APPEAL from the Circuit Court of Cook County; the Hon. WALTER
P. DAHL, Judge, presiding.
MR. JUSTICE DEMPSEY DELIVERED THE OPINION OF THE COURT:
Rehearing denied April 12, 1976.
This is an appeal from the dismissal of the plaintiff's amended complaint for failure to state a cause of action.
The County of Cook filed a complaint and an amended complaint in chancery against former County Clerk, Edward J. Barrett, seeking the declaration of a constructive trust and an accounting for bribes allegedly received by him while he held office. Also named as defendants were the sureties on Barrett's official bond, the Fidelity and Deposit Company of Maryland and the United States Fidelity and Guaranty Company. The defendants filed motions to strike which were granted. In dismissing the action the chancellor ruled that:
"* * * a cause of action of this kind, by a public body to recover a bribe or kickback paid to one of its officers or employees or agents, as a matter of law cannot be maintained."
The amended complaint was composed of three counts. The County represented that Barrett served as the elected Clerk of Cook County from 1956 through 1970, a position of trust imposing obligations to faithfully perform the duties of office in the interest of the people of Cook County and not for the incumbent's personal gain. His salary for the position was fixed by law and was to be his "only compensation for services rendered in the capacity of County Clerk, or any other capacity." (Ill. Rev. Stat. 1969, ch. 53, par. 49.) Throughout the period of Barrett's tenure, the County Board of Commissioners at various times purchased and rented voting machines for use in elections. The board acted on the basis of contracts and proposals submitted and recommended by Barrett. By virtue of his office and influence with the board, his recommendations were "tantamount to the acceptance" of the proposals tendered by him. During this same time, he was also charged with the responsibility to care for voting machines in County custody which included the discretion to award contracts of insurance on the machines.
Count I charged that Barrett abused his position of trust by employing it to seek secret personal gains from the Shoup Voting Machine Corporation, in that he caused Shoup "* * * to secretly pay him money that constituted fees and/or allowances and/or bribes," as a consequence of which the County paid considerably more money for the voting machines purchased and rented from Shoup than it would have otherwise. It was alleged that these payments from Shoup to Barrett amounted to approximately $180,000 for the years 1967-1970 but were unknown for previous years and a detailed accounting was needed to determine the exact figure for the entire period covered by the complaint. The plaintiff prayed that Barrett be declared a constructive trustee for the citizens and taxpayers of the County for the amounts received by him from Shoup, and that he be required to account to the County for those sums.
Count II also prayed for a declaration of constructive trust and for an accounting, but arose from a different group of transactions. The remedy was invoked to recover secret payments received by Barrett from Arthur Gallagher & Company, an insurance agency, in connection with his award of insurance contracts on County voting machines to companies represented by Gallagher. As in the first count, it was alleged that the amount of these payments for the period of 1956 to 1967 was completely unknown, that it had been approximated for 1967 to 1970 at $6,000, but that a detailed accounting was necessary to discover the exact figure by which the defendant had been unjustly enriched.
Both Count I and Count II contained a number of parallel paragraphs setting forth allegations to justify an equitable accounting. In addition to averments that the arrangements between Barrett and Shoup and Barrett and Gallagher caused the County to pay more than necessary for their services and depleted its treasury by undetermined amounts, it was charged that the accounts would be complicated and that exhaustive discovery was required because of the secret and sophisticated nature of the transactions and the absence of written records concerning them.
The final count was against the sureties on the bonds Barrett had given for the faithful performance of the duties of his office. It prayed judgment on the bonds for the amount wrongfully and unlawfully withheld from the County by Barrett. The sureties filed a separate motion to strike and dismiss, but they offered no independent grounds, merely adopting the reasons asserted by Barrett in his own motion.
Both in that motion and in his brief on appeal, Barrett has suggested numerous reasons why the County cannot recover from him. He contends that the County is entitled only to fees and allowances which are legally collected, that to allow recovery by a public body of bribes or kickbacks paid to its officers would be against public policy; that the County alleged no damage and suffered none, that no money moved from the County to him, that if any money was paid it was paid by Shoup and Gallagher not by the County, and that since no money moved out of the County treasury it could not have been depleted; that the complaint did not allege that he had been unjustly enriched at the expense of the County or that in the absence of bribery the County would have paid less for voting machines or insurance. Attacking the equitable jurisdiction generally, he suggests that the facts alleged in the amended complaint did not warrant the grant of equitable relief and that there was an adequate remedy at law. Attacking the constructive trust doctrine specifically he contends that its application to one in his position would be unwarranted and unprecedented. It would be pointless to attempt to treat these contentions seriatim. We therefore will address them only insofar as they pertain to our discussion of the broad question raised by the judgment of the trial court: whether the allegations of the complaint stated a cause of action for a constructive trust.
1 A constructive trust arises not by any agreement or understanding of the parties but by operation of law and is imposed upon grounds of public policy, to prevent a person from holding for his own benefit that which he has gained by reason of a special trust or confidence reposed in him by an innocent party. (Tarpoff v. Karandjeff (1964), 51 Ill. App.2d 454, 201 N.E.2d 549.) Stated most succinctly, the purpose of the remedy is to prevent unjust enrichment. Streeter v. Gamble (1921), 298 Ill. 332, 131 N.E. 589.
The particular circumstances in which equity will impress a constructive trust are "* * * as numberless as the modes by which property may be obtained through bad faith and unconscientious acts." (4 Pomeroy's Equity Jurisprudence § 1045, at 97 (5th ed. 1941).) The barriers to its effective operation are few. The form of the property claimed determines nothing, since a constructive trust will extend to reach real and personal property, choses in action and funds of money. (4 Pomeroy's Equity Jurisprudence § 1044 (5th ed. 1941).) To make out a case a plaintiff must allege facts which disclose either actual or constructive fraud or an abuse of a confidential relationship. It is the latter situation with which this case is concerned.
2 At all times and for all the transactions pertinent to the complaint Barrett was the fiduciary of the people of Cook County. As an elected public official he held a position of the highest public trust. (People v. Bordeaux (1909), 242 Ill. 327, 89 N.E. 971; Williams v. State (1957), 83 Ariz. 34, 315 P.2d 981; 63 Am.Jur.2d Public Officers § 275 (1972).) In the transactions with Shoup and Gallagher, Barrett acted as the County's agent, negotiating terms of purchase and recommending County action. An agent is fiduciary to his principal and the relation is treated generally the same, and with virtually the same strictness, as that of trustee and beneficiary. Doner v. Phoenix Joint Stock Land Bank (1942), 381 Ill. 106, 45 N.E.2d 20; Restatement (Second) of Agency § 13 (1958).
3 In deciding this appeal, it is not necessary to locate the perimeters of the fiduciary obligations due the public from their elected officials. It is sufficient to recognize that, when such an official acts as agent for the public body in business transactions, he owes to his principal duties of loyalty and good faith at least equal to those required of a private fuduciary in like circumstances. (Ill. Rev. Stat. 1971, ch. 102, par. 3; Burton Township v. Speck (1966), 378 Mich. 213, 144 N.W.2d 347.) The obligations of a person who occupies the latter category are such that he must not place himself in a position which is adverse to that of his principal during the continuance of the agency. (James C. Wilborn & Sons, Inc., v. Heniff (1968), 95 Ill. App.2d 155, 237 N.E.2d 781; Moore v. Pinkert (1961), 28 Ill. App.2d 320, 171 N.E.2d 73.)
"[A]n agent should not unite his personal and his representative characters in the same transaction; and equity will not permit him to be exposed to the temptation, or brought into a situation where his own personal interests conflict with the interests of his principal and with the duties which he owes to his principal." (3 Pomeroy's Equity Jurisprudence § 959, at 819 (5th ed. 1941).)
See also Rieger v. Brandt (1928), 329 Ill. 21, 160 N.E. 130; Common-wealth S.S. Co. v. American Shipbuilding Co. (N.D. Ohio 1912), 197 F. 780; Bone v. Hayes (1908), 154 Cal. 759, 99 P. 172.
4, 5 The remedy for breach of this duty is simple and salutary. Since a fiduciary is bound to act solely for the benefit of his principal, equity will intervene to prevent him from accruing any advantage however innocently from transactions conducted in behalf of the principal. So, when a fiduciary, who has acted for his beneficiary or principal, receives a gift, or bonus or commission from a party with whom he has transacted business, that benefit may be recovered from him by the beneficiary of the fiduciary relationship. (Janes v. First Federal Savings & Loan Association (1974), 57 Ill.2d 398, 312 N.E.2d 605; Bogert, Trusts and Trustees § 543(P) (2d ed. 1960) Bank of America National Trust & Savings Association v. Ryan (1962), 207 Cal.App.2d 698, 24 Cal.Rptr. 739; Slay v. Burnett Trust (1945), 143 Tex. 621, 187 S.W.2d 377; Risvold ex rel. Clearly Hill Mines Co. v. Gustafson (1941), 209 Minn. 357, 296 N.W. 411; In re Wechsler's Estate (1939), 171 Misc. 738, 13 N.Y.S. 2d 940.) In Janes v. First Federal Savings & Loan Association it was alleged that the defendant lending bank procured title insurance for its borrower on mortgaged property and charged the borrower the full price of that insurance, but subsequently received and retained a ten percent rebate from the title insurance company. The reviewing court ruled that under such facts the bank held the rebate upon a constructive trust from the borrower as beneficiary in the absence of the borrower's express contrary authorization. The court quoted approvingly from the American Law Institute restatements of the law of restitution and agency. The Restatement of Restitution, section 197 (1937), states:
"§ 197. BONUS OR COMMISSION RECEIVED BY FIDUCIARY.
Where a fiduciary in violation of his duty to the beneficiary receives or retains a bonus or commission or other profit, he holds what he receives upon a ...