Standard Surety & Casualty Co. v. Olson
| Citation | 150 F.2d 385 |
| Decision Date | 12 July 1945 |
| Docket Number | No. 13006.,13006. |
| Parties | STANDARD SURETY & CASUALTY CO. OF NEW YORK v. OLSON. |
| Court | United States Courts of Appeals. United States Court of Appeals (8th Circuit) |
Charles E. Carlson, of Minneapolis, Minn. (Eloi Bauers, of Minneapolis, Minn., on the brief), for appellant.
Ray E. Cummins, of St. Paul, Minn. (R. W. Allard, of Minneapolis, Minn., on the brief), for appellee.
Before SANBORN, WOODROUGH, and THOMAS, Circuit Judges.
This appeal is from a judgment for the defendant (appellee) entered upon the verdict of a jury in an action upon an indemnity agreement signed by him. The action was brought to recover a loss sustained by the plaintiff (appellant) under a contractor's bond which it had issued in reliance upon the indemnity agreement. The main defense was that the defendant, Hans Olson, had been fraudulently induced by the contractor to sign the indemnity agreement. The plaintiff contends that, under the evidence and the applicable law, which is that of Minnesota, the judgment should have been for it and that the court erred in failing to direct a verdict in its favor.
The factual situation out of which this controversy arises is, in substance, as follows: The Community Lumber Co., Inc. (which will be called the contractor), in April, 1941, contracted with the De Ponti Aviation Corporation to construct certain hangars in the city of Minneapolis, Minnesota. The contractor was required to give a bond for the faithful performance of the contract. Through an insurance broker, application was made to the plaintiff for such a bond. The branch manager of the plaintiff in Minneapolis refused to issue the bond without indemnity. The broker procured from the contractor and delivered to the plaintiff an agreement signed by the defendant, by the terms of which the defendant undertook to indemnify the plaintiff against all loss which it might sustain in consequence of executing a bond for the contractor. The bond was issued in reliance upon the agreement. The plaintiff, however, at the time it issued the bond, supposed that the signature upon the indemnity agreement was that of a different and a more financially responsible Hans Olson. The contractor defaulted in the performance of its contract, and the plaintiff, under its bond, was obliged to pay for the completion of the work. It brought this action to recover the loss from the defendant, jurisdiction being based on diversity of citizenship.
In his answer, the defendant denied the execution of the indemnity agreement, but alleged that if he signed it his signature was procured through the fraud of C. M. Crane, the president of the contractor. The defendant's testimony upon the trial was to the effect that Crane misled him into believing that the indemnity agreement was an affidavit which the plaintiff had demanded and the purpose of which was to show that the defendant had advanced $2,000 to Crane and was to have a one-third interest in the business of the contractor.
The plaintiff's evidence tended to show that the defendant knew what he was signing. For the purposes of this opinion, we shall assume that the defendant's signature was procured by the fraud of Crane, and that the defendant was not negligent in signing the indemnity agreement. Under the charge of the court, that is, in effect, what the jury found by its verdict.
The evidence conclusively showed (1) that the plaintiff relied upon the indemnity agreement in executing its bond; (2) that the plaintiff had nothing to do with procuring the defendant's signature to the indemnity agreement; and (3) that the plaintiff had sustained the loss for which recovery was sought. The court, in substance, so instructed the jury, but advised them that if they found that Crane had fraudulently induced the defendant to sign the agreement and that the defendant was not negligent in signing it without reading it, their verdict should be in his favor.
If the plaintiff had been a party to the fraud which induced the defendant to sign the indemnity agreement, the fraud would have been a complete defense to this action, without regard to the question of negligence.1 The plaintiff, however, did nothing to induce the defendant to sign the indemnity agreement, and had no notice or knowledge that his signature had been procured by fraud. The prevailing rule in this country applicable in situations comparable to this is stated in the Annotation to J. R. Watkins Co. v. Beyer, 71 A.L.R. 1268, 1278, as follows: "As a general rule in the United States, when a principal obligor has induced his surety or guarantor to sign an instrument by false or fraudulent representations, such misrepresentations may not be set up by the surety or guarantor as a defense to an action on the indorsement or guaranty unless the obligee or guarantee had notice of, or participated in, such fraud."
The author of the annotation cites, in support of this rule, three Minnesota cases: W. T. Rawleigh Co. v. Hoffman, 1925, 162 Minn. 57, 202 N.W. 54; National Surety Co. v. Becklund, 1926, 169 Minn. 177, 210 N.W. 882; Schlozer v. Heckeroth, 1928, 174 Minn. 525, 219 N.W. 921. In the last of these cases, the Supreme Court of Minnesota said (page 527 of 174 Minn., page 922 of 219 N.W.):
This settled rule of Minnesota is, we think, applicable to the instant case. The fraud of Crane in procuring the defendant's signature can...
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