Grand Lodge of Scandinavian Fraternity of America, Dist. No. 7 v. U.S. Fidelity & Guar. Co.

• Decision Date: 06 February 1940
• Docket Number: 27646.
• Citation: 98 P.2d 971,2 Wn.2d 561
• Court: Washington Supreme Court
• Parties: GRAND LODGE OF THE SCANDINAVIAN FRATERNITY OF AMERICA, DIST. NO. 7, v. UNITED STATES FIDELITY & GUARANTY CO.

98 P.2d 971

2 Wn.2d 561

GRAND LODGE OF THE SCANDINAVIAN FRATERNITY OF AMERICA, DIST. NO. 7, v. UNITED STATES FIDELITY & GUARANTY CO.

No. 27646.

Supreme Court of Washington

February 6, 1940

Department 1.

Action by Grand Lodge of the Scandinavian Fraternity of America District No. 7, against the United States Fidelity & Guaranty Company to recover on a fidelity bond the loss sustained by the embezzlement of plaintiff's funds by plaintiff's treasurer. From a judgment for plaintiff, defendant appeals.

Affirmed.

Appeal from Superior Court, Spokane County; R. M Webster, judge.

R. E Lowe, of Spokane, for appellant.

Clarke & Eklow, of Spokane, for respondent.

MILLARD Justice.

Plaintiff, a montana corporation and one of the district grand lodges of the Scandinavian Fraternity of America, the supreme lodge of which is an Ohio corporation, brought this action as a beneficiary on a fidelity bond issued by defendant in favor of the Scandinavian Fraternity of America to recover a loss sustained by reason of embezzlement of its funds by its treasurer. Defendant answered, admitting execution of fidelity bond in favor of the Scandinavian Fraternity of America, but denied that the bond was for the benefit of any other person, and affirmatively pleaded in bar f the action breach of a condition precedent in the failure of plaintiff to audit and verify the account of its treasurer as required by an agreement supplemental to the original contract. The cause was tried to the court which found that plaintiff is a beneficiary under the bond in question; that it fulfilled all of the terms and conditions required by the bond and is entitled to recover for loss sustained by reason of embezzlement of its funds by its treasurer. Judgment was entered accordingly. Defendant appealed.

The facts are as follows:

July 1, 1932, appellant, 'a corporation duly incorporated under the laws of the State of Maryland,' executed as surety 'to and in favor of the Scandinavian Fraternity of America of Boston, Mass., hereinafter called the 'Order," an indemnity bond in the amount of fifty-two thousand dollars, which bond further recites:

'That the Order desires suretyship for certain officials, known as Secretarys, Treasurers and Trustees, charged with the custody of moneys, funds and personal property of the Order, the titles of which positions occupied by said officers or their successors and the amount for which each position is specifically guaranteed appear in a schedule issued by the Surety, and which relates to and is hereby made a part of this bond, and said Order may hereafter request like suretyship of the Surety, subject to the conditions hereof, for other such officials or positions.

'Now, therefore, In consideration of the payment of a certain agreed premium per annum in advance at the rates hereinafter stated, to wit: Two Hundred Thirty-Four & 00/100 Dollars the Surety agrees to pay to the Order, at the Home Office of the Surety in the City of Baltimore, such loss of moneys, bullion, funds, valuable securities, or other personal property of the Order, as the Order may sustain by reason of any Act or Acts of Fraud or Dishonesty, including Forgery, Theft, Embezzlement or Wrongful Abstraction on the part of any such official, not in any event exceeding the amount of suretyship set opposite such position.' In addition to the foregoing, the contract of suretyship contains various qualifications and explanations providing for termination of the contract, changes because of the election, appointment or substitution of a successor to any official covered by the bond, and various other provisions. This 'Schedule Bond' names appellant corporation as the surety and designates the Scandinavian Fraternity of America as the 'Order' which desires suretyship for certain officials as recited above. In the list, attached to the schedule bond. of employees of the 'Scandinavian Fraternity of America' guaranteed by appellant under the bond are the secretary and treasurer of each of seven district lodges and the treasurer and trustees of District Lodge No. 6, Scandinavian Fraternity of America, Building Association. The bond of the secretary of respondent district lodge No. 7 is in the amount of one thousand dollars, for which the annual premium is $4.50. The indemnity against loss sustained by wrongful acts of the treasurer of district lodge No. 7 is in the amount of six thousand dollars on which the annual premium is $27.

Under paragraph 6 of the bond the suretyship for the positions designated in the schedule was considered continuously in force upon payment of the annual premium without being extended from year to year by any stipulation executed by the surety. The foregoing bond, on which this action was brought, was continued from year to year and covered the secretary and treasurer of each of seven of the district lodges and the treasurer and trustees of a building association of one of the district lodges of the Scandinavian Fraternity of America.

January 1, 1932, the Scandinavian Fraternity of America purchased from appellant another fidelity bond, which is continued from year to year by payment of the annual premium. That bond is in the amount of $139,100 and covers the financial secretary, treasurer and trustees of each of the Fraternity's local lodges as shown by the schedule attached to the bond. The local lodges were each assessed, according to the schedule attached to the bond, its propertion of the total annual premium of $625.96. This bond is, excepting date of execution, officials covered and amount of indemnity, the same as the bond first described.

September 1, 1932, the Scandinavian Fraternity of America, which is called the 'Order' in the third bond as it is so designated in the other two bonds, purchased from appellant fidelity bond in the amount of twenty thousand dollars, which schedule bond covered the supreme lodge officers--the supreme secretary and supreme treasurer--for which an annual premium of ninety dollars was paid. The aggregate annual premium on the three bonds was $949.96.

The secretary of the supreme lode notified the secretary of respondent grand lodge of the amount of premium due from respondent for its proportion ($4.50 to cover the secretary and $27 to cover the treasurer) of the annual premium. An order was drawn by respondent's secretary which required respondent's treasurer to pay to the supreme lodge of the Scandinavian Fraternity of America the amount due. Respondent's treasurer paid it by check and each order for the payment bears the signature of the treasurer of the supreme lodge showing that the supreme lodge received payment from the respondent of respondent's property of the annual premium due to appellant.

Attached to the bond on which this action is based is a 'rider' dated October 28, 1935, which makes an annual audit a condition precedent to recovery on the bond. Carl P. Johnson, secretary of the supreme lodge of the Scandinavian Fraternity of America, signed that rider acknowledging acceptance thereof November 4, 1935.

Respondent never authorized the supreme lodge of the Scandinavian Fraternity of America or the appellant to make any changes in the terms of the bond. Respondent never received notice, either from appellant or the supreme lodge, of the existence of the 'rider;' in fact, respondent did not learn of the existence of the 'rider' until early in 1938 after the loss had occurred.

From May 1, 1935, to July 1, 1937, respondent did not have in its possession any funds belonging to the supreme lodge which has its own secretary and treasurer. At the bi-annual convention of respondent in June 1935, the accounts of respondent's treasurer to the close of the fiscal year on May 31, 1935, were audited and found to be correct. By June 30, 1935, the treasurer was short in excess of eight hundred dollars, and that shortage increased until the total amount of the funds embezzled by the treasurer amounted to $3,459.33.

All premiums were paid to date on this bond on which this action was brought.

Counsel for appellant contends that the respondent is an entirely different organization--incorporated in the state of Montana--than the Scandinavian Fraternity of America, which is the only named beneficiary in the bond on which this action is bottomed, therefore, respondent is not entitled to recovery on the bond because one of its officials, who is named in the schedule to the bond, defaulted in his duties to the respondent as the defaulting official at no time misappropriated any monies belonging to the Scandinavian Fraternity of America, the beneficiary under the bond. It is insisted that '* * * the question then involved is whether or not a third party has a right of action on a fidelity bond to recover a loss sustained by the third party, plaintiff.'

The only reasonable inference from the facts Before us is that the bond in question was written at the instance of the fraternal society as a whole. While the surety is described in the bond as a corporation duly incorporated under the laws of Maryland there is an absence of such description of the Scandinavian Fraternity of America. It is designated in the bond as an 'Order.' The sense in which the term is employed is patent.

The supreme lodge of the fraternal society is an Ohio corporation which has a supreme secretary and a supreme treasurer who are bonded in the total sum of twenty-thousand dollars. The supreme lodge receives an income of fifteen cents per capita which is collected by the district grand lodges of the society April 30th of each year from the local lodges over which the grand lodges have jurisdiction. The local lodges within the jurisdiction of respondent district grand lodge are located in Montana, Washington, Idaho...