The plaintiff in error, the National Union Indemnity Company, filed its petition *Page 467 in the common pleas court of Stark county, Ohio, against Ira J. Fulton, as superintendent of banks of the state of Ohio, Charles W. Miller, deputy superintendent of banks and liquidating agent of The Canton Bank, and The Canton Bank, a corporation. A general demurrer to the petition, filed by the defendants, was sustained, and, the plaintiff not desiring to plead further, final judgment was entered against it. From this judgment error is prosecuted to this court.
The petition avers that on or about February 17, 1930, the commissioners of Stark county awarded $300,000 of the county's inactive funds to The Canton Bank Trust Company, "acting in accordance with the laws of Ohio in such cases provided;" that, pursuant to this award, The Canton Bank Trust Company gave undertakings to Stark county, Ohio, as provided by Section 2722et seq., General Code, to secure said funds; that thereupon said $300,000 was duly deposited by the treasurer of Stark county with The Canton Bank Trust Company; that plaintiff was one of a number of surety companies entering into obligations to the county, the amount of its undertakings being $70,000, which bond or undertaking was duly accepted and approved.
The petition further avers that The Canton Bank Trust Company in November, 1930, by and with the consent of the superintendent of banks "as in such cases provided by law," sold, assigned, transferred, and delivered all its assets and business, save and except only its trust business, to The Canton Mercantile Bank, now known as The Canton Bank, which assumed all its liabilities; that included in such sale and transfer of assets was the $300,000 *Page 468 aforesaid; that in February, 1931, The Canton Bank was closed by the superintendent of banks, and is in process of liquidation, is insolvent and unable to pay its creditors in full; that a demand was made by the treasurer upon the plaintiff for its pro rata share of the obligation, which it paid; and that it received from Stark county an assignment of all the county's rights in said fund to the extent of $65,625, which sum the plaintiff claims both by virtue of said assignment and by subrogation.
The petition further avers that the sale and transfer, so far as it affects the $300,000 involved, from the one bank to the other, was improper and in violation of the depositary laws of the state of Ohio; that The Canton Bank was never qualified to receive said deposit; that The Canton Bank Trust Company had no legal right to sell and transfer said funds to The Canton Bank; that The Canton Bank had no title to such funds, but succeeded only to a possessory title as quasi trustee for the safe-keeping of funds, holding the same in trust for the treasurer of Stark county and his assigns.
The prayer of the petition is that the defendants Fulton and Miller be required to allow the claim of the plaintiff as a preferred claim to be first paid out of the assets of the bank before any dividend or distribution to general creditors.
It will be seen, therefore, that the only matter to be determined is whether or not under this state of facts the claim of the plaintiff is a preferred claim against the funds of the bank, now in the hands of the defendants as liquidating agents.
It is conceded that the plaintiff has, to the extent of the amount claimed, succeeded to any rights *Page 469 which Stark county might have had, and that the defendants Fulton and Miller have all the rights and are subject to all the duties and liabilities which would have attached to the bank of which they are the liquidating agents.
At the outset the question is presented as to where is the title to this money when the deposit is made in accordance with the statutes. Morse on Banks and Banking, Section 289, says: "So soon as the money has been handed over to the bank and the credit is given to the payer, it is at once the proper money of the bank." In other words, the title passes at that time and becomes vested in the bank, and the county has merely a chose in action.
The proposition is stated in 3 Ruling Case Law, page 521, as follows: "Unless there is some agreement to the contrary, deposits received by the bank become its property; they belong to it, and can be loaned or otherwise disposed of by it, as any other money belonging to the bank. If the money is stolen or destroyed the loss must be borne by the bank, though it be free from negligence or fault. It is accountable as a debtor; and the relation between it and the general depositor is essentially that of debtor and creditor. In legal effect, the deposit is a loan to the bank."
Attention is directed to the case of Fidelity Casualty Co. ofNew York v. Union Savings Bank Co., 119 Ohio St. 124,162 N.E. 420, the second, third and fourth paragraphs of the syllabus of which are as follows:
"2. The legislature has made provision for deposit of state funds in Section 321 et seq., General Code, and a deposit when made under authority of *Page 470 those sections creates the relation of borrower and lender between such depositary and the state.
"3. Section 321 et seq., General Code, neither expressly nor impliedly give to the state priority of payment out of the funds of such banking institution in the event of insolvency.
"4. A deposit of state funds in a depositary under authority of Section 321 et seq., General Code, is not an exercise of sovereignty but on the other hand in such a transaction the government is acting in its proprietary capacity."
The Supreme Court of Ohio in this case discusses the general proposition at considerable length, and on page 132 of 119 Ohio State, 162 N.E. 420, 423, states: "The Legislature having made no provision for priority, it will be presumed that the legislative intent has been exhausted. Clearly, the Legislature had the power to provide for priorities, and, not having expressly made such provision, all other depositors in the banks where state funds are deposited have a right to assume that their deposits are as secure as all other deposits. To so interpret the statutes as to permit priorities in favor of the state would require that matter be read into the statutes which the Legislature has not written in."
The Supreme Court in the final paragraph of its opinion concludes by stating:
"It is not necessary to discuss the matter of subrogation further than to say that the surety company is entitled to be subrogated to such rights as might be asserted by the state, viz., to present the claim for allowance and payment of dividends on a parity with claims of unsecured creditors."
See, also, to the same effect Fidelity Casualty *Page 471 Co. of New York v. Union Sav. Bank Co., 29 Ohio App. 154,163 N.E. 221.
The statutes construed in Fidelity Casualty Co. of New York v. Union Savings Bank Company, 119 Ohio St. 124, 162 N.E. 420,supra, are Sections 321 to 330-11, inclusive, General Code, which control the deposit of state funds, and attention is directed to Section 330-3, which provides for the security for the deposit of funds, and provides the condition of the bond to be accepted for such deposit.
The statutes providing for the deposit of county funds are Sections 2715 to 2749, inclusive, General Code, and the very great similarity between these two acts and the provisions with reference to deposits and the safeguards thrown around them is apparent.
Had the funds remained in The Canton Bank Trust Company, and it had then become insolvent, there would have been no difference at all between the situation of the plaintiff in the case at bar and the situation of the plaintiff in the case reported in119 Ohio St. 124, 162 N.E. 420. The plaintiff below, who is the plaintiff in error here, concedes that, had the trust company remained the depositary, it would have had the right to use its funds in the ordinary course of business, and concedes that the original deposit was lawful. It attempts to distinguish between what would be the rights of the parties had that condition continued and what their rights now are, in view of the sale and transfer of the assets to The Canton Bank.
The contention is made that the situation is changed by virtue of what is claimed to have been in effect an illegal act in the transfer, and, in support *Page 472 of the contention, numerous cases are cited by counsel, but it will be observed that all of those cases have to do with deposits illegally made in the first instance.
Suppose that after the deposit had been made legally, the depositary bank had committed some illegal act whereby its assets had been dissipated and it became insolvent. For instance, Section 710-121, General Code, provides that not more than 20 per cent. of the capital and surplus shall be invested in any one stock or security. Section 710-122, General Code, provides that not more than 20 per cent. of a bank's paid-up capital and surplus shall be loaned to any one person. There are numerous prohibitions in the statutes governing banks in their operation and the management of their funds, and a disregard of any of these prohibitions would constitute an illegal act on the part of the responsible officers of the bank. Assuming the performance of any of these illegal acts and the consequent insolvency of the depositary bank, could the county or its assignee claim a preference by virtue of its deposit? We think not.
But we fail to see any illegality or any impropriety in the sale or transfer of assets, such as shown in the instant case. This sale was made in accordance with the provisions of Section 710-86, General Code of Ohio. It will be observed that that section, authorizing such transfer of assets, does not make any exception with reference to public money on deposit. In our judgment, such transfer and sale were made in conformity with the statutes, and convey title to the funds to the purchaser bank, and we *Page 473 see no conflict between that statute and Section 2715 et seq., General Code.
It will be observed that the plaintiff in error admits that the bond given by it was given in accordance with the statute to secure the funds deposited, and that all the statutes of Ohio were complied with, including the giving of a bond and the character of the bond.
It seems to us that this bond was given in contemplation of the fact that The Canton Bank Trust Company might do whatever the statute permitted. In other words, that it might sell and assign its assets or consolidate with another bank; that, when this obligation was entered into, both the bonding company and the county entered into it bound by the knowledge that this thing which the statute permitted might be done.
There is no limitation in this bond and nothing which would relieve it from liability in the event that a sale or consolidation were effected without its knowledge or consent. As admitted by the surety company, it signed the bond required by the statute. What kind of a bond was that and what were its provisions? The section providing therefor is Section 2723, General Code, and reads as follows: "Such undertaking shall be signed by at least six resident free-holders as sureties or by a fidelity or indemnity insurance company, authorized to do business within the state and having not less than two hundred and fifty thousand dollars capital, to the satisfaction of the commissioners, conditioned for the receipt, safe keeping and payment over of all money with interest thereon at the rate specified in the proposal, which may come under its custody *Page 474 under and by virtue of this chapter and under and by virtue of its proposal and the award of the commissioners, and conditioned for the faithful performance by such bank or banks or trust companies of all the duties imposed by law upon the depositary or depositaries of the money of the county."
The obligation, therefore, was "for the receipt, safe keeping and payment over of all money." The obligation was absolute on its face and in its terms. In paying the bank the amount of its obligation, the plaintiff has but performed its legal duty.
We see nothing in the facts alleged in this petition to entitle the plaintiff in error to any relief other than the relief found available for the plaintiff in error in the case reported in 119 Ohio State, supra. The county would have no right, in our judgment, against The Canton Bank or its liquidating agents, other than it would have had against the original depositary or any agency liquidating it, and the plaintiff in error, as surety, has no greater right than its principal would have had.
It follows, therefore, that the judgment of the court of common pleas will be, and the same hereby is, affirmed.
Judgment affirmed.
SHERICK, P.J., and LEMERT, J., concur. *Page 475