McIntosh v. Dakota Trust Co., s. 4828-4830.

• Decision Date: 06 June 1925
• Docket Number: Nos. 4828-4830.,s. 4828-4830.
• Citation: 52 N.D. 752,204 N.W. 818
• Parties: McINTOSH v. DAKOTA TRUST CO. (two cases). SAME v. AMERICAN SURETY CO. OF NEW YORK et al.
• Court: North Dakota Supreme Court

52 N.D. 752

204 N.W. 818

McINTOSH

v.DAKOTA TRUST CO. (two cases).

SAME

v.AMERICAN SURETY CO. OF NEW YORK et al.

Nos. 4828-4830.

Supreme Court of North Dakota.

June 6, 1925.

Syllabus by the Court.

It is the duty of the board of directors of a bank to procure and file with the state banking department a satisfactory surety bond, insuring their own fidelity as officers, and, if they themselves be employed by the bank, as employees of the institution. Sections 5150 and 5181, Comp. Laws 1913.

When a banking corporation requires a bond of an employee, it may take part in procuring a satisfactory bond to the extent of answering questions as to the employee's record in the existing employment, and in answering such questions it is its duty to disclose correctly, if it assumes to comply with such request for information, any knowledge it may have of past or existing defaults. Giving such information, in the name of the bank, as to the record of the employee in the existing employment, is violative neither of the statutes nor of public policy.

“Actual authority” is such as the principal intentionally confers upon the agent, or intentionally or by want of ordinary care allows the agent to believe himself to possess. Section 6337, Comp. Laws 1913. Where for a period of six years it had been customary for officers of a bank to give information to prospective sureties as to the record of employees in existing employments, without objection or protest by the corporation, and under circumstances necessarily imputing notice of the custom to the corporation, such officers were justified in believing that they had authority to give such information. Authority to act for and bind a corporation may be presumed from acts of recognition in other instances when such power was in fact exercised.

The inference of actual authority from the conduct of the corporation towards its officers and agents is one of fact; the surety company is entitled to the benefit of this inference notwithstanding it may have been without knowledge of the usage at the time it wrote the bond. The surety may, in order to establish actual authority in the officers to execute the employer's statement, prove that it had been customary for such officers to exercise the identical authority in circumstances warranting the inference that the corporation knowingly acquiesced therein.

When concealments and misrepresentations for which an employer is responsible are directly related to the transaction to which the suretyship will attach, and affect the liability of the surety in material respects, the sureties are released from liability on the bond.

A banking corporation is liable to innocent third persons where the representation is made in the course of its business, and by an agent while acting within the general scope of his authority, even though, in the particular case, he is secretly abusing his authority and attempting to perpetrate a fraud upon his principal, or some other person, for his own ultimate benefit. In such a case, the bank is chargeable with the knowledge of its agents, and the exception to the rule of imputed knowledge does not apply.

By bringing suits on the bonds, the receiver of the bank treats them as having been acceptable to the bank and as binding on the sureties, and, in effect, asserts that the contracts were made in behalf of and authorized by the bank.

Appeal from District Court, Renville County; C. W. Buttz, Judge.

Two actions by W. H. McIntosh, as receiver of the Mohall State Bank, against the Dakota Trust Company; and action by W. H. McIntosh, as receiver of the Mohall State Bank, against the American Surety Company of New York and others. Actions consolidated by stipulation, and tried and appealed together. Judgment for plaintiff, and the named defendants appeal. Reversed.

A. W. Fowler and Pierce, Tenneson, Cupler & Stambaugh, all of Fargo, for appellant Dakota Trust Co.

Lewis & Bach, of Minot, for appellant American Surety Co.

Francis Murphy, of Fargo, and J. J. Weeks, of Bottineau, for respondent.

JOHNSON, J.

Three actions were brought by the receiver of the Mohall State Bank on as many separate fidelity bonds, one executed by the American Surety Company, and two by the Dakota Trust Company, as sureties, for one Bergman, the cashier, Peters, the president, and Wiebe, the vice president, of the bank. The bonds are similar, but not identical. The actions were consolidated, and by stipulation tried and appealed together.

One Bergman, at that time cashier of the Mohall State Bank, hereinafter referred to as the bank, applied to the American Surety Company for a bond in the sum of $10,000, to run for a period of one year. Peters, as president of the bank, upon request from the surety company, furnished a certificate stating certain facts pertaining to the record, character, and the condition of the accounts of the applicant for the bond. Peters testified that he made the statement in behalf of the bank. It is urged by this defendant that the certificate was the actual basis of the bond and the inducing cause for its execution. This instrument, generally identified in the record as the employer's certificate, is dated March 18, 1920, and recites that Bergman has been employed by the bank for five and one-half years, and has performed his duties, to the best knowledge of Peters, in a faithful and satisfactory manner; that his accounts were last examined on January 1, 1920, and found correct in every respect; that he was not in arrears in the employment; that he is “entitled to confidence, and qualified to discharge the duties of the position named in the application. Proper accounts are kept, and adequate examinations of his transactions will be made.” These statements were false in every material detail.

A condensed financial statement of the bank, at the close of business on February 28, 1920, was submitted to the American Surety Company with the application for the bond. This statement showed a surplus fund of $25,000, and undivided profits of $8,558.21. According to the testimony of Peters, this was “really an absolute fabrication.” It was likewise shown in this statement that the bank had real estate worth $7,500. This was likewise false; there was no value there whatever.

The bond of the American Surety Company indemnifies the bank against loss due to fraud, dishonesty, theft, embezzlement, wrongful abstraction, or willful misappropriation on the part of the employee, “of funds or personal property.” It is stipulated that the suretyship shall end “(a) with the date of the discovery by the employer either of loss hereunder or of dishonesty on the part of the employee; or (b) with the date of the dismissal of the employee from the service of the employer; or (c) with the date of determination of suretyship by the surety or the employer in the manner hereinafter set forth in clause 7.”

The American Surety Company denies liability on the ground that the answers in the employer's certificate as to the character and the condition of the accounts of the insured, and the statement as to the condition of the bank, were grossly false and materially affected the risk, contending that the bond never became operative, because the dishonesty of the employee, Bergman, was fully known to the bank at the time the instrument was signed, and that Bergman's embezzlements were fraudulently concealed from the surety.

In the actions against the Dakota Trust Company on the bonds of Wiebe and Peters, the employer's certificates, purporting in each instance to be made by the bank, gave more detailed information. In each case, the certificate unequivocally asserted, as a fact, that the applicant had correctly kept his accounts and “made proper settlement of all cash and other property intrusted to his care;” that his books and accounts had been personally “inspected and audited by the board of directors, and all money and valuables reported as due, on hand, or in bank examined and verified,” on June 2, 1920, in the Wiebe case, and in January, 1920, in the Peters case; that when such examination and auditing took place, the accounts were in “every respect” correct; that the insured was in no manner indebted to the bank, and was not in default under a previous bond. The blank certificates were mailed directly to the bank, the answers were certified in its name, in the Wiebe case by Peters as president, and in the Peters case, by Bergman, as cashier, and the premiums on the bonds were paid by the bank.

The material conditions of the bonds of Wiebe and Peters are substantially as follows:

No. 3. If the employee has defaulted at any former period, to the knowledge of the employer at the time of the execution of the bond the bond shall be void, and no recovery shall be had thereunder.

No. 6. If, at any time after the bond is written, the employer, or any officer of the employer, acquires knowledge or notice of any act, fact, or information tending to show that the employee is, or may be, unreliable, deceitful, dishonest, or unworthy of confidence, the employer shall immediately give the surety notice of such fact, and the surety shall not be liable for any act of the employee thereafter committed; if, at any time after the beginning of the term for which the bond is written, the employer acquired knowledge of the fact that the employee is unreliable, deceitful, dishonest, or unworthy of confidence, the surety shall not be liable for any act of the principal thereafter committed.

No. 7. All written statements and declarations concerning the employee or his duties or acts, made to the surety company by the employer, or any officer of the employer, at or before the execution of the bond or any renewal thereof are “hereby made the basis of this bond, as to the employee and are each, every and all warranted by the employer to be true”; if any of such statements or declarations be false in any particular, or if any suppression or misstatement has been...