Hall v. Aetna Casualty & Surety Co.

• Decision Date: 17 May 1937
• Docket Number: No. 223.,223.
• Citation: 89 F.2d 885
• Parties: HALL v. AETNA CASUALTY & SURETY CO.
• Court: U.S. Court of Appeals — Second Circuit

89 F.2d 885 (1937)

HALL v. AETNA CASUALTY & SURETY CO.

No. 223.

Circuit Court of Appeals, Second Circuit.

May 17, 1937.

Morgan & Lockwood, of New York City (Mark W. Maclay and Thomas A. Sully, both of New York City, of counsel), for appellant.

Gibboney, O'Brien & Hayes, of New York City (James V. Hayes and Stuart G. Gibboney, both of New York City, of counsel), for appellee.

Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

This is an action by the receiver of the Germantown National Bank, of Germantown, N. Y., upon a bond of the ?tna Casualty & Surety Company to indemnify the bank to the amount of $25,000 against losses incurred "Through any dishonest act wherever committed, of any of the Employees, as defined in section 6 hereof, whether acting alone or in collusion with others," and losses "Through robbery, burglary, larceny * * * theft, hold-up or destruction. * * *"

Section 7(d) of the bond provided that it did not cover "Any loss resulting directly or indirectly from any act or acts of any director of the Insured, other than one employed as a salaried official. * * *"

Section 8 provided that: "No statement made in the application for this bond or otherwise submitted by or in behalf of the Insured shall be deemed a warranty of anything except of the fact that the statement is true to the best of the knowledge and belief of the person making it."

Section 16 provided that the bond should be subject to the "condition" that: "At the earliest practicable moment, and at all events not later than ten days after the Insured shall discover any loss hereunder, the Insured shall give the Underwriter notice thereof by registered letter or telegram, addressed to it at its home office, and shall also, within three months after such discovery, furnish to the Underwriter at its home office affirmative proof of loss with full particulars. * * *"

Du Bois, the cashier of the bank, was told by the broker who delivered the bond that it was delivered with the understanding that the application must be signed and forwarded to the Albany office of the insurance company.

The application for the bond was signed "Germantown National Bank By J. R. Du Bois, Cashier." The application contained a representation that an audit of the cash, securities, and accounts of the bank had been made on June 18, 1929, and that all accounts were found to be correct and all cash and securities were found on hand or properly accounted for. It also contained the representation that the losses known to have been sustained from any of the causes against which indemnity was to be given by the bond were $450, and the further representation that the present officers and employees of the bank had always, to the best of the bank's knowledge and belief, performed their respective duties faithfully and that: "There has never come to the notice or knowledge of the Applicant any act, fact or information indicating or tending to indicate that any of the said officers or other Employees are unreliable, deceitful, dishonest or unworthy of confidence."

One De Witt was a stockholder, director, and sole vice-president of the bank and was treasurer of Columbia county, N. Y. He was also an officer of a concern known as the Pittsfield Lime & Stone Company, which owed $60,000 to the Manufacturers Trust Company, secured by about $266,000 of bonds. In March, 1928, De Witt, whose balance with the bank was then only $376.83, arranged with Du Bois to have a credit of $35,000 from the account of the bank with the Federal Reserve Bank transferred to the Manufacturers Trust Company, thus releasing the collateral of the Pittsfield Lime & Stone Company. Under the instructions of Du Bois, the cashier, an employee of the bank and his assistant, Pauline Moore, charged this $35,000 item on the books of the bank to a suspense account known as "Sundry," on which she placed the notation "De Witt Federal." Three days later she credited the "Sundry" account with $35,000 and charged the account of De Witt as treasurer of Columbia county with the same amount. On March 5 and 8, 1928, De Witt deposited $45,000, borrowed from other banks, to his personal account in the Germantown Bank, of which $25,000 came from the First Trust Company of Albany and $20,000 from the Hudson River Trust Company. He used $35,000 of this deposit to make good the prior charge against his account as county treasurer. On June 5, 1928, he repaid the First Trust Company of Albany $10,075 by check on his personal account in the Germantown Bank which was charged, not against his personal account because of lack of funds, but against his account as county treasurer. On July 7, 1928, he drew a check for $30,398.01 on his account as treasurer and delivered it to Pauline Moore, who made out a deposit slip for credit to his personal account. He then drew checks aggregating $20,323.01 on that account and used them to pay off the balance of his loans from the First Trust Company of Albany and to reduce by $5,000 his loan from the Hudson River Trust Company. Du Bois and Pauline Moore made out a deposit slip, charged the balance of $10,075 against his personal account, and credited his account as county treasurer with a similar item to offset the check of June 5 which he had used to make the payment to the First Trust Company of Albany. As the net result of the above there was up to this time a misappropriation of $30,398.01 of the funds of Columbia county. On April 27, 1929, Du Bois delivered to De Witt a cashier's check for $3,601.99 which was charged to the latter's account as county treasurer and used by him personally to open an account with the Hudson River Trust Company. On August 31, 1929, De Witt withdrew from the bank a further sum of $2,000 which was charged against his treasurer's account and was likewise used by him to add to his personal account with the Hudson River Trust Company. On September 19, 1929, he withdrew a further sum of $1,000 from his account as treasurer and deposited it with the Hudson River Trust Company. The total of the above withdrawals from the account of De Witt as county treasurer prior to the date of the inception of the bond furnished by the defendant was approximately $37,000.

Between October 4, 1929, when the bond became effective, and October 20, 1930, De Witt, its vice-president, diverted from his account as treasurer of Columbia county in the Germantown Bank further sums aggregating $50,000. The sums were abstracted by checks as such treasurer which were paid by the bank. Of these, checks to the amount of $16,000 were deposited to the credit of his personal account with the bank, checks to the amount of $33,000 were deposited to the credit of his personal account with the Hudson River Trust Company, and one check for $1,000 was cashed by him at the bank. They all represented appropriations of county funds for his own purposes. All the checks, as well as his prior unlawful withdrawals of $37,000, were charged against the account of the county treasurer and resulted in an aggregate loss to the Germantown Bank of $87,000 which the latter could...