they can follow and obtain, we hold that before they could do so, they must be able to identify it, or the property into which it was converted, which they have not done, within the strict rules laid'down in Wetherell v. O’Brien, 140 Ill. 146; Mutual Acct. Association v. Jacobs, 141 Ill. 261; The Union Nat. Bank v. Goetz et al., 138 Ill. 127; which, as we understand, are not as broad as those laid down by the courts of Iowa, Wisconsin and New York.

As to when the Seiter collaterals of $243,778.52, with ■interest, which were adjusted and in effect collected, by the settlement made August 1, 1895, should be credited, we hold in the absence of any agreement to the contrary, under the authority of Levy v. Chicago Nat’l Bank, 158 Ill. 102, that as this sum was collected after the claim was filed, viz., February 1, 1895, that it does not have to be deducted prior to the judgment on the claim.

We are unable to find evidence of an agreement to credit said amount before the hearing. On the contrary, the evidence indicates that the appellants were objecting to crediting the same except under the rule in the Levy case, as is indicated by thé record at pp. 147-8.

For the reasons stated, the judgment is reversed and the cause remanded.

A rehearing was allowed in the foregoing case. After careful consideration, we adhere to the decision of our predecessors. Case reversed and remanded.

Creighton, P. J., dissents.