W.A. Thomas Company v. National Surety Company

• Decision Date: 29 May 1919
• Docket Number: 21,228
• Citation: 172 N.W. 697,142 Minn. 460
• Parties: W.A. THOMAS COMPANY v. NATIONAL SURETY COMPANY
• Court: Minnesota Supreme Court

172 N.W. 697

142 Minn. 460

W.A. THOMAS COMPANY v. NATIONAL SURETY COMPANY

No. 21,228

Supreme Court of Minnesota

May 29, 1919

Action in the district court for Hennepin county to recover $10,000 upon defendant's fidelity bond. The answer alleged that the employer's statement, furnished by plaintiff to defendant when obtaining the bond was false and fraudulently represented to defendant that the employee named Humlong was not indebted to plaintiff, except in the sum of $2,500, and set out in full the declaration and the conditions of the bond quoted in the fourth and fifth paragraphs of the opinion. The case was tried before Leary, J., who at the close of the testimony denied defendant's motion for a directed verdict, and a jury which returned a verdict for $9,677.80. From an order denying its motion for judgment notwithstanding the verdict or for a new trial, defendant appealed. Reversed.

SYLLABUS

Insurance -- against embezzlement of employee.

1. Bonds to secure the fidelity of employees are governed by the laws applicable to contracts of insurance.

Insurance -- misrepresentation of matters increasing the risk -- intent immaterial.

2. Misrepresentation by obligee of matters which increase the risk of loss, even if made without intent to deceive, avoids such a bond.

Insurance -- prior defalcation increases the risk.

3. After having knowledge of a prior defalcation of its treasurer, plaintiff procured a bond from defendant securing it against such defalcations. In the application for the bond, plaintiff stated that the treasurer had always been faithful, and that plaintiff had no knowledge of any act or fact tending to indicate that he was unreliable, deceitful dishonest or unworthy of confidence. Held that the matters misrepresented increased the risk of loss, and that the misrepresentation avoided the bond.

Butler Mitchell & Doherty, for appellant.

Kerr, Fowler, Schmitt & Furber, for respondent.

OPINION

TAYLOR, C.

On February 2, 1916, defendant executed to plaintiff a bond, whereby defendant obligated itself to make good any loss sustained by plaintiff by reason of any embezzlement committed after the first day of January, 1916, by Earl V. Humlong, plaintiff's treasurer. Plaintiff brought suit on the bond for sums embezzled by the treasurer between the first day of January and the fifteenth day of July, 1917, and recovered a verdict for the sum of $9,677.80. Defendant made a motion for judgment notwithstanding the verdict or for a new trial, and appealed from an order denying its motion.

Defendant contends that the bond was procured by fraudulent misrepresentations and never became of force or effect.

W. A. Thomas conducted a grain commission business in the city of Minneapolis for many years, and employed Humlong and W. B. Grosskopf in his office. Humlong had charge of the books and was manager of the office under Thomas, and Grosskopf was telegraph operator and also performed clerical and other services. In 1914 Thomas caused the plaintiff company to be incorporated and turned his business over to the corporation. He owned the greater part of the capital stock and became president of the company. The company issued stock of the par value of $2,000 to Humlong and Grosskopf respectively, taking their notes therefor secured by a pledge of the stock, and Humlong became secretary and treasurer of the Company, and Grosskopf vice president of it, but the business was conducted in the same manner as before, and as if it still remained the private business of Thomas.

The application for the surety bond was made in the name of plaintiff by Thomas as president, and among other things made the following declaration:

"The foregoing employee has been in the service of the undersigned employer one year and six months, and the duties required have always been performed in a faithful and satisfactory manner. The accounts were last audited on the first day of December 1915, and were correct in every particular. There has never come to the notice or knowledge of the employer any act, fact or information tending to indicate that employee is negligent, unreliable, deceitful, dishonest or unworthy of confidence. As far as the employer knows, employee's habits are good."

The application also stated that an indebtedness due plaintiff from Humlong was for the purchase of stock and amounted to about $2,500. Among other things the bond provides that the obligation of the surety is "subject to the following express conditions, which shall be conditions precedent to any recovery hereunder: 1st: That the employer shall not have had at the date hereof any knowledge of the employee having been guilty of any act of personal dishonesty, in any position in the employer's service, or in the service of any other person, firm or corporation, and all statements which the employer...