Montgomery Ward & Co. v. Fidelity & Deposit Co.

• Decision Date: 30 June 1947
• Docket Number: No. 9067,No. 9127.,9068,9067,9127.
• Citation: 162 F.2d 264
• Parties: MONTGOMERY WARD & CO., Inc., et al. v. FIDELITY & DEPOSIT CO. OF MARYLAND et al. FIDELITY & DEPOSIT CO. OF MARYLAND v. PINKERTON'S NAT. DETECTIVE AGENCY. PINKERTON'S NAT. DETECTIVE AGENCY v. BOSLEY et al.
• Court: U.S. Court of Appeals — Seventh Circuit

162 F.2d 264 (1947)

MONTGOMERY WARD & CO., Inc., et al. v. FIDELITY & DEPOSIT CO. OF MARYLAND et al. FIDELITY & DEPOSIT CO. OF MARYLAND v. PINKERTON'S NAT. DETECTIVE AGENCY. PINKERTON'S NAT. DETECTIVE AGENCY v. BOSLEY et al.

Nos. 9067, 9068, No. 9127.

Circuit Court of Appeals, Seventh Circuit.

May 26, 1947.

Rehearing Denied June 30, 1947.

Stuart S. Ball, Horace W. Jordan, and William L. Lamey, all of Chicago, Ill., for Montgomery Ward & Co.

Henry J. Brandt, of Chicago, Ill. (Poppenhusen, Johnston, Thompson & Raymond, of Chicago, Ill., of counsel), for Coach Corporation of Freeport.

Louis L. Dent, Geo. M. Weichelt, John P. Hampton, Roger D. Doten, and Donald W. Nofri, all of Chicago, Ill., for Fidelity & Deposit Co. of Maryland.

John C. Slade, Guy A. Gladson, and Frank B. Gilmer, all of Chicago, Ill. (Winston, Strawn & Shaw, of Chicago, Ill., of counsel), for Pinkerton National Detective Agency, Inc., et al.

Before MAJOR and KERNER, Circuit Judges, and BRIGGLE, District Judge.

KERNER, Circuit Judge.

The involved circumstances and intricacies of these appeals arise from the criminal activities of Lawrence O'Connell, Chief Security Examiner of the Industrial Commission of Illinois (hereinafter called Commission). On September 1, 1935, O'Connell, as principal, and Fidelity and Deposit Company of Maryland (hereinafter called Fidelity), as surety, executed a bond. In the bond, no expiration date was specified. It covered the indefinite duration of O'Connell's employment, but in and by the bond, O'Connell and Fidelity agreed to be bound unto the People of the State of Illinois in the sum of $20,000, conditioned upon O'Connell's faithful performance of his duties as Chief Security Examiner. Among other things, the duties of O'Connell included acceptance on behalf of the Commission of security deposited by employers seeking to qualify as self-insurers under the terms of the Illinois Workmen's Compensation Act. It appears that several employers including Pinkerton's National Detective Agency, Montgomery Ward & Co., and Coach Corporation of Freeport (hereinafter called Pinkerton, Ward, and Coach) made the requisite deposits in escrow.

On July 21, 1942, Pinkerton brought an action on the bond against Fidelity to recover $10,000 on account of O'Connell's conversion of Pinkerton's United States Treasury Bond. In that case, Fidelity claimed the Commission did not have authority to accept and hold Pinkerton's property as security for the payment of compensation provided by the Illinois Workmen's Compensation Act, and even if it did, O'Connell, in accepting the deposit, was not acting in any official capacity for the Commission. Fidelity's contentions were sustained and judgment was entered in its favor, but on appeal to this court (138 F.2d 469) the judgment was reversed and the cause was remanded with directions to enter judgment in behalf of Pinkerton.

On November 17, 1943, Ward brought action upon the same bond. It alleged that O'Connell converted its $10,000 United States Treasury Bond during 1939 and prior to September 1 of that year. Fidelity answered and filed a cross-complaint in the nature of a bill of interpleader, naming Pinkerton, Ward, Coach, and thirty-two others as cross-defendants. All but the three above named employers were dismissed or barred from taking anything under the surety bond. They, therefore, need not be considered in these appeals.

In cases numbered 9067-68, which have been considered together, appeals are taken by Ward and Coach from the decree adjudging that the maximum liability on the suretyship bond is $20,000, and that Ward and Coach are proper parties to the interpleader and must share $7,290.36 of the bond pro ratably, while Pinkerton, not a proper party to the interpleader, is allowed to recover $12,709.64, the full amount of its claim plus interest on the bond. Fidelity appeals from that portion of this decree which dismissed Pinkerton as a cross-defendant from its cross-complaint in the nature of a bill of interpleader.

In case number 9127, Fidelity is appealing to preserve jurisdiction should this court modify or reverse the District Court in 9067-68 and create an incongruous situation by deciding that Pinkerton must share ratably under the bond without disturbing our opinion in 138 F.2d 469.

The questions presented for our determination are whether (1) liability on the $20,000 suretyship bond was continuous and limited by the face amount of the bond, or cumulative and separate for each year the bond was in effect, and (2) Pinkerton was entitled to be dismissed as a cross-defendant from the interpleader suit and granted a priority over the remaining cross-defendants.

Appellants Ward and Coach argue that the liability of Fidelity under the bond was multiple and cumulative; that Fidelity's liability was not limited to the amount of $20,000; that the payment of annual premiums created a new and additional liability of $20,000 for each of the six years (1935-41) that the bond was in effect. In support of this position these appellants point to the bond itself as indicative of yearly renewal coverage and cumulative liability. On the back cover of the instrument is the following inscription:

Dated September 1, 1935

Expires September 1, 1936

This inscription is urged as limiting the tenure of the bond to one year, which, it is claimed, upon payment of the premiums was annually renewed.

It is undisputed that the most pertinent factors to be considered in the determination of whether the liability of a suretyship bond is cumulative or continuous are the terms of the bond itself and the acts of the parties in contemplation of the terms of the bond.

As we have already observed, the bond is for an indefinite term. Dated September 1, 1935, it is void only upon O'Connell's accounting to and turning over "to his successor in office, or to such other persons as may be designated by his superior officer, all records, property, money, books and papers, and all other property appertaining to his office * * * that shall come into his hands by virtue of said office * * *." From the foregoing, it is clear that the bond was to remain in force as long as O'Connell remained in office, whether that be for six months or six years. Apparently there was no contractual method for termination by affirmative action of the parties, as none appears on the face of the bond. Our conclusion that this was a bond of indefinite duration is not altered by the notation on the back of the bond that it "Expires September 1, 1936." This notation appears over the name of the Springfield, Illinois agents of Fidelity and would appear to be a record as to the payment of the first year's premium. If, as previously noted, O'Connell's term terminated before the expiration of the first twelve months, the bond in question could not be said to apply to his successor, and it would, therefore, expire before September 1, 1936. Further, this notation is unsigned and there is no reference made to it in the body of the bond which is authenticated by the signatures of the parties. If no reference is made in the body of the bond to a condition on the back of an agreement, it must be ignored in the construction of the agreement. Couch, Cyclopedia of Insurance Law, ß 160 (1929 ed.); Maryland Casualty Co. v. Massey, 6 Cir., 38 F.2d 724, 725, 71 A.L.R. 1428.

Moreover, the legal effect of whether the payment of annual premiums creates a new and separate liability each year is answered conclusively by the actions of the parties themselves. As stated by the District Court in his memorandum opinion, "The receipts or invoices for the various annual premiums in the instant case refer in each instance back to the original bond, specifying the number thereof, and setting forth the amount as being the premium due on the various specified dates. None of the receipts or invoices incorporate in any way or refer to the conditions of the original bond, so as to lead to the conclusion that they were considered as new contracts or renewals of the original contract, but express in each instance merely that they are payments of annual premium on bond No. 4081612."

Furthermore, the comparable factual situation cases on the subject of continuous liability as against separate yearly liability seem to be in accord with the above position. In ?tna Casualty & Surety Co. v. First Nat. Bank of Weatherly, Pa., 3 Cir., 103 F.2d 977, the bank sought to be reimbursed for the defalcations of its cashier whose fidelity was insured by...