Opinion
Decided February 8, 1933.
Banks and banking — Liquidation — Preferences — Township funds deposited after depositary agreement expired — Payments by bank on lawful orders, deductible, when — Dividends applied ratably towards claim for lawful and illegal deposits.
1. Statute limiting period of township depositary agreement to two years held mandatory; hence money deposited in bank between expiration of depositary agreement and closing of bank constituted trust fund, entitling township to priority as against ordinary deposits (Section 3320 et seq., General Code).
2. Payments made by bank on lawful orders issued by township after expiration of township depositary agreement held deductible, for purposes of establishing preferred claim on bank's insolvency, from aggregate of deposits made after expiration of depositary agreement and not from balance existing when agreement expired; depositary's sureties not being entitled to gain advantage because of unlawful deposits (Section 3320 et seq., General Code).
3. Where township had claim for lawful deposits made during depositary agreement and also claim for illegal deposits made after expiration of such agreement, money received by township in form of dividends from insolvent depositary held required to be applied ratably in satisfaction of both claims (Sections 3316, 3320 et seq., General Code).
APPEAL: Court of Appeals for Putnam county.
Mr. A.A. Slaybaugh and Mr. J.J. LaBadie, for plaintiff.
Mr. Gilbert Bettman, attorney general, and Mr. Albert H. Straman, for defendant.
This suit was commenced in the Court of Common Pleas of Putnam county, Ohio, by the Board of Township Trustees of Van Buren township, to establish as a preferred claim the deposit of the plaintiff board in the Citizens State Bank of Leipsic, mentioned below. The trial resulted in a finding and judgment in favor of the defendant, O.C. Gray, Superintendent of Banks. Plaintiff appeals the case to this court.
The undisputed essential facts are as follows: On January 12, 1928, the Citizens State Bank of Leipsic, Ohio, duly became the legal depositary of the plaintiff board for a period of two years, pursuant to the provisions of the statutes of Ohio, Section 3320 et seq., General Code; and on January 11, 1930, proceedings were had designating another bank in the county as the depositary of plaintiff, but such bank failed to furnish the bond required by the statutes; whereupon, on March 15, the Citizens State Bank of Leipsic, Ohio, was again designated as the depositary of plaintiff for the period of two years, but failed to furnish the requisite bond. On May 17, 1930, the bank hereinbefore referred to as "another bank" was again duly designated depositary of the funds of plaintiff, and on May 23, 1930, it gave bond to the approval of the plaintiff, thereby duly qualifying to act as the depositary.
On the date last mentioned the clerk of the plaintiff Board of Township Trustees notified the Citizens State Bank of Leipsic, Ohio, that the deposit of plaintiff was to be withdrawn therefrom and placed in the bank of the Belmore Banking Company of Belmore, Ohio, and requested the immediate transfer of such deposit. Whereupon, the Citizens State Bank of Leipsic, Ohio, requested that reasonable time be given it to meet said demand. Whereupon, on the 29th day of May, 1930, a check for the sum of $4,000 was drawn on the Citizens State Bank, and was deposited in the Belmore Banking Company, but said check did not reach the Citizens State Bank of Leipsic until after the Citizens State Bank was closed on June 3, 1930, when defendant Superintendent of Banks of the state of Ohio took possession of all of the assets of said bank, and has ever since been in charge.
When the two-year period covered by the depositary agreement with the Citizens State Bank of Leipsic expired, January 13, 1930, January 12 of that year being Sunday, the balance of the deposit of plaintiff was the sum of $9,439.28. Between the said expiration date and the third day of June, 1930, plaintiff deposited various amounts which went into plaintiff's account, aggregating $12,454.28, within which period proper vouchers issued by plaintiff, amounting to the total sum of $5,241.55, were paid by the Citizens State Bank of Leipsic out of the deposit account of plaintiff.
While liquidation of the Citizens State Bank of Leipsic was in progress, plaintiff filed with defendant a claim as a general creditor, in the sum of $15,532.01, which claim was accepted on July 31, 1930; and a certificate evidencing such acceptance was issued to plaintiff, who was thereafter paid by defendant two dividends totaling the sum of $5,824.50.
Subsequently, plaintiff filed a preferred claim for $15,532.01, which was disallowed on August 19, 1930, which claim is the basis of this suit.
Three questions of law are thus presented for decision: First. Was the money which was placed in the Citizens State Bank between the expiration of the two years covered by the depositary agreement and the taking possession by defendant for the purpose of liquidating the Citizens State Bank of such a nature as to constitute such deposits a special or trust fund, entitling it to priority of payment as against ordinary deposits?
Undoubtedly, during that period there was no lawful depositary status in the Citizens State Bank, unless the words in Section 3321, General Code, restricting to two years the period for which the depositary might be established, be directory, and not mandatory.
Considering that section, and sections related to it, in pari materia, we hold, without discussing the rule which distinguishes mandatory from directory provisions, that the language limiting the period of the agreement to two years is clearly mandatory.
It follows that every deposit made after the expiration of January 12, 1930, was in violation of Section 3320, and cognate sections of the General Code, and became trust funds, and consequently special deposits, the possession of which by the Citizens State Bank was wrongful, and consequently the Citizens State Bank became a trustee of the fund.
In thus holding we fully sanction the doctrine announced in In Re Osborn Bank, 25 C.D., 80, 20 C.C. (N.S.), 575.
Since the filing of the instant case in this court the Supreme Court of Ohio has decided the case of Ward, Treas., v. Fulton, Supt. of Banks, 125 Ohio St. 382, 181 N.E. 815, which had to do with the character of deposits made by a county treasurer pursuant to the state depositary laws, Sections 2715 to 2737, General Code. In that case the contract of deposit was for three years, and the deposits in issue were made after the expiration of that time and prior to the giving of a new bond. The substantial question was whether the bond covered deposits made after the period named in the contract, and the court held that certain provisions of the statutes made the bond continuous, which continuity subjected the bond to the deposits. The statutes governing the deposits of township money contain no such provision. However, in syllabus and opinion there seems to be a justifiable inference that if such continuation had not existed such deposits would have been unlawful and there would have arisen a trust with respect to them because they never legally passed into the bank. Otherwise, the case could easily have been disposed of on the theory that no right of priority arose at all in the case of a deposit of public money not conforming to the depositary statutes. In other words, the court could well have held that the failure to comply at all with the depositary laws in the deposit of public moneys would not make such deposits a special or trust fund.
Second. How shall the payments which were made on account of the lawful orders issued by plaintiff after the expiration of the depositary agreement be treated in relation to the balance of $9,439.28 owed by the Citizens State Bank to plaintiff when the depositary agreement expired, and in relation to the $12,454.28, the aggregate of the deposits after said depositary period expired?
If the $5,241.55 be charged against the $9,439.28, the entire $12,454.28 must be taken from the fund in the hands of defendant Superintendent of Banks as a preference, thereby either reducing the amount for general creditors if the fund be insufficient to fully pay them, or, if it be more than sufficient to pay general creditors, reducing the amount due the stockholders of the bank. Furthermore, if the $5,241.55 be charged against the $9,439.28, the liability of the sureties on the bond, assuring the deposits made within the depositary period, would be abated accordingly.
During the period covered by the depositary agreement, all the deposits, and all the payments by the Citizens State Bank, were lawful; and, as we have said, all the deposits subsequent thereto were unlawful.
Manifestly it was the duty of the Citizens State Bank, as trustee of the money thus unlawfully received by it, to make restitution, even though not requested by plaintiff to do so; and surely it was no less its duty to make restitution, though in the form of lawful orders issued against the fund arising from the unlawful deposits; it was merely doing in piecemeal what it should have done as a whole, and the sureties should not be permitted to gain an advantage by reason of unlawful deposits, which gain would result if the $5,241.55 were not regarded as restitution.
We hold that for the purposes of establishing the preferred claim the $12,454.28 shall be reduced by the $5,241.55, leaving the net sum of unlawful deposits $7,212.73.
Though the doctrine of marshaling assets may not be strictly applicable, the principle underlying that doctrine should be considered in so deciding, because plaintiff has more than the fund in the hands of defendant, to which resort may be made for payment of the $9,439.28, namely, the obligation of the sureties on the bond, whilst other creditors of the Citizens State Bank, without security, can only look to the fund in the hands of defendant.
Third. In accounting for the dividends received by plaintiff, $5,824.50, based on the claim of $15,532.01, it must be determined whether the whole of the sum received shall be charged against the $9,439.28, or the $12,454.28, or the net sum of $7,212.73, or whether it shall be proportionally charged against two of the sums.
We would emphasize that the obligation of the sureties on the bond was to save plaintiff from any loss by reason of the deposits made during the period covered by the depositary agreement, less, of course, any sum or sums paid by the Citizens State Bank, which payments could only be made upon instruments issued by the township officers, as provided in Section 3316, General Code.
That is a sufficient answer to any claim which might be urged in favor of applying the dividends received by plaintiff wholly against deposits which had been made during the depositary agreement.
There being two claims in favor of plaintiff against the fund, one for deposits lawfully made, and the other for deposits unlawfully made, equity requires that the money received by plaintiff in the form of dividends be applied ratably in satisfaction of the $9,439.28 and the $7,212.73.
Decree accordingly.
KLINGER and KINDER, JJ., concur.