Appeal from the Circuit Court of Cook county; the Hon. WILLIAM
V. BROTHERS, Judge, presiding. Reversed and remanded.
JUSTICE MCCORMICK DELIVERED THE OPINION OF THE COURT.
This appeal is taken from an order of the Circuit Court of Cook county sustaining defendant's motion to strike plaintiff's amended complaint and dismissing the suit.
The action was filed as a class action on behalf of the plaintiff and others similarly situated who had made payments to the defendant for carpeting and installation, including 3 per cent Illinois retailers' occupation tax. On May 23, 1956 the Supreme Court of Illinois in Oscar L. Paris Co. v. Lyons, 8 Ill.2d 590, held that the business of the Oscar L. Paris Company was not subject to the retailers' occupation tax, following which the state treasurer of the state of Illinois refunded by warrant all taxes which had been illegally collected from and paid by the defendant. The defendant had made a practice of billing its customers for the tax as a separate item in addition to the charge made by the defendant for carpeting, padding and installation thereof. Afterward the defendant still persisted in its practice of separately enumerating on its bills a separate charge of 3 per cent for the retailers' occupation tax. The plaintiff on June 8, 1956 purchased from the defendant a wall-to-wall carpeting and installation job for the sum of $189.33, plus 3 per cent Illinois retailers' occupation tax ($5.68), which sums were paid by the plaintiff to the defendant.
In the amended complaint it is alleged that the sums representing the charges for taxes paid by the plaintiff and other customers to the defendant constituted a common fund belonging to them and held in trust by the defendant for them, and the plaintiff further alleges in the complaint that the suit is filed on behalf of himself and all others similarly situated, who had since 1949 purchased wall-to-wall carpeting from the defendant and had been charged and paid to it the tax as a separate item in addition to the charge made by the defendant for the carpeting and padding, and installation thereof. The defendant on December 10, 1956 filed a motion to strike the amended complaint setting up, among other grounds, that no cause of action was stated since it appears from the complaint that the plaintiff and other customers of the defendant whom the plaintiff seeks to represent voluntarily and without compulsion paid to the defendant the money sought, and that a proper basis for a class action was not set out inasmuch as the plaintiff and other customers of the defendant whom he seeks to represent each had separate and distinct transactions with the defendant, and that the purchase and payment of the tax by the plaintiff took place after the decision of the Supreme Court in Oscar L. Paris Co. v. Lyons, supra, holding the tax illegal. The trial court entered an order striking the amended complaint and dismissing the action, from which order this appeal is taken.
[1-3] To determine whether or not plaintiff's amended complaint states a cause of action we will consider first the right of the customers of the defendant to recover from it the sums of money paid by them to the defendant separately billed, designated and earmarked as a tax, which sums of money were paid by the defendant to the state in satisfaction of its supposed liability under the Illinois Retailers' Occupation Tax Act. It has been held that the tax is imposed by virtue of that Act on persons engaged in the business of selling at retail tangible personal property to purchasers for use and consumption and that it is not a tax on the property itself. It is a tax on the occupation and not on the sale, though the gross receipts from the sales are utilized as a measure of the tax to be assessed. The retailers are not made the agents of the state or the Department of Finance to collect the tax from purchasers and pay it over, but the tax is imposed on them and they are the ones who are required to pay it. People's Drug Shop, Inc. v. Moysey, 384 Ill. 283; Svithiod Singing Club v. McKibbin, 381 Ill. 194; Mahon v. Nudelman, 377 Ill. 331; Winter v. Barrett, 352 Ill. 441. The defendant passed this tax on to the consumer. The device of billing the consumer separately for the tax undoubtedly was used because, if the sum equivalent to the 3 per cent tax had been added to the price, the defendant would have been required to pay the tax on the sum so added as well as upon the residue. The money collected by the defendant was not collected as a composite part of the price; it was collected for a specific and definite purpose. After the Illinois Supreme Court in Oscar L. Paris Co. v. Lyons, supra, held that the tax was one not required to be paid by the defendant, the tax money which the state returned to the defendant was money which in equity and good conscience did not belong to the defendant but belonged to the purchasers who had paid it. In Gannaway v. Barricklow, 203 Ill. 410, Barricklow, the administrator of an estate, was called before the board of review of Coles County and was informed that his intestate owed certain back personal property taxes. The Board presented him with a bill and told him it must be paid by a certain date or there would be an additional 10 per cent penalty. The administrator paid the taxes. Subsequently he learned that the taxes which he had paid were not due because they never had been levied or extended by the county clerk. He then brought suit in assumpsit against the county treasurer to recover the money paid. The court held that in this case the money could be recovered back because there was no tax in existence. The administrator had acted in good faith and under a misapprehension as to the existence of the alleged liability, and the court says:
"Money paid under a pretense of that character may be recovered in an action for money had and received. (Whitton v. Barringer, 67 Ill. 551.) The money being in the appellant's hands without authority of law, it belonged to the appellee, by whom it was paid. Appellant had no right to it, but was equitably bound to refund it. . . . Even where a tax is legally levied and voluntarily paid, if the purpose of the tax fails or the object is lawfully abandoned, the money which is held in trust to be devoted to the particular purpose may be recovered back in an action for money had and received. (Bradford v. City of Chicago, 25 Ill. 349.)"
In Highway Com'rs v. Bloomington, 253 Ill. 164, an action in assumpsit was brought by the Board of Highway Commissioners of the town of Bloomington to recover from the city of Bloomington the amount of taxes collected upon property in Bloomington township located within the corporate limits of the city of Bloomington, which taxes had been paid by the collectors of revenue to the city under the Road and Bridge law then in force. Subsequently the Supreme Court held that the section of the statute under which the tax was paid was unconstitutional and void. Thereupon suit was brought and the trial court entered judgment for the plaintiff. The Illinois Supreme Court discusses at great length the right to recover in an action of assumpsit in a factual situation of this kind. The court distinguishes express contracts and contracts implied in fact, and points out that there is still left another class of obligations which can be enforced by an action of general assumpsit. Those are the actions grounded on quasi-contract, and the court says:
"The action of assumpsit, under the common counts for money had and received, is an appropriate remedy to enforce the equitable obligation arising from the receipt of money by one person which belongs to another and which in equity and justice should be returned. (Gaines v. Miller, 111 U.S. 395; Pauly v. Pauly, 107 Cal. 8; Brown v. Woodward, 75 Conn. 254; Wilson v. Turner, 164 Ill. 398.) The action is in form ex contractu, but the alleged contract being purely fictitious, the right to recover does not depend upon any principles of privity of contract between the plaintiff and the defendant and no privity is necessary. (2 Page on Contracts, sec. 789, and cases there cited.) The right to recover is governed by principles of equity although the action is at law. The action is maintainable in all cases where one person has received money or its equivalent under such circumstances that in equity and good conscience he ought not to retain it and which ex aequo et bono belongs to another. (Jackson v. Hough, 38 W. Va. 236; Merchants' Bank v. Barnes, 47 L.R.A. 737.)"
Here the money which the state had returned to the defendant was money which the defendant had collected from its customers as a tax. The tax having been passed on to the customers, the defendant had not depleted any of its own funds in the payment of the tax to the state; consequently when the money was returned to defendant it was money which did not belong to the defendant, but in equity and good conscience belonged to the customers who had paid it. It falls squarely within the rule laid down in Wayne County Produce Co. v. Duffy-Mott Co., 244 N.Y. 351, 155 N.E. 669, in which case the plaintiff bought from the defendant certain quantities of sweet cider at a stated price per gallon plus the manufacturer's war tax of 10 per cent. While the contract was in existence the plaintiff paid some $2,500 for the tax which the defendant paid over to the Federal government. The Federal courts held that such sales were not subject to a tax and the defendant obtained a refund from the government of the taxes which had been unlawfully collected from it. The court states the question before it is whether the money thus refunded is held by the defendant for its own use or for the use of the plaintiff. The court says:
"We think the plaintiff must prevail. This is not a case where the item of the tax is absorbed in a total or composite price to be paid at all events. In such a case the buyer is without remedy, though the annulment of the tax may increase the profit to the seller. . . . This is a case where the promise of the buyer is to pay a stated price, and to put the seller in funds for the payment of a tax besides. In such a case the failure of the tax reduces to an equivalent extent the obligation of the promise. The form of the transaction was not thoughtless or accidental. It was deliberate and purposed. The end to be served is conceded in the briefs of counsel. If a sum equal to 10 per cent of the quoted price per gallon had been added to the price as something to be paid at all events, a tax would have been due upon the sum so added as well as upon the residue. A form was adopted whereby the manufacturer was in a position to account to the government at the quoted rate per gallon, and to pay the tax with the excess. The defendant had the benefit of the transaction as thus moulded in its dealings with the government. It is now attempting to set upon the transaction the impress of another quality in its dealings with the plaintiff. . . .
"The contract therefore, in effect, was this and nothing more, that whatever moneys were necessary for the payment of a tax would be furnished by the buyer."
As to the money collected subsequent to the decision in Oscar L. Paris Co. v. Lyons, supra, it was money which the defendant in its bills designated and earmarked as a tax which it knew it was not required to pay and which was, as far as the defendant was concerned, nonexistent. There is no reason to distinguish the money thus collected from the tax money refunded to the defendant by the state. Applying the reasoning in Gannaway v. Barricklow, supra, the money in the hands of the defendant belonged to the plaintiff and other customers who had paid it under like conditions. All of it constituted money which did not belong to the defendant and which in equity and good conscience belonged to the customers who had paid it as a tax. In each case the money was paid separately, was not included in a composite price, and the amounts paid were specifically designated on the bills as a tax. This fact brings it clearly within the distinction made in Wayne County Produce Co. v. Duffy-Mott Co., supra, and many other cases of like character.
A person who has been unjustly enriched at the expense of another is required to make restitution to the other. Restatement of the Law of Restitution, sec. 1. The plaintiff clearly had a right to recover from defendant in an action at law the money which was called a tax and paid by plaintiff. Highway Com'rs v. Bloomington, supra. Where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it, a constructive trust arises. Restatement of the Law of Restitution, sec. 160. "A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee. . . . A court of equity in decreeing a constructive trust ...