Supreme Council Catholic Knights of America v. Fidelity & Cas. Co. of New York

• Decision Date: 08 May 1894
• Docket Number: 162.
• Citation: 63 F. 48
• Parties: SUPREME COUNCIL CATHOLIC KNIGHTS OF AMERICA v. FIDELITY & CASUALTY CO. OF NEW YORK. [1]
• Court: U.S. Court of Appeals — Sixth Circuit

63 F. 48

SUPREME COUNCIL CATHOLIC KNIGHTS OF AMERICA v. FIDELITY & CASUALTY CO. OF NEW YORK. ^[1]

No. 162.

United States Court of Appeals, Sixth Circuit.

May 8, 1894

[Copyrighted Material Omitted]

Xenophon Wheeler and Thomas McDermott, for plaintiff.

Creed F. Bates, Charles C. Hadal, Edwin R. Thurman, and J Washington Moore, for defendant.

Before TAFT and LURTON, Circuit Judges, and BARR, District Judge.

LURTON Circuit Judge.

The appellant here and plaintiff below is the Supreme Council Catholic Knights of America, a corporation under the laws of Kentucky. In general terms it may be described as a fraternal and beneficiary association of the members of the Catholic Church. Its chief purpose seems to have been the establishment and maintenance of a life insurance feature, by means of which a sum not exceeding $5,000 was to be paid to the family of each member out of funds raised by death assessments and paid into the common treasury, and then under the laws of the order, paid to the beneficiary entitled. The defendant corporation, the Fidelity & Casualty Company of New York, is a corporation of the state of New York, and is engaged in the business of guarantying the fidelity and honesty of officers, agents, and employes.

This suit was an action on a bond for $50,000, executed by the defendant company to the plaintiff corporation, insuring the fidelity and honesty of Michael J. O'Brien as supreme treasurer of the Supreme Council Catholic Knights of America. So much of said bond as is involved in the questions presented by the assignment of errors is as follows:

'This bond, made the first day of July, in the year of our Lord one thousand eight hundred and ninety-one, between the Fidelity and Casualty Company of New York, hereinafter called 'the company,' of the first part, and Michael J. O'Brien, of Chattanooga, Tenn., hereinafter called the 'employed,' of the second part, and Supreme Council Catholic Knights of America, hereinafter called 'the employer,' of the third part. Whereas, the employed has been appointed supreme treasurer at Chattanooga, Tenn., in the service of the employer, and has applied to the company for the grant by them of this bond, and whereas, the employed has heretofore delivered to the company certain statements and a declaration relative to the duties and accounts of the employed, and other matters, it is hereby understood and agreed that those statements and such declaration, and any subsequent statements or declaration hereinafter required by or lodged with the company shall constitute an essential part and form the basis of the contract hereinafter expressed. Now, in consideration of the sum of three hundred and seventy-five dollars, as a premium for the term ending on the first day of July, eighteen hundred and ninety-two, at 12 o'clock noon, it is hereby declared and agreed that during such term, or any subsequent renewal of such term, and subject to the conditions and provisions herein contained, the company shall, at the expiration of three months next after proof satisfactory to its officers of a loss as hereinafter mentioned, make good and reimburse to the employer, to the extent of the sum of fifty thousand dollars, and no further, such pecuniary loss, if any, as may be sustained by the employer by reason of fraud or dishonesty of the employed in connection with the duties referred to, amounting to embezzlement or larceny, which was committed and discovered during the continuance of said term or any renewal thereof, and within three months from the death, dismissal, or retirement of the employed; provided, that on the discovery of any such fraud or dishonesty as aforesaid the employer shall immediately give notice thereof to the company, and that full particulars of any claim made under this bond shall be given in writing, addressed to the company's secretary, at its office in the city of New York, within three months after such discovery as aforesaid, and within three months after the expiration of this bond, and the company shall be entitled to call for, at the employer's expense, such reasonable particulars and proofs of the correctness of such claim, and of the correctness of the statements made at the time of effecting this bond, or made at any time of the payment of any renewal premium, as may be required by the officers of the company, and to have the same particulars, or any of them, verified by statutory declaration; and any claim made under this bond, or any renewal thereof, shall embrace and cover only acts and defaults committed during its currency, and within twelve months next before the date of the discovery of the act or default upon which such claim is based, and upon the making of any claim this bond shall wholly cease and determine, and shall be surrendered to the company on the payment of such claim. And this bond is entered into on the condition that the business of the employer shall be continued to be conducted, and the duties and remuneration of the employed shall remain in accordance with the statements hereinbefore referred to; and if, during the continuance of this bond, any circumstance shall occur or change be made which shall have the effect of making the actual facts differ from such statements, or any of them, without notice thereof being given to the company at its office in New York, and the consent and approval in writing of the company being obtained, or if any willful suppression or misstatement be made in any claim under this bond, or any fact affecting the risk of the company at any time, or if the employer shall fail to notify the company of the occurrence of any act of dishonesty on the part of the employed as soon as it shall have come to the knowledge of the employer, or shall continue to intrust the employed with valuable property after such discovery this bond shall be void from the beginning.'

O'Brien succeeded himself as treasurer, having held the same office for two preceding terms of two years each. The defendant company was surety only from July 1, 1891, the date when his third and last term began. O'Brien acted under defendant's bond only from July 1, 1891, to September 10, 1891, when he abandoned his trust and fled the country. There was a jury and verdict against the defendant, as surety, for $15,722. From the judgment on this verdict both the plaintiff and defendant have sued out writs of error.

The principal question arising upon the plaintiff's assignment of error is as to the liability of the surety for certain items of receipt, aggregating $21,000, and with which O'Brien charged himself as of various dates between July 1 and 10, 1891. The contention of the defendant was and is that the charges so made by O'Brien against himself were misdated; that the moneys so charged were in fact received and paid out before July 1st, and were not, therefore embezzled by O'Brien during the currency of its bond. The contention of the plaintiff was and is that the charges so made by O'Brien against himself were made during the life of the bond, and in the ordinary course of his duty as treasurer, and are therefore conclusive upon him and upon his surety.

Evidence tending to show that these items had been received during the latter part of June, and paid out before July 1st, was admitted over objection. There was also evidence tending to show that O'Brien had a habit of dating his entries, letters of advice, and receipts about 10 days after the date of actual receipt. The court, in substance, instructed the jury that while admissions entries, receipts, and reports made to other officials of the order during the life of the bond, and in the usual and ordinary course of his duty as treasurer, would be evidence affecting O'Brien's surety, yet such admissions or reports would not be conclusive, and might be contradicted and explained, and that it was for the jury to say, upon the whole evidence submitted to them, whether the items in controversy had been received before or after the execution of the bond in suit, and before or after the beginning of his third term; that, on the evidence, it was for them to say whether the sums so received were paid out before the currency of defendant's bond. The court also charged that the defendant surety would not be liable for any moneys received by O'Brien before July 1st, which were not in his hands when the defendant became bound as his surety; that for any defalcation before July 1, 1891, the defendant surety could not be made liable under the bond exhibited.

There has been a wide difference of opinion entertained by American courts as to the conclusiveness of official reports, or entries made by public officials in the ordinary course of official duty. There is a respectable line of authority beginning with the case of Baker v. Preston, 1 Gilmer 235, holding that such entries and reports are conclusive both upon the official making them and the sureties upon his official bond. That case involved the liability of the sureties upon the bond of a state treasurer who at the beginning of a second term had on hand, according to his own books, a large balance brought forward from a preceding term. The sureties were held concluded by the book balance thus brought forward, and not suffered to show that in fact the balance on hand was much less, by reason of a defalcation committed during the former term, and not appearing upon the books. The decision was by a divided court. Judge White dissented in a very able opinion, based upon the total want of authority to support the conclusion of the court. The decision has been much criticised in subsequent opinions of the Virginia supreme court. Munford v. Overseers, 2 Rand. 314; Craddock v. Turner's Adm'r, 6 Leigh, 116. It has been followed in State v. Grammer, ...