The order also has to make application and has to answer many questions relating to the sources from which the bonded officer will receive money, what will probably be the largest amount received at any one time, to whom and how often he will remit, will he deposit the money in a bank, who will have to sign and countersign checks, will he have to handle securities, and how often will his accounts be verified.

I have before me an application for a bond in which at the end appears the following:

"The foregoing answers, statements and representations are hereby warranted to be true and correct, and it is hereby agreed on behalf of this Body or Association in consideration of the execution of said bond, that throughout the continuance thereof the checks and supervision above described shall be faithfully observed, and that the business of said Body or Association shall continue to be managed and conducted as above set forth. The above answers, statements and representations are to be considered warranties, and they shall form the basis of the guarantee hereby applied for."

If there should be a shortage of the funds in the hands of a bonded officer, this guarantee is liable to become decidedly important.

The bond issued upon the application has numerous express conditions, the most important of which relates to the discovery of loss. Naturally, the companies cannot leave that open indefinitely. The loss must be discovered during the period of suretyship or within the time fixed by the bond. Notice of proof of loss, of course, has to be given, and the time within which suit must be brought is often regulated by the bond.

Officers who have imposed upon them, by election or appointment, the duties of auditing the accounts of a financial officer, must faithfully and fully perform their duties or the bond may cease to protect the funds. The bond is not a guarantee that every shortage will be made up no matter when discovered or how made. The audit must be more than the signing of names to a paper reporting that everything is all right.

The best case that has come to my attention touching this subject is United States Fidelity and Guaranty Company of Maryland vs. Downey, 88 Pacific Reporter, 451.

In this case, a Miner's Union took out a thousand dollar bond on its Treasurer, and in the application made for the bond, among other representations, the following appears:

Q. How often will his books and accounts be examined and verified with funds and property on hand and in the bank?

A. By the board of trustees, three persons—”

These and the other answers were warranted to be true, and also it was warranted that the same method of procedure relating to the future would be pursued that had been pursued in the past in relation to the examination of the treasurer's books.

On December 10, 1900, two of the trustees examined the books of the treasurer and found that his cash on hand, plus what appeared by his bank book to be the amount he had on deposit in the bank, accounted for all the moneys he had collected, and they approved his accounts. The examination was made in the evening and, at that time of day they would not be able to secure any verification of his bank book from the bank officials. The trustees, therefore, accepted the bank book as sufficient evidence that there was that amount of money in the bank.

On February 16, 1901, one of the trustees discovered that the treasurer was short in his accounts; the bonding company was notified, and the Union brought suit to recover. The amount of the shortage appeared, but the exact date when the money was taken by the treasurer did not appear. It might have been before or after the last audit, or a part before and a part after that date. The lower court, with a jury, gave a verdict for the plaintiff, and the court of appeals sustained that verdict; but the Supreme Court of Colorado reversed that verdict and, among other pertinent things, said:

"It is alleged in the complaint that this shortage of Hogue was not discovered until February 16th, more than two months after the quarterly examination of December 10th. For aught that appears in the testimony, much of this shortage may have existed at the time of the attempted examination of the accounts. This examination was made by two of the trustees. According to their own testimony, they made no investigation whatever to ascertain the amount of money Hogue actually had

in the bank, and in checking up the funds on hand merely took the balance shown by Hogue's bank book. It needs no argument to show that without such an investigation at the bank there could be no checking up of the funds on hand. For anything which the trustees might have known, the cash which they claimed Hogue had on hand might have been drawn from the bank subsequent to the balancing of the bank book, and was not a compliance with the safeguard which the Union had agreed to give the defendant. To verify means to confirm. Nothing of this nature was done or attempted to be done by the trustees, so that there was an absolute breach of the contract made by the Union which was the inducement offered defendant for making the bond."

It appears to me that the responsibility of directors of a corporation relating to the duties imposed upon them is analogous to the responsibility of an auditing committee. Directors are held to be trustees and agents. They are bound to manage the affairs of a corporation with ordinary care and prudence, and are liable to the corporation or stockholders for loss occasioned by their failure to do so.

In Hun vs. Cary et al, 82 N. Y., page 65, the Court says:

"The relation between a savings bank and its trustees and directors is that of principal and agent. If such trustees transcend the limits placed upon their power in the charter of the bank, and cause damage to the bank and its depositors, they are liable.

They are also bound to exercise care and prudence in the execution of their trust in the same degree that men of common prudence ordinarily exercise in their own affairs. Where loss is occasioned by the failure of a trustee to exercise ordinary care and judgment, he cannot excuse himself by claiming that he did not possess them; by voluntarily undertaking the position he undertakes that he does possess and exercise them, and it is immaterial that the services are rendered gratuitously." See also Bloom et al vs. National Savings & Loan Co., 152 N. Y., 114; March vs. Eastern Railroad Co., 43 N. H., 515.

The principle is so well established that directors are responsible for any loss occasioned by their neglect of duty that it does not require citations to back it up.

The by-laws of each society define the duties of the auditing. committee and, usually, in some form of words, instruct them to

examine the vouchers, report upon receipts and disbursements, ascertain if the money has been honestly and properly handled, and proper accounts and records kept.

If members of an auditing committee are held to the same responsibility as directors, it follows that, when they fail to perform their duties, they become personally liable. Take the Colorado case, above cited; the trustees did not perform their duties. They accepted the statements of the treasurer, and did not verify them by inquiry at the bank; therefore, they should be held liable to make up the deficit themselves. At times, this may seem a hardship, but to view it otherwise would work a greater hardship. The auditing committee is frequently performing a gratuitous service and wish to get through as soon as possible. But the fact that it is gratuitous and that they are in haste will not save them. See Hun vs. Cary, supra.

The auditing committee owes a duty not only to the order, but to the bonding company as well. Somebody must audit the accounts, and it must be done with ordinary care and prudence.

There are vast numbers of officers in fraternal orders who are under bonds. It would not be reasonable to expect that they would all be efficient business men. It would be remarkable if they were all even honest. Experience proves the wisdom of requiring bonds. of fraternal officers, and the bonding companies are trying to do the business in a fair and honorable manner.

The importance of this subject is evident when we consider that considerably more than a hundred million dollars per year passes through the hands of the Financial Keepers of Record in the local lodges and through the hands of the Treasurers of the Supreme lodges; in some cases it passes through the hands of the local treasurers as well.

It is safe to say that, in our fraternal orders, more than $300,000,000 per year is now safeguarded by bonds; yet, the bonding companies have less deficits to make up in these orders in proportion to the money handled than in banking institutions. Our fraternal officers may not be as expert accountants as the employees of banks, but in the line of honesty they rank high.

It follows from what precedes that an auditing committee must. perform its duties with prudence; that it must verify the accounts of the bonded officers; that neglect of this plain duty may release the bonding company from all liability, and also make the auditing committee personally liable for the loss.

THE RIGHT OF THE DEFENDANT SOCIETY TO OPEN AND CLOSE THE CASE IN ACTIONS BROUGHT UPON BENEFIT CERTIFICATES WHERE THE DEFENSES ARE

ALL AFFIRMATIVE.

By A. W. Fulton, Chicago, Illinois.

Read before Law Section, Aug. 23, 1915, Minneapolis, Minn.

There are only a few cases where in suits to recover upon a benefit certificate the defendant is not clearly entitled to the opening and closing argument to the jury, or would be so entitled if the necessary steps were taken to secure this right to the defendant.

It is the purpose of this article to show the advantage of the closing argument and what procedure must be followed to secure it, and to that end the statutes and decisions of such state have been examined and a brief of the law in each state is made a part of this paper. It is probably unnecessary to point out the importance of having the closing argument. In cases brought to recover benefits there is usually an abundance of evidence to support a verdict for defendant. On the other hand verdicts are rendered for plaintiffs upon the flimsiest sort of evidence and directly against the greater weight of the evidence and many times we are met on appeal by the statement from higher courts that the jury are judges of the facts and having by their verdict found the facts a certain way the higher court is not disposed to disturb the judgment. Verdicts are obtained in cases where awarding the money to plaintiffs is little short of highway robbery. The result we find is obtained sometimes through the sympathy of the jury for the bereaved widow or children of the member or the jury's prejudice against the old line. insurance company because of the reputation of the old-line company for meeting its claims with frivolous and technical defenses, the jury not making any distinction in the methods or plans of the two systems, and sometimes the trial judge not only shows his sympathy or prejudice but is woefully ignorant of the principles of the law relating to such cases. With both judge and jury in this state of mind, as sometimes happens to be the case, it is indeed