186 U.S. 342 (1902), 178, Fidelity and Deposit Company v. Courtney

Docket Nº:No. 178
Citation:186 U.S. 342, 22 S.Ct. 833, 46 L.Ed. 1193
Party Name:Fidelity and Deposit Company v. Courtney
Case Date:June 02, 1902
Court:United States Supreme Court

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186 U.S. 342 (1902)

22 S.Ct. 833, 46 L.Ed. 1193

Fidelity and Deposit Company



No. 178

United States Supreme Court

June 2, 1902

Argued March 3-4, 1902




In an action brought by the receiver of a national bank appointed by the Comptroller of the Currency upon a bond of indemnity given to hold the bank harmless against fraud of a specified officer, it was contended that the court erred in admitting in evidence a notice of the default of the

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officer, given to the surety company by the receiver within from ten to seventeen days after the discovery of the default, and in instructing the jury that the requirement in the bond that immediate notice should be given of a default was fulfilled by giving notice as soon as reasonably practicable and with promptness, or within a reasonable time. Held that the trial court did not err in refusing to instruct, as a matter of law, that the notice was not given as soon as reasonably practicable, under the circumstances of the case, or without unnecessary delay, and in leaving the jury to determine the question whether the receiver had acted with reasonable promptness in giving the notice.

The Court points out an error in excluding evidence, but further holds that, as the very question which the jury would have been called upon to determine if the evidence had been received was fully submitted to them and was necessarily negatived by their verdict, no foundation exists for holding that prejudicial error resulted from excluding the evidence.

If the court below in any wise erred, it was in giving instructions which were more favorable to the defendant than was justified by the principles of law applicable to the case.

To instruct the jury in broad terms that, if they found that the directors were careless in the management of the bank generally, they should find for the defendant could only have served to mislead.

The action below was brought, on February 5, 1898, by Courtney, as receiver of the German National Bank of Louisville, appointed by the Comptroller of the Currency on January 22, 1897, four days after the closing of the bank. Recovery was sought upon a bond of indemnity for ten thousand dollars and renewals thereof, taking effect respectively on June 1, 1894, June 1, 1895, and June 1, 1896. The condition of the bond was to hold the bank harmless against any loss which it might sustain by reason of any fraud committed by Jacob M. McKnight, originally as vice-president and later as president of the bank. The sum of $18,742.74 was alleged to have been dishonestly and fraudulently embezzled, and misapplied out of the funds of the bank from July 1, 1894, to January 4, 1897, by McKnight, either as vice-president or president, and a statement of the items was embodied in the petition. Due proof of the claim was averred to have been made on July 2, 1897. By answer and amendments thereto, the defendant took issue as to the happening of each of the alleged defaults; it averred that McKnight, prior to January 21, 1896, had indulged in speculations in whisky and tobacco and in disreputable and unlawful

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habits and pursuits; it further averred that the cashier and teller (one and the same individual), or the vice-president of the bank, who became such when McKnight became the president, or the directors thereof at or about the time of the happening of the defaults, had knowledge of the same, and that the bank condoned the defaults of McKnight for which recovery was sought. In effect, also, it was alleged that there had been a violation of each of the other conditions and stipulations of the bond. The amended answer concluded with the following averment:

When said bond of June 1, 1894, given by defendant to said bank for the fidelity of said McKnight, as set out in the petition, was renewed for another year on June 1, 1895, to cover the period from that date to June 1, 1896, and was again renewed and continued on June 1, 1896, to cover the period from that date to June 1, 1897, said bank, through an officer other than said McKnight, represented and asserted and certified, with the knowledge of the directors of the said bank, that the books and accounts of said McKnight had been examined by said bank and were then found to be correct in every respect, and that all moneys handled by him had been accounted for up to that time, and that he had performed his duties in an [22 S.Ct. 835] acceptable and satisfactory manner, and that said bank knew of no reason why the guaranty bond executed by this defendant should not be continued; but defendant says that in fact, said statements, assertions, and certificates were, and each of them was, false and fraudulent, and known by said bank to be false and fraudulent, but the defendant did not know the same to be false or fraudulent, and, on the contrary, the defendant believed and relied on said statements and each of them, and but for said statements, assertions, and certificates, the defendant would not have renewed or continued said bond on June 1, 1895, or June 1, 1896, and the defendant would immediately have cancelled and revoked said bond, as it had a right to do, and as the said bank knew it had a right to do. The said bank purposely withheld from the defendant the proper information as to the acts and conduct and accounts of said McKnight, and thus misled and deceived the defendant.

A reply was filed controverting the affirmative allegations

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of the answer, and the cause was tried to a jury. Various exceptions were taken by the defendant to the exclusion of offered evidence and to instructions to the jury. A verdict was returned for plaintiff, and from the judgment entered thereon, an appeal was taken to the Circuit Court of Appeals for the Sixth Circuit. That court affirmed the judgment. 103 F. 599.

A writ of certiorari was then allowed.

WHITE, J., lead opinion

MR. JUSTICE WHITE, after making the foregoing statement, delivered the opinion of the Court.

We shall consider under separate headings the several propositions upon which reliance is placed to demonstrate that error was committed by the trial court.

1. The court erred in admitting in evidence a notice of the default of McKnight given to the surety company by the receiver on February 18, 1897, and in instructing the jury that the requirements in the bond that immediate notice should be given of a default was fulfilled by giving notice "as soon as reasonably practicable and with promptness" or "within a reasonable time."

The bank was closed by the Comptroller on January 18, 1897, and the receiver was appointed four days afterwards. The experts employed by the receiver to examine the books of the bank began to discover the defaults of McKnight "about two or three weeks after the bank was closed." The notice by the receiver to the surety company that McKnight was a defaulter was given on February 18, 1897. It follows that the notice was given within ten to seventeen days after the first discovery of a default. Both the trial court and the circuit court of appeals, reviewing numerous authorities, held that the requirement in the bond "that the employer shall immediately

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give the company notice in writing of the discovery of any default or loss" ought not to receive the construction that it was intended by the parties that notice of a default should be given instantly on the discovery of a default, but that what was meant was that notice should be given within a reasonable time, having in view all the circumstances of the case. In so deciding, we think the court did not err. Indeed, this construction of the word "immediate" would seem to be applied in practice, as is illustrated by the bond of indemnity considered in the case of the Guarantee Co. v. Mechanics' &c. Co., 183 U.S. 402, where one of the conditions was

that the company shall be notified in writing of any act on the part of said employee which may involve a loss for which the company is responsible hereunder to the employee immediately or without unreasonable delay.

A quite recent case, decided by the Supreme Court of New Hampshire, Ward v. Maryland Casualty Co., 51 A. 900, so lucidly states the true construction of the word "immediate" as employed in a bond cognate to the one under consideration that we excerpt a passage from the opinion (p. 902):

The defendants' liability depends in part upon the answer to the question whether the plaintiffs gave them "immediate" notice in writing of O'Connell's accident, the claim made on account of it, and the suit that was brought to enforce the claim. This involves an ascertainment of the meaning of the word "immediate" as used in the policy. The word, when relating to time, is defined in the Century Dictionary as follows:

Without any time intervening: without any delay; present; instant; often used, like similar absolute expressions, with less strictness than the literal meaning requires -- as an immediate answer.

It is evident that the word was not used in this contract in its literal sense. It would generally be impossible to give notice in writing of a fact the instant it occurred. It cannot be presumed that the parties intended to introduce into the contract a provision that would render the contract nugatory. As "immediate" was understood by them, it allowed the intervention of a period of time between the occurrence of the

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fact and the giving of notice more or less lengthy according to the circumstances. The object of the notice was one of the circumstances to be considered. If it was to enable the defendants to take steps for their protection that must necessarily be taken soon after the occurrence of the fact of which notice was to be...

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