United States v. Maryland Casualty Company

• Decision Date: 09 February 1955
• Docket Number: No. 7139.,7139.
• Citation: 129 F. Supp. 45
• Parties: UNITED STATES of America v. MARYLAND CASUALTY COMPANY, a corporation.
• Court: U.S. District Court — District of Maryland

129 F. Supp. 45

UNITED STATES of America v. MARYLAND CASUALTY COMPANY, a corporation.

No. 7139.

United States District Court, D. Maryland, Civil Division.

February 9, 1955.

George Cochran Doub, U. S. Atty., James H. Langrall, Asst. U. S. Atty., Baltimore, Md., for plaintiff.

Clater Smith, M. King Hill, and Clark & Smith, Baltimore, Md., for defendant.

CHESNUT, District Judge.

On June 17, 1947 Joseph G. Fahey as principal, and the Maryland Casualty Company, a Maryland corporation, as Surety, executed a fidelity bond to the United States of America "in the penal sum of $5,000." Fahey was a disbursing agent employed by the United States Army stationed on an Army transport at Brooklyn, New York. The bond was duly and officially approved and went into effect on its date. No specified date or time was stated for its continuance in effect; but in a written application prepared on a printed government form Fahey stated that he was applying for "a bond of $5,000", and he agreed to pay to the Surety a premium of $5 a year for each year that the bond remained in force, and he did pay to the Casualty Company the sum of $5 for the first year of duration of the bond, and also made a second payment of $5 to the Surety in 1948.

Under date of April 7, 1949 the Department of the Army in writing notified Fahey that as he had been transferred to another position which did not require him to give bond, the bond which he had given was cancelled as of November 10, 1948, and a copy of this communication was sent by the Army to the Surety. On July 21, 1950 the Army notified the Maryland Casualty Company that Fahey was in default in his accounting with the government during the period of the bond in the amount of $26,118.39, and later, on January 12, 1953, the General Accounting Office prepared a detailed statement of the amount of the default aggregating $39,094.29, of which amount $9,556.02 had occurred between June 17, 1947 and June 17, 1948, and $29,538.27 had occurred between June 17, 1948 and November 10, 1948. When the Surety was notified by the government that Fahey had made default in a sum which was much larger than $5,000 it promptly forwarded to the government its check for the full penal sum of the bond; but this was refused by the government which claimed that as there had been a default for more than $5,000 in the first year and also in the second year, therefore the Maryland Casualty Company was liable in the amount of $10,000. Upon the latter's refusal to pay more than the penal sum of the bond the government instituted this suit on February 18, 1954, within the five year period of limitations applicable to suits on bonds of this character.

The question in the case presented and argued by counsel is whether the bond was a continuous one for only the one penal sum of $5,000 or whether it should be construed to be equivalent to two separate bonds, one for each of the two years, and that therefore the obligation was cumulative. I think, however, the question can be more precisely stated by saying that the bond was clearly a continuous bond and that the only question submitted is whether, in addition to being a continuous bond, the liability became cumulative from year to year while it was in force. The question must, of course, depend primarily upon the language of the bond. It was prepared by the government on a regular printed government form and submitted to and accepted by the Surety precisely as presented to it by the government. The whole of the bond reads as follows:

"Official (or Surety Bond) of Non-Commissioned Officers, Enlisted personnel, and Civilian Employees (Except Certifying Officers) — War Department

"Know All Men By These Presents, That we Joseph G. Fahey ______________

of _____, in the County of ______, and State of ______, as principal and Maryland Casualty Company, a corporation existing under the laws of the State of Maryland, as surety, are held and bound unto the United States of America in the penal sum of Five Thousand ($5,000.00) dollars to the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, and successors, jointly and severally, firmly by these presents.

"The Condition of This Obligation Is Such, That whereas the above-bounden principal has been appointed to a position of office in the War Department and has accepted said appointment. Now, if the said principal shall and do at all times during his remaining on duty in the War Department, under said position or office and on duty under any position or office in the War Department to which he may be appointed, promoted, or transferred, from and including the date of approval of this bond by proper authority, carefully discharge the duties to which assigned, and faithfully expend all public money and honestly account for the same and for all public property which shall or may come into his hands without fraud or delay, then the above obligation to be void; otherwise to remain in full force and virtue.

"It is expressly understood and agreed that the termination of this obligation shall be effected only upon the approval by proper authority of a new official (or surety) bond in the case of the principal or when proper authority shall determine that the principal has been relieved from duty under which he is accountable for public funds or public property or when the Secretary of War determines that the interests of the United States do not require continuation of bond.

"In Witness Whereof, The parties hereto have executed this instrument under their several seals, this 17th day of June, 1947, the name and corporate seal of said surety being hereto affixed and these presents duly signed by its undersigned representative pursuant to authority of its governing bond.

"Witness to Signature of Principal Donald G. - - as to Joseph G. Fahey (Seal) ------------------------------- SDA SYM No.210-774 Maryland Casualty Company (Corporate attest Seal) Betty Thompson By Velma S. Johns -------------------- Attorney-in-fact The rate of annual premium on this bond is $1.00 per thousand; the annual premium on this bond is $5.00 FD Form 1 Jun'1943 72"

Many officers or employees of the government are by statute required to give bond for the faithful performance of their duties, including among others, disbursing officers, Title 5 U.S.C.A. § 44. Title 6 U.S.C.A. §§ 1 to 15 enacted various provisions applicable to the class of bond in suit. The more significant sections are as follows:

Section 3 provides that such official bonds shall be renewed every four years but it may be required that they be renewed or strengthened more frequently, with certain exceptions not here material. The section provides:

"The liability of the principal and sureties on all official bonds shall continue and cover the period of service ensuing until the appointment and qualification of the successor of the principal." (Italics supplied.)

Section 5 provides a limitation period of five years after the statement of account for suits on such bonds.

Section 6 provides that in lieu of individual sureties the bond of an authorized corporate surety may be accepted. The Maryland Casualty Company is on the official list of approved surety companies.

Section 14 provides that the premium on such bonds shall not be paid by the United States.

Section 15 (particularly applicable here) provides that in lieu of furnishing a surety bond in the required penal amount, the official required to give bond may deposit United States Liberty Bonds or other bonds or notes of the United States in a sum equal at their par value to the amount of the penal bond required to be furnished.

It will be noted from the language of the bond itself and from the relevant statutory provisions with regard to the bond that (1) it is to be a continuous bond; (2) that the United States is not to be liable for the payment of any premium on the bond while it continues and (3) that there is no provision or condition in the bond that it will terminate at the end of the first year if the premium for continuation thereafter is not paid by the principal. It will be noted that at the bottom of the page and below the language of the bond itself and after the signature of the parties there appears the following legend:

"The rate of annual premium on this bond is at $1.00 per $1,000; the annual premium on this bond is $5.00."

But as noted, this legend does not appear in the body of the bond and is not a condition of the liability of the Surety.

In addition to the general and very conventional language of the bond there is the following special provision which reads:

"It is expressly understood and agreed that the termination of this obligation shall be effected only upon the approval by proper authority of a new official (or surety) bond in the case of a principal or when proper authority shall determine that the principal has been relieved from duty under which he is accountable for public funds or public property or when the Secretary of War determines that the interests of the United States do not require continuation of the bond." (Italics supplied.)

The proper determination of the liability of the surety on the bond must, of course, depend primarily upon the language of the bond itself as affected, it at all, by the provisions of the statute referred to. And in construing the language of the bond it is well to bear in mind some of the rules which have been generally, if not uniformly, applied in such matters. In the first place, while this is an official bond which might have been given by individual sureties, it was a corporate surety bond. Until about 60 years ago the sureties on official bonds were generally individuals and the rule was that in construing the liability of such sureties the principle of construction was strictissimi juris, that is to say, the surety was not obligated except to the very letter and necessary intent of the language of the...