Rice v. Fidelity & Deposit Co. of Maryland

• Decision Date: 16 July 1900
• Docket Number: 1,276.
• Citation: 103 F. 427
• Court: U.S. Court of Appeals — Eighth Circuit
• Parties: RICE et al. v. FIDELITY & DEPOSIT CO. OF MARYLAND.

103 F. 427

RICE et al. v. FIDELITY & DEPOSIT CO. OF MARYLAND.

No. 1,276.

United States Court of Appeals, Eighth Circuit.

July 16, 1900

(Syllabus by the Court.)

A representation in insurance is a statement by the applicant to the insurer regarding a fact material to the proposed insurance, and it must be not only false, but fraudulent, to defeat the policy. A warranty in insurance is a part of the contract, an agreement that the facts stated by the applicant are true, and a condition precedent to a recovery upon it and its falsity in any particular is fatal to an action upon the policy.

A written statement made by employers to the obligor in a bond of indemnity against the dishonest acts of their employe, to the effect that they will invariably apply certain checks to his action, which the parties expressly agree by the statement itself and by the bond shall be the basis of the latter, and a condition precedent to a recovery upon it, is of the nature of a warranty, and not of a representation, and a failure to comply with the promise it contains is fatal to an action upon the bond.

A surety is discharged if a condition known to the obligee upon which the surety agreed to be bound, is not complied with.

He who commits the first substantial breach of a contract cannot maintain an action against the other contracting party for a subsequent failure to perform.

Parties to a mutual agreement have the same power to modify it by contract that they had to make it, and, when they mutually agree to substitute neu terms for the original stipulations of their contract, the old terms cease to have effect, and the substituted stipulations take their place, and become binding upon the parties.

A waiver is the result of an intentional relinquishment of a known right, or of such words or acts as estop the holder of the right from asserting that he did not relinquish it.

The casual receipt by the obligor in a bond of a single check signed by the agent of the obligees, without the counter signature of their bookkeeper, is not sufficient evidence of a waiver by the obligor of its right to insist upon an agreement by the obligees to invariably require the counter signature of their bookkeeper upon the checks of their agent to warrant the consideration of this question by the jury.

T. J Mahoney, for plaintiffs in error.

Myron L. Learned (John L. Kennedy, on the brief), for defendant in error.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

SANBORN Circuit Judge.

The assignment of errors in this case challenges the rulings of the court below in the trial of an action upon a bond of indemnity against loss from certain acts of fraud or dishonesty of an employe of the obligees in the bond. The bond was dated on July 25, 1895, was for a term of one year, and the period of indemnity was subsequently twice extended one year at a time, so that the time covered by the terms of the bond and its renewals was three years from July 25, 1895. The obligor was the defendant in error, the Fidelity & Deposit Company of Maryland, a corporation the obligees were Rice Bros. & Nixon, a co-partnership composed of William H. Rice, Thomas J. Rice, and George W. Nixon, the plaintiffs in error; and their employe against whose fraudulent or dishonest acts the fidelity company promised indemnity was Walter J. Perry. The plaintiffs pleaded in their complaint that between September 27, 1895, and July 25, 1898, the employe, Perry, had been guilty of numerous acts of fraud and dishonesty which entailed losses upon them, against which the fidelity company had promised indemnity by its bond. The most heinous of these acts consisted in the drawing of funds by Perry from the bank account of his employers, and the misappropriation of the moneys so drawn in various ways. In its answer to this complaint the fidelity company first either denied, or confessed and avoided, the various charges against Perry, and then pleaded as a separate defense that the plaintiffs agreed with it that all checks drawn by Perry on their bank account during the life of the bond and its renewals should be countersigned by their bookkeeper, John W. Gribble, and that they had entirely failed to keep this stipulation of their contract. There was a trial of the issues presented by these pleadings, and a verdict and judgment for the company.

The first complaint which counsel for plaintiffs in error urges against the action of the court below upon the trial is that it received in evidence over their objection a certain written instrument signed by Rice Bros. & Nixon, and dated August 30, 1895, to the effect that the counter signature of John W. Gribble would be invariably required on all checks drawn by Perry in their behalf, and that the court charged the jury that if they believed that this instrument was made and delivered to the company before the bond was delivered, and that the plaintiffs permitted Perry to draw checks on their behalf without the counter signature of Gribble, these facts constituted a complete defense to the action. The argument of counsel is that these rulings were erroneous because the statement in the written instrument that the checks drown by Perry should be countersigned by Gribble was a representation, and not a warranty, and hence a failure to comply with it constituted no defense to the action, unless the statement was not only false, but fraudulent and material to the risk, and because the proof was that this instrument was not made or delivered until the bond had been delivered, and there was no evidence to the contrary. For the purpose of the determination of the question presented by this argument, the evidence of the plaintiffs in error will be conceded to be true, and the claims of their counsel relative to the facts of this case will be assumed to be well founded. Under this concession and assumption, these are the facts material to the issues now under discussion:

Before the bond upon which this action is founded was delivered to the obligees, and before it became effective, the company requested them to answer in writing certain questions, and they did so. Two of those questions, together with the contract at the foot of the instrument containing the answers, read in this way:

'10. (a) Will he (the employe, Perry) be authorized to sign checks on your behalf? Ans. Yes.

'(b) Will the counter signature of any other person be invariably required. If so, whose? Ans. No.

'It is agreed that the above answers are to be taken as conditions 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 Fidelity & Deposit Company of Maryland to the undersigned upon the person above named.'

This instrument was dated August 9, 1895, and was signed by the plaintiffs in error. After the bond had been made and delivered, the company again requested answers in writing to the same questions, and in response to that request the plaintiffs in error made the following answers, and signed and delivered to the company the instrument dated August 30, 1895, which is the subject of the controversy in hand. That instrument contained the following questions, answers, and contract:

'10. (a) Will he be authorized to sign checks on your behalf? Ans. Yes.

'(b) Will the counter signature of any other person be invariably required? Is so, whose? Ans. Yes. John W. Gribble, Bookkeeper.

'This is to certify that the answers herein given to No. 10, 'a' and 'b', are to be substituted for any other prior statements that have been made by us in relation to the application of Walter J. Perry for a bond in the penalty of ten thousand dollars as manager in our employ, at South Omaha, Neb. No other statements except No. 10, 'a' and 'b,' shall be affected by this certificate. It is agreed that the above answers are to be taken as conditions 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 Fidelity & Deposit Company of Maryland to the undersigned upon the person above named.

'Dated at Chicago, Ill., this 30th day of August, 1895.

'Signature of employer: Rice Bros. & Nixon,

'By W. H. Rice, Member of Firm.'

This instrument was delivered to the defendant in error before any of the acts of fraud and dishonesty on account of which this action was brought had been committed by Perry. The bond contains this recital:

'And whereas, the employer has delivered to the Fidelity & Deposit Company of Maryland, a corporation of the state of Maryland, hereinafter called the 'Company,' a statement in writing relative to the duties, responsibilities, and check to be used upon the employe in said position, and other matters: Now, therefore, in consideration of the sum of one hundred dollars paid as a premium for the period from July 25th, 1895, to July 25th, 1896, at twelve o'clock noon, and upon the faith of the said statement as aforesaid by the employer, it is hereby agreed and declared' that the company will indemnify the obligees on certain conditions named in the bond.

The first contention to be considered upon this state of facts is the claim of counsel that the plaintiffs' statement and agreement contained in the instrument of August 30, 1895, to the effect that the counter signature of Gribble, the bookkeeper, would be invariably required on Perry's checks on their account, and that this statement should be taken as a condition precedent and as the basis of the bond together with their complete failure to comply with this provision of their contract, constituted no defense to the action, because the statement and agreement were representations, and were not warranties. The terms 'representations' and 'warranties' are...