United States Shipping Bd. MF Corp. v. Aetna Cas. & S. Co.

• Decision Date: 18 April 1938
• Docket Number: No. 6960.,6960.
• Citation: United States Shipping Bd. MF Corp. v. Aetna Cas. & S. Co., 98 F.2d 238, 68 App. D.C. 366 (D.C. Cir. 1938)
• Parties: UNITED STATES SHIPPING BOARD MERCHANT FLEET CORPORATION, to Use of UNITED STATES, v. ÆTNA CASUALTY & SURETY CO.
• Court: U.S. Court of Appeals — District of Columbia Circuit

98 F.2d 238 (1938)

UNITED STATES SHIPPING BOARD MERCHANT FLEET CORPORATION, to Use of UNITED STATES, v.ÆTNA CASUALTY & SURETY CO.

No. 6960.

United States Court of Appeals for the District of Columbia.

Argued February 10, 1938.

Decided April 18, 1938.

Leslie C. Garnett, U. S. Atty., and Keith Carlin, both of Washington, D. C., for appellant.

Challen B. Ellis and Kahl K. Spriggs, both of Washington, D. C., and Charles F. Quantrell, of New York City, for appellee.

Before GRONER, Chief Justice, and STEPHENS and EDGERTON, Associate Justices.

GRONER, C. J.

The United States Shipping Board¹ brought this action in the court below against the Ætna Casualty & Surety Company upon a bond dated January 27, 1920.Sigsbee Humphrey & Company, Inc.(hereinafter referred to as Sigsbee), was the principal obligor; the Ætna Company the surety.

The case was tried without a jury.The trial judge made certain findings of fact and conclusions of law, as the result of which he gave judgment for the surety.

The bond contains these recitals and conditions:

"Whereas, the United States Shipping Board Emergency Fleet Corporation has entered into an agreement with Sigsbee Humphrey & Company for the operating and/or managing of certain vessels heretofore or hereafter assigned to said Sigsbee Humphrey & Company, as Manager and/or Operators; and

"Whereas, the United States Shipping Board Emergency Fleet Corporation required Sigsbee Humphrey & Company to furnish a bond to save the said Corporation harmless against such pecuniary loss as the Corporation shall sustain by any act of fraud, dishonesty, forgery, theft, embezzlement, wrongful abstraction, or willful misapplication of any moneys or funds that may come into the possession or control of Sigsbee Humphrey & Company, during the life and by reason of the aforesaid agreement, and to properly account for, receive, and disburse said funds, including the prompt payment to the said Fleet Corporation, of the amounts required by the terms of the aforesaid agreement.

"Now, therefore, the condition of this obligation is such that if the above bounden Sigsbee Humphrey & Company shall well and truly save the said Corporation harmless against such pecuniary loss as the Corporation shall sustain by any act of fraud, dishonesty, forgery, theft, embezzlement, wrongful abstraction or willful misapplication of any moneys or funds that may come into the possession or control of Sigsbee Humphrey & Company during the life and by reason of the aforesaid agreement, and shall properly account for, receive, and disburse said funds, including the prompt payment to the said Fleet Corporation of the amounts required by the terms of the aforesaid agreement, and at the expiration or earlier termination of its position, shall faithfully account for and turn over to the said United States Shipping Board Emergency Fleet Corporation, any moneys, property, or other funds for which it may be accountable, then this obligation shall be void, else to remain in full force and effect.

"This bond is given subject to the following conditions:

"First.Upon the discovery by the Corporation of any evidence of the loss forming the basis of a claim hereunder the Corporation shall give to the Surety, at its Home Office, immediate written notice thereof, with all available facts, and in any event within thirty days after such discovery, and shall afford the Surety every reasonable facility for investigating the same.Payment of any such loss shall be made by the Surety promptly, after receipt from the Corporation of satisfactory statement thereof.Upon the payment of a loss the Surety shall be subrogated to all of the rights of the Corporation with respect thereto; and the Corporation will execute any and all papers reasonably required by the Surety to effectuate that purpose."

The declaration charges that the Board and Sigsbee prior to the 27th of January, 1920, entered into written agreements for the operation and management by Sigsbee of certain vessels turned over and assigned to it by the Board.The agreements were the standard form contracts adopted by the Board and known as M-2, O-2, MO-3, and MO-4.These agreements authorized Sigsbee to perform all the customary duties of managing and operating the vessels, including loading and discharging of cargoes, solicitation of freight, collection of moneys arising out of the operation of the vessels, including freight money, and the disbursement of customary operating expenses.The agreements required Sigsbee to deposit all moneys collected on behalf of the operation in a national bank in the name of the Board, "which moneys shall be the property of The Corporation," but subject to check by Sigsbee and also by the Board.Sigsbee was required not to mingle the moneys from operation with its own moneys, but to make from the trust deposit all disbursements authorized to be made for the account of the operation of the ships and to render a full account to the Board of all moneys received.All the agreements provided that Sigsbee should furnish a bond for the faithful discharge of its duties in an amount satisfactory to the Board.

The declaration then alleges: "That said Agent Sigsbee did not faithfully or properly perform its obligations as Agent for the aforesaid vessels under the said `M-2,'`O-2,'`MO-3,' and `MO-4' agreements, but on the contrary wholly neglected to discharge such obligations or perform such duties during the period of said management and operation of such vessels, and during the life of said bond, in that said Agent came into possession and control of large sums of money belonging to the plaintiff, to the use of the United States of America, arising out of the operation and management of said vessels, for all of which the said Agent was liable to account to the plaintiff under the terms of said agreements.Said Agent committed large numbers of defaults under the terms and obligations of said agreements, in that said Agent did not account for said moneys to the plaintiff or to anyone else on behalf of the plaintiff, it did not disburse the said moneys solely for the operation, management, and business of said vessels, did not faithfully account for and turn over to the plaintiff or to the United States of America the moneys and other properties for which the said Agent was accountable and has taken credit for items for which it should be charged; did wrongfully and willfully withdraw from said moneys and funds fees, commissions and expenses to which said Agent and its subagents were not entitled; did wrongfully and willfully represent facts, known to said Agent to be false, and did conceal from the plaintiff material facts covering the handling of the said moneys, all for the purpose of securing and did thereby secure from the plaintiff advances of money and funds belonging to the plaintiff, for the purpose of carrying out the management and operation of said vessels, and for the purpose of paying fees and commissions to said Agent, to which the said Agent was not entitled; and said Agent has misapplied and wrongfully and fraudulently appropriated funds belonging to the plaintiff to the use of the United States of America, for which said Agent was accountable under said operating agreements and has failed to account to the plaintiff or to the United States of America for such funds."Because of these things, the Board brought its action against the surety for the sum of $170,549.79, with interest from the 1st day of January, 1922.

The declaration was filed October 22, 1931.The defendant's pleas were filed February 23, 1932.The defaults for which recovery is sought were alleged to have been committed during 1920 and early in 1921.The operating agreement between Sigsbee and the Board terminated either in September or December, 1921, and the first notification given by the Board to the surety of the discovery of any evidence of loss forming the basis of any claim under the bond was on April 3, 1928.

At the trial the parties agreed to submit to the court without a jury two questions: (1) Whether compliance with the provisions contained in the bond, requiring the Shipping Board to notify the surety upon the discovery of evidence of loss forming the basis of a claim thereunder, was a condition precedent, and (2) if so, whether the Shipping Board had complied therewith.

After finding the facts with regard to those questions, the court held: "I think that the requirement of notice contained in the bond is a condition precedent of liability; that the loss sustained was of the character such that notice of loss was required; that notice was not given within the time and in the manner required by the bond and that there was no waiver by the defendant of the notice required by the bond."The court thereafter entered an order as follows: "This cause having been heretofore duly argued and submitted to the Court, the Court this day December 29, 1936 finds for the defendant."

This appeal challenges the conclusions of the court on the two questions submitted and the judgment entered accordingly.

We think the conclusions reached by the trial court are in all respects correct.The bond limits recovery thereunder to any moneys or funds coming into the possession or control of Sigsbee during the life of the agreement, and the surety undertakes to indemnify the Board for such loss arising from, and only from —

"(a) any act of fraud, dishonesty, forgery, theft, embezzlement, wrongful abstraction or willful misapplication of those moneys; or

"(b) any failure to account for, receive and disburse those moneys, including the prompt payment to the Shipping Board of the amounts required by the terms of the aforesaid agreement; or

"(c) any failure by the agent, at the expiration or earlier termination...