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Dept. of Revenue v. Prestige Casualty Co.

OPINION FILED JANUARY 16, 1979.

THE DEPARTMENT OF REVENUE, PLAINTIFF-APPELLEE,

v.

PRESTIGE CASUALTY COMPANY ET AL., DEFENDANT-APPELLANT.



APPEAL from the Circuit Court of Cook County; the Hon. EARL ARKISS, Judge, presiding.

MR. JUSTICE BUCKLEY DELIVERED THE OPINION OF THE COURT: [*] THIS OPINION WAS PREPARED BY JUSTICE BUCKLEY WHILE ASSIGNED TO THE ILLINOIS APPELLATE COURT, FIRST DISTRICT. This is a consolidated appeal of eight actions filed in the Circuit Court of Cook County by the Illinois Department of Revenue to recover against bonds provided by Prestige Casualty Co. on behalf of retailers. The bonds were posted as security under the Retailers' Occupation Tax Act (Ill. Rev. Stat. 1977, ch. 120, par. 440 et seq.) as a condition for engaging in retail activity.

Appellant Prestige stipulates on appeal that the facts and pleadings are substantially identical in each case, except that the bonds in each case relate to a different taxpayer, and that amounts of tax and judgment amounts differ from case to case.

Accordingly, the first of these cases, No. 76-1600, which is typical, serves as a basis for discussion. The complaint in that case was filed on September 5, 1975, against George's Restaurant and Lounge, and Prestige. The complaint alleged the issuance of a surety bond by Prestige, a copy of which was attached, alleged that the taxpayer was in default in payment of taxes for the period of May 1970 to January 1971, and that demand was made by the Department on October 19, 1971, on Prestige for payment and that Prestige had not complied with that demand. Judgment against Prestige in the amount of the bond was asked.

Prestige appeared, filed a timely jury demand and moved to strike and dismiss the complaint. The Department moved to strike Prestige's jury demand on the ground that there was no issue of fact and amended its complaint to allege service and issuance of a notice of delinquent tax on the taxpayer.

Subsequently Prestige's motion to strike and dismiss was denied and the Department's motion to strike Prestige's jury demand was granted. Prestige then filed an answer asserting several defenses, including the alleged failure of the Department to perform certain conditions, such as making a final assessment against the taxpayer and providing Prestige with adequate notice of the taxpayer's default, and that the Department's action was barred due to the passage of time. Prestige attempted to initiate discovery by filing a notice of deposition, interrogatories and a request for production of documents.

The Department moved to quash Prestige's request for discovery on the grounds that it would be without purpose and also moved for judgment on the pleadings. On July 27, 1976, the circuit court granted both of the Department's motions. Judgment against Prestige in all eight cases was entered on September 15, 1976.

Prestige contends on appeal that it was entitled to a trial by jury because there existed substantial factual issues; that it was entitled to discovery; that judgment on the pleadings was improper because there existed substantial questions of fact; and that the Department's action was barred because the Department failed to proceed against the taxpayers themselves within the time allowed by the Retailers' Occupation Tax Act.

For the reasons stated below, the judgment of the circuit court is affirmed.

The threshold question in this case is Prestige's contention that the present actions were barred because the Department failed to proceed against the taxpayers themselves within the time period provided under the Retailers' Occupation Tax Act. The Department of Revenue concedes that, at the time it commenced its actions against the bonds here in question, it would have been barred by the passage of time from proceeding against the taxpayers themselves, but contends that the running of the limitation period for action against a principal does not, under Illinois law, bar an action against a surety for bonds of this kind. As authority for this proposition, the Department cites Stelle v. Lovejoy (1888), 125 Ill. 352, 17 N.E. 711, in which it was held that an action relating to a supersedeas bond for an appeal was not barred by the fact that the statutory limitation period for an action against the principal had run.

Prestige, on the other hand, contends that the precise question of whether an action against a surety is barred by the running of the limitation period against the principal on the underlying obligation has never been decided in Illinois. Prestige notes that Stelle v. Lovejoy stands in contrast to People ex rel. Stubblefield v. Wochner (1927), 244 Ill. App. 30, in which an action against a sheriff's bond was held barred because the statutory limitation period had expired for an action based on the alleged misconduct of the sheriff upon which the bond action was predicated.

Both Prestige and the Department offer authority from other jurisdictions in support of their positions as to whether an action against a surety is barred when the statutory limitation period for an action against the principal has run. The Department offers the Restatement of the Law of Security § 130(1) (1941) as authority for its view, and Prestige notes that in Stubblefield language supporting its view was employed.

Two observations are necessary before pursuing the issue upon which the parties to this appeal have joined. First, the present case deals with particular bonds created to serve a particular purpose under a particular statute, so that the issue before this court is narrowly framed by the facts. Second, if, as the parties both argue, bonds are subject strictly to the principles of suretyship, then the issue as framed by the parties has already been decided in this State, with conflicting outcomes.

We believe, however, that the proper interpretation of the Stelle and Stubblefield decisions is that they are consistent applications of the principles relating to bonds, notwithstanding the presence of strongly worded dicta in Stubblefield relating to suretyship which would preclude a result such as that in Stelle.

An examination of Stubblefield demonstrates clearly that, although language regarding sureties was used in that decision, the action in question was against a bond, and that bond was of a type quite different from the bonds here in question. In Stubblefield the bond was a sheriff's bond, and the action against it was premised on alleged misconduct of the sheriff. It was noted that, because no action had been filed against the sheriff during the statutory limitation period, evidence of the existence or nonexistence of misconduct by the sheriff would present problems of the same kind and degree as in an action against the sheriff, and that the likelihood of such problems was precisely the reason that ...


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