Maryland Casualty Co. v. Hall

• Decision Date: 23 May 1921
• Docket Number: 21833
• Citation: 88 So. 407,125 Miss. 792
• Court: Mississippi Supreme Court
• Parties: MARYLAND CASUALTY CO. v. HALL

88 So. 407

125 Miss. 792

MARYLAND CASUALTY CO. v. HALL

No. 21833

Supreme Court of Mississippi

May 23, 1921

1. PRINCIPAL AND SURETY. Employer bound to report only facts justifying charge of larceny or embezzlement under indemnity bond.

Where a surety company has executed a bond indemnifying an employer against loss by reason of any act of an employee constituting larceny or embezzlement, under a provision of the bond requiring the employer to give written notice to the company immediately upon becoming aware of any loss which might be made the basis of a claim thereunder, the employer is not bound to report his suspicions arising from unexplained irregularities or discrepancies in the books or accounts of the employee, but notice is only required after the employer has knowledge of such facts as would justify the charge of larceny or embezzlement.

2. PRINCIPAL AND SURETY, Surety under indemnity bond not liable for sums owing to employer by employee discharged by improper use of employer's other funds.

Under an employer's indemnity bond, providing that the company shall not be liable thereunder for any sum owing to the employer by the employee at the commencement of the term of the bond, or for any money thereafter used directly or indirectly by the employee to discharge in whole or in part any debt or obligation contracted or incurred by the employee with the employer before or during the term of the bond, the surety company is not liable for any sum which was owing to the employer at the commencement of the bond, and which the employee attempted to discharge by the improper use of other funds of the employer.

HON. G C. TANN, Chancellor.

APPEAL from chancery court of Jones county, HON. G. C. TANN Chancellor.

Suit by K. C. Hall against the Maryland Casualty Company and another. Decree for complainant, and defendant named appeals. Affirmed conditionally.

Decree affirmed; otherwise reversed and remanded.

Shannon & Shauber, for appellant.

Appellant first contends that appellee did not comply with the third clause contained in said bond, which required appellee as soon as he became aware or received any notice of any loss which may be made a basis of a claim thereunder, to immediately notify appellant by registered letter addressed to appellant at its principal offices in Baltimore, Maryland.

We find, from our investigation of the authorities that the courts do not agree on the construction of the clause in fidelity bonds requiring immediate notice on behalf of the employer to the surety company on his having knowledge of any act of dishonesty on the part of the employee; we do find, however that there is a distinction made between bonds where the clause requires the employer when he had knowledge of the act of dishonesty and those bonds that require the employer to immediately notify the surety company when the employer becomes aware, or is notified, of any acts of dishonesty on the part of the employer.

We call the court's attention to the fact that clause three in the bond now before the court provides, that the employer on becoming aware of or upon receiving notice of, any loss which may be made the basis of any claim hereunder, shall immediately notify the company by registered letter.

In the case of Guarantee Company of North America v. Mechanics' Saving Bank & Trust Company, reported in Volume 46 of the United States Supreme Court reports (Lawyer's Edition), on page 253, the court through Chief Justice FULLER, in part says: "In Pauly's case, where the bond required that the company should be notified in writing of any act on the part of the employee which may involve a loss for which the company is responsible hereunder, as soon as practical after occurrence of such act may have come to the knowledge of the employer," it was ruled that it had been properly held that the surety company did not intend to require written notice of any act upon the part of the cashier that might involve loss, unless the bank had knowledge, not simply suspicions, of the existence of such facts as would justify a careful and prudent man in charging another with fraud or dishonesty.

"But the bond before us not only contained that clause under consideration, which was a different and additional clause intended to secure the safety of prevention through timely warning."

It seems to us that the obvious meaning of becoming aware, as used in this bond is to be informed of, or to be apprised of, or to be put on one's guard in respect to, and that no other meaning is equally admissible under, the terms of the instrument. These are the definitions of the lexicographers, distinctly deducible from the derivation of the word, aware, and that is the sense in which they are here employed. It is used in the same sense in the cashier's certificate on the renewals of the teller's bond.

To be aware is not the same as to have knowledge. The bond itself distinguishes between the two phrases, and uses them as not synonymous with each other, and in view of the plain object of the clause, we cannot regard the words as equivalent to becoming satisfied, though perhaps they may be to having reasons to believe.

The company's defense did not rest on the duty of diligence growing out of the relation of the parties, but on the breach of one of the stipulations entered into between them. The question was not merely whether the conduct of the bank was contrary to the nature of the contract, but whether it was not contrary to its terms. The Pauly case, is reported in the 42d volume of the United States Supreme Court Reports (Lawyer's Edition), on page 977.

The tenth clause in the bond is as follows: "Tenth: That the company shall not be liable under this bond for any sum or amount owing to the employer by the employee at the commencement of the term of this bond, or for funds, moneys, or personal property thereafter used directly or indirectly by the employee to reimburse the employer for any such sum, amount or deficiency, or to discharge in whole or in part any debt or obligation contracted or incurred by the employee with the employer before or during the term of this bond."

If this court should hold that appellee gave appellant the necessary notice under clause three of said bond, then we submit that appellant is entitled to a credit for the sum of sixty-four dollars the amount that McDonald, the employee, became owing appellant during the term of this bond.

It has been uniformly held by this court that it is the duty of this court to construe contracts and not make contracts for litigants. As aptly stated by Mr. Justice ETHRIDGE in the case of Fleming v. Miller, reported in 87 So. 277: "Of course, it is competent for parties to make such contracts as they please, not contrary to law or public policies, and each case must necessarily depend upon its own facts."

A contract containing clauses similar to those in the contract now before the court was held by this court to be reasonable and valid and conditions precedent to liability in the case of the Maryland Casualty Company v. The Laurel Oil & Fertilizer Company, reported in 116 Mississippi 283.

Of course, the liability of McDonald, the other defendant in the lower court is not a conditional liability and was not dependent upon the appellee's performing certain acts which he had agreed to do in the terms of the bond in this suit. The mere fact that McDonald was liable to appellee is no reason why appellee should have been given a decree against appellant. McDonald did not appeal from the decree rendered against him in favor of appellee. Appellee still has his judgment for the full amount the lower court found to be due him by McDonald.

For the reasons above stated, we respectfully submit that the lower court committed error in rendering a decree against appellant. Therefore, we respectfully ask that the case be reversed and a judgment be entered here dismissing the bill of complaint as to appellant.

W. J. Pack, for appellee.

Appellant first contends that appellee failed to comply with the third clause of the bond, wherein it is required: "That the employer on becoming aware of, or upon receiving notice of, any loss which may be made the basis of any claim hereunder, shall immediately notify the company."

In considering this case and especially in construing this bond, we invite the court's attention to the general rule of construction, and which seems to be uniformly followed. That since the bond is prepared by the company, it must be construed most strongly against the person who prepared it in case of ambiguity, etc. In the case of The American Surety Co. v. Pauly, 42 L.Ed. (U.S. S.Ct. Rep.) 977, the supreme court of the United States held in construing a similar bond:

"If looking at all its provisions, the bond is fairly and reasonably susceptible of two constructions, one favorable to the bank and the other favorable to the surety company, the former, if consistent with the objects for which the bond was given, must be adopted, and this for the reason that the instrument which the court is invited to interpret was drawn by the attorneys, officers, and agents of the surety company."

There is nothing in this record to show that K. C. Hall did not notify appellant of the shortage of McDonald as soon as he received the final proof and had the information upon which he could support a claim under the bond.

In the case of Remington v. Fidelity & D. Co., 27 Wash 429, 67 P. 989, it was said by the court in discussing a similar provision in a bond: "Immediate notice ordinarily means, in this connection, within a reasonable time with due diligence under the circumstance, of a particular case, and without unnecessary or unreasonable delay, of which the jury are ordinarily to...