Aetna Indemnity Company v. Schroeder

• Decision Date: 29 May 1903
• Court: North Dakota Supreme Court

95 N.W. 436

12 N.D. 110

AETNA INDEMNITY COMPANY v. FRED SCHROEDER, ET AL

Supreme Court of North Dakota

May 29, 1903

Appeal from District Court, Cass County; Charles A. Pollock. J.

Action by the Aetna Indemnity Company against Fred Schroeder and Jacob Biewer. Verdict for defendants. Motions for a judgment notwithstanding the verdict and for a new trial were denied and plaintiff appeals.

Reversed.

Judgment reversed, a new trial granted, and cause remanded.

Ball Watson & Maclay, for appellant.

Knowledge possessed by Mitchell not imputed to plaintiff for two reasons:

1st. In procuring the bond, he was not doing the things which ordinarily raise the relationship of agency. If agent at all he was Clemens' agent. He was the mere channel through whom Clemens was informed that he must give a bond, and through whom such bond was forwarded to plaintiff. This did not create the relation of agency between plaintiff and Mitchell. 2 Pom. Eq. section 668; Wyllie v. Pollen, 3 De Gex, J. & S. 596, 601.

2d. The plaintiff had concluded to cancel its bond given to the Elevator Company for Clemens' fidelity. But as the Elevator Company desired to keep Clemens, and to enable it to do so, plaintiff consented to accept a counter bond from Clemens. In reality it was given that the Elevator Company might retain Clemens; and in that sense it was for the benefit of the Elevator Company and Clemens, and the case therefore falls under the well defined exception to the rule imputing the knowledge of the agent to the principal, that where the agent is personally interested in procuring the act to be done, it will not be presumed that he will disclose to his principal, information which might result in preventing the performance of the act. Mechem on Agency, section 723; American Surety Co. of New York v. Pauly, 170 U.S. 133, 155, 18 S.Ct. 552, 42 L.Ed. 977; Fidelity Co. v. Courtney, 22 S.Ct. 834, 841. The court erred in admitting proof of conversation between Comrie, agent of the Elevator Company, and one Leisen, where the former said that "the bond was required of Clemens because of his shortage." This was a mere narration of past events, not made as a part of such agent's duty to his principal, and not binding upon the latter, a fortiori, not binding upon plaintiff. Short v. Northern Pacific Elevator Company, 1 N.D. 159, 45 N.W. 706. The court erred in admitting testimony as to Clemens' use of intoxicants to get trade, and keeping such liquors at the elevator; also in its instruction to the jury that "if Clemens was engaged in an unlawful traffic of intoxicating liquors in and about the elevator," and if the plaintiff knew about it, the defendants were not liable upon the counter bond. The court further erred in charging that if Clemens had been "guilty of acts involving moral turpitude," to Mitchell's knowledge, the plaintiff could not recover. This is a matter said to have occurred three years before the counter bond was given, was not pleaded, nor involved in the issues, and plaintiff was unprepared to meet it. It was not contended that plaintiff ever heard of these transactions, yet the court virtually charged the jury to find for defendants. If Clemens used and gave away intoxicating liquors, or was guilty of acts of moral turpitude, not involving dishonesty, it would not release defendants from their obligation upon the bond. Bank v. Brownell, 9 R. I. 168, 11 Am. Rep. 231; LaRose v. Logansport Nat. Bank, 1 N.E. Rep, 805; Bostwick v. VanVoorhis, 91 N.Y. 353.

The court erred in denying plaintiff's motion for a directed verdict, and for judgment notwithstanding the verdict. The defense was based upon the theory that Clemens was proved criminally dishonest, having been found short 409 bushels on a settlement in April, 1900; that plaintiff knew this, when it took the counter bond, and having failed to notify the sureties of the shortage, the latter were released. Plaintiff's answer to this contention was, that there was no embezzlement or dishonesty in this transaction; that plaintiff did not know of the shortage, and as the sureties made no inquiry of plaintiff, it violated no duty to defendant. Sureties are liable "when the shortage or failure to pay over money received within the scope of their duties arises from neglectful habits, carelessness or mistake of the agent, not accompanied by a conversion of moneys of his principal to the use or benefit of the agent, and without any intent on his part to deprive his principal of it, and where there is no moral turpitude, but only moral delinquency on the part of the agent." Wells-Fargo Express Co. v. Walker et al., 50 P. 353; Tel. Co. v. Barnes, 64 N.Y. 385; Lancashire Ins. Co. v. Callahan, 71 N.W. 261; Howe v. Farrington, 82 N.Y. 121; Bostwick v. VanVoorhis, 91 N.Y. 353. Under the circumstances disclosed in the record, plaintiff was not bound to communicate to defendants, the fact that Clemens had been short 409 bushels of wheat, even if it knew it. Magee v. Manhattan Life Ins. Co., 92 U.S. 93, 23 L.Ed. 699; Aetna Life Ins. Co. v. Mabbett et al., 18 Wis. 667; Home Ins. Co. v. Holway, 55 Iowa 571, 8 N.W. 457; Railway v. Ling, 18 S.C. 116; Roper v. Trustees, 91 Ill. 518; Lake v. Thomas, 36 A. 437; Railway v. Gow, 59 Ga. 685; Warren v. Branch, 15 W.Va. 21; Cawley v. People, 95 Ill. 249; Company v. Jackson, 83 Tenn. 418.

Benton, Lovell & Holt, for respondents.

From a resume of the evidence, there was abundant proof to warrant the jury in finding that the counter bond was required by plaintiff on account of defalcations by Clemens to the Elevator Company, and this finding together with the strenuous attempts of Cromwell, plaintiff's general manager, and Mitchell, general manager of the Elevator Company, to conceal such shortages after Clemens' death, and other misrepresentation of the reason for obtaining the counter bond, support the conclusion that Mitchell knew and believed Clemens' shortage to be dishonest. Mitchell and Cromwell were acting in collusion throughout the proceedings relating to the counter bond. Whether they were or not, the knowledge of Mitchell was imputable to Cromwell and binding on plaintiff. Mechem on Agency, section 718; Union Life Ins. Co. v. Smith et al., 63 N.W. 438.

While appellant's counsel contend that Clemens' previous shortages were due to carelessness or neglect, respondent submits that they involve dishonesty, and Mitchell knew it. Respondent concedes the rule stated in Bostwick v. VanVoorhis, 91 N.Y. 353, and Wells-Fargo, etc., v. Walker, 50 P. 353, cited by appellant. The following authorities sustain this position: Dinsmore v. Tidball, 34 Ohio St. 418; Smith v. Josslyn, 40 Ohio St. 409; Franklin Bank v. Cooper, 36 Me. 195; Taylor v. Lohman, 74 Ind. 418; Roberts v. Donovan, 70 Cal. 108; Rapp v. Phoenix Ins. Co., 113 Ill. 390; Connecticut, etc., v. Scott, 81 Ky. 540.

OPINION

MORGAN, J.

In the year 1900, and prior to that year, one William Clemens was the local agent of the Great Western Elevator Company at Leonard, N.D. Said Clemens and other employes of said elevator company were required to furnish bonds to it for the faithful discharge of their duties. The plaintiff gave the elevator company a bond indemnifying it against all losses occasioned by the fraud or dishonesty of Clemens in connection with his duties as such elevator agent. On May 12, 1900, while said bond was in force, the plaintiff wrote to one Mitchell, general superintendent of the Great Western Elevator Company, that it was unwilling to carry the risk on the Clemens bond any longer, for the reason that unfavorable reports had come to it regarding the drinking and gambling habits of Clemens. On May 22, 1900, the plaintiff again wrote Mitchell that it was unwilling to carry the Clemens risk. In the last letter it stated that it would carry the Clemens risk if Clemens would furnish a counter bond indemnifying the plaintiff if loss should occur under the bond it had given on behalf of Clemens. This letter closed with the following: "We fully appreciate that you do not care to make a change at this season of the year and have therefore decided to help you out to the extent of remaining on the risk if we can be secured. I think Clemens will agree to furnish a counter bond; therefore I enclose a blank form. Please have him execute the same with sureties who are worth double the amount of the bond, which, when fully completed, kindly forward to us and oblige." Upon receiving this last letter, Mitchell telegraphed Clemens to meet him in Fargo, and they met there soon thereafter. At Fargo, Mitchell told Clemens that the plaintiff company would not further carry his risk, on account of his habits, unless he furnished it with a counter bond. Clemens replied that he could furnish a counter bond without trouble, and on June 11th he sent the counter bond, duly executed by two sureties, to Mitchell, the general superintendent of the elevator company. Mitchell sent the bond and the Clemens letter to him to the plaintiff company, at Minneapolis. The conditions on the counter bond were as follows: "Now, therefore, the parties of the first part * * * do hereby jointly and severally covenant and agree to and with the company * * * that they will reimburse, indemnify and keep harmless the said company to the extent of fifteen hundred dollars ($ 1,500.00) for, from and against all loss, damage, costs, charges and expenses that it shall or may at any time sustain, incur, or be put to, and will pay to the company all moneys that it shall at any time pay or become liable to pay, for, by reason or in consequence of the company having become such surety," etc. This counter bond was retained by the plaintiff, and Clemens continued in the employ of the Great Western Elevator Company until November 3, 1900, when h...