
    Morganthaler v. The First Natl. Bank of Bowling Green, Ohio.
    
      Corporations — Officers can not acquire interests adverse to company, when — Priority of mortgage to hank over deed to an officer.
    
    1. The entire management of corporate affairs is committed by statute to the officers and directors of the corporation, and they are required to act in the utmost good faith, and to exercise their power solely in the interest of the corporation, and courts will not permit a director or an officer to acquire interests adverse to the corporation, either knowingly, or when a proper discharge of his duty to the coi'poration would require him to know -that he was acting against the interest of the corporation.
    2. A mortgage executed to a cashier of a hank for the benefit of the bank, and assigned by the cashier to the bank, has priority over a deed of the same property to an officer of the bank, executed and left for record in the recorder’s office before the mortgage was left for record.
    (Decided June 2, 1919.)
    Error: Court of Appeals for Wood county.
    
      Messrs. JRiegle & Avery and Messrs. Hunt, Bennett & Utter, for plaintiff in error.
    
      Mr. Benjamin F. James and Mr. Earl D. Bloom, for defendant in error.
   Chittenden, J.

This action ivas brought by the First National Bank of Bowling Green, to recover possession of certain real property. The title of the bank rests on a mortgage deed with conditions broken. The judgment of the Common Pleas Court was in favor of the plaintiff. Plaintiff in error alleges that the judgment is contrary to law, that it should have been for the plaintiff in error instead of for the defendant in error, and that the questions involved in this suit were adjudicated finally in a former action. It is asserted that by the evidence the bank is shown to have no legal title to the property.

On the 25th day of June, 1894, one L. O. Cole and Martha J. Cole, his wife, executed and delivered to B. D. Beers their two promissory notes of $1,000 each, due respectively five and seven months after date, and bearing interest at the rate of 7 fo per annum. At the same time, and to secure payment of these notes, they executed and delivered to B. 11. Beers their certain mortgage deed conveying to Beers the property in the village of Bowling Green sought to be recovered in this action. Beers was at the time cashier of The First National Bank of Bowling Green, and on the same day he assigned and delivered to the bank the notes and the mortgage securing the same. The interest was paid to July 25, 1899. No payments were ever made on the principal.

On the 15th day of January, 1904, L. O. Cole and his wife executed and delivered to the defendant, Henry W. Morganthaler, their warranty deed conveying to Morganthaler the same property described in the mortgage theretofore given to the bank. On the 16th day of February, 1904, the deed was left for record with the recorder of Wood county. On the following day, to-wit, the 17th day of February, 1904, the mortgage given to the bank was left for record in the recorder’s office and was thereafter duly recorded.

In February, 1914, while the title was as above recited, an action was brought by the bank to re-* cover possession of the real estate described in the conveyances. The case was tried to the court without the intervention of a jury, the result being a judgment dismissing the petition. The journal entry does not disclose the grounds of the decision, but as it appears that the assignment of the mortgage by Beers to the bank was neither witnessed nor acknowledged the judgment entered was required by the law as announced in Walters v. Homberg, 3 Ohio App., 326. Whether the common-law rule that a judgment in ejectment is not conclusive upon the question of title in any other action between the same parties has been changed or modified by statute, that is, by the code action to recover possession of real property, need not be discussed, for such action is not conclusive against an action based upon an after-acquired title.

On February 8, 1915, the bank obtained a deed from Beers, duly executed, conveying any and all interest of the grantor to the bank, and then the present action was begun.

It is contended that the first action is rep ad judicata as to the issues presented in this action. It is asserted that the mortgage had no effect except as between the mortgagor and mortgagee until placed on record, and that therefore it could have no vitality to convey title until after the record of the mortgage, and that as it had not been recorded until after the deed had been executed and delivered to the defendant, the deed executed by Beers after that time was of no effect.

This question will be determined by our views on the effect of other transactions between the parties. In the first place it is contended that the deed having been executed and delivered to Morganthaler before the mortgage was left for record the title is. acquired free from the lien of the mortgage, although it had been executed and delivered many years before. This feature of the case was disposed of by Judge Baldwin of the Common Pleas Court in deciding a demurrer filed to the petition in the first action. He held that the contention of the defendant in that action was fully sustained by the statutes and the decisions of the Supreme Court except for the reason that the mortgage was in fact one to the bank, and the defendant being a stockholder, officer and director of the bank was a party in interest in the mortgage, and that as between him and the plaintiff it was not necessary that it should be left for record in order to give it force. We are in accord with the opinion of Judge Baldwin in his decision upon the demurrer. We do, however, find that there is another reason why the defendant cannot assert this defense. The evidence discloses that he was one of the incorporators and organizers of the bank, that he was. the vice-president and a director of the bank from the time of its organization until long after the matters complained of in this action. It appears that he was perhaps for some time a member of the finance committee, and that he and the maker of the note, L. C. Cole, were engaged together in a number of business affairs. Mr. Morganthaler testifies that he liad no actual knowledge of the fact that Cole was indebted to the bank, and did not learn that fact until after he had recorded the deed from Cole. There is evidence in the record, however, by Judge Nearing, that they had discussed the 'Cole indebtedness, and that the advisability of filing the mortgage was suggested to Morganthaler before he secured his deed from Cole. It would be enough to sustain the holding of the trial court that the evidence is in conflict upon this question, and that the decision is against the defendant, but we think the law presumes directors and officers of banks to have knowledge of the financial affairs of the bank, especially when they affect their personal transactions.

The entire management of corporate affairs is committed to the charge of' the officers and directors of the corporation, upon the trust and confidence that such affairs shall be cared for and managed for the common benefit of the stockholders. They are required to act in the utmost good faith and to exercise their powers solely in the interests of the corporation. In the presence of the rule which requires the utmost good faith, and that the confidence reposed in the officers shall not be abused, courts will not permit a director to acquire interests adverse to his corporation, either, knowingly, or when a proper discharge of his duty to the corporation would require him to know that he is acting against the interests of the corporation. Under such circumstances courts will not hesitate, when necessary to protect the interests of the corporation, to declare such officer a trustee for the corporation. 7 Ruling Case Law, 483, Section 464. For a general discussion of the duties of officers in general we call attention to 7 Ruling Case Law, 456, Section 441.

We therefore hold that Mr. Morganthaler, when he took this deed and recorded it, had constructive knowledge of the fact that the bank had a mortgage that had not been recorded, and that the evidence sustains a finding of actual notice. Having this knowledge, Mr. Morganthaler, as a director and vice-president of the bank, owed a duty to the bank to see that its mortgage was properly recorded so as to preserve the lien of the bank against the transfer of the property to himself. Having failed to require the recording of the bank’s mortgage, thus permitting the bank to remain quiet while his deed was being executed, delivered and recorded, he is estopped now from asserting a priority of claim over that of the bank.

Finding no prejudicial error in the record, the judgment will be affirmed.

Judgment affirmed.

• Kinkade and Richards, JJ., concur.  