possession under plaintiffs' claim of title and are estopped to deny it; second, plaintiffs and their predecessors had held the land continuously and adversely since 1890 under color of title, and therefore had perfected their claim by adverse possession.

If an entry was made by defendants pursuant to a contract with plaintiffs and in recognition of their title, it would undoubtedly, in the absence of subsequent effective disclaimers, operate as an estoppel against the claim of defendants and also inure to plaintiffs. We cannot, however, agree that defendants made such an entry. They owned some adjacent land, and in 1912 extended their inclosure to a part of the land in dispute. But their lines were not definitely known, and it does not appear that the slight extension was accompanied by a claim of right or ownership in themselves beyond the inclosure or to that through plaintiffs. They had entered into a contract with plaintiffs for the surface rights in 1910, but in the suit to enforce that agreement, brought in 1911 and concluded in 1914, they denied plaintiffs' claim of ownership. In our opinion the evidence does not authorize the inference that they acquired possession under contract with or otherwise through plaintiffs.

[1] While there is no merit whatever in defendants' claim of title, it is none the less true that plaintiffs' right to recover depends not on the good faith of their claim as compared with that of defendants, but upon the validity of their title. Engle v. Bond Foley Lumber Co., 173 Ky. 35, 189 S. W. 1146; Dick v. Foraker, 155 U. S. 404, 15 S. Ct. 124, 39 L. Ed. 201. They believed in 1910 that they had unimpeachable title, and after discovering that they did not acquired the rights of certain parties, who claimed under the Atkins patent issued October 7, 1882. They relied on that patent in bringing this action, alleging, as required under the statutes, that they owned the land, and on the hearing they introduced documents showing chain of title, with some defects that need not be mentioned, back to the Atkins patent. Good faith on their part and defendants' lack of it abound in the record.

But that is not enough. Their asserted rights could emanate alone from title. It cannot be traced from the Atkins patent, for that is within the older patent to John Henry and Alexander Smith of August 20, 1796. It is doubtful that the Atkins patent, if correctly located, would include one of

the tracts or more than a small part of the other. But, apart from that consideration, and assuming it to have been correctly located by the survey of 1910, it is nevertheless void, because embraced in the Smith patent of 1796. Section 4704, Kentucky Statutes. Its only efficacy was to confer color of title, and its sole function in that respect was to define the possession acquired by any adverse entry made under it.

The lower court recognized the invalidity of the Atkins patent, but held that inasmuch as the deed from Cline to Thomas of October 10, 1890, which is in the chain of plaintiffs' claim, conveyed, not only the two tracts in controversy, but also a third, adjoining one of them, an adverse entry made on the third tract would extend the possession under Trimble v. Smith, 4 Bibb (Ky.) 257, and Parsons v. Dills, 159 Ky. 471, 167 S. W. 415, to all the land embraced in the deed within the interlap with the Smith patent, and, further, that such an entry was made in 1890, under which possession continued until it ripened into title. Reference is also made in the opinion to the inclosure of two or three acres not earlier than 1913 on the third tract. If this could be regarded as a constructive possession to the exterior lines of the three tracts, continuing without interruption until 1918, there still would be no investiture of title under the 15-year statute of limitation.

[2] It is in evidence that the surveyor who located the Atkins patent in 1910 found on the third tract, known as the Auxier tract, an old rail fence inclosing about one-half acre of land. In his opinion the fence was 35 or 40 years old. This is said by plaintiffs to have been an adverse entry on the Smith patent under the deed from Cline to Thomas and tantamount in law to taking possession of all the land embraced in that deed, including the two tracts in dispute. We find nothing in the record showing who placed the rail fence on the land, whether it was done by Cline or Thomas, or any one claiming through them, or under what authority or claim, if any, it was done. inclosure had been abandoned for years. As to whether it was ever used or claimed as a matter of right, and, if so, how long, there is nothing in the evidence. In this state of the record it cannot be presumed that the inclosure was an entry made under the deed of 1890 or under any other deed or color of title with like lines or boundaries. Nor is it to be presumed that possession

The

44

Continuity of possession is just as essential to effect a transfer of title as adverseness. Neither was shown. It follows that the decree adjudging plaintiffs to be the owners of the land and confirming their title is erroneous.

The judgment was also wrong in enjoining defendants from entering upon any part of the land, for, as we have seen, the right to the relief asked and granted depended on the validity of plaintiffs' title. But even if it could be said that this branch of the judgment is controlled by the Kentucky rule that one in possession of land, though not having title to it, may enjoin a trespass, our conclusion could not be different. Plaintiffs did not acquire possession by reason of the fence found in 1910. The only other evidence on that point is that in 1913, certainly not later than 1916, the Kentland Coal & Coke Company inclosed with wire two or three additional acres and connected it with the old fence. This inclosure was not on either of the tracts in controversy, but was on a tract included in the deed of 1890 under which plaintiffs claim. Was this act such an entry as extended the possession to other tracts within the deed, and did it continue until this suit was instituted in February, 1918?

[3] The first inquiry may be passed without discussion. The second, in our opinion, must be answered in the negative. Nothing was done by the plaintiffs for two years after putting up the wire. The fencing of two or three acres may be assumed to be an adverse entry effecting possession. But that act of itself will not prolong the possession indefinitely or even for two years. It was incumbent upon the Coal Company to do something else if it desired to continue the possession that it had acquired. To hold possession of land one must do those things that are ordinarily incident to its uses in connection with the right claimed. It has been held in Kentucky that the building of a cabin, the cultivating of a garden or a small crop, and the doing of other intermittent acts do not of themselves continue the possession beyond the period of occupancy and use. Wickliffe v. Ensor, 9 B. Mon. (Ky.) 253; Smith v. Chapman, 160 Ky. 400, 169 S. W. 834; Frazier v. Ison, 161 Ky. 379, 170 S. W. 977. Clearly the stringing of the wires in 1916 did not retain the possession thus effected until 1918, when this suit was instituted.

The judgment is reversed.

No. 4285.

I. Banks and banking

77(4)-Surety for cashier held not entitled to set off claim against bank acquired after its insolvency.

The surety on a bond given to a bank by its cashier for the faithful performance of his duties cannot set off against its liability thereon the amount it paid to the state as surety on a bond previously given by the bank to secure state deposits. after failure of the bank through defalcations of its cashier. 2. Principal and surety 174-Agreement of principal to indemnify surety implied.

There is always an implied obligation, in the absence of an agreement to the contrary, that the principal will indemnify his surety against loss resulting from the suretyship, and an express agreement therefor adds nothing to the surety's rights.

Appeal from the District Court of the United States for the Eastern Division of the Southern District of Ohio; John E. Sater, Judge.

Suit in equity by the Springfield National Bank and John A. Best, its receiver, against the American Surety Company of New York. Decree for defendant, and complainants appeal. Reversed.

J. E. Bowman, of Springfield, Ohio (Frank W. Geiger, of Springfield, Ohio, on the brief), for appellants.

James I. Boulger and W. R. Pomerene, both of Columbus, Ohio, for appellee. Before DENISON, DONAHUE, and MOORMAN, Circuit Judges.

MOORMAN, Circuit Judge. On April 8, 1922, the American Surety Company executed a bond to the state of Ohio, as surety for the Springfield National Bank, to secure a deposit of the state of $50,000 in the bank. On May 20, 1922, it became surety on a bond of $50,000 executed by A. H. Penfield for the faithful performance of his duties as cashier of the bank. Through the frauds of Penfield the bank became insolvent and was closed by the comptroller April 5, 1923. Shortly after the appointment of the receiver the state filed proof of its claim against the bank, which was allowed, and a certificate of allowance issued to the state and assigned by it to the surety company upon the payment by that company of its full liability on the deposit bond. Subsequently the receiver for the bank paid to the surety company about $21,000 on the claim of the state. The

difference between the amount so received by the surety and what it paid to the state it claims is a debt due it from the bank which may be set off against its liability to the bank under the bond of Penfield. The lower court sustained the claim.

[1] The recent case of United States Fidelity & Guaranty Co. v. Wooldridge, Receiver, etc., 45 S. Ct. 489, 69 L. Ed. decided May 11, 1925, clearly disposes of the contention that the surety company had the right of set-off as assignee or subrogee of the state. It is contended, however, for the company that a provision in the application of the bank for the bond, by which it agreed to "indemnify and keep indemnified" the surety against any loss sustained on account of the suretyship, brings into existence independent and different rights from those arising under the assignment which may be enforced against its liability on the cashier's bond.

[2] This provision did not give to the surety company any right that it otherwise did not have upon the execution of the bond, for there is always an implied obligation, in the absence of an agreement to the contrary, that the principal will indemnify the surety against loss resulting from the suretyship. This applied to the case just referred to, and hence the surety company has no rights that were not available to the guaranty company in that case. The company did not elect to stand alone on the express or implied obligation of the bank to indemnify it against loss on the deposit bond, but took an assignment of the state's claim and accepted its distributable share of the estate. But apart from that consideration, its potential liability on the deposit bond was converted into a claim against the bank when and not until the bank became insolvent and unable to repay the state. The liability on the Penfield bond became fixed upon his defalcation, whether the bank was or was not thereby rendered insolvent. The two bonds were separate transactions, totally lacking in contact. When other equities are involved the right of set-off ordinarily depends on mutual credits which have been defined as "an existing debt due to one party, and a credit by the other party, founded on, and trusting to such debt, as a means of discharging it." Scott v. Armstrong, 146 U. S. 499, 13 S. Ct. 148, 36 L. Ed. 1059. Courts of equity have held that the requisite mutuality exists where the transactions are such as to raise a presumption of reciprocal credits or an agreement for a set-off. Carr v. Hamilton, 129 U. S. 252, 9 S. Ct. 295, 32 L. Ed. 669.

But the presumption cannot be indulged here. Each bond was independent of the other and executed for the usual consideration for a single bond of that kind. The only color of connection between the two demands arises from the fortuitous circumstance that the dishonesty of the cashier caused the bank's insolvency. It could not be supposed that when the bank agreed to indemnify the surety on the deposit bond it relied on the latter's liability on the cashier's bond (not then in existence) in the event of his defalcation, or that the surety company, in accepting the bank's obligation, trusted as a means of discharging it to a liability that it thereafter assumed for a wholly separate consideration. Nor is it to be presumed that in executing the bond of the cashier for the usual consideration the surety company relied on the obligation of the bank to indemnify it against loss on the deposit bond. The bank was legally bound to repay on demand the deposit made by the state. The surety obligated itself to pay if the bank should default. To permit the performance of that obligation to defeat a separate surety obligation would eventuate in an unfair distribution of the bank's assets among its creditors. A majority of the court think the case is within the principle announced in the Wooldridge Case.

The judgment is reversed.

Whether one has actually carried on business of selling liquor at retail or at wholesale, without having paid special tax therefor, in violation of Rev. St. § 3242 (Comp. St. § 5965), is tested in same way as it would be if occupa

tion tax was imposed on one who followed business of selling any other article.

3. Internal revenue 47-Evidence that one has sold is admissible as proving carrying on business of selling.

As one who carries on business of retail liquor dealer necessarily seeks to sell his wares,

erroneous.

In prosecution for carrying on a business of retail liquor dealer without having paid special tax therefor, in violation of Rev. St. § 3242 (Comp. St. § 5965), where government's evi

dence was flatly contradicted, it was erroneous to charge that, where there was one sale and any evidence of liquor beyond that, then jury could believe defendant was carrying on a retail liquor business.

In Error to the District Court of the United States for the Southern District of West Virgina, at Charleston; George W. McClintic, Judge.

Maurice Rood was convicted of carrying on the business of retail liquor dealer without having paid the special tax therefor, and he brings error. Reversed and re

manded.

ence to the other. He who without paying the tax engages in the business of a retail dealer in spirituous liquors may be sent to the penitentiary for as long as 2 years and may be fined as much as $5,000. The maximum penalty for the first offense of selling liquor in violation of the National Prohibition Act is imprisonment in jail for not more than 6 months or a fine not exceeding $1,000. This great difference in the punishments which may be inflicted demonstrates that the lawmakers thought they were dealing with essentially different things, and emphasizes the duty of the courts to make clear the distinction between them. This is all the more imperative because the evidence which may, if believed, conclusively establish the commission of the lesser offense, is almost always admissible as part of the government's case in prosecutions for the graver. One cannot offend against the revenue statute unless he has actually carried on the business of selling liquor at retail or at wholesale, as the case may be. Whether he has in fact done so is tested in the same way as it would be if the occupation tax, instead of being levied on a dealer in spirituous liquors was imposed upon one who followed the business of selling cigars, candy, stationery, or soft drinks, or any other article upon the business of

Elliott Northcott, U. S. Atty., of Huntington, W. Va., and B. J. Pettigrew, Asst. U. S. Atty., of Charleston, W. Va.

Before WADDILL and ROSE, Circuit Judges, and WEBB, District Judge.

ROSE, Circuit Judge. The plaintiff in error was defendant below and will be so styled here. He was indicted and convicted of carrying on the business of a retail liquor dealer without having paid the special tax therefor, in violation of section 3242 of the Revised Statutes (Comp. St. § 5965).

[1-3] For almost 60 years, no one has been allowed to engage in the business of a retail liquor dealer without paying the tax levied upon that occupation. Since the passage of the National Prohibition Act (Comp. St. Ann. Supp. 1923, § 101384 et seq.), every one has been forbidden to sell intoxicants. Both inhibitions are still in force, but they concern themselves with different things. The first is intended to safeguard the revenues; the second to aid in the enforcement of the Eighteenth Amendment. In the view of Congress, offending against the one is far more serious than disobedi

an excise tax. One who carries on such a business necessarily seeks to sell his wares, and evidence that he has sold is admissible as tending to prove that he is carrying it on. Whether such evidence will be sufficient to establish that fact is another question, the answer to which may depend upon many things, among them, the number of sales shown, which latter may be important or the reverse, depending on the other circumstances proved. The testimony may demonstrate that the accused has carried on the business of a dealer in liquor, although not more than a single sale is proved, and although perhaps such sale itself is not established with the degree of particularity which might be necessary if the offense for which he was under prosecution was that of selling liquor.

In such cases the question the jury must answer is "Did the defendant carry on the business of a retail liquor dealer?" Nearly 40 years ago, Judge Simonton, in a case in which the defendants were on trial for carrying on that business, pointed out that "the sale of liquor on more than one occasion had been testified to." He told the jury "if the sale was under such circumstances as