Duke v. National Sur. Co.

• Decision Date: 25 June 1924
• Docket Number: 18538.
• Citation: 227 P. 2,130 Wash. 276
• Parties: DUKE et al. v. NATIONAL SURETY CO.
• Court: Washington Supreme Court

227 P. 2

130 Wash. 276

DUKE et al. v. NATIONAL SURETY CO.

No. 18538.

Supreme Court of Washington

June 25, 1924

Department 1.

Appeal from Superior Court, Pierce County; Chapman, Judge.

Action by John P. Duke and others against the National Surety Company. Judgment for plaintiff, and defendant appeals. Affirmed.

See also, Duke v. American Casualty Co. of Tacoma (Wash.) 226 P. 501.

Hayden, Langhorne & Metzger, of Tacoma, for appellant.

F. D Oakley, Guy E. Kelly, and Thomas MacMahon, all of Tacoma, for respondents.

MACKINTOSH J.

The appellant, a compensated surety, on November 26, 1918 furnished a bond to the Scandinavian American Bank of Tacoma of which the respondent is now representative as the supervisor of banking in charge of its liquidation, it having become insolvent. We will hereafter refer to the bank as though it were the actual respondent. This bond was renewed on October 26, 1919, and again on November 26, 1920, for one year. The bank became insolvent in January, 1921. Respondent has made claim against the appellant on the bond, alleging that the bank suffered losses in amounts exceeding the amount of the bond and asking recovery for the full amount of the bond. So far as material the bond agrees to----

'hold it [the bank] harmless from and against loss to an amount not exceeding $50,000 of money, currency, bullion, bonds, debentures, scrip, certificates, warrants, transfers, coupons, bills of exchange, promissory notes, checks or other similar items hereinafter referred to as property. * * *

'(a) Through any dishonest act of the employees, wherever committed and whether committed directly or by collusion with others. * * *

'(b) Through robbery, burglary, theft, holdup, destruction or misplacement while the property is within any of the insured's offices.

'(c) Through robbery, holdup or theft by any person whomsoever while the property is in transit within twenty miles of any of the offices. * * *'

This bond does not cover:

'(d) Any loss, the result of any loan made by the insured or by any of the employees, whether authorized or unauthorized, unless such loan be made with intent on the part of such employees to defraud the insured. * * *

'(4) The insured shall give to the underwriter written notice of any loss hereunder as soon as possible after the insured shall learn of such loss, and within ninety days after learning of such loss shall file with the underwriter an itemized proof of claim, duly sworn to. * * *

'(6) No action or proceeding shall be brought under this bond in regard to any loss unless begun within twelve months after the insured shall learn of such loss, or in case such limitation be void under the law of the place governing the limitation hereof then within the shortest period of limitation permitted by such law.

'(11) This bond shall terminate as to any employee (a) as soon as the insured shall learn of any default hereunder, committed by such employee.'

Section 3239, Rem. Comp. Stat., is as follows:

'The board of directors of each bank and trust company shall require its active officers and employees and such other officers as they shall designate, each to give a surety company bond, in such sum as the board shall specify and the state bank examiner shall approve, conditioned for the faithful and honest discharge of his duties and for the faithful application of all moneys, funds and valuables which shall come into his possession, or under his control.'

Section 777, Rem. Comp. Stat., reads:

'No bond required by law, and intended as such bond, shall be void for want of form or substance, recital, or condition; nor shall the principal or surety on such account be discharged, but all the parties thereto shall be held and bound to the full extent contemplated by the law requiring the same, to the amount specified in such bond. In all actions on such defective bond, the plaintiff may state its legal effect in the same manner as though it were a perfect bond.'

The first question for determination is whether the bond is a statutory one, as claimed by the respondent, or a common-law bond, as claimed by the appellant. In the determination of this question certain general rules are to be borne in mind. One of these is that, in dealing with the bonds of a compensated surety, they are to be most strictly construed against the surety, and where the terms of such a bond are susceptible of more than one construction the court will adopt that construction most consistent with the purpose to be accomplished, which would be the construction most favorable to the beneficiary. Stearn's Suretyship (3d Ed.) p. 404; Southern Surety Co. v. Kinney, 74 Ind.App. 205, 127 N.E. 575; Northern Pacific Ry. Co. v. Fidelity & Dep. Co., 74 Wash. 543, 134 P. 498; Costello v. Bridges, 81 Wash. 192, 142 P. 687, L. R. A. 1915A, 853. Another rule is that in a statutory bond the provisions of the statute are read into the bond, and if there are conditions contained in such a bond repugnant to the statute such conditions are to be treated as surplusage. Snohomish County v. Ruff, 15 Wash. 637, 47 P. 35, 441; Davis v. Virges, 39 Wash. 256, 81 P. 688; Wenatchee Orchard Co. v. Thompson, 60 Wash. 644, 111 P. 874; Denny-Renton Clay Co. v. National Surety Co., 93 Wash. 103, 160 P. 1; Salo v. Pacific Coast Cas. Co., 95 Wash. 109, 163 P. 384, L. R. A. 1917D, 613. The corollary to this rule is that where the bond is a statutory one the statutory conditions which are not expressed in the bond will be inserted therein. These two rules are virtually covered by section 777, supra.

We come first to the determination of whether this bond can be construed as a bond given under section 3239. That section provides that a bank shall require a surety bond conditioned for 'the faithful and honest discharge of the employees' duties in the faithful application of all funds which may come into their possession.' The bond here, in subdivision (a) though not in the exact language of the statute, covers the exact matter referred to in the section quoted, and were there nothing more in the bond than this there would be no hesitancy in declaring the bond to be a statutory bond. It is pointed out, however, that subdivisions (b) and (c) relate to matters not covered by the statute and constitute the bond really a contract of insurance. It is true that the matters in (b) and (c) have no relation to the statutory requirements, but it is to be noticed that they do not limit the statutory requirements, but go beyond them and afford an added protection to the bank. Those authorities which strike provisions in statutory bonds limiting the statutory requirements would seem to justify the holding that where there are provisions in bonds in addition to those required by statute, and not repugnant thereto, such additional provisions are effective and that in reality the bond partakes of two characteristics--that it is not only a statutory bond, but is a common-law bond in so far as it contains provisions additional to the statutory provisions. This court, in Puget Sound State Bank v. Galluccil, 82 Wash. 445, 144 P. 698, Ann. Cas. 1916A, 767, construing a question somewhat analogous, gave countenance to this view, where we said: 'The law seems to be well settled that bonds of this nature may be required by, and given to, a public corporation in excess of, or without any statutory authority and the beneficiaries thereunder be none the less entitled to recover thereon.'

If the bond contained only provisions (a), (b), and (c), it clearly would be proper to interpret it as a statutory bond, in so far as provision (a) is concerned, with additional common-law bond provisions (b) and (c); but attention is called to the exceptions, one of which we have set out as (d) which provides that the bond does not cover any loss which is the result of a loan made by an employee unless the loan was made with intent to defraud. Of course, if it is a statutory bond such a provision, under the rules to which attention has been called, if in conflict with the statutory requirements, would be read out of the bond, and in any event, bearing in mind that other rule which provides that the bond shall be so construed in favor of the beneficiary, exception (d) should be held to mean that the bond does not cover any loss suffered by the bank, unless such loss was the result of an employee's dishonesty or bad faith. When so read, the exception in no way conflicts with the requirement of section 3239, and the surety company is still liable for 'the faithful and honest' discharge of the employee's duties.

If this bond can be interpreted as a statutory bond, the question then arises whether it was so intended. As supporting the argument that it is not intended as a statutory bond, the appellant claims that the bond was never 'required,' nor was it approved...