Leonard v. Aetna Casualty & Surety Co.

• Decision Date: 12 November 1935
• Docket Number: No. 3897.,3897.
• Citation: 80 F.2d 205
• Parties: LEONARD v. ETNA CASUALTY & SURETY CO.
• Court: U.S. Court of Appeals — Fourth Circuit

80 F.2d 205 (1935)

LEONARD v. ETNA CASUALTY & SURETY CO.

No. 3897.

Circuit Court of Appeals, Fourth Circuit.

November 12, 1935.

Charles W. McTeer and J. E. McDonald, both of Chester, S. C. (Angus H. Macaulay, of Chester, S. C., on the brief), for appellant.

Paul Hemphill and John M. Hemphill, both of Chester, S. C., for appellee.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

SOPER, Circuit Judge.

The sole question involved in this case is the proper construction to be placed upon the terms of a fidelity bond. The facts are not in dispute. On October 23, 1925, Etna Casualty & Surety Company executed and delivered a bond whereby Raymond N. Speigner, as principal, and the surety company as surety, acknowledged themselves held and firmly bound unto the National Exchange Bank of Chester, S. C. The bond recited that Speigner had been appointed to the position of bookkeeper in the service of the bank; and it was covenanted and agreed in the bond that the surety, in consideration of an annual premium of 30 cents per $100 of suretyship, to be paid by the bank, bound itself to pay to the bank such pecuniary loss as the bank should sustain through fraud or dishonesty committed by Speigner while holding any position in its service during the period commencing August 17, 1925. The bond also contained the following provisions:

"Third. The suretyship shall only terminate by (a) the employer giving written notice to the surety, specifying the date of termination or the surety giving thirty days' written notice of termination to the employer. * * * (b) The retirement of the employe from the employ of the employer or upon discovery of loss through the employe.

"Fourth. The surety shall be liable for those losses only which shall be discovered during the term the bond is in force or within two years after the termination thereof."

The bank paid the annual premiums on the bond for 1925 to 1933, inclusive; but no premium receipt or continuation or renewal certificate was in evidence. During the period beginning August 17, 1930, and ending August 17, 1931, the bank sustained pecuniary loss through the fraudulent acts of Speigner in the sum of $2,500 or more; between August 17, 1931, and August 16, 1932, the bank sustained a similar loss, and between August 17, 1932, and January 17, 1933, a similar loss. The defalcations were discovered on January 17, 1933, and due proofs of loss and claims for payment were filed with the surety, whereupon the surety tendered to the bank $2,500 and interest as full and complete settlement of all its liability under the bond. This tender was refused and the complaint in this action was filed wherein the bank set forth three separate and distinct causes of action, each for the sum of $2,500, basing its demand upon the theory that upon the payment of each annual premium, a new contract arose so that the liability of the surety was cumulative. The defendant deposited with the clerk of the District Court the full amount of the sum tendered and moved the court to consolidate the three causes of action into one on the ground that the plaintiff was entitled to only one cause of action for the penal amount of the bond, and also filed an answer admitting the facts above set out, but setting up the defense that the bond constituted only one continuous contract, and limited the total liability of the surety to $2,500. The case was submitted on the pleadings to the District Judge, who sustained the defense and entered judgment for the surety. The bank appealed.

The question at issue is to be decided by determining whether the parties contemplated a single continuous contract covering the entire period, or a series of independent contracts, each for the period of one year; and the solution necessarily depends upon the terms of the bond. It will be noticed in the first place that the instrument did not specify a definitely limited period terminating on a certain date, with the privilege of renewal¹, but covered the period commencing on August 17, 1925, and continuing until the suretyship was terminated by affirmative action, that is, by notice of termination by one of the parties to the contract, by retirement of the employee from the service, or by the discovery of loss. Secondly, no additional agreement was needed to extend the period of the coverage of the bond. It is true that an annual premium was to be paid by the bank, but this provision did not limit the period of the contract; it merely described the consideration running to the surety. There was no requirement for the renewal of the bond upon payment of the annual amount, and no stipulation that liability should cease if the annual premium should not be paid. Finally, the limitation upon the liability of the surety as to each year of the period did not become effective with regard to the expiration of the year, but only with regard to the expiration of one continuous term; for the fourth paragraph of the bond, quoted above, provided that the surety should be liable for losses discovered during the term of the bond "or within two years after termination thereof."

These terms and conditions of the bond lead us to the conclusion that only one contract was effected by the parties to this cause, and that the decision of the District Judge that the surety was liable for only $2,500 should be sustained. Similar conclusions have been reached in a number of well-considered opinions, e.g., Fourth & First Bank & Trust Co. v. Fidelity & Deposit Co., 153 Tenn. 176, 281 S.W. 785, 45 A.L.R. 610; National Bank v. National Surety Co., 105 N.J.Law, 330, 144 A. 576; Green v. United States Fidelity & Guar. Co., 135 Tenn. 117, 185 S.W. 726. They point out that such bond as that now under discussion is not made for one...