American Bonding & Trust Co. of Baltimore, Md. v. Burke

• Decision Date: 05 March 1906
• Citation: 36 Colo. 49,85 P. 692
• Parties: AMERICAN BONDING & TRUST CO. OF BALTIMORE, MD., v. BURKE et al.
• Court: Colorado Supreme Court

85 P. 692

36 Colo. 49

AMERICAN BONDING & TRUST CO. OF BALTIMORE, MD., v. BURKE et al.

Supreme Court of Colorado

March 5, 1906

Rehearing Denied April 2, 1906.

Appeal from District Court, Teller County; William P. Seeds, Judge.

Action by P. E. C. Burke and another against the American Bonding &amp Trust Company of Baltimore, Maryland. From a judgment for plaintiffs, defendant appeals. Reversed and remanded with instructions to dismiss the action.

A. M. Stevenson and Daniel Prescott (Ralph W. Smith and John M. Waldron, of counsel), for appellant.

V. O Temple and S.D. Crump, for appellees.

CAMPBELL J.

This is an action on a bond of indemnity issued by the appellant bonding company, a corporation, to the S. T. Miller Investment Company, a corporation, obligee, to save the latter harmless against loss occasioned by the larceny or embezzlement of its general manager, S. T. Miller. The action is brought by the plaintiffs Burke and Fry, as the assignees of the original obligee's alleged cause of action upon the bond. The indemnity was applied for by S. T. Miller, the employé. According to the custom, what is called in the record an 'Employers's Statement' was required of the obligee. This statement consists of a list of printed questions to which the obligor deemed it material to have the answers of the employer before issuing the policy. To the questions embodied in the statement first sent out, answers were made by Burke, the president of the investment company and one of the plaintiffs, and returned to the obligor. These answers were unsatisfactory to the obligor, which declined to take the risk upon them as a basis, but sent an executed bond, as applied for, to its local agents at Cripple Creek with directions not to deliver the same until a satisfactory employer's statement was returned. At about the same time the obligor sent to the obligee a second statement or printed list, like the first one, with the information that it desired to have answered the questions therein propounded, and that such answers would be taken as the basis of the bond, if issued.

There is no question but that Burke, as president of the investment company, had full authority to make these answers, and the bond was accepted by that company which paid the premium upon it. The second statement was made by Burke and delivered to the company on May 29, 1901. The bond was dated May 14, 1901 and about May 20th, delivered to the obligee, though contrary to the instructions of the obligor; but that feature is not important here. When Burke made the answers contained in the second statement, he knew that it was the intention of the obligor not to issue the bond until a satisfactory statement was made by him, and when he did make and return it he knew that the bond of May 14th had been delivered, and then expressly agreed that the statement should be a condition precedent to the binding force of the contract of indemnity. Inpdeed, Burke was the only officer of the company in Colorado during the time of the various transactions who was authorized to act for the company, Miller, the employé, being the only other official in the state. Included in the second statement were the following questions and answers: 'Q. When were his accounts last examined? A. April. Q. Were they at that time in every respect correct, and proper securities, funds and values on hand to balance? A. Yes. Q. Is there now, to your knowledge, any shortage due you by applicant? A. No. Q. Has he ever been short with you? A. No. Q. Is he now in debt to you? A. No.' At the end of these questions and answers was the following statement, and immediately before the signature of the investment company: 'It is agreed that the above answers are to be taken as conditions precedent, and as the basis of the said bond applied for, or any renewal or continuation of the same, that may be issued by the American Bonding & Trust Company of Baltimore City to the undersigned, upon the person above named.' The bond expressly recited that it was made, issued, and accepted upon the condition, inter alia, that all the representations made by the employer, his or its officers, to the surety company are warranted by the employer to be true. Before a court and jury there was a verdict for the plaintiff, and the defendant company has appealed and made numerous assignments of error.

1. The objections that the complaint does not state facts sufficient to constitute a cause of action, and that the plaintiffs have not the legal capacity to sue for the breach of this bond because there was no valid assignment of the obligee's cause of action thereunder, are not discussed. A correct disposition of these and some other assignments of error to which we shall give no further attention might require a reversal of the judgment and a remanding of the cause for a new trial; but in the view we take of the case it is important to consider only one or two propositions, the determination of which makes the bond unenforceable, and compels a dismissal of the action.

2. Learned counsel for both parties are in accord that this instrument, for a breach of whose conditions the action was brought, though denominated a bond, is, in legal effect, analogous to a policy of insurance. Speaking, generally, the same rules of interpretation and construction, therefore, that apply to fire and life insurance policies are applicable to it. If its language is uncertain or ambiguous, the interpretation must be in favor of the insured; and if any of its clauses is susceptible of two constructions, one in favor of the insurer and the other in favor of the insured, the latter will prevail if it is consistent with the general object for which the bond is given. Statements or declarations by the insured are to be taken as representations merely and not warranties unless the written contract of indemnity itself expressly, or by appropriate reference, makes them warranties. Under the conceded facts of this case, it is immaterial whether the answers set out in the foregoing statement be considered warranties or representations, as a review of some of the authorities demonstrates. A case quite in point in many respects to the one in hand is Rice v. Fidelity & Deposit Company, 103 F. 427, 43 C.C.A. 270. It was there held that since the bond under consideration rested upon the faith of the employer's statement, and because in the latter there was an express agreement that the statement should be taken as a condition precedent and as the basis of the bond, the answers to the questions propounded were to be deemed warranties and not representations. It was said in the opinion that the crucial distinction between a representation and a warranty is that one is not, and the other is, a part of the contract between the parties, and that the truth of the one is not, and the truth of the other is, a condition precedent to a recovery upon the policy or bond to which they relate. But suppose the declarations of the employer are mere representations. In Ostrander on Fire Insurance (2d Ed.) § 135, the learned author says that the difference between a warranty and a representation lies in the fact that in the former the question of materiality is closed; in the latter it is left open. If untrue in the former case, the policy is voidable at the option of the obligor; if untrue in the latter, and also material, the same result follows. The same author at section 139 says that warranties and conditions precedent are essentially the same, and if they are untrue, the policy issued upon the basis of them is voidable.

In State Ins. Co. v. Du Bois, 7 Colo.App. 214, 224, 44 P. 756 the court referred with approval to 1st Wood on Insurance, § 236, where it is said that, in order to avoid a policy on the ground of misrepresentation on the part of the insured, it is not necessary that a fraudulent purpose or intenton his part should be established. It is enough if the representation was, in fact, false...