
    ESTOPPEL — INTEREST—PRINCIPAL AND SURETY —STATE.
    [Franklin (2nd) Circuit Court,
    January 16, 1912.]
    Dustin, Allread and Ferneding, JJ.
    
       State of Ohio v. Herbert McKinnon et al.
    1. Interest on State Moneys Converted by State Treasurer Creates Liability Enforceable against His Bond.
    Where a treasurer of state loans and deposits the public funds in his custody and receives and converts interest thereon during his official term, a liability for the interest so received is thereby created, enforceable against the obligors upon the official bond, executed pursuant to R. S. 182 (Gen. Code 297).
    2. Notwithstanding Loans Made Violated Penal Statute.
    The liability so arising is within the purview of the official bond, although the loans and deposits from which the interest sprang were made in violation of a penal statute.
    3. Settlement and Receipt for Principal Funds do not Estop Recovery of Interest Converted.
    The settlement with the auditor of state by the treasurer or his legal representative of the amount of the principal fund (not, however, including interest) and the receipt thereof by virtue of said settlement by the successor in the office of treasurer o£ state do not estop nor prevent the state from recovering the amount of interest received as aforesaid. R. S. 198 (Gen. Code 317).
    [Syllabus by the court.]
    Error to common pleas court.
    
      Timothy 8. Hogan, Atty. Gen., H. J. Booth and R. 'W. McCoy, for plaintiff in error.
    
      Cyrus Huling, A. T. Seymour and J. E. Todd, for defendants in error.
    
      
       Affirmed, no op., McKinnon v. State, 87 O. S. 000; 57 Bull. 458.
    
   ALLREAD, J.

The state brought an action against the administrator of the estate of the late William S. McKinnon and the sureties upon his official bond as treasurer of state to recover interest upon loans and deposits of the public funds alleged to have been received by McKinnon during his official term.

Demurrers were presented in the court of common pleas to the amended petition and overruled.

The defendants, thereupon, answered.

Tbe first defense is in substance a denial of the making of loans and receipt of interest. The second defense séts forth, as a bar to the action, a statement in behalf of the treasurer, settlement by the auditor of state and acceptance thereof by his successor in the office of treasurer of state.

A demurrer was presented to the second defense. The court upon consideration of the demurrer searched the entire record, found the amended petition insufficient, sustained a demurrer thereto, and dismissed the action.

The state excepted and brings the cause to this court upon petition in error.

The amended petition in the court of common pleas presents the question of the liability of the state treasurer and the sureties upon his official bond for interest upon loans and •deposits received by him during his official term.

The question so presented has been fully and ably argued 'toy counsel and all the reported eases, both in the state and elsewhere, have been cited and discussed.

Upon full consideration, we are of opinion that the doctrine is settled in this state by the ease of Eshelby v. Cincinnati (Bd. of Ed.) 66 Ohio St. 71 [63 N. E. Rep. 586], that a public treasurer is a mere custodian of the public funds, has no other right or title thereto, and can confer no right or title to others.

The funds, therefore, when' loaned or deposited, were ,-still the public funds, the title and ownership of which was in -¡the state, and the interest accruing thereon followed the principal and became the property of the state by the same right as the principal itself.

This decision has never been departed from, criticised nor doubted by any adjudication in this state, and forms the basis of civil liability.

It has been applied and followed in the following cases:

Glenville v. Englehart, 10 Circ. Dec. 408 (19 R. 285); State v. Schott, 22 Dec. 320; State v. Bank, 19 Dec. 86 (7 N. S. 43); Nicholson v. Maile, 15 Dec. 682 (3 N. S. 201).

And also by Judges Evans and Bigger of the court of common pleas in the former rulings on demurrer to the petition in the ease at bar, State v. McKinnon, 20 Dec. 300 (9 N. S. 513) ; State v. McKinnon, 21 Dec. 346 (11 N. S. 165).

We have, therefore, no difficulty in reaching the conclusion that it became the duty of McKinnon and is now the duty of his administrator to account for and pay to the state the interest so received.

The chief contention of the learned counsel for defendants in this court is (1), that the liability for interest is not within the terms of the official bond, and (2), that the interest arising out of illegal acts is not contemplated by the general terms of the bond and the statutes prescribing its conditions.

It may be conceded that the sureties may stand upon the strict letter of the bond, and of the statutes made part thereof, by reference, and that their liability can not be extended beyond the terms and provisions so employed.

The conditions of the bond required the said William S. McKinnon to “faithfully discharge the duties imposed upon him by law, * * * and to turn over and deliver to his successor in office, or other person entitled thereto, all money and other property coming into his' custody as treasurer of state for the state of Ohio, as required by law.”

R. S. 182 (Gen. Code 297) provides that the bond shall be conditioned- ‘ ‘ for the faithful performance of the duties of his office as the same are prescribed by law.”

Among the duties so prescribed, the treasurer of state, upon expiration of his term, is required by K. S. 198 (Gen. Code 317 et seq.), to make full settlement “of all moneys, property and effects belonging to * * * the state treasury,” and is further required to “forthwith pay over to his successor or the person appointed to act as treasurer, the several sums of money so certified, and also deliver to Mm all the books, accounts, vouchers, official papers and correspondence, together with all other property, bonds, securities, claims, assets, and effects belonging to the treasury.”

By the statute as well as the express terms of the bond the state treasurer became so bound to turn over to his successor all money and other property belonging to the state.

The terms are comprehensive; the test is the ownership of the state. When the ownership of the state is established to funds in the possession of the state treasurer, he is bound to turn them over to his successor.

The receipt of jiublie funds by the state treasurer becomes official. The treasurer can not assert and maintain an individual possession of public funds against the state. lie can not with one hand collect the principal of the public funds as official custodiau and-with the other hand collect and hold the interest as his own. The title to both principal and interest being in the state, the failure of the treasurer to turn over the augmented fund falls within the express terms of the bond.

The illegality of the loan from which the interest sprang is relied upon as a reason for excluding interest from the purview of the bond. It is asserted that in contemplation of the statute, and, therefore, of the .bond, there can be no interest, and that the bond should be so read and construed.

The case of State v. Pierson. 83 Ohio St. 241 [93 N. E. Rep. 967], is cited. That was a criminal case and involved a construction of the statute making conversion of public moneys by the custodian embezzlement. The statute, it was held, did not contemplate interest, but only the original fund. The ease does not pretend to settle the civil liability. The case of Eshelby v. Cincinnati (Bd. of Ed.) supra, is cited, and its authority in civil cases is acknowledged.

Counsel for defendants cite Renfroe v. Colquitt, 74 Ga. 618, and Wilkes Barre v. Rockafellow, 171 Pa. St. 177 [33 Atl. Rep. 269; 30 L. R. A. 393; 50 Am. St. Rep. 795], and the classification of authorities found in State v. McFetridge, 84 Wis. 473 [54 N. W. Rep. 1, 998; 20 L. R. A. 223].

Both the Benfroe and Boekafellow cases are weakened as authority by dissents and the Boekafellow case is not parallel on.the facts. , ■

The McFetridge case merely acknowledges and classifies the Benfroe case without expressly approving its authority. and upon closely allied facts, holds the sureties liable.

In the case of Eshelby v. Cincinnati (Bd. of Ed.) supra, the treasurer of the board of education having authority to deposit funds, but no authority tc use, loan or invest them, deposited them upon interest, and was held liable for the interest. The manner of deposit as indicated by the opinioii was an investment prohibited and made criminal by statute. While the suit was against the treasurer alone, still his liability was measured by the conditions of the bond. The contention made here, that interest arising solely out of an unlawful and criminal act is not contemplated by the bond, could have been made with equal plausibility there. Had the funds in that case remained in the custody of the treasurer or been deposited as enjoined by law, no interest could have arisen. The'interest there, as here, sprang from illegal loans or investments. The decision, therefore, carries by necessary inference the conclusion.that interest upon the public funds, although the fruit of illegal loans, may be recovered as a breach of the official bond.

The case of the State v. Griffith, 74 Ohio St. 80 [77 N. E. Rep. 686; 6 Ann. Cas. 888], distinguishable. Griffith was clerk of the board of education, and by resolution of the board authorized to collect tuition dues. This he did and failed to account.' It was held that the sureties upon his official bond were not liable, because he was not charged by law with the receipt and custody of the funds, and that his duties, for which his bond was conditioned, could not be so enlarged by resolution or appointment of the board.

In the case under consideration McKinnon held and controlled the public funds under provision of law and in his official capacity as state treasurer. While in the exercise of the control and custody of the public fund the treasurer illegally loaned them, yet the fund was still in his custody and control by virtue of his office. See Drolesbaugh v. Hill, 64 Ohio St. 257 [60 N. E. Rep. 202].

It is too narrow a construction of an official bond to hold that it does not include liability for the consequences for illegal acts.

In the ease of Greenville v. Anderson, 58 Ohio St. 478 [51 N. E. Rep. 41], Williams, J., says:

“If the acts of an officer are to be regarded as unofficial whenever they are illegal, an official bond could serve no useful purpose, for there can be no breach so long as he performs Ms duties according to law. It is only when some duty has been omitted or disregarded or improperly or illegally performed that a liability can arise.”

The loan of the public moneys by the treasurer was itself a breach of the official bond and created a liability against the sureties, which could be discharged only by full restoration. There remained a duty upon the state treasurer to recover the state funds and restore them to rightful custody.

Had a successor been appointed, can his right and duty to recover the fund with outstanding interest be doubted.? In the recovery and restoration of' this fund by the' treasurer, who made the loan, is he to be considered less an agent of the state and acting in official capacity?

The cause of action does not, therefore, rest solely upon the illegal act of loaning the funds, but as well upon the duty of collecting and restoring them.

In the discharge of this official duty, it is illogical and unreasonable to say that he may restore part and retain part and claim fulfillment and the discharge of his bond.

The petition, therefore, which alleges that McKinnon loaned the public funds, received interest thereon during his term of office, and failed to account for and turn over the same to his successor, shows a breach of the official bond, and constitutes a cause of action against the estate of McKinnon, as well as the sureties upon his bond.

The second defense setting forth the settlement with the state auditor and his successor as state treasurer admits that no interest was included.

This defense is not sufficient. The treasurer by his own statement to the auditor and to his successor can not furnish justification for his own release as to item not included. For aught that appears neither the auditor nor McKinnon’s successor knew of the omitted items. In any event the settlement could furnish no defense as to items not accounted for. •

The judgment of the court of common pleas is, therefore, reversed and the cause remanded with instruction to overrule tlie demurrer to the petition and sustain the demurrer to the second defense.

FERNEDING, J., concurs.

DUSTIN, J.,

dissenting.

The opinion of the majority of the court is devoted chiefly to the proposition that the estate of William S. McKinnon is liable for the interest received by him on the funds of the state while he was treasurer.

In that I concur fully. Indeed, I think it is not seriously denied by anybody. It is a familiar principle that a trustee is liable for the profits made out of the trust fund in his hands.

If McKinnon had made a fortunate investment in stocks and realized a profit of a million dollars, I do not doubt that he or his personal representatives would be liable to the state for the whole of it.

But the situation is quite different as to his bondsmen. They are liable, of course, for any loss of the principal so invested; and, if the law had then permitted loaning as it does now, they would be liable for any interest obtained, up to the limit of their bond, because they would be presumed to know the law and that such a liability might be incurred. But they can not be presumed to incur a risk of being liable for an increase that was illegal, _ and, hence, presumably impossible, to obtain.

As the law stood at the time Mr. McKinnon’s bond was signed, the sureties were, in my opinion, liable for losses only,— not for profits. There could be no profits legitimately obtained. The funds referred to in the phraseology of the bonds were the funds already in the treasury and such as might legitimately be placed there. As the Supreme Court significantly remarks in State v. Pierson, supra “In contemplation of the lawmakers, there never could be any interest.” And in State v. Newton, 26 Ohio St. 265, 275, an indictment against a county auditor for the embezzlement of public money alleged to have come into his hands, the court says: “If it was there at all, it was there without legal authority,” and quashed the indictment.

The case of Eshelby v. Cincinnati (Bd. of Ed.) supra, is referred to as conclusive. But it does not strike me as anything more than a new application of the old principle referred to above, viz., that a trustee, even for the public, is liable for profits. The bondsmen were not sued nor are they referred to in the Eshelby case, and the question here presented was not made to nor considered by the court; nor is there any dictum in the opinion that could fairly be applied to their situation. The phrase "the increment follows the principal” refers to the only question in the case, viz., the liability of the official.

The bondsmen are entitled to stand on the conditions ot their bond, which, properly construed, it seems to me, cover losses only and not profits, which, in contemplation of law. aa it then stood, could never occur.  