The judgment in this case was entered by the circuit court on a motion to strike the answer of Bradford as defendant. On an analysis of the various averments or counts of the answer, the following facts, well pleaded, which are to be taken as confessed by the motion to strike, appear. They are the facts of this case, so far as this court is concerned, and are that defendant received checks and drafts in payment of fees, fines and penalties, which the State Treasurer refused to accept as they were not money, but, together with the Auditor and Director of the Department of Finance, directed defendant to deposit them in the bank, later known as the National Bank of Pontiac. On January 13, 1933, the Governor directed defendant to procure a cashier's check from that bank of the amount of the deposit, which he did, and went with the Governor to the State Treasurer's office where he endorsed and delivered the check to the State Treasurer with the approval and consent of the Auditor. This check was made to defendant as Director of Conservation and not personally. Though the check was delivered to the State Treasurer on January 19, he did not present it until January 23, on which day the bank closed.
Later, the Auditor of Public Accounts brought a suit in equity against the receiver of the National Bank of Pontiac claiming the deposit as trust funds belonging to the State. Defendant had no notice of this suit, was not made a party, and did not know of such a suit until sued in this case. The Auditor, by the Attorney General, without notice to defendant, compromised the State's claim by
accepting a preference of $3000 and an allowance of the remainder as a general claim upon which some $12,000 was later paid to the State.
The first question arising then is whether these facts estop the State from now claiming this money from defendant. The answer alleges that had the defendant been made a party to the proceeding against the receiver, or received notice of the same, he could and would have shown that the funds were State funds and that the State was entitled to a priority to them and thereby the State would have collected in full. The National Bank of Pontiac was a State depository and the account was in the name of defendant as Director of the Department of Conservation and not personally. There is no claim, and can be none under the statement of the facts in this case, that defendant at any time ever had any of these funds in his possession, nor is it argued that he could collect these fines and fees, which were paid usually through county and city clerks, except by check or draft. The nature of the transaction made it impossible to collect them in gold coin or currency. It would have prevented the operation of the functions of the department to have required such a course of action, and, very sensibly, the Auditor, Director of Finance and State Treasurer, directed defendant to open this account as herein stated.
It is first argued that there can be no estoppel against the State; that this is State money and that defendant, being insurer of the funds, is required to pay at all events no matter what has been done or by whom. With this proposition, I cannot agree. It has been generally held that cases may arise in equity of such a character that right and justice require that equitable estoppel be asserted even against the State when acting in its governmental capacity. That has been so said by this court inState of Illinois v. Illinois Central Railroad Co. 246 Ill. 188;County of Piatt v. Goodell, 97 id. 84; County of Logan v. City ofLincoln, 81 id. 156. That it is also the general rule is evidenced by
Bigelow on Estoppel, fourth edition, page 331, and in a comprehensive note to the opinion in State of Michigan v. JacksonL. S.R. Co. 16 C.C.A. 353. These authorities lay down the rule that the State, like any private person, may, in a proper case, be estopped with the only necessary difference arising from the different manner in which its determinations are manifested and its actions performed. As was said in State v. Milk, 11 Fed. 389, "Resolute good faith should characterize the conduct of States in their dealings with individuals and there is no reason in morals or law that will exempt them from the doctrine of estoppel."
Estoppel is exercised against the State usually on the ground of the acts or omissions of public officers. In the absence of fraud or collusion, the acts of public officers acting on behalf of the State, within the limits of the authority conferred upon them and in performance of their duties in dealing with third persons, are the acts of the State and cannot be repudiated by it. This is the basis of the operation of estoppel against the State. (People v. Stephens, 71 N.Y. 527; Linsay v. Hawes, 2 Black (U.S.) 554; St. Paul, Stillwater and Taylor's Falls Railroad Co.
v. First Division, etc., Railroad Co. 26 Minn. 31.) While the rule is that the State may not be estopped through the negligence of its officers or their acts beyond the scope of their authority as agents of the State, (Dement v. Rokker, 126 Ill. 174,) yet where a constitutional officer with power to bind the State does so by a position taken, to the detriment of a citizen, the State is estopped to take a different position, as in a case where a contract was made by a duly authorized officer, which was pronounced by the Attorney General to be invalid, the State is estopped later on from claiming any benefit from that contract or to deny its unlawfulness. This is on the ground that the opinion of the Attorney General was binding on the State. Peck v. Burr,10 N.Y. 294.
The doctrine of estoppel may be invoked against a municipal corporation or the State, where there have been positive acts by its officers which may have induced action of
an individual, and where it would be inequitable to permit the governing agency to stultify itself by retracting what its officers had done. In all such cases, the courts will determine the right and justice of the matter and will declare the public estopped or not in accord with such considerations. People v.Thomas, 361 Ill. 448; Trustees of Schools v. Village of Cahokia, 357 id. 538; Melin v. Community Consolidated School District, 312 id. 376; Martel v. City of East St. Louis, 94 id. 67.
The rule adopted in the Federal courts, as applied to the government of the United States or the States, concerning the matter of estoppel, and the position which the government occupies before the courts in a suit brought by it, have been well discussed and considered in Walker v. United States, 139 Fed. 409, Linsay v. Hawes, supra, the Sinking Fund cases in99 U.S. 719, 25 L. ed. 496, and United States v. Bank of Metropolis, 15 Pet. 392, 10 L. ed. 774, wherein the rule is adopted that the government, when proceeding in court against the citizen stands upon no better footing than would a private citizen, even though the suit relates to the collection of its revenues. In the Walkercase, it was said: "It is, however, equally true, when the sovereign becomes an actor in a court of justice, especially in an action which proceeds on equitable principles, that his rights must be determined upon those fixed principles of justice which govern between man and man in like situation, and that the sovereign will be bound, as an individual would be, by his own acts, or, by what is the same thing, the acts of his agents lawfully done within the purview of the authority he commits to them. * * * The underlying principle of all the decisions is that when the sovereign comes into court to assert a pecuniary demand against the citizen the court has authority and is under duty to withhold relief to the sovereign, except upon terms which do justice to the citizen or such as determined by the jurisprudence of the forum in like subject matter between man and man." It
has also been frequently said that when a State becomes a litigant against an individual, it cannot deny its adversary any defense which would belong to him were his opponent another citizen instead of the State itself. State v. Bucholz, 169 Minn. 226; Anderson Clayton and Co. v. State, 122 Tex. 530; UnitedStates v. Norwegian Barque Thekla, 266 U.S. 328, 69 L. ed. 313.
The Attorney General is the principal law officer of the State and when he, on behalf of the State Auditor, filed a bill in equity against the receiver of the bank, he had power to and did bind the State with positions taken and presentations made.(Fergus v. Russel, 270 Ill. 304; Saxby v. Sonnemann, 318 id. 600;People v. Spring Lake Drainage District, 253 id. 479; Spring LakeDrainage District v. Stead, 263 id. 247; New York v. New Jersey,256 U.S. 296, 65 L. ed. 937.) Under section 15 of chapter 15 of our statutes, the Auditor of Public Accounts is the proper officer to institute suits in which the State is interested. So there is before us the fact that a properly authorized officer, with the Attorney General, also fully authorized, filed suit first against the receiver claiming these funds as State funds, and then compromised that suit, and this without notice to the defendant, by taking over from him any right of claim against the bank and settling it in the name and for the State for $3000 as a preferred claim and the balance of the $37,654.81 as a general claim, thus taking over the account as State funds and depriving defendant of the opportunity to prove, as he in his answer declares he could prove, that the funds were trust funds and all recoverable to the State. If indeed he needed to prove it, it would seem that the cashier's check made to defendant as Director of Conservation for the State, is alone enough to acknowledge this fund as a trust fund for the State and as belonging to the State, and while we have not before us a discussion of the advisability of settling this matter as it was settled with the receiver, the fact remains that the matter was
taken out of the hands of the defendant and by the Attorney General and Auditor considered State funds, and the claim settled in that way.
It is clear that this destroyed the right of subrogation of the defendant against the bank for any claim which the State may assert and require him to pay. It is a commonly accepted principle of suretyship that destruction of the right of the surety to subrogation without his consent discharges him. (Foss
v. City of Chicago, 34 Ill. 488.) It is an equitable rule that where a creditor releases or permits to be lost a security for a debt, other securities are thereby released to that extent.(Alexander Lumber Co. v. Aetna Accident Co. 296 Ill. 500; StateBank v. Bryan, 268 id. 151; Holmes v. Williams, 177 id. 386;Phares v. Barbour, 49 id. 370.) Here, the compromise of the claim of the State against the receiver, without the consent or knowledge of the defendant, and treating the claim as only between the State and the receiver, brought about the operation of this rule.
It is urged by counsel that $3000 was all that could be traced. There was not in this case a problem of tracing. The bank knew the character of the fund, knew that they were State funds in so far as they came into its hands, and it could not make any portion of such funds a general debt against the bank by permitting any other use than for the fiduciary's trust.(Massachusetts Bonding Co. v. Standard Trust and Savings Bank,334 Ill. 494.) An examination of the cases cited shows that the rule which once required the tracing of funds in a case of this character has become practically obsolete. Under the early cases, if trust funds became mixed with other property of the same kind so as not to be distinguishable, the equity therein was lost. But this view no longer obtains. The rule now generally established is that confusion or mixing of money or property with other money or property of the same kind does not destroy the equity but converts it into a charge upon the
entire mass thereby giving to the party injured by the unlawful diversion a priority of right over the creditors of the possessor. Washington Loan and Banking Co. v. Fourth Nat. Bank ofMacon, 38 F.2d 772; Butler v. Western German Bank, 159 Fed. (CCA) 116; Monticello Hardware Co. v. Weston, 28 F.2d 672.
That the State was entitled to a prior claim against the receiver for the entire fund deposited in that bank by an agent of the State, and recognized by the bank as trust funds, is well settled in this State. (People v. Farmers State Bank, 335 Ill. 617; American Legion Post v. Barrett, 371 id. 78.) It is argued that the latter case is not authority for this rule because in that case the money was deposited by the State Treasurer who had a right to deposit it. We are unable to see wherein that affects the application of the rule. If the money was State money, as contended in the suit against the receiver and now contended in this suit against the defendant, it was State money whether it was deposited with or without authority. There is no doubt in this record, either from the statements in it or from the position of the bank itself in the issuance of the cashier's check to the Department of Conservation, that these were State funds. They were funds collected for State uses by an officer authorized to collect them. The Attorney General had authority to go into court and take the position he took. It was within his power, if he chose to do so, to ignore the defendant in the transactions there. But his actions no less bound the State in taking over the claim without giving an opportunity to the defendant, whether he be considered insurer or merely surety, under such facts to attempt to save himself by subrogation or on whatever grounds were available to him.
It is clear to my mind that no individual citizen would be permitted to secure a judgment against a defendant in a case such as this, as set out in the cases which I have here cited. The State here has sued an individual who has
set up equitable defenses, which under our Civil Practice act may be done, and therefore the State must be treated as any other party litigant. By taking over and claiming this account, settling it and receiving money on it as its own, the State, like any individual, must be estopped to say that it is not bound by such acts but can nevertheless sue the insurer or guarantor of such funds.
The judgment of the circuit court was right and should be affirmed.
Mr. JUSTICE SHAW concurs in this dissenting opinion.