Hawley v. United States Fidelity & Guaranty Co.

Majority

p. 12

Frank T. Hawley, as Grand Master of The Switchmen’s Union of North America, Respondent, v. The United States Fidelity and Guaranty Company, Appellant.

Headnote

Surety- company's bond to secure the fidelity of an employee — effect of a second bond being taken —it does riot terminate any liability under the first bond — effect of a defalcation not having been discovered within six months.

In an action brought upon two bonds, executed by the defendant to secure the fidelity of the plaintiff’s secretary, to recover §3,638.89, which the secretary had misappropriated, it appeared that one of the bonds was executed January 11, 1899, and the other on June 5, 1900; that §1,035 of the total amount

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misappropriated was misappropriated .during the time the first bond was in force,.and the remaining §1,603.89 during the time that the second bond was in force; that the misappropriation was not discovered until -March 6-11, 1901, and that the secretary was at once dismissed.

Both of the bonds provided that the defendant should be liable for a misappropriation “ occurring during the continuance of this bond or any renewal thereof and discovered during said continuance or within six months thereafter, or within six months from the death or dismissal or retirement of the employee from the service of the said employer; ” also, .“ That the Company, . upon the execution of this bond, shall not thereafter be responsible to the employer under any bond previously issued to the employer on behalf of said employee, and upon the issuance of any bond subsequent hereto upon said employee in favor of said employer, all responsibility hereunder shall cease and determine, it being mutually understood that it ,is 'the intention of this provision that but one (the last) bond shall be in force at one time, unless otherwise stipulated between the employer and the Company.”

Beld, that even assuming the second bond to be a separate and distinct one, and not a mere renewal of the first bond, the plaintiff was entitled to recover the §1,035 item under the first bond, and the §1,603.89 item under the second bond;

That the failure to discover the misappropriation of the §1,035 within six months after the termination of the first bond, did not, under the clause of the bond first above quoted, preclude a recovery of that sum under the first bond, it appearing that the'discovery was made within six months after the secretary’s dismissal, and hence was within the language of the clause in question.

That a recovery of the §1,085 under the first bond was not prohibited by the clause of the second bond, last above quoted, for the reason that it was not the" purpose of such clause that the execution of the second bond should cancel.a liability for an undiscovered misappropriation occurring during the term of the first bond, but simply to terminate all responsibility under the first bond as far as future misappropriations were concerned.

Appeal by the defendant, The United States Fidelity and Guaranty Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Erie on the 10th day of March, 1904, upon the verdict of a jury rendered by direction of the court, and also from an order entered in said clerk’s office on the 28th day of April, 1904, denying the defendant’s motion for a new trial made upon the minutes.

George P. Keating and Love & Quackenbush, for the appellant.

John Cunneen, V. H. Riordan and Henry W. Killeen, for the respondent.

The judgment and order should be affirmed, with costs.

The action was brought upon bonds given by- the defendant, as surety for one Tipton, the secretary and treasurer of the Switch-men’s Union, represented by the plaintiff, to recover an amount' misappropriated by Tipton-. There were two bonds, -one given January 11, 1899, and -the other June 5, 1900. The -whole amount misappropriated was $2,638.89. The jury by a special verdict found that $1,035' of this amount was misappropriated during the time the first bond was in force and before the second bond was given ; concededly the remaining $1,603.89 was misappropriated after the second bond was given and while it -was in force. The theory Of the plaintiff, presented, by its complaint and upon the' trial, is' that the second bond was not a separate and'distinct one, ', but was a renewal of the first one, a continuance of the original liability in an increased amount, and for that reason, among, others, the $1,035 was recoverable e'ven though misappropriated before the second bond was given. It seems to us, however, that this amount is recoverable even regarding the bonds, as separate and distinct obligations. A determination of this question involves a construction of some of the language of the- bonds. They both alike provide that the defendant shall be liable for moneys misappropriated, and now we quote, “occurring during the continuance of this bond' or any renewal thereof and discovered during said continuance or within six‘months thereafter, or within six months from the death or dismissal or retirement.of the employee from the service of the said employer.” And again, “ That the Company, upon the execu-' tian of this- bond, shall not thereafter be responsible to the -employer, under any bond previously issued to the employer on behalf of said employee, and upon the issuance of any bond subsequent hereto upon'said employee in favor .of said employer, all, responsibility hei'eunder shall cease and determine, it being mutually understood that it is the intention of this .provision that but one (the last) bond shall be in force at one time, unless otherwise stipulated between the employer and the Company.”

" First, it is said that the misappropriation of this $1,035 was not discovered within the time -provided in the bond as above quoted, and, therefore, it cannot be recovered. The second bond was given

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June 5, 1900, and the disco vei’y of the misappropriation was not until March 6-11, 1901. So that it may be said the discovery was not during the continuance of the first bond, or within six months thereafter." But the employee was dismissed at once upon the discovery being made. So that the discovery was within six months from his dismissal or retirement from the service of the employer.

There is no reason under this provision of the bond, therefore, why this amount should not be recovered. Second, it is said that no recovery can be had of this amount under the second bond, by reason of the provision above quoted, the misappropriation having occurred before such bond was given, and this is true. But a recovery can be had for this amount under the first bond, and nothing in the provision above quoted forbids such recovery. The language is that “ upon the issuance of any bond subsequent hereto * ■* * all responsibility hereunder shall cease and determine” wall then it is added that the intention is that but one bond shall be in force at one time. In this case the defendant was liable under the first bond for this $1,035 before the second bond was given, though the discovery of the misappropriation had not been made. The defendant did not, upon giving the second bond, become liable thereunder for this amount upon discovery of the misappropriation. Was it the intention of the provision quoted to release the defendant, upon the giving of the second bond, from all liability for the money which had been misappropriated, but not then discovered ? The language of the former provision quoted implies that the defendant would be liable for money misappropriated during the continuance of the first bond, though not discovered for six or more months thereafter. So that if the first bond had been terminated for any other reason than because another one was given, the liability would continue beyond the continuance of the bond, until the discovery of the misappropriation. It is not .reasonable to suppose that in the same bond the provision was made that a liability thereunder not discovered at the time a subsequent bond was given would be canceled by the giving of such subsequent bond.

The more reasonable construction of the provision quoted is that the intention was to terminate all responsibility under the first bond upon the issuance of the second one, so far as future misappropriation was concerned, so that there should be but one bond in force at

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the same time, but'that it was not' intended to cancel any liability already incurred while the first bond was in force. The rule of liability would then be thé same, whether the first bond was terminated by the giving of a second bond or for any other reason. Liaability already incurred for undiscovered misappropriation would still continue. The provision is that all responsibilty, not all liabil ity, should cease and determine upon the issuance of the subsequent bond. It would be unconscionable to provide that all liability for prior undiscovered misappropriation should be canceled by the giving of tire second bond.

So much for the right to recover this $1,035. It is said that no recovery can be had of the $1,603:89 under the second bond because the employer’s certificate, made when that bond was given, constituted a warranty of the facts therein stated, or at least a misrepresentation of facts upon which the defendant relied in issuing the bond. The difficulty about this contention is that in either case it must appear that the statements .made were untrue, otherwise there would be no breach of the warranty, and no ground for defeating the bond by reason of false, representations. The statements' as to the employee’s former conduct, performance of his duties, keeping of his accounts and freedom from default, are stated upon the best of the knowledge and belief of the employer, and it is not claimed that .the plaintiff or those representing him had any knowledge, .information or suspicion at that-time that the employee was not perfectly honest and reliable. •. ~

The statement that his accounts Were found on examination to' be correct up to .that time was true. They did not discover for months thereafter that he had 'misappropriated this $1,035 prior toi the giving of the second bond. There was no absolute statement that he was honest, or reliable or free from default, or that his accounts were correct. The statement was to the best of the employer’s knowledge and belief and there is no reason for saying such state-' ments were untrue,, or that liis employer had any idea that he was not just what he should be.

Our conclusion is that the judgment and order should be affirmed.

All'concurred.

Judgment and order affirmed, with costs.