APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, THIRD DIVISION
Heirs and Legatees of the Estate of Ercel C.
DeForce, Deceased, and on Behalf of All
543 N.E.2d 329, 187 Ill. App. 3d 472, 135 Ill. Dec. 94 1989.IL.1259
Appeal from the Circuit Court of Cook County; the Hon. Arthur L. Dunne, Judge, presiding.
JUSTICE CERDA delivered the opinion of the court. FREEMAN, P.J., and WHITE, J., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE CERDA
The plaintiff, individually and as administrator of the estate of Ercel C. DeForce, deceased, filed this class action suit after receiving a tax refund to recover interest earned on estate funds deposited with the State Treasurer pending determination by the circuit court of the actual amount of inheritance tax due. The parties filed cross-motions for summary judgment, and the plaintiff appeals from the trial court's order granting summary judgment in favor of the defendant. There are no questions of fact, and the sole issue presented for review is whether an estate is entitled to the interest earned on funds deposited with the State Treasurer pending a determination of the amount of inheritance taxes due, when the amount determined to be due is less than the amount deposited, and the estate receives a refund. Certification of the class was continued pending resolution of the parties' cross-motions for summary judgment.
Ercel C. DeForce died on September 25, 1977. The inheritance taxes on her estate accrued and became due on the date of her death pursuant to section 3 of the Inheritance and Transfer Tax Law (Act) (Ill. Rev. Stat. 1977, ch. 120, par. 377). Section 3 provides that the State will charge interest at the rate of 7% per annum for such time as the taxes remain unpaid. Because the amount of the inheritance taxes due were unknown, the taxes had to be determined in the circuit court. (Ill. Rev. Stat. 1977, ch. 120, par. 385.) Section 3 contains a provision, however, providing that the charging of interest pending determination of the amount of taxes due can be avoided if a deposit is made with the county treasurer. (Ill. Rev. Stat. 1977, ch. 120, par. 377(c).) That provision provides in pertinent part:
"All taxes imposed by this Act, unless otherwise herein provided for, shall accrue and be due and payable, at the death of the decedent. Interest at the rate of 7% per annum shall be charged and collected for such time as the tax is not paid; except . . . (c) where prior to the final determination of the tax a deposit is made with the County Treasurer to be applied to the payment of the tax when finally determined . . .." (Ill. Rev. Stat. 1977, ch. 120, par. 377(c).)
The plaintiff accordingly deposited $75,000 with the county treasurer on September 25, 1978. That deposit was remitted to the State Treasurer in accordance with the Act. On August 20, 1981, four years later, the circuit court determined the estate's inheritance tax to be $33,584.75. The plaintiff subsequently received a refund of $41,451.25 from his deposit. The State Treasurer, however, refused to credit to the estate the interest earned on the amount refunded. Answers to interrogatories reveal that between 1978 and 1986 over $27 million in excess deposits were refunded without interest. In granting the defendant's motion for summary judgment, the trial court, relying on Lakefront Realty Corp. v. Lorenz (1960), 19 Ill. 2d 415, 167 N.E.2d 236, held that the State Treasurer is not obligated to pay interest to the estate in the absence of statutory authorization.
In Lakefront Realty Corp. v. Lorenz, our supreme court addressed for the first time the question of whether a taxpayer is entitled to interest on a tax refund. The court held that the taxpayer was not entitled to the interest on the grounds that interest, being a creature of statute or contract, is not recoverable without statutory authorization, and in practice, the tax collector has no money to pay interest in the absence of a statute authorizing him to establish a fund for that purpose. (Lakefront Realty Corp., 19 Ill. 2d at 423.) This holding has repeatedly been reaffirmed. (See City of Springfield v. Allphin (1980), 82 Ill. 2d 571, 576, 413 N.E.2d 394; People v. Meyerowitz (1975), 61 Ill. 2d 200, 211, 335 N.E.2d 1; Clarendon Associates v. Korzen (1973), 56 Ill. 2d 95, 109, 306 N.E.2d 299.) Lakefront Realty is based on the rule that the sovereign is not obligated to pay interest unless it gives its consent by act of its legislature or by contract entered into by its officers. (United States v. North Carolina (1890), 136 U.S. 211, 216, 34 L. Ed. 336, 338, 10 S. Ct. 920, 922.) This rule is founded on the principle that in the absence of a contract to pay interest, interest is only awarded for delay or default by the debtor, and delay or default cannot be attributed to the government as the government is presumed to be always ready to pay what it owes. Schlesinger v. State (1928), 195 Wis. 366, 368-69, 218 N.W. 440, 441, cited with approval in Lakefront Realty Corp. v. Lorenz, 19 Ill. 2d at 421.
The plaintiff does not dispute the rule's validity, but questions its applicability in the present case. The plaintiff contends that under the statute in question, the money deposited with the State Treasurer is private property having legal consequences which are controlling. The plaintiff refers us to the statutory language which distinguishes between a "deposit" of funds and a "payment" of taxes. Under the Act, interest to be charged for unpaid taxes is avoided if "a deposit is made with the county treasurer to be applied to the payment of the tax when finally determined." (Emphasis added.) (Ill. Rev. Stat. 1977, ch. 120, par. 377(c).) The plaintiff asserts that the funds deposited with the Treasurer are owned by the estate because the funds are not "applied to the payment" of the inheritance tax until the amount owing has been finally determined. Hence, the excess deposit, having always belonged to the estate, must be refunded along with any interest earned through its investment. The plaintiff does not maintain that such deposits have to be invested, but contends that when they are, any interest earned belongs to the depositor. The plaintiff rests this Conclusion on several theories as set forth in his four-count complaint.
Beginning with the premise that the deposit is private property, the plaintiff argues the funds are protected by the fifth amendment prohibition against the taking of private property for public use without just compensation as applied to the States through the fourteenth amendment. (U.S. Const., amends. V, XIV.) The plaintiff also relies on the identical prohibition contained in the Illinois Constitution. (Ill. Const. 1970, art. 1, § 15.) The plaintiff further argues that withholding the interest constitutes a breach of fiduciary duty and unjust enrichment. Consequently, the plaintiff prays that a constructive trust be placed upon the interest income. For these latter contentions, the plaintiff relies on the rule that equity may award ...