Hood Ex Rel. Bank of Summerfield v. Simpson

ClaeksoN, J. The question involved: When a bond which guarantees the fidelity of a bank cashier and guarantees the bank against loss by reason of embezzlement, etc., of said cashier, is executed for an in *754 definite term and thereafter is kept in force by the payment of annual premiums, does the fact that said cashier was elected at the time said bond was executed for a term of one year and was thereafter reelected each year for a like term, and was required at each reflection to give bond, all of which was expressly directed by the by-laws of said bank and in conformity with the statutes requiring the officer to give bond, constitute said bond one continuous transaction or is each and every renewal thereof a separate and distinct bond? We think under the facts and circumstances of this case, that each and every renewal thereof is a separate and distinct bond or independent contract. From the agreed statement of facts, it will be seen that the by-laws of the Bank of Summerfield provided in section 14 thereof that the cashier of the Bank of Summerfield “shall be elected by the directors annually,” with the further proviso that “the officers, except the cashier, shall hold their offices for the term for which they are elected and until their successors are elected and qualified, and the cashier and the other appointed officers shall hold their offices during the pleasure of the board of directors.” It further appears from said statement of facts that the by-laws of said Bank of Summerfield provided in section 19 that “the bonds of the officers shall be fixed by the board of directors each year at their first meeting after their election.” It appears likewise from the statement of facts that Howard Simpson was elected cashier of the Bank of Summerfield on 6 January, 1920, for the term of one year, and was reelected at the regular annual meeting of the board of directors of the Bank of Summerfield each and every year thereafter until and including the year 1931. It further appears that at each and every annual meeting of the board of directors the question of the bond of the defendant, Howard Simpson, as cashier, was fully considered the amount fixed at $10,000 at each and every annual meeting and at each and every annual meeting upon the reelection of the defendant, Howard Simpson as cashier, he was ordered to give bond in the sum of $10,000. It further appears from said statement of facts that though the defendant, Howard Simpson, was first elected on 6 January, 1920, that the bank did not open for business until about 22 July, 1920, at which time he gave bond for the sum of $10,000 with the defendant, National Surety Company as surety, said bond bearing-date of 22 July, 1920 and being set forth in the record; that thereafter premium was paid each and every year by the Bank of Summerfield on the aforesaid bond to and including the year 1928; that on or about 27 April, 1929, following the annual reelection of the defendant, Howard Simpson, as cashier of the Bank of Summerfield and the order of the board of directors of said bank for him to give bond in the sum of $10,000, that said Howard Simpson furnished bond in the sum of *755 $10,000 with the defendant, National Surety Company, as surety thereon, which said bond bears date of 21 April, 1929, and is set forth in the record; that upon the execution of the aforesaid bond bearing date of 27 April, 1929, a “superseded suretyship. rider” was executed and accepted by the bank, which said rider recited the execution of both of the aboye referred to bonds and attempted to limit loss recoverable or covered by said bonds; that upon the reflection of the defendant, Howard Simpson, each year after 27 April, 1929, and the order of the board of directors for the defendant, Howard Simpson, to give bond as cashier in the sum of $10,000, said Bank of Summerfield paid the premium on said bond to and including the year 1931. It further appears from said statement of facts that the plaintiff took possession of said Bank of Summerfield on 23 June, 1931, after which it was found the defendant, Howard Simpson, had embezzled funds of the Bank of Summerfield as follows: from 22 July, 1920, to 22 March, 1929, $8,000; from 22 March, 1929, to 22 March, 1930, $2,000; and from 22 March, 1930, to 30 June, 1931, $10,000; that full notice of said embezzlement was furnished the defendant, National Surety Company, and thereafter proof of loss was likewise furnished in complete compliance with the terms of said bonds. In addition to the statement of facts heretofore referred to there is the further statement of facts limiting the case to the sole question of whether or not under the facts in this case, the defendant, National Surety Company, is surety on one continuous contract or bond from 22 July, 1920, to and including 23 June, 1931, the day on which plaintiff took possession of the Bank of Summerfield as Commissioner of Banks, with a single and sole liability of $10,000, it being expressly stipulated and agreed that if the defendant is in fact surety on one continuous contract that its liability is only $10,000, but if not on one continuous contract, then its liability shall be $20,000. The court below held on the facts, that the bond was not one continuous contract and that plaintiff was entitled to recover. We think this holding correct. The first bond was issued by defendant surety company, for $10,000, 22 July, 1920, and the premium was paid for one year. Thereafter, the General Assembly passed this act: Public Laws of 1921, chap. 4, sec. 61, ratified 18 February, 1921, before the year expired, which is as follows: "Officers and employees shall give bond. The active officers and employees of any barde, before entering upon their duties, shall give bond to the bank in a bonding company authorized to do business in North Carolina in the amount to be required by the directors, and to the satisfaction of the Corporation Commission. Such bonds shall be conditioned that such officer or employee shall faithfully discharge the duties imposed upon him by the directors, by-laws or by the law of the land, and that *756 such bonding company shall hold harmless the bank in which the officer or employee is employed, against any loss to said bank caused by said officer’s or employee’s unfaithfulness or negligence. The Corporation Commission or directors of such bank, may require an increase of the amount of such bond whenever they may deem it necessary. If injured, by ihe breach of any bond given hereunder, the bank so injured may put the same in suit and recover such damages as it may have sustained(Italics ours.) This act was amended by chapter 18, Extra Session, 1921, as follows: “That section sixty-one of chapter four of Public Laws of one thousand nine hundred and twenty-one, be amended by striking out all after the word 'directors,’ line five, down to and including the word 'negligence,’ in line eleven, and inserting in lieu thereof the following: 'in such form as may be prescribed or approved by the Corporation Commission.’ ” This act was ratified 15 December, 1921. Public Laws of 1927, chapter 47, section 11, is as follows: “That section sixty-one, chapter four, Public Laws of one thousand nine hundred and twenty-one, as amended, being section two hundred and twenty-one (m), Consolidated Statutes, be and the same is hereby amended to read as follows: 'Officers and employees shall give bond. The active officers and employees of any bank before entering upon their duties shall give bond to• the bank in a bonding company, authorized to do business in North Carolina, in ihe amount required by the directors and upon such form as may be approved by the Corporation Commission, same to be paid by bank. Such bond shall be conditioned that such officer or employee shall faithfully discharge all the duties imposed upon him by the directors, by the by-laws of the bank, or by the law of the land, and such duties as may be incident thereto, and such bond shall provide that such bonding company shall hold harmless the bank in which the officer or employee is employed against any loss to said bank caused by said officers’ or employees’ violation of any duty so imposed. The Corporation Commission or directors of such bank may require an increase of the amount of such bond whenever they may deem it necessary. If injured by ihe breach of any bond given hereunder, the bank so injured may put ihe same in suit and recover such damages as it may have sustained and the provisions of this section shall be considered a part of the provision of the bond, whether included or not.’’ ” (Italics ours.) N. 0. Code, 1931 (Michie), section 221 (m), is as follows: “Officers and employees shall give bond. — The active officers and employees of any bank before entering upon their duties shall give bond to the bank in a bonding company authorized to do business in North Carolina, in the amount required by the directors and upon such form as may be approved by the Commissioner of Banks, the premium for same to be *757 paid by the bank. The Commissioner of Banks or directors of such bank may require an increase of the amount of such bond whenever they may deem it necessary. If injured by the breach of any bond given hereunder, the bank so injured may put the same in suit and recover such damages as it may have sustained.” (Italics ours.) The above section is the same as passed by the General Assembly of 1929. Public Laws, 1929, chapter 72, section 2, with the exception that “Commissioner of Banks” is substituted for “Corporation Commission.” It is well settled that general laws of a State in force at time of execution and performance of a contract become a part thereof and enter into and form a part of it, as if they were referred 'to or incorporated in its terms. Van Hoffman v. Quincy, 4 Wallace 535 (550), 18 L. Ed., 403 (408); Farmers and Merchants Bank of Monroe, North Carolina, v. Federal Reserve Bank of Richmond, Va., 262 U. S., 649 (660); 67 L. Ed., 1157 (1164); O’Kelly v. Williams, 84 N. C., 281 (285); Graves v. Howard, 159 N. C., 594; House v. Parker, 181 N. C., 40 (42); Ryan v. Reynolds, 190 N. C., 563 (565); Hughes v. Lassiter, 193 N. C., 651 (657); Monger v. Lutterloh, 195 N. C., 274 (279); Headen v. Insurance Co., ante, 270 (272); Steele v. Insurance Co., 196 N. C., 408 (411); Page on Contracts, 2d edition, section 2048; 6 R. C. L., “Contracts,” section 243. The statute, supra, Public Laws, 1921, chapter 4, section 61, says “officers and employees shall give bond. . . . Before entering upon their duties. ... In the amount required by the directors.” This provision stands mandatory in all the changes of the statutes bearing on the subject. In the agreed statement of facts, it is set forth that each year, the board of directors of the Bank of Summerfield, elected Howard Simpson as cashier for a term of one year. The bond was fixed for each year, at $10,000 and the premiums on the $10,000 bond paid to defendant National Surety Company each year. In the case of public officers, not requiring bond in accordance with the statute, we said in Moffitt v. Davis, 205 N. C., 565 (570) : “Public officials entrusted in so important a matter as this mandatory statute, we find from the weight of authority, are held individually liable to any one injured by their wilful failure or neglect of duty. To hold otherwise would put a premium on inefficiency and neglect.” The bank directors were careful to comply with the statute and elected the cashier each year and required a $10,000 bond and the premium each year was paid on same. It may be noted that in the “rider,” it is recited “whereas the employer has been carrying a fidelity bond or bonds as follows: Bond No. 1531757, Howard Simpson, cashier, Bank of Summerfield, amount $10,000, dated 22 July, 1920, and whereas said bond or bonds have been *758 canceled, allowed to expire or have terminated,” etc. This language indicates tbat each renewal was an independent contract. The Surety Company seems to have put this construction on the transactions. Courts will generally adopt the party’s construction of the contract. S. v. Bank, 193 N. C., 524 (527); Pick v. Hotel Co., 197 N. C., 110 (113). We think the statutes entered into and formed part of the bond. The first $10,000 bond was signed 22 July, 1920, and was for one year. Before the year expired, the statute, supra, was passed, which the Surety Company was bound to take notice of. The General Assembly required of the officer such as a cashier, to give bond in the amount to be required by the directors, this provision at once entered into and formed part of the bond. But, it is contended by defendant that the rider of the contract to the bond of 27 April, 1929, had this in it: “Should a loss occur which is covered partly by a superseded bond and partly by the superseding bond, the amount recoverable from the company shall not exceed that which would have been recoverable under the terms of the superseded bond, plus the amount recoverable under the terms of the superseding bond for the period not covered by the bond superseded, provided always that the liability of the company will not he cumulative or exceed the largest single amount applicable to the employee causing the loss as fixed by either the suj)erseded or the superseding bond.” We do- not think the Surety Company could, by contract, destroy the beneficent provisions of the statutes. In Brick Co. v. Gentry, 191 N. C., 636 (640), it is said: “It was held in Ingold’s case (Ingold v. Hickory, 178 N. C., 614), and rightly so, we think, that where a bond was given in compliance with the requirements of the statute, the surety might not, in such case, restrict its liability to suit contrary to the statutory provision, for this would be to uphold a stipulation directly opposed to the public policy of the State, and thus enable the parties, by private agreement, to set the statute at naught in direct violation of its terms. And here, if it did not clearly appear, from the terms of the bond, that it was not given in view of the requirements of the statute for the protection of the plaintiffs and to insure the faithful performance of the contract as it relates to them, we should be disposed to hold the stipulation, restricting the surety’s liability to suit, void as being contrary to the public policy of the State as expressed in the statute.” Taking all the facts agreed to and the acts of the General Assembly referred to, we think that each and every renewal and the payment of the premium on same constituted a separate, distinct and independent contract. The Surety Company could not, contrary to the statute, make the provision in the rider, it received the premium each year on a *759 $10,000 bond “that tbe liability of tbe company will not be cumulative or exceed tbe largest single amount applicable to tbe employee causing tbe loss as fixed by either tbe superseded or tbe superseding bond.” On tbe other attitudes of tbe case, tbe decisions are woefully in conflict. "We desire to set forth what was said in Ætna Casualty & Surety Co. v. Commercial State Bank of Rantoul, Ill., 13 Fed. (2d Series), 474 (475-6) : “Contracts of insurance guaranteeing honesty and fidelity are made for tbe purpose of furnishing, for an adequate compensation, indemnity to tbe insured, and should therefore be liberally construed to accomplish tbe purpose for which they are made.” Citing numerous authorities. . .. . “Here defendant paid an annual premium for insurance. Under plaintiff’s theory, if there were a loss of $10,000, tbe first year, not discovered until tbe end of tbe three years’ period, then, though defendant bad paid premiums for the second and third years, it would have no protection for those years, no insurance, for the reason that the penalty of the bond would be completely exhausted by the first year’s losses and nothing would remain to cover losses in the second and third years. In such case, the second and third years’ premiums would be paid by defendant for nothing whatever. No sane man would say that this was the intention of defendant, and the court is most loathe to believe that it was the intent of plaintiff, a widely known insurance company, dependent upon the good will and esteem of the public and its customers for its commercial welfare, so to frame its contract of indemnity as to extract premiums from the insured without giving anything in return. Brief indeed would be its life of business prosperity and public esteem, were it known that it would be guilty of such a game of ‘heads I win, tails you lose.’ Rather than impute to it such an abhorrent suggestion of lack of commercial integrity and fair dealing, the court prefers to find as he believes the facts clearly indicate, that each year’s premium was to buy one year’s insurance of $10,000, but that the three years’ premium bought insurance of only $3,333%, per year.” U. S. Fidelity & Guaranty Co. of Baltimore v. Crown Cork & Seal Co. of Baltimore City, 125 Atlantic Reporter, p. 818 (820). The case of Jacksonville v. Bryant, 196 N. C., 721, is easily distinguished from the present case. In that case, there was no ambiguity. The language of the contract was clear and explicit. For the reasons given, the judgment of the court below is Affirmed. Schenck, J., took no part in the consideration or decision of this case.