United States v. Fidelity & Deposit Co. of Maryland

• Decision Date: 13 April 1915
• Docket Number: 146.
• Citation: 224 F. 866
• Court: U.S. Court of Appeals — Second Circuit
• Parties: UNITED STATES v. FIDELITY & DEPOSIT CO. OF MARYLAND.

224 F. 866

UNITED STATES v. FIDELITY & DEPOSIT CO. OF MARYLAND.

No. 146.

United States Court of Appeals, Second Circuit.

April 13, 1915

H Snowden Marshall, U.S. Atty., of New York City (H. Harper Asst. U.S. Atty., of New York City, of counsel), for the United States.

O'Brien Boardman & Platt, of New York City (A. B. Boardman, Frank H Platt, and Livingston Platt, all of New York City, of counsel), for defendant in error.

Before LACOMBE, COXE, and ROGERS, Circuit Judges.

LACOMBE, Circuit Judge.

As stated in the opinion of the District Judge:

'The President of the United States, as Commander in Chief of the Army and Navy, on July 21, 1898, made an order authorizing the extension of the postal service over the island of Cuba, which had come into the military possession of the United States. By virtue of that order the Postmaster General made an order, December 21, 1898, appointing E. G. Rathbone Director General of the Posts of Cuba. Said Rathbone on January 7, 1899, established the Bureau of Finance, so called, in his department, and on January 11, 1899, assigned C. F. W. Neely to be chief or that bureau and required him to give a bond as such chief. This he did by procuring the bond in suit October 21, 1899. The premium was paid by William H. Reeves, Assistant Auditor of the Department of Posts for the island of Cuba, out of funds received from that postal service. During the life of the bond Neely embezzled from the postal funds of the island of Cuba an amount in excess of the amount of the bond and in excess of another bond not in suit.'

Rathbone and Reeves were also embezzlers. The three men plundered the Cuban postal funds with free hands, assisting each other in their fraudulent enterprise. All three were tried and convicted in the Cuban courts. Of the many questions which have been presented and argued, we find it necessary to consider two only.

1. The bond was given by Neely as principal and defendant company as surety to 'E. G. Rathbone, Director General of Posts of the Island of Cuba, or his successor, hereinafter called the 'employer.' ' It recites that the employer has delivered to the company certain statements and declarations in writing relative to the duties and accounts of the employe, the manner of conducting the business of the employer, and other matters which, together with any other statements or declarations in writing made by the employer and required by or lodged with the company, do and shall constitute the basis of this contract, and proceeds:

'Now, therefore, in consideration of (the premium) and upon the faith of said statements and declarations of the said employer, as aforesaid, it is agreed that, subject to the provisions and conditions herein contained, which shall be conditions precedent to the right on the part of the employer to recover under this bond, the company shall reimbuse,' etc.

The bond provides that it may be continued from year to year, at the option of the employer at the same or an agreed rate of premium; also that the employer shall immediately give the company notice of the discovery of any act which may be the basis of any claim under the contract. The bond also contains the following clause:

'That this bond will become void as to any claim for which the company is responsible hereunder to the employer, if the employer shall fail to notify the company of the discovery of any act which may be made the basis of any claim hereunder, immediately after it shall have come to the knowledge of the employer. And if, without previous notice to and consent of the company thereto, the employer has intrusted or shall intrust the employe with money, securities, or other personal property, after having discovered any act of dishonesty, or condones any act for which the company may be liable hereunder, or makes any settlement with the employe for any loss hereunder, this bond shall be null and void, and any willful misstatement or suppression of facts in any claim made hereunder renders this bond void from the beginning.'

It appears that prior to the execution of the bond Neely had violated his trust as Chief of the Bureau of Finance of the Department of Posts of the island of Cuba by embezzling funds that came into his hands officially, and that this was known to Rathbone as Director of Posts at the time of the execution of the bond in suit, but all knowledge thereof was withheld from defendant by plaintiff until July 7, 1900; that the various embezzlements by Neely during the life of the bond were all known to Rathbone at or about the time of their occurrence, but were not made known to defendant at any time prior to Cotober 27, 1900.

We concur with Judge Martin in the conclusion that Rathbone's failure to give notice to defendant of Neely's embezzlements invalidated the bond. The plaintiff designated Rathbone as agent to make the contract in suit and became party to the agreement which named him as the 'employer' and required him or his successor to give the prescribed notices. It seems unnecessary to add anything to Judge Martin's discussion of this branch of the case. The case of American Surety Co. v. Pauly, 170 U.S. 133, 18 Sup.Ct. 552, 42 L.Ed. 977, and the whole group of cases to the same effect cited on the brief, do not apply, because the language of this bond differs radically from that in the Pauly Case. It unmistakably provides that the Director of Posts is the one who is to make the required statements on behalf of the obligee. It would be most unjust to let the obligee benefit by the fraudulent acts of the very person it had selected and designated as its agent for the purpose of notifying the obligor of misconduct on the part of the person for whom it became surety.

2. According to the terms of the bond, it was a condition precedent to recovery that suit should be brought by the obligee within 12 months from the filing of a claim. This certainly was not an unreasonable provision. Notice of the claim was served on defendant October 27, 1900, more than 3 years before action was begun. Plaintiff contends that this condition was waived by defendant. As was stated before, a criminal prosecution of Neely was begun in the Cuban court. On August 16, 1901, the Director General wrote to defendant, suggesting that in view of the near approach of the criminal trial the parties should 'agree to let matters rest as to the entire group of bounds until conclusion of that trial, on the condition and understanding that it be without prejudice to any preliminary formal steps, so that at the end of the criminal trial issue may be joined without delay on the merits of the cases. ' To this proposition defendant agreed on August 20, 1901. The criminal proceedings terminated June 17, 1902. This action was begun July 11, 1904. The language above quoted would seem to imply that it was contemplated that the action should be begun by service of the summons within the year stipulated by the contract, but that no further action should be taken and issue not joined until the end of the criminal trial. But it is not necessary to give it that construction. Nor even is it necessary to hold that it was intended to extend the one-year period by such additional time as the criminal trial might take--a reasonable and proper construction as it seems to us. Certainly it contemplated and expressly provided that, when the criminal trial was ended, this action should be promptly brought, so that 'issue may be joined without delay.'

The government relies on Lynchburg Cotton Mill Co. v. Travelers' Insurance Co., 149 F. 954, 79 C.C.A. 464, 9 L.R.A. (N.S.) 654, where the contract required the institution of suit within 30 days. The court said:

'The insurer had the right to insist on the enforcement of this special limitation, but upon departing therefrom, certainly in the absence of express stipulation to the contrary, what was done operated, not as a suspension of the clause, but a waiver thereof.'

Here, however, there is an express stipulation which clearly indicates that what was agreed to was a suspension and not a waiver.

It is unnecessary to discuss any of the other defenses which are relied upon.

The decree is affirmed.

NOTE.-- The following is the opinion of the District Court, by Martin, District Judge:

MARTIN District Judge.

This action was commenced by summons and complaint July 11, 1904, upon a bond given by C. F. W. Neely, as principal, and the defendant, as surety, to E. G. Rathbone, as Director General of the Posts of Cuba, and his successor, as the employer of Neely. Issues were duly joined. July 21, 1898, the President of the United States, as Commander in Chief of the Army and Navy, made an order authorizing the extension of the postal service over the territory of Cuba, which had come into the military possession of the United States. By virtue of that order the Postmaster General made an order, under date of December 21st of the same year, appointing E. G. Rathbone Director General of the Posts of Cuba. Said Rathbone on the 7th of January, 1899, established the Bureau of Finance, so called, in his department, and, on the 11th of the same January assigned said Neely to be chief of that bureau and required him to give a bond as such chief. This he did by procuring the bond in suit October 21, 1899. The premium was paid by William H. Reeves, Assistant Auditor of the Department of Posts for the island of Cuba, out of postal funds received from that postal service. During the life of the bond said Neely embezzled from the postal funds of the island of Cuba an amount in excess of the amount of the bond, and in excess of another bond, not in suit.

The defendant contends that 'no recovery can be had on this bond because, according to its terms, it was a...