Poultry Producers' Union v. Williams

• Decision Date: 28 March 1910
• Citation: 107 P. 1040,58 Wash. 64
• Court: Washington Supreme Court
• Parties: POULTRY PRODUCERS' UNION v. WILLIAMS et al.

107 P. 1040

58 Wash. 64

POULTRY PRODUCERS' UNION v. WILLIAMS et al.

Supreme Court of Washington

March 28, 1910

Department 1. Appeal from Superior Court, King County; Boyd J. Tallman Judge.

Action by the Poultry Producers' Union against F. C. Williams and the Title Guaranty & Surety Company. Judgment for plaintiff, and defendants appeal. Affirmed as to defendant Williams, and reversed as to the other defendant, with instructions to dismiss the case.

Graves & Murphy, Charles H. Winders, and R. C McClelland, for appellants.

J. H Allen, for respondent.

CHADWICK J.

This is an action to recover on a fidelity bond executed by one F. C Williams, an employé of the respondent. On August 24, 1907, the Poultry Producers' Union was organized and incorporated, and opened up for business in Seattle, Wash. Williams was employed as an office man and bookkeeper, and had considerable to do with the outside business of the corporation such as the sale of its corporate stock and the purchase and sale of the produce handled by the concern. On September 11, 1907, the then manager of the concern, R. M. Wardell, retired, and Williams was made secretary-treasurer and manager of the company. In this position a fidelity bond was required, and an application was made and signed by C. H. Severance, president of the company. Among other questions asked and answered were the following: '(13) When were his accounts last examined? A. September 11, '07. (14) Were they at that time in every respect correct and funds on hand to balance? A. Yes. (15) Is there now or has there been any shortage due you by bondsmen? A. No.' The application contained the following stipulation: 'It is agreed that the above answers are to be taken as a condition precedent and as the basis of the said bond applied for or any renewal or continuation of the same that may be issued by the Title Guaranty & Trust Company of Scranton, Pennsylvania, to the undersigned upon the person above named.' A bond was thereupon issued, in which it was also recited: 'If the employé's written statement hereinbefore referred to shall be found in any respect untrue this bond shall be void.' On September 23d, just one week later, williams was shorn of his authority and discharged by the board of directors. This action is brought to recover the amount of his embezzlements.

We are met at the threshold of the case by the contention of appellants (a) that the answers in the application were warranties, and, being untrue, the policy is avoided, or (b) if they be held to be representations only, they were made by the president, he knowing them to be false, so that appellant company was defrauded and hence cannot be held under the policy. Whether the answers made by the applicant for a policy of indemnity or insurance are warranties or mere representations must depend upon the character of the question and its answer, the opportunity of the insurer to guard against the representation in the light of its consequences, or whether it is material to the risk. A warranty must be strictly true. Rice v. Fidelity & Deposit Company, 103 F. 427, 43 C. C. A. 270. A representation need only be substantially true. Missouri & K. T. Trust Co. v. German Nat. Bank, 77 F. 117, 23 C. C. A. 65. 'The crucial distinction between a representation and a warranty is that the one is not, and the other is, a part of the contract between the parties, and that the truth of the one is not, and the truth of the other is, a condition precedent to a recovery upon the policy or bond to which they relate.' Rice v. Fidelity & Deposit Co., supra.

Measured by these rules, will a court presume that appellant company would have assumed the risk of insuring the employé had the true state of facts been made known to it? It was advised by the president of the respondent that the books had been examined on September 11th, and found to be correct; that it was then found that there were cash and credits to balance the accounts. The evidence shows that the president had no personal knowledge of the books and accounts; that, in fact, no examination upon which a conclusive or even an approximate judgment could be based had been had. The only justification for the answers to the questions quoted above was an inspection and casting up of the cashbook and bank passbook. This examination was made by N.M. Wardell, a brother of the general manager, at that time. After qualifying himself as an expert bookkeeper, he testified as follows: 'Q. And I will ask you if during that time, and if so, as near the date as you recollect, at the request of your brother, Mr. R. M. Wardell, you examined Mr. Williams' books? A. I examined a portion of them. The cashbook, I believe, and the bankbook. * * * Q. State from the result of that examination what you reported to your brother, Mr. R. M. Wardell, as a result? A. I made simply a verbal report. I just went over them hurriedly. My report to him was that apparently all money received had been properly deposited, even showing a little more money deposited than had been received. Q. In order to ascertain that, what did you do? A. I simply ran up the cash receipts and the bank deposits. Q. The cash disbursements? A. Yes, sir. * * * Q. Were these the only two books in your possession? A. That is all. Q. Did you ascertain how much cash there was in the safe? A. No. Q. Did you ascertain whether there were notes and securities in the possession of the defendant Williams? A. No, I did not. Q. All you did, then, was to foot up the cashbook and bankbook, and they disclosed to you that there was more money deposited in the bank than appeared to have been taken in? A. That is my recollection of my report to my brother, that all money had been accounted for in the bank and even a little more. * * * Q. Did you at that time report the incompetency of Mr. Williams? A. I think I talked the fact over with my brother that it was pretty poor bookkeeping when there was more money deposited than the books showed they received. I know it was talked over, the fact that it was a case of incompetent bookkeeping there somewhere.'

The cashbooks did not balance, and an inspection by one at all acquainted with bookkeeping would have revealed the fact that the ledger did not disclose an accurate account of the business. Of the ledger, the bookkeeper employer at the time Williams became general manager said: 'When I took charge of it it was in such shape I could hardly do anything with it.' Williams admits that he is not an expert bookkeeper and that it was impossible to take care of the books and do the outside work that was put upon him. The reports of two public accountants are found in the record, and they agree that the books are incomplete and inaccurate, one of them saying: 'It is easy to see that there was wholesale robbery of cash or merchandise, or both.' It has been held that, in view of that section of our Code (1 Ballinger's Ann. Codes & St. § 4255 [Pierce's Code, § 7059]), declaring that the management of a corporation shall be...