256 F. 601 | 9th Cir. | 1919
Lead Opinion
The defendant in error applied to the plaintiff in error to become surety, beginning October 15, 1915, for certain of its employes tor the amounts and in the positions set opposite their names, respectively, including one T. F. Hayes.
“Those employes, and. each and every of them, while In the service of the undersigned employer,” the application expressly declared, “have always performed their respective duties in a faithful and satisfactory maimer. There has never come to the notice or knowledge of the employer any act, fact, or. information tending to Indicate that they or any of them are negligent, unreliable, deceitful, dishonest, or unworthy of confidence. As far as the employer knows, the habits of each and all of them are good, and the employer knows no reason why you cannot safe-ly become surety for them and each of them.
“The above and foregoing statement and representations are each, every, and all warranted by the employer to bo true, and are made for the purpose of inducing the National Surety Company to become such surety, and said statements and representations shall apply to each and every employe hereafter added to vlie schedule to be covered by said bond as therein provided.
“Dated at Los? Angeles the 15th day of October, 1915.”
The case was tried before the court without a jury by stipulation of the parties, and resulted in certain findings of fact upon which judgment was entered in favor of the insured.
The evidence shows without conflict (and the same is without conflict with any of the findings) that it was the custom of the milling company to permit its employés to overdraw their accounts, but that when Hayes was sent to Utah that permission was expressly withdrawn, from him. He was first sent there in the early part of January, 1915, by the milling company to buy grain for it, returning to Los Angeles several times between that time and the month of July of the same year, during which month he returned to the company’s Salt Lake office with instructions to there open a set of books, and where the company established a branch office and a hank account about September 15th, with Hayes in charge. From that time to May 31, 1916, there was never any audit made of the company’s books kept by Hayes at Salt Lake. It will be seen, therefore, that notwithstanding the peculations of Hayes were entered by him on the books of the company, and could have been easily discovered by their examination, no examination of them whatever was made by the company, and it did not even know of the overdrawing of his account, contrary to the express order of its president, until May 31, 1916.
Can it be properly held that the company was not bound to know that its books showed upon their face the embezzlement of its funds by one of the employés, the honesty of whom it applied to the plaintiff, in error to insure, upon an application, which expressly warranted the truth of its statement that there had never come to its notice or knowledge any act, fact, or information tending to indicate that he was negligent, unreliable, deceitful, dishonest, or unworthy of confidence, and that it knew no reason why the insurance company could not safely become surety for him? We think not. Beyond question, the defendant in error knew that the permission it had, along with its other employés, theretofore accorded Hayes of overdrawing his account, was expressly withdrawn from him when he was sent to Utah, and beyond question the company’s own books kept by him at its Salt Lake office showed upon their face his embezzlement of the funds of the company at the very time it applied to the plaintiff in error for the insurance in question. Under such circumstances, we are of the opinion that the applicant cannot be heard to say that it did not know what its own books showed, especially in view of the fact that there must have been some reason for the express withdrawal by the defendant in error, when it sent Hayes to Utah, of the privilege of overdrawing his account, which it had theretofore accorded him along with its other employés. We think the case fairly comes within the true doctrine of the case of Guarantee Co. v. Mechanics’, etc., Co., 183 U. S. 402, 22 Sup. Ct. 124, 46 L. Ed. 253, and accordingly—
Concurrence Opinion
(concurring). We arc of the opinion that the judgment should be reversed, and that upon the findings of the court below judgment should be directed to be entered in favor of the plaintiff in error upon the following grounds:
Prior to the date of the application for insurance, Hayes had been in the service of the insured for more than five years, and during the whole of that time he had been permitted to overdraw his account. No restriction was placed upon the amount which, he might overdraw; the permission being to overdraw in a “reasonable amount.” After being in the service of the insured at Woodland, Cal., for several years, he was transferred in January, 1915, to Salt Lake City, where he remained until he was discharged. At the date of the. application, October 15, 1915, his account at Woodland was overdrawn in the sum of $717.-13, in addition to which he owed the insured upon a note $500, which was originally an overdraft, and he was overdrawn on his Salt Lake account in the sum of $432.93. He testified that, when he was discharged on June 1, 1916, his account was overdrawn about $6,600. .His heaviest overdraft at any time at Woodland was $1,154.33 in excess of the $500 note. Blewett, the assistant auditor of the insured, checked up Hayes’ account before he went to Salt Lake and he testified: “I knew then that he was overdrawn too much.” The president of the insured stated to the general auditor of the surety company that “Hayes being short $1,000 or so in Woodland was entirely different from his being short $7,000 or $8,000 in Salt Lake City.” If there was a difference, it was but a difference in degree. Hayes, having been permitted habitually to overdraw his account prior to going to Salt Lake, thereafter continued to indulge his habit and largely increased his overdraft. No examination of his account was made while he was at Salt Lake.
The parties to the contract were not on a plane of equal opportunity for information, and the fact that Hayes’ account was overdrawn, and that he was in the habit of overdrawing the same at and before the time when the contract was entered into, was one that should not have been withheld from the surety company. It is not conceivable that the surety, if advised of that habit, would have entered into the contract. In Frost on Guaranty Insurance, § 74, it is said:
. “The chronic defaulter, for the purpose of becoming a ‘risk’ under a, fidelity insurance policy, is persona non grata to the insurer. The surety companies, as a matter of prudence and business policy, invariably decline a ‘risk’ who has been seriously in arrears in any previous employment. The reasonableness of this position has never been questioned, either by the courts or the public, so far as we are aware.”
Where the insured states in its application that nothing is known concerning the employe’s habits affecting his title to confidence, when the fact was the employe was engaged in hazardous speculation with the knowledge of the insured, there can be no' recovery upon the bond. United States Fidelity & Guaranty Co. v. Blackly Hurst & Co., 117 Ky.
“There is no principle of law better settled than tbat persons proposing to become sureties to a corporation for the good conduct and fidelity of an officer to whose custody its moneys, notes, bills, and other valuables are intrusted, have the right, to be treated with perfect good faith. If the directors are aware of secret facts materially affecting and increasing the obligation of the sureties, the latter are entitled to have these facts disclosed to them.” Morse on Banking, p. 226.
Not only was there failure to disclose to the surety company the habitual overdraft of Hayes, but the application for the fidelity bond contained statements, warranted to be true, one of which was: That there had never come to the notice or knowledge of the employer any act, fact, or information tending to indicate that the employé was unworthy of confidence, and that his employer knew “no reason why you cannot safely become surety for him.” We think that there was a clear breach of the warranty of want of knowledge of facts tending to indicate that Hayes was worthy of confidence, and of the warranty that his habits were good, and that his employer knew of no reason why the bonding company should not become surety for him.