American Surety Co of New York v. Pauly

Decision Date18 April 1898
Docket NumberNo. 168,168
Citation170 U.S. 133,42 L.Ed. 977,18 S.Ct. 552
PartiesAMERICAN SURETY CO. OF NEW YORK v. PAULY
CourtU.S. Supreme Court

Walter C. Davidge and Henry C. Willcox, for plaintiff in error.

Edward Winslow Paige, for defendant in error.

Mr. Justice HARLAN delivered the opinion of the court.

The defendant in error, as receiver of the California National Bank of San Diego, Cal., brought this action against the plaintiff in error, a corporation of New York, upon a bond of the latter for $15,000, guarantying or insuring the bank, subject to certain conditions, against any act of fraud or dishonesty committed by George N. O'Brien in his position as cashier of that institution.

This bond was based upon an application by O'Brien to the surety company, accompanied by written declarations and answers to questions relating to his age, history, habits, financial condition, etc. He presented with the application the following certificate, signed by J. W. Collins, as president of the bank: 'I have read the foregoing declarations and answers made by George N. O'Brien, and believe them to be true. He has been in the employ of this bank during three years, and to the best of my knowledge has always performed his duties in a faithful and satisfactory manner. His accounts were last examined on the 28th day of March, 1891, and found correct in every respect. He is not, to my knowledge, at present in arrears or in default. I know nothing of his habits or antecedents affecting his title to general confidence, or why the bond he applies for should not be granted to him.'

The bond was executed July 1, 1891. After reciting that the employe, O'Brien, had been appointed in the service of the employer, the bank, had been assigned to the office or position of cashier, and had applied to the American Surety Company of New York for a bond, it provided:

'Now, therefore, in consideration of the sum of seventy-five dollars, lawful money of the United States of America, in hand paid to the company, as a premium for the term of twelve months ending on the first day of July, one thousand eight hundred and nine-two, at 12 o'clock noon, it is hereby declared and agreed that, subject to the provision herein contained, the company shall, within three months next after notice, accompanied by satisfactory proof of a loss, as hereinafter mentioned, has been given to the company, make good and reimburse to the employer all and any pecuniary loss sustained by the employer, of moneys, securities, or other personal property in the possession of the employe, or for the possession of which he is responsible, by any act of fraud or dishonesty on the part of the employe, in connection with the duties of the office or position hereinbefore referred to, or the duties to which, in the employer's service, he may be subsequently appointed, and occurring during the continuance of this bond, and discovered during said continuance, or within six months thereafter, and within six months from the death or dismissal or retirement of the employe from the service of the employer. It being understood that a written statement of such loss, certified by the dulyauthorized officer or representative of the employer, and based upon the accounts of the employer, shall be prima facie evidence thereof: provided always, that the company shall not be liable, by virtue of this bond, for any mere error of judgment or injudicious exercise of discretion on the part of the employe in and about all or any matters wherein he shall have been vested with discretion, either by instruction or rules and regulations of the employer. And it is expressly understood and agreed that the company shall in no way be held liable hereunder to make good any loss which may accrue to the employer by reason of any act or thing done or left undone by the employe in obedience to or in puru ance of any direction, instruction, or authorization conveyed to and received by him from the employer or its duly-authorized officer in that behalf; and it is expressly understood and agreed that the company shall in no way be held liable hereunder to make good any loss, by robbery or otherwise, that the employer may sustain, except by the direct act or connivance of the employ e.

'The following provisions are to be observed and binding as a part of this bond:

'That the company shall be notified in writing, at its office in the city of New York, of any act on the part of the employe which may involve a loss for which the company is responsible hereunder, as soon as practicable after the occurrence of such act shall have come to the knowledge of the employer. That any claim made in respect of this bond shall be in writing, addressed to the company, as aforesaid, as soon as practicable after the discovery of any loss for which the company is responsible hereunder, and within six months after the expiration or cancellation of this bond as aforesaid. And upon the making of such claim this bond shall wholly cease and determine as regards any liability for any act or omission of the employe committed subsequent to the making of such claim, and shall be surrendered to the company on payment of such claim.

"That, if the company shall so elect, this bond may be canceled at any time by giving one month's notice to the employer, and refunding the premium paid, less a pro rata part thereof for the time said bond shall have been in force, remaining liable for all or any default covered by this bond which may have been committed by the employe up to the date of such determination, and discovered and notified to the company within the limit of time hereinbefore provided for.

"That the employer shall, if required by the company, and as soon thereafter as it can reasonably be done, give all such aid and information as may be possible (at the cost and expense of the company), for the purpose of prosecuting and bringing the employe to justice, or for aiding the company in suing for and making effort to obtain reimbursement by the employe or his estate of any moneys which the company shall have paid or become liable to pay by virtue of this bond.

'That no suit or proceeding at law or in equity shall be brought to recover any sum hereby insured, unless the same is commenced within one year from the time of the making of any claim on the company.'

'It is further agreed that this bond may, at the option of the employer, be continued in force from year to year at the same premium rate as long as the company shall consent to receive the same, in which case the company shall remain liable for any dishonest act of the employe occurring between the original date of this bond and the time to which it shall have been continued.'

On the application of Collins, a bond, with like conditions, was made the same day by the surety company in the penalty of $25,000, guarantying the bank against loss by any act of fraud or dishonesty on his part as its president.

The complaint set out certain acts of fraud and dishonesty by O'Brien in his office of cashier, whereby, it was alleged, the bank lost an amount in excess of that named in the bond. All the material allegations of the complaint were denied by the answer. The result of the trial was a judgment in favor of the plaintiff for $16,847.50, which was the amount of the bond, with interest; also for $385.73 costs and $302.16 interest on the verdict; in all, $17,435.39. That judgment was affirmed in the circuit court of appeals. 38 U. S. App. 254, 18 C. C. A. 644 and 72 Fed. 470.

Upon certain issues in the case there was a decided conflict in the evidence, particularly as to the time when the receiver first discovered that O'Brien, as cashier, had committed an act that might involve a loss for which the surety company would be liable, and of which it was entitled to be notified in writing as soon as practicabl after the occurrence of such act came to the knowledge of the bank.

In view, however, of the verdict, and assuming suming that the jury had due regard to the instructions of the court, the following facts may be regarded as established by the evidence:

On the 13th and 14th days of October, 1891, O'Brien, being cashier, fraudulently and dishonestly placed to the credit of Collins, the president of the bank, two sums, $20,000 and $24,500.

The bank suspended business on the 12th day of November, 1891, at which time Collins had to his credit on its books only $11,420.90. Of the above sums aggregating $44,500, falsely credited to him, he drew out, on his own checks, $33,029.10, which was wholly lost to the bank.

Immediately upon the suspension of the bank an examiner appointed by the comptroller of the currency (Rev. St. § 5240) entered upon an investigation of its affairs.

On the 18th day of December, 1891, Pauly was appointed receiver (Rev. St. §§ 5205, 5234), and, having qualified as such, took possession on the 29th day of December, 1891, of the books, papers, and assets of the bank; continuing its employees in his service for a short time.

O'Brien remained in service under the receiver until about March 2, 1892, when he left, because the receiver declined to pay his salary; the latter saying that he would regard it as credited or paid on any indebtedness of O'Brien's to the bank.

During January, February, and March, 1892, there was a general examination of the books of the bank under the direction of the receiver. And about April 1, 1892, one Bloodgood, and expert bookkeeper, in connection with another bookkeeper, entered upon a particular examination of such books, with a view of ascertaining the transactions of Collins while he was president. Collins died March 3, 1892. Towards the end of May these experts made certain discoveries involving the fidelity and integrity of O'Brien as cashier, of which Bloodgood gave notice to the receiver. The facts thus discovered related to the false credits which, as above stated, O'Brien, as cashier, had given to Collins on the books of the bank.

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