State, Ex Rel., v. Fulton
| Decision Date | 11 April 1934 |
| Docket Number | 24527 |
| Citation | 128 Ohio St. 192,190 N.E. 383 |
| Parties | The State, Ex Rel. Village Of Warrensville Heights, v. Fulton, Supt. Of Banks. |
| Court | Ohio Supreme Court |
Banks and banking - Liquidation - Municipal funds, deposited under depository law, are general deposits, when - Rights of municipality no greater than individual depositors - Bank may set off deposits against municipality's indebtedness when - Mandamus denied to compel delivery of depository securities to indebted municipality.
Public funds of a municipality derived from taxation, when deposited in a general account in a bank according to law under a depository agreement, lose their identity and become a part of the general funds of the bank.
The ordinary relationship of debtor and creditor is thereby created between the bank and the municipality, and the rights of the municipality are no greater and no different from those of an individual depositor.
Where the municipality is indebted to the bank On a past due Obligation, the bank may properly apply such deposit against such indebtedness, upon the principle of set-off.
In the situation last described, when the state superintendent of banks takes over such bank for liquidation, the municipality is not entitled to a writ of mandamus to compel such superintendent to deliver to it the securities pledged by the bank to secure the public funds of the municipality deposited in the bank under a depository agreement.
IN MANDAMUS.
The incorporated village of Warrensville Heights, Ohio, as relator, brings action in mandamus in this court to require the respondent, Ira J. Fulton, as superintendent of banks of the state of Ohio, engaged in the liquidation of The Union Trust Company, a banking institution in the city of Cleveland, Ohio, to surrender and deliver to it bonds issued by such village in the aggregate face amount of $150,000, which were originally deposited by such Union Trust Company, the owner thereof, to secure the funds of the village placed on deposit in the trust company under a depository agreement entered into pursuant to the provisions of Section 4294 et seq., General Code of Ohio.
The case is submitted upon the petition of the relator, the answer and cross-petition of the respondent, the reply of the relator and an agreed statement of facts.
The depository agreement referred to was dated July 25, 1930, and reads in part as follows:
The bonds deposited as security were held in the joint possession and control of the relator and The Union Trust Company.
On October 15, 1930, pursuant to an ordinance passed by the council of the village of Warrensville Heights, said village issued its note in the principal amount of $46,149.12, due on or before two years after date with interest at 5% per annum, payable semiannually, which note provided on its face that it was issued for the purpose of borrowing money in antici- pation of the levy and collection of special assessments, as provided by law.
On November 21, 1930, under like procedure, the village issued another note in the principal amount of $4,225, due on or before two years after date, with interest at 5% per annum payable semi-annually, which also provided on its face that it was issued for the purpose of borrowing money in anticipation of the levy and collection of special assessments as provided by law.
To meet the prompt payment of principal and interest on both of such notes when due, the full faith, credit and revenue of such village were irrevocably pledged.
The Union Trust Company purchased these two notes at full value and before maturity.
On or about March 2, 1933, the relator had public money on deposit in The Union Trust Company amounting to $31,194.20, in one general account, derived from the following sources: the motor vehicle license fund, the gasoline tax fund, the general bond retirement fund, the special assessment bond retirement fund, various construction funds, and the depository interest fund. The Union Trust Company had no knowledge of the source of such funds, other than that they were public funds. Checks were drawn by the village on this account for all purposes, indiscriminately.
On the date last named, the relator made demand upon The Union Trust Company for the payment and withdrawal of a portion of its funds on deposit, which was refused on the ground that the trust company held two unpaid and over-due notes of the relator, being the same notes described above, aggregating a sum in excess of the amount on deposit. The trust company thereupon notified the relator that its deposit constituted a set-off to the past due notes.
On or about June 15, 1933, the respondent, Ira J. Fulton, as superintendent of banks, etc., took possession of The Union Trust Company for the purpose of liquidation, and is now engaged in such pursuit. About July 28, 1933, the relator demanded that the respondent surrender and deliver to it the said bonds securing its deposit, which demand was refused; hence this action.
Messrs. Locher, Green & Woods, for relator.
Mr. John W. Bricker, attorney general, Mr. Lewis L. Laylin and Mr. Carl F. Shuler, for respondent.
A purely legal question is presented for determination. Is the relator entitled to receive from the respondent the bonds pledged by The Union Trust Company as security for deposit of relator's funds when the indebtedness of the relator to the trust company is in a sum larger than the amount of such deposit? Or, putting the proposition in another way, can a deposit of public funds, representing moneys derived from taxation, be applied by a bank against past due obligations owed to it by the political subdivision which is the owner of such deposit?
The relator argues with much force that under Section 5 of Article XII of the Constitution of Ohio, and certain specified statutes, the tax funds on deposit in The Union Trust Company were appropriated and set apart for the specific purposes directed by the laws and authority through which they were collected, and cannot be used in any other way; that any other disposition thereof would constitute a misapplication and would be unlawful. Hence, under no hypothesis are they subject to be used in reduction of the indebtedness owed The Union Trust Company.
The respondent is equally insistent that the relator is in no different position in respect to these funds than an individual or a private corporation, and that the general rules relating to set-off govern.
In the case of Fidelity & Casualty Co. v. Union Savings Bank Co., 119 Ohio St. 124, 162 N.E. , 420, it was claimed that state funds deposited in a bank according to law are entitled to priority of payment upon the insolvency of the bank. However, in refusing priority, this court took the position that in depositing...
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