Case ID: ohio-st_33/html/0321-01.html
Source: Caselaw Access Project
Author: {"author": "Johnson, Chief Judge.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Board of Education oe Hartford Township v. Thompson et al.
    Pending a litigation between the board of education of a township, and a special school district-therein, as to the custody and control of a fund in the township treasury, the board permitted the treasurer, by a verbal agreement, to use the fund in his business, on his agreeing to pay interest thereon, the object being to earn sufficient by such use- to meet the interest with which the board would be charged, in the event the pending action should be decided against it. "When the treasurer’s term expired, and for the same reason, the loan was renewed and a note with sureties taken for the amount then due, payable to the board with interest in ten months: Held, 1. Such loan was i» contravention of public policy and prohibited by statute. 2. In an action, on the- note, by the board, the sureties thereon were not estopped from setting up, the illegality of the transaction as a defense, 3, While the boardlmay. do any act in disaffirmance of such an illegal contract, andrecov.e»"h'ack: the money illegally taken from the treasury by an action,.or take- &, note and security for its return; yet it has no power, in the absence of.' statutory authority for that purpose, to ratify and adopt a., contract made in violation of law.
    Error reserved in the District Court of Trumbull county;
    The plaintiff brought an action against-the makers, on-a promissory note, of which this- is a copy:
    “ $828.48. Ten months after date I promise to pay the Board of Education of Hartford Township, eight, hundred, and twenty-eight dollars and forty-eight cents, for value received, at seven per cent, per annum.
    “ Hartford, April 22,1872. “ H. B. Thompson,
    “A. O. "Woodkord,
    “Asa Newman.”
    Thompson makes no defense.
    Woodford and Newman jointly file an answer, setting up two defenses, as follows :
    1. “ That they are sureties merely of Thompson, for his accommodation, without their understanding what was the consideration, supposing it was for a lawful purpose; but they have since learned, and so aver the fact to be, that there was no legal or valid consideration therefor.
    2. “ The said defendants say for a second defense that they signed said paper writing as sureties merely ofisaid Thompson, and without any consideration, under the circumstances and suppositions hereinbefore stated, and not otherwise; and that they have now learned and here aver the facts and circumstances of the making of said paper to have been as follows, and not otherwise : That on the first Monday of April, 1871, the said Thompson was duly elected treasurer of said township of Hartford, and was then duly qualified and entered upon the duties of his said office, and continued to be and was the treasurer of said township until the first Monday of April, 1872, when one Edwin Bennett was duly elected and qualified treasurer of said Hartford township, as his successor, and entered upon the duties of his office, and was and continued to be the treasurer of said Hartford township until the first Monday in April, 1873, and at the expiration of his said office the said Thompson had in his hands about eight hundred dollars of school funds for school purposes, which, according to the statutes in such case made and provided, it was the duty of said Thompson to have then, at the expiration of his term of service as such treasurer, to have delivered over to his successor in office, the said Bennett, as plaintiffs well knew, yet the plaintiffs, in contravention of the requirements and provisions of the statutes in such case made and provided, in utter disregard of their own duties, and thereby enticing and persuading and aiding and inducing the said Thompson to disregard his duty, and contemptuously disobey said statutes, made and induced him, the said Thompson, to withhold the delivery of said moneys, sd then in his hands as treasurer, to his successor in office, by making and delivering to them, the plaintiffs, said writing set forth in said petition, all which was done bj' the plaintiffs as well as said Thompson in their own wrong, in contravention of the statutes, against public policy and good moral.s, aud without any authority; whereupon these defendants submit that said writing is utterly void, and no just right of action hath accrued thereon and thereby to said defendants.”
    For reply, the plaintiff says that said eight hundred dollars was not only “ school funds for school purposes,” but was money set aside for building purposes for school dis+ trict No. 5, in said township, having in fact been raised for that purpose. That after said money was so raised, said district No. 5 became under the laws an independent school district, and said money was claimed by said independent district, known as the Orangeville school district, as belonging to it, and litigation arose between said district aud plaintiff, in which said district was plaintiff and plaintiff was defendant, in which, among other things, said district, or the board of education thereof, asked judgment against this plaiutiff for said money, a decree for its payment with interest, and an order enforcing said plaintiff’s- claim thereon; that at the time said note was given, a tidal of said cause had been had in this court, and a judgment and decree entered in favor of the plaintiffs in said action, and an appeal had been taken by this plaintiff from said decree and judgment to the district court, where said action was then pending, and where it was again tried at the April term of said court, 1873, and decided in favor of thi$ plaintiff
    “ The plaintiff' also avers that the question whether said money was properly in and should remain in the hands ,of said treasurer, or should be held by him while plaintiff was involved in said action, and it having been held by this court that said money was held by plaintiff in trust for said plaintiff in said action, and that this plaintiff was bound to pay interest that had accrued and that should accrue until paid, said board of education in good faith, in what it supposed to be, and which in fact was its duty, let said money remain in the hands of said Thompson for the pei’iod of ten months from April 22, 1872, on his agreeing to pay interest at the rate of seven per cent., and giving surety, which he did by the note upon which this action is brought; all of which was known to said defendants, said Woodford being one of the members of said board of education of Hartford township at the time, and a participator in all said arrangements.”
    Also: “That while it admits that said defendants, Wood-ford and Newman, signed said notes as sureties merely, that said H. B. Thompson was treasurer for said Hartford township for 1871 and some years next preceding said year, and that on the April election for 1872, said Bennett was elected treasurer for the year following, it avers that previous to said 22d day of April, 1872, said Bennett had duly qualified as such treasurer, but did not become the acting treasurer until the evening of said day. The plaintiff further admits that said money came originally into said Thompson’s hands as treasurer aforesaid, but it avers that owing to the facts in said reply stated, it became desirable to put said money at interest, and on the 5th day of September, 1871, said Thompson agreed to pay plaintiff interest for the use of said money, and said plaintiff allowed him to use the same in his individual business in consideration of said agreement to pay interest aforesaid, and said money so remained in the hands and use of said Thompson till the 22d day of April, 1872, when said action, then pending in the district court of said county, having been continued until the next term of said court, the time of the payment of said sum was extended for the period of ten months, or the 22d of February, 1872, on said Thompson giving his note with interest at seven per cent., with security, which said note was executed by said defendants, which is the note sued upon in this action. The plaintiff denies all the allegations in defendants’ answer not herein admitted.”
    To these replies the answering defendants demur, on the ground they do not in law7 constitute an avoidance of their defense, and the court sustained the demurrer and find the allegations of the answer a good defense.
    On error to the district court, the cause was reserved to the Supreme Court for its decision.
    
      E. B. Taylor, for plaintiff in error.
    
      Sutliff § Stewart, for defendants in error.
   Johnson, Chief Judge.

The second defense states that Thompson was treasurer of Hartford township from April, 1871, to April, 1872 ; that Bennett was elected his successor in April, 1872 ; was qualified and acted as successor of Thompson, who had in his hands about $800 of the school funds, which should have been paid over to Bennett, yet plaintiffs, in violation of law, and in aid of Thompson in the disregard of his duty, induced Thompson to keep-said money, and give therefor the note sued on, all of which was in contravention of the statutes and against public policy, and void.

The reply says this $800 was school funds belonging to district No. 5 in said township; that said district became an independent school district and claimed this money; that litigation between the township and the independent district was pending as to the ownership of this money; that at the time the note sued on was given the common pleas had rendered judgment for the amount and interest against the township and in favor of the district, and it had appealed to the district court where the action was then pending. The question was whether the treasurer held said money for the independent district or the township, and the judgment appealed from being against the township for the amount and interest, said board of education, in good faith, let said moneys remain in said Thompson’s hands, and took the note sued on, with surety, thus placing the money at interest pending the litigation.

Another reply is substantially the same, but adds, that, owing to this litigation and while it was pending, to wit, on the 5th of September, 1871, Thompson agreed to pay interest on said money, if the board would allow him to use it in his individual business, which they did, without note or surety, until April 22,1872, when his term as treasurer expired, and this note with surety was given, extending the time for repayment ten months, in order to earn interest.

The litigation was subsequently determined in favor of plaintiffs, who. brought this action on the note to recover the amount due thereon, in order to restore it to the treasury.

The facts in brief, then, are, that, pending this litigation between the township and the independent district as to this money, to wit, September 5, 1871, by verbal agreement, the board allowed the treasurer to take and use this money in his private business, on his agreeing to pay interest, and that at the expiration' of his term, April 22, 1872, instead of requiring that he pay the amount over to his successor’, and in order to keep the money on interest, extended the loan teu months, taking the note sued on with these defendants as sureties.

Being sureties, these defendants have no equities against them, and have the clear right to'assert the illegality of this transaction, if it be illegal.

This verbal agreement, made September 5,1871, by which the money was loaned to their treasurer, and the further action of April 22, 1872, of extending the loan ten months, and taking this note, was clearly in contravention, not only of the 29th section of the school law (S. & C. 1357), requiring the treasurer to deliver over to his successor all the moneys, etc., but also, of the 15th section of the independent treasury law (2 S. & C. 1610). Said section provides: “ That if any officer or other person charged with the collection, safe-keeping, transfer, or disbursement of the public money, or any part thereof, belonging to the state, or any county or township, or organized city or village in this state, shall convert to his own use, or the use of any other person or persons, body corporate, association, or party, whatever, in any way whatever, or shall use by -way of investment in kind of security, stock, loan, property, land, or merchandise, or in any other manner or form whatever, or shall loan with or without interest, to any company, corporation, or association, or individual, any portion of the public money, . . . received, controlled, or held by him for safe-keeping, transfer, or disbursement, or in any other way or manner, or for any other purpose, or if any person shall advise, aid, or in any manner participate in such act, every such act shall be deemed and held in law to be an embezzlement of so much of the said moneys ... as shall be thus converted, used, invested, loaned, deposited, or paid out as aforesaid, which is hereby declared to be a high crime and misdemeauor, . . . and on conviction, sentenced to imprisonment in the penitentiary not less than one, nor more than twenty-one years.”

The transactions of the treasurer and the board, by which this money was taken from the treasury, and loaned upon this note, amounted to embezzlement under this statute. Such an act is punishable by fine and imprisonment in the penitentiary. The purpose of this and other statutes, as was said of similar acts then in force, in State v. Butler, 3 Ohio St. 321, is to operate on the agents, officers, and others having charge of the public moneys, and deter by fines and penalties, the commission of such acts. The power is denied them to make such contracts. If they can not make, they can not ratify or adopt such a contract.

There is not, as in the Butler case, any power in the principal to adopt or ratify such illegal contract.

It was there held, that as the state, by its legislation, made the law to prevent such loans, it could, by legislative act, ratify and adopt a contract thus made and sue omit. No such power is conferred, on a board of education to defeat positive enactment. That the board might sue for and recover the money from the treasurer, and replace it in the proper custody, to secure its return after, or take security for the repayment of money illegally loaned, we do not doubt, and the fact that the individual members of the board were particeps criminis, would be no bar. That would be an action not on the illegal contract, but in repudiation of it. So, under like circumstances, and for the same reason, the board might secure public moneys already embezzled and in danger of being lost, by taking a note and security.

The promise to refund moneys illegally taken from the treasury is valid, but a promise which is the consideration for the illegal act of embezzlement, and which procures it to be done is void. No action can be brought on such a promise.

We hold: That the verbal understanding with the treasurer, in September, that he might use the money in his business if he would pay interest, and the note in suit taken by the board at the expiration of the tei*m of office of sueh treasurer, for a continuance of sueh loan upon interest, at a time the money should have been turned over to his successor in office, was contrary to public policy, and in violation of express statute, which the board had no power to ratify or adopt, and that no action can he maintained on sueh illegal contract. Spurgeon v. McElwain, 6 Ohio 442 ; States. Findley, 10 Ohio, 54 ; Bloom v. Richard, 2 Ohio St. 387; Rossman v. McFarland, 9 Ohio St. 387; Butler v. The State, 3 Ohio St. 321; Vining v. Bucker, 14 Ohio St. 331; Huber v. German, 16 Ohio St. 371; Delaware v. Andrews, 18 Ohio St. 49 ; Comm’rs Hancock Co. v. First National Bank (Supreme Court Commission, January 30, 1878, not yet reported); Beaman v. Tugnot, 5 Sandf. 153; Bartons. Pt. Jackson Road, 17 Barb. 397 ; Smith v. City of Albany, 7 Lansing, 14; 2 Parsons on Contracts, 747-767.

The judgment of the court of common pleas is affirmed.