American Bonding Co. v. Spokane Building & Loan Soc.

HAWEEY, District Judge, after making the foregoing statement, delivered the opinion of the court. The answer to the first question propounded by plaintiff in error depends upon whether or not the alleged knowledge of the president, under all the facts and circumstances of this case, can be imputed to the corporation defendant. The principles of law applicable to this question depend upon the particular facts of the given case, the character of the business of the corporation, the methods by which its business is conducted, the duties of its officers, etc. In the present case the [740] defaulting secretary is shown by the record to be the chief managing officer of the corporation. He collected the dues, had charge of the money, and was authorized to pay it out on account of the society by checks signed by the president and treasurer. The board of trustees was the controlling and governing body of the corporation. Among the questions asked and answers given in the employer’s statement is the following: “Q. 8. (a) Will he [Bogardus] be authorized to pay out of the cash in his custody any amount on your account? A. (a) Yes, by check of president and treasurer, (b) In what manner is such authority given? (b) By the trustees. * * * Q. 10. (a) How often and to whom will he remit or pay over the money received? A. (a) When ordered by the trustees.” The statutes of the state of Washington relative to private corporations prescribe that all corporate control and management shall be vested in and be exercised by a board of trustees. 1 Ballinger’s Ann. Codes & St. Wash. § 4255. In the light of these undisputed facts, we are of opinion that the knowledge of a single officer or trustee or the president cannot be imputed to the corporation, unless it is affirmatively shown that his knowledge was brought home to the board of trustees. The principles of law applicable to the facts of this case upon the point under discussion are so fully stated in Fidelity & Deposit Co. v. Courtney, 186 U. S. 343, 360, 33 Sup. Ct. 833, 46 L. Ed. 1193, that we quote at length therefrom: “It Is well settled that, in the absence of express agreement, the surety on a bond given to a corporation, conditioned for the faithful performance by an employé of his duties, is not relieved from liability for a loss within the condition of the bond by reason of the laches or neglect of the board of directors, not amounting to fraud or bad faith, and that the acts of ordinary agents or employés of the indemnified corporation, conniving at or co-operating with the wrongful act of the bonded employé, will not be imputed to the corporation. United States v. Kirkpatrick (1824) 9 Wheat. 720, 736 [6 L. Ed. 199]; Minor v. Mechanics’ Bank (1828) 1 Pet. 46 [7 L. Ed. 47]; Taylor v. Bank of Kentucky (1829) 2 J. J. Marsh. (Ky.) 564; Amherst Bank v. Root (1841) 2 Metc. (Mass.) 522; Louisiana State Bank v. Ledoux (1848) 3 La. Ann. 674; Pittsburg, Fort Wayne & Chicago Ry. Co. v. Shaeffer (1868) 59 Pa. 350, 356; Atlas Bank v. Brownell (1869) 9 R. I. 168 [11 Am. Rep. 231]. The doctrine of these cases is thus epitomized in 59 Pa. 357: “ ‘Corporations can act only by officers and agents. They do not guaranty to the sureties of one officer the fidelity of the others. The rules and regulations which they may establish in regard to periodical returns and payments are for their own security, and not for the benefit of the sureties. The sureties, by executing the bond, became responsible for the fidelity of their principal. It is no collateral engagement into which they enter, dependent on some contingency or condition different from the engagement of their principal. They become joint obligors with him in the same bond, and with the same condition underwritten. The fact that there were other unfaithful officers and agents of the corporation, who’ knew and connived at his infidelity, ought not in reason, and does not in law or equity, relieve them from their responsibility for him. They undertake that he shall be honest, though all around him are rogues. Were the rule different, by a conspiracy between the officers of a bank or other moneyed institution, all their sureties might be discharged. It is impossible that a doctrine leading to such consequences can be sound. In a suit by a bank against a surety on the cashier’s bond, a plea that the cashier’s defalcation was known to and connived at by the officers of the bank was held to be no defense. Taylor v. Bank of Kentucky, 2 J. J. Marsh. 564.’ [741] “So, also, in 3 La. Ann. 674, the court, after suggesting the distinction between the knowledge of the governing body of a bank, the board of directors, of the default of a bonded employé, and the knowledge of such default by another officer or employé, not communicated to the board, thus tersely stated the applicable doctrine (page 684): ‘It cannot be said that if one servant of a bank neglects his duty, and by his carelessness permits another servant of the bank to commit a fraud, the surety of the fraudulent servant shall be thereby discharged.’ “And see American Surety Co. v. Pauly, 170 U. S. 156, 157 [18 Sup. Ct. 563, 42 L. Ed. 987], and cases cited. In other words, the principle of law discussed in the case of The Distilled Spirits, 11 Wall. 356 [20 L. Ed. 167], viz., that the knowledge of an agent is in law the knowledge of his principal, is intended for the protection of the other party (actually or constructively) to a transaction for and on account of the principal had with such agent. In the very nature of things, such a principle does not obtain in favor of a surety who has bonded one officer of a corporation, so as to relieve him from the obligations of his bond, by imputing to the corporation knowledge acquired by another employé, subsequent to the execution of the bond (and from negligence or wrongful motives, not disclosed to the corporation), of a wrong committed by the official whose faithful performance of duty was guarantied by the bond. As the rule of imputation to the principal of the knowledge of an agent does not apply to such a case, it must follow that it can only obtain as a consequence of an express provision of the contract of suretyship.” 2. Was it a defense to the action on the bond to prove that Bogardus was short in his accounts, did 'not have proper funds, securities, and values on hand to balance, had been in arrears to the society, and was in debt to the society at the time the employer’s statement was signed ? The answer to this question depends upon the interpretation to be giyen to certain provisions in the bond, and to certain answers given in the employer’s statement; the contention of the plaintiff in error being that the defendant thereby warranted that Bogardus had never been short in his accounts to the defendant; that he was not at that time in debt to the defendant; that he had proper funds, securities, and values on hand to balance his accounts. By referring to the statement of facts, it will be seen that the language of the employer’s statement is, “Is there now, to your knowledge, any shortage due you by the applicant?” and that the language of the provisions of the bond is that the employé “has not, to the knowledge of the employer, his or its officers, been in arrears or a defaulter.” In the light of the language contained in the statement of the employer, and in the condition of the bond, we are of opinion that instructions 2 and 3 as given by the court were correct, and that the fourth instruction was properly refused because of the error therein stated that “the plaintiff warranted the truth of the statement that Romaine L. Bogardus had never been short to the society.” The instructions of the court in this case were in accord with the principles announced by the Court of Appeals in Supreme Council Catholic K. of A. v. Fidelity & Casualty Co., 63 Fed. 48, 59, 11 C. C. A. 96. The court in that case said: “Tbe defendant company offered to show that O’Brien was short on the 25th of April, 1891, about $40,000. It also offered to show that O’Brien was short in the funds of the order $61,000 at the time of the application for this bond. Upon objection the evidence was excluded. If this condition of O’Brien’s affairs was unknown to the plaintiff order at the time this bond was applied for and accepted, such evidence would have been wholly immaterial. The only representation made by Mr. Coleman, and referred to in the contract as being the basis of contract, was in answer to question 13 of the statement de [742] livered to the defendant company. That question was this: ‘When were the accounts last examined, and were they in every respect correct?’ To this question Mr. Coleman answered: ‘May, 1891, and reported correct by examiners— three supreme trustees.’ This evidence tended in no way to show that Mr. Coleman’s answer was untrue. His representation was that three examiners had examined O’Brien’s accounts, and reported his accounts correct. Now, if such an examination was made, and such a report was made to the council of the order, Mr. Coleman’s representation was in no respect untrue. The particular offer covered by this exception embraces no offer to show that Mr. Coleman, or any other officer of the order, at the time this bond was applied for, knew that Mr. O’Brien was a defaulter.” But if it could be considered that the employer’s statement and the provisions of the bond were fairly susceptible of two constructions, one favorable to the defendant in error and the other favorable to the plaintiff in error, the instructions of the court would still be correct, for, as is stated in American Surety Co. v. Pauly, 170 U. S. 133, 144, 18 Sup. Ct. 552, 42 L. Ed. 977: “The former, if consistent with the objects for which the bond was given, must be adopted, and this for the reason that the instrument which the court is invited to interpret was drawn by the attorneys, officers, or agents of the surety company. This is a well-established rule in the law of insurance. National Bank v. Insurance Co., 95 U. S. 673 [24 L. Ed. 563]; Western Ins. Co. v. Cropper, 32 Pa. 351, 355 [75 Am. Dec. 56]; Reynolds v. Commerce Fire Ins. Co., 47 N. Y. 597, 604; Travellers’ Ins. Co. v. McConkey, 127 U. S. 661, 666 [8 Sup. Ct. 1360, 32 L. Ed. 308]; Fowkes v. Manchester, etc., Life Ass’n, 3 Best & S., 917, 925. As said by Lord St. Leonards in Anderson v. Fitzgerald, 4 H. L. Cas. *484, *507: ‘It [a life policy] is, of course, prepared by the company, and if, therefore, there should be any ambiguity in it, must be taken, according to law, most strongly against the person who prepared it.’ ” There is no sound reason why this rule should not be applied in the present case. The object of the bond in suit was to indemnify or insure the defendant in error against loss arising from any act of fraud or dishonesty on the part of Romaine L. Bogardus in connection with his duties as secretary. That object should not be defeated by any narrow interpretation of its provisions, nor by adopting a construction favorable to the plaintiff in error if there be another construction equally admissible under the terms of the instrument executed for the protection of the defendant in error. As was said by the court below in refusing the motion for a new trial: “If bonding corporations are to be sustained by the business interests of this country as being useful and worthy of support, they should be required to meet their obligations in all such cases as we have presented in this record.” The judgment of the Circuit Court is affirmed, with costs.