bill of exceptions. Upon this state of facts what are the rights of the parties?

It will be noticed that we are not called upon to consider any right or contention of the Hogans, for they are in default here as well as in the courts below. The simple question presented by the record is whether or not the surety Clayton has any standing to insist upon a pro rata distribution of the proceeds of the sale of the mortgaged property. We are of the opinion that he has not, and will undertake to state briefly some grounds for that conclusion. Clayton must be held to have understood fully the provisions of the notes to which his name is appended either by his own hand or with his unquestioned authority. One provision is that the notes, with others, are secured by chattel mortgage and that failure to pay any when due makes all immediately due at the option of the holder. While not a party to the mortgage itself, the defendant Clayton must be held to have received notice of its contents, among which are the provisions herein before recited which give the mortgagee the option to make application of the proceeds of sale of the mortgaged property among the several notes as it might elect, and that where any note is indorsed or guarantied by any third person such person shall have no right under the mortgage unless the same is assigned to him, and upon sale of the property the proceeds shall be first applied on notes not so guarantied or indorsed until the same are fully paid. True, Clayton is not in the strictest sense either a guarantor or an indorser, but who can doubt that this language is used here, and intended to be so understood, in the broad sense as describing any one who might assume the attitude of a surety? So that upon the very terms of this mortgage of which Clayton had in law notice, not only by the terms of the notes which he signed, but by the terms of the mortgage from the Hogans which he accepted, he is precluded from any protection by virtue of his suretyship.

But another consideration leads to the same conclusion, and would seem to leave no doubt as to the rule which should prevail. Clayton asks to participate in the proceeds of the sale of the mortgaged property; that is, he seeks the aid of the Thresher Company's mortgage for his own protection. The property was sold on foreclosure of that mortgage, and it is as to the distribution of the proceeds that the present contention arises. How can Clayton ask to have the benefit of that mortgage without being subjected to all of its provisions, as well those which hurt as those which help? Surely he cannot. He must take cum onere if he takes at all. We are not dealing with a case where no provision has been made in the instrument for application of proceeds, but with one where the stipulations in that respect are clear, comprehensive, and admit of no possible

doubt with respect to the purpose and understanding of the parties. This situation eliminates from discussion the large number of authorities cited in which no such provision is to be found. Ours is just such a case as Scott, J., had in mind in Bushfield v. Meyer, 10 Ohio St. 337, where, after citing Bank v. Covert, 13 Ohio, 240, he says that "the fund arising from the sale of the mortgaged premises being insufficient to discharge all the notes must be distributed among them pro rata, unless the terms of the assignment or the circumstances under which it was made, show a different intention of the parties." The case at bar is running over with evidences of "a different intention." Our case differs essentially from the case of Bushfield v. Meyer in this: There the insufficiency of the security seemed not to have been anticipated by the parties for they failed to provide for it; the parties in the case at bar had not only anticipated such insufficiency, but had made distinct provision for that contingency.

It is urged that there is neither justice nor equity in applying the fund to these notes not given for the debt created in the purchase of the engine, whose sale produced the fund, to the exclusion in part, or in whole, of the debt created by the purchase. The idea intended to be advanced is that in equity the proceeds of the sale of the engine should be applied exclusively on the notes given for it. Even if this were equitable it would be impracticable. The engine was sold in a group with the separator, the band cutter and feeder, and the straw stacker, all bringing $1,000. There is no means of separating the parts. But it would not be equitable. Clayton's undertaking was accepted as a security for the debt in addition to that afforded by the mortgage, without which the sale of the engine would not have been made, and there is no principle of equity upon which Clayton can claim the benefit of the mortgage security to the detriment of the creditor. This conclusion is in accord with the holding of Taft, J., in Kortlander v. Elston, 52 Fed. 180, 2 C. C. A. 657, that: "The primary equity growing out of the relation of creditor, debtor and surety is that the creditor be paid what is due him; and he does not lose this equity as against the surety, except by misconduct to the latter's prejudice. When the creditor in the original contract has received collateral covering the entire debt, and a personal guaranty on part of it, the legal and the natural presumption, in the absence of circumstances showing the contrary, is that he has taken the personal guaranty as additional or cumulative protection for his debt. In order that his debt may be paid, therefore, he has the right to exhaust all his securities, and in doing so he may apply the collaterals to that part of the debt not covered by the personal guaranty, and hold the guarantor to the full measure

of his contract. The equity which a surety or a guarantor has in the collateral is merely the right, accruing only after the principal debt is fully paid, to be subrogated to the right of the creditor in respect of the collateral security." See, also, Nichols v. Knowles (C. C.) 17 Fed. 494, 3 McCrary, 477; Wood v. Callaghan, 61 Mich. 402, 28 N. W. 162, 1 Am. St. Rep. 597; Hanson v. Manley, 72 Iowa, 48, 33 N. W. 357. But it seems unnecessary to go out of our own state for authorities. Gaston v. Barney, 11 Ohio St., 506, covers this phase of the case as with a blanket. Again it is insisted that the option respecting the appropriation of payments came too late, and that it could not be exercised after the bringing of the suit, the notes all being then due by the election of the holder. Such has been the view of some courts. But we do not understand that there is any iron-clad rule on the subject. So long as the delay, if there be such, works no prejudice to the other party, we see no reason for holding that the delay in and of itself ought to deprive the plaintiff of a right clearly guarantied by its contract. No word or phrase in the petition is calculated to mislead Clayton, but the claim is distinctly made that whatever right Clayton had is subordinate to that of the plaintiff. It would seem equitable, and in consonance with well-established principles, that where a fund is to be distributed, a demand of priority is not too late if made any time before trial. Indeed, in analogy to the rule as to demands in lieu of homestead, it would seem that it may be made any time before the actual order of distribution. In this case it was distinctly made in the reply, thus taking issue with the claim of a pro rata distribution set up in the answer, and, we think, was in abundant time. It was in no sense "misconduct to the surety's prejudice." Gaston

v. Barney, supra; Philpot v. Jones, 2 Ad. & El. 41. The claim that this being an enforced payment, the result of foreclosure proceedings, the plaintiff is deprived of its right of election as to the application of payments, finds no warrant in any reported Ohio case, and is not supported by principle. The plaintiff was entitled, upon condition broken, to immediate possession of the property, and the refusal by the Hogans to surrender it cannot impair any right secured to plaintiff by the contract. Gaston v. Barney, supra.

We are of opinion that the fund, after payment of costs, should be applied on the notes other than those on which Clayton is surety. The judgment of the circuit court will be reversed, and the cause remanded, with direction to render judgment in conformity with this opinion. Reversed.

SHAUCK, C. J., and PRICE, CREW, and DAVIS, JJ., concur.

(74 Oh. St. 337)

ORME et al. v. BAKER. (Supreme Court of Ohio. June 12, 1906.) BANKS AND BANKING-INSOLVENCY-KNOWLEDGE OF CASHIER-DEPOSITS-RECOVERY.

The board of directors of a banking corporation, consisting of five persons, appointed P., one of the members, as its cashier, who, by its authority, was placed in control of its property and was made the active manager of its business. The president, also a director, resided in the country, was old and infirm, and gave no attention to the bank's affairs. The treasurer, likewise a director, resided in another county engaged in business of his own. Within the last year of the existence of the bank, there was no meeting of the board of directors, and during that time, if not before, the bank became "hopelessly and irretrievably insolvent" through the fraudulent acts of the cashier and its vice president, likewise a director, who themselves being insolvent, used the funds of the bank for their own purposes, and the purposes of other corporations with which they were connected. These fraudulent acts were not communicated to the other directors. An examination of the condition of said bank at any time within 30 days before it was closed, would have disclosed its insolvency, but no such examination was made by the board of directors, or by any one in its behalf. On the last day the bank was open for business, and but a few minutes before the close of banking hours, B., a customer, being entirely ignorant of said insolvent condition, made a general deposit consisting of some cash and certain checks drawn in his favor on other banks. The agent of the bank then in charge received the deposit, and entered the same on the pass book of the depositor to his credit, but did not enter the credit on the books of the bank. The cash part of the deposit was commingled with other funds of the bank, thereby increasing the same. On the second day thereafter, a receiver took possession of the property and funds of the bank, including said deposit of cash and checks, and caused said cash deposit to be entered on the books of the bank to B.'s credit, and several days thereafter collected and received the amount called for by said checks. Before the checks were collected, and on the same day the receiver took possession, B. demanded of him the cash and checks so deposited, or their proceeds and his demand was refused. Two days before the deposit was made, in the night season, and knowing the bank to be hopelessly insolvent, the said cashier and vice president clandestinely absconded, leaving in charge one who had been acting as bookkeeper and assistant cashier, and another bookkeeper, who also knew that the bank was short of funds, and that according to its books, it was insolvent when the deposit was made. Held: (1) That under these circumstances, the knowledge of the cashier as to its hopeless insolvency should be imputed to the bank; (2) the deposit having been fraudulently received, no title thereto vested in the bank, and, on making timely demand upon the receiver for its return, the depositor is entitled to recover of him its full amount in preference over the claim of general creditors.

Davis, J., dissenting.
(Syllabus by the Court.)

Error to Circuit Court, Guernsey County. Action by one Baker against Orme and Okey. Judgment for plaintiff was affirmed by the circuit court, and defendants bring Affirmed.

error.

On the 27th day of August, 1904, the defendant in error commenced an action in

the lower court against the plaintiffs in error to recover of them the sum of $283, and interest thereon from the 15th day of June, 1904, and the court was asked to decree that this sum be paid in full as a preference over general creditors. To support this prayer, Baker alleged in substance that on the 13th day of June, 1904, at about 3:30 o'clock p. m., he deposited in the said Commercial Bank the sum of $99 in cash, and at the same time deposited for collection two checks: One of which was drawn by Mast & Complin on the Old Citizens National Bank of Zanesville, Ohio, for the sum of $169, payable to the order of said Baker, and by him indorsed; and the other check so deposited was drawn by J. L. Duff on the National Bank of Cambridge, Ohio, for the sum of $15, payable to Baker, and by him indorsed in blank-the cash and checks aggregated the sum of $283. It is alleged that when the deposit was made, and for a long time prior thereto, the said bank was insolvent, and that its assets were wholly insufficient to pay the claims of depositors, but that the plaintiff had no knowledge at any time of said insolvent condition, but that the same was known to the officers, directors, and employés of the bank, at the time the deposit was made and received, and that within one hour after said deposit was made, the bank was closed, its business suspended, and that it transacted no business thereafter. The cash deposit passed Into the hands of said receivers and the said checks were by them transmitted for collection, and they were paid to them, and that they refused to pay said sums so deposited and collected to the plaintiff, although he had demanded the same. prayer is for judgment and an order directing the receivers to pay to plaintiff the full amount of the claim as a preference over the general creditors.

The

The answer denies that the checks mentioned in the petition were deposited for collection, that on the contrary, they were deposited by the plaintiff and received by the bank as a general deposit and that the same was entered as a credit to plaintiff in his general account as a depositor in said bank. It is further alleged that the insolvent condition of the bank was known to no officer, director or employé of said bank except to H. O. Barber, its vice president and a director thereof, and P. C. Patterson, its cashier and director thereof; that at and prior to said time of deposit, Barber and Patterson were unfaithful to the bank in their respective duties as such officers in this, that each of them had been and then was using to the amount of about $100,000, the funds of the bank for his private benefit and advantage, and thus and thereby caused its insolvency, and had been and then was, concealing from the other officers and directors said use of the

bank's funds and its condition; therefore their knowledge was and is not the knowledge of the bank. It is also alleged that neither said cash deposit nor the proceeds of said checks was kept or held by the bank, or by the receivers, distinct from the other funds or assets of the bank; but, on the contrary, prior to the demand of the plaintiff, they were added to and indistinguishably mingled with the funds and assets of the bank received on said 13th day of June, in the usual course of business; that from the aggregate thereof on said day, in the usual course of business, after said deposit, said bank paid therefrom divers and sundry sums of money, and that since they were appointed the receivers, defendants have paid therefrom divers sums of money; that said bank transacted its usual business throughout said 13th day of June and until the close of business on that day, and did not suspend its business until the 14th day of June, 1904. On the issues joined, the cause was heard and submitted to the court on an agreed statement of facts, and without the intervention of a jury. The court found for the plaintiff, and adjudged as prayed for in the petition. The defendants, as receivers, appealed from the judgment to the circuit court, where the case was heard and submitted on the same agreed statement of facts; which together with the facts admitted in the pleadings constituted the whole evidence introduced and heard upon the trial. The circuit court also found for the plaintiff and made the decree prayed for by him. A motion for new trial was overruled, a bill of exceptions taken containing the facts agreed upon and error is prosecuted in this court to reverse the judgment. The controlling facts appear in the opinion.

Fred L. Rosemond, Charles S. Turnbaugh, and Robert T. Scott, for plaintiffs in error. Mathews & Mathews, for defendant in error.

PRICE, J. (after stating the facts). The Commercial Bank Company was incorporated under the laws of this state in March, 1901, and it organized by the stockholders electing five directors consisting of Leonard Orme, H. O. Barber, P. C. Patterson, William Moss, and Charles Bell. The directors promptly elected Leonard Orme, president, H. O. Barber, vice president, William Moss, William Moss, secretary, and Charles Bell, treasurer. These directors and officers of the bank were afterwards re-elected to and occupied the same positions, respectively, until the close of the bank on the 13th day of June, 1904, and subsequent thereto. but the directors never held a meeting after June, 1903. Under the regulations of the company the directors appointed said P. C. Patterson cashier and he served in that capacity until June 11, 1904. On that day "and for a long time prior thereto," the said com pany "was hopelessly and irretrievably insolvent, of which fact said H. O. Barber and

P. C. Patterson, officers and directors aforesaid, had full knowledge." Another fact agreed upon is "that during the existence of said bank, said P. C. Patterson, as a director, and by virtue of his office as cashier, and by the authority of said board of directors, was in control of the property of said bank, and was the active manager of its business. Leonard Orme was old and infirm, resided quite a distance from Cambridge [location of bank] and never took, nor was he, when elected president, expected to take any active part in conducting the business of said bank.” And, further, "Charles Bell, treasurer, resided and was engaged in business at New Lexington, Ohio, and William Moss, the secretary, was engaged in business at Cambridge, and neither of them took any part in the management of the business of the bank."

One Dwight Scott was an employé in said bank during its existence, and, during the last year, or longer, was, though never so designated or appointed, styled assistant cashier, and served the bank as teller and bookkeeper. During the last two years or more of the bank's life, Paul Keyes was employed as bookkeeper. Prior to the 13th day Prior to the 13th day of June, 1904, the plaintiff below, Baker, had been a depositor in said bank and had an account therewith which showed a balance due him of about $100. There had been no special arrangement with the bank concerning his deposits to treat checks as money, or to draw against them before collected, but his custom when making deposits, was to pass his checks indorsed in blank and his money over the counter to the cashier or other person in charge, who would enter the same in plaintiff's passbook, and then credit plaintiff's account with the bank on its books, subject to the right of the bank to charge back any check that might be dishonored. The $99 in money, and the two checks on other banks amounting to $184 referred to in the petition were deposited on the 13th day of June, 1904, about one-half hour before the bank closed, by handing the same to Dwight Scott, assistant cashier, together with a deposit slip, without any specific instructions, who entered the amount thereof as a credit to plaintiff in his passbook, which was returned to him. Scott put the $99 cash with the money of the bank "and the same became indistinguishably mingled with the general mass of the bank's funds then on hand, and that may have been thereafter received" on that day. No entry was made of said deposit to plaintiff's credit on any book of the bank on that day, nor at any time by said. bank, or its officers, agents, and employés, but after the appointment of the receiver and at his direction on the 15th day of June, 1904, the amount of said deposit, cash, and checks, $283, was entered on the ledger to plaintiff's credit, but these checks being on other banks, were not collected by the receivers for several days thereafter. When said deposit was made by plaintiff, he had no

knowledge of the insolvent condition of the bank but believed it to be solvent, and when he learned of the appointment of a receiver, on the 15th day of June, 1904, demanded payment of him of said money and checks or the proceeds thereof aggregating $283, which demand was refused. On the 11th day of June preceding, which was Saturday, about midnight, said Barber and Patterson clandestinely absconded, but the same was neither known or suspected by any one connected with the bank until after the close of business on the 13th day of June, 1904, when its total funds, including the amount deposited by plaintiff, amounted to $3,026.16 which was placed in the safe and afterwards, on the 15th of June, taken possession of by the receiver.

Another fact agreed upon, is that "the insolvency of the bank was chiefly, if not wholly, due to said Barber and Patterson, severally, jointly, and in the names of sundry corporations with which they were respectively connected, and in violation of their duties as such officers, becoming indebted to said company on notes and for overdrafts in the aggregate of more than $100,000, notwithstanding, that each of them was at said time insolvent, said indebtednesses were unsecured, and yet unpaid. *

Said

doings of Barber and Patterson were not known to, or consented to by said board of directors, but the same and the insolvent condition of said company were by said Barber and Patterson in their personal interest, respectively, concealed from and were unknown to said board of directors." The amount Barber and Patterson owed the bank was more than one-half its paid up capital stock. It appears also, that prior to the departure of Barber and Patterson, said Dwight Scott, assistant cashier, and Paul Keyes, bookkeeper, had knowledge that said "company was short of funds," and they were informed by Barber and Patterson, or by one of them, that they were going to Cincinnati to procure funds for the bank, and would return Monday, June 13th, or Monday night, with funds for the bank. But they did not return and the bank never opened for business after that day.

Another important fact agreed upon is "that an examination of the condition of said bank at any time within 30 days before it was closed would have disclosed its insolvency, but no such examination was made by the board of directors or by any person on their behalf." The foregoing are the facts brought into the record, and what judgment do they demand? Ordinarily the relation between a general depositor and the bank is that of debtor and creditor, and that relation, when allowed to stand, will not authorize or permit such depositor to obtain a preference over other general creditors in case the bank was insolvent when the deposit was made. Mere insolvency does not furnish a ground for a rescission of the trans

action, but in order to prevent the title to the deposit vesting in the bank, fraud must be shown in its reception sufficient to entitle the depositor to repudiate the deposit and reclaim the same. The plaintiff claims the facts make such a case. It is alleged in the petition, and not denied in the answer, and it is also agreed upon as a fact in the case, that for a long time prior to the making of the deposit in question, the bank was "hopelessly and irretrievably insolvent." These are remarkably strong words, and they characterize the condition of the bank for a period not made definite, but left to us as an admonition that hopeless insolvency had existed for a "long time."

The plaintiffs in error, the receivers, insist that although such had been the real condition of the bank for a long time, it was not known to the board of directors and officers of the bank, other than Barber, director and vice president, and Patterson, director and cashier; and that their transactions which involved and wrecked it, were in their own personal interest, and were concealed from the board of directors. It is argued from this fact that their knowledge cannot be imputed to the bank. In other words, they had been and were occupying a position with reference to the business of the bank, adverse to its interests, and while they were agents for the bank for some purposes, and in all things in the line of duty within the scope of their authority, yet they did not represent it in their fraudulent ap propriation of its assets. To determine the soundness of this claim we must not overlook one other fact agreed upon, "that Patterson, during the existence of the bank, as a director and by virtue of his office of cashier, and by the authority of said board of directors, was in control of the property of said bank, and was the active manager of its business." It would seem that the board of directors, in whom the law vests the general control and management of the affairs of the corporation, attempted to shift all, or at least a large portion of its authority and responsibility to the shoulders of the cashier. This is entirely consistent with the other fact, that there had been no meeting of the board within the year next preceding the failure of the bank. The president was old and infirm and resided some distance from the city, the location of the bank. When he was elected it was not expected by the board that he would take any active part in conducting the affairs of the bank. Charles Bell, the treasurer, was engaged in business in another county and William Moss, the secretary, was in business of his own in Cambridge, but neither of them took any part in the management of the business of the bank. These men were also directors, as were Barber, Patterson and Orme. How was the board of directors to receive any information under such circumstances? could it know what was going on inside of

the institution except through those put and left in active charge?

If the wrongs committed by the cashier and vice president had been confined to a single transaction, or to a few transactions within a brief period, there would be some room for the proposition made, that the bank should not be charged with their knowledge of its insolvent condition. But such was not the case. It had been hopelessly and irretrievably insolvent for a "long time" prior to the deposit involved, and the fraudulent acts of the cashier and vice president consisted of many acts committed not at once, but during many months, perhaps years, for it is said in the agreed statement, that the "insolvency was chiefly, if not wholly, due to said Barber and Patterson severally, jointly and in the names of sundry corporations with which they were respectively connected, and in violation of their duty as such officers, becoming indebted to said company on notes and for overdrafts in the aggregate of more than $100,000." They were insolvent all this time, and the bank had no security for their indebtedness. There was a protracted looting, and the cash in the vaults shrank gradually from time to time as the fraudulent acts proceeded until the final collapse.

In cases resting on facts far more favorable to the bank, let us listen to the voice of the authorities.

In Smith v. Anderson (Sup.) 10 N. Y. Supp. 278, the plaintiff delivered monies to the president of a bank to be deposited therein and the latter without plaintiff's knowledge or consent, deposited them in his own name as her attorney, and afterwards unlawfully appropriated a large part thereof to his own.

It was held that the bank is liable, since it is chargeable with the knowledge possessed by its president. On page 279 the court say "if Warner [the president] haď converted the money without the bank having received it, or without credit being given on its books, it would not be liable. But when its president receives funds which go into the bank, it is chargeable with all the knowledge possessed by him; otherwise those dealing with banks would be without remedy in case of fraud or misappropriation on the part of its president." And on page 280, it is said: "the bank created its president, and if, through his fraud, it or a third person must suffer, the maxim protects the customer."

In Bank v. Kellogg et al., 4 S. D. 312, 56 N. W. 1071, the cashier took a note payable to himself, as an individual, and transferred it to the bank of which he was cashier. It was held, that knowledge of the cashier as to defenses and equities existing against the note, was the knowledge of the bank.

In Le Duc, Receiver, v. Moore et al., 111 N. C. 516, 15 S. E. 888, J. had executed his promissory note to M., the president of a bank, who before its maturity and for value. but for his own benefit, indorsed the uote