165 Ky. 63 | Ky. Ct. App. | 1915
Opinion op ti-ie Court by
Reversing.
This is an appeal of the American Bonding Company of Baltimore, Maryland, from a judgment rendered against it in the Ballard Circuit Court, in favor of J. M. Page, assignee of the Ballard County Bank, for the sum of $2,642.59, on account of losses sustained by the bank within the period extending from February 28th,. 1910, to June 3rd, 1911, by the peculations of one W. F. Purdy, Jr., who was the cashier of the bank, and which acts amount to embezzlement or larceny from the' bank. The appellant was the surety of Purdy in a bond executed to the bank covering the honesty of Purdy, and undertaking to make good to the bank losses it should sustain from Purdy’s embezzling or stealing the assets of the bank during said period. The appellant first became surety of Purdy, in a bond to the bank, on the 28th day of Februaiy, 1909, for the period of one year thereafter, and was renewed by certificates of renewal on February 28th, 1910, and again on February 28th, 1911, but on June 3rd, 1911, Purdy fled the country, and ah examination was then had of the affairs of the bank, which developed the fact that during the years which he had been cashier, since the year 1901, lie had sub
The appellant sought to avoid liability upon the bond on account of — First: Alleged false, fraudulent, and untrue statements made by the Ballard County Bank to induce the appellant to sign the original bond and the renewals of same.
Second: On account of alleged warranties, and the breach of certain conditions of the bonds, which appellant alleged were precedent to its liability on the bond and the renewals of it.
Third: That the bank had not properly exercised the necessary supervision over the cashier, as agreed in the application and bond, to prevent the theft of the assets of the bank.
Fourth: That $1,120.00 of■ the judgment recovered was embraced in an amended petition filed in the case more than a year after the 3rd day of June, 1911, and of which no itemized statement had been made and presented to the appellant, and demand made for its payment within six months after the liability upon the bond and the renewals had ceased.
When application was made by Purdy to appellant to become surety upon his bond to appellee, the appellant forwarded to appellee a printed form, containing questions to be answered by appellee, touching its knowledge of the habits, life, and character of Purdy, and the state of his accounts with the appellee. The record shows that such information was sought by appellant of several other persons, and among them a former employer of Purdy, and the information elicited from all these sources was very favorable to Purdy.
Among the questions propounded to appellee, and the answers thereto, were the following:
“Q. Has the applicant uniformly given satisfaction in his personal conduct and habits? A. Yes. Q. Have you any knowledge, or any information of, or are you aware of any habit of the applicant, or of any circumstances unfavorably affecting the risk to the surety on the bond applied for? If so, state particulars? A. No, Q. Is the applicant now, or has he been from any cause indebted to the bank or its officers? If so, give particulars, stating amount, how incurred, and how payment is secured? A. No. Q. Will the applicant have ac
“It is agreed that the above answérs shall be Avarranties and form a part'of, and be conditions' precedent to the issuance, continuance, or any .renewal of, or substitution for, the bond that may be issued by the American Bonding Company of Baltimore, in favor of the undersigned, upon the person above named.”
This paper was dated as' of the 19th day of February, 1909, and is signed by W. B. Nichols, president of the bank. On the 10th day of March, 1909, the bond was executed, but by its terms ¿was to insure the appellee, against the dishonesty of-its" cashier, for the term commencing on February 28th,* 1909, and ending on the 28th day of February, 1910. . At the expiration of that period, the appellant gave appellee notice of that fact, and requested it to fill and, sign the following certificate:
“To American Bonding Company of Baltimore:
“This is to certify, that since the issue of the above bond, Mr. W. F. Purdy, Jr., hereinafter called employee, has faithfully, honestly, and punctually accounted for all money and property in said employee’s control or custody as my or our employee, has always had proper funds and securities on hand and is not now in default as such employee.”
This was subscribed by appellee, by E. O. Sexton, President. Upon receipt of this certificate, the appellant issued and delivered to appellee a certificate of reneAval of the bond, for the period of one year, thereafter. At the expiration of the last named period, upon receipt from appellee of another certificate, similar to the one above quoted, the appellant again issued and delivered to appellee a certificate of renewal of the bond, for the period from February 28th, 1911, until February 28th, 1912.
“This bond is made, issued, and accepted upon the following conditions:
“First: That all statements made or which may at any time be made by the employer, or by any of his or its officers, in connection with this bond or any renewal hereof, are warranted by the employer to be true, that the employee has not been in arrears or in default in any position in the employer’s service; that he has not, to the knowledge of the employer, or any of his or its officers, been in arrears or in default in any other position; * * * that the employer shall observe, or cause to be observed, all due and customary supervision over said employee for the prevention of default; that there shall be careful inspection of the accounts and books of said employee at least once in every twelve months, from the date of this bond, etc.”
The appellant insists that the appellee procured it to .execute the bond, and the renewals thereof, by false, fraudulent, and untrue statements, which were material to its proposed risk, in representations made by it, to the effect that its cashier was not then nor had theretofore been indebted to it, nor to its officers; that he had always faithfully, honestly, and punctually accounted for all moneys and property theretofore under his control or custody; and that his accounts at that date were correct, and proper securities, property, and funds on hand to balance his accounts; and that under the contract, by which appellant had made, these representations were warranted to be true by appellee, and for that reason were conditions precedent to its right of recovery upon the bond.
There is no doubt about the representations being false. The proof shows, without dispute, that when appellee signed and delivered to appellant the paper containing the representations, on the 19th day of February, 1909, Purdy was then a defaulter to the bank in a large sum. It is as undisputed, however, that the fact of his defalcation was, at that time, unknown to the bank or its officers. His habits, so far as known to any one, were good and moral. His home life was conducive to happiness. He apparently gave his time and attention, industriously, to the business of the. bank.
The statement relied upon to defeat recovery upon the bond were statements made in an application for fidelity insurance, and the construction to be placed upon them is governed by a statute, in this State. The statute referred to is Section 639, Ky. Statutes, 1915, as follows :
“All statements or descriptions in any application for a policy of insurance shall be deemed and held representations and not warranties; nor shall any representation, unless material or fraudulent, prevent a recovery on the policy.”
In Germania Insurance Co. v. Rudwig, 80 Ky., 233, this court held, that when parties enter into a contract of insurance, in this State, since the adoption of this statute, they must be held as contracting with reference to the statutory provision, and subject to a like rule recognized by the court. It must now be held, that such parties contract with reference to the construction of this statute, which has been placed^ upon it by the adjudications of this court. The statute very plainly says that the statements made in an application for insurance are not warranties, and are not to be construed as such. The provisions of this statute should, however, be applied to each contract according to the purpose of the contract.
This court held' in the case of Germania Insurance Co. v. Rudwig, supra, that a representation, although false, would not render void an insurance policy granted upon it, unless the representation was material. Construing the above statute, as it applies, to a bond executed, insuring the fidelity of. an employee, and with reference to the fact, that a misrepresentation made by the employer to obtain the insurance similar to the facts of this case, in the case of the Fidelity & Guaranty Co. v. Western Bank, 29 R., 639, this court said:
“They should be applied to each contract, however, according, to the purpose of the particular engagement.
Upon the authority of the above cases, it seems that a bond executed to insure an employer against the dishonesty of his employee, cannot be avoided on account of a misrepresentation made by the employer in the application for the insurance, if the employer does not make a misrepresentation, in regard to a fact which is within his knowledge or which ought to be within his knowledge, if he had exercised ordinary care to learn the truth about the matter. If he knowingly makes a false answer in regard to a matter material to the risk, or if he should make a false answer by reason of his negligence in not having used due diligence and precaution to learn the truth of the matter, it would be fatal to a recovery upon the bond. The statute, 639, supra, with its construction by this court must be considered to
A well-known rule of construction applying to every case where a party takes an agreement prepared by another, and upon its faith incurs obligations or parts with his property, should have a construction given to the instrument favorable to him, and in accordance with the rule laid down by May upon Insurance, which says :
“No rule in the interpretation of a policy is more fully established, or more imperative, or controlling than that which declares in all cases it must be liberally construed in favor of the insured, so as not to defeat, without a plain necessity, his claim to indemnity, which in making the insurance, it was his object to secure.”
This court, in Fidelity & Casualty Co. of New York v. Hunt, 142 Ky., 25, said:
“The expression ‘must be liberally construed in favor of the insured,’ allows, and in fact necessitates, that the weaker reason be supplemented by a liberal allowance so as to, if it will, outweigh the better and more technical course. # # * The reason for the rule is that the insurer, with deliberation and care, has set down in its own language the conditions of its contract; if it is not unreasonably susceptible of a construction against the insurer, then it is likely that the assured understood it that tvn.y.”
The president and directors of the appellee bank at the time of the execution of the bond, were all farmers, and the appellant could not expect them, as the representatives of a village bank in the country, to be generally experienced in bookkeeping, or in the best methods of examining books, to any very great extent. They, of course, should be held to that degree of care that ordinarily prudent directors and officers of a bank similarly situated would exercise under like or similar circumstances. U. S. Fidelity & Guaranty Co. v. Citizens National Bank of Monticello, supra. The evidence shows that Purdy was so skillful in manipulating the books of the bank, and so cunning in devising ways and means to conceal his peculations, that they were concealed from and not discovered by an expert bank examiner, who examined the bank on several occasions, and from the State’s official bank examiner, who examined it upon two occasions, and both of whom reported that everything in the bank was in perfect order, and that the bank’s
Under the terms of the bond, the appellant’s liability ceased upon it on the 3rd day of June, 1911, and the appellee undertook to make an itemized statement of its claim, duly swear to the same, and present it to the appellant within six months after such termination, and the bond further provided that the employer should have six months, after the termination of liability upon the original bond and upon each one of its renewals, within which to make a claim for, and file itemized proof of any losses occurring during the term of its operation. The court below refused to 'render judgment in favor of appellee for the loss it sustained by reason of the peculations of Purdy during the life of the original bond, which was the period from the 28th day of February, 1909, until the 28th day of February, 1910. No appeal was taken from the judgment of the court by the appellee, and it is unnecessary to discuss the correctness of that ruling. The court, however, gave a judgment in favor of appellee against appellant for the losses sustained by it from the 28th day of February, 1910, until the 3rd day of June, 1911, and which were discovered within six months after February 28th, 1910, and June 3, 1911, respectively, and demand made for same, and in this there seems to be no error.
The complaint made by appellant that the appellee did not exercise the usual and customary supervision over the conduct of Purdy, for the prevention of default upon his part, is not meritorious, as all was done in that regard by the appellee that was promised in the application or required in the bond.
It seems that on the 15th day of January, 1914, the appellee offered an amended petition in the case, and sought to recover of appellant various sums in money, amounting in all to $1,120.34, which had been discovered, as having been stolen from the bank by Purdy during the year 1911, but was not discovered until more than six months after the termination of appellant’s liability upon the bond and its renewals. The filing of this pleading was objected to by the appellant, but its objection was overruled by the court, and judgment rendered against appellant for the amounts sought in it.
It is, therefore, adjudged that the judgment appealed from be reversed, and the cause remanded with directions to proceed in conformity with this opinion.
