The Delaware State Bank v. Woodlief G. Colton and The United States Fidelity & Guaranty Company

• Decision Date: 09 February 1918
• Docket Number: 20,885
• Citation: 170 P. 992,102 Kan. 365
• Court: Kansas Supreme Court
• Parties: THE DELAWARE STATE BANK, Appellee, v. WOODLIEF G. COLTON and THE UNITED STATES FIDELITY & GUARANTY COMPANY, Appellants

170 P. 992

102 Kan. 365

THE DELAWARE STATE BANK, Appellee, v. WOODLIEF G. COLTON and THE UNITED STATES FIDELITY & GUARANTY COMPANY, Appellants

No. 20,885

Supreme Court of Kansas

February 9, 1918

Decided January, 1918.

Appeal from Montgomery district court; THOMAS J. FLANNELLY, judge.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. INDEMNITY BOND--Against Fraud of Bank Cashier--Loss--Bond Construed--Proof Required. A surety bond indemnifying a bank against loss occasioned by the fraud or dishonesty of its cashier "amounting to embezzlement or larceny" is construed as intended to indemnify the bank from loss occasioned by the official's fraud or dishonesty of the general character and nature usually involved therein and in an action on the bond the plaintiff may recover without technical proof of fraudulent acts as required in criminal prosecutions for embezzlement or larceny.

2. SAME--"Immediate Notice" of Loss Not Given--Waiver. On the facts stated in the opinion, the failure of the plaintiff to give "immediate notice" of the loss as provided in the bond, was waived by the conduct of the surety company in placing its denial of liability upon other distinct grounds.

S. H. Piper, of Independence, for the appellants.

T. H. Stanford, and G. T. Stanford, both of Independence, for the appellee.

OPINION

PORTER, J.:

The bank brought this action on a bond given by Colton, its former cashier, and the guaranty company as surety, to recover for loss sustained by reason of the fraud and dishonesty of Colton. The trial was by the court, resulting in findings that Colton had appropriated to his own use certain rents from property belonging to the bank, and had taken from its securities a note signed by his mother for $ 800, by which the bank sustained loss; and that his acts were of such a fraudulent and dishonest nature as amounted to embezzlement. The bank was given judgment for the loss sustained in these transactions, and defendants appeal.

By the terms of the bond the surety company agreed to reimburse the bank for all pecuniary loss sustained by reason of the fraud or dishonesty of Colton in connection with the duties of his office "amounting to embezzlement or larceny," and the main contention urged is, that the demurrers to the petition should have been sustained on the ground that the petition failed to allege that the cashier's acts amounted to embezzlement or larceny. The bank's location was in Oklahoma, and it is urged that the petition should have pleaded the laws of that state defining these offenses.

It was not necessary that the petition should allege, or that the proof should establish, facts sufficient to constitute the crime of embezzlement or larceny. The purpose of the bond was to indemnify the bank against pecuniary loss occasioned through the fraud or dishonesty of Colton in connection with his duties as cashier, and the words "amounting to embezzlement or larceny" cannot be given the effect contended for. They do not so far qualify the words "fraud and dishonesty" as to relieve the surety company from liability until the bank produced testimony which would have been sufficient in a criminal case to convict Colton of one of these crimes. Bonds of this character are to be construed most strongly against the surety company. It is not in the position of a private surety, who is favored by the law and permitted to rely upon technical defenses. (Hull v. Bonding Co., 86 Kan. 342, 120 P. 544; Lumber Co. v. Douglas, 89 Kan. 308, 321, 131 P. 563; School District v. McCurley, 92 Kan. 53, 142 P. 1077, and cases cited.) The surety company prepares the bonds on its own forms, and the courts as a general rule construe them as intended to protect the obligee from loss occasioned by the dishonest and fraudulent acts of the principal, wholly regardless of whether or not the principal might upon the facts established have been convicted of embezzlement or larceny. In Champion Ice Mfg. & Cold Storage Co. v. Amer. Bond. & Trust Co., 115 Ky. 863, 75 S.W. 197, a case arising on a bond worded substantially as the bond in the present case, the same defense was urged. It was said in the opinion:

"Such a narrow construction of the provisions of the contract is not required by the law, and was never contemplated by the parties to it. While larceny is a common-law crime, yet in this state the punishment therefor is statutory. Embezzlement is purely a statutory crime, but the terms 'larceny' and 'embezzlement,' in the bond or policy sued on, are used as generic terms to indicate the dishonest and fraudulent breach of any duty or obligation upon the part of an...