Prior Lake State Bank v. National Sur. Corp.

• Decision Date: 04 January 1957
• Docket Number: No. 36851,36851
• Court: Minnesota Supreme Court
• Parties: , 57 A.L.R.2d 1306 PRIOR LAKE STATE BANK, Respondent, v. NATIONAL SURETY CORPORATION, Appellant.

Page 612

80 N.W.2d 612

248 Minn. 383, 57 A.L.R.2d 1306

PRIOR LAKE STATE BANK, Respondent, v. NATIONAL SURETY CORPORATION, Appellant.

No. 36851.

Supreme Court of Minnesota.

Jan. 4, 1957.

On Appeal from Clerk's Taxation of Costs

Jan. 25, 1957.

SYLLABUS BY THE COURT.

1. The parties to a contract may limit the time within which an action may be brought to a period less than the fixed by the general statutes of limitation provided the limitation is not unreasonably short, but such provisions are not especially favored and are construed strictly against the party invoking them.

An insured cannot wait to determine the extent of loss, but he does not have to give notice until he is justified in believing that a loss had occurred through dishonesty rather than through errors consistent with integrity.

Suspicions of irregularity do not require the insured to assume that the employee is guilty of dishonest acts.

Held, under the record here that the action was timely commenced within the requirements of the bond.

2. The findings of a referee when adopted by the court appointing him have the same force on appeal as the findings of a court and they will not be disturbed, whether based on oral or written evidence unless they are manifestly and palpably contrary to the weight of the evidence.

The findings of a referee have the effect of a special verdict which is entitled to the same weight as a general verdict and is final upon appeal where the evidence is conflicting.

A fidelity bond indemnifying against loss by any action of 'fraud or dishonesty' is ordinarily held to extend beyond acts which are criminal; construing the bond most strongly against the insurer, the words are given a broad significance.

A loss due to dishonesty can be established by circumstantial evidence.

Held that the findings of the referee that dishonest acts were committed and that plaintiff suffered a pecuniary loss which would entitle it to recover were not manifestly and palpably contrary to the weight of the evidence.

3. In a civil case a recovery on circumstantial evidence is warranted if a preponderance of the evidence supports the recovery. Such evidence need not exclude every other reasonable conclusion.

Held, findings of the referee not considered erroneous under the record here.

4. The weight of modern authorities allows interest as against a surety on an official bond only from the date of the notice to the surety of the breach or a demand on them to make good such breach.

Affirmed with the exception of the allowance of interest. Interest allowed on $6,857.42 at six percent from July 18, 1952, and on $8,612.72 from December 8, 1952.

Durham, Swanson & Lasley, Minneapolis, and Julius A. Coller, II, Shakopee, for appellant.

Robins, Davis & Lyons and Richard Converse, Minneapolis, A. H. Markert, St. Paul, for respondent.

FRANK T. GALLAGHER, Judge.

Appeal from an order of the district court denying defendant's motion for amended findings of fact, conclusions of law, and for additional findings, or in the alternative for a new trial.

The action is for recovery of money against the surety on a banker's blanket bond contract between the plaintiff, Prior Lake State Bank, herein referred to as the bank, and the defendant, National Surety Corporation, herein referred to as the surety, said action arising out of alleged dishonest acts of the bank's employee. On March 1, 1946, the surety issued its bond to the bank by which it agreed to indemnify the bank in the amounts referred to in the bond, and subsequent riders, against the loss of property not exceeding $25,000 through any dishonest acts of its employees, subject to the conditions of the bond.

For many years prior to 1951, and including the period from March 1, 1946, when the surety's bond was issued, until November 11, 1951, one A. P. Groth was cashier and managing officer of the bank, which was operated and managed by him with the assistance, usually, of one employee whose duties were largely those of bookkeeper.

During the spring of 1951 a routine examination by the Federal Deposit Insurance Corporation indicated that there might be irregularities in the bank records. In October 1951, a special examination of the books was initiated by the Federal Deposit Insurance Corporation and conducted by one Alonzo Canaday. This examination disclosed apparent shortages in the books of the bank in the amount of $23,826.43, which were called to the attention of the officers and directors of the bank shortly before November 1, 1951. Groth, who was absent from the bank from September 19, 1950, to December 30, 1950, because of illness, resigned his position on November 11, 1951, and died in May 1954, prior to the hearing before a referee or the trial of this action.

On November 6, 1951, the bank through its president informed the surety of the apparent irregularities, defalcations, and shortages in its income account record. On the recommendation of Canaday, the bank then hired an auditor to conduct an examination and audit of the income of the bank to ascertain what loss had occurred and whether it could be traced to dishonesty of Groth. One Harold E. Sandall, a certified public accountant, was employed to make that examination and audit, which he began in December 1951 and completed late in 1952.

Upon receipt of the bank's letter of November 6, 1951, the surety engaged its own auditors to make an examination of the bank. Thereafter the bank filed two proofs of loss based on its auditor's findings, one dated July 18, 1952, in the sum of $24,420.61, and the other dated December 8, 1952, for $8,948.89. This action was commenced on December 30, 1952. The referee found that the action was brought within twelve months after the discovery of the loss by the bank and that the loss which it sustained was due to the dishonest acts of Groth, the cashier, while he was employed by the bank. He recommended that judgment be entered in favor of the bank against the surety in the sum of $15,470.14, with interest, costs, and disbursements. The interest at six percent recommended on various amounts was as follows:

On the sum of $1,634.22 from December 31, 1946;

On the sum of $3,104.65 from December 31, 1947;

On the sum of $3,520.71 from December 31, 1948;

On the sum of $2,530.44 from December 31, 1949;

On the sum of $2,507.32 from December 31, 1950;

On the sum of $2,172.64 from December 31, 1951.

The trial court adopted the findings of fact and conclusions of law and report of the referee as its findings and conclusions, including the memorandum attached thereto, and ordered judgment accordingly.

On appeal the surety assigned as error that the findings of fact and conclusions of law are contrary to law and not justified by the evidence and set forth certain specific findings which it claimed were not sustained by the evidence. The following legal issues were raised:

(1) Was the action instituted within 12 months from the discovery of the loss as required by the terms of the bond?

(2) Did the testimony on behalf of the bank show that it suffered pecuniary loss as a result of dishonest acts which would entitled it to recover?

(3) Were the court's findings of fact as to amount justified by the evidence?

(4) Was the interest finding proper and correct?

1. With reference to the date of the commencement of the action, the bond provided in part:

'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. Legal proceedings for recovery of loss hereunder shall not be brought prior to the expiration of three months from the furnishing of such proof, nor after the expiration of twelve months from the discovery of such loss, * * *.'

The surety contends that the discovery of loss occurred on or about October 20, 1951, and definitely prior to 12 months before the commencement of this action. It relies on the facts that the matter of irregularities or shortages was first reported by Canaday, the Federal Deposit Insurance Corporation examiner, to the directors of the bank prior to November 1, 1951; that the surety was informed through the letter from the bank of November 6, 1951, ¹ of the discovery of apparent defalcations and irregularities; and that the proofs of loss signed by the bank president on July 18 and December 8, 1952, refer to losses which were 'discovered by us on or about the 20th day of October, 1951, * * *.'

The testimony in the record, as previously stated, shows that Canaday did discover apparent shortages and inform the directors of the bank concerning them prior to November 1, 1951. Groth's admission that the bank had been shorted on loan interest income was also made known to the directors at this time. The letter from the bank to the surety and the statement in the proof of loss refer to the knowledge of the situation, as above stated, that directors had at that time. Our inquiry concerns whether this knowledge was sufficient to constitute a discovery of loss due to dishonest acts so as to require the referee to find such discovery as of the above date.

The parties to a contract may limit the time within which an action may be brought to a period less than that fixed by the general statutes of limitation provided the limitation is not unreasonably short, but such provisions are not especially favored and are construed strictly against the party invoking them. 11 Dunnell, Dig. (3 ed.) § 5600; Fitger Brewing Co. v. American Bonding Co., 115 Minn. 78, 131 N.W. 1067. In 50 Am.Jur., Suretyship, § 348, it is stated that:

'* * * A provision for notice after knowledge of the wrongful act or after discovery of the resulting loss...