McIntosh v. Dakota Trust Co.
| Decision Date | 06 June 1925 |
| Docket Number | 4901 |
| Citation | 204 N.W. 818,52 N.D. 752 |
| Court | North Dakota Supreme Court |
Appeal from judgment for Plaintiff, District Court, Renville County North Dakota, Buttz, J.
Reversed.
A. W Fowler and Pierce, Tenneson, Cupler & Stambaugh, for appellant, Dakota Trust Company.
Lewis & Bach, for appellant, American Surety Company.
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 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 $ 8558.21. 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 entrusted 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 made of any fact affecting the risk at any time, the surety shall not be liable under the bond.
No. 14. The receipt and retention of the bond, or the making of claim for any loss thereunder by the employer, shall be construed as a covenant on the part of the employer consenting and agreeing to all the terms, provisions and conditions therein; and that the employer will make frequent audits and examinations during the term of the bond, take and use all reasonable steps and precautions to prevent any act on the part of the employee which would tend to give rise to liability under the bond.
The Wiebe and Peters bonds are executed upon the foregoing express conditions and indemnify the bank on account of loss due to the "personal dishonesty amounting to larceny or embezzlement of the employee."
The undisputed testimony shows that both surety companies relied on the employer's certificates and the statement of facts therein contained; and that each certificate was grossly false in every substantial detail. The statement, purporting to show the financial condition of the bank, furnished the American Surety Company was likewise false. Both Wiebe and Peters were indebted to the bank in sums aggregating thousands of dollars; no examinations whatsoever of records, vouchers, or books of account had in fact been made; both were in default under prior bonds; and all three, for two years had been and were, when the statements were made, actively engaged in embezzlement operations on a large scale. On the date of the financial statement there was neither surplus, nor undivided profits, the capital was wholly impaired, and there was no equity in real estate held in the name of the bank.
From 1918 or 1919 until the bank closed, in November 1920, the major portion of the capital stock was owned by Peters, Wiebe and Bergman; from June 16, 1920, they owned 80% of the capital stock; the remaining 20% was scattered, one share to a person. During all this time they were directors of the bank, and after June 2, 1919, they constituted the entire membership of its board of directors, and were in sole charge of the institution. At all times thereafter these men had complete control of the bank, managed it to suit themselves, and used its funds and its credit in aid of their personal business ventures. Before the bank closed, they had embezzled its assets much in excess of the obligations of the bonds involved in the consolidated actions. A special account was kept on the books in the name of Peters, through which they financed their operations in real estate, using the bank as necessary in furtherance of their schemes. A condensed statement of the larger items discloses embezzlements exceeding $ 118,000.00. Liberty Bonds, of the value of over $ 18,000.00 were abstracted by the officers and distributed in approximately equal shares. These frauds continued until the bank closed. All three pleaded guilty to charges preferred under U.S. Statutes, and were committed to a Federal...
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