Vadakin v. Crilly.

further than good judgment and discretion would warrant or fairness approve.

It seemed to have been a race between the water company and the city officials, the one to prevent, the other to effect a sale of these bonds. I say "the water company," because I feel satisfied that it is the moving factor in the matter.

But, was there any conspiracy? If so, by what evidence is it made manifest? It is claimed that there was great haste. Well, everything in the matter at this time moved rapidly, excepting the serving of the first injunction; that was delayed longer than was for the welfare of the city and the taxpayer, so that the court could not have an opportunity to pass upon it before the day of sale. If the parties entrusted with the sale had the legal right to sell at private sale, they were under no obligation to await the pleasure of any other person or persons. I myself think there was more haste than was demanded, or that was consistent with good judgment, but I have no right to say when a thing shall be done which the parties have the right to do in the present. Unless that haste resulted in damage to the city or was precipitated from a corrupt motive, no one has a right to complain.

Inadequacy of price paid for the bonds might be a badge of fraud or of lack of business capacity. It is claimed that the price claimed was greatly inadequate. Mr. Gaumender says that the sale was а reasonable one. Mr. Kennedy fixes the premium on such bonds at that time at 3.40 per $100. This would be $10,200. The amount paid was $10,150, which would be just 3.38 1-3 on the $100. I know that certain affidavits of agents for bond houses are presented, which state that they were worth much more; but this is easy to believe by an interested party. One of these affidavits, I believe, says his firm had a bid in for said bonds, but he is not able to say what the bid was. I doubt whether these bonds would not have brought a better price if this sale had not been made with such haste. There was, in my opinion, bad management, but mismanagement, without corrupt motive, is not ground for interference. How easy it would have been to have readvertised or invited other bids! It will not do to say that they feared an injunction. That would be a reflection upon the courts.

I hold that this suit was not brought in the interest of the city, but in the interest of the water company; that the bonds had been properly advertised, and offered, as required by law, and that they remained unsold; that the officials had the right to sell them at private sale, under the statute; that there was no conspiracy to defraud the city in the sale; and the motion will be sustained and the injunction dissolved.

Miami Common Pleas.

BANKS-DEPOSITARY LAW-INTEREST.

[Miami Common Pleas, May Term, 1906.]

STATE EX REL. CAMPBELL, PROS. ATTY. V. NATIONAL BANKS.

1. DEPOSITARIES REQUIRED TO PAY OVER INTEREST RECEIVED ON PUBLIC FUNDS UNLAWFULLY DEPOSITED.,

When a county treasurer without authority under the depositary law deposits the public funds with a bank, which receives the funds with full knowledge of their character and loans the same at interest, such bank will be required to account to the public for the interest so received.

2. RESTORATION SUIT BROUGHT BY PROSECUTING ATTORNEY.

The prosecuting attorney has authority to bring the action to enforce such accounting and restoration of such interest.

[Syllabus by the court.]

A. R. Campbell and Gilbert & Shipman, for plaintiff.

M. H. Jones, A. F. Broomhall, T. B. Kyle and R. J. Smith, for defendants.

ALLREAD, J.

These actions are brought in the name of the state for the use of Miami county on the relation of the prosecuting attorney separately against each of the four national banks. It is alleged in brief that the county treasurers of Miami county, in consideration of the banks paying to such treasurers the premiums for the official bonds, agreed with the banks that the public moneys should be divided and deposited in such banks, and that in pursuance thereto one-fourth of the public moneys from September, 1900, to the present time has been deposited in each of the four banks named. That said banks obtained said funds well knowing the same to be public funds of said county, and after obtaining possession of the same as aforesaid commingled the same with their own funds and loaned the same at interest and otherwise used said public funds as their own.

There are two causes of action representing the time covered by the terms of office of different treasurers. In the first cause of action, it is conceded that the banks have accounted in full for the principal sum deposited, while in the second cause of action it is claimed that a portion of the principal sum still remains on deposit.

The prayer of the petition is for an accounting of the public funds claimed to be in the hands of the bank and of the interest there

on.

It is urged that the prosecuting attorney has no legal capacity to bring this action. Whether he has or not depends upon the scope of Rev. Stat. 1277 (Lan. 2655). Originally this section was not broad enough, but with the present amendments it is sufficiently comprehensive to sustain the action.

The main contention is as to the liability of the banks for interest. The statutes of this state, until the depository law was enacted and still, except as provided by that act, prohibit the county treasurer

State v. Banks.

from loaning public funds with or without interest. But if the treasurer nevertheless does loan the funds and secures a profit to himself he is required to account for such profit to the county. Eshelby v. Board of Ed. 66 Ohio St. 71 [63 N. E. Rep. 586]; Glenville v. Engelhart, 10 Circ. Dec. 408 (19 R. 285).

The principle upon which this liability is founded is, that the treasurer is merely the custodian and does not acquire title to the public funds.

It is equally clear, although no decision has been found in this state, that where a mere custodian of public funds deposits or loans them to a bank or other depository having notice of their character, no title to the funds is acquired but such depository holds the same as a voluntary or quasi trustee. State v. Foster, 5 Wyo. 199 [38 Pac. Rep. 926; 29 L. R. A. 226; 63 Am. St. Rep. 47]; Marquette v. Wilkinson, 119 Mich. 413 [78 N. W. Rep. 474; 43 L. R. A. 840]; American Bonding Co. v. Bank, 97 Md. 598 [55 Atl. Rep. 395; 99 Am. St. Rep. 466]; School Trustees v. Kerwin, 29 Ill. 62; Central Nat. Bank v. Insurance Co. 104 U. S. 54 [26 L. Ed. 693]; Holmes v. Gilman, 138 N. Y. 369, 376 [34 N. E. Rep. 205; 20 L. R. A. 566; 34 Am. St. Rep. 463]; Bircher v. Walther, 163 Mo. 461 [63 S. W. Rep. 691]; Independent District of Boyer v. King, 80 Ia. 497 [45 N. W. Rep. 908]; Lincoln v. Morrison, 64 Neb. 822 [90 N. W. Rep. 905; 57 L. R. A. 885].

In the case of National Bank v. Insurance Co. supra, it is said that while the relation of a bank to its depositor is ordinarily that of debtor and creditor, yet if the money deposited is held by the depository in a fiduciary capacity and is knowingly accepted by the bank, the fund in the hands of the bank is still impressed with the original trust and the bank assumes thereby a fiduciary relationship.

Mr. Justice Matthews in the opinion cites with approval from the case of Pennell v. Deffell, 4 DeG. M. & G. 372, as follows:

"It is, I apprehend, an undoubted principle of this court that as between cestui que trust and trustee and all parties claiming under the trustee otherwise than by purchase for valuable consideration without notice all property belonging to a trust, however much it may be changed or altered in its nature or character, and all the fruit of such property, whether in its original or in its altered state, continues to be subject to, or affected by, the trust."

In the case of Independent District of Boyer v. King, supra, it is held that while ordinarily in case of a deposit the title to the money is transferred and the relation of debtor and creditor arises, this is not so as to public funds deposited with full knowledge of their character. In such case the trust character of the fund still remains.

In case of Holmes v. Gilman, supra it is held that the cestui que trust can follow the trust funds and claim the property into which such funds have been invested, together with its increase, providing

Miami Common Pleas.

such trust fund can be clearly ascertained. Peckham, J. in this case says:

"The right has its basis in the right of property, and the court proceeds on the principle that the title has not been affected by the change made of the trust funds, and the cestui que trust has his option to claim the property and its increased value as representing his original fund."

In Lincoln v. Morrison, supra, it is said:

"The profits of trust money belong to the cestui que trust, and we see no warrant for limiting recovery to the actual sum invested."

In State v. Foster, supra, it is directly decided that the bank receiving deposits of public funds with knowledge of their character becomes a quasi trustee and stands in the shoes of the depositing treas

urer.

It is asserted by counsel for the banks that if the depositing of the money by the treasurer in the banks be found to be illegal, no cause of action can be founded for the return of the principal or the interest. The doctrine is well established that no action can be maintained even by the state or its subdivisions upon an illegal contract. State v. Buttles, 3 Ohio St. 309; Hartford Tp. (Bd. of Ed.) v. Thompson, 33 Ohio St. 321. If, therefore, this cause of action was founded upon an illegal contract the action could not be maintained, but in the case last cited a distinction is drawn between a suit upon the contract of loan or deposit and one for the restoration of the money to its proper custody. It is said in the opinion (page 328) that an action for the restoration of the money to its proper custody would not be an action on the illegal contract, but in repudiation of it.

The action here is not founded upon the contract of the treasurer with the banks, but it is for an accounting of the public money in the hands of the bank thereby securing its restoration to the proper custody. This accounting may, therefore, include not only the principal of the public funds but any accretion in the way of interest. While it necessarily follows that no interest can be allowed upon the contract of loan, either express or implied, yet if the public money in the hands of the bank was actually loaned at interest by the bank, as this petition avers it was, all profits or increment so arising would become a part of the fund itself and should be accounted for and restored to the public treasury.

It is not necessary to determine at this stage whether the liability for interest is confined to the investments or loans into which the public fund has been traced, or whether the commingling of the public funds with the general deposits of the bank would of itself create a liability for interest. Such question will more properly arise upon the trial of the case. The averment that the public funds were loaned at interest is sufficient against a general demurrer to create a liability.

State v. Banks.

It is also urged that a demand is necessary to create a liability for interest or a return of the funds, but the liability of the banks for the earnings of the public funds does not depend upon demand, nor does the liability for an accounting or restoration of the funds to their lawful custody depend upon a previous demand.

The demurrers are therefore overruled.

CORPORATIONS-INSPECTION.

[Franklin Common Pleas, April 18, 1906.]

NEWELL K. KENNON V. OHIO TRUST Co.

RIGHT TO INSPECT BOOKS-REVISED STATUTES 3254 (LAN. 5195) APPLICABLE TO ALL OHIO Corporations.

Revised Statutes 3254 (Lan. 5195), giving the right to stockholders of a corporation of an inspection and examination of the company's books, is applicable to all corporations organized under the laws of Ohio, and trust companies are not exempted from its operation. [Syllabus approved by the court.]

INJUNCTION.

Gordon & McMahon, for plaintiff.

H. J. Booth and Sater, Seymour & Sater, for defendant. RATHMELL, J.

Injunction is sought against defendant from refusing to allow plaintiff to inspect its books and records.

The petition avers that plaintiff is a stockholder in defendant, holding and owning five shares of stock; the plaintiff has requested the defendant to allow him to inspect the books and records of the corporation, and to fix the time for same; that defendant refused request.

It appears from the evidence that the plaintiff is the owner of certificate No. 472, calling for five shares of the capital stock of the defendant company, under date of April 29, 1905; that in the early part of May, 1905, the plaintiff, through his agent, Mr. Pogue, made a request of the president, Mr. Bright, and secretary and treasurer, Mr. Vance, officers of the defendant corporation, to examine the books and records of the corporation; he presented with said request a power of attorny from plaintiff, appointing him to examine the books and accounts and records of the company. They stated they had talked with counsel and wanted to call their executive committee or board of directors to act, and let him know what should be done with the request. The agent then left. Later, on May 18, the agent addressed a letter to defendant company, stating that he desired it to be understood that demand is made according to Rev. Stat. 3254 (Lan. 5195), as the law had been construed by the Supreme Court of the state. This letter was received by the defendant and by its counsel. Thereafter