
    The Security & Bond Deposit Co. v. The State, ex rel. Seney, Prosecuting Attorney.
    
      Corporations — Conducting tanking business — Receiving government bonds on deposit — Borrowing thereon to secure working capital — State tanking code — Section 110-2, General Code —Quo warranto.
    
    A company incorporated under the laws of this state for the purpose of “contracting for and buying and selling securities and bonds, also borrowing and loaning on same and making loans on real estate security,” is not authorized to engage in the banking business, and where such company solicits and receives government bonds, on deposit at its established place of business in this state, agreeing to return same or like bonds upon call, or at a time agreed upon, paying therefor a stipulated rate of interest in addition to that called for by the coupons attached thereto, its announced purpose being to use same as collateral to borrow money which shall constitute its working capital, such transactions are beyond its authority and will be enjoined.
    (No. 17096
    Decided May 16, 1922.)
    
      Error to the Court of Appeals of Lucas county.
    This is a suit in quo warranto, and was instituted in the court of appeals of Lucas county. . The petition alleges that the defendant, The Security & Bond Deposit Company, is a corporation organized and existing under the general corporation laws of the state of Ohio, having been organized for the purpose of ‘ ‘ contracting for and buying and selling securities and bonds; also borrowing and loaning on same and making loans on real estate security,” with its office and place of business in the city of Toledo; that such corporation has offended against the laws of the state, misused its corporate authority, franchise and privileges, and assumed franchises and privileges not granted to it, in the particulars that it has unlawfully been carrying on a general banking business, has unlawfully solicited, received and accepted money or its equivalent on deposit, as a business, and has issued therefor its certificate of deposit, pass book, note, receipt or other writing, and has unlawfully assumed and exercised powers granted to banking corporations.
    The answer of the defendant, other than its admission of its incorporation and the purpose of its organization, is substantially a general denial.
    It is disclosed by the record that the plan of operation of the business of the defendant company was to borrow securities, in the main liberty bonds, paying therefor a stipulated rate of interest, calculated on the par value thereof, in addition to the interest payable by the government under the terms of such bonds. These securities thus borrowed would then be used as collateral by the company to secure loans of money to itself, denominated “its cash working fund.” As concisely stated by the president of the company, “instead of selling stock to create our. entire working fund we borrow securities and in turn borrow cash on the securities.” The advertising matter of the defendant company informed the public that “to deposit your securities with the Security & Bond Deposit Company is similar to depositing your cash in a bank, as we pay from two per cent, to four per cent, annually on securities in addition to the amount of interest your securities áre earning. Therefore, you receive not only the amount of interest your securities are earning but also the additional interest we pay you for the use of your securities, which is the same as a bank paying four per cent, for the use of your cash.”
    It further appears that such bonds may be deposited with the defendant company subject to call, or for one, two, three or four years, the rate of interest payable thereon varying accordingly. There was no agreement, however, to return the same bonds; but the same kind of bond.
    The method of operation of the business of the defendant company is further set forth in the stipulation made by the parties and submitted to the court of appeals along with testimony adduced in that court as follows:
    “4. Defendant has proposed and intends to borrow money at five per cent. (5%) interest from such persons as may care to lend, giving its evidence of indebtedness in the form attached, marked ‘Exhibit B-l,’ of which the copy on pink paper is retained by the defendant; the loaner signs the receipt marked ‘Exhibit B-2’ and the pink copy thereof is retained by defendant; the collateral proposed to be given on such loan is Liberty Bonds. This is the only manner in which it is proposed to receive money from customers, and only one such transaction has been completed by defendant, when in the summer of 1920 it borrowed the sum of One Hundred and Fifty Dollars ($150) in the manner above described, which loan was all paid by the defendant within ninety days.
    “5. Defendant proposes to engage, and has engaged in the business of loaning money on Liberty Bond security, using in such transactions forms of which the attached note marked ‘Exhibit 0-1,’ assignment marked ‘Exhibit- C-2,’ and certificate marked ‘Exhibit C-3’ are copies, the pink copy of Exhibit C-3 being retained by the defendant. The loan is proposed to be made with interest from 5%% to 7% per annum, and up to from 75% to 90% of the face value of the Liberty Bonds assigned as collateral, depending upon the prevailing market.
    “6. Defendant has borrowed and proposes and intends in the future to borrow from such persons as may care to lend them Liberty Bonds for the purpose of using same in, its business either as collateral or otherwise, paying the customer from 2% to 4% per annum, as stated in circulars marked Exhibit A-l and Exhibit A-2, on the face value of such Liberty Bonds for the use of the same, and also crediting the customers with the accruing interest on such bonds. The forms used by defendant in such transactions are attached as ‘Exhibit D.’ Defendant pays nothing for the use of such bonds except the 2% or 4% per annum heretofore mentioned. This form of transaction is the one mentioned in the circulars and denominated as ‘The Security Deposit System,’ and is the only form of deposit of such bond used by the defendant.
    “7. Defendant proposes and intends to loan on and invest in mortgages on real estate and to loan money on approved securities other than Liberty Bonds, but its principal business will be loaning on Liberty Bond security, as mentioned in paragraph 5, dealing in approved mortgages on Lucas County real estate, and accepting assignments of Liberty Bonds for use by it under the method set forth in paragraph 6. Defendant uses the Liberty Bonds thus assigned to it in borrowing money for the purchase of mortgages and other Liberty Bonds and for buying and otherwise dealing in mortgage securities.
    “8. Defendant does not, and does not propose to receive deposits of money subject to check, or discount commercial paper, or buy or sell drafts or bills of exchange, or have any correspondent companies with whom it conducts a business of exchanging checks, drafts, bills of exchange or other commercial paper.”
    The court of appeals found that the defendant had been conducting a banking business in the city of Toledo, Ohio, by soliciting and receiving deposits of bonds at its established office in that city, contrary to and without the authority of the state of Ohio, and in violation of the law of its incorporation, and that court entered its order and decree enjoining the defendant company from soliciting the borrowing or receiving on deposit from the public of bonds or moneys, and from holding itself out in any manner as ready and willing so to do. A petition in error was thereupon filed in this court.
    
      Messrs, Boyd, Cannon, Brooks & Wickham and Mr. John M. Elliott, for plaintiff in error.
    
      Messrs. Marshall & Fraser, for defendant in error.
   Matthias, J.

The purpose clause of the charter of The Security & Bond Deposit Company is as follows: “Contracting for and buying and selling securities and bonds and borrowing and loaning on same; also making loans on real estate security.”

The defendant has no authority to conduct a banking business, or to solicit, receive or accept money or its equivalent on deposit, as a business, and none is claimed. The question presented, therefore, is whether the plan of operation adopted and pursued by it, or the transactions of the defendant, are in excess, or in violation, of the authority conferred upon it by the state in the respects or either of the iespects complained of.

It is provided by Section 3, Article XIII of the Constitution, that “no corporation not organized under the laws of this state, or of the United States, or person, partnership or association shall use the word ‘bank/ ‘banker’ or ‘banking/ or words of similar meaning in any foreign language, as a designation or name under which business may be conducted in this state unless such corporation, person, partnership or association shall submit to inspection, examination and regulation as may hereafter be provided by the laws of this state.” Pursuant to the policy thus clearly expressed, the general assembly of Ohio passed appropriate legislation providing for the regulation, supervision and inspection of banking institutions of the state for the purpose of protecting and safeguarding the interests of the public. Such act should be so construed as to accomplish the very evident purpose of its enactment. The forceful and purposeful attempts to avoid or evade the effect of its beneficial and salutary provisions should not be encouraged or permitted. The scheme devised and attempted to be executed by the defendant is ingenious and attractive. In order to carry on the business stated in the purpose clause of its charter it was necessary to procure funds, and the defendant sought to provide this “working fund,” so-called, by inducing the deposit of liberty bonds with it by the owners thereof. Such deposit could be made with the defendant, subject to call, or for one, two or three years, the rate of interest paid therefor varying from two to four per cent., calculated on the face value thereof, in addition to that called for by coupons attached thereto. A receipt was given the depositor of such bonds, stating that the same had been deposited in the “working or surplus fund of The Security & Bond Deposit Company of Toledo.” Under the plan and method of operation of the defendant these bonds are tised as collateral security for the repayment of money which it borrows and employs in its business of discounting first mortgages, loaning on liberty bonds and in buying and selling and dealing in liberty bonds and real estate mortgages. Up to the time this case was heard most of the money employed in its business had been borrowed by the defendant, The Security & Bond Deposit Company of Cleveland.

It seems quite clear that in the interest of and for the protection of the public such business should be under the supervision and inspection of the state. The entire transaction to which we have referred, particularly that of inducing deposits of liberty bonds, has the appearance of an attempt to avoid and evade the regulatory provisions of the banking laws of the state, and is a plain subterfuge. It is an attempt to perform some functions of a banking institution, but at the same time escape the limitations and restrictions placed thereon.

Section 710-2, General Code, so far as it is pertinent, reads: “The term ‘bank’ shall include any person, firm, association, or corporation soliciting, receiving or accepting money, or its equivalent, on deposit as a business, whether such deposit is made subject to check or is evidenced by a certificate of deposit, a passbook, a note, a receipt or other writing.”

Whatever may be the abstract definition of “equivalent of money,” as that term is used in this provision, the defendant by its method of dealing, and by the mode of transaction of its business, has placed that designation and characterization upon liberty bonds. It is conceded that checks, drafts, bills of exchange and express money orders fall within the meaning of the phrase “or its equivalent,” and it seems obvious that such phrase was employed so that no one could accept deposits other than money and thereby avoid or evade the provisions of the banking act. It would be quite absurd to hold that the one class of deposits referred to should be treated as the equivalent of money, and the other, though deposited with the defendant and •used in the manner heretofore indicated, not the equivalent of money.

The relation of the defendant and its depositor is that of debtor and creditor rather than bailor and bailee, being substantially the relation of a bank and its depositor (Treasurer, Fayette County, v. People’s & Drovers’ Bank, 47 Ohio St., 503), for it appears from the record that the defendant does not undertake to return to the depositor the same bonds, but only bonds “of the same kind.’’ In that respect the relation is no different than if the deposit were of money instead of that which is used by the defendant to procure money to constitute its working-capital.

The language used in the opinion in the case of Bank of Marysville v. Windisch-Muhlhauser Brewing Co., 50 Ohio St., 151, at page 157, with reference to the bank’s deposits is equally applicable here: “The bank does not contract to keep on hand the particular money deposited, or pay depositor’s checks out of it, nor is it expected to do so. The moneys of such depositors are commingled with other moneys of the bank * * *. It [the bank] 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.”

At least to the extent of soliciting and receiving such deposits the defendant is engaging in the banking business, and in that respect is acting without authority. The judgment of the court of appeals is affirmed.

Judgment affirmed.

Johnson, Hough, Wanamaker and Jones, JJ., concur.

Robinson, J.,

dissenting. By Section 710-2, General Code, the legislature has defined the subject-matter, the soliciting, receiving or accepting of which on deposit constitutes banking, as “money or its equivalent.”

That liberty bonds are not money must be and is conceded. The equivalent of money is that which may readily be exchanged for money at par, such as drafts, checks, bills of exchange, money orders and the like.

Liberty bonds at the time this suit was instituted and heard could not be readily exchanged for money at par. They were not the equivalent of money by any definition extant prior to the pronouncement of this court in this case.

I heartily agree with the majority in the wisdom of placing enterprises such as that in which the plaintiff in error is engaged under the supervision of the state banking department, or some other supervising department, to the end that depositors therewith may be safeguarded, and were I acting as a legislator would support such a measure, but the judiciary is clothed with no legislative power and I am unwilling to appropriate to the courts that which the constitution has vested elsewhere, even though there exists no higher tribunal who may stay my hand.

In the long run the state will be better served by the courts performing their function within the power conferred, trusting to the wisdom of the legislature for needed legislation.

For this reason and this reason only I dissent from the judgment of the majority.  