Guar. Trust Co. v. United States Fid. & Guar. Co.

• Decision Date: 05 October 1920
• Docket Number: No. 1666.,1666.
• Parties: GUARANTY TRUST CO. v. UNITED STATES FIDELITY & GUARANTY CO.
• Court: New Hampshire Supreme Court

112 A. 247

GUARANTY TRUST CO.

v. UNITED STATES FIDELITY & GUARANTY CO.

No. 1666.

Supreme Court of New Hampshire. Coos.

Oct. 5, 1920.

Exceptions from Superior Court, Coos County; Kivel, Judge.

Action by the Guaranty Trust Company against the United States Fidelity & Guaranty Company. Defendant's motion for a directed verdict was denied, and they excepted. Exceptions overruled. Judgment for plaintiffs.

Action on three bonds given by the defendants as sureties for one Harry P. Brown, the plaintiffs' treasurer. Trial by jury, with verdict for the plaintiffs. Two of the bonds were for $15,000 each, in each of which the obligee was described as "Savings Department Guaranty Trust Company." The third was for $10,000 running to "Trust Department Trust Company." At the close of all the evidence the defendants moved for a directed verdict, and excepted to the denial of their motion; to the refusal to give certain instructions requested by them; to instructions which were given; and to a portion of the argument of plaintiffs' counsel.

Sullivan & Daley, Goss & James, E. Sullivan, and H. I. Goss, all of Berlin, for plaintiff.

George F. Rich, of Berlin, and Streeter, Demond, Woodworth & Sulloway, and F. J. Sulloway, all of Concord, for defendant.

PARSONS, C. J. The contract sued is one of insurance. In consideration of a premium paid to it by the plaintiffs, the defendants agreed to pay them such direct and pecuniary loss, not exceeding the amount of the bond, as the plaintiffs might sustain by the failure of one Harry P. Brown to faithfully perform in accordance with the laws of New Hampshire the duties devolving upon him in the course of his employment by the plaintiffs. The plaintiffs offered evidence tending to prove that Brown did not so perform, and their consequent pecuniary loss.

As the rights of the parties are defined by the written contract into which they have entered, the questions raised are determined by construction of the terms of the policy. The defendants stand not as sureties but as contractors. Am. Surety Co. v. Pauly, 170 U. S. 133, 18 Sup. Ct. 552, 42 L. Ed. 977; Richards on Ins. p. 656. The case does not involve the rights of sureties at common law, but the question is, What was the agreement of the parties?

The policy of insurance, or bond, contained the following, among other stipulations:

"This bond is issued * * * subject to the following conditions and provisions: That the employer shall immediately give the company notice in writing of the discovery of any default or loss hereunder, and shall file with the company his or their claim hereunder, with full particulars thereof, as soon as practicable thereafter; that the employer shall observe or cause to be observed due and customary supervision over the employee for the prevention of default; and if the employer shall at any time during the currency of this bond condone any act or default on the part of the employee which would give the employer the right to claim hereunder and shall continue the employee in his service without notification to the company, the company shall not be responsible hereunder for any default of the employee which may occur subsequent to such act or default so condoned; that there shall be a complete inspection of the accounts and books of the employee on behalf of the employer at least once in every twelve months from the date of this bond. Such supervision includes examination of all cash and securities which the employee shall have custody or charge of."

The defendants base their claim to a directed verdict and their exceptions to the refusal of their requests for instructions and to the instructions given under these conditions upon the following propositions:

(1) The plaintiffs failed to notify the company of Brown's defaults as required by the bonds.

(2) They did not exercise proper supervision over Brown.

(3) They failed to make a complete annual inspection of Brown's books and accounts.

(4) They permitted Brown to act unlawfully in the management of the affairs of the bank.

(5) They failed to notify the defendants of Brown's dishonest transactions.

The argument has been general in support of these propositions without reference to the specific language of the various requests and instructions. As this seems a convenient method of discussing the legal questions presented, the path indicated by counsel is now followed.

It is obvious that each of the propositions present questions of fact properly to be submitted to the jury, as they were, if the plaintiffs presented any evidence upon which a conclusion favorable to them could be found.

Brown's defalcation consisted in paying out funds of the bank upon worthless notes which he duly entered upon the books of the bank without authority from or knowledge of the bank directors. The notes for convenience of reference have been classified as "Valdez Creek" notes and "personal" notes. The first were loans connected in some way not very clearly defined in the evidence with a mining adventure in Alaska, and the second were notes signed by Brown or his relatives. The plaintiffs claimed, and their evidence tended to prove, that they first knew of Brown's breach of trust June 21, 1918, when the condition of the bank was discovered in the course of an examination by the bank commissioners and communicated to the directors. The administration of the bank was then turned over to the bank commissioners, with an apparent shortage in Brown's accounts of $122,000. It was then thought that by careful management much of this sum could be realized from Brown's property and securities, and, both the bank commissioners and the directors being informed by the agent who secured the bond that notice to the defendants at any time within six months was all that was required by the bonds, written notice was not sent to the defendants until October 22, 1918. The condition of the bond required immediate notice to the defendants of any default or loss thereunder. That what is immediate notice under the facts of a particular case is a question for the jury is here too well settled for discussion. Ward v. Casualty Co., 71 N. H. 262, 267, 51 Atl. 900, 93 Am. St. Rep. 514, and cases cited. See Fidelity & Deposit Co. v. Courtney, 186 U. S. 342, 346, 347, 22 Sup. Ct. 833, 46 L. Ed. 1193. It is not seriously contended that if Brown's default was not discovered until June 21, 1918, whether the notice October 22 was a reasonable compliance with the terms of the bond was for the jury, but the main argument to sustain the claim of a breach of this condition of the bond is based upon other facts in evidence.

It appeared that in June, 1917, the directors were informed that Brown had without authority from them discounted and placed in the bank Valdez Creek notes amounting to about $40,000, and that at an earlier date one of the directors had information of a similar transaction. No notice of this was ever given the defendants as the basis of a claim against them, and it does not appear they were informed of it by the directors until the matter was brought out in the statement of the details of the claim, November 28, 1918, when at the request of the defendants they were given a transcript of all the transactions of Brown which were disclosed by an exhaustive examination of the books of the bank during his treasurership. There was evidence that all the unauthorized notes of which the directors of the bank had knowledge June, 1917, or before, were paid to the bank before January 1, 1918. The claim in suit is for losses from transactions between January 1, 1918, the date of the last examination by the directors, and the discovery of the defalcation by the commissioners in June, 1918. For loss for any transaction discovered prior to that date the plaintiffs make no claim, and it is immaterial whether there was a loss, and, if there were, whether the right of recovery under the bonds has been lost by failure to give notice and make claim. This condition of the bond requires notice in writing of the discovery of any default or loss hereunder, and stipulates as to the filing of claim hereunder, and plainly contemplates the discovery of a default or loss upon which the obligee claims under the bond. The notice required is one under which claim is made and of a default covered by the bond. This provision relates clearly to the prosecution of a claim under the bond, and under it the only question is whether the notice October 22 of the default or loss discovered June 22 was a reasonable compliance with the terms of the bond. This was for the jury. Whether the evidence relied upon amounted to a breach of another condition is hereafter considered.

The next contention, that the plaintiffs did not exercise proper supervision over Brown, is urged as a breach of the condition that the employer shall observe due and customary supervision over the employee for the prevention of default. Whether they did or not is essentially a question of fact. The jury had before them the evidence of the organization of the bank largely at the instance of Brown, who was known as the successful manager of a bank at Conway and as a man of probity and property, while none...