In the Court of Common Pleas, the Clerk of Courts, John J. Busher, brought an action against the Guardian Trust Company to obtain a judicial declaration that certain funds originally deposited in the sum of $69,970 were held by the bank as a trust fund and special deposit, and that therefore the clerk was entitled to preferential payment. The Court of Common Pleas held that the Clerk of Courts was entitled to a preference, and ordered the Superintendent of Banks, who had been substituted for the Guardian Trust Company, to pay over said amount, with interest, forthwith. An appeal has been taken to this court by the Superintendent of Banks as liquidator.
An understanding of the legal questions involved requires a somewhat lengthy recitation of facts.
On January 24, 1928, the Board of Park Commissioners of the Cleveland Metropolitan Park District filed in the Insolvency Court of Cuyahoga county an application to assess compensation for the owners of certain lands whose property was being appropriated for park purposes. From the verdict there rendered the park board appealed. In the Common Pleas Court a verdict was returned for the property owners in the sum of $69,970.
The statement of agreed facts contains, inter alia, the following:
"Third: Thereupon, and within the time required by law, the defendants filed proceedings in error in the Court of Appeals of said county, for the reversal of the judgment entered in said Court of Common Pleas, said proceedings in error being cause No. 12,498 in said Court of Appeals.
"Fourth: Thereafter, upon or about November 19th, 1930, and pursuant to the judgment and order of *Page 171 said Court of Common Pleas, and within six months from the rendition of said verdict therein, said Board of Park Commissioners paid the amount of said verdict, to-wit: $69,970.00 to the Clerk of said Court, Thomas C. Cook.
"Fifth: Thereafter, upon November 28th, 1930, said Thomas C. Cook, as such Clerk of Courts, by A.J. Eyring, Deputy Clerk of Courts, deposited said sum of $69,970.00 with The Guardian Trust Company, defendant herein, being Account No. 259,334 in said bank. Neither at this time nor at any other time was any security given by the said The Guardian Trust Company to said Thomas C. Cook or to anyone else to secure said Account No. 259,334 or to secure Account No. 270,597 which is hereinafter referred to in paragraph nine. Such account was entitled `Thomas C. Cook, Clerk of Courts Pro Tem., A.J. Eyring, Deputy Cashier.' At the time of making such deposit, said Eyring specifically and definitely informed said The Guardian Trust Company that said funds had come into the hands of the Clerk of said Court pursuant to the judgment and decree of the Court of Common Pleas in said Cause No. 322,190, and that said funds were being then and there deposited with said The Guardian Trust Company for a specific time, to-wit: until the final determination of said cause: the same to be paid by said Clerk of Courts to the property owners in said cause in the event of an affirmation by the reviewing courts, but to be returned by said Clerk of Courts to said Park Board in the event of a reversal."
Subsequently this judgment of the Common Pleas Court in the sum of $69,970 was reversed and vacated by the Court of Appeals in cause No. 12498. Thereafter a new trial was had, and on October 1, 1931, a judgment was recovered in the sum of $111,111.80, which was affirmed by the Court of Appeals, and a motion to certify was overruled by the Supreme Court *Page 172 about September 8, 1932. This latter amount was not paid by the park board either into court or to the owner of the premises, but in the meantime the original award of $69,970 had been deposited with the clerk, who in turn deposited said amount with the Guardian Trust Company as shown by the statement of agreed facts.
In January, 1933, John J. Busher became Clerk of Courts, and on January 6, 1933, Busher, as clerk, caused said deposit with interest at three per cent. to be transferred to an account with a new number, to wit, 270597, in the name of John J. Busher, Clerk of Courts. It is conceded by the liquidator that Busher informed the bank that said funds were being held upon the same understanding as that had by his predecessor in office.
The Clerk of Courts claims in several briefs filed in his behalf, and in behalf of the Park Board, that the original deposit was a special deposit of public funds belonging to the Park Board; that under Section 2976-10b of the General Code the park board could not deposit these funds in a bank without taking security from the bank, as in the case of county funds; that the clerk was without authority to make said deposit because no statute gives the clerk such authority; and that therefore the funds constituted a special deposit, and a preference was created.
The liquidator claims that the deposit was not illegal so as to constitute the depository a trustee; that the deposit by the clerk did not constitute a special deposit entitled to preference; that the relation of debtor and general creditor was created; and that even though the funds are held by the bank as a trustee the facts do not entitle the clerk to an order requiring the payment of the deposit immediately.
The principal questions presented to this court are:
First. Was the deposit in the bank by the clerk a *Page 173 deposit of public funds coming within the depository act so as to make the bank a trustee?
Second. Was the deposit of these funds by the clerk an illegal deposit which created a preference?
Third. Did the deposit of these funds held by the Clerk of Courts constitute a general deposit creating a relationship of debtor and creditor?
Section 2976-10b of the General Code of Ohio, relating to park districts, provides: "All funds under the control of said board shall be kept in depositories selected in the manner provided for the deposit of county funds, insofar as such proceedings are applicable, and such deposits shall be secured as provided in case of county funds."
It is obvious that funds under the control of the park board are public funds and while under the control of said board are subject to this depository act.
However, Section 2976-7, General Code, relating to the powers and duties of the park board, provides that: "In case of appropriation, the proceedings shall be instituted in the name of the board, and shall be conducted in the manner provided for the appropriation of private property by municipal corporations insofar as such proceedings are applicable."
Turning now to the sections of the Code with reference to the appropriation of property by municipal corporations, we find that Section 3686 provides: "As soon as the corporation shall have paid the compensation assessed, or secured its payment by a deposit of money under the order of the court, possession of the property may be taken."
Section 3691 of the General Code provides that: "Upon the payment or deposit, by the corporation, of the amount assessed, as ordered by the court, an absolute estate in fee simple shall be vested in such corporation, unless a lesser estate or interest is asked for *Page 174 in the application, in which case such lesser estate or interest as is so asked for shall be vested."
Section 3695 of the General Code provides for a review of the proceedings, further provides that the trial court, upon proper terms, may suspend the execution of any order, and further provides that "in all cases where the municipal corporation pays or deposits the compensation assessed, and gives adequate security for any further compensation and costs, the right to take and use the property condemned shall not be affected by such review."
Again, Section 3690, General Code, provides that the court shall make such order as to payment, deposit, or distribution of the amounts assessed as may seem proper.
It is further provided in Section 3697, General Code, that when a municipal corporation makes an appropriation of property, and fails to pay or take possession thereof within six months after the assessment of compensation shall have been made, its right to make such appropriation on the terms of the assessment so made shall cease and determine.
In view of these provisions it is clear that the park board had the right, if not satisfied with the verdict, to pay the money into the hands of the clerk of the courts. The clerk became the custodian of the fund. If the verdict and judgment were later sustained by reviewing courts the money was then to be paid to the property owners. It is manifest that the property owners had just as great an interest in this fund the moment it was deposited with the clerk as did the park board. The sole duty of taking care of these funds, and the custody and control of them, were given to the clerk, and it cannot reasonably be said that the park board had control over these funds after depositing them with the clerk. This is particularly clear in view of the provisions giving the park board the immediate right to *Page 175 possession. The park board could only obtain title under Section 3691, General Code, and possession of the lands under Section 3686, General Code, by paying the money to the owners or depositing it in court. When the park board deposited the money with the clerk, it parted with control of the funds and obtained title and the right to possession. It follows, then, that the funds when deposited with the clerk were not within the control of the park board so as to come within the requirements of the depository act, to wit, Section 2976-10b, General Code.
The next question presented is whether or not the clerk had a right to deposit these funds in a bank. Inasmuch as the clerk had the exclusive control over the funds during the interim in which litigation was carried on, it is clear that the clerk could have kept these moneys, funds, or credits in his office or in a safe, or could have placed them in any safe and suitable place which he deemed desirable. The clerk in this instance did the usual and customary thing and deposited the funds in a bank.
It is urged that, inasmuch as there is no specific statutory authority for the clerk to so deposit funds, it follows that this was an unauthorized or illegal deposit which gave rise to a preference.
It is true that there is no depository act governing the clerk of courts, as there is in the case of the county commissioners, county treasurer, township trustees, boards of education, and some other public officials.
On the other hand, there is no statute which prohibits the clerk from depositing the money in a bank. In fact, the normal and usual thing to do, particularly with funds in this amount, would be to deposit them in a bank for safe-keeping.
The only statute in Ohio bearing upon this situation is Section 12875 of the General Code, which was amended on May 27, 1915 (106 Ohio Laws, 556), to its *Page 176 present form, which reads as follows: "The provisions of section twelve thousand, eight hundred and seventy-three shall not make it unlawful for the treasurer of a township, municipal corporation, board of education, or cemetery association, to deposit public money with a person, firm, company, or corporation organized to do a banking business under the laws of this state or the United States, but the deposit of such funds in such bank shall not release such treasurer from liability for loss which may occur thereby. Nor shall the provisions of section twelve thousand, eight hundred and seventy-three, make it unlawful for a county auditor, county treasurer, probate judge, sheriff, clerk of courts, or recorder, to deposit fees and trust funds coming into their custody as such officers as above, until such time as said aforesaid officers are required to make payment of the official earnings of their offices, so deposited, into their respective fee funds as required by section twenty-nine hundred and eighty-three, and until such time as the trust funds, so held by them in their official capacities, may be paid to the person, persons, firms, or corporations, entitled to same, and any interest earned and paid upon said deposits shall be apportioned to, and become a part of said fees or trust funds, and shall in no instance accrue to, and be received by, the official making said deposits, for his own use."
This section of the Code, it will be noted, exempts public officials, including the clerk of courts, from any criminal liability for depositing "fees and trust funds coming into their custody as such officers."
It follows, therefore, that there is no violation of any criminal statute in thus making a deposit of these funds, and, inasmuch as there is no statute prohibiting the clerk from making such a deposit in the bank, we think that the clerk had a perfect right to deposit these funds in the bank. *Page 177
Coming now to the relationship created between the Clerk of Courts and the bank when the funds were deposited, if the clerk at that time had explained the nature and source of the funds, and in addition thereto had asked the bank to hold the funds intact, and the bank had consented thereto, there would undoubtedly have arisen a trust relationship. The statement of agreed facts clearly shows, and it is conceded by counsel for the liquidator, that the deputy clerk informed the bank of the source and character of the funds. The bank, however, in so far as this record discloses, did not agree to hold these funds intact. On the contrary, the account was credited with interest to the extent that in January, 1933, the amount in a new account of John J. Busher, clerk, was $74,690.38.
The bank was not instructed to hold these funds in a safety deposit box, or to hold the deposit separate and apart from the general funds of the bank.
In the case of McDonald, Admr., v. Fulton, Supt. of Banks (1932), 125 Ohio St. 507, at page 511, 182 N.E. 504, 83 A.L.R., 1107, Matthias, J., says: "It is to be observed that deposit in an interest-bearing account is directed, which of course contemplates use of the fund by the bank, and the fiduciary therefore becomes a general creditor by the very force of the statute governing his action." That case involved the deposit of funds by a fiduciary.
The principle involved is stated in the American Law Institute, Restatement of the Law of Trusts, Tentative Draft No. 1 (1930), at page 44: "If money is deposited in a bank for a special purpose, the bank is a trustee or bailee of the money if, but only if, it is the understanding of the parties that the money deposited is not to be used by the bank for its own purposes."
Again, in Morse on Banks and Banking, volume I (6th Ed.), 510, it is said: "In the absence of evidence to show that it is the bank's duty, by agreement express *Page 178 or clearly implied, to keep the funds and their investment separate, it must be treated as a general deposit."
In the case of Bank v. Brewing Co. (1893), 50 Ohio St. 151, at page 157, 33 N.E. 1054, 40 Am. St. Rep., 660, it is said by Williams, J.: "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."
In the case of J.G. Kuehnle Co. v. Fulton, Supt. of Banks, (Court of Appeals of Lucas County, Sixth Appellate District, (1932), 45 Ohio App. 386, 187 N.E. 81, it appears that a bank was given the right to use the money, and that the account bore interest at the rate of four per cent. per annum, payable semi-annually. It is there said by Lloyd, J., in referring to theMcDonald case, supra: "This statement of the Supreme Court relates to a statutory direction, but it is none the less applicable to a contractual direction whereby the parties themselves determine the character of the deposit and convert what otherwise would have been a trust relation into that of debtor and creditor."
In 51 American Law Reports, at page 1346, it is stated: "But where a general deposit of public funds in a bank which thereafter becomes insolvent was authorized or permitted, or at least not unlawful, the great weight of authority is that there is no trust impressed upon such funds in favor of their owner, and consequently no preference in favor of the latter, as against general unsecured depositors, may be predicated on this theory."
Applying these principles to the instant case, it will be seen that there was no agreement upon the part of the bank not to mingle these funds with the deposits generally. The only obligation of the bank was to the Clerk of Courts. The clerk had the sole right to withdraw *Page 179 these funds. The depository agreed to nothing except that the money would be available, and the fact that interest was payable on the account at the annual rate then paid on savings accounts is an important element indicating that the bank had a right to use the funds.
Under these circumstances, where the Clerk of Courts was made custodian of these funds and deposited them in the bank, the relationship of debtor and creditor was created in the absence of an agreement with the bank to hold the funds intact, and in the absence of a statute prohibiting the clerk from making this deposit.
The further question was argued to the court as to whether or not the claim of a preferred creditor could be paid at once, or if it should be held pending the determination of the rights of other preferred creditors similarly situated. That question was discussed in the case of State, ex rel. Toledo Theatres RealtyCo., v. Fulton, Supt. of Banks, 124 Ohio St. 360, 178 N.E. 585.
In view of our decision that the clerk is not entitled to a preference, it is unnecessary to decide the question of the right to immediate payment, where there are other preferred creditors.
To summarize: We think that the depository act governing park boards has no application; that under the sections of the Code relating to appropriation proceedings the park board had the undoubted right to deposit these funds with the Clerk of Courts; that the park board then had a right to take possession of the premises, and the funds having been deposited with the clerk were in the exclusive custody of the clerk until a final determination of the cause in which the judgment was rendered; that the clerk in the absence of statutory prohibitions or restrictions as to where he kept the funds had a right to deposit the funds in the *Page 180 bank; that the record does not show an agreement between the bank and the Clerk of Courts which would make the bank a trustee; that this was not an illegal deposit so as to create a trust relationship; that the fact that the account bore interest indicates an intention that the bank could use the funds; and that, therefore, the relationship of debtor and creditor was created between the Clerk of Courts and the bank and the clerk is not entitled to a preference.
Accordingly, a decree will be entered for the defendant bank, and a journal entry may be drawn in accordance with these views.
Decree accordingly.
LIEGHLEY, P.J., concurs.
LEVINE, J., dissents.