Union Central Life Ins. v. United States Fidelity & Guaranty Co.

58 A. 437 | Md. | 1904

This suit was brought by the Union Central Life Insurance Company, a body corporate, against the United States Fidelity Guaranty Company, also a body corporate. The appellant company, which was the plaintiff in the Court below, sued the appellee company upon a bond executed by the latter and by which the Fidelity Company guaranteed the honesty of an employee of the Life Insurance Company. The bond upon which the suit was brought is in the usual form of a fidelity bond. The following is among the provisions which it contains: "Provided further, that this bond is issued on the express understanding that the employee has not within the knowledge of the employer at any former period been a defaulter and will be invalid unless signed by theemployee." Further it is provided "that it is essential to thevalidity of this bond that the employee's signature be hereuntosubscribed and witnessed." There is a clause in the bond by which the employee covenants and agrees with the Bonding Company that he will save and keep harmless that company from and against all loss and damage which the Bonding Company shall or may at any time sustain by reason of having entered into the indemnity bond. At the foot of the bond there is a place indicated for the signature of the employee opposite a seal intended as the employee's seal. The bond sued on was delivered by the Bonding Company to the Life Insurance Company, but it never was signed by the latter's employee whose fidelity it guaranteed. The premium was paid for the first year. Before the expiration of the first year the bond was renewed upon the payment of an additional premium, and a renewal receipt was given wherein it was stated that the Fidelity and Guaranty Company continued in force the same bond for the period beginning on the 15th of June, 1901, and ending on the 15th of June, 1902, "subject to all the covenants and conditions of said original bond heretofore issued on the 15th day of June, 1900." Subsequently, that is to say, on the 10th of April, 1902, the bond was again renewed and a second renewal certificate of the same tenor and effect as the first was again issued, continuing the bond in force until the 15th of June, 1903. Thereafter, the appellant discovered that the employee whose fidelity the bond guaranteed had become a defaulter and an embezzler, and thereupon it demanded indemnity from the Fidelity Guaranty Company. The latter disputed its liability, and suit was brought to recover on the bond. The declaration set out the bond and the two renewal receipts, and averred the defalcation. To this declaration, the appellee, the defendant below, demurred; the Court sustained the demurrer and gave judgment for the defendant, and thereupon this appeal was taken.

The sole question in the case is whether the failure of the appellant's employee, whose fidelity was guaranteed, to sign the bond of indemnity, prevented the bond from becoming operative and effective. Contracts of this character, like policies of fire insurance to which they are closely analogous though with which they are not strictly identical, must receive a reasonable construction so as to give effect to the intention of the parties thereto, and so as to carry out rather than defeat the purposes for which they were executed. They should neither, on the one hand, be so narrowly or technically interpreted as to frustrate their obvious design; nor, on the other hand, so loosely or inartificially as to relieve the obligor from a liability fairly within the scope or spirit of their terms. Credit Indem. Co. v.Cassard, 83 Md. 276. If a recovery be permitted in this action it must be had in spite of the definite provision that the bond should not be binding unless signed by the employee whose fidelity it was intended to guarantee. The provisions which have been quoted above are declared in the bond itself to be "conditions precedent to the right on the part of the employer to recover under this bond." The liability of an indemnitor is measured by the contract into which he enters, and it is never enlarged by mere con-construction to include a term specifically excluded. Inasmuch as an indemnitor's liability is one dependent wholly upon contract it would be anomalous to hold that he is answerable under conditions directly contrary to the express stipulations of his undertaking. When he covenants to be bound provided certain antecedent conditions are complied with by the party indemnified, in the very nature of things, if those conditions are not fulfilled his liability never becomes fixed. This is so elementary that we do not pause to cite authority in support of it. Giving to the bond of indemnity the most liberal construction contended for, treating it in point of fact as closely akin to a technical policy of insurance, we cannot understand how the indemnitor can be held accountable upon it in the teeth of the explicit covenants that it should not be answerable unless designated provisions distinctly declared to be conditions precedent to the validity of the bond have been first complied with, when they have not been observed at all. It is true that an indemnitor may waive conditions inserted for its protection, but there is no averment in the declaration of any such waiver. The renewal receipts are explicitly declared to be subject to all the covenants and conditions contained in the original bond; and if the bond itself was inoperative by reason of the failure of the indemnified to have its employee sign it, the renewal receipts could not give it validity. The renewal receipts in terms reasserted the provisions of the bond, and do not purport to continue the bond in force without reference to the conditions upon the observance of which its validity in the first instance depended.

There is nothing in the case of the American Bonding TrustCompany v. Mil. Har. Co., 91 Md. 733, in conflict with these views. The bond sued on in the case just named is somewhat similar to the one now before us, but there the analogy between that case and this one ends. In that case the employee signed the bond and the point before the Court was whether there was error in suing the surety company without joining the employee; and it was held that the failure to join the employee did not defeat the right of action against the surety company, because the bond sued on was not a joint obligation, the employee having evidently united in it merely to give his consent to its terms and to indemnify the Bonding Company. The bond not being a joint obligation, it was unnecessary to join the employee as a co-defendant. But that ruling is quite distinct from the proposition that underlies the pending controversy. A case very closely analogous to the one at bar is Blackmore v. Guaranty Co. of N.A., 71 Fed. Rep. 363.

The Life Insurance Company, the indemnified, cannot complain that there is any hardship inflicted upon it by holding the bond to be invalid by reason of the failure of its own employee to sign it; because it had possession of the bond and had control of its employee whose fidelity was guaranteed, and the failure to secure that employee's signature was due to its own omission or default alone. The indemnity company had the right to make its undertaking depend, as respects its validity, upon the condition that the indemnified's employee should sign the bond. The condition was not unreasonable or illegal. The performance of it was within the power of the indemnified. The neglect or omission of the latter to comply with that condition precedent cannot be ignored when relied on by the indemnitor; and cannot give efficacy to an instrument which by its unequivocal terms was not to become operative until that specific condition was complied with. Without prolonging this discussion, we think the Court was clearly right in sustaining the demurrer to the plaintiff's declaration and its judgment will be affirmed.

Judgment affirmed with costs above and below.

(Decided June 8th, 1904.)