State v. Herbert

358 N.E.2d 1090, 49 Ohio St. 2d 88, 3 Ohio Op. 3d 51, 1976 Ohio LEXIS 775

• Court: Ohio Supreme Court
• Decided: December 30, 1976
• Docket: No. 76-311
• Status: Published

Opinions

William B. Brown, J.

The main issue raised by this cause is whether R. C. 135.14, which allows the treasurer to invest interim moneys in the commercial paper of certain private corporations, alters the common-law standard of liability for loss of public funds by public officials where the investment is in violation of the maximum investment limitation embodied in the statute.

Appellees argue that they are not liable for the investment losses on the Kang Resources notes for the following reasons: (1) the purchase of notes when the interim funds invested in commercial paper exceed the statutory limit is not illegal (and therefore noncompliance at the time of purchase may be cured if the total amount invested drops below the statutory limit) because the statutory limitation “is upon the aggregate,” and the “last investment is no more improper than the first investment or the middle investment”; (2) an examination of R. C. 135.14 shows that the General Assembly intended both “to grant the Treasurer of State authority to invest public funds,” and “to change the principles governing the liability of the treasurer for loss of funds invested under the statute”; and (3) “the Treasurer of State is not liable for decrease in value of an investment in commercial paper notes in the absence of proof that the decrease in value was proximately caused by a violation of [R. C. 135.14].”

Appellees’ argument that a purchase of the commercial paper notes is not illegal even though it is made in violation of the statutory limitation is not well taken. R. C. 135.14 provides that the treasurer may invest in commercial paper notes “* * # provided that the aggregate total amount of interim moneys invested in commercial paper at any time shall not exceed fifty million dollars.” (Emphasis added.)

The appellate court did not find that argument persuasive because the statute employs the word “shall” which is “usually mandatory.” We agree with the appellate court’s conclusion.

Although the word “shall” is sometimes construed not to be’mandatory, it is only given that meaning when the intention that it be permissive “clearly” appears. Dennison v. Dennison (1956), 165 Ohio St. 146, 149. Nothing in the $50,000,000 limitation provision of R. C. 135.14 shows such a “clear” legislative intent to make the limitation permissive. On the contrary, the provision not only prohibits aggregate investments in excess of $50,000,000, it also prohibits such investments “at any time.” The additional emphasis provided by that phrase makes it clear that the General Assembly intended the provision to be mandatory. In light of the legislative intent to make the provision mandatory, appellees’ argument that the statutory limitation is only on the “aggregate” and that, in effect,- individual investments not in themselves exceeding $50,000,000 do not violate the provision, is without merit. To so interpret the $50,000,000 limitation of R. C. 135.14 would be to render the limitation meaningless. We therefore reject appellees’ contention that the purchase of the Kiilg Resources notes was not-illegal.

Appellees contend that R. C. 135.14 evidences legislative intent to “change the principles governing the liability of the treasurer for loss of funds invested under the statute,’-’ because it grants him authority to invest state funds in commercial paper notes of private corporations and holds him not to be accountable, under certain circumstances., for losses due to the unprofitable sale of those notes.

R. C. 135.14, as it read in 1970, provided as follows:

“The treasurer or governing board may invest or deposit any part or all of the interim moneys, provided that such-investments will mature or are redeemable within two years from the date of purchase. The following classifications of obligations shall be eligible for such investment or deposit:

“(A) Bonds, notes, or other obligations of or guaranteed by the United States, or those for which the faith of the United States is pledged for the payment of principal'and interest thereon;

“(B) Bonds, notes, debentures, or other obligations or securities issued by any federal government agency,' or the export-import bank of Washington;

“(C) Interim deposits in the eligible institutions applying for interim moneys as provided in Section 135.08 of the Revised Code. The award of interim deposits shall be made in accordance with Section 135.09 of the Revised Code and the treasurer or the governing board shall determine the periods for which such interim deposits are to be made and shall award such interim deposits for such periods, provided, that any eligible institution receiving an interim deposit award may, upon notification that said award has been made, decline to accept said interim deposit in which event the award shall be made as though such institution had not applied for such interim deposit.

“(D) Bonds and other obligations of this state.

“In addition to the investments specified in subparagraphs (A), (B), (C), and (D) of this section, the Treasurer of State may invest interim moneys of the state in commercial paper notes issued by any corporation for profit which is incorporated under the laws of the United States, a state, or the District of Columbia, which such notes are rated prime by the National Credit Office, Inc., New York, or its successor, provided that the aggregate total amount of interim moneys invested in commercial paper at any time shall not exceed fifty million dollars.

“Whenever, during a period of designation, the treasurer classifies public moneys as interim moneys, he shall notify the governing board of such action. Such notification shall be given within thirty days after such classification and in the event the governing board does not concur in such classification or in the investments or deposits made under this section, the governing board may order the treasurer to sell any of such securities or certificates of deposit, and any such order shall specifically describe the securities or certificates of deposit and fix the date upon which they are to be sold. Securities or certificates of deposit so ordered to be sold shall be sold for cash by the treasurer on the date fixed in such order at the then current market price. Neither the treasurer nor the members of the board shall be held accountable for any loss occasioned by sales of securities or certificates of deposit at prices lower than their cost. Any loss or expense incurred in making such sales is payable as other expenses of the treasurer’s office.

“If any securities or certificates of deposit purchased under the authority of this section are issuable to a designated payee or to the order of a designated payee, the name of the treasurer and the title of this office shall be so designated. If any such securities are registrable either as to principal or interest, or both, then such securities shall be registered in the name of the treasurer as such.

“The treasurer is responsible for the safekeeping of all securities or certificates of deposit acquired by him under this section. Any of such securities may be deposited for safekeeping with a qualified trustee as provided in Section 135.18 of the Revised Code. Interest earned on any investments or deposits authorized by this section shall be collected by the treasurer and credited by him to the proper fund of the state or subdivision.

“Upon the expiration of the term of office of a treasurer or in the event of a vacancy in the office of treasurer by reason of death, resignation, removal from office, or otherwise, the treasurer or his legal representative shall transfer and deliver to his successor all securities and certificates of deposit held by him. For the securities and certificates of deposit so transferred and delivered, such treasurer shall be credited with and his successor shall be charged with the amount of money invested in such securities and certificates of deposit.

“Whenever securities or certificates of deposit acquired under this section mature and become due and payable, the treasurer shall present them for payment according to their tenor, and shall collect the moneys payable thereon. The moneys so collected shall be treated as public moneys subject to the provisions of Sections 135.01 to 135.21, inclusive, of the Revised Code.”

It is a generally accepted rule that “ a court must first look to the language of the statute itself to determine the legislative intent,” and that the statute must be applied accordingly if its meaning is “clear, unequivocal and definite.” Provident Bank v. Wood (1973), 36 Ohio St. 2d 101, 105. Although R. C. 135.14 clearly contemplates granting the Treasurer of State power to invest in kinds of notes that were not legal investments prior to the December 13, 1967, amendment² and although it purports to relieve the treasurer and members of the governing board from liability “for any loss occasioned by sales of securities or certificates of deposit at prices lower than their cost,” it does not, on its face, constitute a “significant change in the law governing the handling of public funds” or evidence legislative intent to change the traditional common-law standard of liability for loss of public funds by public officials as appellees contend.

Under R. C. 135.14, the treasurer is a custodian of funds. He is responsible “for the safekeeping” and “transfer” to his successor of “all securities or certificates of deposit held by him” under the statute. He is also required to collect and credit to the proper fund any interest earned on R. C. 135.14 investments.

In addition, he is granted only very limited powers as an investor under R. C. 135.14. He may not invest in notes unless they are (1) payable within two years, (2) given a “prime” national credit rating, and (3) issued by a corporation for profit incorporated under the laws of the United States, a state or the District of Columbia. Furthermore, his purchases of such qualified commercial paper notes are subject to the review and veto of the governing board. Finally, he may only invest the relatively small sum of $50,-000,000 in commercial paper notes.³

The exculpatory clause of R. C. 135.14 does not evidence legislative intent to change the treasurer’s liability for loss of funds to that of an “investor” as appellees contend, of to escape liability when he violates the $50,000,000 limitation. While-the provision does address itself to relieving the treasurer and members of the governing board of liability “for any loss occasioned by sales of securities or certificates of deposit at prices lower than their cost,” it does so only in a context that spells out the power of the board of governors to order the treasurer to sell securities which he has purchased and which the board does not approve. Since the exculpatory clause occurs in a paragraph restricting the treasurer’s powers, we do not find it to evidence legislative intent to significantly change “the law governing the handling of public funds.”

The third argument posed by appellees is that the Treasurer of State is not liable for the investment loss on the King Resources notes “in absence of proof that the decrease in value was proximately caused by a violation of [R. C. 135.14].”

Over the years, this court has held public officials liable for the loss of public funds, even though illegal or otherwise blameworthy acts on their part were not the proximate cause of the loss of public funds. State, ex rel. Wyandot County, v. Harper (1856), 6 Ohio St. 607; Eshelby v. Cincinnati Bd. of Edn. (1902), 66 Ohio St. 71; Seward v. National Surety Co. (1929), 120 Ohio St. 47. In Seward, supra, at page 49, this court stated:

“It has been the general policy, not only with government employees and appointees, but with state officers, county officers, township officers, and all other public officials, to hold the public official accountable for the moneys that come into his hands as such official * * *; that is to say, that when he comes to account for the money received, it must be accounted for and paid over, unless payment by the official is prevented by an act of God or a public enemy * * * 91

This rule may seem harsh, but it is based on legitimate policy reasons which are also set forth in the Seward opinion:

“* # * it would be distinctly against public policy not to require a public officer to account for and disburse according to law'moneys that have come into'his hands by virtue of his being such public officer; that it would open the door very wide for the accomplishment of the grossest frauds if public officials were to present as the defense, when called on to disburse the money according to law, that it had been performed or destroyed by some deputy, or other subordinate, connected with the public office.” Seward, supra, at page 50.

The appellate court, in the instant case, refused to follow the standard, of liability for public officials handling public funds as set out in Seward and other cases, on the grounds that its application was “extremely doubtful’'’ in view of “the broadening of the area of allowable investment by the legislature” in R. C. 135.14 “to include commercial paper.” Having concluded earlier that R. C. 135.14 does not evidence a legislative intent to change the common-law standard of liability for public officials handling public funds, we must reject the appellate court’s decision and find appellees Herbert and Gardner liable, under the Seward standard of liability for public officers handling public funds, for the investment losses occasioned by their purchase of the King Besourees Company commercial paper notes. Since the liability of surety companies for loss resulting from the illegal acts of a public officer is well established in Ohio (see 44 Ohio Jurisprudence 2d, Public Officers, Sections 115-117), we find appellee surety companies similarly liable. The judgment of the Court of Appeals is reversed.

Judgment reversed.

O’Neill, C. J., Celebrezze and Stephenson, JJ., concur. Herbert, J., concurs in part. Corrigan and Stern, JJ., dissent. Stephenson, J., of the Fourth Appellate District, sitting for P. Brown, J.

2 Prior to December 13, 1967, the General Assembly granted the treasurer authority to invest public funds in securities issued by or guaranteed by certain governmental agencies. (See former R. C. 135.142, 131 Ohio Laws 88.)

3 In 1970, more than $50,000,000 was earned in interest on the total investments of the treasurer’s office.