■^
 
 THE LIBRARY 
 
 OF 
 
 THE UNIVERSITY 
 
 OF CALIFORNIA 
 
 LOS ANGELES 
 
 SCHOOL OF LAW 
 
 FLINT & 
 1232 Row-
 
 A TREATISE 
 
 ON THE LAW OF 
 
 FIDELITY BONDS 
 
 WITH SPECIAL REFERENCE TO 
 
 Corporate Fidelity Bonds 
 
 -BY- 
 
 M. BARRATT WALKER, LL.B. 
 Of the Baltimore Bar 
 
 King Brothers 
 Law Publishers 
 Baltimore, Md. 
 
 i9oa
 
 
 
 Copyright, 1909, 
 
 by 
 
 M. BAKKATT WALKER. 
 
 ^ 
 ^ 
 
 ^ 
 
 ^
 
 PREFACE. 
 
 It is perhaps imnecessarj to say that this work is not in- 
 tended to be a comprehensive treatise on the general law of 
 guaranty insurance. It undertakes to group, in readily work- 
 able form, all the cases relating to corporate fidelity bonds, 
 and to give the decisions in the most concise manner possible. 
 Most of the text is in the words of the law, as pronounced by 
 its authoritative tribunals, and very little in dedtictions or 
 opinions by the author. It is confidently believed that herein 
 will be found, without further search or reference to any 
 other work, all the necessary authorities to determine the 
 question of liability, prepare the brief, or try nine out of 
 every ten fidelity bond cases. If it shall accomplish this re- 
 sult, there is reason for its existence. Much of the material 
 used was originally prepared in the actual investigation and 
 briefing of fidelity bond cases; all was written ''on the tiring 
 line" so to speak, of business activity, and with the experi- 
 ence thereby gained. 
 
 The work is submitted to the profession in the belief that 
 it will be welcome in these modem days of law specialization, 
 as an authoritative guide in this branch of the law, and that 
 it will prove at least a small credit upon that debt which, ac- 
 cording to Lord Bacon every man owes to his profession. 
 
 M. Barratt Walker, 
 
 Baltimore, Md., 
 January 1, 1909.
 
 TABLE OF CONTENTS* 
 
 CHAPTER I. 
 
 Construction of Corporate Fidelity Bonds. 
 
 SECTION 
 
 1. Business of Corporate Fidelity Suretystiip. 
 
 2. Theories of Construction. 
 
 3. Same — General Rules — Element of Compensation. 
 
 3a. Same — Strict Construction according to terms of contract. 
 
 4. Same — Doctrine as established by Supreme Court. 
 
 5. Same — Leading case. 
 
 6. Same — Further authorities. 
 
 7. Same — Construed as insurance policies. 
 
 8. Same — Authorities. 
 
 9. Treated as Insurance Contracts and hence construed most 
 
 favorably to insured. 
 
 10. Leading case. 
 
 11. Additional authorities. 
 
 12. Limitations on the rule. 
 
 13. Where contract prepared by insured — American Bankers' Asso- 
 
 ciation Form. 
 
 14. Same — Discussion. 
 
 15. Third theory of Construction — As Indemnifying Contracts. 
 
 16. Same — Illustration. 
 
 17. Same — Further illustration. 
 
 18. Same — Further illustrations continued. 
 
 19. Same — Recent important illustration of construction as indem- 
 
 nifying contract regardless of terms. 
 
 20. Same — Opposite holding hi more recent case. 
 
 21. Summary. 
 
 22. Construction of .Judicial Bonds. 
 
 23. Construction of contract and other similar bonds by compen- 
 
 sated corporate surety.
 
 VI TABLE OF CONTENTS. 
 
 CIIAPTKi: II. 
 Kkpuesentations and Wakkanties. 
 
 SEcrrioN 
 24. Till' subject of iiun-h eonlli<t iiiid (lilliculty. 
 
 DFFlNrnONS. 
 
 '2r>. Anioiild's doliiiitlou. 
 
 20. May's (Iffniitioii. 
 
 27. Kerr's doflnition. 
 
 28. Elliott's dellnition. 
 
 2!>. I^eductlons from the authorities. 
 .•?(•. Kills' definition, 
 .'il. LeadniLT ca-se. 
 
 32. Burden of proof of Representation or Warranty in corporate 
 fidelity contract. 
 
 BULES OF CONSTBUCTION. 
 
 3o False representation. 
 
 34. Employer's statement regarding condition of employee's ac- 
 
 counts. 
 3r». Illustration. 
 
 30. Further reference to statements as to examination of accounts. 
 37. False warranty. 
 
 35. Leading case. 
 
 30. r.reach of promissory warrant. 
 
 40. The law averse to forfeitures. 
 
 41. Doubtful statements construed as representations. 
 
 42. The Court views the entire contract. 
 
 43. False statements by risk not binding on insured unless ratified. 
 
 EXAMPLES OF REPRESENTATIONS AND WARRANTIES. 
 
 44. Digest of authorities. 
 4.5. Same. 
 
 40. Same. 
 47. Same. 
 4.S. Same.
 
 TABLE OF CONTENTS. Vll 
 
 SECTION 
 
 49. Same. 
 
 50. Same. 
 
 51. Same. 
 
 52. Same. 
 
 53. . Authority of oflicer of corporation in making application for 
 
 fidelity bond of employee thereof. 
 
 54. Further reference to same subject. 
 
 55. Representations and warranties in insurance policies. 
 5t). Statements by public officers. 
 
 CHAPTER III. 
 
 Featjd in Procuring Bond. 
 
 57. Effect on liability of surety of non-disclosure upon proper in- 
 quiry or opportunity or fraudulent concealment or misrep- 
 resentation of material faots by obligee at the time of or 
 previous to the execution of the bond. 
 
 5S. Fraudulent or negligent acts of obligee. 
 
 59. Leading cases on fraudulent representation. 
 
 60. Further references. 
 
 61. Leading cases on negligenre by obligee. 
 
 62. Digest of authorities. 
 
 63. Same. 
 
 64. Same. 
 
 65. Same. 
 
 66. Rule inapplicable to Govonimpnt or other sovereign body. 
 
 67. Further references. 
 6S. Private corporations. 
 
 CHAPTER IV. 
 
 Laches or Indulgence by Obligee. 
 
 6n. Effect of, after execution of bond. 
 
 70. Effect of the failure of the obligee to notify the surety of the 
 delinquency of tlir prin<i])al — Digest of antlinrifies.
 
 VIII lAKI.K OK CONTENTS. 
 
 b ten ON 
 71. SniiK'. 
 
 T'J. KiiU' of uiKid r.-iilli I mil iiiiiuiis. 
 T."{. liliibllity of llic smcl.v Inr (IflMiills i>l' llic |»riii<i])iil (•(Muiiiittf.-il 
 
 after knowlt'd;;^ h\ Hit- ol)li;,'t'(' of juior dofjiiilt not ciiiii 
 
 uiunicalod to tlic i.urct.v. 
 
 74. Digest of aiilliDiil ifs. 
 7r>. Same. 
 
 7(». lOn'ect of (lenliii^'s witli oi iiiiliil;r<'iiie to tlie principal by the 
 obligee without the know li-du'e and consent of the surety — 
 Digest of authorities. 
 
 77. Same. 
 
 I.ACIIKS on NKGLIGKNCK OF THE OBLIQEE GENERALLY. 
 
 75. (a) I'nited States Government. 
 
 71». Digest of authorities, illustrative of rule. 
 
 80. Same. 
 
 81. (6) State, municipal and other public corporations. 
 
 82. Digest of .•luthorities. 
 SO. Same. 
 
 84. Same. 
 
 85. Same — Against the rule. 
 
 86. (c) Private corporations. 
 
 87. Leading case. 
 
 88. Same — Discussion. 
 
 89. Leading case supported by following authorities. 
 
 90. Same. 
 
 91. Authorities against rule as adopted in ShaefiEer Case. 
 
 CHAPTER V. 
 
 FR.iin) oi! DisnoxESiY — Larceny or Embezzlement. 
 
 92. Meaning of terms. 
 
 93. Illustration. 
 
 94 Strict proof as in criminal case not necessary in civil action. 
 
 95 Digest of authorities. 
 9(1. Same.
 
 TABLE OF COI^TENTS. IX 
 
 SECTION 
 97. Same. 
 
 9S. Crimes by National Bank ollicer.s. 
 
 99. Terms coustrued substantially as wrongful misapplication of 
 funds. 
 
 CHAPTER VI. 
 
 Extent of Corporate Surety's Liability on Successive Fidelity 
 
 Bonds Where Defaults Occurred During More Than 
 
 One Term and Exceed Penalty of Original Bond. 
 
 100 Liability of surety limited to penalty of original bond. 
 
 101. Leading case. 
 
 101a. Further authorities in support of rule as here stated. 
 
 102. Conflict — Surety liable on more than one bond. 
 
 103. Same. 
 
 104. Liability where original bond invalid. 
 
 CHAPTER VII. 
 
 Liability of Surety Upon Corporate Fidelity Bond Filed as the 
 Official Bond of a Public Offices. 
 
 105. Surety liable as upon statutory bond. 
 
 106. False inducement will not relieve surety. 
 
 107. Holding that surety only liable in accordance with his contract. 
 
 CHAPTER VIII. 
 Culpable Negligence. 
 
 108. Elastic term in insurance. 
 111. Illustrations.
 
 X TABLE OF CONTENTS. 
 
 niArTKR IX. 
 KFKKcr ON Subkty's LiAHii.nv Id Ills IlKQUiBiNo Without Denial ok 
 
 LlAIULlTY FUUTIIKB ACTION BY OBLIGEE IN PERFECTING PBOOKH 
 
 OK Loss. Making Information kok Akkkst ou the Like; 
 
 OB IN Himself Making Settlement With ou 
 
 Securing Pbosecution of Risk. 
 
 SECTION 
 
 110. Surety must not iiulitate acceptance of liability, take or re- 
 
 i|iilre further action, and then repudiate. 
 
 111. Illu.slratioiis. 
 
 CHAPTER X. 
 
 APPLIC VTION OF S.\LVAGE. 
 
 11?. Applied first to reduction of unsecured loss. 
 
 113. Digest of authorities. 
 
 114. Discussion of manner of application. 
 
 CHAPTER XI. 
 Application of Payments. 
 
 lin. In course of business. 
 lICi. Di.i:est of authorities. 
 117. Same. 
 
 CHAPTER XII. 
 
 Immediate Notice. 
 
 lis. What constitutes immediate notice — Supreme Court rule. 
 
 119. Reasonable notice sufficient. 
 
 120. Dleest of authorities.
 
 TABLE OF CONTENTS. xi 
 
 SECTION 
 
 121. Same. 
 
 122. Same. 
 
 32?.. Notice under accideut policy. 
 
 124. Requirement of notice reasonable and imperative. 
 
 CHAPTER XIII. 
 Peoof of Loss. 
 
 125. Sufficiency of. 
 
 126. Digest of authorities. 
 
 127. Same. 
 
 CHAPTER XIV. 
 
 Change of Employment or Alteration of Contract. 
 
 12S. Effect on liability of surety of uncommuuicated change of em- 
 ployment or alteration of contract between principal and 
 obligee. 
 
 129. Risk performing duties of more than one office. 
 
 130. Effect of change in contract or duties of agent. 
 
 131. Extension of charter of obligee or increase of capital stock. 
 
 132. Change in partnership of risk. 
 
 133. Change of partnership of obligee. 
 
 134. Miscellaneous cases. 
 
 CHAPTER XV. 
 
 Faithful Performance of Duty. 
 
 135. Embraces competency, skill and diligence, as well as integrity. 
 
 136. Miscellaneous cases. 
 
 137. Same.
 
 XI 1 TABLE OF CONTENTS. 
 
 CHAPTER XVI. 
 
 Tebm of Office. 
 
 SECTION 
 
 13S. Attathiiicut and tonniiuitiou of liability. 
 
 i;{!» IHgost of authorities. 
 
 14U. Same. 
 
 141. Same. 
 
 142. Same. 
 
 143. Same. 
 
 144. Same. 
 
 145. Bonds of public officers. 
 14G. Same. 
 
 CHAPTER XVII. 
 Successive Bonds. 
 
 147. Digest of authorities. 
 1-lS. Official bonds. 
 149. Same. 
 
 CHAPTER XYIII. 
 
 Signature of Principal. 
 
 150. Necessary where so stipulated in the contract. 
 
 151. Leading case. 
 
 152. Leading case, continued. 
 
 153. Recent decisions. 
 
 154. Reference to fidelity bonds generally — Cases in conflict. 
 
 155. Rules as established in several States. 
 
 156. Miscellaneous illustrations.
 
 TABLE OF CONTENTS. Xlll 
 
 SECTION 
 
 157. Digest of authorities relative to bouds otlier tliau fidelity — 
 
 Surety liable. 
 15S. Same — Surety not liable. 
 15i). Miscellaneous observations. 
 
 CHAPTER XIX. 
 
 What Constitutes "Knowledge" of Default. 
 
 160. Obligee required to act on actual knowledge, not mere sus- 
 picion. 
 
 103. Digest of authorities. 
 
 161a. Knowledge of unfavorable facts not connected with employ- 
 ment. 
 
 CHAPTER XX. 
 
 Knowledge of Officer of Corporation. 
 
 102. Corporation ordinarily bound by knowledge of managing officers. 
 
 163. Cases holding corporation bound by knowledge of managing 
 
 agent. 
 
 164. Cases holding corporation not bound by knowledge of manag- 
 
 ing agent. 
 
 CHAPTER XXI. 
 Bank Employee. 
 
 165. Digest of authorities. 
 
 166. Same. 
 
 167. Same. 
 
 168. List of cases relative to bank employees.
 
 XIV TAliLK OF CONTENTS. 
 
 CIlArT);K XXII. 
 Bonds of Iinhukanck Agents. 
 
 SECTION 
 
 lt'.!i. Iiiiportaiil case — Discus.siou. 
 
 170. l)i;;i'st of authorities. 
 
 171. Table of cases on bonds of insiuaiKc a}j;ents. 
 
 CHAPTER XXIII. 
 Limitations. 
 
 172. Provisions relative thereto in corporate fidelity bonds 
 
 173. Doctrine of Supreme Court. 
 
 174. Digest of authorities. 
 
 175. Same. 
 17G. Same. 
 
 CHAPTER XXIV. 
 Cashiee as Agent of Bank. 
 
 177 Ordinarily acts and statements binding on bank. 
 
 17S. Cases in which bank not bound by acts of cashier. 
 
 179. Cases holding otherwise. 
 
 150. Pnymontof premiums important element in determining whether 
 
 bank bound by acts of cashier, 
 
 151. List of cases.
 
 TABLE OF CONTENTS. XV 
 
 CHAPTER XXV. 
 Evidence. 
 
 SECTION 
 
 182. Admissions of principal and. records Icept by him usually admis- 
 
 sible and binding on surety. 
 
 183. Digest of authorities. 
 
 184. Burden of proof. 
 
 CHAPTER XXVI. 
 
 Scope of Liability. 
 
 185. Miscellaneous illustrations of cases held to establish liability ou 
 
 fidelity bonds and eases holding otherwise. 
 
 186. Same. 
 
 187. Same. 
 ISS. Same. 
 
 CHAPTER XXVII. 
 Removal of Causes. 
 
 189. From State to Federal Court — Requisites. 
 
 190. Discussion of necessary facts to permit removal. 
 19J. Digest of authorities. 
 
 192 Removal on account of prejudice or local influence. 
 
 193. State statutes prohibiting removal. 
 
 194. Same — Review of authorities. 
 
 195. Same — Same. 
 
 196. Same — Same. 
 
 197. Same — Same. 
 
 198. Discussion of constitutionality of such statutes. 
 
 109. Is cause removable whore Federal question involved? 
 2f^0. Possible solution of question of conflict between States and Fed- 
 eral Government.
 
 THE LAW OF FIDELITY BONDS. 
 
 CHAPTER L 
 
 CONSTRUCTION OF CORPORATE FIDELITY BONDS. 
 
 1. 
 
 Business of Corporate Fidel- 
 
 14. 
 
 
 ity Suretyship. 
 
 15 
 
 >) 
 
 Theories of Construction. 
 
 
 3. 
 
 Same — General Rules — Ele- 
 
 
 
 ment of Compensation. 
 
 10. 
 
 3a 
 
 . KSame — ■ Strict Construction 
 
 17 
 
 
 according to terms of con- 
 
 18. 
 
 
 tract. 
 
 
 4. 
 
 Same — Doctrine as estab- 
 lished by Supreme Court. 
 
 19. 
 
 5. 
 
 Same — Leading case. 
 
 
 G. 
 
 Same — Further authorities. 
 
 
 7. 
 
 Same — Consti-ued as insur- 
 ance policies. 
 
 20 
 
 8. 
 
 Same — Authorities. 
 
 21 
 
 9. 
 
 Treated as Insurance Con- 
 tracts and hence con- 
 
 22 
 
 
 strued most favorably to 
 
 23 
 
 
 insured. 
 
 
 10. 
 
 Leading case. 
 
 
 11. 
 
 Additional authorities. 
 
 
 12. 
 
 Limitations on the rule. 
 
 
 13. 
 
 Where contract prepared by 
 insured — American Banli- 
 ers' Association Form. 
 
 
 Same — Discussion. 
 
 Third theory of Construc- 
 tion — As Indemnifying 
 Contracts. 
 
 Same — Illustration. 
 
 Same — Further illustration. 
 
 Same — Further illustrations 
 continued. 
 
 Same — Recent important il- 
 lustration of construction 
 as indemnifying contract 
 regardless of terms. 
 
 Same — Opposite holding in 
 more recent case. 
 
 Summary. 
 
 .Judicial Bonds, construction 
 of. 
 
 Construction of contract 
 and other similar bonds 
 by compensated corporate 
 surety. 
 
 I. — Business of Corporate Fidelity Suretyship. 
 
 The business of writing' tidt'lity bonds, iiuaranteeing em- 
 ployers aiiainst loss by dishonesty of employees, by corpora- 
 tions, incor])orated and compensated for the purpose, is of 
 recent development.
 
 2 1111, LAW ol' JIDKl.nV IJOMJS. 
 
 Must ol llic decisions jj;i'ovving out (jf litigation on tin* 
 sul))('ct have Itccn rcndcrt'd within the j)ast ten years, and it 
 has not vet Ixcn fully determined what position contracts of 
 this character shall occupy in the law. 
 
 Such contracts are usiudly executed upon printed forms, 
 prepared by the companies, all companies using substantially 
 the same forms, containing the terms of liability, and many 
 conditions and restrictions thereupon, and predicated upon 
 written a])])lications, which are reforrofl to in and made the 
 basis of the contract. 
 
 Since such contracts were tirst iirought before the courts 
 for interpretation there has been almost irreconcilable conflict 
 in the decisions. Substantially three theories of construction 
 have been advanced. 
 
 2. — Theories of Construction. 
 
 Firsl. That while corj)orations engaged in this business 
 cannot claim the ben ( tit of the doctrine that they are "favor- 
 ites of the law," under the rule applicable to individual un- 
 compensated sureties on common law obligations, they are to 
 be treated as sureties, and as such, to have the right to stand 
 upon the precise terms of their obligations deliberately and 
 solenmly made, which cannot be extended by implication be- 
 yond such terms ; that they arc bound only to the extent, and 
 in the manner, and under the circumstances, pointed out in 
 said obligations. 
 
 Second. That the business of issuing corporate fidelity 
 bonds, for compensation, is but a form of insurance, and the 
 contracts so issued, while denominated ''bonds," are aiudogous 
 to insurance policies, and subject to the law applicable thereto. 
 
 Third. That such contracts are in the nature of indemnify- 
 ing bonds, to be liberally construed in favor of effecting the 
 purpose for which given, and with little regard to the provi- 
 sions and conditions contained therein.
 
 COKSTBUCTIOJf or CORPORATE FIDELITY BONDS. 6 
 
 3. — Same — General Rules — Element of Compensation. 
 
 Prof. Childs, in his recent work on Suretyship and Guar- 
 anty (sec. 91), referring to the construction of suretyship 
 obligations, says : 
 
 "The construction should be reasonable, and should not 
 be affected by the fact that the surety receives compensation 
 as an inducement to enter into the contract, or that the 
 making of such contracts is a matter of business. While it 
 is true that a contract of suretyship, entered into by a cor- 
 poration formed for the very purpose, receives a somewhat 
 different construction from that of a private surety, this 
 results from the fact that the corporate surety itself pre- 
 pares the contract "with great care, looking entirely to its 
 own interests, thus bringing in rules of construction which 
 would not enter into a contract signed by a private surety, 
 who frequently signs a contract prepared by the creditor or 
 obligee, and sometimes without even reading it." 
 
 Brandt (Sur. (t Guar. sees. 1, 2 and 5) states the following 
 conclusions : 
 
 "Where the contract as embodied in the original fidelity 
 bond of a corporate surety partakes somewhat of the nature 
 of a contract of suretyship, of one of guaranty aud of one 
 of indemnity, it is more properly classed under the latter 
 term. As it is. more strictly speaking, an agreement to in- 
 demnify the obligee against loss occurring through defaults 
 of the employee. The employee does not join in such bonds 
 for the purpose of binding himself to the employer, but 
 solely for the purpose of obligating himself to the indem- 
 nitor. The great weight of authority holds that such con- 
 tracts are not strict contracts of suretyship ; tlie surety is 
 not a favorite of the law, but such contracts are to be con- 
 strued in the nature of policies of insurance, the compen- 
 sated corporate surety occupying an entirely different posi- 
 tion from that of the former non-compensated individual 
 surety. The contracts are not strictly one of guaranty, be-
 
 i TllK J. AW ()l- !■ lltKl.rrV I50.NJJS. 
 
 cause tlioy require im notice of acfcptance and (]ilTer in 
 every essential." 
 
 In note to 98 Am. State ]{e]). 840, the author says: 
 
 "Where surety companies, acting for a stipulated com- 
 jK'usation, have gone upon the bonds of individuals or pub- 
 lic officers, the Courts have stated with approval the rule 
 of construction relating to ordinary sureties, and have not 
 attempted to distinguish between where entered into gra- 
 tuitously and where for a valuable consideration." 
 
 Generally, all instruments of suretyship are construed 
 strictly as mere matters of legal right. The rule is other- 
 Avise where they are founded on a valuable consideration. 
 Mauran vs. BuUus, 16 Pet. 528. 
 
 The doctrine that a surety is a favorite of the law, and 
 that the contract must be strictly construed as to him, does 
 not apply to cases where the surety received compensation, 
 and the suretyship is in line of his regular business. 
 Walker vs. Holtzclaw, 57 S. C. 459. 
 
 A compensated surety can only insist upon forfeiture 
 clauses where the failure to comply therewith probably in- 
 flicts a loss on the surety. 
 
 HefFerman vs. United States Fidelity <&: Guaranty 
 Co., 37 Wash. 477. 
 
 3a. — Same — Strict Construction According to Terms of Contract. 
 
 Sup]iort of the first theory of construction stated above is 
 found in the many cases referreil to in the following Chapters, 
 and unnecessary to mention here, where the courts have given 
 effect to the exact terms used in the contract under considera- 
 tion.
 
 CONSTRUCTION OF CORPORATE TIDELITY BONDS. O 
 
 Said a distinguished judge: 
 
 "He who would charge a surety for his principal's breach 
 of contractual duty must travel without deviation the way 
 pointed out in the contract, however iron-bound it may be, 
 for there is for the surety, in the enforcement of his bond, 
 no equity nor latitude beyond its strict terms." 
 Swift ifr Co. vs. Jones, 135 Fed. 437. 
 
 It is too well settled to need the citation of authorities to 
 establish the proposition that sureties are ordinarily regard- 
 ed as favorites of the law, and are not bound beyond the 
 strict terms of their contracts. 
 98 Am. St. Eep. 844. 
 25 W. Va. 45. 
 
 It is well settled that parties to a contract have a right to 
 insert any lawful statement and conditions that they may 
 mutually agree upon, and which may be deemed necessary 
 to protect their interests. The Courts may not arbitrarily 
 disregard such conditions when unmistakably and deliber- 
 ately entered into between the parties. 
 
 Dwight vs. Germania Life Ins. Co., 103 N". Y. 341. 
 Wieder vs. Union Surety & Guaranty Co., 86 I^. Y. 
 Supp. 105. 
 
 A surety has the right always to impose any limit he 
 choose to his liability. 
 
 Benjamin vs. Rogers, 126 N. Y. 60. 
 
 It has been held that the condition of an omplovee's fidelity 
 bond must bo strictly complied with by the obligee before the 
 obligor can be charged, and that a declaration that does not 
 aver coni]dian('o with cniKlitiinis prcccdcnl lo recovery is bad 
 on (lemuri'er. 
 
 Cal. Savings Bank vs. American Sni-ety Com- 
 pany, 82 Fed. 866.
 
 6 'IIIK LAW OK I-IDKMIY IJONDS. 
 
 4. — Same — Doctrine as Established by Supreme Court. 
 
 The Siipniiio C\>iirt of the United States says: 
 
 "Contracts of insiiranco arc contracts of indemnity upon 
 the terms and conditions specified in the policy embodying 
 the agreement of the parties. For a comparatively small 
 consideration, the insurer undertakes to guaranty the in- 
 sured against loss or damage, upon the terms and conditions 
 agreed upon, and no other; the insurer, therefore, may 
 justly insist upon the fulfillment of these terms. If the 
 insured cannot bring himself within the conditions of the 
 policy, he is not entitled to recover for the loss. The terms 
 of the policy constitute the measure of the insurer's liabil- 
 ity, and, in order to recover, the assured must show himself 
 within these terms; and if it appears that the contract has 
 been terminated by the violation on the part of the assured 
 of its conditions, then there can be no right to recover. The 
 compliance of the assured with the terms of the contract is 
 a condition precedent to the right of recovery. If the as- 
 sured has violated or failed to perform the conditions of 
 the contract and such a violation or want of performance 
 has not been waived by the insurer, then the assured cannot 
 recover. It is immaterial to consider the reasons for the 
 conditions or provisions on which the contract is made to 
 terminate, or any other provision of the policy which has 
 been accepted or agreed upon. It is enough that the parties 
 have made certain terms conditions on which their con- 
 tract shall continue or terminate. The courts may not 
 make a contract for the parties. Their function and duty 
 consist simply in enforcing and carrying out the one actu- 
 ally made." 
 
 Imperial Fire Ins. Co. vs. Co'os Co.. 151 U. S. 462. 
 
 5. — Same — Leading Case. 
 
 The language of the Supreme Judicial Court of Massachu- 
 setts, in the leading case of Campbell vs. Ins. Co., 98 Mass.
 
 CONSTRUCTION OF CORPORATE FIDELITY BONDS, i 
 
 381, referring to a contract of life insurance, is equally ap- 
 plicable in this connection to corporate iidelity bonds. 
 
 "Whether a form containing so many and so minute 
 questions as this application does is suitable to be used by 
 insurei's of lives, or safely to be adopted by those applying 
 for such insurance, is a question which the parties must 
 determine for themselves before completing their contract. 
 When this has been once completed, the words used must 
 receive their legal interpretation and effect." 
 
 6. — Same — Further Authorities. 
 
 "In attempting to construe a bond so as to arrive at the 
 intention of the parties thereto, the Court should put itself 
 in an attitude to view the contract from the same stand- 
 point from which it was seen when they entered into it. 
 
 J^orth St. Louis Bldg. & Loan Ass'n, vs. Obert, 169 
 Mo 507. 
 
 The bond and the employer's declaration Avhich preceded 
 it must be read together. 
 
 Eice vs. Fidelity & Deposit Co., 103 Fed. 427. 
 Phoenix Ins. Co. vs. Guarantee Co., 115 Fed. 964. 
 
 The same rules are to be applied in ascertaining the 
 meaning of the contract of a surety, which are used in 
 ascertaining the meaning of any other contract, although 
 Avhen the intention of the parties has been arrived at by the 
 use of those rules, the liability of the surety should not be 
 enlarged or extended by implication or construction. 
 
 McCormick Harvesting Machine Co. vs. Laster, 70 
 111. App. 425. 
 
 "There is too iiiucli tcii(lciicv on tlic part dt" judges to con- 
 strue away valid provisions in contracts of insurance and 
 indemnity, and thus roach some more equitable conclusion.
 
 o rill'; LAW ()!•■ i'ii)i;i,ri'v uo.xds. 
 
 Tho rosult is much 'hanl-casc' l;i\v, wliicli is mostly had 
 law, and always variable law." 
 
 Judge Pardee, in dissenting o])iiiii)ii in .liicksoii vs. 
 Fidelity & Casualty Co., 75 Fed. :i'>U. 
 
 A distincTiishcd .Indite said in regard to setting aside 
 salvage contracts on slight grounds: 
 
 "If a solemn contract, made under the most serious cir- 
 cumstances, like the one under consideration, could be repu- 
 diated at pleasure by one of the parties to it, on such a 
 . ground as that insisted upon here, no contract could be 
 relied upon as binding, and all the law of contracts, affect- 
 ing so largely the affairs of mankind as that law does, would 
 have to be treated as an idle jargon." 
 
 Jackson vs. Fidelity &• Casualty Co., 75 Fed. 359. 
 
 7. — Same — Construed as Insurance Policies. 
 
 Unquestionaltly the second theon^ of construction here 
 shown, to M'it, that corporate fidelity bonds are to be treated 
 as in the nature of insurance policies and so construed is sup- 
 ported by the weight of authority, and that such construc- 
 tion will eventually prevail is certain. 
 
 8. — Same — Authorities. 
 
 That an agreement of this kind is a contract of insurance, 
 and not merely one of suretyshiii, ;ind is to be interpreted 
 accordingly, is settled beyond any peradventure. 
 
 Note to Am. Cred. Ind. Co. vs. Wood, 19 C. C. A. 
 273. 
 
 The late Chief Judge McSherry. of the ^larvland Court 
 of A])peals, has admirably stated the law ap]ilicable to the 
 theory here referred to.
 
 CONSTKUCTIOiSr OF COErOEATE FIDELITY BOXDS. 9 
 
 He said : 
 
 "Contracts of this character, like policies of fire insur- 
 ance, to which they are closely analogous, though with 
 which they are not strictly identical, must receive a rea- 
 sonable construction so as to give effect to the intention of 
 the parties thereto, and so as to carry out, rather than to 
 defeat, the purposes for which they were executed. • They 
 should neither, on the one hand, be so narrowly or tech- 
 nically 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." 
 
 Union Central Life Ins. Co. vs. United States Fidel- 
 delity and Guaranty Co., 99 Md. 423. 
 
 Where the contract appears to have been drawn by the 
 surety company with an elaborate list of questions to be an- 
 swered by the obligee, the answers to which are by the 
 terms of the contract to be treated as warranties of the 
 truthfulness of the statements therein made, and where the 
 company's contract amounts to an agreement between it 
 and the obligee, to indemnify the obligee against loss aris- 
 ing from a certain specified source — for instance, defalca- 
 tion by an employee, it is treated as an insurance policy and 
 construed according to the rules of construction applicable 
 to insurance policies. 
 
 Brandt. Sur. (S: Guar., section 15. 
 
 Taft, Circuit Judge, said with reference to a credit in- 
 demnity contract : 
 
 "These contracts of indemnity are merely contracts of 
 insurance, carefully framed, to limit as narrowly as possi- 
 ble the liability of the insurer, and doubtful expressions in 
 them are to be construed favorably to the insured." 
 
 Am. Cred. Tnd. Co. vs. Athens "Woolen Mills, 02 
 Fed. 581, 34 C. C. A. 161 (Circuit Court of 
 Appeals, Sixth Circuit, 1899).
 
 1(1 TlIK l.AW OK I'lDKI.nV liONlJS. 
 
 Ill the constnicfioii of such a contract, cases h<jl(]irig that 
 a suic'ty is a I'aMdiic of the law, and that a chiiiu against 
 them is a strictissimi juris have no application. Such con- 
 tracts are in fact policies of insurance and should be treated 
 as such. 
 
 Peckhani, J., in Tibbetts vs. Mercantile Credit Guar- 
 anty Co., 73 Fed. 95. 
 
 / An instrument executed by a surety company indemnify- 
 
 ing an employer against larceny or embezzlement by an 
 employee, though denominated a bond, is in legal effect 
 analogous to a policy of insurance, and therefore the rules 
 applicable to insurance policies should be applied in con- 
 struing it. 
 
 Am. Bond'g Co. vs. Burke, 85 Pac. 692 (Col.). 
 
 The bond is a printed one * * * prepared, doubtless, by a 
 skilled attorney in the company's employ. The contract 
 expressed therein is but a form of insurance. 
 
 Champion, &e., Co. vs. American Bonding ti: T. Co., 
 115 Ky. 863. 
 
 Surety companies are analogous to insurance companies, 
 where the application, made a part of the contract, contains 
 only stipulations which bind the assured; it is in the pos- 
 session of the defendant, and if there is a breach of its 
 terms it is for the defendant to set out the obligation, and 
 aver and prove the breaches upon which it relies. 
 
 Bank of Tarboro vs. Fidelity tS: Deposit Co., 126 
 K C. 320. 
 
 Although this form of insurance is of recent origin, it is 
 now (1896) settled that the general rules of construction 
 applicable to ordinary insurance policies are to be applied. 
 Jackson vs. Fidelity «&: Casualty Co., 75 Fed. 359.
 
 CO-NSTRUCTION OF CORPORATE FIDELITY BONDS. 11 
 
 A contract by which a corporation, though called a 
 "guarantee" or ''surety" company, undertakes, in considera- 
 tion of premiums paid to indemnify the other party to such 
 contract against losses by uncollectible debts, is not a con- 
 tract of suretyship, but a policy of insurance, and, as such, 
 subject to the rule that any ambiguities in the policy drawn 
 up by the insurer who makes his own conditions, are to be 
 resolved against the draftsman. 
 
 Tibbetts vs. Mercantile Cred. Guar. Co., 73 Fed. 95. 
 
 Suits upon insurance policies are in all respects analo- 
 gous to a suit on a corporate fidelity bond. 
 
 Missouri, K. & T. Trust Co. vs. German ISTat'l. 
 Bank, 77 Fed. 119. 
 
 An employer's liability bond is essentially a contract of 
 indemnity against loss, governed by the rules applicable to 
 ordinary life and fire insurance policies. 
 
 Aetna Ind. Co. vs. J. R. Crowe Coal & Mining Co., 
 154 Fed. 545. 
 
 Corporate fidelity bond issued to indemnify employer 
 against loss from dishonest}^ of employee is an insurance 
 contract, and subject to rules of construction applicable to 
 insurance policies generally, and not to rules applicable to 
 ordinary sureties for accommodation. 
 
 United States Fidelity & Guaranty Co. vs. First 
 Nat'l Bank of Dundee, 233 111. 475. 
 
 To the same effect arc the following cases : 
 
 Cowles vs. U. S. Fidelity & Guaranty Co., 32 
 
 Wash. 120. 
 Guarantee Co. vs. Mechanics Savings »S: Trust 
 
 Co., 80 Fed. 772.
 
 1- I'lIK LAW oi' KIliKI.rrV I!()M>S. 
 
 ('iirsliiirs vs. Am, Jiondinfi- Co., 1 Hi Fed. 440. 
 Am. ('rod. Trid. i\>. vs. Carrollton Furn. Co., 95 
 
 Fed. 111. 
 Supi-ciiic Couiici] vs. Fidelity k Casualty Co., 03 
 
 Fed. 48. 
 IMiciiix Ins. Co. vs. Guarantee Co. of ]S\ A., 115 
 
 Fed. 964. 
 Am. Crcd. Tiid. Co. vs. Wood, fnote) 19 C. C. A. 
 
 271. 
 Perpetual lildg. cV Loan Ass'n vs. Fnited States 
 
 Fidelity & Guaranty Co., 118 la. 729. 
 Am. Bonding Co. vs. New Amsterdam Cas. Co., 
 
 125 111. App. 33. 
 Livingston vs. Fidelity k Deposit Co., 81 X. E, 
 
 (Ohio) 330, 
 Roark vs. City Trust, Safe -Deposit and Surety 
 
 Co., 131 ilo. App. 401. 
 
 9. — Treated as Insurance Contracts and Hence Construed Most 
 Favorably to Insured. 
 
 Viewing the obligations of this character as in the nature 
 of insurance policies, it is well settled that any language 
 used therein of doubtful meaning or susceptible of two con- 
 structions, will in accordance with the law of insurance, be 
 construed most strongly against the insurer. 
 
 10. — Leading Case. 
 
 The Su])rcnie Court of the Ignited States in a leading case 
 on the subject has laid down the rule as follows: 
 
 "If a bond of fidelity insurance is fairly and reasonably 
 susceptible of tAvo constructions, tbat most favornM'^ to the
 
 CONSTRUCTION^ OF CORPORATE FIDELITY BONDS. 
 
 18 
 
 insured must be adopted, because the instrument was drawn 
 by the attorneys, officers, or agents of the surety company.' 
 Am. Sur. Co. vs. Pauly, 170 U. S. 133.i 
 Am. Sur. Co. vs. Pauly, 170 U. S. 160. 
 
 This rule is not only in accordance with the law of insur- 
 ance, applicable to insurance contracts, but is in accordance 
 with the general canon of construction applicable to all writ- 
 ten contracts and pleadings, and supported, by equitable con- 
 siderations, that words are to be construed most strongly 
 against him who employs them. 
 
 1. — These two cases generally 
 referred to in the later cases as 
 the PauUj Cn.se, were the first to 
 reach the Supreme Court of the 
 United States, where the contract 
 sued on was a cori)orate fidelity 
 bond. The litigation involved a 
 large sum and was ably argued 
 by distinguished counsel. The 
 Court was divided, three Justices 
 dissenting in the second case. 
 The Court decided the proposi- 
 tion referred to in the text above, 
 to wit, that where the meaning 
 of such a contract is doubtful, it 
 is to lie construed most strongly 
 in favor of the obligee. 
 
 It was further decided that a 
 provision in such a contract that 
 the insurer shall be notified of 
 any act by the employee which 
 may involve a loss, as soon as 
 practicable after the occurrence 
 of such act shall have come to 
 the knowledge of the employer, 
 does not require notice unless the 
 emi)loyer has knowledge, not 
 merely suspicion, of the exist- 
 ence of facts which would justify 
 
 a careful and prudent man in 
 charging another with fraud or 
 dishonesty. (See Chapter 19.) 
 
 That the president of a na- 
 tional bank has no power in the 
 ordinary course of business, to 
 certify to the correctness of a 
 cashier's accounts for the pur- 
 pose of enabling him to procure 
 a corporate surety bond. (See 
 Chapter 24.) 
 
 That a i)rovision in the con- 
 tract that a written statement of 
 loss certified as provided therein, 
 "shall be prima facie evidence 
 thereof," makes such a statement 
 prima facie proof in an action 
 l)rought on the bond, and does 
 not relate merely to the presenta- 
 tion of the claim to the company 
 and its acceptance or rejection 
 thereof, before suit. Mr. .Justice 
 White, with whom Mr. Justice 
 Shiras and :\Ir. Justice Peckham 
 conciuTed, dissented to this prop- 
 osition in a lengthy and able opin- 
 ion. "While the provision tliat a 
 prescrilx'd proof of loss slial! be 
 prima facie evidence of tlie claim
 
 14 
 
 I, AW OK IIDKIJ'I'V BONDS. 
 
 II. — Additional Authorities. 
 
 Refcrcnco may lie liiul to the tuUowiii^ addilioiiiil uiithori- 
 ties: 
 
 Brandt, Sur. eV Guar,, Sec. 15. 
 
 Cliampion vs. Anioricaii TJoiiding & T. Co., 115 
 
 Ky. 863. 
 City Trust, etc., Co. vs. Lee, 204 111. ti'.i. 
 Granite Building Co. vs. Saville, 101 Va. 217. 
 Carstairs vs. Am. Bonding Co., 116 Fed. 449. 
 Amer. Cred. Ind. Co. vs. Carrollton Fum. Co., 
 
 95 Fed. 111. 
 Moiilor vs. Ins. Co., Ill U. S. 335. 
 Anderson vs. Fitzgerald, 4 H. L, Cas. 483. 
 Travelers Ins. Co. vs. McCoukey, 127 U. S. 661. 
 Nat'l Bank vs. Ins. Co., 95 V. S. 673. 
 Tucker vs. Fire Ins. Co., 58 W. Ya. 30. 
 
 tiled is still soiuetimes found iu 
 corporate fidelity bonds, the in- 
 corporation of such a provision 
 has been generally discontinued, 
 possibly because of this decision. 
 The necessary effect of the con- 
 struction given to the contract in 
 this case is to decide that by its 
 terms the plaintiff was entitled 
 to recover without making any 
 legal proof whatever of the fact 
 of the loss, and to cast upon the 
 defendant the burden of affirma- 
 tively establislilng the negative 
 proposition, that he is not liable. 
 This radical holding of the Court 
 so severely criticised iu the dis- 
 senting opinion has not been gen- 
 erally followed. (See Chapter 
 1.3. pofit.) In Fidelity and Cas. 
 <"n. vs. Kickhoff, G3 Minn. 170. a 
 
 jirovisioii in a contract of guar- 
 ant.v providing that a voucher 
 showing payment of a loss by 
 obligee should be conclusive evi- 
 dence against tlie guarantor was 
 held void as against public pol- 
 icy. But held otherwise in Guar- 
 antee Co. of N. A. vs. Pitts. 7S 
 Miss. ,S37. 
 
 It was further held tli.it the 
 '•retirement" of a national bank 
 president from the service of the 
 bank was not effected by the 
 mere suspension of the bank and 
 the taking possession thereof by 
 an examinei'. (See discussion of 
 this iioint and conflicting deci- 
 sions. Chapter 1. sec. 10. post; 
 see also comparison of Supreme 
 Court Cases, Chap. 2. sec. .53 
 post.)
 
 CONSTKUCTION OF CORPORATE FIDELITY BONDS. 15 
 
 Starr vs. Aetna Life Ins. Co., 41 Wash. 199. 
 Lowenstein vs. Fidelity & Cas. Co., 88 Fed. 474. 
 Am. Cred. Ind. Co. vs. Wood, 73 Fed. 81. 
 Thompson vs. Phenix Ins. Co., 136 U. S. 287. 
 Banker's Mut'l Cas. Co. vs. State Bank, 150 
 
 Fed. 78. 
 Fricke vs. U. S. Ind. Soc., 78 Conn. 188. 
 Swank vs. Ins. Co., 126 lovp-a, 544. 
 Bickford vs. Ins. Co., 101 Me. 124. 
 Am. Bonding Co. vs. Morrow, 96 S. W. (Ark.) 
 
 613. 
 Remington vs. Fidelity & Deposit Co., 27 Wash. 
 
 429. 
 Long Brothers Co. vs. United States Fidelity & 
 
 Guar. Co., 130 Mo. App. 421. 
 United States Fidelity & Guaranty Co. vs. First 
 
 Nat'l Bank of Dundee, 233 111. 475. 
 Sinclair Co. vs. Nat'l Surety Co., 132 Iowa, 549. 
 Railroad vs. Cas. Co., 145 'N. C. 114. 
 1 Cooley's Briefs on Ins., 9. 
 
 12. — Limitations on the Rule. 
 
 "But," says Mr. Justice White, in a dissentijig opinion 
 in Am. Sur. Co. vs. Pauly, 170 U. S. 160, referring to the 
 rule laid down by the Court in that case that any ambi- 
 guity in a fidelity insurance bond is to be construed most 
 strongly against the insurer, "I know of no case which 
 pushed the principle to the extent of holding that the ex- 
 press provisions of a contract must be destroyed, and there- 
 by a liability be enforced against the insurer, not in har- 
 mony with the contract, in conflict with its spirit, in viola- 
 tion of the manifest intention of the parties and productive 
 of great injustice."
 
 l'» llIK LAW OF FlDEJ.nV JJO.NJJS. 
 
 And to tile sMiiic effect are the following: 
 
 Carstairs vs. Am. Boiidg Co., IDj Fed. 44U. 
 Granite Bnilding Co. vs. Saville, 101 Va. 217. 
 Sinelnir tV Co. vs. Xat'l Surety Co., 1:52 Iowa, 
 549. 
 
 13- — Where Contract Prepared b> Insured — American Bankers' 
 Association Form. 
 
 The fairness and i)ropriety of the rule that doubtful lan- 
 guage in instruments of this character, issued to the public 
 by corporations engaged in the business, and prepared, as the 
 Courts have said, by their "skilled attorneys," and containing 
 words having a technical legal meaning, are to<;) obvious to 
 admit of any doubt. Whether the rule will be applied in the 
 absence of the reasons ui)on which it is founded has not yet 
 been determined in this class of litigation. In certain lines 
 of business standard forms of bonds are used. These forms 
 are prepared by associations, committees or other representa- 
 tives of those engaged in the particular business to which 
 they are applicable, and the surety coq^orations which are 
 invited to execute them have had nothing whatever to do \vith 
 their ])reparation. A familiar illustration of the character of 
 instimment here referred to is the American Banker's Asso- 
 ciation Standard Fidelity Bond, a form of bond prepared by 
 that association, and now extensively used. That curious 
 instrument has not yet been construed by an Appellate Conrt. 
 It contains various provisions of doubtful meaning and but 
 for the fact that it is intended for the use of corporate sure- 
 ties, experienced in the business, it would indeed be a "snare 
 for the nnwaiy." 
 
 14. — Same — Discussion. 
 
 For instance, a number of statements are made on behalf 
 of the bank, as to the duties, accounts and other like matters
 
 CONSTEUCTION OF CORPOKATE FIDELITY BONDS. 17 
 
 concerning the risk, which statements are made a part of the 
 contract. Each of these statements is carefully qualified by 
 the jjhrase that it is made to the best of the knowledge and 
 belief of the officer making the same. jSTotwithstanding this 
 qualification, the statements are expressly warranted to be 
 true. If the statements are true, of course no question as to 
 them can arise. If they are false but immaterial, and such 
 a case is not likely to arise, under the law as now applied, 
 such immaterial statements would not become material by 
 being warranted, nor would they avail as a defense to an 
 action on the bond. If they are false and material, they 
 would prevent a recovery, whether warranted to be true or 
 not, and such so-called warranty would add nothing to their 
 legal effect. 
 
 Other defects might be pointed out. Sufficient has been 
 said, however, to indicate the questions which will sooner or 
 later come before the Courts for adjudication. Which must 
 suffer when the meaning of the obligation is in doubt, the 
 bank or the surety ? Manifestly, it would seem that in such 
 case, the rule should be reversed, since the reasons therefor 
 which ordinarily apply to the latter will then apply to the 
 former. 
 
 15. — Third Theory of Construction — As Indemnifying Contracts. 
 
 The third theory of construction referred to above is well 
 stated in a recent work as follows : 
 
 "Courts are now inclined to construe bonds and contracts 
 as contracts of indemnity only, and will attach more impor- 
 tance to the general purpose of the contract than the pre- 
 cise form of words used, or the terms by which the parties 
 refer to it." 
 
 2 Curr. Law, 298.
 
 lo 'I'liK I, AW <)!• l•II)l;l.^l^ udmjs. 
 
 16. — Same — Illustrations. 
 
 lu'tciciicc lo ;i few casi s will sutfic(! to show the judicial 
 altiliidc here i lid icalc*!. 
 
 I f hoiuliug corporations are to be sustained by the busi- 
 nt'ss interests of this country as being useful and worthy 
 of support, they should he required to meet their obligations 
 in all such cases as we have ])res('iit('d in this record. 
 
 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 ])art of the risk. That object 
 should not be defeated by any naiTow interpretation of its 
 provisions nor by adopting a construction favorable to the 
 surety company if there be another construction equally 
 admissible under the terms of the instrument executed for 
 the protection of the obligee. 
 
 Am. Bondg. Co. vs. Spokane Bldg. & Loan Soc, 130 
 Fed. 737. 
 
 The object of an indemnifying bond is to indemnify; 
 and, if it fails to do this, either directly or indirectly, it 
 fails to accomplish, its primary purpose, and becomes worse 
 than useless. It is worthless as an actual security and mis- 
 leading as a pretended one. 
 
 A surety bond should be construed most strongly against 
 the company and most favorably to its general intent and 
 essential purpose. 
 
 Bank of Tarboro vs. Fidelity (S: Deposit Co., 128 
 N. C. 366. 
 
 The contract of guaranty, although that of a surety, is 
 to be construed liberally and in furtherance of its spirit, 
 to promote the use and convenience of commercial inter- 
 course. 
 
 Davis vs. Wells, 104 TJ. S. 159.
 
 CONSTKLCTION OF COEPOKATE FIDELITY BONDS. 19 
 
 Contracts of guaranty will be liberally construed to ac- 
 complish the purpose of indemnity for which they are 
 made. 
 
 United States Fidelity & Guaranty Co. vs. First 
 Nat'l. Bank of Dundee, 233 111. 475. 
 
 In the Paiilj case, 170 U. S. 133, in order to hold the 
 surety company liable it was necessary to decide that the 
 appointment and possession of a receiver in no wise sus- 
 pended the corporation, at least to any such extent as to 
 operate the discharge of the employed. In the Jackson 
 case, 75 Fed. 359, in order to hold the surety company, the 
 reverse was necessary, and the Court held, says Circuit Judge 
 Pardee, that an entire incapacity siezed the corjDoration the 
 moment the statutoiy receiver took possession. In the latter 
 case, the bond provided that no suit should be brought there- 
 on, unless the same was commenced within twelve months 
 after the discovery of the acts complained of, and such dis- 
 covery must be made within six months from the expiration 
 of the bond f>r the death, dismissal or retirement of the em- 
 ployee. 
 
 The bank suspended business on July 24, 1893, a receiver 
 was appointed August 14, 1893, the bank resumed business 
 on May 21, 1894, discovered frauds committed between 
 April and July, 1893, and institued suit on February 1, 
 1895. Held, it was entitled to recover. 
 
 It was further held in the Fauly case that t\\Q president 
 of a bank had no power, in the ordinary course of business, 
 to certify to the fidelity or integrity of a cashier for the pur- 
 pose of enabling him to procure a fidelity bond, and hence 
 the bank could not Ik' deemed to have any knowledge of the 
 giving by him of such certificate. 
 
 To the same effect is United States Fidelity »!*c Guaranty 
 Co. vs. Muir, 115 Fed. 264.
 
 20 IIIK l-.WV OK MDhJ.lTV BONDS. 
 
 17. — Same — Further Illustrations. 
 
 Ill Fidelity cV Ciis. Co. vs. (Jato City ^'at'l iJank, U7 Ga. 
 634, it was hold that the knowledge on the part of the bank's 
 cashier as to matters concerning which the surety had stip- 
 ulated for notice was not the knowledge of the bank. But in 
 Fidelity and Deposit Co. vs. Courtney, 186 U. S. 342, it was 
 held that a bank was chargeable with the act of its cashier 
 in making an employer's statement. 
 
 In Lieberman vs. First Nat'l Bank, 2 Penn. (Del.) 416, 
 it was held the bank was not bound by representations of its 
 cashier which induced the defendant to become surety for a 
 teller. 
 
 In Am. Bonding Co. vs. Spokane Bldg. (Sc Loan Soc, 130 
 Fed. 737, where the bond provided that representations made 
 by the employer to the surety were wan-anted to be true, and 
 a representation was made that the secretary was not in- 
 debted, held, this did not constitute a warranty that the sec- 
 retary was not indebted as a fact, but only that he was not 
 so indebted to the knowledge of the association or its officers, 
 and in the same case it was held that the knowledge of such 
 indebtedness by the president could not be imputed to the 
 society without proof that the officers knowledge had been 
 communicated to the board. 
 
 In City Trust, Safe Deposit & Surety Co. vs. Lee, 204 
 111. 69, it was hold that a bond prepared and issued by a 
 surety company guaranteeing an employer against "loss by 
 reason of the dishonesty or fraud, amounting to larceny or 
 embezzlement," of an employee, is a giiaranty against dis- 
 honestv or fraud of the employee, whether such as would 
 render him liable to indictment for larceny or embezzle- 
 ment or not. And to the same offoct is American Bonding «S: 
 Trust Co. vs. Xew Amsterdam Cas. Co.. 12.") 111. A]i]\ 33. 
 
 In Sherman vs. Harbin, 125 Iowa, 174, it was held that 
 an insurance company was not bound by a certificate fur-
 
 CONSTRUCTION OF CORPORATE FIDELITY BONDS. 21 
 
 nished by the secretary to a surety company proposing to exe- 
 cute the president's bond to the effect that the books and ac- 
 counts of the president had been examined and found correct. 
 And held, further, that where a bond had been executed on 
 behalf of the president, which bond was not in the usual form 
 of such instruments, but more nearly resembled a common 
 law obligation stipulating for the faithful discharge of duty, 
 and subsequently a certificate was issued by the surety guar- 
 anteeing the fidelity of said president for an ensuing term, 
 subject to the covenants and conditions of the aforesaid bond, 
 that such certificate was in no sense a renewal or continuance 
 of the original bond, but a new and independent undertak- 
 ing, and that the surety was liable for the full penalty of 
 both the original bond and the certificate. And held, fur- 
 ther, that the failure to give notice of default as required by 
 the bond, was not a breach thereof because the acts of the 
 president complained of did not constitute an appropriation 
 of money belonging to the company to his own benefit, he 
 having used a fund assessed to pay death losses for the pur- 
 pose of resisting certain claims. 
 
 In Remington vs. Fidelity & Deposit Co., 27 Wash. 429, 
 the surety was held liable, notwithstanding the fact that there 
 was a delay of forty-five days in giving notice of default 
 where the bond required immediate notice; and notwith- 
 standing the further fact that the employer had delivered to 
 the surety before the renewal of the bond a certificate to 
 the effect that the accounts and books of the employee had 
 been examined and found correct, which statement, although 
 without fraud, was untrue. 
 
 1 8. — Same — Further Illustrations. 
 
 In Hawley vs. United States Fidelity and Guaranty Co., 
 100 App. Div. 12, affirmed, 184 N. Y. 549, the surety had
 
 ZU TJIK J.AW OF Ji'IDKMTY BONDS. 
 
 cxc'cnitcd two bonds on Ijchald of an olticcr of a fraternal 
 orgaiii/.iilion, one on January 11, 18D9, and the other on 
 June "), 11)00. 
 
 ]j()th of the bonds provided that the defendant should be 
 liable for a misappropriation ''occurring during the contin- 
 uance of this bond and renewal thereof and discovered dur- 
 ing said continuance^ or within six months thereafter, or 
 within six months from the death or dismissal or retirement 
 of the employee from the service of the employer;" also, 
 "that the company, upon the execution of this bond, shall not 
 thereafter be responsible to the employer on behalf of said 
 employee, and upon the issuance of any bond subsecpient 
 hereto upon said employee in favor of said employer, all re- 
 sponsibility hereunder shall cease and determine, it being 
 mutually understood that it is the intention of this provision 
 that but one (the last) bond shall be in force at one time." 
 There was misappropriation during the period covered by 
 both bonds, which was not discovered until ^lareh 0-11. 
 1901, when the officer was dismissed. 
 
 The trial Court directed a verdict against the defendant 
 for the full amount misappropriated under both bonds. The 
 Appellate Division of the Supreme Court affirmed, in an 
 opini(m without citation of authority, the ruling of the trial 
 Court and the Court of Appeals affirmed, without opinion, 
 the judgment of the Supreme Court. 
 
 The Court held, that even assuming the second bond to be 
 a separate and distinct one, and not a mere renewal i*f the 
 first one, the plaintiff M'as entitled to recover the amount mis- 
 appropriated under the first bond, as well as the amount 
 misappropriated under the second bond; that the failure to 
 discover the misappropriation of the amount under the first 
 bond within six months after the tennination of that bond, 
 did not under the clau-ie of the bond first above quoted, pre-
 
 CONSTRUCTION OF CORPOEATE FIDELITY BONDS. 23 
 
 chide a recovery, it appearing that the discovery was made 
 within six months after the officer's dismissal, and hence was 
 within the language of the clause in question ; that a recovery 
 of the amount misappro^jriated under the first bond was not 
 prohibited by the clause of the second bond, last above quoted, 
 for the reason that it was not the purpose of such clause to 
 provide that the execution of the second bond should cancel 
 a liability occurring during the term of the first bond, but 
 simply to terminate all responsibility under the first bond 
 as far as future misappropriations were concerned. Even in 
 view of the theory of liberal construction here under discus- 
 sion, it is difficult to perceive how future responsibility could 
 arise under a bond which had already terminated by its 
 terms, and another been issued in its place. 
 
 With reference to this point, the Court says : 
 
 "The provision is that all responsibility, not all liahility, 
 should cease and determine upon the issuance of the subse- 
 quent bond. The more reasonable construction is that the 
 intention was to terminate all responsibility under the first 
 bond upon the issuance of the second one, so far as future 
 misappropriation was concerned, so that there should be 
 but one bond in force at the same time, but that it Avas not 
 intended to cancel any liability already incurred while the 
 first bond was in force." 
 
 Jn other words, while the surety ceased to be res;poiu'iibIe 
 it remained Ilahlr for the default under the first bond, at the 
 same time becoming liable or res])onsible under the second. 
 
 It was further held, in this case, that an employer's cer- 
 tificate, delivered prior to the execution of the second b(md. 
 which constituted a warranty of the facts therein stated, and 
 certified that the accounts of the officer had been examined 
 and found correct, would not defeat a recovery, because it 
 was made to the best of the knowledge and belief of the
 
 21 
 
 rill'; LAW (il- !• IDKl.II'V I'.D.NDS. 
 
 plaiiiliir, iiiid was true because ihe niisappro[)rialioii was not 
 discovered until sometime later. The Court says: 
 
 "The statciiM III lliiit his aceouiits were found on examina- 
 tion to he correct up to that time was true. There was no 
 absolute statement that his accounts were correct. "- 
 
 2. — No attempt will be made 
 here to refonoile this case with 
 other decisions. It is unique m 
 the law of suretyship and insur- 
 ance, and must stand alone. No 
 authority has been cited in the 
 opinion of the Court, and no other 
 Court has "cited this ease as an 
 autliofity. The decisions of the 
 Federal and State Courts, as w(«ll 
 as of tlie same Court, are adverse 
 to the ruling here announced, 
 while there is no authority any- 
 where in support of it. As con- 
 cerning the question of douWe lia- 
 bility, reference may he had to 
 the following cases: 
 
 In Proctor Coal Co. vs. I'. S. 
 Fidelity & Guaranty Company. 
 124 Fed. 424, the bond con- 
 tained a provision similar to 
 that Iiere. The bond covered a 
 period of one year and was re- 
 newed by two snccessive re- 
 newal certificates each for one 
 year. Suit was bronght for re- 
 covery for defalcations during 
 the original bond and each re- 
 newal. On demurrer to the dec- 
 laration, the Court held there 
 could be no recovery for losses 
 sustained prior to the execution 
 of the last renewal. 
 
 In Lombard Inv. Co. vs. 
 AmericaTi Surety Co.. nn Fed. 
 47t>. while the phraseology of 
 the provision is slightly differ- 
 
 ent, its meaning is the same. 
 That the parties understood 
 that all liability or responsi- 
 bility ceased upon the execution 
 of a new bond is evidenced by 
 the fact that they executed a 
 separate provision which re- 
 cites that "whereas said bond 
 allowed six months from date 
 of expiration in which to make 
 claim for losses thereunder, the 
 condition contained in lines, 
 etc.. is hereby modified so as to 
 recognize the right of the em- 
 ployer to make claim within six 
 months from the expiration of 
 the bond first mentioned for 
 losses occurring thereunder." 
 and i)roviding that total liabil- 
 ity shall not exceed penalty of 
 last bond. Suit on three counts 
 claiming for losses under each 
 bond. Held, there could be re- 
 covery under any of the bonds 
 except as covered by the special 
 provision above referred to. 
 
 In De Jernette vs. Fidelity & 
 Casualty Co.. 17 Ky. Law Rep. 
 lOSSi. ,33 S. W. Rep. S2«. an at- 
 tempt was made to recover upon 
 a surety contract and upon each 
 of two renewals. Held, each 
 was a new contract and there 
 could be no recovery, the loss 
 not having been discovered 
 within the three months re- 
 quired by the bond.
 
 CONSTRUCTION OF COKPOKATE FIDELITY BONDS. 
 
 25 
 
 19. — Same — Recent Important Illustration of Construction as In- 
 demnifying Contract Regardless of Terms. 
 
 A striking example of the form of liberal construction 
 here referred to will be found in the case of Aetna Ind. Co. 
 vs. J. R. Crowe Coal & Mining Co., 154 Fed. 545, one of 
 the most recently decided cases. 
 
 In Mayor, etc., vs. Harvey, 
 114 Ga. 733, the provision in the 
 bond was similar to the one 
 here. Suit was brought on the 
 bond, and subsequently an at- 
 tempt was made to amend so 
 as to include a large shortage 
 under two renewals. The Court 
 held such amendment could not 
 be made, as it would add a new 
 cause of action, and that there 
 could be no recovery on the 
 bond under this provision and 
 another which required discov- 
 ery of loss within six mouths. 
 The Court said : "The original 
 bond was terminated by the 
 subsequent renewals, and the 
 latter were in fact new and dis- 
 tinct contracts which adopted 
 by reference all the terms and 
 conditions of the first. That 
 such renewals of bonds or con- 
 tracts of this nature are new 
 and distinct contracts there can 
 be no question, * * * It is the 
 duty of Courts to construe con- 
 tracts as they are made * * * ." 
 
 In First Nat. Bank vs. U. S. 
 Fidelity & Guaranty Company, 
 110 Tenn. 10, the bond did not 
 contain the provision referred 
 to. A bond in the penalty of 
 ?!7,000 was executed for one 
 year, which was renewed by re- 
 newal certificate for a like pe- 
 
 riod. The defalcations of the 
 employe amounted to more than 
 .$7,000 during both the period 
 of the bond and of the renewal. 
 The trial Court gave judgment 
 against the surety for $14,000. 
 This judgment was reversed on 
 appeal, and judgment entered 
 for .$7,000. 
 
 In Florida Central Railroad 
 Co. vs. Am. Surety Company, 
 99 Fed. 074, the bond contained 
 a provision almost exactly like 
 this one. The Court said : "The 
 meaning of the part of the con- 
 tract which declares that upon 
 the execution of a stipulated 
 amount of risk or insurance in 
 behalf of an employe, the com- 
 pany shall not be responsible 
 under any previous insurance 
 of said employe, becomes very 
 clear, and is that, when a new 
 schedule of the amount of in- 
 surance in behalf of any em- 
 ploye formerly on the schedule 
 has been executed or complet- 
 ed, and actually or construc- 
 tively accepted, the old or pre- 
 vious insurance against losses 
 previously committed by him 
 is at an end and that for these 
 losses the companij is no longer 
 liable." 
 
 In Am. Bonding Co. vs. Mor- 
 row, 96 S. W. (Ark.) 613. de-
 
 26 
 
 llll'. I, AW OK I'lIiKI.I TV liONUS. 
 
 Ill tli.-it cMsc, tlic iii.lciiiiiity company issued in 1001 the 
 usiiiil rmiii (if iidclity bond, guaranteeing against loss by 
 fraud and (lishonesty amounting to larceny or embezzlement 
 on the part of a designated employee, the bookk('e[)er and 
 cashier of a coal company. The original bond was continued 
 in force by renewal certificates issued annually, the last one 
 covering the period from June. ll»o;5 to dune, 1904. In a 
 
 c'idod .siiae the llawley Case, 
 It was held that where a bond 
 issued by a surety company in- 
 demnifying an emjiloyer against 
 default of an employe for a 
 certain amoiuit provided that 
 it should not lapse at the end 
 of the term if renewed, but 
 that the liability of the surety 
 should not be cumulative, the 
 total liability for the whole pe- 
 riod represented by the origi- 
 nal term and renewal periods 
 was limited to the amount spec- 
 ilied in tlie bond. In this case 
 there was an original bond in 
 the penalty of $5,000, and two 
 renewal certificates, and there 
 was default under the bond and 
 each renewal, that under the 
 last renewal exceeding tlie pen- 
 alty of the bond. Ifpl<1. recov- 
 ery could be had for .$r>.000 
 only. 
 
 A careful investigation fails to 
 disclose any authority whatever 
 in support of the distinction 
 drawn l)y the Court in this case 
 between the words "liable" and 
 "responsible," while all the au- 
 thoritative lexicographers, as well 
 as legal terminologists. hold that 
 the words, in the sense in which 
 
 they arc here employed, are to be 
 given a synonymous meaning. 
 
 Century Dictionary. 
 
 Webster's Dictionary. 
 
 Standard Dictionary. 
 
 Worcester's Dictionary. 
 
 Soule's Synonyms. 
 
 Fernald's English Syno- 
 nyms. 
 
 Words and Phrases. 
 
 Bouvier's Law Dictionary. 
 
 Black's Law Dictionary. 
 
 Anderson's Law Diction- 
 ary. 
 
 Abbott's Law Dictionary. 
 
 English's Law Dictionary. 
 
 In the argument in the Haw- 
 ley Case, it was claimed by coun- 
 sel for appellee, that the appel- 
 lant had conjured up the spectre 
 of a suit on a bond fifty years 
 after the bond was given. It 
 came to pass, liowever. that in 
 the first similar ease to arise in 
 the State of New York, to the 
 kn<iwledge of the author, after 
 the afhrraance of the aforesaid 
 case by the Court of Appeals, 
 and within a short time there- 
 after, the "spectre" took on the 
 form of a grim reality in the 
 demand for the payment of manj^
 
 CONSTRUCTION OF CORPOEATE FIDELITY BONDS. 
 
 27 
 
 suit subsequently instituted on the contract for the amount 
 of the penalty of the original bond, to wit, five thousand dol- 
 lars, recovery was had for over forty-four hundred dollars, 
 the amount shown to have been embezzled during the period 
 of the last renewal, the entire defalcation, which occurred 
 during the last two years of the term, being about seven 
 thousand dollars. 
 
 The evidence tended to shoM'' that prior to the execution of 
 the last renewal certificate, there had been considerable cor- 
 respondence between the indemnity company, their local rep- 
 resentatives and the coal company regarding the execution of 
 an employer's statement which resulted in the rejection by 
 the indemnity company of a second form of certificate ten- 
 
 thousands of dollars for defalca- 
 tions committed during tlie pe- 
 riod of six years prior to notice 
 to the surety, the demand being 
 made under each of several bonds 
 and various renewals, executed 
 on behalf of the same individual, 
 and there having been a period 
 between the bonds when there 
 was no bond or renewal in force. 
 This somewhat unusual and 
 perhaps extreme case is cited to 
 show to what remarkable results 
 the decision in the Hawley Case 
 may lead. As we understand that 
 decision, if a bank cashier should 
 give a bond for the penalty of 
 ten thousand dollars, in the iden- 
 tical form of the bond in the 
 Hawley Case, to cover his ])osi- 
 tion for one year, and should an- 
 nually thereafter for nine years, 
 execute a similar bond, in like 
 penalty, and at the end of the 
 tenth year it should be discov- 
 ered that he was a defaulter and 
 
 be then dismissed, and upon in- 
 vestigation it should be found 
 that he had embezzled ten thou- 
 sand dollars or more during each 
 year, that in such case the bank 
 could recover from the surety, 
 not the penalty of "one (the last) 
 bond,' according to the language 
 of the instrument, but the aggre- 
 gate penalty of all the bonds, to 
 wit, one hundred thousand dol- 
 lars. 
 
 If a recovery may be had upon 
 a bond which has expired for a 
 year, or beyond the limitations 
 prescribed therein, no reason is 
 perceived why a recovery may 
 not be had upon a bond at any 
 time within the limitations pre- 
 scribed by the State. If a re- 
 covery is permitted In such case 
 years after the loss occurs, when 
 the principal may be dead or re- 
 moved, the memory of witnesses 
 uncertain and the facts difficult 
 of ascertainment, the whole busi-
 
 28 
 
 LAW (>)■ !• IIiKIJTV IIONDS, 
 
 (lci'( .1, ;iii(l llic i:i\iii!i' of it> nil iiiint mil iis to the tcriiis upon 
 wliicli il would renew llie IhmkI, in ii h^ttor to their agents, 
 stating as follows : 
 
 "Wo Sinn tlic iiiattcr n|>, iIhh, to the effect that if it is 
 desired tlinl this hond shall he renewed, a eomplete and 
 systematic jindit of Mr. Graves' (the employee) account 
 must be made in a business-like way and the employers to 
 fill out and send to us, through your office, the enclosed 
 blank form of employer's statement, F. 4." 
 
 The indemnity company had previously written that it 
 would require additional papers to issue a new bond. Fol- 
 lowing the position assumed by the indemnity company, as 
 shown, the coal company caused the audit to be made, filled 
 
 ness of fidelity insurance would 
 be thrown into confusion and un- 
 certainty. Sucli action would, 
 against the policy of the law, en- 
 courage the presentation of stale 
 demands, countenance the negli- 
 gence, incompetency or supine- 
 ness of trustees of financial In- 
 stitutions, and tend to prevent 
 or postpone the detection of de- 
 faults, the i>revention or early 
 detection of which, says the Fed- 
 eral Supreme Court, in giving 
 expression to the experience of 
 the financial world, are of even 
 more vital importance to such 
 institutions than to the guaran- 
 tors of the fidelity of their em- 
 ployes. 
 
 Independent of any considera- 
 tion of the rights of the partio 
 to such a contract, if the ruling 
 in the Hawley Case were to he 
 generally followed, no guaranty 
 
 company could, with any degree 
 of accuracy, comply with the re- 
 (piirements of the Insurance De- 
 partments of the several States, 
 by setting aside an appropriate 
 reserve to meet obligations upon 
 outstanding risks. Surely the 
 companies would not be required 
 to carry as outstanding obliga- 
 tions all fidelity bonds written by 
 them until action thereon was 
 barred by the limitations pre- 
 scribed by the States in which 
 such bonds were executed, and 
 yet this requirement would seem 
 to be the legitimate and logical 
 result of the above decision, in- 
 asmuch as, according to it. a re- 
 covery may apparently be had 
 at any time within the limita- 
 tions of the State. 
 
 For further reference to the 
 extent of the surety's liability, 
 where there are more than one 
 obligation, see Chapter fi.
 
 CONSTRUCTION OF CORPORATE FIDELITY BONDS. 29 
 
 out the statement, signed it, and sent it to the indemnity 
 company, through its local agents, whose letter which recited 
 its transmission, the fact that the audit had been made, 
 closed with the words, "Trusting you will see fit to renew 
 the bond." The Coal Company having complied with the 
 terms on which the indemnity company had informed it that 
 it would renew the bond, the latter immediately issued the 
 renewal certificate, continuing the bond in force from June, 
 1903, the said employer's statement being dated February 
 24, 1903. 
 
 The employer's statement contained answers to various 
 questions propounded by the indemnity company, together 
 with the promissory stipulation that the counter signature 
 of the general manager or president of the coal company 
 would be required on checks signed by the bonded employee, 
 and concluded as follows : 
 
 "It is hereby agreed by the undersigned that the above 
 answers are to be taken as conditions precedent to and as 
 the basis of execution of the said indemnity bond and in 
 consideration of the issuance of said indemnity bond by the 
 company; it is further agreed that the checks and super- 
 vision above described shall be observed." 
 
 The indemnity company proved without contradiction that 
 more than 300 checks, which aggregated more than $150,- 
 000.00 were issued by the employee without the counter- 
 signatures convenanted ; that the loss complained of resulted 
 in large part, if not entirely, from the use of these cheeks. 
 
 In the face of this evidence, the United States Circuit 
 Court of Appeals for the Eighth Circuit, by a divided Court, 
 Sanborn, Circuit Judge, dissenting, affirmed the decision of 
 the trial Court, and held that the last renewal did not include 
 the employer's statement referred to above. The Court fur- 
 ther held that where the accounts were extensive and com pi i-
 
 •50 IIIK I. AW <tl- lIDKI.riV IJONDS. 
 
 calcd, iiiid liad liccii I'iilsiHcd hy the cinployoc, a iir»ti(;(* of a 
 l)r(ihal)l(' claim liivcii the surety thirty-five days after the 
 tirst diseoxcry of ii'i'en'iilarit ies, and notiee of the aiiiouiit of 
 the ehiiiii i;iveii the surety sixty-one days after such discov- 
 ery, were a sufficient conij)liance with the ref|nireiiient of 
 ''immediate notice" contained in the bond ; and further that 
 where the original hnnd, alrhoiiiih prepared witli the inten- 
 tion of having- the princijial sign it, did not make such exe- 
 cution a condition for the creation of liability, the failure of 
 the ])rincipal to sign the bond is cured by the subsequent re- 
 newals thereof and the acceptance of i»rcininms therefor, 
 even in the absence of evidence that the indemnity company 
 had knowledge of such defect when the renewals were issued. 
 Referring to the employer's statement, the Court after 
 quoting the language of the continuation certificate, says : 
 
 "The plain and unambiguous language of the contract 
 just quoted shows that what the parties apparently did was 
 to continue in force for a third year the original contract 
 knoA\Ti as bond F. 1,774, subject to all the covenants and 
 conditions thereof, and by fair and reasonable intendment, 
 not subject to the terms and conditions of any other instru- 
 ment." 
 
 Again, the Court says : 
 
 "Turning now to the statement of February 24th, we 
 perceive nothing in the terms employed or in any implica- 
 itons suggested to indicate an intention to make the state- 
 ment the basis of or consideration for any renewal of the 
 old bond. Xo intimation can be found indicating in the 
 slightest degree that the parties intended the answers to 
 the questions to be conditions precedent to or to form the 
 basis of the execution of any other bond whatsoever, and 
 certainly not of the renewal bond F. 1,774. The agreement 
 found at the end of the statement making the answers to 
 questions propounded in it warranties or conditions prece-
 
 CONSTEUCTIOK^ OF CORPORATE FIDELITY BONDS. 31 
 
 dent to the validity of the bond has no application to this 
 case. We find no agreement in any correspondence passing 
 between plaintiff and defendant that the warranties con- 
 tained in the statement of February 24th should be condi- 
 tions precedent to the validity of the contract renewing the 
 old bond F. 1,774. The statement of February 24:th was 
 obviously made to secure favorable action on Graves' pend- 
 ■ ing application, and in effect formed a part of it."^ 
 
 20. — Same — Opposite Holding in More Recent Case. 
 
 In a decision rendered two months later than the above the 
 Supreme Court of Louisiana, upon facts veiy similar, held 
 just the opposite view, that is to say, that the fidelity com- 
 pany was not liable upon a renewal contract where the em- 
 ployer's statement issued prior to such renewal was false. 
 Max. J. Winkler, Brokerage Co. vs. Fidelity and 
 Deposit Co. of Md., 44 S. E. 449. 
 To the same effect are the following late eases : 
 
 United States Fidelity & Guaranty Co. vs. 
 
 Downey, 38 Colo. 414. 
 Glidden vs. United States Fidelity k Guaranty 
 
 Company, 198 Mass. 109. 
 Willoughby vs. Fidelity & Deposit Co., IG Okla. 
 546. 
 
 The aforegoing cases, it is believed, will clearly indicate 
 the character of liberal construction here referred to under 
 the third title to this chapter. 
 
 21.— Summary. 
 
 Summing up then, a review of the authorities, it will ap- 
 pear that corporate fidelity bonds are to be treated as eon- 
 
 3. — The italics are ours. Fur- 
 ther comment would seem to be 
 unnecessary.
 
 32 
 
 rilK I, AW OF FIDELITY BONDS. 
 
 tracts (it iiisuriiiicc and indeiimiiv, mid constnicd ino>t 
 Htroiiglv aiiainst tlic insurer and in i'iwoy <>( cfTcctinir tin; 
 purpose for which given, althongh nnainhij;nr»ns and valid 
 stii)ulati(ins are not to I)e disregarded. The Court takes the 
 contract by the four corners, so to speak, and seeks to ascer- 
 tain the meaning thereof as of any other contract, and when 
 ascertained will enforce it so as to give effect to every part 
 of it, if possililc. In case of doubt or uncertainty, the e*oi- 
 struction will be in favor of the insured. 
 
 For liability of surety on corporate fidelity bonds filed in 
 place of statutory, official bonds, see Cba])ter 7 on that 
 subject. 
 
 22. — Construction of Judicial Bonds. 
 
 It is perhaps unnecessary to state that bonds executed by 
 corporate sureties on prescribed forms in judicial proceed- 
 ings are construed precisely like those executed by private 
 individual sureties. 
 
 23. — Construction of Contract and Other Similar Bonds by Com- 
 pensated Corporate Surety. 
 
 The text writers generally hold the view that the same 
 rule applies to other bonds executed by corporate sureties, 
 where they sign the instrument as presented to them, and 
 have no ]iart in its preparation, such, for example, as bonds 
 guaranteeing the ])erfonnance of contracts, but the Supreme 
 Court, in United States vs. American Surety Co.. 200 T'. 
 S. 199, says: 
 
 "In U. S. F. & G. Co. vs. Golden Co., 191 U. S. 416. the 
 question whether surety companies which are such for com- 
 pensation, are entitled to the same strict construction of 
 their rights and obligations as is accorded to private sure- 
 ties Avho become such without reward or profit, was left 
 open; but it was said: The rule of strirtlss^imi juris is a 
 stringent one. and is liable at all times to work a practical
 
 REPKESENTATIOKS AND WARRANTIES. 
 
 33 
 
 injustice. It is one which ought not to be extended to con- 
 tracts not within the reason of the rule, particularly when 
 the bond is underwritten by a corporation which has under- 
 taken for a profit to insure the obligee against a default."'* 
 
 4. — See also Atlantic Trust & 
 Dep. Co. vs. Town of Lowinburg, 
 163 Fed. 690. 
 
 CHAPTER IL 
 
 REPRESENTATIONS AND WARRANTIES. 
 
 24. The subject of much con- 
 
 flict and difficulty. 
 
 Definitions. 
 
 25. Aruould's definition. 
 
 26. May's definition. 
 
 27. Kerr's definition. 
 
 28. Elliott's definition. 
 
 29. Deductions from the author- 
 
 ities. 
 
 30. Ellis' definition. 
 
 31. Leading case. 
 
 32. Burden ' of proof of Repre- 
 
 sentation or Warranty in 
 corporate fidelity con- 
 tract. 
 
 Rules of Construction. 
 
 33. False representation. 
 
 34. Employer's statement re- 
 
 garding condition of em- 
 ploye(>'s accounts. 
 
 35. Illustration. 
 
 3f>. Further reference to state- 
 ments as to examination 
 of accounts. 
 3 
 
 37. False warranty. 
 
 38. Leading case. 
 
 39. Breach of promissory war- 
 
 ranty. 
 
 40. The law averse to forfeit- 
 
 ures. 
 
 41. Doubtful statements con- 
 
 strued as representations. 
 
 42. The Court views the entire 
 
 contract. 
 
 43. False statements by risk not 
 
 binding on insured unless 
 ratified. 
 
 E 
 
 vamples of Representations 
 
 
 and Warranties. 
 
 44. 
 
 Digest of authorities. 
 
 45. 
 
 Same. 
 
 46. 
 
 Same. 
 
 47. 
 
 Same. 
 
 48. 
 
 Same. 
 
 49. 
 
 Same. 
 
 .50. 
 
 Same. 
 
 51. 
 
 Same. 
 
 52. 
 
 Same.
 
 u 
 
 il\l: l..\\\ <)l' 1-IUKM'lV IIO.ND.S. 
 
 r»y. Aiitli(iril.\' of olliccr of cor- ."»."». Ri-incsciitjitidiis :iimI \v;ir- 
 
 poralioii ill nuikiii^' iijipli- • raiitics in iiisiiraiicc iioii- 
 
 catioii for fidelity i)oii(l <»f 
 
 employee tliereof. ."»(■>. Stiiteiiifuts l)y i»iii)lic ofli- 
 
 r>4. I'm! her relenMice to same eers. 
 
 siii)Ject. 
 
 24. — The Subject of Much Conflict and Difficulty. 
 
 The iiitcri)rotati()n of r(j)resentations and warranties in 
 insurance ])()licif's^ has been the most prolific source of liti- 
 gation, conflict and uncertainty in the entire insurance field. 
 Innumerable attempts ha^e been made to define representa- 
 tions and warranties, and to draw the distinctions between 
 them. The definitions, varying in form, but similar in sub- 
 stance, seem to state the rules of construction with reason- 
 
 1.— Ill i>assiiig upon any ques- 
 tion imolving tlie construction 
 and effect of representations and 
 warranties in insurance con- 
 tracts, it must be borne in mind 
 that many of the States have 
 enacted statutes providing in 
 si'l>stance that statements in ap- 
 plications for insurance policies, 
 made in good faith, shall not 
 operate as a defense to a suit on 
 a policy issued thereupon, even 
 though such statement be untrtie 
 and its truth is made a war- 
 ranty, unless such statement re- 
 late to some matter material to 
 the risk. Such local statutes, 
 tlierefore. where applicable m 
 terms or by judicial construc- 
 tion, control the construction of 
 a contract made in such State. 
 
 A statute in force in the State 
 of Maryland. Art. 23. sec. 196, 
 Public General Laws, such as 
 
 here referred to. applicable in 
 terms to life insurance contracts 
 has been held applicable also to 
 accident policies. (Md. Casualty 
 Co. vs. Gehrmann, 96 Md. 634.) 
 Whether it will be held applica- 
 ble to fidelity contracts has not 
 been decided. 
 
 A somewhat similar statute of 
 the State of Tennessee, section 
 3306. Shannon's Code, referring 
 to "a contract or policy of in- 
 surance," has been held applica- 
 ble to fidelity bonds (First Nafl. 
 Bank vs. Fidelity & Guaranty 
 Co., 110 Tenn. 10). and consti- 
 tutional and valid under the po- 
 lice power of the State (Insur- 
 ance Co. vs. Whitaker. 112 Tenn. 
 153), and to refer as well to 
 warranties as representations. 
 (Insurance Co. vs. Statlings. 110 
 Tenn. 1.)
 
 EEPEESENTATIONS AND WARRANTIES. 
 
 35 
 
 able accuracy; yet, after all the years in which insurance in 
 its various forms has been in general and universal use in 
 the commercial world, and after the authors of numerous 
 works on the law of insurance have devoted a large part of 
 their attention to this particular subject, there is scarcely a 
 volume of reports published, that does not contain one or 
 many decisions relative to the construction of this feature of 
 insurance contracts. 
 
 The difficulty seems to be, not with the rules of interpre- 
 tation or definitions, but in applying the rules to the facts 
 in the particular case. And this difficulty is greatly in- 
 creased by the plainly apparent determination of the Courts 
 in many cases to hold the insurer liable, not in accordance 
 with the terms of the policy, but in spite of them. The basis 
 of this assertion will fully appear in the conflicting decisions 
 
 A similar statute of tlie Com- 
 monweal tli of Kentucky, Ken- 
 tucky Statutes, section G39, re- 
 ferring to statements or descrip- 
 tions in any application for a 
 policy of insurance, held appli- 
 cable to applications for corpor- 
 ate fidelity bonds, but misrepre- 
 sentations material to the risk in 
 that character of cases, whether 
 fraudulent or not. would invali- 
 date the bond (Warren Deposit 
 Bank vs. Fidelity & Deposit Co., 
 116 Ky. 38 ; Fidelity & Guaranty 
 Co. of N. Y. vs. Western Bank, 
 29 Ky., L. R. 639). It was also 
 held that under this statute state- 
 ments by an employer in an ap- 
 plication for a fiduciary bond for 
 one of his employees, that such 
 employee's position would , be 
 merely that of bookkeeper, and 
 that the largest amount of cash 
 nicely to be in his custody would 
 
 be but a few dollars, did not 
 amount to warranting the fact 
 (Champion, &c., vs. American 
 Bonding Co., 115 Ky. SG3). In 
 construing this statute, it was 
 held by the highest Court of Ken- 
 tucky in Insurance Co. vs. Curry, 
 13 Bush. 312, that it was not its 
 meaning that a representation 
 could not be made a warranty 
 by the express contract of the 
 parties, and when this had been 
 done, the statute did not reach 
 the case ; but this decision was 
 disapproved and distinctly over- 
 ruled subsequently by the same 
 Coiu't in Insurance Co. vs. Rud- 
 wig. SO Ky. 223, and that deci- 
 sion has been followed in all the 
 later decisions of the Court of 
 last resort. (Ins. Co. vs. Kear- 
 nan, 88 Ky. 468; Ins. Co. vs. 
 Wigginton, 89 Ky. 330; Ins. Co. 
 vs. Davies' Excr'.s., 87 Ky. TAl.)
 
 30 TIM. l.AW Ol' I'lDKLITY BONDS. 
 
 puiiitcd uiit in this work; iiiid purticularly in the illustra- 
 tions given in conneetion with tlic discussion of the question 
 of construction of corporate fidelity contracts as indemnify- 
 ing contracts, Chapter 1, sees. 15-21 ante. 
 
 DEFINITIONS. 
 25. — Arnould's Definition. 
 
 A representation is a verbal or written statement made by 
 the assured to the underwriter before the subscription of 
 the policy as to the existence of some fact or state of facts, 
 tending to induce the underwriter more readily to assume 
 the risk, by diminishing the estimate he would otherwise have 
 formed of it. 
 
 An express warranty in the law of insurance is a stipula- 
 tion inserted in writing on the face of the policy on the lit- 
 eral truth or fulfilment of which the validity of the entire 
 contract depends. 
 
 This is the definition given by Arnould (Arn. Ins., 489, 
 577) w^hich, says May, has met with general acceptance. The 
 latter (May, Ins. 4th ed., 304-362) defines a warranty and a 
 representation, and draws the distinction between them as 
 follows : 
 
 26. — May's Definition. 
 
 "A warranty is an express stipulation on the face of the 
 policy, on the literal truth or fulfillment of which the 
 validity of the contract depends. It has the force of a 
 condition precedent and must be strictly and literally com- 
 plied with, whether material to the risk or not, whether the 
 insured believed it true or not, or the agent or even the com- 
 pany knew it was false at the time of insurance. 
 
 "A representation is a statement incidental to the con- 
 tract, and on the faith of which it is made.
 
 EEPBESENTATIOXS AXD WAREANTIES. 3T 
 
 "Distinction between warranty and representation : The 
 first is put into the policy and forms part of the contract, 
 the latter is not a part of the contract, but forms the basis 
 of it, or is collateral to it." 
 
 27. — Kerr's Definition. 
 
 Kerr on Ins. (Sees. 137.138) gives this definition: 
 
 "A representation is a stipulation, assertion or statement 
 relative to the risk assumed, and is collateral to the con- 
 tract. It is sufficient if a representation be substantially 
 true, or substantially complied with. Only when made of 
 and concerning a fact material to the risk can the falsity 
 of a representation be asserted to defeat recovery. 
 
 "A warranty is a stipulation, assertion or statement of, 
 or related to, some fact connected with the subject-matter 
 of the insurance, upon the literal truth of which the valid- 
 ity of the contract depends, without regard to the material- 
 ity of such fact, or the motive which prompted such stipula- 
 tion^ assertion or statement. 
 
 "A warranty must be literally true, without regard to 
 its materiality, while a representation must be true only so 
 far as the representation is material to the risk." 
 
 28. — Elliott's Definition. 
 
 Elliott on Ins. (sees. 101, 102) gives the definition as 
 follows : 
 
 "A statement made by the applicant for insurance pend- 
 ing the negotiations relative to some fact having reference 
 thereto, and upon the faith of which the contract is entered 
 into, is called a representation. 
 
 "When a representation made by an applicant for insur- 
 ance is carried into the contract and made a part thereof, 
 it becomes a warranty, and the question of its materiality 
 is thus settled by the contract of the parties. 
 
 "The essential difference between a warranty and a rep- 
 resentation is that in the former it must be literally ful-
 
 38 TJIK I. AW OK FIDKLITV BONDS. 
 
 filled, or there is no contract, the parties having stipulated 
 that the subject of the warranty is material and closed all 
 inquiry concerning it while in the latter, if the representa- 
 tion proves to be untrue, if it is not material to the risk, 
 the contract is not avoided." 
 
 29. — Deductions from the Authorities. 
 
 In editorial notes to American Decisions (16 Am. Dec, 
 463; 40 Am. Dec, 349; 54 Am. Dec, 320), the following 
 distinctions are deduced from the authorities : 
 
 "There is a clear and well-settled distinction in the law 
 of insurance, between representations and warranties. 
 
 "A representation is not a part of the contract, but is 
 collateral to it. 
 
 "A warranty is a part of the contract. It is in the nature 
 of a condition precedent, and must be strictly fulfilled in 
 order to enable the insured to recover on the policy. If 
 false in any particular, whether the error materially affects 
 the risk or not, the contract is broken. 
 
 "The warranty itself makes the thing warranted mate- 
 rial. It becomes material to the contract, though it does not 
 affect the risk. The parties having agreed upon the mate- 
 riality of the thing warranted, their agreement precludes 
 all inquiry on the subject." 
 
 30. — Ellis' Definition. 
 
 Ellis (Fire and Life Ins., 2S) says: 
 
 "A warranty being in the nature of a condition prece- 
 dent, it is quite immaterial for what purpose, or with what 
 view it is made, but being once inserted in the policy it be- 
 comes a binding security on the assured." 
 
 31. — Leading Case. 
 
 The leading insurance ease upon this subject is Campbell
 
 REPRESENTATIONS AND WARRANTIES. 39 
 
 VS. Ins. Co., 98 Mass. 381^, which laid down the following 
 
 definition: 
 
 "A warranty, in insurance, enters into and forms a part 
 of the contract itself. It defines, by way of particular stip- 
 ulation, description, condition or otherwise, the precise 
 limits of the obligation which the insurers undertake to as- 
 sume. 1^0 liability can arise except within those limits. 
 In order to charge the insurers, therefore, every one of the 
 terms which define their obligation must be satisfied by the 
 facts which appear in proof. From the very nature of the 
 case, the party seeking his indemnity, or payment under the 
 contract, must bring his claim within the provisions of the 
 instrument he is undertaking to enforce. The burden of 
 proof is upon the plaintiff to present a case in all respects 
 conforming to the terms under which the risk was assumed. 
 It must be not merely a substantial conformity, but exact 
 and literal; not only in material particulars, but in those 
 that are immaterial as well. 
 
 "A representation is, on the other hand, in its nature, no 
 part of the contract of insurance. Its relations to the con- 
 tract is usually described by the tei-m 'collateral.' It may 
 be proved, although existing only in parol and preceding 
 the written instrument. In considering the question whether 
 a statement forming a part of the contract is a warranty, it 
 must be borne in mind, as an 'established maxim, that war- 
 ranties are not to be created nor extended by construction. 
 They must arise, if at all, from the fair interpretation and 
 clear intendment of the words used by the parties." 
 
 32. — Burden of Proof of Representation or Warranty in Corporate 
 Fidelity Contract. 
 
 The rule as here stated by the Su])reme <Tudicial Court of 
 Massachusetts placing the burden of proof upon the assured 
 is not applicable to corporate fidelity bonds-. In suits upon 
 
 ]. — See Chapter 1, sec. r*. ante. 
 
 2. — See Chapter 25, sec. 184, post.
 
 40 rilK I, AW oi' IIDKLITV HONDS. 
 
 llic laiicr, tile liiii-(lcii rests u|)nii tlic (IctViKlanL lo show the 
 hrcMcli of llic waiTiiiit V ii|h.ii which he relies as discharging 
 him (Vdiii liis (il)lii;ati<iii iiiihss, of course, such breadi should 
 alliniiatively appear from the plaintiif's case. 
 
 American Cred. Ind. Co. vs. Wood, To h'ed. 81. 
 
 Goldman vs. Fidelity k Deposit Co., 125 Wis. 
 390. 
 
 Ins. Co. vs. Gridley. 100 V. S. 614. 
 
 Sinclair & Co. vs. Xatl. Surety Co., 13 Iowa, 
 549. 
 
 Tlio crucial distinction between a representation and a 
 warranty is that the one is not, and the other is, a part 
 of the contract between the parties, and that the truth of 
 the one is not, and the truth of the other is, a condition 
 precedent to a recovery upon the policy or bond to which 
 they relate. 
 
 Eice vs. Fidelity c^- Deposit Co., 103 Fed. 427. 
 
 A warranty in an ai)i)lication for insurance must be lit- 
 erally and exactly fulfilled, but a representation is satis- 
 fied if it is substantially true ; and a slight variance, which 
 would not have influenced the action of the insurer in mak- 
 ing the contract, will not defeat the policy. 
 
 Carrollton Furniture Mfg. Co. vs. Am. Cred. Ind. 
 Co., 124 Fed. 25. 
 
 RULES OF CONSTRUCTION. 
 
 .33. — False Representation. 
 
 A false re]nvs( ntation of an imnnUerial fact nuide by an 
 employer in an a]>])lieation for a eorjKU'ate fidelity bond will 
 not prevent a n'covery under the b(^nd. This proposition is 
 well settled.
 
 KEPEESENTATIONS AND WAEEANTIES. 41 
 
 Whether a false representation of a material fact will pre- 
 vent a recovery depends upon the circumstances of the par- 
 ticular case, the importance of the representation in its rela- 
 tion to the subject-matter of the contract, and especially 
 whether the representation, although false, is made in good 
 faith without knowledge of its falsity, and with no intent to 
 mislead or deceive, or is wilfully and fraudulently made. 
 While a false representation of a material fact leading to the 
 execution of a contract, and being a part of the inducement 
 thereto, will, under the rules of contract law, render the con- 
 tract void, in insurance contracts, a different rule prevails. 
 It seems, from the authorities, there must be something more 
 than the mere falsity of the representation. There must be 
 some element of culpable negligence in making the repre- 
 sentation without the knowledge of or belief in its truth, or 
 the wilful making of a representation with knowledge of its 
 falsity, or the making of a false representation with the 
 fraudulent intent to deceive. It is frequently stated by the 
 text writers and in the decisions of the Courts that a false 
 statement which is a mere representation will not defeat a re- 
 co^'ery under the policy. This proposition is subject, how- 
 ever, to the qualification here shown. That a false and fraud- 
 ulent inducement to the execution of a contract of insurance 
 or otherwise will avoid the contract, whatever such induce- 
 ment may be called, is too well settled to be open to question. 
 In such case it is immaterial whether the statement is war- 
 ranted to be true or not. 
 
 34. — Employer's Statement Regarding Condition of Employee's 
 Accounts. 
 
 In litigation under corporate fidelity bonds, the question 
 frequently arises as to whether a statement by the employer 
 that the accounts of the employee have been examined and
 
 42 rill': law of fidklitv bonds. 
 
 have bt'C'ii I'uunJ correct is inulcrial and wliellicr ihc lalsity 
 of such statement will defeat a recovery. 
 
 A review of the authorities will show that the following 
 ])rinciples of construction a])i)ly: That if no examination has 
 been made, and a default is subsequently found to have then 
 existed, there can be no recovery, whether the statement was 
 a warranty or a representation, it being in either case a 
 wilful and false statement of a fact material to the contract^ 
 that if the statement is not expressly warranted to be true, 
 and is made in good faith, with belief in its tinath, and a 
 proper examination has been made, and no default discov- 
 ered, though it then existed, such statement will not prevent 
 a recovery; that if such statement is expressly warranted to 
 be true, its falsity either as to the fact of examination or of 
 the existence of default will defeat the policy. 
 
 Monongahela Coal Co. vs. Fidelity Sz Deposit 
 
 Co., 94 Fed. 732. 
 Model Mill Co. vs. Fidelity & Deposit Co., 1 
 
 Tenn. Ch. App. 365. 
 Bank of Tarboro vs. Fidelity & Deposit Co., 12G 
 
 N. C. 320. 
 United States Fidelity & Guaranty Co. vs. 
 Blackly, Hurst & Co., 25 Ky. L. R. 1271. 
 American Bonding Co. vs. Burke, 85 Pac. (Col.) 
 
 692. 
 Carstairs vs. Am, Bonding Co., 116 Fed. 449. 
 
 The latter proposition is unquestionably theoretically and 
 legally sound, and supported by the weight of authority. In 
 practice, however, it is open to some quosti(^n, in view of 
 the disposition of the Courts in some instances, in order to 
 avoid or evade the effect of the warranty, to look into the 
 circumstances of the examination, and the possibility of the 
 detection of defaults therebv. Where it can be shown that
 
 BEPEESENTATIONS A:VD WAREANIIES. 43 
 
 a careful examination made by persons qualified to make it 
 has failed to disclose cleverly concealed defaults, there is a 
 tendency, based upon equitable grounds, to give effect to the 
 bond. 
 
 35. — Illustration. 
 
 Thus it was said in the very recent case of United States 
 Fidelity & Guaranty Company vs. First National Bank of 
 Dundee, 233 111. 475 : "If bank officers are to be held to such 
 a rigid method of examination and supervision over the ac- 
 counts of their employees, there would be little necessity, if 
 any, for purchasing fidelity insurance." In this case, at the 
 time of the renewal of a bank cashier's bond there was one 
 irregularity in his books for the preceding year, consisting 
 of an additional cipher being placed after the figures "300." 
 The Court held the failure to discover such irregularity and 
 the certification by the bank that the accounts were correct, 
 under a stipulation that the books were examined from time 
 to time in the regular course of businesss, did not invalidate 
 the bond. The Court further said that a statement in a re- 
 newal certificate that the books and accounts of the cashier 
 were examined by the bank from time to time in the regular 
 course of business and found to be correct, does not mean that 
 such an exhaustive examination was made as would neces- 
 sarily discover the slightest irregularity that might exist, 
 however cunningly covered up. 
 
 Legal verbiage aside, this case shows there was a certifi- 
 cate by a bank that the books of its cashier had been examined 
 and found correct upon which statement the bond was is- 
 sued ; that there existed at that time an irregularity in said 
 accounts amounting to the difference between $300 and 
 $3,000 and that notwithstanding these facts judgment was 
 awarded against the surety for the penalty of its bond. The 
 Court laid great stress on the fact that an examination had
 
 44 IHE J.AW OJ" FIDKHTV BONDS. 
 
 bt'Oii made, and overlookod or igiionid the allegation that the 
 accounts had been found correct. 
 
 36. — Further Reference to Statements as to Examination of Ac- 
 counts. 
 
 In an early case it was said : 
 
 "An employer would need no insurance against that close 
 and relentless vigilance Avliich makes stealing impossible." 
 Guarantee Co. vs. Mechanics' Bank, 80 ¥ed. 766. 
 
 With regard to the knowledge on the part of the employer 
 or obligee ui)on which re])resentations may be made, refer- 
 ence is suggested to the law as laid down by Lawson on Con- 
 tracts, sec. 238: 
 
 "Where persons take it upon themselves to make asser- 
 tions as to which they are ignorant, whether they are true 
 or untrue, they are as responsible as if they had asserted 
 tliat which they kncAv to be untrue. Whether a party mis- 
 representing a fact knew it to be false, or made the asser- 
 tion without knowing whether it was true or false, is wholly 
 immaterial. For the affirmation of what he does not know 
 or believes to be true is as unjustifiahle as the affirmation 
 of what is known to be false, and the same is true where 
 the party is negligent, or ought to have known or remem- 
 bered the truth and did not." 
 
 37. — False Warranty. 
 
 .V false warranty of an immaterial fact will, theoretically, 
 and in accordance with the very nature of a warranty, pre- 
 vent a recovery under a contract, since the parties have, by 
 warranting the the fact to he true, made it material. luit. 
 practically, in this instance, as in that referred to above, the 
 Courts are disposed to look to substance rather than form, 
 and enforce the contract without giving too nice attention to 
 technicalities.
 
 REPRESENTATIONS AND WARBANTIES. 45 
 
 38, — Leading Case. 
 
 Referring to materiality of questions and answers in ap- 
 plication for a life insurance policy, the Supreme Court in 
 the leading case of Jeffries v. Ins. Co., 22 Wall. 47, says: 
 "The juror may be right, and the Company may be wrong, 
 but the Company has expressly provided that their judg- 
 ment, and not the judgment of the juror, shall govern. Their 
 right thus to contract, and the duty of the Court to give effect 
 to such contracts, cannot be denied." 
 
 In National Surety Co. vs. Long, 125 Fed. 887, it was 
 held: 
 
 "The care or negligence with which an obligor who failed 
 sought to perform his contract is no defense to an action 
 for its breach. The only test of the right to recover is the 
 . existence of the breach of the covenant upon which the exe- 
 cution is based. 
 
 "The immateriality of a warranty or of a condition prec- 
 edent made by the agreement of the parties, and the innoc- 
 uousness of a failure to perforin it, do not nullify or miti- 
 gate the fatal effect of such a failure prescribed by their 
 agreement." 
 
 39. — Breach of Promissory Warranty. 
 
 That a false warranty of a material fact will render the 
 contract void is fundamental law. The warranty may relate 
 to existing facts, such as, that the accounts of the risk have 
 been examined ; that they are correct ; that there is no short- 
 age ; that he is not indebted, and the like ; qy the warranty 
 may relate to a course of future action to be observed by the 
 obligee, such as the provision for due supervision over the 
 risk, periodical examination of his accounts, countersigiia- 
 ture on checks, and similar precautionary measures. The 
 breach of such a promissory warranty, especially where it 
 relates to specific covenants by the obligee will, as in the
 
 4{> 
 
 IIIK LAW OK MDKLITY BONDS. 
 
 case uf warranty of an existing- fact, prevent a ret^oveiy under 
 the contract. 
 
 Hunt vs. Fidelity & Cas. Co., 90 Fed. 242. 
 Rice vs. Fidelity <Sr Deposit Co., 10:3 Fed. 427. 
 Young vs. Pacific Sur. Co., 137 Calif. r>I)0. 
 Weider vs. Union Sur. k Guar. Co., 86 N. Y. 
 
 Supp. 964. 
 Phenix Ins. Co. vs. Guarantee Co., 115 Fed. 
 
 964. 
 But see — Aetna Ind. Co. vs. J. R. Crowe Coal t^' Alining 
 
 Co., 154 Fed. 545. 
 
 40. — The Law Averse to Forfeitures. 
 
 The policy of the law is averse to forfeitures. It seeks in 
 all instances to give effect to the contract, and where there is 
 doubt whether statements made by the insured are to be con- 
 sidered as warranties, and consequently a vital part of the 
 contract, or mere representations of facts and not a guarantee 
 of their truth, the law will treat such statements as repre- 
 sentations. This is settled beyond question as will fully ap- 
 pear in the authorities cited hereafter in this chapter. In 
 this connection it is to be borne in mind that the word "war- 
 ranty'" is not necessary to create a warranty in law. nor 
 does the use of that word necessarily create a warranty. 
 
 Frost, Guar. Ins., Sec. 60. 
 
 Livingston vs. Fidelity &: Deposit Co., 81 X. E. 
 (Ohio) 330. 
 
 North Am. Accident Ins. Co. vs. Rehacek, 123 
 111. App. 219. 
 
 Court of Honor vs. Clark, 125 111. App. 490. 
 
 Max J. Winkler Brokerage Co. vs. Fidelity 6: 
 Deposit Co., 44 S. R. 449. 
 
 Moulor vs. Ins. Co., Ill U. S. 335.
 
 KEPRESEJSTTATIONS AND WARRANTIES. 47 
 
 41. — Doubtful Statements Construed as Representations. 
 
 It has been held that the Courts will not regard any state- 
 ments made by the insured as a warranty, unless such was 
 the obvious purpose of the parties to the contract. Missouri 
 K. & T. Trust Co. vs. German Bank, 77 Fed. 109. At least 
 one case has gone to the extent of holding that statements 
 will not be treated as warranties, unless the language used 
 is not capable of any other interpretation. 
 
 Guthrie 'Nat. Bank vs. Fidelity & Deposit Co., 
 14 Okla. 6.36. 
 
 This decision, however, is not supported by authority. 
 
 42. — The Court Views the Entire Contract. 
 
 Where, in an application for a corporate fidelity bond, one 
 question is answered without qualification, and another is 
 answered to the best of the knowledge and belief of the ap- 
 plicant, there is some disposition on the part of the Courts 
 to hold that the qualification in the one answer also applies 
 I0 the other. 
 
 On the other hand, it has been held that a declaration that 
 certain facts are true "to the best of the knowledge and be- 
 lief" of the assured does not qualify the effect of an answer 
 that assured will observe certain designated supervision over 
 the accounts of the risk. 
 
 Hunt vs. Fidelity & Cas. Co., 99 Fed. 242. 
 
 In order to arrive at the true meaning, the Court takes the 
 instrument by the four comers, so to speak. Indeed, in 
 some of the more radical decisions, a disposition has been 
 shown to read into unequivocal statements the implied quali- 
 fication that they are made to the best of the knowledge and 
 belief of the person making them.
 
 48 IllK J-A\V Ul IIDLIAIY BONDS. 
 
 It is perliaj)s uniieccssary to state dial llinjugbuiit this 
 discussion the stateiiicnts referred to are those of the pros- 
 |ic('tive ()l»lii;(H', aud usually made in the fonn of an cinploy- 
 er's dcelai'ation in answer to questions projiduntlcd by the 
 surety. 
 
 43. — False Statements by Risk Not Binding on Insured Unless 
 Ratified. 
 
 False statements by the party whose fidelity is to be in- 
 sured do not affect llic xalidily of ilic contracT, uidess they 
 are ratified by the obligee with knowledge of their falsity. 
 
 Imperial Building &: Loan Co. vs. Ignited States 
 Fidelity tV: Guaranty Co., 3 Ohio Cir. Ct., n. 
 s. 385. 
 See also — 
 
 U. S. Life Ins. Co. vs. Smith, 92 Fed. 503. 
 Ludekens vs. Pscherhofer, 70 Hun. ( X. Y. i 'lA^^. 
 
 EXAMPLES OF REPRESENTATIONS AND WARRANTIES. 
 
 44. — Digest of Authorities. 
 
 In view of the varying phraseology employed in corjioi-at.* 
 fidelity bonds; and in view of the variety of circumstances 
 under which claims may arise, as well as the conflict in the 
 decisions, any exact classification of the cases is impossible. 
 A synopsis of all the important cases is given below. Re- 
 ferring thereto, applying the principles of construction set 
 out above, and bearing in mind the decisions in the ]>articular 
 State or Court, the law may be readily applied to any given 
 case. 
 
 In a suit upon the corporate fidelity bond of a bank 
 teller, a plea alleged that the guaranty company was in- 
 duced to execute the bond by the positive representation in
 
 liEPEESENTATIOA'8 AND WARRANTIES. 49 
 
 writing, made to it for and on behalf of the hank by its 
 cashier, that the teller was never in arrears or default to 
 the bank ; that his books and accounts, including cash, se- 
 curities and vouchers, were last examined a short time be- 
 fore, and found to be correct, and that but for these repre- 
 sentations it would not have executed the bond. The plea 
 further avers that these representations were false ; that 
 the teller was at the time' of these representations, and 
 had been long prior thereto, a defaulter, and largely in ar- 
 rears to the bank, and that the examination which was 
 represented to have been made was not so made, and that 
 if it had been made, his defalcation would have been dis- 
 covered. 
 
 The Supreme Court of Appeals of Virginia said : 
 
 "These alleged representations were of existing facts^ 
 were material, and presumably within the peculiar knowl- 
 edge of the bank and its ofHcers, and constituted an induce- 
 ment to the guarantee company on which it had the right 
 to rely to execute the bond. It was immaterial whether the 
 plaintiff knew they were false, or honestly believed them to 
 be true. If a party innocently misrepresents a material 
 fact by mistake, the effect is the same on the party who is 
 misled by it as if he who innocently made the misrepre- 
 sentation knew it to be positively false. The real question 
 in such a case is not what the party making the representa- 
 tion knew or believed, but was the representation false and 
 the other party misled by it. The defense presented by this 
 plea was a valid one if proved." 
 
 Guarantee Co. of JST. A. vs. First Nat. Bank of 
 Lynchburg, 9,5 Va. 480. 
 
 A fidelity bond issued to an employer to indemnify it 
 against loss through any defalcation of its manager pro- 
 vided that certain statements made by the employer rela- 
 tive to the duties and accounts of the employed, "together 
 with any statements or declarations hereafter required by, 
 4
 
 50 'IIIK I, AW (>|- l'II)i;i,I TV IIOND.S. 
 
 ov ludgi'd uitli, tlif coiiipmiy, do and .sliall con.stitute au 
 essential i)art and tonn tlie basis of this contract." It 
 f'urtluM jn-ovidcd that "any niafci-ial misstatement or sup- 
 pression (d" fact \>y the cnipluye'r in any statement or dec- 
 laration lo tlic coniiiany" should render the bond void. 
 On the occasion of an annual renewal of the bond, the 
 treasurer of the employer, on its behalf, made a certificate 
 to the company in which he stated that on December 23d 
 the books and accounts of the employed "were examined 
 by us, and we found them correct in every respect, and all 
 moneys handled by him accounted for, to the best of our 
 knowledge and belief." The funds of the employer were 
 kept in bank, from which they were drawn only on checks 
 signed by the manager; and he drew such checks in pay- 
 ment of his own salary. A bookkeeper was employed who 
 made out monthly statements of account which were sub- 
 mitted to the managing board; but such statements gen- 
 erally purported to show only current receipts and dis- 
 bursements, and did itot show the condition of the bank 
 account or of the manager's. In fact, at the time the cer- 
 tificate was made to the bonding company, no examination 
 of the manager's account had been made since the annual 
 examination in the preceding February, and on December 
 23rd he had drawn out, for his owti use, $3,700 in excess 
 of his salarj', which sums had been debited to his account 
 by the bookkeeper. During the ensuing year he became a 
 defaulter for a large amount. Held, that the certificate of 
 the treasurer was a material misstatement of fact, which, 
 by the plain terms of the contract, rendered the bond void. 
 Carstairs vs. Am. Bond. Co., 116 Fed. 449. 
 
 The board of directors of plaintiff corporation, whose 
 meetings were held in ISTew York, passed a resolution re- 
 quiring the general manager and the assistant treasurer, 
 both of whom were in the State of "Washington, where the 
 business of the company was conducted, to procure surety 
 bonds at the expense of the company, and they were so
 
 KEPKESENTATIONS AND WAEKANTIES. 51 
 
 procured; tliat of the assistant treasurer being issued on a 
 statement signed in the name of the company by the gen- 
 eral manager as such, and which was referred to in the 
 bond as having been furnished by plaintiff, and as one of 
 the inducements for the execution of the bond. At the 
 expiration of the term, requests for further statements or 
 certificates from the employer were sent to the officers in- 
 sured, which were filled out by the auditor of the com- 
 pany in its name and returned, on which renewal certifi- 
 cates were issued. The auditor's certifi.cate that the ac- 
 count of the assistant treasurer had been examined each 
 month and fomid correct, etc., was in fact untrue. 
 
 Held, in an action against the surety company to recover 
 for a defalcation of the assistant treasurer, that the audi- 
 tor's certificate was properly admitted in evidence, and 
 the jury were correctly charged that if the fact of its execu- 
 tion was known to the general manager, who was in charge 
 of plaintiff's business, of which there was evidence, it was 
 binding on the plaintiff, although the auditor may not have 
 been authorized, by virtue of his official position, to make 
 the same, plaintiff" being chargeable with notice from the 
 recitals therein that the original bond was issued upon a 
 statement made in its behalf, and bound to know on what 
 representations the renewals were made. 
 
 If in fact an officer of a corporation whose fidelity is in- 
 sured sustained other relations to the company than those 
 indicated in its statement on which the bond was executed, 
 and which were essentially different, and involved the re- 
 ceipt and expenditure of the employer's money, the failure 
 to disclose such relations is a defense to liability of the 
 surety company on its bond. 
 
 Issaquah Coal Co. vs. United States Fidelity <Sr Guar- 
 anty Co., 126 Fed. 89. 
 
 45. — Same. 
 
 A declaration that the answers in an application for in- 
 surance against embezzlement by agent are true "to the
 
 IIIK l-AW Ol' MDKLITV IJONDS. 
 
 best of the knowledge and belief of assured docs not qual- 
 ify the effect of the answer that assured will make monthly 
 comparison and verification of cash in agent's hands with 
 his accounts and vouchers. 
 
 A promise of assured to make monthly comparison of 
 money in its agent's hands with his accounts and vouchers 
 is a warranty, and is not fulfilled by a monthly comparison 
 of the checks sent it by him by the accounts and vouchers 
 sent by him two months before. 
 
 It is quite immaterial that the statement (providing 
 for an examination of the cash and accounts in the hands 
 of the risk) is not called a warranty. It is a stipulation 
 embodied in the contract, by the words of the policy, for 
 the performance of future acts, and, as such, is an express 
 warranty. 
 
 Where a written contract of insurance against loss by 
 embezzlement of assured's agent contained a plain provi- 
 sion for monthly comparison of money in agent's hands 
 with his accounts and vouchers, it cannot be shown that 
 it is not the custom of companies engaged in the same 
 business as assured to go .to an agent's office and examine 
 his accounts, bank books, and cash, but that it was cus- 
 tomary to examine his statements and vouchers, and com- 
 pare them with his remittances. 
 
 Hunt vs. Fidelity & Casualty Co., 99 Fed. 242. 
 
 Where a corporate fidelity bond provided that certain 
 statements or declarations filed A\'ith the company by the 
 employer relative to the duties and accounts of the ena- 
 ployee should constitute an essential part and form the 
 basis of the contract, and should be conditions precedent to 
 the right of recovery, and a statement was filed in which 
 it was declared that the books and accounts of such agent 
 had been examined and found correct and all moneys 
 handled by him accounted for, in a suit on the bond it 
 Avas shown the books had not, in fact, been examined. The 
 trial Court, on request, instructed the jury to find for the
 
 EEPEESENTATIONS AND WARRA:^TIES. 
 
 53 
 
 defendant. Upon appeal by the plaintiff, alleging said in- 
 struction as error, the instruction was approved and the 
 case affirmed. 
 
 The trial Court said : 
 
 "The certificate must be taken as true, as far as this 
 surety company has a right to take it, as to them, whether 
 as a matter of fact it was false to the president of the em- 
 ployer or not. There was nothing done by the surety com- 
 pany to mislead the president into giving this certificate. 
 The enclosing the blank was a mei'e form, but it was essen- 
 tial that he should give the certificate, if he expected the 
 renewal of the contract of indemnity. Therefore he chose 
 to give it. It may have been false that they never exam- 
 ined the books, but the indemnity company had a right to 
 take the fact stated as true * * * The president could have 
 declined to send the certificate, or that he would not send 
 it, because he had not examined the books, but when he did 
 say that he examined the books and found them correct, 
 the indemnity company had a right to take that fact to be 
 true, and did take it for true, and acted upon it. Unques- 
 tionably, as between these contracting parties, the presi- 
 dent is estopped from denying that certificate in law * * * 
 The inducement to the surety company to enter into the 
 second contract was a false inducement. I think there must 
 be a verdict for the indemnity company." 
 
 Monongahela Coal Co. vs. Fidelity & Deposit Co., 
 94 Fed. 732. 
 
 A written statement made by employers to the obligor 
 in a bond of indemnity against the dishonest acts of their 
 employee, to the effect that they will invariably apply cer- 
 tain checks to his action, which the parties expressly agree 
 by the statement itself and by the bond shall be the basis 
 of the latter, and a condition precedent to a recovery upon 
 it, is of the nature of a warranty, and not of a representa-
 
 54 'J'JIl': LAW OK I'lDIOMTV 1{()M>.S. 
 
 tion, ;iiid a failure to comply witli the promise it contains 
 is fatal to an action upon the bond. 
 
 Kice vs. Fidelity & Deposit Co., 103 Fed. 427. 
 
 Answers by au ai)|tlicant foi- an indf-niiiity bond, to 
 the eflFect that he had never applied to another company 
 for bond and had never been refused bond by another com- 
 pany, are material and valid; and where such answers are 
 false, and the party for whose benefit the bond was exe- 
 cuted had knoAvledge of this falsity, the bond is rendered 
 invalid. 
 
 Imperial Bldg. & Loan Co. vs. United States Fidel- 
 ity & Guaranty Company, 3 Ohio Cir. Ct., n. s. 
 385. 
 
 46. — Same. 
 
 An answer in an action on a contract of indemnity given 
 to secure plaintiff bank against the fraudulent acts of its 
 cashier, alleging that defendant was induced to renew the 
 bond by plaintiff's statement that the books and accounts 
 of its cashier had been examined and found correct, and 
 all moneys handled by him had been accounted for. and 
 that such statement was false, states a plea in bar. 
 
 Bank of Tarboro vs. Fidelity & Deposit Co., 126 
 K C. 320. 
 
 Recovery cannot be had on a bond insuring against loss 
 by the dishonesty of an employee, where it is expressly stip- 
 ulated both in the bond and in the application therefor, 
 that answers to questions in the application for said 
 bond are to be "taken as conditions precedent and as the 
 basis of the bond applied for," and answers to questions 
 on material matters contained therein are untrue, though 
 not known to the applicant to be untrue, and there is no 
 bad faith on the part of said applicant. In this case the 
 employer's statement submitted to the surety upon the faith 
 of which the bond was issued, represented that the accounts
 
 KEPEESENTATIONS AND WARRANTIES. 55 
 
 of the employee-had been examined and found correct, that 
 he was not short with his employer, and that he was not 
 indebted to his employer; whereas his accounts had not 
 been examined, he was short in his accounts, and he was 
 indebted to his employer in a large sum. 
 
 Model Mill Co. vs. Fidelity & Deposit Co., 1 Tenn. 
 Ch. App. 365. 
 
 Statements made by an employer in support of his em- 
 ployee's api^lication for an indemnity bond as to the nature 
 of the duties of the employee, the extent of his authority, 
 etc., are in the nature of Avarranties, and a breach thereof 
 will avoid the bond. 
 
 United States Fidelity & Guaranty Co. vs. Ridgley, 
 97 K W. 836 (Neb.). 
 
 ISTotAvithstanding a local statute providing that all state- 
 ments or descriptions in an application for insurance shall 
 be deemed representations, and not warranties, and shall 
 not prevent a recovery on the policy unless fraudulent or 
 material, where representations in an application for an 
 employee's fidelity bond were material and false, the bond 
 was invalid, and whether they were fraudulent or not, was 
 immaterial. 
 
 Warren Deposit Bank vs. Fidelity and Deposit Co., 
 116 Ky. 38. 
 
 Where the answers to questions and representations con- 
 tained in an application for a bond of indemnity against 
 the dishonesty of the cashier and bookkeeper of the appli- 
 cant were expressly declared to form the basis of the con- 
 tract under the proposed bond, such answers and representa- 
 tions became a part of the bond of indemnity. 
 
 And where the applicant for a bond of indemnity repre- 
 sented that the books and accounts of the cashier and 
 bookkeeper would l)e examined and audited, and all mon- 
 eys, etc., would be examined and verified daily, and the ap-
 
 5(3 rill-; law <»i i- idki.ti'i- i'.wxds. 
 
 ])liciint, 1)V i-casoii of ;il)S('iic(', fjiilrd \'<>r four davH to comply 
 with the terms of llic coiifracf, (hiiiii<!; wliich time the cash- 
 ier absconded with the em])loyer's money, sncli fa i hire dis- 
 charf^ed llie surety from liahilitv npon the bond. 
 Young vs. Pac. Siir. ('.... 137 Calif. oOfi. 
 
 In an action on a fidelity bond, defended on the ground 
 that the plaintiff in a statement required of him prior to 
 the issuance of the bond, as.serted that, to the best of his 
 knowledge and belief, the employee's accounts were correct, 
 and that he was not in arrears, when, by due care in exam- 
 ining such accounts, a shortage could have been discovered, 
 an instruction to find for plaintiff unless the statement was 
 false when made, to the best of plaintiff's knowledge and 
 belief, was erroneous, since defendant was entitled to go to 
 the jury on the issue of plaintiff's due care to ascertain 
 the truth before making the statement. 
 
 U. S. Fidelity & Guaranty Co. vs. Blackly, Hurst & 
 Co., 25 ky., L. R. 1271. 
 
 A failure of the warranty of a material fact, or of one 
 made material by the terms of representations of a contract 
 when equivalent to a warranty, if acted upon in issuing a 
 contract of insurance, will defeat recovery, and if this de- 
 fense is sufficient it is immaterial that bad intent is also 
 alleged, but the party alleging bad intent cannot complain 
 of the submission to the jury of the issue thus raised. 
 
 Perpetual B. & L. Assn. vs. IT. S. Fidelity Sz Guar- 
 anty Co., 118 Iowa, 720. 
 
 47. — Same. 
 
 Where a surety company issued a bond to a local agCTit 
 with instructions not to deliver it until the employer of 
 the persons whose fidelity was insured had made a certain 
 written statement, and the employer Avith knowledge of the 
 instructions procured the bond and afterwards furnished 
 the statement, this statement was properly regarded as the 
 foundation for issuance of the bond.
 
 BEPRESENTATIONS AND WARRANTIES. 57 
 
 Where, after the execution and delivery of a bond secur- 
 ing the faithfuhiess of an employee, the employer signed a 
 written statement containing an agreement that it should 
 be taken and deemed as the basis of the bond, the state- 
 ment Avas material to the execution of the bond. 
 
 Where a surety before issuing a bond indemnifying an 
 employer against loss through embezzlement or larceny by 
 the employee required a statement from the employer as to 
 when the employee's accounts were last examined, whether 
 they were correct, whether there was any shortage, and 
 whether the employee was indebted to the employer at the 
 time, answers to these questions were material to the risk, 
 and false answers rendered the bond void. 
 
 Am. Bondg. Co. vs. Burke, 85 Pac. 692 (Col.). 
 
 Where there is a distinct agreement that an application 
 for credit insurance is a part of the contract, and the state- 
 ments in the application are expressly declared to be war- 
 ranties, they are to be treated as such, and not merely as 
 representations, and must be strictly true, or the policy will 
 not take effect. 
 
 American Cred. Ind. Co. vs. Carrollton Furniture 
 Co., 95 Fed. 111. 
 
 Where a surety company issued a bond indemnifying a 
 bank against the default of its cashier, and the application 
 made by the bank warranted that the books of the cashier 
 would be examined by the auditing committee monthly, an 
 examination by the auditing committee once in each month, 
 but not on any fixed monthly date, was sufficient. 
 
 An examination by the auditing committee, composed of 
 certain directors of the bank, was sufficient, though they 
 were not expert accountants. 
 
 Where a bank in applying to a surety company for a 
 bond indemnifyying it against default of its cashier war- 
 ranted that he was not engaged or about to engage in any 
 other business, the fact that he wrote a little fire insurance
 
 58 rilK LAW OF FIDELITY BONDS. 
 
 aud was secretary of a local board of directors of a build- 
 ing association, did not amount to a breach of the war- 
 ranty. 
 
 Am. Bonding Co. vs. Morrow, 9G S. W. (Ark.) 613. 
 
 Written statements made by a corporation accompanying 
 an application to a bonding company for a bond guarantee- 
 ing tlic honesty of employees, which statements relate to the 
 past conduct of such employees in their service as such, and 
 are intended to and do enter into the contract and become 
 the inducement in part for the issuing of the bond, are in 
 the nature of warranties, and their falsity in any material 
 particular will defeat recovery on the bond for the delin- 
 quency of such employees. 
 
 Livingston vs. Fidelity &• Deposit Co., 81 X. E. 
 (Ohio) 330. 
 
 A false statement in an application for a certificate of 
 indemnity against embezzlement of a collector of the in- 
 sured, that he had kept true and just accounts, and made 
 prompt returns, and was not indebted to the insured, is 
 material, and a defense to an action on the certificate, 
 though the statement was made honestly. 
 
 Sullivan vs. Fraternal Societies' Co. of Ind. Union, 
 73 ]Sr. Y. Supp. 1094. 
 
 48. — Same. 
 
 A fidelity insurance policy, indemnifying an employer 
 against loss by reason of the fraud of an em])loyee amount- 
 ing to embezzlement or larceny, provided that it was en- 
 tered into on the condition that the business of the em- 
 ployer shall be continued to be conducted in accordance 
 with certain statements "in writing" Avhicli the employer 
 had delivered to the insurer relative to the duties of. and 
 check to be used on the employee, and that the statements 
 and answers therein contained constituted the basis of the 
 policy. One of the statements so made was to the effect
 
 EEPRESE]!^TATIONS AND WARRANTIES. 59 
 
 that the employee's cash, securities and stock would be com- 
 pared and verified with his accounts and vouchers twice a 
 week. 
 
 Held, that the failure of the employer to comply with the 
 stipulations precluded a recovery on the policy. 
 
 Weider vs. Union Surety & Guaranty Co., 86 IST. Y. 
 Supp. 105. 
 
 Upon being solicited by a brokerage firm to execute in 
 its favor an indemnity bond to secure it from loss for one 
 year from acts of larceny or embezzlement by a person 
 whom it proposed to take into its employment, a fidelity 
 insurance company forwarded to it for signature a written 
 application for that purpose, accompanied by a number of 
 questions for it to answer, among them the following: 
 "Have you knowledge of any habit of the applicant, or any 
 circumstances unfavorable to the issuance of the bond ap- 
 plied for? If so, state particulars. Is there now to your 
 knowledge any shortage due? Has he ever been short to 
 you ? Is he in debt to you ?" To which questions the ap- 
 plicant truthfully answered, "No." The company then 
 executed a bond expiring on the 1st of April, 1904. 
 
 Just before the date of the expiration of the bond the 
 company wrote the firm, notifying it that the bond was 
 about to expire, requesting remittance of continuance pre- 
 mium, and asking it to sign the certificate which accompa- 
 nied its notification and forward the same to it, when the 
 continuation receij^t Avould be sent to it. The firm filled 
 out the certificate which Avas sent to it, and after signing 
 it, returned it to the company. The continuation receipt 
 was then sent to the firm. It subsequently appeared that 
 the employee was guilty of larceny or embezzlement partly 
 during the first year of the bond and partly during continu- 
 ance of the bond after the expiration of one year. The 
 firm claimed that the company was responsible for the 
 losses during both periods. The latter resisted the claim. 
 The District Court and Court of Appeals sustained the
 
 <!(> TIIK LAW Ol' !■ ll»i;i.nV ItoNDS. 
 
 chuin of the finii on the ground tliat tlic; stutciiicnls iiiiifJi' 
 in the coni inu;ition cortifipiitc wore representations, and 
 not wnrnuities, and niidcr the terms of the policy they did 
 not have tlic cffeet of a warranty if honestly answered. 
 Held, fiidi-. Ilic company was not liable for the loss which 
 was suffered after the cxpii-ation of tlie year. The certifi- 
 cate which the firm sifrncd and sent forward certified tliat 
 "since the issuance of the above bond the employee has 
 faithfully, honestly and punctually accounted to me for all 
 money and property in his control as my employee, has 
 always had proper securities, and is not now in default 
 to me." 
 
 Whether the statements contained in this certificate 
 be designated as "warranties" or "representations," they 
 are undoubtedly matters iipon which the com])any was to 
 determine the course which it was to pursue as to the fu- 
 ture. If not true, they destroy the basis upon which the 
 continuance was granted. 
 
 Max J. Winkler Brokerage Co. vs. Fidelity k De- 
 posit Co., 44 S. K. (La.) 449. 
 
 49. — Same. 
 
 A guaranty bond for the faithfulness of an employee pro- 
 vided that the bond might be continued from year to year, 
 so long as the company should consent, upon payment of 
 the premium rate agreed on. At the expiration of the year 
 for which the bond had been issued, the employer, in order 
 to continue it in force, certified to the guaranty company 
 that the books and accounts of such employee had been 
 examined by him, found correct, all moneys handled by the 
 employee accoimted for, and he knew of no reason why tlio 
 guaranty bond should not be continued. Held, that in the 
 absence of a showing of fraud in obtaining the extension, 
 the certificate was merely a representation of a fact and 
 not a warranty of its truth. 
 
 Remington vs. Fidt^lity tS: Deposit Co.. 27 Wash. 420.
 
 EEPEESENTATIOKS A^SID WARRANTIES. Gl 
 
 In an action on a corporate fidelity bond executed on 
 behalf of the agent of plaintiff, it was contended, among 
 other defenses, that the plaintiff had theretofore delivered 
 to the defendant a certain certificate in writing to the effect 
 that the accounts of said agent had been examined and 
 found correct in every particular, and that said statement 
 was required by the defendant as a condition upon which 
 said bond was delivered, and that the averment in said cer- 
 tificate was not true. 
 
 Held, on demurrer, that inasmuch as the said statement 
 was not contained in the agreement sued on nor referred to 
 therein, it must be held to be a representation and not a 
 warranty, and hence, unless false to the knowledge of the 
 plaintiff, no bar to a recovery. 
 
 Dime Savings Institution vs. American Surety Co., 
 68 N. J. L. 440. 
 
 A corporate fidelity bond recited that the obligee had 
 delivered to the company certain statements relative to 
 the duties and accounts of the treasurer which it was 
 agreed should form the basis of the contract expressed in 
 the bond. Held, that if such statements involved no mis- 
 representation or concealment, the contract could not be 
 affected by loose parol statements, or concealment of facts 
 about which no inquiry was made. 
 
 Supreme Council C. K. of A. vs. Fid. & Cas. Co., 
 63 Fed. 48. 
 
 Statements by an employer in an application for a fidu- 
 ciary bond for one of his employees, that such employee's 
 position would be merely that of bookkeeper, and that the 
 largest amount likely to be in his custody would be but a 
 few dollars, did not amount to warranting, under Ky. St. 
 1899, sec. 639, providing that all statements or descrip- 
 tions in an application for an insurance policy shall be 
 deemed representations and not warranties. 
 
 Champion, kc, vs. American Bonding & T. Co., ll.'S 
 Ky. 863.
 
 02 IIIK i.AW ()|- Ml>KJ.n'V BONDS. 
 
 An jipplication to a surety company for a bond to secure 
 the faithlul performance of his duties by the cashier of 
 the applicant, a corporation, contained the following ques- 
 tion and answer: "Will he receive remittances from custom- 
 ers on ojKm accounts? If so, how often will you render 
 customers a statement of balances due by tli(;ni, and by 
 whom will this be done? This should be done by some 
 other person than the applicant, and is important as a 
 means of verifying balances appearing on the ledger." An- 
 swer : "Yes ; monthly by bookkeeper." 
 
 Held, that such ansAver was not a warranty that such 
 monthly statements should be delivered to the customers or 
 deposited in the mail by the bookkeeper personally, but 
 that it was complied Avith Avhere such statements were 
 made out by the bookkeeper, and deposited by him, in 
 sealed envelopes, in the receptacle used for outgoing mail, 
 according to the customary practice of the corporation's 
 business. 
 
 Phenix Insurance Co. vs. Guarantee Co. of N. A., 
 115 Fed. 964. 
 
 50. — Same. 
 
 In an action on a bond of suretyship of a general man- 
 ager of £1 corporation given to secure his honesty in the 
 performance of his duties as general manager, it appeared 
 that by the bv-laAvs of the corporation the general manager 
 should have supervision of the affairs of the association 
 under the direction of the board of directors, and should 
 "perform such duties in the detail Avork of the association 
 as shall be prescribed from time to time by the board of 
 directors." The by-laws also provided as follows : "It shall 
 be the duty of the treasurer to receive all moneys due the 
 association, and to keep account of the same." The appli- 
 cation for the bond made to the surety company as gen- 
 eral manager and approved by the president of the cor- 
 poration stated that the position of the general manager 
 was purely clerical ; that itemized reports were made to the
 
 REPRESENTATIONS AND WARRANTIES. 63 
 
 directors at each meeting of all cash received at the office; 
 that moneys received in payments of dues Avere deposited 
 in bank each day; that a complete system of credit slips 
 was used, and that the books and vouchers were subject to 
 the inspection of the directors at all times. The testimony 
 showed that the general manager had charge of the books 
 of the association, received the cash and deposited it in 
 bank; that he produced at each meeting of the directors a 
 statement which was accepted by the board, showing the 
 amount of money received by him, and that it was in the 
 treasurer's hands. Held, (1) that the testimony as to 
 statements submitted to the board was properly admissible ; 
 (2) that the question as to whether the loss by the general 
 manager's dishonesty was covered by the contract was for 
 the jury, and not for the Court; (3) that the evidence jus- 
 tified the finding of the jury, that it was the duty of the 
 general manager, as understood by both parties to the con- 
 tract, to receive the money, which, by his fraud and dis- 
 honesty, the pliantiif lost; (4) that a verdict and judgment 
 for plaintiff should be sustained. 
 
 Harrisburg Savings & Loan Assn. vs. United States 
 Fidelity & Guaranty Co., 197 Pa. St. 177. 
 
 An answer to a question contained in an application for 
 a bond insuring the integrity of the applicant to which 
 application no reference whatever is made in the bond 
 itself, is to be treated as a representation, rather than as a 
 warranty, and it is not error to permit the jury, in an ac- 
 tion on the bond, to determine whether such answer was 
 substantially true or not. 
 
 Missouri K. & T. Trust Co. vs. German Nat. Bank, 
 77 Fed. 119. 
 
 Where a fidelity bond provided that any willful mis- 
 statement "or suppression of fact by the employer, in his 
 statement or declaration concerning the employed, should 
 render the bond void from the beginning," the phrase
 
 04 IIIK LAW OI' FlDKI.riV IJOXD.S. 
 
 "wilU'lil iiiisslatciiH'iit" was iiitciidcd to iiicaii any matt-rial 
 false statciiiciit inadc with kiiowlcdfic ol' its falsity, volun- 
 tarily, and not inadvertently, and hence an instruction that 
 the hond was not avoided unless the misstatements were 
 made '*M'ith intent to secure renewals of the i)ond," was 
 erroneous. 
 
 Fidelity & Casualty Co. vs. Bank of Timmonsville, 
 139 Fed. 101. 
 
 Where a fidelity bond securing a building and loan asso- 
 ciation against the embezzlement of its secretary ])rovided 
 that all the representations made by the employer to the 
 surety Avere Avarranted by the employer to be true; that 
 the employee had not, to the knowledge of the employer or 
 its officers, been in arrears or a defaulter, and the associa- 
 tion stated that its secretary was not at that time in debt to 
 it ; that he had property, funds, securities and valuables on 
 hand to balance his accounts — such statement did not con- 
 stitute a warranty that the secretary Avas not indebted to 
 the association at the time as a fact, but only that he was 
 not so indebted, etc., to the knowledge of the association or 
 its officers. 
 
 Am. Eondg. Co. vs. Spokane Eldg. »S: Loan Soc. 130 
 Fed. 737. 
 
 51. — Same. 
 
 A certificate furnished by an insurance company to a 
 surety company, at the request of the latter, stating that 
 the agent Avas not in arrears or default, and never had been 
 to its knoAvledge, Avas not fraudulent, although at the time 
 the certificate was made the premiums due the day pre- 
 vious had not been paid, and although payment of pre- 
 miums had been delayed before from ten to seventy days; 
 AA-here the acts of the agents were treated as a substantial 
 com]dian(^e by the insurance company Avith the terms of the 
 contract, and the delaA- Avas not attributable to dishonesty
 
 REPRESENTATIONS AND WARRANTIES. 65 
 
 or lack of integrity of the agent, but to the wide field of 
 the agency and the difficulty in making collections, the 
 time for the return of which had been practically waived 
 and extended by the company. 
 
 Pacific Fire Ins. Co. vs. Pac. Sur. Co., 93 Calif. 9. 
 
 Where the application for a policy of (accident) insur- 
 ance is not made a part of the contract between the parties, 
 and the policy contains no warranty of the truth of the state- 
 ments in the application, both the materiality and the truth 
 of the statements of the assured in applying for the policy 
 are to be determined by the jury in an action on the policy ; 
 and a recovery cannot be defeated unless such statements, 
 or some of them, are found to be both material and untrue. 
 I'idelity & Cas. Co. vs. Alpert, 67 Fed. 460. 
 
 A writing executed by a corporation for the purpose of 
 procuring a fidelity bond insuring it against loss through 
 the fraud or dishonesty of an officer, which contains ques- 
 tions and answers and representations which are made war- 
 ranties, and a breach of which by the terms of the bond 
 thereafter issued will render the same void, is an applica- 
 tion for insurance within the meaning of Iowa Code, 1897, 
 sec. 1741, which requires insurance companies to attach a 
 copy of the application to each policy of insurance and 
 provides that the omission to do so shall preclude the com- 
 pany from pleading or proving any part of such application 
 or the falsity of any representations made therein in an 
 action on the policy. 
 
 United States Fidelity & Guaranty Co. vs. Egg Ship- 
 pers' Strawboard & Filler Co., 148 Fed. 352. 
 
 An original employer's liability bond was issued in 1901, 
 insuring plaintiff against the employee's misconduct for a 
 year. It was renewed for a new consideration for the suc- 
 ceeding year, and again for the years 1903 and 1904; the 
 renewal reciting that it was made in consideration of $20.00 
 5
 
 GO I II I. LAW Oh- J'lDKI.nV IJONDS. 
 
 preiniuiii, and coiitimicd the IxmkI in force to June 1st, 
 1904, "subject to all the covenants atid conditions thereof." 
 Held, that the r(>ncwal did not include a statement issued 
 February 24, 1903, executed by the employer, and which 
 stipulated that checks signed by the employee would be 
 countersigned by the general manager or president, and 
 which further provided that the answers in said statement 
 were to be taken as conditions precedent to and as the basis 
 of the execution of the renewal subsequently delivered, and 
 in consideration of such renewal it was further agreed that 
 the supervision described in the instrument should be ob- 
 served. The surety was held liable notwithstanding the 
 fact that the statement referred to was specifically demand- 
 ed by and delivered to it as the condition of the renewal of 
 the bond, and that the evidence showed that more than 300 
 checks, which aggregated more than $150,000, were issued 
 by the employee without the countersignatures covenanted, 
 and that the loss complained of resulted in large part, if 
 not entirely, from the use of such checks.^ 
 
 Aetna Ind. Co. vs. J. R. Crowe Coal & Mining Co., 
 154 Fed. 545. 
 
 52. — Same. 
 
 In an action against a guaranty company on a bond by 
 which the defendant agreed to make good to the plaintiff 
 any pecuniary loss he might sustain from any dishonesty 
 of a certain employee, if it appears that the defendant is- 
 sued the bond, relying upon a statement in writing signed 
 by the plaintiff that he had examined the accounts of the 
 employee at a date a week before the date of the bond and 
 found them correct in every respect up to that date, and if 
 the statement was not true and the employee at that time 
 was a defaulter to a large amount and a proper examina- 
 tion of his accounts would have disclosed that fact, the 
 
 3. — See further reference to 
 this case. Chap 1. sec. 10, post.
 
 EEPEESENTATIONS AND WAEKAjSTTIES. 67 
 
 defendant cannot be held liable for a breach of the condi- 
 tion of the bond by the dishonesty of the employee causing 
 loss to the plaintiff. 
 
 Glidden vs. United States Fidelity & Guaranty Co., 
 198 Mass. 109. 
 
 Where, in an application for a corporate fidelity bond 
 for the treasurer of a fraternal union, the obligee stated 
 that the treasurer's accounts would be examined and veri-' 
 fied every three months by its board of trustees, and stipu- 
 lated in said application that the answers, statements and 
 representations therein made should be considered war- 
 ranties, and where at an examination made in December 
 it was found the treasurer should have had $740.00 on 
 hand, and where his bank book showed deposits of $440.00 
 and he produced the balance in cash, but the amount alleged 
 to have been in bank was not verified, and where in Febru- 
 ary following it was learned that he was short. Held, that 
 the union's failure to verify the correctness of the amount 
 of funds in the hands of the treasurer was not a compli- 
 ance with the safeguard which it had agreed to give the 
 company, and the latter was therefore relieved of liability 
 under its bond. 
 
 United States Fidelity & Guaranty Co. vs. Downey, 
 38 Colo. 414. 
 
 The fact that at the time a renewal certificate of a bank 
 cashier's guaranty bond was issued there was one irregu- 
 larity in his books for the preceding year, consisting of an 
 additional cipher being placed after the figures "300," does 
 not prove that no examination of the books was, in fact, 
 made by the bank which certified, in the renewal certifi- 
 cate, that the books were "examined from time to time in 
 the regular course of business" and found to be correct. 
 
 A statement in a renewal certificate of a bank cashier's 
 guaranty bond, that his books and accounts were examined 
 by the bank "from time to time in the regular course of
 
 G8 Till'; LAW OK I'IDKLITV HOXDS. 
 
 busiuoss" and i'ouiid to be c-orrcct, does not mean that such 
 an exhaustive examination was made as would necessarily 
 discover the slightest irregularty that iiiif!:ht exist, however 
 cunningly covered up. 
 
 United States Fidelity & Guaranty Co. vs. First Na- 
 tional Bank of Dundee, 233 111. 475. 
 
 In this case it appears to have heen contended by the 
 surety company that the issuance of a renewal certificate, 
 procured by false and fraudulent misrepresentations, would 
 relieve the surety from both prior and subsequent defaults. 
 The Court says : "That such is not the construction put 
 upon these certificates by the parties is shoA\Ti by the limi-- 
 tation clause, which allows one year after the expiration 
 of the bond in which to discover the misconduct of the em- 
 ployee for Avhose fidelity the insurance policy is procured. "^ 
 
 Though an original fidelity bond be void by failing to 
 state that the insured's remuneration was a commission on 
 his sales, yet where that fact appears in a statement made 
 by the beneficiary for i-enewal of the bond, the insurer after 
 accepting and retaining the premium for the renewal and 
 issuing certificate therefor, cannot be heard to complain of 
 the original misrepresentation, whether or not such mis- 
 representation constituted a breach of warranty. 
 
 Long Brothers' Grocery Co. vs. United States Fidel- 
 . ity & Guaranty Co., 130 Mo. App. 421. 
 
 Where the bond of a bank president is issued by a surety 
 company and accepted by the bank, upon the faith of cer- 
 tain statements and representations in Avriting, made by 
 the assistant cashier of the bank, relative to the conduct, 
 duties, employment and accounts of the defaulting bank 
 president, and such statements so made by the said assistant 
 cashier are, by the terms of said bond, made a part of the 
 bond itself, the bond and statements together form the con-
 
 EEPEESENTATIONS AND WARRANTIES. 69 
 
 tract, and they must be construed together, and upon their 
 construction as a whole must depend the rights and liabili- 
 ties of the parties thereto ; and where the bond is issued by 
 the surety company and accepted by the bank upon the 
 faith of the statements and representations so made by the 
 assistant cashier, the receiver of the bank, later appointed, 
 in an action on the bond, cannot be heard to repudiate or 
 question the authority of the assistant cashier to bind the 
 bank by his statements and representations concerning the 
 conduct, duties, employment and accounts of the defaulting 
 bank president,, and at the same time be allowed to recover 
 on the bond procured on the strength of the statements and 
 representations so made by the assistant cashier. 
 
 Willoughby vs. Fidelity & Deposit Co., 15 Okla. 
 546. 
 
 Where the contract between the plaintiff and its agents 
 described the latter as brokers or commission merchants, a 
 representation to a company insuring the fidelity of such 
 agents that they were brokers is not a fraud vitiating the 
 bond. 
 
 Sinclair & Co. vs. National Surety Co., 132 Iowa, 
 549. 
 
 53. — Authority of Officer of Corporation in Making Application for 
 Fidelity Bond of Employe Thereof.! 
 
 With reference to the effect of statements made by the 
 president, secretary or other executive officer of a corporation, 
 as to the accounts of, supervision over and other matters per- 
 taining to the employee, and the authority of such officer to 
 make such statements, see the following cases. It will be ob- 
 
 1.— See Chapters 20 and 21. 
 pout, and Chapter 1, sec. 1(J, 
 ante.
 
 70 THE LAW OF FIDELITY BONDS. 
 
 served tbei'e is great conflict on the j)oiut, and reference to 
 the eases will therefore be necessary to even approximately 
 detenu inc tlio legal effect of such statements: 
 
 A president of a national bank has no power, in the ordi- 
 nary course of business, to certify to the fidelity or integ- 
 rity of a cashier for the purpose of enabling him to procure 
 a bond insuring his fidelity; and hence the bank cannot be 
 deemed merely by virtue of the president's relation to it, 
 to have any knowledge of the giving by him of such certifi- 
 cate. 
 
 Am. Sur. Co. vs. Pauly, 170 U. S. 133. 
 
 A bank cashier applying to a surety company for a bond 
 accompanied the application with a statement as to his 
 past conduct and the condition of his account, signed by 
 the president of the bank, which was incorrect, though 
 made in good faith. Such statement was not referred to in 
 the bond issued. The president had no special authority 
 to make it and none of the directors knew of it until inter- 
 posed as a defence in a suit on the bond; defendant claim- 
 ing that the statement was either a false warranty by the 
 bank or a misrepresentation by it of material facts, which 
 induced defendant to execute the bond. 
 
 Held, that making the statement was no part of the du- 
 ties of the office of president, and not within his implied 
 powers 07- ordinary duties, but Avas his individual act. by 
 which the bank was not bound. 
 
 United States Fidelity & Guaranty Co. vs. Muir, 
 115 Fed. 264. 
 
 Where a corporate fidelity bond provides that certifi- 
 cates issued by the president of a savings bank shall consti- 
 tute an essential part of the conti'act, and such certificate 
 contains a misrepresentation as to the fact of the teller
 
 REPRESENTATIONS AND WARRANTIES. 
 
 71 
 
 having engaged in speculation, the bank cannot recover on 
 the bond. 
 
 Guarantee Co. of IST. A. vs. Mechanics' Savings 
 Bank, 183 U. S. 402.2 
 
 2. — This controversy was be- 
 gun by the filing of a bill in 
 chancery in the Chancery Court 
 of the State of Tennessee by the 
 plaintiff bank against the estate 
 of its late teller and casheir and 
 the surety on his bonds, for ac- 
 count and decree on the bonds. 
 The case was removed thence to 
 the United States Circuit Court 
 for the Middle District of Ten- 
 nessee, where the case was tried 
 and judgment rendered in favor 
 of the plaintiff, on both bonds, 
 with interest and costs, with pri- 
 mary liability against the princi- 
 pal's estate. 68 Fed. 459 (1895). 
 
 On appeal to the Circuit Court 
 of Appeals, Sixth Circuit, 1896, 
 the former decision was affirmed, 
 and it was also held that where 
 the principal joins in a corporate 
 fidelity bond for the purpose of 
 entering into an obligation to the 
 surety, the liability is not joint ; 
 the suit having, without objec- 
 tion, been removed to the Fed- 
 eral Court by one of two de- 
 fendants sued upon a joint and 
 several obligation, plaintiff, by 
 proceeding to trial without pro- 
 test and taking judgment against 
 the defendant on whose petition 
 the removal was made, consented 
 to a severance of the joint action, 
 as he had a right to do. SO Fed. 
 766, 26 C. C. A. 146 (1896). 
 
 Rehearing denied. 82 Fed. 
 545, 27 C. C. A. 373 (1897). 
 
 Thereafter the case was car- 
 ried by a writ of certiorari to 
 the Supreme Court of the United 
 States, 178 U. S. 612, where the 
 judgment was reversed upon the 
 single ground that the Court had 
 not jurisdiction of the appeal, 
 because the judgment upon which 
 the appeal was taken was not 
 final, and the cause was remand- 
 ed with directions to dismiss the 
 appeal prosecuted to the Circuit 
 Court of Appeals, and for such 
 further proceedings in the Cir- 
 cuit Court as may be consistent 
 with law. 173 U. S. 582 (1899). 
 
 Final judgment was thereupon 
 entered by the Circuit Court, sub- 
 stantially as in the first instance. 
 
 The case was again taken to 
 the Circuit Court of Appeals on 
 appeal, where it was held that 
 the surety of a bank cashier, un- 
 der the bonds in suit, was not 
 liable for the amount of over- 
 drafts on the bank paid by the 
 cashier without authority from 
 the bank, when it was not shown 
 that the cashier received any 
 part of such amount, or any bene- 
 fit therefrom, and the case was 
 remanded to the Circuit Court, 
 with directions to modify its 
 judgment as indicated. 100 Fed. 
 559, 40 C. C. A. 542 (1900). 
 
 Certiorari was then allowed by 
 the Supreme Court of the United 
 States, which reversed both the 
 Circuit Court and Circuit Court
 
 THE I-A\V ()!•■ I' IDKI.I'IV HoNDS. 
 
 Ill :i suit on ii coritoratc fidelity Ixtiid, it was error for 
 the tri;il ('ouit to refuse to periiiir defendants to introduce 
 in evidence an inquiry by the president of the surety com- 
 ])any, addressed to the phiintiff, as to the renewal of the 
 Ixmd of the president of the hank, and the reply of the 
 cashier thereof, containing an assurance that the president 
 
 of Apiieals. and rcniamlrd tlic 
 cause lor further proceedings, 
 and hold as follows (1S3 T". S. 
 402) : 
 
 Where a bond insurin.L;; a i)ank 
 a,i;ainst such pecuniary loss as it 
 uilsht sustain b.v reason of the 
 fraudulent acts of its teller, con- 
 tained a provision that the com- 
 pany would notify the insuring 
 company on "becoming aware" or 
 the teller "being engaged in spec- 
 ulation or gambling." it is the 
 duty of tlie bank to give such no- 
 tice, when informed that the tel- 
 ler is specuhxtiug, although, while 
 confessing the fact of speculat- 
 ing, lie asserts that he has ceasen 
 to do so. 
 
 When the teller is in fact en- 
 gaged in speculation and tlie 
 bank is so informed, it cannot re- 
 cover on such a bond for losses 
 occurring through his fraudulent 
 acts after the information is re- 
 ceived, when it has not notified 
 the company of what it has heard 
 or made any investigation, but 
 has accei>ted the teller's assur- 
 ance of i>resent innocence as suf- 
 ficient, on the mere ground that 
 it liad confidence in his integrity. 
 When at the time the teller's 
 bond was renewed the books of 
 the bank showed that he was a 
 defaulter in the sum of .-^lO.rnn 
 
 understated liabilities, and ot 
 .'j:3,7(ir).44 abstracted from bills re- 
 ceivable, both of which could have 
 been detected by the taking of a 
 trial balance or a mere compari- 
 son lietween the books kept by 
 him and the individual ledger 
 kept by another person, and by a 
 correct footing of the notes, the 
 bank is open to the charge of 
 lache.s. and a certificate that the 
 accounts of the teller had been 
 examined and verified is not 
 truthful. 
 
 Where it is known to the pres- 
 ident of the banlc that the insur- 
 ing company regards engage- 
 ments in speculation as unfavor- 
 able to an employee's habits, and 
 he is informed that the employee 
 is speculating, a representation 
 by the president that he has not 
 known or heard anything unfa- 
 vorable to the employee's habits, 
 past or present, or of any mat- 
 ters concerning him. about which 
 the president deems it advisable 
 for the company to make inquiry 
 is a misrepresentation. 
 
 It is interesting to note that 
 the Supreme Court, in the Paiihi 
 Cane. 170 V. S. ^3S. Chapter 1. 
 sec. 10. note. ante, and Chap. 2. 
 sec. 53. above, held that a presi- 
 dent of a National Rank has no
 
 KEPEESENTATIONS AND WARRANTIES. 
 
 73 
 
 had up to that time performed his duties in a satisfactory- 
 manner. But held in this case the error was not preju- 
 dicial, and hence no ground for reversal. 
 
 Eidelity & Deposit Co. vs. Courtney, 186 U. S. 342. 
 
 Where a bank seeks to avail itself of the benefit of the 
 actions of its president in securing the execution of a bond 
 guaranteeing the fidelity of its cashier, it must accept such 
 actions subject to the president's representations inducing 
 the execution of the contract by the surety; and it must 
 be held to have assented to the conditions of the bond pro- 
 viding that the representations made by the president rela- 
 tive to the duties and accounts of the cashier should consti- 
 tute an essential part and form the basis of the contract. • 
 Warren Deposit Bank vs. Fidelity & Deposit Co., 
 116 Ky. 38. 
 
 Where it is no part of the duty of the secretary of an 
 insurance association to certify that the books and accounts 
 of the president had been audited and found correct, the 
 association was not bound by such certificate furnished by 
 
 power, in the ordinary course of 
 business, to certify to the fidelity 
 or integrity of a cashier for the 
 purpose of enabling him to pro- 
 cure a bond insuring his fidelity; 
 and hence the banli cannot be 
 deemed merely by virtue of the 
 president's relation to it, to have 
 any knowledge of the giving by 
 him of such certificate ; and de- 
 nied certiorari (187 U. S. 047) in 
 the Muir Case (115 Fed. 246), 
 Chap. 2, sec. 53, involving the 
 same question; while in the Me- 
 chanics' Bank Case, 183 U. S. 402, 
 it held that a savings bank and 
 trust company was bound by the 
 knowledge and acts of its presi- 
 dent, as above shown, and again 
 
 in the Courtney Case, 186 U. S. 
 342, Cliap. 2, sec. 53, it held it 
 was error for the trial Court to 
 refuse to permit defendants to 
 introduce in evidence an inquiry 
 by the president of the surety 
 company, addressed to the plain- 
 tiff, as to the renewal of the 
 bond of the president of the bank, 
 and the re])ly of the cashier there- 
 of, containing an assurance that 
 the president had up to that time 
 performed his duties in a satis- 
 factory manner. 
 
 The three above-mentioned 
 cases are the only ones involving 
 the construction of a corporate 
 fidelity bond that have been con- 
 sidered by the Supreme Court.
 
 74 THK LAW OF FIDELITY BONDS. 
 
 the secrelary to a surety company executing the president's 
 official bond. 
 
 Sherman vs. Harbin, 125 Iowa, 174. 
 
 Where the certificate of the president of a building and 
 loan association to a surety company stating that the ac- 
 counts of an employee were correct in every respect pur- 
 ported to be simply his statement made to the best of his 
 knowledge and belief, the fact that at the time the auditing 
 committee knew an error existed in the employee's accounts 
 did not relieve the surety company from liability. The 
 making of an employer's statement was not within the du- 
 ties of such president. 
 
 Perpetual B. & L. Assn. vs. U. S. Fidelity k Guar- 
 anty Co., 118 Iowa, 729. 
 
 Where a bank, in order to acquire knowledge on which 
 to base its statements as to the honesty of an employee in 
 an application to a guaranty company for a bond for such 
 employee, employs an expert examiner to examine such em- 
 ployee's accounts, on whose examination and report it bases 
 such statements, it is not chargeable with such examiner's 
 negligence. 
 
 In such case, the bank was chargeable only with the exer- 
 cise of ordinary care in selecting a competent examiner to 
 investigate the employee's accounts. 
 
 Fidelity (S: Guaranty Co. of X. Y. vs. Western Bank, 
 29 Ky. L. R. 639. 
 
 In a suit upon a fidelity bond the burden is not upon the 
 plaintiff to prove compliance, but upon the defendant to 
 prove a breach of the conditions. 
 
 Sinclair <S: Co. vs. Xatl. Surety Co., 13 Iowa, 549. 
 
 54. — Further Reference to Same Subject. 
 
 See further. Chapter 24, Cashier as Agent of Bank. 
 
 As to the effect of knowledge of insurer's agent of falsity
 
 BEPRESENTATIONS AND WAEKANTIES. 75 
 
 of statements iu application, see note to Clemans vs. Su- 
 preme Assembly, 16 L. R. A. 33. 
 
 As to what constitutes knowledge of default, see Chapter 
 19 and knowledge of officer of corporation, Chapter 20. 
 
 55. — Representations and Warranties in Insurance Policies. 
 
 Further referennce to decisions with reference to repre- 
 sentation and warranties in insurance policies may be made 
 to the following cases : 
 
 Jeffries vs. Ins. Co., 22 Wall. 47. 
 
 Moulor vs. Ins. Co., Ill U. S. 335. 
 
 Phoenix Life Ins. Co. vs. Raddin, 120 U. S. 183. 
 
 Ins. Co. vs. France, 91 IT. S. 510. 
 
 CarroUton Furniture Co. vs. Am. Cred. Ind. Co., 
 
 124 Fed. 25. 
 Logan vs. Provident . Sav. & L. Assn. Soc, 57 
 
 W. Va. 384. 
 First ISTat. Bank vs. Fidelity & Guaranty Co., 
 
 110 Tenn. 10. 
 Harbour Commissioners vs. Guarantee Co. of IS". 
 
 A., 22 Can. Sup. Ct. Rep. 542. 
 
 It has been held that a life insurance company is not re- 
 quired to tender return of premiums to enable it to defend 
 on the ground of fraudulent misrepresentations in procuring 
 the policy. 
 
 United States Life Ins. Co. vs. Smith, 92 Fed. 
 503. 
 
 56. — Statements by Public Officers. 
 
 With reference to effect of statements and publications 
 made by public officers upon the liability of a corporate or 
 other fidelity bond executed on behalf of another officer, see 
 Chapter 4, laches, etc.
 
 7(> TIM. LAW (ii- !• ii>i;i.ri •^• konds. 
 
 CO. 
 
 I'lirtlicr rcforeuces. 
 
 <;i. 
 
 Leadiiif: caso-s on negligence 
 
 
 by obligee. 
 
 (52. 
 
 Digest of authorities. 
 
 03. 
 
 Same. 
 
 (;4. 
 
 Same. 
 
 05. 
 
 Same. 
 
 06. 
 
 Rule inapplic.-ihle to govern- 
 
 
 ment or other sovereign 
 
 
 body. 
 
 07. 
 
 Further references. 
 
 OS. 
 
 Private corporations. 
 
 CHAPTER III. 
 
 FRAUD IN PROCURING BOND. 
 
 57. Effect on liability of surety 
 
 of non-disclosure upon 
 proper inquiry or oppor- 
 tunity or fraudulent con- 
 cealment or misrepresent- 
 ation of material facts by 
 obligee at the time of or 
 previous to the execution 
 of the bond. 
 
 58. Fraudulent or negligent acts 
 
 of obligee. 
 
 59. Leading cases on fraudulent 
 
 representation. 
 
 57. — Effect on Liability of Surety of Non=DiscIosure Upon Proper 
 Inquiry or Opportunity or Fraudulent Concealment or Mis= 
 representatin of Material Facts by Obligee at the Time of 
 or Previous to the Execution of the Bond. 
 
 In the preceding- Chapter reference was made to corporate 
 fidelity bonds exclnsively, and to the written statements con- 
 stituting representations or warranties made by the insured 
 in the form of proposals or "employers statements," and be- 
 ing referred to and usually made a part of the contract. In 
 this Chapter reference is made to fidelity bonds generally, 
 and to the duty of disclosure and effect of non-disclosure by 
 the obligee of facts materially affecting the risk. 
 
 The contract of suretyship imports entire good faith and 
 confidonce between the parties in regard to the whole 
 transaction. Any concealment of material facts, or any 
 erpress or implied misrepresentation of such facts, or any 
 undue advantage taken of the surety by the creditor, either
 
 FEAUD IN PROCURING BOND. 77 
 
 by surprise or withholding proper information, will un- 
 doubtedly furnish sufficient ground to invalidate the con- 
 tract. 
 
 Story^ Eq. Juris., sec. 324. 
 
 CLilds, Sur, & Guar., sec. 54. 
 
 Brandt, Sur. & Guar., sec. 256. 
 
 White vs. Life Assn., 63 Ala. 419. 
 
 Domestic Sewing Machine Company vs. Jackson, 83 
 Tenn. 418. 
 
 Booth vs. Storrs, 75 111. 438. 
 
 If a psrty taking a guaranty from a surety conceals from 
 him facts which go to increase his risk and suffers him 
 to enter into the contract under false impressions as to the 
 real state of the facts, such concealment will amount to a 
 fraud because the party is bound to make the disclosure; 
 and the omission to make it under such circumstances is 
 equivalent to an affirmation that the facts do not exist. 
 
 So, if a party knowing himself to be cheated by his 
 clerk, and concealing the fact, applies for security in such 
 a manner and under such circumstances as holds the clerk 
 out to others as one whom he considers as a trustworthy 
 person, and another person becomes his security, acting 
 under the impression that the clerk is so considered by his 
 employer^ the contract of suretyship will be void; for the 
 very silence under suoh circumstances becomes expressive 
 of a trust and confidence held out to the public equivalent 
 to an affirmation. 
 
 Story, Eq. Juris., sec. 215. 
 Brandt, Sur. & Guar., sec. 472. 
 
 And where persons take upon themselves to make asser- 
 tions as to which they are ignorant whether they are true 
 or untrue, they are as responsible as if they had asserted 
 that which they knew to be untrue. Whether a party mis- 
 representing a fact knew it to be false, or made the asser- 
 tion without knowing whether it were true or false, is
 
 <0 Till'; LAW OK J-IDKLITY BONDS. 
 
 wlHtlly iiiiiiiiitcrial ; lor the allii-iiiat ion oi' wiitit oiio does 
 not know or believe to hv true is as unjustifiable as the 
 affirmation of what is known to be false. 
 
 Lawson on Contracts, sec. 238. 
 
 Childs, Sur. & Guar., sec. 54. 
 
 58. — Fraudulent or Negligent Acts of Obligee. 
 
 Under this general title there are two classes 01 cases. The 
 tirst, those in which the employer or obligee, knowing- or sus- 
 pecting and believing that his servant is in default, requires 
 him to give bond, and either directly f>r imi)liedly holds him 
 out as trustworthy for such pur])ose, thereby seeking security 
 for the past as well as possible future defaults, and practicing 
 a deliberate fraud upon the surety. The second, are those 
 cases in which the obligee actively represents, or pas- 
 sively or negligently permits the surety to believe the em- 
 I)loye(> worthy of the ])roposed assurance, when he knows 
 or could by ordinary diligence know of ]irior defaults or other 
 circumstances materially affecting the risk which are uncom- 
 municated and unknown to the surety. 
 
 59. — Leading Cases on Fraudulent Representation. 
 
 Under the first proposition, the leading English case is 
 Smith vs. Bank of Scotland, 1 Dow., 272 (1813), which held: 
 "If a principal, suspecting the fidelity of his agent, re- 
 quires security in a way which holds him out as a trust- 
 worthy person, the surety is not liable." 
 
 The leading American case on this point is Franklin Bank 
 vs. Cooper, 36 IMe. 179, 39 Me. 542 (1853), which held: 
 
 "It is a fair presumption that one, becoming a surety, 
 does it upon a belief that the principal parties are con- 
 ducting in the usual course of business, subjecting him only 
 to the ordinary risks attending it. To accept a surety known 
 to be acting upon a belief, that there are no unusual cir-
 
 FKAUD IN PEOCURING BOND. 79 
 
 cumstances by which his risk will be materially increased, 
 while the party thus accepting knows that there are such 
 circumstances, and withholds the knowledge of them from 
 the surety, though having a suitable opportunity to com- 
 municate them, is a legal fraud, which discharges the 
 surety. 
 
 ''The bond of a bank cashier, framed to cover past as 
 well as future delinquencies, will be invalid against a surety 
 if his name was procured at the desire of the directors, 
 they knowing that past defalcations existed, of which he 
 was ignorant, and withholding the knowledge from him^ 
 though with a suitable opportunity to communicate it." 
 
 The rule is thus stated in th.e important case of Dinsmore 
 vs. Tidball, 34 Ohio St. 411: 
 
 "If a principal having knowledge, or a belief founded 
 on reasonable and reliable information, that his agent is a 
 defaulter, requires sureties for his fidelity in the future, 
 and holds him out as a trustworthy person, whereby such 
 security is obtained, he cannot afterwards avail himself of a 
 guaranty so obtained from a person who was ignorant of 
 what was known to, and ought to have been disclosed by, 
 the employer." 
 
 60. — Further References. 
 
 This case was followed and approved in Smith vs. Josse- 
 lyn, 40 Ohio St. 409, and constitutes the general rule in the 
 American Courts. Indeed, it is founded upon such princi- 
 ples of manifest justice, as well as fundamental principles of 
 law, as to leave no room for question. (See valuable note on 
 the subject in 63 Am. St. Rep. 335.) 
 
 The cashier of a bank, who had furnished a bond signed 
 by a fidelity insurance company, which had from time to 
 time been renewed, on the occasion of one expiration re- 
 fused to renew. Two months afterwards he left the city 
 without notice to the bank, taking with him $5,000 of
 
 80 rilK J-A\V ()!•• I'lUKlAiV J{().\I>S. 
 
 the hiiiik's iiioiicv. Two or tliree days latci- llic |ii-csideiit 
 of tlic l);iiik, with knowledge of such facts, but witliout dis- 
 closing tlicni to the conipany, caused the renewal jjixMuium 
 to be paid and the bond renewed. Held, in an action by 
 the bank to recover on the l)on(l for the $5,000 defalcation, 
 a finding by the jury that such facts wei"c suppressed by 
 plaintiff's officer for defrauding tiie defendant by inducing 
 it to make the renewal justified a judgment for defendant. 
 J^ational Bank of Asheville vs. Fidelity (^' Casualty 
 Co., 89 Fed. 819. 
 
 6i. — Leading Cases on Negligence by Obligee. 
 
 The leading English case upon the second proposition is 
 Kailton vs. :Mathe\vs, 10 CI. & F. H. L. Cas. 934, which held : 
 ''The mere non-communication of circumstances affect- 
 ing the situation of the parties, material for the surety to 
 be acquainted Avith, and within the knowledge of the per- 
 son obtaining a surety bond, is undue concealment, though 
 not wilful or intentional, or with a view to any advantage 
 to himself." 
 
 And this is the rule sup]iorted bv the groat weight of au- 
 thority in America. 
 
 62. — Digest of Authorities. 
 
 There are suretyships required by individuals or pri- 
 vate corporations for protection against loss by reason of 
 the unfaithfulness of clerks or servants; the nature and 
 extent of the duties which these have undertaken to per- 
 form and of the trust which has been confided to them, and 
 the state of the accounts between them and their employers 
 at any given time, can accurately be known by the surety 
 only by the acts and words of the employer; if, therefore, 
 the latter, knowing the surety to be shut up to this single 
 source of information, misleads him to his injury, the law
 
 FRAUD IN PEOCURING BOND. 81 
 
 will not permit tlie employer to reap any advantage from 
 concealment or misrepresentations. 
 
 State vs. Howarth, 48 Conn. 207. 
 
 "It is a well-settled rule of law that if a creditor induces 
 a surety or guarantor to enter into the contract of surety- 
 ship or guaranty by any fraudulent concealment or misrep- 
 resentation of material facts that the surety or guarantor 
 will be released." 
 
 63 Am. St. Eep. 327. 
 
 If the proposed surety in a bond for the conduct of an 
 employee makes inquiry of the proposed obligee as to the 
 previous conduct of the employee, such obligee is bound to 
 make full disclosure of all material facts within his knowl- 
 edge bearing on the risk, and if he fails to do so or knowingly 
 makes, in response to the inquiry, false representations as 
 to such facts, or does so ignorantly, but under such circum- 
 stances as would naturally lead the inquirer to believe the 
 representations to be based on an investigation, and the pro- 
 posed surety is thereby induced to sign the bond^ he may 
 avoid liability thereon on the ground of fraud. 
 
 But an innocent representation in such a case, such as 
 the assertion of a mere opinion or the misstatement of a 
 fact through mere ordinary negligence not made under such 
 circumstances as to suggest that it was based on an investi- 
 gation, will not relieve the surety of liability. 
 
 Brillion Lumber Co. vs. Barnard, 131 Wis. 284. 
 
 Remington S. M. Co. vs. Keyertee, 49 Wis. 409. 
 
 Bank vs. Anderson, 65 Iowa, 692. 
 
 Benton Co. Savings Bank vs. Boddicker, 105 Iowa, 
 548. 
 
 Frank Felir Brewing Co. vs. Mullican, 23 Ky. L. R. 
 2100. 
 
 It is the duty of an employer in taking a bond for the 
 honesty and fidelity of an employee to disclose to the sure- 
 6
 
 82 rilK I,A\V OK FIDKI.I TV BONDS. 
 
 tics llicr(()ii I he ('iii])l(>ycf's knowicdgc of ])ast iiiisappro- 
 ])riatioii.s of iiioiicv aiiioiuiting to criminality on the part 
 of siu'li ciiiployoo, and if sucli disolosiirc is not made or is 
 concoalcMl the sureties are not liable, unless they in fact 
 had knowledge or information concerning such misappro- 
 ])riations when they signed and delivered such bond. 
 
 Conn. Gen. Life Ins. Co. vs. Chase, 72 Vt. 176. 
 
 Laucr Brewing Company vs. Riley, 195 Pa. St. 449 
 
 63 Am. St. Rep. 335. 
 
 Wayne vs. Com. Nat. Bank, 52 Pa. St. 343. 
 
 Third Natl. Bank vs. Owen, 101 Mo. 558. 
 
 Belleview L. k B. Assn. vs. Jeckel, 105 Ky. 159. 
 
 Deposit Bank vs. Hearne, 104 Ky. 819. 
 
 Atlas Bank vs. Brownell, 9 R. I. 168. 
 
 Bolz vs Stuhl, 4 Pa. Super. Ct. 52. 
 
 U. S. Life Ins. Co. vs. Salmon, 157 N. Y. 682. 
 
 Drabek vs. Grand Lodge, 24 111. App. 82. 
 
 Traders Ins. Co. vs. Hecker, 67 Minn. 106. 
 
 Capital Fire Ins. Co. vs. Watson, 76 Minn. 387. 
 
 Sooy vs. State, 39 N. J. L. 135. 
 
 Commonwealth B. 6c L. Co. vs. Fromlet, 7 Ohio, n. s. 
 194. 
 
 But in the absence of inquiry from a surety, held the cred- 
 itor is not bound to connnunieate to him all the circumstances 
 that may affect the undertaking:. 
 
 Lake vs. Thomas, 84 Md. 608. 
 
 If the obligee in a bond given to secure the faithful per- 
 formance of the duties of an agent knows at the time of the 
 execution of the bond that the agent is a defaulter, and 
 conceals the fact from the sureties, such concealment is a 
 fraud upcm the sureties, and discharges them from liability 
 on the bond. 
 
 Guardian Fire Assn. Co. vs. Thompson, 68 Calif. 
 
 208 
 Harrison vs. Lumbermen Ins. Co., 8 Mo. App. 37.
 
 FEAUD IX PROCURING BOND. 83 
 
 Whoever becomes answerable for another is entitled to 
 suppose that the transaction is in the usual course of busi- 
 ness, and will not subject him to extraordinary risks that 
 could not have been anticipated. In such cases entire good 
 faith is due to the surety, and if any fact material to his 
 interest increasing his responsibility be concealed from him 
 it will operate to relieve him. 
 
 Mumford vs. M. & C. R. R. Co., 2 Tenn. 393. 
 
 Wilmington, C. & A. R. R. Co. vs. Ling, 18 S. C. 
 116. 
 
 Any concealment from a surety by the creditor of mate- 
 rial facts, or any express or implied misrepresentation of 
 facts, or any undue advantage taken of the surety by the 
 creditor, either by surprise or by withholding proper infor- 
 mation will furnish sufficient ground to invalidate the con- 
 tract. 
 
 First ISTat. Bank of Stanford vs. Mattingly, 92 Ky. 
 
 651. 
 Screwmen's Ben. Assn. vs. Smith, 70 Tex. 168, 
 
 It is fraud in law if a party makes representations which 
 he know^s to be false, and injury ensues, although the mo- 
 tive from which the representations proceeded may not have 
 been bad. 
 
 Drabek vs. Grand Lodge, 24 111. App. 82. 
 
 A surety is prejudiced by the risk assumed by reason of 
 the non-disclosure of the fact that the principal for want 
 of integrity, is not entitled to confidence in the relation 
 which hi>, surety as such is induced to assume to him ; such 
 concealment is deemed fraudulent, and everything short of 
 that is insufficient to avoid the obligation of the surety. 
 Ludekens vs. Pscherhofer, 76 Hun. (IST. Y.) 548. 
 
 When with the knowledge and assent of the creditor there 
 is a misrepresentation with regard to material facts, and
 
 84 TilE LAW Oh' FJDKLITV BONDS. 
 
 liad tlie real facts been known and not misstated they might 
 reasonably have prevented the security from entering into 
 his contract of suretyshi}), such contract will not be binding 
 on the surety, though such misrepresentation was not made 
 with a fraudulent purpose. 
 
 If a material fact connected with the contract of surety- 
 ship which might influence the surety in entering into the 
 contract, is fraudulently concealed with a view to benefit 
 the creditor, such concealment, though no inquiry is made 
 by the surety, would discharge him. 
 
 Warren vs. Branch, 15 W. Va. 21. 
 
 63. — Same. 
 
 If a party designedly misrepresent a material fact which 
 it was his duty to disclose, and upon which the other party 
 had a right to rely, and did rely, for the purpose of mis- 
 leading and deceiving the other party to his injury, he is 
 guilty of a positive fraud, which will authorize the de- 
 ceived party to avoid the contract entered into, in conse- 
 quence of the misrepresentation. 
 
 Jones vs. Emory, 40 N. H. 348. 
 
 An agent of an insurance company who has been guilty 
 of embezzling funds of the company was appointed agent 
 of a new company formed with the same stockholders and 
 officers, the new company taking a bond for the faithful 
 performance of the duties of such agent. The new com- 
 pany having knowledge of his former embezzlement, failed 
 to give the sureties on the bond notice thereof. Held, the 
 sureties, having no knowledge of the former acts of embez- 
 zlement, were not liable on the bond. 
 
 Ind. & Ohio Live Stock Ins. Co. vs. Bender, 32 Ind. 
 App. 287. 
 
 The failure of the general agent of an insurance com- 
 pany, who required a sub-agent to execute a bond for the 
 prompt payment of all moneys collected by him in the
 
 FRAUD IN PEOCUKINO BOND, 85 
 
 business of his agency, to inform tlie sureties at the time 
 they executed the bond that the sub-agent was then largely 
 indebted to his principal on account of funds embezzled by 
 him, which fact was known to the general agent, relieves 
 the sureties from liability on the bond. 
 
 But the mere failure of the obligee in such case to inform 
 the sureties in the absence of inquiry that their principal 
 had fallen behind in his accounts until at the time of the 
 execution of the bond he was considerably indebted to the 
 obligee, does not relieve the sureties from liability if such 
 undisclosed acts of the principal do not involve moral tur- 
 pitude, but are such as are consistent with honesty, and 
 only tend to show that he is negligent, dilatory or un- 
 skilled. 
 
 Hebert vs. Lee, 118 Tenn. 133. 
 
 To the same effect is — 
 
 Home Ins. Co. vs. Holway, 55 Iowa, 571. 
 See also — 
 
 Palatine Ins. Co. vs. Crittenden, 18 Mont. 413. 
 
 The obligee in a surety bond is not required to aid the 
 surety in determining the desirability of the contract of 
 indemnity nor to warn him against risk where all the facts 
 are as accessible to one as the other, whether the surety be 
 present or absent, unless the circumstances of the case are 
 such that silence on the part of the obligee would amount 
 to an intentional fraud or deception. 
 
 Sherman vs. Harbin, 125 Iowa, 174. 
 
 The omission of the obligee to advise the surety upon 
 a bond of indemnity of the refusal of another to go upon 
 such a bond as a surety because he considered the obligor 
 untrustworthy, is not of itself a defense to an action brought 
 against such surety upon the bond. 
 
 Ludekens vs. Pscherhofer, 76 Hun. (W. Y.) 548.
 
 8(5 TIIK LAW OF FIDKLITY BONDS. 
 
 Hut sec I iiipcriiil lliiildiiii; v.V l.iiiiii (V». vs. Initcvl States 
 Fidclitv \- (liiiiraiitv ('<>inj)iniy, .'! ()lii(i ("ir, Ct, ii. s. '>85, 
 where a false stateiiieiit liv oMiuce as to such fact held to re- 
 lease the surety. 
 
 64. — Same. 
 
 To render the defense of conceahnent sufficient in an 
 action by a creditor against a surety it is necessary to aver 
 that the creditor either procured the surety's signature, or 
 was present when the instrument was executed, and then 
 niisreprcocnted or concealed essential facts which should 
 have been disclosed. 
 
 Magee vs. Manhattan Life Ins. Co., 92 U. S. 93. 
 
 The sureties of an officer of a corporation are not relieved 
 from liability on account of the fact that the officer was a 
 defaulter when the bond was given, where the officers of 
 the corporation had no knowledge of such fact. Their mere 
 negligence, in the absence of fraudulent representations or 
 concealment, will not discharge the sureties. 
 Bennett vs. Association, 57 Tex. 72. 
 First Xatl. Bank vs. Fidelity & Guaranty Co., 110 
 Tenn. 10. 
 
 This decision must be taken with certain allowances. It 
 is based on the old case of Tapley vs. Martin, 116 Mass. 275, 
 and Guarantee Co vs. Mechanics' Bank, 80 Fed. 706,^ subse- 
 quently reversed. 
 
 It is no defense that the surety of a bank teller was in- 
 duced to become such surety by reason of the published re- 
 port of the bank immediately before he became surety, 
 showing its re.'?ources and liabilities which were false. 
 
 1. — See note to Chap. 2. sec. 53.
 
 FRAUD IjS' PEOCURIXG EOI^D. 
 
 87 
 
 Such publication has uo relation to such suretyship, nor 
 does it disclose whether the teller is honest or dishonest. 
 
 Lieberman vs. First Xatl. Bank, 2 Penu. (Del.) 416. 
 
 Held, however^ in Graves vs. Lebanon Bank, 73 Ky. 23, 
 that such a publication having been published and seen and 
 relied on by sureties, the latter were discharged. That was 
 an early case and would not now be followed; certainly not 
 in the case of a corporate surety. If that were the law, it 
 would be difficult or impossible for any bank to collect on 
 any bond where there was an undiscovered default at the 
 time the bond was executed. 
 
 65. — Same. 
 
 If, in fact, an officer of a corporation whose fidelity is 
 insured sustained other relations to the company than those 
 indicated in its statement on which the bond was executed, 
 and which were essentially different, and involved the re- 
 ceipt and expenditure of the employer's money, the failure 
 to disclose such relations is a defense to liability of the 
 surety company on its bond. 
 
 Issaquah Coal Co. vs. United States Fidelity & Guar. 
 Co., 126 Fed. 89. 
 
 Where a fidelity bond provided that any 'Svillful mis- 
 statement" or suppression of fact by the employer in his 
 statemenr or declaration concerning the employed should 
 render the bond void from the beginning, the phrase "will- 
 ful misstatement" was intended to mean any material false 
 statemen' made with knowledge of its falsity, voluntarily, 
 and not inadvertently, and hence an instruction that the 
 bond was not avoided unless the misstatements were made 
 'Svith intent to secure renewals of the bond" was erroneous. 
 Fidelity (fc Casualty Co. of Xew York vs. Bank of 
 Timmonsville, 139 Fed. 101.
 
 88 TJIK J. AW OK JIDKLIIV UO.NDS. 
 
 The coii('(;iliiiciit Iroiii .surt'ties of the cashier of a bank 
 of the fact that the predecessor of the cashier had been a 
 defaulter did not affect their liability; nor did the conceal- 
 ment by the directors of prior misconduct of the cashier 
 while occupying the position of teller, where such conduct 
 did not affect the moral character or official fidelity of the 
 employee. 
 
 Bostwick vs. Van Voorhis, 91 N. Y. 353. 
 
 Under a bond guaranteeing payment for shipments of 
 goods to an agent, it was held that the failure of the agent 
 to pay cash for any shipment was a breach of contract enti- 
 tling his principal to proceed against him and his sureties 
 to enforce the collection of the debt then due, and hence 
 his sureties were entitled to call on authorized agents of 
 his principal for information as to the state of his accounts, 
 and if by their misrepresentations the sureties changed their 
 position to their detriment, they were discharged from lia- 
 bility. 
 
 St. Louis Brewing Assn. vs. Hayes, 107 Ped. 395. 
 
 See note on liability of surtev upon instrument obtained 
 by fraud or niisre]ircsGntation — 
 21 L. R. A. 409. 
 
 In an action on a bank teller's bond for losses sustained 
 by the bank, a plea set up that the bank induced defendant 
 surety to execute the bond by false representations that the 
 teller never was in arrears or default to the bank, and that 
 his books and accounts had been examined a short time be- 
 fore, and found to be correct. Held, that such a plea was 
 allowed under the Code of Virginia, enabling fraud in the 
 procuring of a sealed contract to be set up as a defense, 
 and that it constituted a valid defense, whether or not the
 
 FEAUD IN PEOCUEING BOND. 89 
 
 bank believed the representations to be true when it made 
 them. 
 
 Guarantee Co. of N". A. vs. First ISTat. Bank of 
 Lynchburg, 95 Va. 480. 
 
 66. — Rule Inapplicable to Government or Other Sovereign Body. 
 
 It may be remarked in passing that the acts or omissions, 
 negligence, concealment, false representations, fraud or wrong- 
 doing of Government, State, Municipal and County officials 
 will not operate to discharge the sureties from liability on 
 the bonds of other such officials. With a few apparent excep- 
 tions, this proposition is supported by a long line of undis- 
 puted authority. As said by Judge Sharswood, the sureties 
 in such a case guarantee that their principal shall be honest, 
 though all about him are rogues. 
 
 For further discussion on this point, see Chapter 4, on 
 ITegligence, where the authorities are collected. 
 
 ISTot only will passave conduct on the part of other officials, 
 such as failure to notify a prospective surety of the fact that 
 the principal is in default, or failure to examine his accounts 
 as required by law, not relieve the sureties, but even active 
 conduct on their part, such as would, between private indi- 
 viduals, amount to fraud and vitiate the policy, will like- 
 wise not relieve them. Thus, where a public official is ap- 
 plied to by prospective sureties for information as to the 
 accounts of the party to be bonded, and such official fails to 
 inform the sureties that the party is then in default, or con- 
 ceals such fact, or fails to furnish other information mate- 
 rial to the risk, or furnishes false information, and the sure- 
 ties are misled thereby, in all such cases the sureties are lia- 
 ble under their undertakings. 
 
 Sooy vs. State, 39 K J. L. 135. 
 State vs. Bates, 36 Vt. 38Y. 
 McLean vs. State, 8 Tenn. 22.
 
 00 IIIK I. AW ()]'• KIDKJ.I TV Uo.NDS. 
 
 ('(Hiiiiiniiwcalth \-s. Am. Jionding ^ T. Co., 205 
 I'a. St. ;5Tl'. 
 
 JJowcr vs. Washing-ton Co., 25 Pa. St. G!J. 
 
 State vs. Hushing, 17 Fla. 220. 
 
 Anderson vs. P,hiir, 121 Ga. 120. 
 
 I'liited States Fidelity cV Guaranty Co, vs. Com- 
 monwealth, :n Ky. L. 11. 1170. 
 
 Stoecklc vs. Armstrong, 8 Dei. Ch. 150. 
 
 Hoitt vs. Holcomb, 23 X. H. 535. 
 
 Detroit vs. Weber, 2G Mich. 284. 
 
 Judge Cooley wrote a vigorous dissenting opinion in the 
 iast-nientioned case, against the proposition that the misrep- 
 resentations of a City Comptroller, made to sureties, before 
 the execution of their bond, would have no effect upon the 
 liability thereon. 
 
 Held, in Wilson vs. Town of Monticello, 85 Tnd. 11, that 
 an answer by sureties of an agent of a municipal corporation 
 for the sale of municipal bonds, that the plaintiff knew and 
 concealed from them the fact that the agent had, before the 
 bond was executed, disposed of the securities not returned, 
 and also represented to them that he then had them in his 
 hands, whereby they wer(> deceived and induced to become 
 sureties, was a good defense. 
 
 67. — Further References, 
 
 Further reference may be made to Chapter 2, on Repre- 
 sentations and Warranties, for review of authorities relating 
 to written statements by ])ublic officials made to corporate 
 sureties by way of proposals for bonds of other officials. 
 
 Reference may also be made to Chapter 7 on the subject 
 of corporate fidelity bonds filed in place of statutory or other 
 official bonds.
 
 FRAUD IN PKOCUKING BOND. . 91 
 
 68. — Private Corporations. 
 
 Whether the negligence or fraud of one officer or agent 
 of a private corporation will operate to discharge the sure- 
 ties of another officer or agent is ojDen to some doubt. The 
 weight of authority undoubtedly is in favor of the proposi- 
 tion that the acts or omissions or knowledge of an officer or 
 agent of a corporation — certainly so in the case of an execu- 
 tive officer — are the acts or omissions or knowledge of the 
 corporation, and hence binding upon it, releasing the sureties 
 of another officer or agent in all such cases as they would be 
 released as between private parties. But there is a respecta- 
 ble line of cases holding sureties to the same accountability 
 as in the case of Government sureties. (See review of the 
 authorities on both propositions in Chapter 4, sec. 86 et. seq.
 
 92 
 
 TIIK LAW OF I-'IDELITV BONDS. 
 
 CHAPTER IV. 
 
 LACHES OR INDULGENCE BY OBLIGEE. 
 
 09. Effect of, after-execution of 
 bond. 
 
 70. Effect of the failure of the 
 
 obligee to notify the sure- 
 ty of the delinquency of 
 the principal — Digest of 
 authorities. 
 
 71. Same. 
 
 72. Rule of good faith continu- 
 
 ous. 
 
 73. Liability of the surety for 
 
 defaults of the principal 
 committed after knowl- 
 edge by the obligee of 
 prior default not com- 
 municated to the surety. 
 
 74. Digest of authorities. 
 
 75. Same. 
 
 76. Effect of dealings with or in- 
 
 dulgence to the principal 
 by the obligee without the 
 knowledge and consent of 
 the surety — Digest of au- 
 thorities. 
 
 77. Same. 
 
 Laches or Negligence of the 
 Obh'gee Generally. 
 
 78. (o) United States Govern- 
 
 ment. 
 
 79. Digest of authorities illus- 
 
 trative of rule. 
 SO. Same. 
 
 81. (&) State, municipal and 
 
 other public corporations. 
 
 82. Digest of authorities. 
 S3. Same. 
 
 84. Same. 
 
 85. Same — Against the rule. 
 
 86. (c) Private corporations. 
 
 87. Leading case. 
 
 88. Same — Discussion. 
 
 89. Leading case supported by 
 
 following authorities. 
 
 90. Same. 
 
 91. Authorities against rule as 
 
 adopted in Shaeffer case. 
 
 69. — Effect of After Execution of Bond. 
 
 In the first Chapter consideration ^vas given to the con- 
 struction of corporate fidelity bonds irenerally; in the second, 
 to representations and "warranties, particularly applicable to 
 snch bonds: in th(^ third, to the acts, omissions or condnct of 
 the obligee at the time of or pnor to the execution of the
 
 LACHES OR INDULGENCE BY OBLIGEE. 93 
 
 bond, whether such bond be executed by a corporation or 
 individual. We come now, chronologically and logically, to 
 consider matters affecting the risk after the execution of the 
 instrument, and herein: 
 
 First. Of the effect of the failure of the obligee to notify 
 the surety of the delinquency of the principal ; 
 
 Second. Of the liability of the surety for defaults of the 
 principal committed after knowledge by the obligee of prior 
 default not communicated to the surety; and. 
 
 Third. Of the effect of dealings with or indulgence to the 
 principal by the obligee without the knowledge and consent 
 of the surety. 
 
 Fourth. Laches or negligence of the obligee generally. 
 
 70. — Effect of the Failure of the Obligee to Notify the Surety of 
 the Delinquency of the Principal — Digest of Authorities. 
 
 Where a bond insuring a bank against such pecuniary 
 loss as it might sustain by reason of the fraudulent acts of 
 its teller contained a provision that the company would 
 notify the insuring company on "becoming aware" of the 
 teller "being engaged in speculation or gambling," it is the 
 duty of the bank to give such notice when informed that 
 the teller is speculating, although, while confessing the fact 
 of speculating, he asserts that he has ceased to do so. 
 
 A bank cannot recover on the bond of its teller for his 
 fraudulent acts after it has received information of his be- 
 ing engaged in speculation, which information is not con- 
 veyed to the surety as required by the bond. 
 
 Guarantee Co. of N". A. vs. Mechanics' Savings 
 Bank, 183 TJ. S. 402.
 
 J>-l TIIK LAW OF KIUKUrV BONDS. 
 
 The failure ol" the employer to report a single delin- 
 quency to a bonding company is not such an act as would 
 release sach company iukIci- a fidelity bond. 
 
 American Bonding tV Trust Co. vs. Xew Amsterdam 
 Cas. Co., 125 111. App. 33. 
 
 He who commits the first substantial breach of a con- 
 tract cannot maintain an action against the other contract- 
 ing party for a subsequent failure to perform. 
 
 Kice vs Fidelity & Deposit Co., 103 Fed. 427. 
 
 Natl. Surety Co. vs. Long, 125 Fed. 887. 
 
 A surtey is discharged if a condition known to the obli- 
 gee, upon which the surety agreed to be bound, is not com- 
 plied with. 
 Ihid. 
 
 Though the officers of a company may have reason to 
 knoAv and believe that the secretary had failed in his duty 
 to pay over money to the treasurer of the company and 
 failed to communicate that fact to the sureties, yet unless 
 there was fraud — an actual intent to conceal or culpable 
 negligence — the sureties would not be released from their 
 liability. 
 
 Anaheim Water Co. vs. Parker, 101 Calif. 488. 
 
 The failure of the officers of a railroad company to in- 
 form the sureties of a general freight and ticket agent of 
 the fact that he did not make monthly settlement as re- 
 quired by the rules of the company will not release the sure- 
 ties of such employee where there is no fraudulent conceal- 
 ment of the facts. 
 
 Kichmond c<t P. P. P. Co. vs. Kasey, 30 Grat. 218. 
 
 The failure of the directors of a bank to give notice of 
 the dishonesty of a cashier, if the same were known to
 
 LACHES OR INDULGENCE BY OBLIGEE. 95 
 
 them, to the sureties on his bond, and his retention in office, 
 did not release the sureties, the failure of one officer of a 
 corporation to discharge his duty not releasing the sureties 
 of another from responsibility for the defaults of the latter. 
 
 McShane vs. Howard Bank, 73 Md. 135. 
 
 Morris Canal & Banking Co. vs. Van Vorst, 1 Zab. 
 (K J.) 100. 
 
 The retention of a bonded agent in the service of an 
 employer after knowledge of a default will not discharge 
 the surety from liability for a prior default. 
 Lake vs Thomas, 84 Md. 608. 
 
 A failure to give notice to guarantors of the default of 
 their principal, excej^t in cases governed by commercial 
 rules, is a matter of defense, and resulting damages must 
 concur with such failure in order to w^ork a discharge. 
 
 LaRose vs. Logansport ISTat. Bank, 102 Ind. 332. 
 
 The failure of a bank to notify to the sureties of a book- 
 keeper his delinquency as soon as discovered will not re- 
 lieve them from their obligation. 
 
 Planters' Bank vs. Lamkin R. M. C. (Ga.) 29. 
 
 The contract of a surety imports entire good faith be- 
 tween him and the creditor, which must be kept inviolate in 
 all subsequent dealings betAveen the creditor and the prin- 
 cipal debtor ; but the term is relative, and in determining 
 whether it has been exercised the particular facts of each 
 case must be considered. 
 
 As a general rule, if the creditor does any act injurious 
 to the surety, or inconsistent with his rights, or omits, when 
 required by the surety, to do any act which duty enjoins 
 on him, rind the surety is thereby injured, in all such cases 
 the surety is discharged. 
 
 White vs. Life Assn., 63 Ala. 419.
 
 9C TlIK I,A\V OK FIDELITY BONDS. 
 
 The Tact tliaL an ciuploycr, ai'lcr discovering in April 
 the employee's breach of duty, retained him in his service 
 until September^ will not release the sureties. 
 
 Socialistic Co. of Pub. Assn. vs. Hoffman, 33 X. Y. 
 Supp. 695. 
 
 71. — Same. 
 
 A local statute provides that the treasurer of every sav- 
 ings bank sball at least once in every six years give a new 
 bond in i) sum of not less than $10,000, payable to the bank 
 and acceptable to its directors. Held, that the bond Avas 
 required not for the benefit of the directors, but for the 
 protection of the public in its dealings with the bank, and 
 therefore the failure of the directors to inform the sure- 
 ties upon a new bond that the treasurer had already misap- 
 propriated moneys of the bank would not relieve sureties 
 from liability for his subsequent defalcation; nor would 
 they be released under such circumstances, even if the di- 
 rectors' failure to disclose were to be treated as the fraudu- 
 lent concealment of a material fact. 
 
 As a rule, the mere non-disclosure of a fact does not 
 amount to fraud, unless the party remaining silent was 
 called upon by the other to disclose all material facts, or 
 his relation to the other was such as to make it his legal 
 or equitable duty to disclose. 
 
 WatertoAATi Savings Bank vs. Mattoon, 78 Conn. 388. 
 
 The mere failure of the obligee in the bond of a general 
 agent of an insurance company to notify the sureties of the 
 default of the principal will not discharge them. 
 
 Phoenix Mutl. Life Ins. Co. vs. Holloway, 51 Conn. 
 310. 
 
 The failure of an insurance company to notify the sure- 
 ties on its agent's fidelity bond of its agent's default, and 
 the continuance of the agent in the employ of the company
 
 LACHES OB liSTDULGENCE BY OBLIGEE. 97 
 
 after default, would not relieve the sureties on the bond 
 from liability for such default. 
 
 Boyd vs. Agricultural Ins. Co., 20 Col. App. 28. • 
 
 To discharge the surety, the act of the creditor must be 
 injurious to the legal rights of the surety, hence the failure 
 of the creditor, in the absence of contractual obligation, to 
 advise the surety of delinquencies of the principal of which 
 he had had knowledge for three years, will not discharge the 
 surety. Mere indulgence is not sufficient. 
 
 Wilkenson vs. Crescent Ins. Co., 64 Ark. 80. 
 
 Though the officers of a company may have had reason 
 to know and believe that the secretary had failed in his 
 duty to pay over money to the treasurer of the company, 
 and failed to communicate that fact to the sureties, yet 
 unless there was fraud — an actual intent to conceal, or cul- 
 pable negligence — the sureties would not be released from 
 their liability. 
 
 Anaheim Water Co. vs. Parker, 101 Calif. 483. 
 
 72. — Rule of Good Faith Continuous. 
 
 The rule requiring good faith on the part of the obligee 
 toward the surety does not cease to be operative, upon exe- 
 cution of the suretyship, yet some of the cases cited above 
 would seem, in effect, to so hold. In other words, carrying 
 out the theory of these cases, the prospective obligee must 
 deal with the party who is about to become surety with en- 
 tire good faith, and must not make misrepresentations of 
 facts material to the risk, or conceal, upon inquiry or oppor- 
 tunity, such facts ; but as soon as the surety has bound him- 
 self upon the instrument, the obligee may conceal or negli- 
 gently fail to notify the surety of the most important fact 
 which could affect his undertaking, to wit, the default or 
 dishonesty of the principal. This proposition, theoretically 
 7
 
 1)8 rilK LAW OF FIDKI.ITY UOXDS. 
 
 at least, is ik.I law; ii('\ (■rihclcss iIr- cases so holding are of 
 sufficient imiiihci- and iminn-tancc to raise a grave doubt, in 
 ])ractice, as to wliat rule will Ix- applied in a given instance. 
 The cases are here collected. Thcv will he found more or 
 less in conflict with the line of authority referred to in the 
 followinj;- snh title: 
 
 73. — Liability of the Surety for Defaults of the Principal Com- 
 mitted After Knowledge by the Obligee of Prior Default 
 Not Communicated to the Surety. 
 
 In the preceding sub-title reference was to the question 
 whether the failure of the obligee to notify the surety of dis- 
 honesty or default of the employee avoids the contract. Ref- 
 erence hero is to the question as indicated in the title, 
 whether the surety is liable for defaults of his principal com- 
 mitted after a previous delinquency materially affecting the 
 contract and known to but not communicated by the obligee 
 to the surety. 
 
 The leading case upon the subject is Phillips vs. Foxall, 
 L. R. 7 Q. B. 666 (1872), holding as follows: 
 
 In the case of a continuing guaranty for the honesty of 
 a servant, if the master discovers that the servant has been 
 guilty of acts of dishonesty in the course of the service to 
 which the guaranty relates, and if instead of dismissing the 
 servant, as he may do at once, and without notice, he 
 chooses to continue in his employ a dishonest servant, with- 
 out the knowledge and consent of the surety, express or 
 implied, he cannot afterwards have recourse to the surety to 
 make good any loss which may arise from the dishonesty 
 of the servant during the subsequent service. 
 
 (To the same effect is Sandei*son vs. Ashton, L. R. S 
 Exch. 73.)
 
 LACHES OR INDULGENCE BY OBLIGEE. 99 
 
 This case, says the Supreme Court of Alabama, has been 
 generally followed by the American Courts and nowhere 
 abstractly doubted. 
 
 Saint vs. Wheeler & Wilson Mfg. Co., 95 Ala. 36. 
 
 74. — Digest of Authorities. 
 
 Action on bond of R. as agent of insurance company. 
 At the time of the execution of the bond R. & C, who had 
 prior thereto been agents of the company, were liable for 
 more than $21,000 on their agency, but this fact was un- 
 known to sureties. The sureties could by the use of proper 
 business diligence have discovered the fact. 
 
 Held, the sureties were entitled to good faith at the hands 
 of the obligee, and no more. But after the bond was exe- 
 cuted, when the company discovered the defalcation of R. 
 & C. it was their duty to at once notify the sureties of the 
 fact. The sureties cannot be held bound to the company 
 for any failure of duty by R. after the company discovered 
 the defalcation mentioned and failed to disclose it to the 
 sureties. 
 
 Conn. Mutl. Life Ins. Co. vs. Scott, 81 Ky. 540. 
 
 The agent of a corporation, being under bond to account 
 and pay over daily, cannot be trusted with more money at 
 his surety's risk after dishonesty of the agent is discovered 
 by the corporation. But he may be so trusted so long as 
 the circumstances, fairly interpreted, point, not to moral 
 turpitude, but to a want of diligence or punctuality rather 
 than to a want of integrity. 
 
 Charlotte C. & A. R. R. Co. vs. Gow, 59 Ga. 685. 
 
 Atena Tns. Co. vs. Fowler, 108 Michigan, 557. 
 
 Atlantic & Pac. Co. vs. Barnes, 64 N. Y. 385. 
 
 See also — 
 
 Bostwick vs. Van Yoorhis, 91 N". Y. 353.
 
 100 TJIE LAW OF FIDELITY BOXDS. 
 
 As indicated above, llie rule has no application to cases of 
 mere breaches of duty or contract obligations, not involving 
 dishonesty ou his part, or fraud or concealment on the part 
 of the master. 
 
 Lancashire Ins. Co. vs. Callahan, G8 Minn. 277. 
 
 Where the employer of a clerk or other agent takes from 
 another a bond of indemnity, or an undertaking to become 
 responsible for the honesty and fidelity of such clerk or 
 agent in his service, the employer impliedly stipulates that 
 he will not knowingly retain such clerk or agent in his serv- 
 ice after a breach of the guaranty justifying his discharge, 
 and if he retains him after such breach, the surety will not 
 thereafte:.' he liable. 
 
 Rapp vs. Phcenix Ins. Co., 113 111. 390. 
 
 The sureties on a hond for the faithful performance of 
 the duties of an agent are relieved from liability for the 
 subsequent defaults of the agent, if the principal continues 
 the agent in his employ after knowledge that he has misap- 
 propriated money coming into his hands as agent. 
 Roberts vs. Donovan, 70 Calif. 108. 
 Capital Fire Ins. Co. vs. Watson, 76 Minn. 387. 
 
 "Whenever the directors of a bank become aware of the 
 embezzlement of a clerk or may become so by the exercise 
 of slight care in making up reports and statements of the 
 bank's condition, they owe to the surety on his bond the 
 duty of discharging the clerk and thus terminating the 
 surety's further risk. 
 
 Deposit Bank vs. Hearne, 10-4 Ky. 819. 
 
 Where a guaranty company bond is conditioned that if 
 the employer, without consent of the company, shall intrust 
 his employee with money after having discovered any act 
 of dishonesty, the bond shall be null and void, the act of the
 
 LACHES OE INDULGENCE BY OBLIGEE. 101 
 
 employer in retaining his employee in a position of trust 
 after discovery of his dishonesty is at his own risk, and he 
 cannot hold the guaranty company liable for defalcations 
 occurring after his discovery and before notice to the guar- 
 anty company. 
 
 Remington vs. Fidelity & Deposit Co., 27 Wash. 429. 
 
 75. — Same. 
 
 Where a party becomes surety upon the bond of a treas- 
 urer of a secret society for the faithful application of mon- 
 eys in his hands, payable to the society, the fact that the 
 officers and members of the society knew of his previous 
 misappropriation of the funds entrusted to him during the 
 prior years, and with such knowledge re-elected him, and 
 failed to communicate such fact to his sureties, no inquiry 
 being made of them by the sureties, and they doing no act 
 to put the sureties off their guard or preventing them from 
 ascertaining the facts, no fraud can be imputed to the 
 society which can be set up in avoidance of the sureties' lia- 
 bility on the bond. 
 
 Roper vs. Trustees, 9 111. 518. 
 
 Continuing an agent who is under bond in the employ 
 after failure to account only discharges the surety if the 
 delinquency amounts to dishonesty, or is such as before the 
 bond Avas given would have been a fraud not to disclose. 
 
 Natl. Life Tns. Co. vs. Ohlhaber, 17 B. (Ohio) 353. 
 
 When a bond indemnifying the plaintiff against loss by 
 the dishonesty of its collectors provides that the plaintiff 
 must give notice of any act, fact or information tending to 
 indicate that an employee is or may be dishonest, or the 
 obligation is void; a failure of the plaintiff to notify the 
 surety that one of its collectors has failed to turn in collec- 
 tions at the time required by its rules, and neglected to re- 
 spond to the plaintiff's letters and personal demands, re-
 
 102 TIIK LAW OF FIDELITY BONDS. 
 
 lievos the surety from all liubilily for subsequent collections 
 made by said collector, but not turned over to the plaintiff. 
 Supreme Euling vs. Nat. Sur. Co., 114 App. Div. 
 (N. Y.) 689. 
 
 Where the principal commits an act of dishonesty and is 
 unfaithful to his trust, the employer may end the contract, 
 and the surety may require this to be done. 
 Emery vs. Baltz, 94 N. Y. 408. 
 
 See, generally, cases following Phillips vs. Foxall : 
 
 Brillion Lumber Co. vs. Barnard, 131 Wis. 284. 
 Harrison vs. Lumbermen's Ins. Co., 8 Mo. App. 
 
 37. 
 Newark vs. Stout, 52 N. J. L. 35. 
 
 DistingTiished from the above — 
 
 W., C. & A. K. E. Co. vs. Linff, 18 S. C. 116. 
 
 Mr. Brandt, in his work on Suretyship and Guaranty (sec. 
 478), referring to the question as to whether the surety of 
 the agent of a private corporation is discharged by the cor- 
 poration retaining such agent after knowledge of default, 
 says : 
 
 "The better opinion would seem to be that the corpora- 
 tion stands on the same footing as an individual employer, 
 so that after notice to its supervising agent of a defalcation 
 by an employee under his supervision, it cannot hold the 
 surety on his fidelity bond if it retains such employee with- 
 out full disclosure to and consent of the surety." 
 
 See also — 
 
 Saint vs. Wheeler & Wilson Mfg. Co., 95 Ala 
 362.
 
 LACHES OR INDULGENCE BY OBLIGEE. 103 
 
 For further consideration of the last-mentioned point, see 
 following section: 
 
 76. — Effect of Dealings With or Indulgence to the Principal by 
 the Obligee Without the Knowledge and Consent of the 
 Surety — Digest of Authorities. 
 
 The rule of law is that if a creditor, without the knowl- 
 edge and consent of the surety, expressly or tacitly yielded, 
 gave time to the principal by enlarging the credit beyond 
 the period mentioned in the contract, the surety is dis- 
 charged, both at law and in equity; and this rule is appli- 
 cable, as well to bonds with collateral conditions, as to 
 bonds for the payment of money, and whether the arrange- 
 ment is intended for the benefit of the surety or not. 
 United States vs. Hillegas, 3 Wash. C. C. 70. 
 
 A settlement by an insurance company with its agent for 
 moneys received up to a certain time by taking the agent's 
 note payable in the future releases the surety upon the 
 agent's bond for the period covered by the settlement, the 
 surety not being a party to the settlement nor consenting to 
 the extension of time. 
 
 River vs. ISTew Hampshire Fire Ins. Co., 9 Wyo. 81. 
 
 Where an agent's contract provides that money collected 
 by him shall be turned over to his principal at the end of 
 each month, the failure of the principal to require monthly 
 settlements, knowing that its funds were being misappro- 
 priated, will discharge the sureties. 
 
 Ind. & Ohio Live Stock Ins. Co. vs. Bender, 32 Ind. 
 App. 287. 
 
 A surety on the boud of an agent is not discharged from 
 liability by the more fact that the principal is continued 
 in the employment of the obligee after he has failed to make
 
 04 iiii.; I, AW <)!• lIDliMTV Iioxns. 
 
 piiyiiu'iits i»r<)iii[)lly, oi whicli fact the Hiircty had not been 
 advised. 
 
 Home Ins. Co. vs. Holway, 55 Iowa, 571. 
 
 Phopnix Ins. Co. vs. Findley, 59 Iowa, 591. 
 
 The obligee's failure to notify the surety on the bond of 
 an agent of a loan association of the agent's delay in mak- 
 ing remittances, which is attributed not to dishonesty, but 
 to negligence merely, did not release the surety. 
 
 Cumberland Bldg. Loan Assn. vs. Gibbs, 119 ^lich. 
 318. 
 
 Failure of obligee to require employee to render weekly 
 reports as required by contract guaranteed by bond will 
 discharge sureties from subsequent defaults. 
 
 Fidelity Mutl. Life Ins. Assn. vs. Dewey, 83 Minn. 
 389. 
 
 Where a condition requiring the employer to notify the 
 surety of any act on the part of the principal which may 
 involve a loss for which the company is responsible was 
 contained in a bond of indemnity of a surety company given 
 to an insurance company indemnifying the latter against 
 acts of fraud or dishonesty upon the part of its general 
 agents and the contract between the general agents 
 and the insurance company, which had its office in a 
 distant State, required the agents to remit the money col- 
 lected fo." any one month within fifty days from the end of 
 such month, but the agents failed to remit such money until 
 from sixty to one hundred days after the end of such month, 
 partly because of the tardiness of their sub-agents to collect 
 and remit to them, and partly because of their own tardi- 
 ness and neglect, but Avithout any wrongful or fraudulent 
 intent on their part, which action the company acquiesced 
 in as a substantial compliance with their contract, the fail- 
 ure of the company to give notice to the surety company of
 
 LACHES OK IXDULGEI^CE BY OBLIGEE. 105 
 
 such delay is not a substantial violation of the condition of 
 the bond. 
 
 Pac. Fire Ins. Co. vs. Pac. Sur. Co., 93 Calif. 7. 
 
 77. — Same. 
 
 In the case of a continuing suretyship (as of a fire insur- 
 ance agent) for the faithful discharge of his duties by his 
 servant, the master owes the sureties no absolute and active 
 duty, upon the discovery of mere breaches of contract obli- 
 gations, to discharge the servant or notify the sureties of 
 the breach. 
 
 Manchester Fire Ins. Co. vs. Kedfield, 69 Minn, 10. 
 
 If the creditor's interference authorizes the performance 
 in some other way than the contract provides, the sureties 
 are discharged without regard to whether they are injured 
 thereby or not. 
 
 Burley vs. Hitt, 54 Mo. App. 272. 
 
 In an action by an employer upon the bond of an em- 
 ployee, the surety must specially plead, in order to avail 
 himself of, the defense of a release by reason of the em- 
 ployer having made a contract with the employee permit- 
 ting the latter to repay the money misappropriated by work- 
 ing a sufficient length of time to balance the same with his 
 wages, or by reason of the imposition upon the employee 
 of duties not contemplated by the contract and materially 
 increasing the risk of the surety, or by reason of the em- 
 ployer having prejudicially retained the employee in the 
 service after discovering his delinquency, concealing the sit- 
 uation from the surety. 
 
 Brillion Lumber Co. vs. Barnard, 131 Wis. 284. 
 
 For further reference to the subject of release of surety by 
 the creditor givinij time to doctor, see the leading case on the 
 subject — Bees vs. Berrington, 2 White & Tudor's Gas. Eq. 
 1871 — ^with review of authorities.
 
 !()(! TJIE LAW OF FIDELITY BONDS. 
 
 LACHES OR NEGLIGENCE OF THE OBLIGEE GENERALLY. 
 
 78. — (a) United States Government. 
 
 Laches is not imputable to the Government, as affect in j^ 
 the liability of sureties on official bonds of Government offi- 
 cers. The rule is settled beyond question. 
 2 Eose's Notes, 323. 
 40 Cent. Dig. 206. 
 Brandt, Snr. & G., sec. 161. 
 
 Illustrative thereof are the following cases: 
 
 79. — Digest of Authorities Illustrative of Rule. 
 
 United States vs. Kirkpatrick, 9 Wheat. 720— Fail- 
 ure to account periodically by a Government of- 
 ficer does not operate to release his surety. 
 
 United States vs. Van Zandt, 11 Wheat. 187— Fail- 
 ure to recall a paymaster for not rendering his 
 vouchers for more than six months, as required 
 by law. 
 
 Bank of U. S. vs. Dandridge, 12 Wheat. 81— Devia- 
 tion from directory regulation cannot be taken 
 advantage of by third persons. 
 
 United States vs. Nicholl, 12 Wheat. 509— Statute 
 requiring treasury officers to give new sureties 
 while allowed to remain in office. 
 
 Dox vs. Postmaster-General. 1 Pet. 325 — Failure of 
 Postmaster-General to prosecute a defaulting 
 postmaster within time prescribed.
 
 LACHES OE INDULGENCE BY OBLIGEE. 107 
 
 LTnited States vs. Boyd, 15 Pet. 208 — Failure of a 
 receiver of public moneys to make the quarterly 
 payments required by the rules. 
 
 United States vs. Thompson, 98 U. S. 489— Holding 
 the United States is not bound by the statute 
 of limitations of any State. 
 
 United States vs. Cutter, 2 Curt. 625 — Misappro- 
 priation by navy agent of public moneys paid 
 to him contrary to law. 
 
 Postmaster-General vs. Munger, 2 Paine, 197 — - 
 Omission of Postmaster-General to discharge a 
 postmaster in arrears. 
 
 Locke vs. Postmaster-General, 3 Mason, 455 — Neg- 
 lect of Postmaster-General to sue for balance 
 due by postmasters. 
 
 Postmaster-General vs. Reeder, 4 Wash. C. 670 — To 
 same effect. 
 
 Raymond vs. United States, 14 Blatchf. 52 — Neglect 
 of Secretary of ISTavy to arrest and prosecute a 
 paymaster who was sqandering the money in 
 his hands. 
 
 United States vs. Potter, 27 Fed. Cas. 604— Holding 
 statute authorizing salary of an officer in ar- 
 rears to be withheld forms no part of contract 
 with sureties. 
 
 United States vs. Wright, 28 Fed. Cas. 794— Ex- 
 tending time to a postmaster to settle his ac- 
 counts.
 
 108 'iiir: I, AW oi' i'idki.ii v bonds. 
 
 Williams vs. Lyman, 8.S I^'cd. 24\ — Holding intfrnal 
 revenue collector's negligence in not examining 
 his deputy's accounts would not release the dep- 
 uty's sureties. 
 
 United States vs. Saylor, 31 Fed. 549 — Holding that 
 sureties on a postmaster's bond were liable for a 
 rebate secretly received by him from landlord 
 of the office, and for rent of newsstand. 
 
 Utiited States vs. Adams, 54 Fed. 116 — Failure of 
 Government to present claim against deceased 
 
 8o. — Same. 
 
 marshal 
 
 Meads vs. United States, 81 Fed. 688 — Regulations 
 of the Land Office cannot enlarge or restrict the 
 liability of an officer on his bond. 
 
 Pickering vs. Day, 3 Houst. 536 — Holding that a 
 collector of internal revenue was not bound to 
 discharge a deputy collector on discovery of his 
 defalcation, and that his failure to do so did not 
 relieve the sureties on the deputy's bond. 
 
 Jones vs. LTnited States, 18 Wall. 662 — On a suit by 
 the Government against the sureties of a post- 
 master on his official bond, it is no defense that 
 the- Government "through their agent, the Audi- 
 tor of the Treasury of the Post Office Depart- 
 ment, had full notice of the defalcation and em- 
 bezzlement of funds of the plaintiff before them, 
 and yet neglectfully permitted the said postmas- 
 ter to remain in office, whereby he was enabled 
 to commit all the default and embezzlement."
 
 LACHES OR INDULGENCE BY OBLIGEE. 109 
 
 Smith vs. United States, 30 U. S. 292— Failure of 
 United States to require account by public offi- 
 cer for eleven years after his removal from office 
 and his having become insolvent in the mean- 
 time no release to sureties. 
 
 Postmaster-General vs. Ustick, 4 Wash, C. C. 347 — 
 Fraudulent omission of Postmaster-General to 
 require settlement by deputy postmaster. 
 
 United States vs. Witten, 143 U. S. 76— Failure of 
 Government officers to provide proper locks for 
 distillery warehouse, permitting spirits to be 
 stolen, no defense to action on the distiller's 
 bond. 
 
 It was held, however, in United States vs. Beebe, 17 
 Fed. 38, that, in equity, lapse of time may bar a 
 suit by the Government under certain circum- 
 stances. 
 
 8x. — (b) State, Municipal and Other Public Corporations. 
 
 The rule that the laches or indulgence of one public offi- 
 cer will not operate to release the sureties on the official bond 
 of another officer, as applicable to State, municipal and other 
 public corporations, is, in conformity with the principle laid 
 down bj the Federal Courts relative to Government officers, 
 supported by the great weight of authority. 
 
 82. — Digest of Authorities. 
 
 State vs. Brewer, 64 Ala. 298 — Estoppels against a 
 State cannot arise from laches of its officers. 
 
 Ex parte Christian, 23 Ark. 642 — Failure to require 
 settlement from a collector prior to his becom- 
 ing insolvent.
 
 1]0 TJIK J.AW OF IlJ>j;j.lTY li(JND.S. 
 
 Stern vs. People, 102 111. 550 — Holding failure of a 
 county board to remove the county treasurer for 
 refusing to make a report of his receipts did 
 not release his sureties. 
 
 Kindle vs. State, 7 Blackf. 589 — Holding county 
 treasurer's sureties not discharged by a change 
 of law extending time of county treasurer for 
 making settlements and payments. 
 
 Boone Co. vs. Jones, 54 Iowa, 703 — Absence of rec- 
 ord of approval of bond, as required by statute, 
 did not affect its validity. 
 
 Commonwealth vs. Preston, 5 T. B. Mon. 589 — Neg- 
 lect of County Court to compel guardian to ren- 
 der inventory and make settlement. 
 
 Bonta vs. Mercer Co. Court, 7 Bush. 579 — Failure 
 of Co. Court to appoint a commissioner to set- 
 tle sheriff's accounts. 
 
 State vs. Duim, 11 La. Ann. 551 — Failure of auditor 
 to require proceedings to be instituted for a 
 former default. 
 
 Inhabitants" of Farmington vs. Stanley, 60 Me. 
 476 — Failure of selectmen to examine accounts 
 of town treasurer. 
 
 Milburn vs. State, 1 Md. 19 — In dissenting opinion, 
 majority holding that if sureties to bond of col- 
 lector of taxes which required approval could 
 show it had not been approved, they are not 
 bound. 
 
 Detroit vs. Weber, 26 Mich. 290 — Failure to observe 
 the provisions of an ordinance requiring a
 
 LACHES OE INDULGENCE BY OBLIGEE. Ill 
 
 monthly examination of accounts of city treas- 
 
 urer. 
 
 Board of Commissioners vs. Security Bank, 77 IN". 
 W 817 — Holding sureties on a bank's bond to 
 county not released by failure of county to file 
 its claim against a bank after it became insol- 
 vent. 
 
 Parks vs. State, 7 Mo. 196— Delay in bringing suit 
 on collector's bond for several years after de- 
 fault. 
 
 Morris Canal vs. Van Vorst, 21 N. J. L. 117— Hold- 
 ing that statutory directions that agents shall 
 account are for the security of the government, 
 but constitute no part of the contract with the 
 surety. 
 
 Newark vs. Stout, 52 N. J. L. 49— Holding that 
 statutes, by-laws and ordinances making it the 
 duty of certain officers to supervise accounts 
 were not for the benefit of sureties to an offi- 
 cial's bond, and will not avail as a defense 
 thereon, collecting authorities. 
 
 83. — Same. 
 
 People vs. Eussell, 4 Wend. 575 — Holding omission 
 of comptroller for eight years to prosecute the 
 bond of a commissioner of loans, no defense to 
 surety. 
 
 Looney vs. Hughes, 26 IST. Y. 519 — Holding a stat- 
 ute requiring a county treasurer to issue a war- 
 rant against a delinquent town collector merely 
 directory, and delay did not release the sureties.
 
 112 TJIE LAW OF FIDELITY BOKDS. 
 
 Commonwealtli vs. Brice^ 22 Pa. St. 214 — The rule 
 of laches applies to county as well as State 
 officers. 
 
 Commissioners vs. Phila. Co., 157 Pa. St. 547 — Af- 
 firming rule, but Commonwealth not entitled to 
 gain and charge interest for the delay of its 
 officers. 
 
 Loving vs. Auditor, 76 Ya. 950 — Holding that a fail- 
 ure to certify and countersign drafts drawn by 
 the general agent of the penitentiary did not 
 affect the liability of sureties of the agent's 
 bond. 
 
 Crawn vs. Commonwealth, 84 Va. 286 — Holding 
 failure to require prompt settlement of county 
 treasurer's balances did not affect his sureties. 
 
 Mayor vs. Blache, 6 La. 517 — Holding that sureties 
 of a new bond could not plead laches in not call- 
 ing city treasurer to account for defalcations of 
 past year. 
 
 Rochereau vs. Jones, 29 La. Ann. 82 — Illegal cancel- 
 lation of an official bond will not release the 
 sureties on the bond. 
 
 Campbell vs. People, 154 111. 595 — Xeglect of county 
 treasurer no defense to sureties on bond of 
 county clerk. 
 
 Monroe Co. Supv's. vs. Otis, 62 X. Y. 88— Mere 
 non-performance of some affirmative act, which 
 if performed might prevent loss, is not avail- 
 able as defense by sureties. Failure to examine 
 account no defense.
 
 LACHES OE INDULGENCE BY OBLIGEE. 113 
 
 City vs Eedmond, 28 La. Ann. 274 — Sureties of tax 
 collector not released by laches of Mayor and 
 council to require monthly reports, as required 
 by ordinance. 
 
 Stern vs. People, 102 111. 540 — Failure of county 
 board to remove county treasurer no defense to 
 treasurer's sureties. 
 
 Board, &c., vs. Sheehan, 42 Minn. 57 — Neither neg- 
 ligence of county commissioners in their super- 
 visory duties over treasurer, nor their actual 
 malfeasance, facilitating or encouraging a con- 
 version of public funds, is a defense. 
 
 Aetna Ind. Co. vs. City of Haverhill, 142 Fed. 124— 
 Kesolution by city council providing for salary 
 of treasurer and payment of premium for his 
 corporate surety bond, and false statements 
 made by him, no defense. 
 
 State vs. Powell, 40 La. Ann. 234 — Laches or. omis- 
 sions of other officers of State cannot avail as 
 defense. 
 
 Harrisburg vs. Guiles, 192 Pa. St. 191— Mere negli- 
 gence by city in failing to notify sureties of col- 
 lector of delinquent taxes of his negligence no 
 defense in absence of showing of actual embez- 
 zlement by collector or fraud by city officials. 
 
 84. — Same. 
 
 State vs. Lake, 45 La. Ann. 1207 — Giving of time by 
 auditor to commissioner, no defense. 
 
 Inhabitants vs. Miles, 185 Mass. 582 — ISTegligence of 
 town officers in failing to discover misconduct 
 of collector.
 
 114 TIIK I, AW Ol' KrhKI.nY HONDS. 
 
 Bush v.^. Jolinsoii, 48 Neb. 1 — Xoglif^oiK-o of county 
 board in t-xamining accounts of treasurer. 
 
 Commonwealth vs. Tate, 89 Ky. 587 — Failure of 
 auditor and Secretary of State to perform du- 
 ties imposed by law requiring examination of 
 accounts of treasurer. 
 
 Cawley vs. People, 95 111. 249 — No obligation on 
 county board, whose duty it was to approve 
 bond of county treasurer, to communicate to his 
 sureties the fact that he was in default in a 
 previous term. 
 
 State vs. Smith, 16 Fla. 175 — Demand by sureties 
 for collector of State revenue on Governor for 
 removal of their principal for neglect of duty, 
 and refusal of Governor, no defense for subse- 
 quent default. 
 
 Fidelity & Deposit Co. vs. Commonwealth, 104 Ky. 
 579 — Rule that sureties will be released by con- 
 cealment of previous default inapplicable to 
 bonds of public officials. To the same effect is 
 Wade vs. City of Mt. Sterling, 33 S. W. 113. 
 
 Ind. School Dist. vs. Am. Sur. Co., 110 Iowa, 58— 
 Board of school directors not bound to warn a 
 surety of dishonesty of re-elected treasurer, al- 
 though known to them before the bond was 
 written, nor can such surety avoid liability be- 
 cause of false statements as to the treasurer's 
 accounts made to it by the president of the 
 school board before the bond was executed, with- 
 out authority and having no connection with 
 his official dutv.
 
 LACHES OR INDULGENCE BY OBLIGEE. 115 
 
 Commonwealth vs. Jimison, 205 Pa. St. 367 — Surety 
 for collector of delinquent taxes not discharged 
 because county treasurer knew when he ap- 
 pointed the collector that the latter was a de 
 faulter for previous years, and did not reveal 
 this fact to the sureties when the bond was 
 taken. 
 
 For further reference to the subject of representations by 
 public officials to sureties, see Chapter 3. 
 
 For general review of authorities on the subject of laches 
 of public officers as affecting the liability of sureties, see — 
 2 Rose's notes, 323. 
 Brandt, Sur. & Guar., sec. 161, n. 61. 
 
 85. — Same— Against the Rule. 
 
 For authorities against the nile, see the following : 
 
 Boone Co. vs. Burlington, 139 TJ. S. 693— Rule not 
 applicable to a county, collecting authorities. 
 
 Gvadle vs. Hoffman, 105 111. 147— Failure of sheriff 
 to remove deputy on discovery of defalcation 
 will release sureties. 
 
 People vs. Jansen, 7 Johns. 332 — Laches of super- 
 visors in permitting occupant to remain in pub- 
 lic office for ten years after known default will 
 discharge sureties. 
 
 86. — (c) Private Corporations. 
 
 There is considerable conflict in the authorities as to the 
 applicability of the doctrine that the laches or indulgence of 
 one officer of a corporation will not operate to discharge the
 
 11 G TlIK I- AW OF FIDELITY BONDS. 
 
 sureties of another officer, to private corjKirations (as dis- 
 tinguished from municipal or other public governmental cor- 
 porations). 
 
 87. — Leading Case. 
 
 The leading case in support of the affirmative of the prop- 
 osition is Pittsburgh, F. W. & C. Ry. Co. vs. Shaeffer, 59 
 Pa. St. 350. 
 
 This was an important suit for a large amount, the opin- 
 ion being delivered by Justice Sharswood. It was contended 
 on behalf of the sureties that the forebearance or neglect of 
 the railway company or certain of its officers to require 
 monthly accounting by their principal, as required by the 
 mles of the road, whereby he was enabled to continue and 
 increase his peculations, and the like failure to notify the 
 sureties until three months after their principal had been re- 
 moved from office and had become an absconder and left the 
 coimty would release them from all liability. It was further 
 contended that there is a distinction between government offi- 
 cers in this respect and the officers of a private corporation. 
 
 Justice Sharswood, delivering the opinion of the Court 
 said : 
 
 ''The rule is well settled that mere forbearance by the 
 creditor to the principal debtor, however prejudicial it may 
 be to the surety, will not have the effect of discharging him 
 from his liability. That this is the general principle was 
 admitted by the learned judge in the Court below, but he 
 thought that the sureties of a railroad officer, charged with 
 the receipt and disbursement of various sums of money, 
 formed an exception, and that in such a case it was the 
 duty of the company to dismiss the officer as soon as any 
 default became knoA\Ti, and to give notice to his sureties in 
 order that they might take measures to secure themselves 
 by proceedings against the principal.
 
 LACHES OE I^yTDULGENCE BY OBLIGEE. 117 
 
 "But no authorities are to be found in the books sustain- 
 ing any such distinction. On the contrary, in regard to 
 the sureties of the officers of government, whose duties in 
 receiving and disbursing money are of the same varied 
 character, it has been invariably held that they are not 
 discharged by such indulgence. The United States vs. Kirk- 
 patrick, 9 Wheat. 720, was the case of a collector of direct 
 taxes and internal duties. 'It is admitted,' said Story, J., 
 'that mere laches, unaccompanied with fraud, forms no dis- 
 charge of a contract of this nature between private individ- 
 uals. Such is the clear result of the authorities. Why, 
 then, should a more rigid principle be applied to the gov- 
 ernment — a principle which is at war with the general in- 
 dulgence allowed to its rights, which are ordinarily pro- 
 tected from the bars arising from length of time and negli- 
 gence? It is said that the laws require that settlement 
 should be made at short and stated periods; and that the 
 sureties have a right to look to this as their security. But 
 these provisions of the law are created by the government 
 for its own security and protection, and to regulate the con- 
 duct of its own officers. They are merely directory to 
 such officers, and constitute no part of the con- 
 tract with the surety. The surety may place confidence in 
 the agents of the government, and rely on their fidelity in 
 office; but he has the same means of judgment as the gov- 
 ernment itself, and the latter does not undertake to guar- 
 anty such fidelity.' 
 
 "The reasons so clearly stated by Story, J., in regard to 
 officers of government apply with equal force to the officers 
 of corporations. 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 pay- 
 ments are for their own security, and not for the benefit 
 of the sureties. The sureties, by executing the bond, be- 
 came responsible for the fidelity of their principal. It is 
 no collateral engagement into which they enter, dependent
 
 118 TJIK LAW OF FIDELITY BONDS. 
 
 on some contingency or condition different from tli(,' en- 
 gagement 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 con- 
 nived 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 con- 
 spiracy 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." 
 
 88. — Same — Discussion. 
 
 The aforegoing language has been much quoted, and the 
 precedent a.s here laid do\\Ti followed in many eases. The 
 same Court, however, in the late case of Commonwealth vs. 
 Jimison, 205 Pa. St. 367, held : ''There is a clear distinction 
 between the liabilities of sureties on an obligation to an 
 individual or private corporation, and to a public municipal 
 coqioration." Xo reference was made to the Shaeffer Case 
 in either the briefs of counsel or the opinion of the Court. It 
 would seem, however, that the later decision in effect over- 
 ruled the foinier. 
 
 Notwithstanding the eminent authority in support of the 
 proposition that the general rule of laches as applied to Gov- 
 ernment officers is applicable to private corporations, it is 
 suggested that the absence of the theory of sovereignty and 
 the protection of the public embraced in the reason of the 
 rule, and in view of the fact that a private coi*poration can 
 only act by its officers and agents, it would be more in con- 
 sonance with the principles of law and justice to hold that 
 the acts or negligence of the representatives of such a cor- 
 poration are the acts or negligence of the corporation and
 
 LACHES OK INDULGENCE BY OBLIGEE. 119 
 
 binding upon it. And tkis appears to be the view of the later 
 authorities. Indeed, in numerous cases defended on the 
 ground of acts or omissions of an officer or agent of a private 
 corporation, the rule here referred to has not been invoked 
 at all. 
 
 89. — Leading Case Supported by Following Authorities. 
 
 The rule as adopted by the Shaeffer Case is supported by 
 the following cases : 
 
 Sparks vs. Farmers' Bank, 3 Del. Ch. 303— Holding 
 surety on bank cashier's bond continues as long 
 as he holds office by virtue of his appointment, 
 notwithstanding his annual election. 
 
 Mutual L. & B. Assn. vs. Price, 16 Fla. 212— Fail- 
 ure of officers of a corporation to have period- 
 ical examinations of the treasurer's accounts. 
 
 Mutual Loan, &c., Assn. vs. Miles, 16 Fla. 204 — To 
 the same effect. 
 
 Albany Dutch Church vs. Vedder, 14 Wend. 171 — 
 Failure to observe a by-law requiring treasurer 
 of a corporation to account every six months. 
 
 Kichmond, etc., K. R. vs. Kasey, 30 Graft. 229 — 
 Holding sureties to bond of a general frieght 
 and ticket agent bound, notwithstanding he 
 failed to settle his accounts promptly, and gave 
 credit contrary to orders. 
 
 Frelinghuysen vs. Baldwin, 16 Fed. 452 — ISTeglect 
 of officers to discover fraud of cashier.
 
 lliO 'JUK I,AW OF FIDKLITY BONDS. 
 
 I'iiillips VS. Bossard, 35 Fed. 99 — jNTegligence and 
 misconduct of presidcjit and directors will not 
 release sureties of easliicr. 
 
 Frink vs. Soutlu in Exp. Co., 82 Ga. 33— Failure of 
 express coin[)aiiy to provide Avatchman of safe 
 duiiiig absence of messenger no defense to sure- 
 ties of messenger. 
 
 Market St. Bank vs. Stumpe, 2 Mo. App. 545 — 
 Knowledge and sanction by directors of over- 
 di-aft by teller will not release sureties of latter. 
 
 BostAvick vs. Van Yoorhis, 91 N". Y. 353 — Mere ir- 
 regularities of cashier, even if known to direct- 
 ors, furnish no defense to sureties of former. 
 
 Union Bank vs. Forrest, 3 Cranch C. C. 218 — Xeg- 
 lect of cashier to settle daily accounts with teller 
 will not release latter's sureties. 
 
 Donnell Mnfg. Co. vs. Jones, 49 111. App. 327— Re- 
 tention of employee by employer after failure to 
 pay over funds no defense to surety. 
 
 90. — Same. 
 
 LaRose vs. Logansport ISTat. Bank, 102 Ind. 332— 
 Notice to bank that cashier is addicted to 
 drunkenness and other vices will not release 
 sureties. 
 
 Home Ins. Co. vs. Holway, 55 loAva, 571 — Agent's 
 bond not discharged by mere fact he has failed 
 to make prompt payments. 
 
 Tpylor vs. Bank of Kentucky, 25 Ky. 564 — Plea 
 that cashier's defaults were known and connived
 
 LACHES OK INDULGEJv'CE BY OBLIGEE. 121 
 
 at by officers of bank no defense to surety un- 
 les3 fraud is charged upon obligees and sureties 
 prejudiced thereby. But if law requires re- 
 moval of cashier for delinquency, his sureties 
 not liable for subsequent defaults, if not re- 
 moved. 
 
 Socialistic Co. of Pub. Assn. vs. Hoffmann, 33 IST. 
 Y. Supp. 695 — Retention of agent after knowl- 
 edge of default in April until September no 
 release to sureties for misappropriations prior 
 to April. 
 
 Wilmington, &c., Co. vs. Ling, 18 S. C. 116— Fraud- 
 ulent continuation of employee in service by em- 
 ployer after knowledge of default no release to 
 sureties. 
 
 People's Bldg. Assn. vs. Wroth, 43 N". J. L. 70— Un- 
 authorized acts or laches of one agent of a cor- 
 poration cannot annul its rules relating to the 
 duties of another agent. 
 
 Batchelor vs. Planters' Nat. Bank, 78 Ky. 435— 
 Want of diligence by directors no defense to 
 sureties of cashier. Also Fidelity & Deposit 
 Co. vs. Courtney, 186 U. S. 342. 
 
 Bonne vs. Mt. Holly Bank, 45 N". J. L. 360— Mere 
 fact that cashier was a defaulter when bond 
 was given no defense to his sureties, nor is neg- 
 lect of bank to ascertain that fact. 
 
 Bond vs. Central Bank, 2 Ga. 108 — Holding certain 
 provisions in the bank charter fixing a limit to 
 the loans to any one person only directory.
 
 122 Till'; J.AW Ul-' I'lDKJ.IlV J!<)M>S. 
 
 La State IJaiik vs. Lcdoux, 3 J.a. Ann. 6.S5 — Refusal 
 of bank to prosecute an official and defining 
 sureties' duty in such cases. 
 
 McShane vs. Howard Bank, 73 Md. 156 — Failure of 
 bank to notify sureties of defalcation no re- 
 lease. 
 
 Amherst Bank a's. Root, 2 Met. .541 — Laches of di- 
 rectors in examining into the affairs of the 
 barJc as required by the by-laws does not release 
 sureties of a bank officer. Also Atlas Bank vs. 
 Brownell, 9 R. I. 168^ and Lieberman vs. First 
 ITational Bank, 40 AtL 384. 
 
 Tapley vs. Martin, 116 Mass. 278 — Commission of 
 previous frauds by cashier on the bank, if un- 
 known to the officers of the bank. 
 
 State vs. Atherton, 40 Mo. 217 — Negligence of di- 
 rectors and cashier in counting the cash. 
 
 Chew vs. Ellingwood, 86 Mo. 273 — Holding sure- 
 ties of bank bookkeeper responsible for his de- 
 falcations, though made with consent of the 
 cashier and negligence of directors. 
 
 1. — The Court quotes with ap- 
 proval McTagfiart vs. Walson. 8 
 CI. & F. 536 : "Lord Brougham, in 
 delivering judgment, said the de- 
 faulter had given bond to ac- 
 count, and that It was no excuse 
 that the other party did not see 
 
 thing, is not released, unless the 
 obligor has prevented the thing 
 being done, or connived at its 
 omission, or enabled him to do 
 something he ought not to do, or 
 to leave undone that which he 
 should have done, and it appears 
 
 that he did it ; that a party en- j that but for such conduct the de- 
 gaging that another shall do a , fault would not have happened.''
 
 LACHES OR INDULGENCE BY OBLIGEE. 123 
 
 91. — Authorities Against Rule as Adopted in Shaeffer Case. 
 
 The negative of the proposition finds support in the numer- 
 ous cases between sureties and coi'iiorations in which the pro- 
 tection of the rule has not been invoked, as well as in the fol- 
 lowing: 
 
 Brandt Sur. &; Guar., sec. 478. 
 
 Clements vs. Anderson, 46 Miss. 598 — Holding that 
 rule as to laches is confined to the Government 
 and State. 
 
 Morrison vs. Arons, 65 Minn. 321 — Failure of em- 
 ployer of general manager to require monthly 
 accounting according to terms of employment 
 released manager's sureties. 
 
 Roberts vs. Donovan, 70 Cal. 108 — Agent's sureties 
 are discharged if person to whom bond given 
 retains agent after knowledge of his misappro- 
 priation of funds. 
 
 Charlotte, &c., vs. Gow, 59 Ga. 685 — If agent of 
 corporation is intrusted with funds after failure 
 to pay over, his sureties Avill be discharged. 
 
 Rapp vs. Phoenix Ins. Co., 113 111. 390— Surety on 
 official bond released by retention of principal 
 after default of which obligee has knowledge. 
 
 Aetna Ins. Co. vs. Fowler, 108 Mich. 557 — Continu- 
 ing agent in service of corporation after knowl- 
 edge of default will discharge his sureties for 
 subsequent misconduct.
 
 124 TIIK r.AW OK FIDKLri'V BONDS. 
 
 CHAPTER V. 
 
 FRAUD OR DISHONESTY- LARCENY OR EMBEZZLEMENT. 
 92. Meauiug of terms. i 98. Crimes by National Bank of- 
 
 93. 
 
 Illustration. 
 
 
 cers. 
 
 94. 
 
 Strict proof as in criminal 
 
 99. 
 
 Terms construed substantial 
 
 
 case not necessary in civil 
 
 
 ly as wrongful misappli 
 
 
 action. 
 
 
 cation of funds. 
 
 95. 
 
 Digest of autliorities. 
 
 
 
 96. 
 
 Same. 
 
 
 
 97. 
 
 Same. 
 
 
 
 92. — Meaning of Terms. 
 
 The earlier forms of corporate fidelity bonds provided for 
 indemnification asainst loss by "fraud or dishonesty" of the 
 employee. In more recent years, indemnification is provided 
 against the * fraud or dishonesty of the employee amounting 
 to larceny or embezzlement," or some similar provision. Some 
 difficulty has been experienced in arriving at the true mean- 
 ing of these provisions. 
 
 93. — Illustrations. 
 
 Thus a bond prepared by a surety company guaranteeing 
 an employer against "loss by reason of the dishonesty or 
 fraud amounting to larceny or embezzlement," of an em- 
 ployee, has been held by the Supreme Court of Illinois (City 
 Tnist, (Src, Co. vs. Lee, 204 111. 69) to be a guaranty against 
 dishonesty or fraud of the employee, whether such as would 
 render him liable to indictment for larceny or embezzlement, 
 07* not. The Illinois Appellate Court, in a later ease, and 
 followinfi: the decision in the Lee Case, held :
 
 FEAUD^ DISHONESTY^ EMBEZZLEMENT^ ETC. 125 
 
 That in a corporate fidelity bond requiring the company 
 to reimburse the employer for such pecuniary loss sustained 
 ''by any act of fraud or dishonesty amounting to larceny 
 or embezzlement." The words "fraud or dishonesty" and 
 the words "amounting to larceny or embezzlement" are both 
 phrases qualifying the word "act." 
 
 Am. Bonding Co. vs. New Amsterdam Cas. Co., 125 
 111. App. 33. 
 
 One of the cardinal canons for the construction of all writ- 
 ten instruments is that the Court shall, if possible, give effect 
 to every part thereof. The Supreme Court of Illinois in the 
 foregoing decision, has entirely disregarded the qualifying 
 phrase, "amounting to larceny or embezzlement," and con- 
 strued the bond as though it had provided indemnification 
 against the "acts of the employee amounting to fraud or dis- 
 honesty." With reference to this decision, it is perhaps suffi- 
 cient to say that in all the cases before and since dealing with 
 like or similar provisions in corporate fidelity bonds, no such 
 construction has ever been made or even suggested. 
 
 Supreme Council Catholic Knights of America 
 
 vs. Fidelity & Cas. Co., 63 Fed. 48. 
 Perpetual B. & L. Assn. vs. U. S. Fidelity & 
 
 Guaranty Company, 118 Iowa, 729. 
 Monongahela Coal Co. vs. Fidelity & Deposit 
 Co., 94 Fed. 732. 
 
 It was held, however, in Champion vs. Amer, B. & T. Co., 
 115 Ky. 86o, that the terms "larceny" and "embezzlement" 
 in such a bond are used as generic terms to indicate the dis- 
 honest and fraudulent breach of any duty or obligation upon 
 the part of an employee to pay over to his employer, or ac- 
 count to him for any money, securities or other personal 
 property, the title to which is in the employer, that may in 
 any manner come into the possession of the employee; and,
 
 ll*<; TIIK LAW ()|- I II)i;i,irv BONDS. 
 
 flirt her, thai in order to recover, it was not necessary for the 
 plaintiff to introduce such evidence as would convict the em- 
 ployee of the crime of larceny or embezzlement, as defined by 
 the laws of the State. 
 
 On the contrary, a clear distinction has been recognized 
 between the terms under consideration in the late case of 
 United States Fidelity & Guaranty Co. vs. Egg Shippers' 
 Strawboard & Filler Co., 148 Fed. 352, where in construing 
 a corpporate fidelity bond guaranteeing against loss by fraud 
 and dishonesty, it was held that cases involving fidelity bonds 
 insuring against ''embezzlement and larceny" or "fraud and 
 dishonesty amounting to embezzlement or larceny" w^ere ob- 
 viously not in ])oint. Likewise, in another recent case, refer- 
 ring to the usual ])rovision contained in a corporate fidelity 
 bond, wherein the obligor imdertook to reimburse the em- 
 ployer for loss by reason of the fraudulent or dishonest acts 
 of the employee amounting to larceny or embezzlement, the 
 trial Court (approved on appeal) said: 
 
 "The fraudulent or dishonest acts insured against in the 
 contract before us may be classified in two categories, name- 
 ly, fraudulent or dishonest acts in violation of equity, good 
 conscience and the civil law, and fraudulent and dishonest 
 acts which go beyond that line, and subject the perpetrator 
 of them to the penalties of the criminal law. By the ex- 
 press terms of this bond the defendants insure against 
 fraudulent or dishonest acts of the second category only, 
 to wit, those amounting to embezzlement or larceny." 
 
 Reed vs. Fidelity & Casuahy Co., 1S9 Pa. St. 596. 
 
 94. — Strict Proof as in Criminal Case Not Necessary in Civil Ac- 
 tion. 
 
 While there is a clear distinction, as has been shown, be- 
 tween the terms "fraud or dishonesty" and "fraud or dis- 
 honesty amounting to lareenv or embezzlement," it must be
 
 FEAUD^ DISHONESTY^ EMBEZZLEMENT^ ETC. 127 
 
 borne in mind, as pointed out by the Court of Appeals of 
 Kentucky (Champion vs. Amer. B. & T. Co., 115 Ky. 863), 
 that such strict proof as would be required in a prosecution 
 for larceny cr embezzlement is not required of a plaintiff in 
 a civil action to recover on a bond. 
 
 Larceny or embezzlement are, however, not to be presumed ; 
 they must be proved. 
 
 Fid. & Dep. Co. vs. Mobile Co., 124 Ala. 144. 
 Williams vs. United States Fidelity & Guaranty 
 
 Co., 105 Md. 490. 
 Monongahela Coal Co. vs. Fid. & Dep. Co., 94 
 Fed. 732. 
 
 95. — Digest of Authorities. 
 
 Illustration of what acts and transactions have been held 
 to create liability under the provisions under consideration 
 and others similar thereto will be found in the following- 
 cases : 
 
 Defeadant contracted to indemnify plaintiff against any 
 loss arising from the fraud or dishonesty of plaintiff's agent 
 in his management of plaintiff's money intrusted to him 
 to buy cotton. By the written contract with plaintiff the 
 agent agreed that such money should be kept separate from 
 any othei funds, and that on demand he would return any 
 unexpended moneys of the plaintiffs. Held, that any evi- 
 dence tending to show a criminal intenf on the part of the 
 agent in the use and disposition of the money was compe- 
 tent, since plaintiff could recover on the guaranty only on 
 showing fraud or dishonesty. 
 
 Clifton Mfg. Co. vs. United States Fidelity & Guar- 
 anty Co., 60 S. C. 128. 
 
 "Where the defendant gave a bond to secure the plaintiff 
 against any loss "by any act or fraud or dishonesty" of
 
 128 THE LAW OF FIDELITY BONDS. 
 
 plainti'i's ciiqiloycc, the defendant by such bond did not 
 guarantee the payment of the employee's debts contracted 
 with the plaintiff. 
 
 Orion Knitting Mills vs. United States Fidelity k. 
 Guaranty Co., 137 N. C. 565. 
 
 The petition in an action on a fidelity bond insuring 
 a corpor.Mtion against loss through the fraud or dishonesty 
 of its treasurer states a cause of action where it alleges that 
 such treasurer falsely credited himself on the company's 
 books with a disbursement which he did not make, making 
 him short in his accounts, and that, having authority to 
 execute notes and accept drafts for the company represent- 
 ing its valid indebtedness, and not otherwise, he accepted 
 drafts for large amounts which it did not owe, and used its 
 funds in paying the same, resulting in loss to it through the 
 insolvency of the drawer, all of which acts he concealed 
 from its directors. 
 
 Liability on a fidelity bond insuring an employer against 
 loss through the ''fraud or dishonesty" of an employee is 
 not limited to such losses as result from his criminal acts, 
 such as embezzlement or larceny, but such words have a 
 broader meaning, and include any acts which show a want 
 of integrity or a breach of trust. 
 
 United States Fidelity &: Guaranty Co. vs. Egg 
 Shippers' Strawboard & Filler Co., 148 Fed. 
 352. 
 
 A surety on a fidelity bond indemnifying a corporation 
 against loss of money intrusted to its treasurer, through the 
 "embezzlement or larceny" thereof by him, is not liable for 
 money intrusted to him, and for which he failed to account, 
 on which, while in his hands the corporation charged him 
 interest. 
 
 Milwaukee Theatre Co. vs. Fidelity 6c Cas. Co., 92 
 Wis. 412.
 
 FRAUD^ DISHONESTY_, EMBEZZLEMENT^ ETC. 129 
 
 Suit wtiS brought against a surety company on an indem- 
 nity bond given to a fire insurance company guaranteeing 
 it against loss through larceny or embezzlement by an agent 
 of the insurance company. A breach was alleged in the 
 declaration and a statement filed claiming that there was a 
 balance due the insurance company. The employee claimed 
 the right to credits for returned premiums and expenses in 
 excess of the balance against him, and defendant, a surety 
 company, executed to plaintiff a bond by which it agreed to 
 make good such pecuniary loss as plaintiffs might sustain 
 during a certain period by reason of any fraudulent or 
 dishonest act of plaintiffs' agent in connection with his 
 duties, amounting to embezzlement or larceny. 
 
 The agent paid over to plaintiff all the money collected 
 during the period covered by the bond, but he directed a 
 part of the same to be credited on other acounts owing to 
 the plaintiff, without knowledge by the plaintiff that the 
 money collected by the agent from certain accounts was so 
 applied to the payments of other accounts for which the 
 agent was also liable. Held, that this action amounted to 
 a fraudulent conversion by the agent of the money collected 
 and that the defendant is liable therefor under the bond. 
 
 American Bonding & T. Co. vs. Milwaukee Har- 
 vester Co., 91 Md. 733. 
 
 96. — Same. 
 
 The surety company filed a bill of particulars with one 
 of its pleas shoAving a balance in favor of the plaintiff's 
 case; the lower Court granted the defendant's prayer, in- 
 structing the jury to find for the defendant on the ground 
 that the plaintiff had offered no evidence legally sufficient 
 to entitle him to recover under the pleadings, and judgment 
 was accordingly entered for the defendant. 
 
 Held, that the judgment should be affirmed, as there could 
 be no recovery in this case for any acts or conduct which 
 fall short of larceny or embezzlement, and that the claim 
 of the employee is not of such a character as to raise a 
 9
 
 lo(> llli: LAW ()!•' I-II)I-.I.I IV IJO.NDS. 
 
 pinna f'icic prcsiiiniil imi oT (lisliniicst y, iiiiioiiiit iiii'; to lar- 
 ceny or riiihc/zlciiiciit, and tlial the ex idcncc was not h-f^ally 
 suniciciii to warraiil llic fiii(liiii>; of a vcinlict for the jdaiii- 
 tiff uiidci- the bond. 
 
 Vi'illiaiiis vs. United States Fidelity t-V: (jluaranty Co., 
 lO.") M.(l. J!)0. 
 
 A bond of a surety company was conditioned tliat if the 
 ))rincipal, a corpoi-alion, "sliall in any manner or by any 
 means, misuse^ niisappropriate, or misapply said paper or 
 plates" ( to be furnished by the obligee), "or in any manner 
 dispose of same, or convert them to their own use, amount- 
 ing to larceny or embezzlement of paper and plates, then 
 this bond to be in full force." The principal appropriated 
 to its own use certain paper furnished by the obligee, and 
 in an action on the bond the surety claimed that, as a cor- 
 poration could not commit larceny or embezzlement, the 
 surety Avas not liable. 
 
 Held, that the effect of the bond was to raise a liability 
 in two contingencies: 
 
 If the principal should in any manner misappropriate 
 or misa)>ply the ])aper; and, second, if it should in any 
 manner amounting to larceny or embezzlement dispose of 
 the same or convert it to its own use. 
 
 K. K. Fairbank Co. vs. American Bonding <&: T. 
 Co., 97 Mo. App. 205. 
 
 Where, in a suit upon a bond executed to a loan company 
 guarantying the honesty of an employee, it appears that it 
 was stipulated in the application for such bond that the 
 duties of such employee are to receive and deposit all mon- 
 eys received by the company, to endorse checks for deposit 
 only, and not authorized to sign checks or accept drafts, or 
 pay out on account, with no authority to Avithdraw money, 
 and the obligation of the bond is to make good any loss 
 occasioned by the fraud or dishonesty of such employee in 
 connection with his duties as specified, and the bondsman
 
 FEAUD^ DISHONESTY,, EMBEZZLEMENT^, ETC. 131 
 
 not to be liable for other than the personal acts of such 
 employee within the direct scope of his specified duties, the 
 bondsiivin will not be held for the dishonesty of such em- 
 ployee in inducing the loan company to accept a loan to a 
 fictitious person, on fictitious security, and procuring the 
 money fi-om the bank where moneys of the company are 
 on deposit on a check issued by the company in the name 
 of such fictitious borrower by forging his name upon the 
 check. 
 
 Livingston vs. Fidelity & Deposit Co., 81 X. E. 
 (Ohio) 330. 
 
 Under a bond for indemnity given on behalf of an em- 
 ployee appointed as agent for the sale of merchandise on 
 commission, which by its terms declares that its true intent 
 and meaning are that the surety "shall be responsible for 
 moneys, securities or property diverted from the employer 
 through fraud or dishonesty on the part of the employee," 
 proof that on settlement of accounts between them there 
 was an indebtedness from the employee to the employer is 
 not of itself sufficient to authorize a recovery by the em- 
 ployer a.'j^ainst the surety, as such indebtedness may have 
 been autliorized by agreement between the employer and 
 employee, or by their course of dealing, and may have been 
 incurred without any fraud or dishonesty on the part of the 
 emplo^'ee. 
 
 Monongahela Coal Co. vs. Fidelity & Deposit Co.. 
 94 Fed. 732. 
 
 97. — Same. 
 
 The r-ct of a bank cashier in lending the funds of the 
 bank upon imsecured notes, against the will and without 
 the authority of the bank may constitute embezzlement. 
 
 United States Fidelity & Guaranty Co. vs. Muir, 115 
 Fed. 264.
 
 132 I'lIK l-A\V oi' I'lItKLITV Bf^N'D.S. 
 
 The merely technical conversion of property is not a 
 breach ot a fidelity bond indemnifying against personal dis- 
 honesty. 
 
 Sinclaii & Co. vs. National Surety Co., 13:^ Iowa, 
 541). 
 
 There is no authority for the proposition that a con- 
 tract cannot be enforced, or that action on it must be sus- 
 pended because the party in default may by his non-per- 
 formance have incurred a criminal liability. 
 
 Baum vs. Union Surety & Guaranty Co., 19 Pa. 
 Supr. Ct. 23. 
 
 Under a corporate fidelity bond conditioned for reim- 
 bursement for any loss by "fraud or dishonesty" on the 
 part of an agent under agreement to sell goods on commis- 
 sion, the surety is liable for any loss growing out of such 
 fraud or dishonesty. 
 
 United States Fidelity k Guaranty Co. vs. Merkley 
 & Son, 23 Ky. L. R. 1570. 
 
 In an action upon a bond securing an employer against 
 loss by reason of the fraudulent or dishonest acts of an 
 employee amounting to embezzlement or larceny, a non- 
 suit is properly entered where there is no evidence to show 
 that the employee personally received goods shipped to him, 
 or that they had been in his actual control, or that he had 
 ever rcL-eived the proceeds of the sale of them. 
 
 Keed vs. Tidelity c^- Casualty Co., 189 Pa. St. 596. 
 
 "A man cannot be found guilty of fraud or dishonesty 
 in the absence of criminal intent." 
 
 Clifton Mfg. Co. vs. U. S. F. &- G. Co., 60 S. C. 128. 
 
 Another case of some interest in this connection ilhistratina: 
 the difference between the liability of the sureties of a public
 
 FRAUD^ DISHONESTY^ EMBEZZLEMENT^ ETC. 133 
 
 officer on his official bond and that of the surety on a cor- 
 porate indemnifying bond iiinning to the sureties on the offi- 
 cial bond is United States Fidelity & Guaranty Co. vs. Fos- 
 sati, 97 Tex. 497. where it is held : 
 
 In a suit by the State against a tax collector and his 
 bondsn^en for the amount of taxes coHected and not paid 
 over, in which he is not charged with criminal conduct, 
 but only with default, the bondsmen cannot plead over 
 against and make a party to the suit a guaranty company 
 which has given to them a bond of indemnity againts loss 
 by "any act of fraud or dishonesty amounting to larceny or 
 embezzlement" on the part of the collector, the issue arising 
 in such case being different in character from that asserted 
 by the State. 
 
 98. — Crimes by National Bank Officers. 
 
 As to what constitutes embezzlement and other "Crimes by 
 I^ational Bank Officers," see the recent treatise on that sub- 
 ject by Terrell. 
 
 See also the following cases : 
 
 United States vs. Harper, 33 Fed. 474. 
 
 United States vs. Lee, 12 Fed. 816. 
 
 United States vs. Cadwallader, 57 Fed. 677. 
 
 United States vs. Breese, 131 Fed. 918. 
 
 United States vs. Britton, 107 U. S. 670. 
 
 United States vs. ITorthway, 120 U. S. 333. 
 
 Batchelor vs. United States, 156 U. S. 429. 
 
 Coffin vs. United States, 156 U. S. 450. 
 
 Classen vs. United States, 142 U. S. 146. 
 
 99. — Terms Construed Substantially as Wrongful Misapplication 
 of Funds. 
 
 While in the aforegoing decisions it has been held there is 
 a clear distinction between embezzlement and misapplication
 
 134 TIIK l.AW OK l-'IDKLnV IJONDS. 
 
 of I'liiids, iiiid while c'<)r|i(n-ate surety bonds usually provide 
 t'di- iudeiiiuitv I'oi- aets amountiu*;- to eiidx-z/Jenient or larceny, 
 it is not a])irehendcd that this distinction would bo recog- 
 nized in civil actions for the enforcement of liability on such 
 bonds. ^ 
 
 1.— Set' Cliaii. fi, sec, !)4.
 
 LIABILITY WHERE DEFAULT EXCEEDS PEXALTY. 
 
 135 
 
 CHAPTER VL 
 
 Extent of Corporate Sarety^s Liability on Successive Fidelity 
 
 Bonds where Defaults Occurred During more than one 
 
 Term and Exceed Penalty of Original Bond. 
 
 100. Liability of surety limited 
 
 to penalty of original 
 bond. 
 
 101. Leading case. 
 
 101a. Further autliorities in sup- 
 port of rule as here 
 stated. 
 
 102. Conflict— Surety liable on 
 
 more than one bond. 
 
 103. Same. 
 
 104. Liability where original 
 
 bond invalid. 
 
 lOO. — Liability of Surety Limited to Penalty of Original Bond. 
 
 It is now well settled that where a fidelity bond is issued 
 for one year or other stated period, and is thereafter period- 
 ically renewed or continued in force by the issuance of certifi- 
 cates which specifically refer to and adopt the terms of the 
 original instrument, and where that instrument provides that 
 the total liability of the surety shall not exceed the penal 
 sum named therein, and wher6 there are defaults occurring 
 during the original term and also during one or more renewal 
 terms, or during more than one renewal term, in such case 
 the liability of the surety is limited to the penalty of the 
 original bond. The mere statement of the proposition would 
 seem to be sufficient to indicate the rule by which the surety's 
 liability is to be gauged, but a determined effort has been 
 made in a nnmbeT of cases to treat each renewal certificate 
 as an independent contract, and to hold the surety for loss 
 under the original bond, and under the renewals where loss 
 occurred for such respective losses up to the penally of the
 
 i:m 
 
 TiiK I, AW oi' !■ ii)i:r,nv uo.xds. 
 
 Ixiud :iii(I of ciich certificate. Foi' example, if tiiei-e I»e aii 
 <ii'i_uiiial Idiiiil i'nv one veai" for .$1, <•()(), aiid two renewal cer- 
 tificates for successive years in like penalty, and if defalca- 
 tions are discovered which took place during the original term, 
 and also during the term of each renewal, such defalcations 
 amounting in each term to iiioi-e than the penalty of the bond, 
 it has been contended that the surety is liable for $3,000, the 
 aggregate penalty of the bond and renewals. The rule is, 
 however, as above indicated, that the surety is only liable 
 for the ]ienalty of his bond. 
 
 loi. — Leading Case. 
 
 Perhaps the leading case on the subject is First National 
 Bank vs. Fidelity & Guaranty Co., 110 Tenn. 10^ (1902), 
 which stated the law as follows: 
 
 "A bond given by a guaranty company to indeniuify a 
 bank for loss occasioned by the fraud or dishonesty of its 
 bookkeeper provided that said guarantor would make good 
 and reimburse said bank to the extent of $7,000, and no 
 further, all pecuniary loss occasioned by said bookkeeper, 
 occurring during the continuance of said bond or any re- 
 newal thereof. Liability on the bond was limited to one 
 year. A renewal certificate purporting to be such, and to 
 be subject to the conditioiis of the original bond was exe- 
 cuted guaranteeing the fidelity of said employee for the 
 following year. By the fraud and dishonesty of said em- 
 ployee, the bank sustained during the first year a loss of 
 $7,217, and during the second year a loss of $13,157.20. 
 Action to recover full penalties of both bonds. 
 
 "Held, that the renewal certificate was a new contract 
 only so far as it extended the indemnity provided by the 
 
 1. — For claim against another 
 surety company prowins out of 
 same transactions, see First Xat'l. 
 
 Bank vs. Nat'l. Surety Co.. 130 
 Fed. 401. Chapter 10. sec. 113, 
 post.
 
 LIABILITY WHEEE DEFAULT EXCEEDS PENALTY. 137 
 
 original bond to another year, and that there was in fact 
 only one bond, with one penalty of $7,000, to which the 
 recovery was limited." 
 
 xoia. — Further Authorities in Support of Rule as Here Stated. 
 
 Several very recent cases in different States have adopted 
 this view: 
 
 "A renewal certificate of a bank cashier's guaranty bond, 
 which provides that the aggregate liability of the guaranty 
 company, from the date of the issuance of the bond to the 
 expiration of the renewal certificate, on account of the 
 acts of such cashier, shall not exceed the sum written oppo- 
 site his name in the schedule, limits the company's total 
 liability to the face value of the original bond as shown by 
 such schedule, and does not give an additional indemnity 
 for the same amount." 
 
 United States Fidelity & Guaranty Co. vs. First 
 :tTat'l Bank of Dundee, 233 111. 475. 
 
 "The renewal of a fidelity policy constitutes a separate 
 and distinct contract for the period of time covered thereby, 
 but its terms and conditions are evidenced by the bond 
 which is renewed where the renewal receipt recites that it 
 is renewed in accordance with the terms of the bond." 
 
 Long Brothers Grocery Co. vs. United States Fidel- 
 ity and Guaranty Co., 130 Mo. App. 421. 
 
 A corporate fidelity bond in the penalty of $5,000 was 
 issued in 1901, and annually renewed by renewal certifi- 
 cates, the last one covering the period from June, 1903, to 
 June, 1904. Suit was subsequently instituted on the con- 
 tract for $5,000, and recovery was permitted to the extent 
 of $4,409.23, the amount of embei^zlement found to have 
 occurred during the period covered by the last renewal.
 
 138 Till-; LAW OK I'lDKLnv UO.NDS. 
 
 The total ciiihc/./.Iciiiciit ainouiitcd to about $7,000, and was 
 coiiiiiiiitcd diiriiii,^ tlic last two years of the contract. 
 
 Aetna Ind. Co. vs. J. K. Crowe Coal and Mining 
 Co., 154 Fed. 545. 
 
 "Where a bond issued by a surety company indemnify- 
 ing an employer against default of an employee for a cer- 
 tain amount provided that it should not lapse at the end 
 of the term if renewed, but that the liability of the surety 
 should not be cumulative, the total liability for the whole 
 period represented by the original term and renewal periods 
 was limited to the amount specified in the bond." 
 
 Am. Bonding Co. vs. Morrow, 96 S. W. (Ark.) 613. 
 
 The other cases limiting- the liability as here shown are 
 as follows : 
 
 Florida Cent. & P. R. R. Co. vs. Am. Sur. Co.. 
 
 99 Fed. 674. 
 Proctor Coal Co. vs. United States Fidelity & 
 
 Guaranty Co., 124 Fed. 424. 
 Lombard Tnv. Co. vs. Am. Surety Co., 05 Fed. 
 
 476. 
 De Jeimettc vs. Fidelity <S: Casualty Co.. 17 Ky. 
 
 Law Eep. 1088. 
 Mayor, &c., vs. LTarvey, 114 Ga. 73.3. 
 
 I02. — Conflict — Surety Liable on More Than One Bond. 
 
 In conflict with the above and all other cases on the subject 
 is Hawley vs. United States Fidelity & Guaranty Co.. 100 
 App. Div. (IST. Y.) 12\ reference to which will show that 
 there were two orisrinal bonds, and a default under each, the 
 agcri-egate amount of which did not amount to as much as 
 the penalty of either bond. The Court so interpreted the 
 
 1. — See discussion of this case, 
 riiapter 1. soc. IS. note.
 
 LIABILITY WHERE DEFAULT EXCEEDS PENALTY. 139 
 
 language of those instruments as to permit a recovery of 
 amounts misappropriated under each bond. jSTo authority is 
 cited in support of that case. All the cases are against it, 
 and it has not been followed by the later decisions. 
 
 103. — Same. 
 
 It must be borne in mind that a determination of the ques- 
 tion as to whether recovery is limited to one penalty or the 
 default under the last undertaking, or whether recovery may 
 be had upon each of se^'eral undertakiTigs depends upon the 
 facts of eacli case, and the particular language used in the 
 contracts. The aforegoing decisions, with one in conflict, il- 
 lustrate the first view. An illustration of the second view 
 will be found in the case of Sherman vs. Harbin, 125 Iowa, 
 174, in which an undertaking, more in the nature of a com- 
 mon law obligation than the usual form of corporate fidelity 
 bond, was executed for a term, and subsequently a certificate 
 was issued "goiaranteeing the fidelity' of the risk for another 
 term, subject to all the terms and conditions of the original 
 obligation. The Court distinguished that case from that of 
 First E'ational Bank vs. Fidelity & Guaranty Co., 110 Tenn. 
 10, and permitted a recovery for the full penalty of the origi- 
 nal bond, as well as of the certificate. 
 
 104. — Liability Where Original Bond Invalid. 
 
 Another question which sometimes arises in this class of 
 cases is as to the liability of the surety upon a renewal or 
 continuation certificate where the original obligation is in- 
 valid, as, for example, where the obligation is not executed by 
 the principal, such execution being made a requisite to the 
 validity of the instrument. If the renewal is issuc^d by the 
 surety with knowledge of the invalidity of the original instrn- 
 ment, it goes without saying that it cannot subsequently be 
 heard to complain thereof. Where the renewal is issued with-
 
 • !•* TIIK LAW OF KIDKLITV BONDS. 
 
 uul knowledge ul' the invalidity, Llic cases are not in burniuny, 
 owning possibly to the different circumstances in the several 
 cases. 
 
 In North St. Louis Bldg. & Loan Assn. vs. Obert, 169 
 Mo. 507, it was held that where the penalty of an original 
 fiduciary bond has been exhausted, there can be no recovery 
 on a ''renewal bond" which was not signed by the defaulting 
 principal. 
 
 In Proctor Coal Co. vs. United States Fidelity & Guaranty 
 Co., 124 Fed. 424, it was held upon the allegations in a de- 
 luurri^r that whero a fidelity insurance company had received 
 premiums for two renewals of a bond, with knowledge that 
 the bond was not signed by the employee whose fidelity was 
 insured, as required by the bond, it was estopped to set up 
 the absence of such signature to prevent a recovery on the 
 bond. 
 
 In the recent case of Aetna Ind. Co. vs. J. R. Crowe Coal 
 & Mining Co., 154 Fed. 545, it was held that where the exe- 
 cution by a servant of an employers liability bond was not 
 made a consideration for nor a condition of the creation of 
 liability by the insurer, but the latter thereafter continued the 
 bond, which was not signed by the servant, three times for a 
 further consideration, subject to the provisions and covenants 
 of the bond, defendant was not entitled to object that it was 
 not liable on the last renewal, because the bond was not origi- 
 nally signed by the servant, as contemplated, although there 
 is no evidence tending to show that the surety had knowledge 
 when the renewals were issued that the original bond had not 
 been signed.^ 
 
 2. — See Chaitter 17, on Succes- 
 sive Bonds.
 
 FIDELITY BOND FILED AS OFFICIAL BOND. 141 
 
 CHAPTER Vn, 
 
 LIABILITY OF SURETY UPON CORPORATE FIDELITY 
 
 BOND FILED AS THE OFFICIAL BOND OF 
 
 A PUBLIC OFFICER. 
 
 105. Surety liable as upou statu- i 107. Holding that surety only 
 
 tory bond. 
 106. False inducement will not 
 relieve surety. 
 
 liable in accordance with 
 his contract. 
 
 105. — Surety Liable as Upon Statutory Bond. 
 
 This questioii was squarely presented to the Supreme 
 Court of Alabama in two recent cases. The Court held : 
 
 In a soit on a corporate fidelity bond filed by a register 
 in chancery as his official bond, it was held that a bond 
 intended by the obligor thereon to be the official bond of a 
 public officer, under which said public officer acts, is by 
 force of the local statute the official bond of such officer, 
 and in legal contemplation and effect such bond is payable 
 and conditioned as statute requires the official bond of such 
 officer to be payable and conditioned, and it is therefore of 
 no consequence that the bond so executed is payable and 
 conditioned differently from that Avhich the statute requires 
 for official bonds, or that the conditions expressed in the 
 bond may not have been broken by the officer. 
 
 U. S. Fidelity & Guaranty Co. vs. Union Trust & 
 Savings Co., 142 Ala. 532. 
 
 Another case in which the Court refused to enforce the 
 provisions of the bond as filed is that of Ignited States Fidel-
 
 142 'Jill. J. AW OF I lUKMTV DOMKS. 
 
 it J \- ( iiKii aiily Ci). \\s. j\lcl-,aiiglilin, 107 A'. W. .")77 (Xeb. j 
 lUi) .\. W. ;;:>0, where it was held: 
 
 111 ail actiuu by u county treasurer against a guaranty 
 fonipaiiy on a coijiorati' lidelity bond siniilai' to tbcjse exe- 
 cuted on behalf ol' private eiiiployeciS, reciting the appoint- 
 nient of one as dei)uty treasurer, and conditioned to make 
 good his defaults caused by any act of fraud or dishonesty, 
 and oi-curiiiig during the continuance of the bond or an}' 
 renewal thereof, and discovered during said continuance 
 or within six months thei-eafter, and where the bond and 
 renewal covered a period ending in January, 11)02, during 
 Avhich the deputy misapi)ropriated a large sum and where 
 his dishonesty was not discovered until 1904, it was eon- 
 tcMided on behalf of defendant that the alleged deputy was 
 but a clerk and his obligation a private one and not an 
 oilicial bond, as required by statute, and that an action on 
 the sauic was barred by limitations. Held, that a bond 
 given for the faithful discharge of the duties of one legally 
 intrusted with State and county funds is an official bond, 
 and the statutory provisions relative thereto enter iiito and 
 become a part ol the contract. 
 
 Held, further, on rehearing that the clause limiting the 
 right of action to such default as shall be discovered during 
 the continuance of the bond, or within six months there- 
 after, cannot be enforced. 
 
 io6. — False Inducement Will Not Relieve Surety. 
 
 So, in a late Pennsylvania case the Court enforced liabil- 
 ity asrainst the surety of a tax collector not^rithstandin2; the 
 fact that the surety had sought and obtained from the attor- 
 ney for the county treasurer a written ecrtiiieate as to the 
 condition of the accounts of the collector, which certificate 
 was false. 
 
 There is no official duty on the part of the county treas- 
 urer to examine the account of a tax collector with the
 
 FIDELITY BOND FILED AS OFFICIAL BOND. 143 
 
 county and mate report thereon to a person who proposes 
 to become surety for the collector for the ensuing year. If 
 he does so, he is the mere agent of the surety to do what 
 he is not officially obliged to do, and if he, or his attorney 
 duly authorized, makes false answers to the questions pro- 
 pounded by the proposed surety, the county is not responsi- 
 ble for such answers, and the surety is not relieved from 
 liability on its bond by reason of them. 
 
 Whetlier if the surety had called upon the treasurer for 
 a certificate from his official accounts, which he was bound 
 to correctly keep, of the balances against the collector for 
 certain 3^ears specified, and he had as treasurer furnished a 
 false statement, the surety would have been relieved, not 
 decided. 
 
 C'oramonwealth vs. American Bonding Sz Trust Co., 
 205 Pa. St. 372. 
 
 A corporate surety bond given under the requirements of 
 the dispensary law of South Carolina, but not conditioned 
 as required by statute, held good as such statutory bond, al- 
 though not in conformity with the statutory requirements. 
 In so far as stipulations in the bond inserted for the benefit 
 of the makers were repugnant to the statute, they must be 
 regarded as null and void. 
 
 W alker vs. Holtzlaw, 57 S. C. 459. 
 
 107. — Holding that Surety Only Liable in Accordance With His 
 Contract. 
 
 In Mayor vs. Harvey, 114 Gra. 733, the Supreme Court of 
 Georgia held: "Where a fidelity and guaranty company en- 
 ters into a bond with the authorities of a municipal corpora- 
 tion to guarantee the city against the fraud and dishonesty 
 of the city treasurer, the obligation thus given is not a statu- 
 tory but a voluntary bond," and held further, that the surety 
 was not liable for defaults, except within the terms of its 
 bond.
 
 II I Till' l-AW OI- III)i;Mrv ItO.NDS. 
 
 Tlu' rule is thus stated 1)}' the appclliitx! ('oiiri >>{' West 
 Vii-iiiin, ('liiiiiilH'rs vs. ('line, 00 \V. \'a. 588: 
 
 Wlicii a l»()ii(l is given under the authority of a statute, 
 that \vhl<di is not expressed, but should have been incorpo- 
 rated, iy included in the bond; while that which is not re- 
 quired by the statute is excluded, if it is sufficiently clear 
 from the bond itself that the intention of the parties was 
 ' to comply Avith the law in its execution. 
 
 And to the same effect is — 
 
 State vs. Smith, 87 Miss. 551
 
 CULPABLE NEGLIGENCE. 
 
 145 
 
 CHAPTER VIIL 
 
 CULPABLE NEGLIGENCE. 
 lOS. Elastic term in insurance. I 109. Illustrations. 
 
 io8. — Elastic Term in Insurance. 
 
 While many corporate fidelity bonds guarantee against 
 loss by the "culpable negligence" of the risk, and some pro- 
 ceed to define the temi, there appear to have been but few 
 adjudicated cases pertaining to this particular branch of 
 insurance. The term as used in the law of insurance is an 
 exceedingly elastic one, and much difficulty is experienced 
 in practice in determining the respective rights of parties to 
 a contract containing this clause. In the absence of other 
 authority reference must be made to the analogies of the law 
 in the application of its piinciples. 
 
 1 09. — Illustrations. 
 
 In United States Fidelity &: Guaranty Co. vs. Des Moines 
 'Nat. Bank, 145 Fed. 273/ it was held: 
 
 1. — See anotlaer case involving 
 the disappearance of a specific 
 sum of money — Fidelity & Cas. 
 Co. vs. Bank of Timmonsville, 139 
 Fed. 101, Chap. 12, sec. 120, post. 
 
 A teller of a bank is not liable 
 for losses incurred during his ab- 
 sence from the bank. Bank of 
 U. S. vs. Johnson. 3 Cr. C. C. 228. 
 
 Where a person, who alone is 
 charged with the duty, in his em- 
 ployment, of recieving and dis- 
 bursing funds and of keeping the 
 books of account, and the books 
 10 
 
 show the receipt of funds of 
 which there is no acount of dis- 
 bursement, and there is, in fact, 
 a deficiency shown by the books 
 to exist, the legal presumption is 
 that the person wliose duty it was 
 to receive any funds did, in fact, 
 receive them, and no explanations 
 being made, that he has dishon- 
 estly appropriated them to his 
 own use. Guarantee Co. vs. Mutl. 
 Bldg. & Loan Assn., 57 111. App. 
 254.
 
 140 iiii; LAW OK I ii)i;i,nv isonds. 
 
 Ill an iiclidu upon a Ixtiid wlici'cby a guaranty c-oiiipany 
 agrees to make good and rcimhurso to an employer any 
 pecuniary loss sustained by him tiirough the personal dis- 
 honesty or fulpable negligence of an employee in connec- 
 tion will' I he duties of his employment, and wherein "cul- 
 pable negligence" is defined to mean "failure to exercise 
 that degree of care and caution which men of ordinary pru- 
 dence and intelligence usually exercise in regard to their 
 own affairs," it is error to instruct the jury that the degree 
 of care and caution, failure to exercise Avhich on the part 
 of the employee will rendei- the guaranty company liable 
 for a resultant loss, is "the very highest, you might almost 
 say, the highest possible," "the very highest," and "extraor- 
 dinary and a very high degree." 
 
 Held, further in this case that the loss of money from a 
 bank vault to which others than the teller on whose bond the 
 suit was brought had access was not recoverable under the 
 culpable negligence clause. 
 
 Another comparatively recent case dealing with the sub- 
 ject is — 
 
 City Trust, Safe Deposit and Surety Co. vs. 
 Fidelity and Casualty Co., 58 App. Div. 
 (N. Y.) 18, (1901). 
 
 In an action brought by a guaranty company which had 
 insured a railway company against loss by reason of "the 
 personal dishonesty or culpable negligence" of its collector- 
 general, to recover from another guaranty company which 
 had reinsured a portion of the risk, its proportionate share 
 of a loss paid by the first-mentioned corporation, arising out 
 of the fact that a canvas bag of bills was taken from the 
 possession of the collector-general, evidence was given tend- 
 ing to show that the collector drove up to a bank for the 
 purpose of depositing six bags of coin and one of bills ; that 
 he unlocked the monor box, which was located back of the
 
 CULPA15LE NEGLIGENCE. 147 
 
 seat, aud placed the bag of coin in the front of the wagon 
 by the dashboard; that he then locked the money box and 
 placed the canvas bag containing the bills behind him on 
 the lid of the money box, and handed the driver two bags 
 of coin; that after the driver had carried the bags of 
 coin into the bank the collector gave him two more, hav- 
 ing meanwhile seen that the canvas bag was safe ; that after 
 the driv(;r had gone into the bank with the second set of 
 bags a man approached the wagon and said something to the 
 collector, which he was unable to understand; that the col- 
 lector again looked and saw the bag of bills, and then hand- 
 ed the driver the two remaining bags of coin ; that he then 
 turned aud discovered that the bag of bills had disappeared. 
 The wagon was so constructed that a person taking the bag 
 must have climbed upon the wheel and into the wagon and 
 reached by the collector over the seat to where the bag was 
 placed and have escaped without attracting the collector's 
 attention, l^o charge was made of dishonesty on the part 
 of the collector. Held, that the fact of disappearance of 
 the bag under the circumstances raised a presumption of 
 "culpablti negligence." 
 
 That the question whether the collector was guilty of 
 culpable negligence was properly submitted to the jury and 
 that their verdict in favor of the plaintiff should not be 
 disturbed. 
 
 Reference is also made to the following cases : 
 
 Under the fidelity bond of general insurance agents con- 
 ditioned that they should in all respects observe the instruc- 
 tions of rheir ju'incipal, and that they should in all respects 
 well and faithfully perform their duties as such agents, the 
 surety is liable for a loss sustained by the employer by rea- 
 son of the neglect of the agents to cancel a policy Avhen di- 
 rected to do so by their employers, under which there was a 
 subsequent claim paid by the employers. 
 
 I^orthern Ins. Co. vs. Borgelt, 93 N". W. 226 (Neb.).
 
 148 TIIK l.AW or IIDKLITV UOXDS. 
 
 Where a fidelity bond was conditioiied against loss by 
 reason or in eonsequence of the willful default or culpable 
 neglect of the employee in or arising out of his employment 
 with the insured, and where it was the duty of the em- 
 ployee to make a weekly inspection of the accounts of the 
 clerks under him, and where he neglected to do so, and in 
 consequence the embezzlements of a clerk extending through 
 a year were undiscovered, and the insured sustained loss 
 thereby, the surety was held liable. 
 
 Colonial Bank vs. European Ins. & Guar. Soc, 1 
 Wyatt (Can.) 15.
 
 INFORMATION FOR ARREST, ETC. 149 
 
 CHAPTER IX. 
 
 Effect on Sttrety^s Liability of his requiring without denial of 
 
 Liability, further action by Obligee in perfecting proofs 
 
 of loss, making Information for Arrest, or the like ; 
 
 or in himself making settlement with or 
 
 securing prosecution of risk. 
 
 111. Illustrations. 
 
 llO. Surety must not indicate 
 acceptance of liability, take 
 or require further action 
 and then repudiate. 
 
 no. — Surety Must Not Indicate Acceptance of Liability, Take or 
 Require Further Action, and Then Repudiate. 
 
 The decisions on this point, sometimes a practical and im- 
 portant one, are too few to permit the dedtiction of any gen- 
 eral rule, further than to say that the law, which deals with 
 the substance of things, looks to the acts of the surety rather 
 than to his intentions as subsequently declared, and will not 
 permit him by a course of conduct to lead the insured to 
 believe his claim is accepted and to subsequently repudiate it. 
 
 Ill . — Illustrations. 
 
 Reference may be had to the following cases illustrative 
 of the proposition: 
 
 The rule is that, when an insurance company becomes 
 aware that all rights under a policy has been lost, it cannot, 
 for an indefinite period, disguise its purpose to resist pay- 
 ment of the loss, by affirmative action, which would nat-
 
 inO TJIK LAW OF I'IDKMTY BONDS. 
 
 urallj lead the insured to believe that it admitted its lia- 
 bility and intends to discharge it. 
 
 Missouri K. & T. Trust Co. vs. German Nat. Bank, 
 77 Fed. 119. 
 
 A surely company had executed a bond to a bank insur- 
 ing the iid6lity of one of its employees ; said employee was 
 afterwards found to be a defaulter, and soon after this dis- 
 covery the surety company learned that in his application 
 to it for the bond, the employee had understated his in- 
 debtedness to the bank by some $3,700. Without disclaim- 
 ing liability on the bond, the surety company, in conjunc- 
 tion Avith the bank, proceeded to take security from the em- 
 ployee and to attach his property. Afterwards, being sued 
 by the bank on the bond, the surety company set up the 
 employee's misstatement, as a defense. Held, that it was 
 not error to submit to the jury the question whether the 
 surety company, by proceeding after it kncAv the facts to 
 take security from the employee, without notifying the bank 
 that it disclaimed liability, had waived the defense. 
 
 Missouri, K. & T. Trust Co. vs. German N'at. Bank, 
 77 Fed. 119. 
 
 The fact that a surety company which was surety on the 
 bond of a bank cashier, after notice of his defalcation, sent 
 an agent to examine the books of the bank, and also took 
 steps for the arrest of the defaiilter, does not estop it to 
 deny the validity of the bond on discovering that its re- 
 newal was procured by the bank after the defalcation took 
 place, and the cashier had absconded, where the bank was 
 placed in no worse position by such acts. 
 
 !N'ational Bank of Ashville vs. Fidelity & Casualty 
 Co., 89 Fed. 819. 
 
 "Where a surety company sent an inspector to investigate 
 a loss, who stated that the company would require the books 
 to be checked by an expert, and at his suggestion, one was
 
 INFOKMATION FOR AREEST, ETC. 151 
 
 employed, held, that the company was charged with knowl- 
 edge of what might be ascertained so as to constitute a 
 waiver of notice, and that this question was properly sub- 
 mitted to the jury, notwithstanding the fact the contract 
 prohibited a waiver by the inspector. 
 
 Perpetual B. & L. Assn. vs. U. S. Fidelity & Guar- 
 anty Co., 118 Iowa, 729. 
 
 Where the insurer, in an employer's indemnity policy, 
 made no objection on the ground that it had not been im- 
 mediately notified of the employee's embezzlement, but 
 called on the employer to make an effort to effect a settle- 
 ment with the employee, and then required him to make an 
 itemized proof of loss, and subsequently called on the em- 
 ployer to take steps for the criminal prosecution of the em- 
 ployee, and in an action on the policy failure to give imme- 
 diate iiotice was not relied on as a defense, it was waived. 
 Goldman vs. Fidelity & Deposit Co., 125 Wis. 390.
 
 152 THE LAW OF MDKLITY BONDS. 
 
 CHAPTER X. 
 
 APPLICATION OF SALVAGE. 
 
 112. Apjjlied first to reduction of 
 
 unsecured loss. 
 
 113. Digest of authorities. 
 
 114. Discussion of uiiiuncr of ap- 
 plication. 
 
 112. — Applied First to Reduction of Unsecured Loss. 
 
 Where voluntary restitution has been made bv a default- 
 ing employee of a ])art of the amount wrongfully taken, or 
 where partial recovery has been made by the employer from 
 the employee, or from other sources on behalf of the latter, 
 and in cases where there are more than one surety involved 
 in the transaction, the question of the application of such 
 partial recovery arises. The cases are limited in number and 
 too few to permit of the deduction of any general rule, other 
 than the law, looking at all the circumstances, will seek to 
 do substantial justice between the ]nirtios, and will ordinarily 
 apply such recovery to any unsecured loss in cases where the 
 loss exceeds the security. 
 
 113. — Digest of Authorities. 
 
 Reference is here given to the cases dealing with the appli- 
 cation of salvage or recovery under circumstances as above 
 indicated : 
 
 When there are different bonds given by a bank official, 
 covering different periods of time, Avith different sureties, 
 an imappropriated payment made by the common princi- 
 
 1. — See Chapter 11, Application 
 of Payments.
 
 APPLICATION OF SALVAGE. 153 
 
 pal is not to be always applied by the Court to the oldest 
 obligation. Regard must be had to the responsibility of 
 the diti'erent sureties, as limited by the period for which 
 they respectively contract, as well as to the injustice that 
 would ensue if collections received under one obligation 
 are applied to the discharge of a liability under a preceding 
 or succeeding term, with distinct sureties. 
 
 Defendant, a surety company, executed a bond to plaintiff 
 bank by which it undertook, for the term of one year, to 
 indemnify plaintiff against loss sustained by the dishonesty 
 of employees. Action was brought therein to recover for 
 loss alleged to have occurred during the term through the 
 action of a bookkeeper in falsifying the accounts of a de- 
 positor so as to increase his apparent credit balance by 
 which he was enabled to and did overdraw his account to a 
 large amount. Such false entries and overdrafts continued 
 through four year?, but defendant's bond covered only about 
 three months of the last part of the bookkeeper's employ- 
 ment, there having been bonds with different sureties cover- 
 ing a portion at least of the previous time. The depositor's 
 account was the ordinary running account, subject to check, 
 and continuous all the time, and no application of deposits 
 to any particular item of debit was made by either party, 
 nor by implication, there having at no time been an over- 
 draft as shown by the books. The false entries and over- 
 drafts continued for a part of the time after defendant's 
 bond went into effect, but subsequent deposits made prior to 
 the time the bookkeeper's employment terminated exceeded 
 the checks paid during the same time in an amount greater 
 than such overdrafts. 
 
 Held, that the ordinary rule in such cases between debtor 
 and creditor^ that payments should be appropriated to the 
 oldest item of indebtedness, could not be applied as against 
 a surety whose obligation covered a distinct portion of the 
 time during w^hich the account was running, but that as be- 
 tween plaintiff and defendant all deposits made during the 
 currency of the bond would be applied by the Court to the
 
 l.-i-l 
 
 'nil': LAW (»]•• J IDi.Lll'V I'.O.NJJS. 
 
 (lc'l)il items made during tlie same lime, and, it appearing 
 that tlicy exceeded the sums drawn mit, tliere was no loss to 
 tlie hank for whi(di defendant was liable. 
 
 First Nat. Bank of Nashville vs. National Surety 
 Co., 130 Fed. 401.2 
 
 Property was turned over by the defaulting cashier of 
 a bank to the president thereof, as trustee, to secure to that 
 extent his indebtedness to the bank by reason of his defal- 
 cations. This was done without designation as to what part 
 of the indebtedness this credit should be applied. 
 
 Held, that in the absence of a designation as to the items 
 upon which this credit should apply, the law upon equitable 
 principles will imply that the debtor intended that it should 
 be used in payment of that part of his indebtedness which, 
 was the most precarious. 
 
 Fanelier vs. Kaneen, 5 Ohio Xisi Prius, n. s. 614. 
 
 A voluntary conveyance of property to a building and 
 loan association by its secretary who had misappropriated 
 its funds, with the request that it be applied to the first 
 items of indebtedness, is not a settlement relieving a surety 
 company from liability on its bond. 
 
 Perpetual B. <fc L. Assn. vs. U. S. Fidelity & Guar- 
 Co., 118 Iowa, 729. 
 
 ''Wlien the defalcations of a cashier exceed the amoimt 
 of his bond, the bank need not credit on the bond sums col- 
 lected from other sources, but may apply them in reduction 
 of the unsecured balance." 
 
 Phillips vs. Bossard, 35 Fed. 99. 
 
 2. — For claim against another 
 surety company growing out of 
 same transactions, see First Natl. 
 
 Bank vs. U. S. Fidelity & Guar- 
 anty Co., 110 Tenn. 10. Chap. 6, 
 sec. 101, ante.
 
 APPLICATIOJSr OF SALVAGE. 
 
 155 
 
 114. — Discussion of Manner of Application. 3 
 
 While there are no adjudicated cases upon the point, it 
 not infrequently happens in practice that tlie surety, especi- 
 ally corporate surety, before settlement with its obligee, ob- 
 tains from the employee or others in bis behalf partial re- 
 covery of the loss. How, under such circumstances, shall 
 such recovery be applied ? If the employer's loss is fully 
 covered by the bond, as between him and the surety, there 
 would seem to be no doubt that the surety would have the 
 right to appropriate the entire recovery made by bim in re- 
 duction of his own loss ; so, on the other hand, where tbe em- 
 ployer's loss is gi'eater than his bond, and where the recov- 
 ered funds, security or property, as the case may be, or a 
 part thereof are identical funds or other property misappro- 
 priated from the employer, or traceable thereinto it would 
 seem to be equally clear that, as between the employer and 
 the surety, the former would have the right to have applied 
 to his individual loss such proportion of the recovery as he 
 could show consisted of his property. In such case where the 
 employer is permitted to share in the recovery made by the 
 surety, the principles of justice and equity demand that he 
 contribute in like proportion to the expense of the recovery. 
 Where the loss exceeds the security, and recovery is made 
 solely by the surety of untraceable property, for example, 
 cash, his actual possession of the fund, coupled with the pre- 
 sumption that the law aids the vigilant, would certainly 
 render his position stronger than that of the employer, upon 
 whom the burden of proof rests, to establish in a suit against 
 the surety his right to recover the penalty of the bond and to 
 participate in the recovery so made by the surety. It will 
 be readily perceived that these question may become most 
 
 3. — The surety, on payment, has 
 all the rights of employer, even 
 the right to prosecute the de- 
 
 faulting employee. London Guar- 
 anty & A. Co. vs. Geddes, 22 Fed. 
 639.
 
 ir>() TJIK LAW OK I'IDKI.rrv BONUS. 
 
 itiipoi-iaiit ones ill instances of large inisa|)j)ro{)riation.s by 
 l»anl\ (nnployee's where large sums in cash are recovered 
 through the efforts of the surety, oi- the joint efforts of the 
 hank and the surety, Jn the absence of authority recourse 
 will doubtless be had by the Courts to the general law of 
 salvage in insurance. In conclusion it may be said that there 
 is perhaps no instance in the law where possession comes so 
 near being the traditional ''nine ]ioints of law" as this. Thus 
 reference has just been made to the application of cash re- 
 covered by the surety. Suppose for illustration, the cash is 
 recovered by the employer. It is apprehended there can be no 
 doubt that he would have the right to apply to the loss in 
 excess of the bond such recovery or the necessary proportion 
 thereof to extinguish the same.
 
 APPLICATION OF PAYMENTS. 157 
 
 CHAPTER XL 
 
 APPLICATION OF PAYMENTS. 
 
 115. In course of business. 
 IIG. Digest of autliorities. 
 
 117. Same. 
 
 115. — In Course of Business. 
 
 In the preceding chapter reference has been made to the 
 recovery from or restitution by the employee or from or by 
 others on his behalf. Reference is here made to the question 
 of application by the employer of payments of funds re- 
 ceived for his ow^n account in the usual course of business, as 
 well as the application by the employee of funds coming into 
 his hands in virtue of his position. For the question as to 
 application of payments between different terms of office, 
 see Chapter 16, I'enn of Office. Other than those referring 
 particularly to the application of payments as between differ- 
 ent terms of office, the cases on the general subject are here 
 collected : 
 
 1 1 6. — Digest of Authorities. 
 
 A voluntary conveyance of property to a building and 
 loan association by its secretary who had misappropriated 
 its funds, with "the request that it be applied to the first 
 items of indebtedness, is not a settlement relieving a surety 
 company from liability on its bond. 
 
 Perpetual B. & L. Assn. vs. U. S. Fidelity & Guar. 
 Co., 118 Iowa, 729. 
 
 1. — See Chapter 10, Application 
 of Salvage.
 
 ir)8 TiiK LAW OF iii)i;i.rrY ijonds. 
 
 An insurance agent, by requirement of the company for 
 which he was acting, gave a bond for the faithful i)erform- 
 ance of his duties, and an a(-counting of moneys received. 
 At the time of giving such bond he was delinquent to said 
 company on account of past transactions. Such agent aft- 
 erwards made remittances to the company, directing that 
 they be api)liod upon i)ast transactions. A judgment at 
 law having been recovered against sureties on the bond, a 
 bill w;i3 filed by them to restrain its enforcement, claiming 
 that the remittances made were from current business, after 
 the bond was given, and should be applied upon such ac- 
 count. 
 
 Held, that to entitle complainants to the relief prayed, it 
 must appear that the moneys remitted were in fact from 
 current business, and that the company had knowledge of 
 that fact when it received and applied the money on account 
 of former transactions, as directed, and proof not sufficient- 
 ly showing this, the bill should be dismissed. 
 
 Hecox vs. Citizens' Ins. Co., 2 Fed. 535. 
 
 If the employee insured turned over to the complainant 
 all sums collected by him after the execution of the bond, 
 the surety could not be held for his default, notwithstand- 
 ing he may have credited said sums on the wrong accounts 
 in order to cover up previous defaults. 
 
 Model Mill Co. vs. Fidelity & Deposit Co., 1 Tenn. 
 Ch. App. 365. 
 
 If a treasurer of a corporation has appropriated to his 
 own use sums of money received from a certain source dur- 
 ing the time covered by his official bond, and other sums 
 received from the same source after the bond has expired, 
 and he afterwards entered upon the books a sum as received 
 from that source, and such sum Avas not in fact received 
 at the date of the entry, and there is nothing to show when 
 the same, or the items of which it was composed, should
 
 APPLICATION OF PAYMENTS. 159 
 
 liave been entered, it is proper, in an action upon the bond, 
 to apply one-half of it to the time covered by the bond. 
 
 Lexington & W. C. R. R. Co. vs. Elwell, 90 Mass. 
 371. 
 
 Where a creditor receives property from a debtor for the 
 payment of a debt for which security has been given^ it is 
 the dury of the creditor to hold the same impartially for the 
 joint benefit of himself and surety. Where the creditor in- 
 tends to look to the surety for payment, he is compelled to 
 preserve unimpaired all his rights against the debtor. 
 
 The right of subrogation to the rights of the creditor is 
 an essential part of the contract of suretyship. Even where 
 the act of the creditor operates to the benefit of the surety, 
 the latter has the right to stand on the strict terms of his 
 contract. The creditor's first and highest duty is to the 
 surety ; and he has no right to first exhaust the debtor's re- 
 sources and reduce him to a state of bankruptcy, and then 
 call upon the surety to pay the balance that remains due. 
 J^ew England Mutl. Life Ins. Co. vs. Randall, 42 
 La. Ann. 260. 
 
 117. — Same. 
 
 Obligations of an association, which should have been 
 paid by the treasurer during his former term, were carried 
 forward by him into his new term and paid out of current 
 receipts. Held, that, as such obligations were not dis- 
 charged when assessments were made sufficient to meet 
 them, but continued obligations until paid, their payment 
 out of funds of the association did not amount to embezzle- 
 ment or larceny committed during the new term, and the 
 surety was not liable for the misappropriation. 
 
 Supreme Council C. K. of A. vs. Fidelity & Cas. 
 Co., 63 Fed. 48. 
 
 Defendant, a surety company, executed to plaintiff a bond 
 by which it agreed to make good such pecuniary loss as
 
 IGO iiiK LAW oi-' 111)1.1. 11 ^• i{<>.\j>s. 
 
 plniiil ill's iiiii;lit siistuiu during a cfrtaiii pc'i-i(j(i by reason 
 of any fraiuluJcnt or dishonest act of plaintiff's agent in 
 conned iiMi with his duties, amounting to embezzlement or 
 larceny. The agent paid over to plaintiff all the money col- 
 lected during the period covered by the bond, but he directed 
 a part of the same to be credited on other accounts OAving 
 to the plaintiff without knowledge by the plaintiff that the 
 money collected by the agent from certain accounts was so 
 apj)lied to the payment of other accounts for which the 
 agent was also liable. Held, that this action amounted to a 
 fraudulent conversion by the agent of the money collected, 
 and that the defendant is liable therefor under the bond. 
 
 American Bonding (&: T. Co. vs. Milwaukee Har- 
 vester Co., 91 Md. 733. 
 
 A corporation employer, in the absence of direct instruc- 
 tions from its bonded secretary, cannot apply moneys col- 
 lected subsequently to the execution of a second bond to the 
 discharge of a liability arising under the first bond, so as to 
 render the sureties upon the second bond liable for a delin- 
 quency, and in such case the law will not apply the pay- 
 ments 10 the oldest debt. 
 
 Anaheim Water Co. vs. Parker, 101 Calif. 483. 
 
 In ;in action upon the security bond of an insurance 
 agent conditioned that he should pay over to the company 
 all moneys collected b\ him for the company, where it ap- 
 pears that the agent did remit to the company all the 
 money collected during the term of the bond, the fact that 
 the agent had formerly done business for the company and 
 at the time of the execution of the bond owed the company 
 a balance, and that the company without any direction to 
 that effect from the agent applied part of the money re- 
 ceived from the agent during the term of the bond to the 
 paymcii*^ of the back indebtedness, leaving an apparent defi-
 
 APPLICATION OF PAYMENTS. 161 
 
 ciency during the term of the bond, would not make the 
 sureties liable. 
 
 Rockford Ins. Co. vs. Rogers, 15 Col. App. 23. 
 
 If an agent who gave to an insurance company a fidelity 
 bond faithfully paid over to the company all the money to 
 it on account of business done by him after the date of the 
 bond, the conditions of the bond were fully performed, and 
 it was not in the power of the company or agent, or both 
 acting together, to make any application of the money 
 that would create a liability against the sureties on the 
 bond. 
 
 Thompson vs. Coml. Union Assur. Co., 20 Col. App. 
 331. 
 
 A principal in a fidelity bond has a legal right to direct 
 the application of money remitted by him to his employer 
 to such debts as he pleases, and the surety cannot object to 
 such application, except where a diversion of funds is at- 
 tempted in fraud of the rights of the surety, which the 
 surety has a right to have applied in a particular manner. 
 Boyd vs. Agricultural Ins. Co., 20 Col. App. 28. 
 
 Payments on an account, in the absence of an agreement 
 or direction to the contrary, will be applied to the satisfac- 
 tion of those items of charge which are earliest in point of 
 time. 
 
 Ida Co. Savings Bank vs. Seidenstricker, 128 Iowa, 
 54. 
 
 For discussion as to application of payments where suc- 
 cessive bonds are involved, and a review of authorities see — 
 
 First Nat. Bank of Nashville vs. Nat. Surety 
 Co., 130 Fed. 401.^ 
 
 2.— See Chap. 11, Sec. 113, ante. 
 11
 
 i(;2 
 
 rill'; I, AW OK !• IDKI.I TV nONDS. 
 
 CHAPTER XII. 
 
 IMMEDIATE NOTICE. 
 
 118. 
 
 119. 
 120. 
 121. 
 
 What constitutes immediate 
 notice — Supreme Court 
 rule. 
 
 Keasonable notice sutficieiit. 
 
 Digest of autliorities. 
 
 Same. 
 
 122. Same. 
 
 123. Notice under accident pol- 
 
 icy. 
 
 124. Requirement of notice rea- 
 
 sonable and imperative. 
 
 ii8. — What Constitutes Immediate Notice— Supreme Court Rule. 
 
 "It IS customary to provide in all policies of guaranty 
 insurance that notice of loss shall be given to the insurer 
 by the insured within a certain designated time. The time 
 here referred to is usually controlled by the use of such 
 phrases as 'immediate notice,' 'notice forthwith/ 'as soon 
 as possible/ 'as soon as practicable,' etc. These phrases 
 have practically one and the same meaning, to wit, that 
 the insured shall, with all promptitude, considering the 
 probable amount of the loss, and the probability of the 
 'risk's' endeavoring to escape, give notice to the insurer of 
 the occurrence of the loss." 
 
 Frost, on Guaranty Ins., sec. lO-i, 316. 
 
 The Supreme Court of the United States entered upon a 
 full discussion of what constitutes immediate notice under a 
 corporate fidelity bond in the case of Fidelity & Deposit Co. 
 vs. Courtney, 186 IT. S. 342, and upon a review of the author- 
 ities, held that notice given as soon as reasonably practicable 
 under the circumstances of the case, or without unnecessary 
 delay to be sufficient.
 
 IMMEDIATE NOTICE. 163 
 
 In that case the Court quoted with approval the then 
 recent decision of the appellate Court of New Hampshire 
 (Ward vs. Maryland Cas. Co., 51 Atl. Eep. 900), in which 
 the latter Court held the expression "immediate notice" to 
 mean ''a notice given with due diligence under the circum- 
 stances of the case, and without unnecessary and unreason- 
 able delay." The word "immediate," when relating to time 
 is defined in the Century Dictionary as follows : "Without 
 any time intervening; without any delay; present; instant; 
 often used like similar absolute expressions, with less strict- 
 ness than the literal meaning requires — as an immediate 
 answer." The New Hampshire Court, quoting this defini- 
 tion, says : 
 
 "It is evident that the word was not used in this con- 
 tract in its literal sense. It would generally be impossible 
 to give notice in writing of a fact the instant it occurred. 
 It cannot be presumed that the parties intended to intro- 
 duce into the contract a provision that would render the 
 contract nugatory. As 'immediate' was understood by them, 
 it alloAved the intervention of a period of time between the 
 occurence of the fact and the giving of notice more or less 
 lengthv according to the circumstances." 
 
 119. — Reasonable Notice Sufficient. 
 
 Contracts of fidelity insurance are and should be construed 
 as contracts of indemnity, without strained niceties of lan- 
 guage or technicalities, and be dealt with as practical pru- 
 dent men in a busy commercial world would deal with them. 
 Insurance companies will not be permitted to incorporate in 
 their contracts provisions impossible of performance, or such 
 as would render them nugatory. Broadly speaking, there- 
 fore, "immediate notice" in such contracts means reasonable 
 notice, or better, seasonable notice. What is reasonable notice 
 in a given case must be determined by the facts of that case, 
 measured by the authorities. Manifestly what is reasonable
 
 1(14 llll'; 1,A\V ()!•' 1- IDKLIIY BONDS. 
 
 uuticT umlcr one set of circunisUiuces would not be under 
 another, and in this connection it must l)e borne in mind 
 that the infonnation wliich comes to an (•m])loyer of the de- 
 linquency of his em^doyee is fi-equently of an uncertain 
 nature, and such aa would not justify a prudent man in 
 charging another with the grave offense of dishonesty. Be- 
 fore an employer is bound to act, he must have "'knowledge" 
 of the acts charged, not mere suspicions. So that, looking at 
 the situation of the parties, the distances involved, the char- 
 acter of the information obtained by the employer, the acts 
 of the employee, the method and character of the business, 
 the relative amounts involved, the possibility of loss or dam- 
 age to the surety by delay and all such matters, the timeli- 
 ness of the notice must be judged. 
 
 1 20. — Digest of Authorities. 
 
 Illustration of the matter under discussion will be found 
 in the following cases : 
 
 Under a corporate fidelity bond requiring ''immediate" 
 notice of a default, the question was properly submitted to 
 a jury, as it cannot be said as a matter of law that a delay 
 of six or eight days is a violation of such requirement. 
 
 Perpetual B. & L. Assn. vs, U. S. Fidelity cS: Guar- 
 anty Co., 118 Iowa, 729. 
 
 Where an employer holding a corporate fidelity bond 
 guaranreeiug against loss by acts of dishonesty amounting to 
 embezzlement or larceny, on the part of his bookkeeper and 
 cashier, employed an expert accountant to examine his 
 books and improve his system of accounts, and where such 
 expert began his examination on April 22, 190-1, and soon 
 discovered a discrepancy of several hundred dollars, of 
 which a plausible explanation was given by the employee, 
 and wlicre the employee handled from $50,000 to $80,000 
 ]ier month, and where the accoimts Avere complicated and
 
 IMMEDIATE NOTICE. 165 
 
 found to be falsified, and where the expert continued his 
 investigation from the 22nd of April until the 24th of 
 June following, at which time notice of the amount of an 
 alleged defalcation was given the surety, a preliminary no- 
 tice of a probable default having first been given on May 
 28th, held, the notices given were a sufficient compliance 
 with the provisions of the bond requiring ''immediate no- 
 tice" after notice of such dishonest acts shall have come to 
 the knowledge of the employer. 
 
 Aetna Ind. Co. vs. J. R. Crowe Coal & Mining Co., 
 154 Fed. 545. 
 
 Under an employer's indemnity bond, providing that the 
 employer shall, on the discovery of any fraudulent act on 
 the part of the employee, immediately give notice thereof to 
 the company, unless the lapse of time was so long as to be 
 obviously a non-compliance with the contract, the question 
 whether the notice was timely is one for the jury. 
 
 And where a bank first obtained information on April 
 7th that aroused its suspicions concerning an employee's 
 fidelity, and proceeded to verify the first item, which took 
 till April 10th, or 11th, and a tentative arrangement was 
 made with his family, and the examination progressed and 
 notice was given his surety on April 20th, it was not con- 
 tended that such notice did not fulfill the requirements of 
 the bond. 
 
 Fidelity & Guaranty Co. of IST. Y. vs. Western Bank, 
 29 Ky. L. R. 639. 
 
 Under an indemnity bond insuring a corporation against 
 larceny or embezzlement by an employee and stipulating 
 that the insurer shall be given written notice immediately 
 after the occurrence of an act indemnified against shall 
 come to the employer's knowledge, where the secretary and 
 director of the corporation had knowledge on ISTovember 
 19th of an embezzlement by an employee, and did not notify 
 the insurer until December 7th, such knowledge of the sec-
 
 166 
 
 TJIK J.AW OF I-IDI/.LITV llONDS. 
 
 retary was ihr knowledge of the coi-jjoration^ and his neg- 
 lect "was a failure to perform a condition precedent to a 
 recovery on the bond. It was not necessary for the defend- 
 ant to show that earlier notice might have helped towards 
 the recovery of some of the loss, or affected its election as to 
 canceling the bond, or aided in bringing the offending em- 
 ployee to justice. 
 
 National Discount Co. vs. United States Fidelity & 
 Guaranty Co., 94 N. Y. Supp. 457. 
 
 Where the plaintiff in an action on a surety bond, Avithin 
 a reasojiable time and with due diligence, under the circum- 
 stances, gives notice of the default of its cashier, it is a 
 sufficient compliance with the requirement of immediate 
 notice. 
 
 Bank of Tarboro vs. Fidelity & Deposit Co., 128 
 N". C. 366. 
 
 A bank cashier was given a leave of absence on August 
 17, 1901, which expired on August 22. His failure to re- 
 turn did not arouse suspicion until August 26, when an ex- 
 amination of his books was made which disclosed his defal- 
 cation. His sureties were then telegraphed, either on the 
 26th or 27th, whereupon each sent a representative, who 
 participated in the examination of the books during the 
 latter part of August, and on September 2nd a formal noti- 
 fication of the cashier's flight and defalcation was sent to 
 defendant surety company. 
 
 Held, that whether the defendant Avas given "immediate" 
 notice of the defalcation, as required by the fidelity bond, 
 was for the jury. 
 
 Fidelity & Casualty Co. vs. Bank of Timmonsville. 
 139 Fed. 101.1 
 
 1. — For another case involvinsr 
 the disappearance of a specific 
 sum of money, see T'. S. Fidelity 
 
 & Huaranty Co. vs. Des Moines 
 Nat. Bank. 14.5 Fed. 273. Chap. 8. 
 see. 100. ante.
 
 IMMEDIATE NOTICE. 167 
 
 121. — Same. 
 
 "Immediately" means before the happening of other 
 events — forthwith. A covenant to notify a surety of the 
 default of his principal immediately is not performed by 
 mailing a notice 11 days after the known default. 
 
 liS"ational Surety Co. vs. Long, 125 Fed. 887. 
 
 (This case refers to a bond guaranteeing the perfoiTnance 
 of a building contract where immediate notice and opportu- 
 nity to the surety are vital to the protection of his interests, 
 hence the strictness of the rule here applied. In the same 
 controversy the Supreme Court of Arkansas held that a delay 
 of twelve days in notifying the surety did not discharge the 
 latter— 79 Ark. 523.) 
 
 The delay of over one month in notifying the surety in a 
 fidelity bond of employee will release the surety therein. 
 
 Martin & Co. vs. United States Fidelity & Guar- 
 anty Co., Jefferson Circuit Court, Chancery 
 Branch, First Div. (Ky. 1904). 
 
 Whether or not the delay of employer of forty-five days 
 in giving a guaranty company notice of the discovery of the 
 dishonesty of a clerk whom a company had guaranteed was 
 unreasonable is a question for the jury, under a bond condi- 
 tioned that the company should have immediate notice, 
 since immediate notice ordinarily means within a reason- 
 able time, and the question of reasonableness of time de- 
 pends upon the circumstances of the particular case. 
 
 Remington vs. Fidelity & Deposit Co., 27 Wash. 429. 
 
 Under a bond of an agent of a trust company, requiring 
 immediate notice of the agent's misconduct, the obligee's 
 knowledge of such misconduct for six months without giv- 
 ing notice released the obligor. 
 
 Michigan Savings & L. Assn. vs. M., K. (S: T. Trust 
 Co., 73 Mo. App. 161.
 
 KiM IIIK ].A\V OK lIUKIjrV |{i)M)S. 
 
 Wlurc ;i corporato fidclitv l)iiii(l licM \>y a liaiik j>rovi(J('d 
 tlijil "iiiiiiicilinic iioticr" slmiild lie yncii the surety of any 
 (lolault, and tlic hank was (dosed \>y the ( 'oiiiptroller of the 
 Currency on -lanuarv ISth, and a receiver appoijited four 
 days afterwards, and expert-; lir'i:;an :in examination of the 
 books of the bank, and two or three weeks after the sus- 
 pension of tlie bank discovered certain defaults, notice of 
 which was given the surety on February 18th, the trial 
 Court properly left to the jury to determine Avhether such 
 notice was a sufficient (•f):n])liaiice with the aforesaid provi- 
 sion of the bond. 
 
 The issue having been found in favor of the plaintiff, the 
 finding will not be disturbed by the Appellate Court. 
 
 Fidelity & Deposit Co. vs. Courtney, 186 U. S. 342. 
 
 122. — Same. 
 
 When a fidelity bond required notice to be given of dis- 
 honesty of employee, and wIkmt employee collected in Au- 
 gust money wdiich should have been reported and remitted 
 September 2nd, but employee failed to do either, and where 
 employer Avrote and telegraphed employee and sent a repre- 
 sentative to see him, who promised to get the money, and 
 thereafter sent a check which was protested for non-pay- 
 ment, and employer gave no notice of default to surety till 
 October 7th, held, employer was delinquent in giving notice 
 and could not recover. 
 
 Supreme Kiding of Fraternal Mystic Circle vs. Xa- 
 
 tional Surety Co., 00 X. Y. Sui)p. 1033; 114 
 
 App. Div. 689. 
 
 Under the conditions of a surety bond, the employer un- 
 dertook to notify the insurer of any act of omission or com- 
 mission on the part of the employee which may involve a 
 loss for which the insurer is responsible, immediately after 
 the occurrence of such act comes to the knowdedge of the 
 employer. The employer learned that the employee had 
 been drunk, bad lost or been robbed of monev, etc. Held,
 
 IMMEDIATE NOTICE. 169 
 
 the employer was not required to give notice of such con- 
 duct of the employee, since the duty to notify was intended 
 to relate only to the acts of the employee affecting the ques- 
 tion of his integrity and the scope of his duty could not be 
 extended. 
 
 Long Brothers' Grocery Co. vs. United States Fidel- 
 ity & Guaranty Co., 130 Mo. App. 421. 
 
 Where the bond of an insurance agent required monthly 
 remittances of money collected, and the agent was permitted 
 to be in default several months without notice to the surety, 
 the latter is not discharged where such delinquency is not 
 attributable to moral turpitude and dishonesty. 
 Gilbert vs. State Ins. Co., 3 Kas. App. 1. 
 
 In a bond guaranteeing against loss by the fraud or dis- 
 honesty of an employee, a provision that the employer is to 
 notify the surety "of any act of omission or commission on 
 the part of the employee which might involve a loss, for 
 which the company is responsible hereunder," does not ren- 
 der it necessary that the employer is to notify the company 
 of every act of laches or delay or inefficiency on the part of 
 the employee which ultimately may create a loss to the em- 
 ployer ; but only that the company be notified of acts which 
 may create a loss for which it is responsible — that is, a 
 loss arising from fraud or dishonesty. Mere laches or in- 
 efficiency which is consistent with integrity is not required 
 to be communicated. 
 
 Pacific Fire Ins. Co. vs. Pacific Surety Co., 93 
 Calif. 7. 
 
 123. — Notice Under Accident Policies. 
 
 In accident policies, notice twenty-six days after the acci- 
 dent is not compliance with provision requiring "immediate 
 notice." Smith vs. Ins. Co., 171 Mass. 357; nor is 
 notice in twenty-five days, Foster vs. Fidelity & Cas. Co., 75
 
 170 TJIE LAW OF IIDKLITV BONDS. 
 
 A'. \V. (W'iis.j G'J ; nur six Jays, liailway I'aaseiiger Assur. 
 Co. vs. Burwell, 44 Ind. 460; nor ninety-one days, London 
 Accident Co. vs. Siwy, 35 Ind. App. 340; nor fifteen days, 
 Aetna Life Ins. Co. vs. Fitzgerald, 165 Ind. 317 ; but where 
 death oceurred ninety days after accident and immediate 
 notice after death, held sufficient on demurrer, Fidelity & 
 Cas. Co. vs. Brown, 4 Ind. Ter. 397; convenient time as 
 reasonably requisite, sufficient. Kentzler vs. Amer. Mut'l 
 Ace. Ass'n, 88 Wis. 581) ; reasonable time, Ilorsfall vs. Pac. 
 Mut'l Life Ins. Co., 32 Wash. 132 ; Lockwood vs. Middlesex 
 Ins. Co., 47 Conn. 566 ; failure to give notice for six days 
 not sufficient under fire policy, Ermentrout vs. Girard F. & 
 M. Ins. Co., 63 Minn. 305 ; twenty days not sufficient under 
 requirement for notice "forthwith." Whitehurst vs. ISTorth 
 Carolina Ins. Co., 7 Jones L. (jST. C.) 433; but immediate 
 notice to local agent is, Fisher vs. Crescent Ins. Co., 33 Fed. 
 544. 
 
 124. — Requirement of Notice Reasonable and Imperative. 
 
 Mr. Ostrander in his work on Insurance, Sec. 221 says: 
 "If the insured neglects to comply with the provision in 
 an insurance policy requiring immediate notice, he does 
 so at his peril. The requirement is as reasonable as it is 
 imperative, and has been enforced with great strictness by 
 the Courts."
 
 riiooF OF j.oss, 1 7 1 
 
 CHAPTER XIIL 
 
 PROOF OF LOSS. 
 
 125. Sufficiency of. 
 
 126. Digest of authorities. 
 
 127. Same. 
 
 125. — SufBciency of. 
 
 With reference to proof of loss under a corporate fidelity 
 bond, it was held in the Pauly Case, 170 U. S. 160,^ as fol- 
 lows: 
 
 "A provision in a fidelity insurance bond that a written 
 statement of loss, certified by the duly authorized officer of 
 the employer, and based upon the accounts of the employer, 
 'shall be prima facie evidence thereof,' makes such a state- 
 ment prima facie proof in an action brought on the bond, 
 and does not relate merely to the presentation of the claim 
 to the company, and its acceptance or rejection thereof, 
 before suit." 
 
 There was, however, a strong dissenting opinion, by three 
 Justices, and the rule as here laid down does not appear to 
 have been followed in the later cases. 
 
 126. — Digest of Authorities. 
 
 The requirement in a corporate fidelity bond that the 
 employer shall file with the company his or her claim, with 
 full particulars thereof, as soon as practicable, contemplates 
 not a partial but a full statement of all the items of claimed 
 misappropriations. 
 
 Fidelity & Deposit Co. vs. Courtney, 186 IJ. S. 342. 
 
 1. — See Chapter 1, sec. 10, note.
 
 Till-; I. AW ()|- I IDI'l.nv ItoNDS. 
 
 I'lic contract stipulated t'ni- [(roof of loss satisfactory to 
 the company's offioors, ami I lint full ])articiilars of any claim 
 arisinsj^ U|hiii the conti'iict should bo given in writing within 
 a specified time; and the declaration alleging compliance 
 ^\illl the loregoing terms of the contract, but not alleging 
 that there had been any waiver of the requisite proof of 
 loss; and tlie evidence entirely failing to show that the 
 same had bene duly furnished, the plaintiff did not prove 
 its case as laid, and it was error to refuse a non-suit. This 
 is true, although the plaintiff introduced evidence for the 
 purpose of proving a waiver by the defendant of such proof 
 of loss; and it is immaterial whether this evidence was, or 
 was not, legally sufficient to establish the alleged Avaiver. 
 
 Fidelity & Casualty Co. vs. Gate City Nat. Bank, 97 
 Ga. 634. 
 
 A statement of alleged embezzlements or larcenies of an 
 agent director delivered to an indemnity company, to the 
 extent that it reflects information contained in the books 
 and records of the em])loyer kept in the regular and ordi- 
 nary course of its business, is based on "the accounts of the 
 employer" within a provision of the indemnity bond mak- 
 ing such a statement prima facie evidence of the loss. 
 
 Security Mutl. Life Ins. Co. vs. Aetna Ind. Co., 108 
 K Y. Supp. 171. 
 
 Absulnte denial of liability on a fidelity bond is a waiver 
 of the requirement to furnish proofs of loss; and the ac- 
 ceptance and retention of proofs, without objection until 
 the time for making the same has expired, is a Avaiver of the 
 right to question their sufficiency. 
 
 Sinclair <&: Co. vs. ISTational Surety Co., 132 Iowa. 
 
 549. 
 Kamsey vs. Pluionix Ins. Co., 2 Fed. 429. 
 
 The contract of a surety company required the employer 
 to furnish the company such reasonable particulars and
 
 PROOF OF LOSS. 
 
 1Y3 
 
 proofs of the correctness of the claim as the company "may 
 think fit." Upon a loss, the company required of the em- 
 ployer information of the particulars of every oral state- 
 ment made in relation to the storage. The employer failed 
 to give the company information of certain confessions 
 made by the principal. These confessions vi^ere offered in 
 evidence by the plaintiff. Held, he was not entitled to re- 
 cover. 
 
 Hough vs. Am. Sur. Co., 90 Mo. App. 475. 
 
 An employer's letter notifying a surety company of a 
 loss was forwarded on October 12. The company continued 
 the correspondence to the following spring with no claim 
 of fraud or offer to return the premium, and, when finally 
 sued, for the first time set up fraud. Held, that prompt- 
 ness in the disavowal of the contract is a prime condition 
 to its repudiation and the alleged fraud was waived. 
 
 Koark vs. City Trust, Safe Deposit & Surety Co., 
 130 Mo. App. 401. 
 
 127. — Same. 
 
 The making of a thorough investigation by the insurer 
 on his own account, before recieving the proofs of loss, is no 
 evidence of a waiver of the requirements of a policy in re- 
 spect to such proofs. - 
 
 People's Bank vs. Aetna Ins. Co., 20 C. C. A. 630. 
 
 The insurer who rejects preliminary proofs as defective, 
 without specifying the defects, with a notice that he insists 
 on an exact compliance with the condition in the policy, 
 waives no rights to urge the defects in such proofs. 
 
 Gauche vs. London & L. Ins. Co., 10 Fed. 347. 
 
 2. — Compare Sherman vs. Har- 
 bin, 125 Iowa, 174, Chap. 1, sec. 
 17, ante, and Perpetual B. & 1j. 
 
 Assn. vs. U. S. Fidelity & Guar- 
 anty Co., 118 Iowa. 729. Chap. 9, 
 see. Ill, ante.
 
 174 TUK I.AW OK I IDKLITV BONDS. 
 
 The bond in the case at bar does not prescribe any time 
 within which the proof of loss shall be furnished, but simply 
 that the right of action shall not accrue until 90 days after 
 such proof is furnished. The bond, however, does expressly 
 provide ''that the company shall bo notified in writing, at its 
 office in the City of New York, of any act on the part of 
 the employee which may involve a loss for which the com- 
 pany is responsible hereunder, as soon as practicable after 
 the occurrence of such act shall have come to the knowledge 
 of the employer." The fraudulent acts of the employee 
 were discovered by plaintiff not later than Sept. 7th, 1892, 
 and yet the written notice of such acts was not given to the 
 defendant until December 16th, 1895. Held, insufficient 
 compliance with requirements of the contract. 
 
 California Sav. Bank vs. American Surety Co., 87 
 Fed. 118.
 
 CHANGE OF EMPLOYMENT. 
 
 175 
 
 CHAPTER XIV. 
 
 CHANGE OF EMPLOYMENT OR ALTERATION 
 OF CONTRACT. 
 
 128. Effect on liability of surety 
 
 of uncommunicated change 
 of employment or altera- 
 tion of contract between 
 principal and obligee. 
 
 129. Risk performing duties ot 
 
 more than one office. 
 
 130. Effect of change in con- 
 
 tract or duties of agent. 
 
 131. Extension of charter of 
 
 obligee or increase of cap- 
 ital stock. 
 
 132. Change in partnership of 
 
 risk. 
 
 133. Change of partnership of 
 
 obligee. 
 
 134. Miscellaneous cases. 
 
 128. — Effect on Liability of Surety of Uncommunicated Change of 
 Employment or Alteration of Contract Between Principal 
 and Obligee. 
 
 A change made in a contract of suretyship by the creditor 
 and principal without the assent of the surety discharges 
 the latter, whether the change is prejudicial to him or not. 
 
 Bank of St. Albans vs. Smith, 30 Vt. 148. 
 
 Stevens vs. Partridge, 109 111. App. 486. 
 
 Note to Griswold vs. Hazard, 141 U. S. 260. 
 
 The sureties on a bond for the faithful performance of 
 duties of an agent are released from liability for the subse- 
 quent defaults of the agent if the principal and agent, 
 without the knowledge or consent of the sureties, materially 
 alter the terms of the contract of agency. 
 
 Roberts vs. Donovan, 70 Calif. 108. 
 
 Germania Fire Ins. Co. vs. Hermann, 193 Mass. 67. 
 
 Corporate fidelity bond of bank teller conditioned against 
 loss by dishonesty in connection with his duties as receiving
 
 170 Till': LAW OK IIDKI.IIV UoMJS. 
 
 teller, "or the (lutics Id uhicli, in the ciiijjloyer's service, he 
 may be suhscciiicntlv nppoiiited or assigned by tlie em- 
 ployer," covers losses arising fi-om the employee's dishoti 
 esty while acting as assistant cashier. 
 
 I'idclity & Casualty Co. vs. Gate City Xat. Bank, 
 97 Ga. 634. 
 
 Where a new contract made by an employer with an em- 
 ployee increases tlie resj)onsibilities of the employee, such 
 new contract discharges a fidelity and guaranty company 
 from liability on its bond. 
 
 In this case the employee was designated under the origi- 
 nal contract as "assistant superintendent of the thrift de- 
 partment in connection with its Wilmington agency." In 
 a new contract subsequently made, of which the surety had 
 no notice, he was designated "district manager," and his 
 field of operations made to embrace six counties. 
 
 Sun Life Ins. Co. vs. United States Fidelity k Guar- 
 anty Co., 130 N. C. 129. 
 
 If, after the giving of a bond of suretyship for the faith- 
 ful performance of the duties of a corporate ofhcer, the 
 duties and responsibilities pertaining to the office are mate- 
 rially changed by the obligee so as to affect the responsi- 
 bility and risk of the surety, the bond, as to him at least, 
 is thereby discharged. The sureties will not, in general, be 
 relieved from responsibility, however, merely because the 
 act of his principal, which occasioned the loss to the obli- 
 gee, was not strictly in the line of the duties of his office, 
 or was done in the course of a temporary or casual per- 
 formance of other duties at the request of the employer. 
 
 Am. Telegraph Co. vs. Lennig, 139 Pa. St. 594. 
 
 Garnett vs. Farmers' :N"atl. Bank, 91 Ky. 614. 
 
 If moneys embezzled by a princiinil in a bond of surety- 
 ship are received by him under his appointment and in
 
 CHANGE OF EMPLOYMENT. 177 
 
 pursuance of his duties, the faithful performance of which 
 are secured by the bond, the mere fact of the imposition 
 upon him of other and greater duties and responsibility 
 in no way interfering with or modifying those imposed by 
 the original appointment, will not discharge the surety. 
 
 Harrisburg S. & L. Assn. vs. United States Fidelity 
 & Guaranty Co., 197 Pa. St. 177. 
 
 A surety for the performance of the duties of an agent 
 is not discharged by the subsequent imposition of new du- 
 ties on the agent if such new duties do not materially af- 
 fect the performance of his original duties nor increase the 
 risks of the surety. 
 
 Powell vs. Fowler, 85 Ark. 451. 
 
 Saint vs. Wheeler & Wilson Mfg. Co., 95 Ala. 362. 
 
 Shackamaxon Bank vs. Yard, 150 Pa. St. 351. 
 
 129. — Risk Performing Duties of More Than One Office. 
 
 Where one was appointed to one of two ticket offices of 
 a railroad in a city, and afterwards the duties and respon- 
 sibilities of both offices were imposed upon him with in- 
 creased compensation, without the assent of his sureties, it 
 was held this was such a change as would discharge them. 
 Mumford vs. M. & C. E. K. Co., 2 Tenn. 393. 
 
 But the change of a station from second to first class, 
 whereby the agent received a larger amount of freight, will 
 not release his sureties. 
 
 Strawbridge vs. B. & O. E. E., 14 Md. 360. 
 
 iN'either will the promotion of a freight clerk to the office 
 of principal agent of the company at the same place. 
 Collier vs. Southern Express Co., 73 Va. 718. 
 
 Where a bank teller is made cashier the fact that he 
 continues to act as teller does not increase the risk of the 
 12
 
 178 TIIK LAW OK IIDII-ITV IJONDS. 
 
 sureties on liis boiu] as cashier, and will not discharge 
 them. 
 
 Ilibernia Savings Bank vs. McGinnis, 9 Mo. App. 
 
 578. 
 
 Nor will they be discharged by an answer alleging that 
 he had been permitted by the bank to perform the -duties 
 in an irregular way, and to engage in business outside the 
 bank, and to perfoi-ni the duties of other officers of the 
 bank. 
 
 Third Xatl. Bank vs. Owen, 101 Mo. 558. 
 
 So it is immaterial that an embezzlement was committed 
 by an assistant bookkeeper, while he was employed in keep- 
 ing a journal which, when he entered upon his duties, and 
 usually, was kept by the teller, and that the fraudulent 
 entries were made in such journal. 
 
 Rochester City Bank vs. Elwood. 26 N. Y. 88. 
 
 But where an employer increased the duties of his book- 
 keeper and collector, so that he was required to perform 
 the duties of cashier, and as such had control of all the 
 cash of the business, a surety on the employee's bond as 
 bookkeeper and collector, conditioned for the faithful per- 
 formance of his duties, and to pay over all moneys received 
 in that capacity, was not liable thereon for an embezzle- 
 ment, though accomplished by means of fraudulent entries 
 by such employee as bookkeeper, since the extending of 
 such employee's duties was an increase of the risk and dis- 
 charged the surety. 
 
 Kellogg vs. Scott, 58 X. -T. Eq. 344. 
 
 130.— Effect of Change in Contract or Duties of Agent. 
 
 Where a sales agent was bonded for the faithful per- 
 formance of duty at C, in the State of K., and his employ- 
 ment there subsequently terminated and he was removed 
 to another State and subsequently returned to L.. in the
 
 CHANGE OF EMPLOYMENT. 179 
 
 State of K., the bond was not liable for defaults committed 
 in the later employment. 
 
 Singer Mfg. Co. vs. Armstrong, 7 Kan. App. 314. 
 
 Under a sewing machine agent's bond guaranteeing a 
 contract, his sureties are discharged where his territory was 
 enlarged. 
 
 Plunkett vs. Davis Sewing Machine Co., 84 Md. 529. 
 
 A bond reciting that the obligor had been appointed 
 agent to an insurance company bound him to conform to 
 all instructions and to remit all moneys which he, as agent, 
 should receive. Subsequently he resigned his agency in 
 writing and the company accepted it also in writing, but 
 he continued to be employed by them. Held, that the bond 
 did not cover any default after the time of his resignation. 
 Amicable Mutl. Ins. Co. vs. Sedquick, 110 Mass. 163. 
 
 Where a bond of an insurance agent conditioned for his 
 fidelity in a certain employment specifically set out, which 
 contained the addition, "during his employment by said 
 company in whatever capacity in which he may be engaged, 
 the duties and emoluments of which may be changed from 
 time to time by the company without notice to the sure- 
 ties," and such agent is afterwards employed in a wholly 
 different position, with increased responsibilities, and un- 
 der an entirely different contract, the surety does not re- 
 main liable for default under such new contract. 
 
 Iliff vs. Western Southern Life Ins. Co., 11 Cir. 
 Ct. 426 (Ohio). 
 
 In an action on a bond guarantying the fidelity of an 
 agent as special agent of an insurance company in a cer- 
 tain county, a defense that after the execution of the bond 
 the duties of the agent were increased by his appointment 
 as general agent of the company for the State was without
 
 180 THK I.AW Oh' MDKLITY BUNDS. 
 
 iiu-rit, wJnTu tlir cunliac't ol' uppuiiiling the agent general 
 State agent was made prior to the execution of the bond 
 and the facts coniphiined of in the action were acts as spe- 
 cial agent, and not as general agent. 
 
 Boyd. vs. Agricultural Ins. Co., 20 Col. App. 28. 
 
 The sureties on the bond of a life insurance agent were 
 not exonerated by a change, not to the detriment of the 
 agent, in the rate of commissions allowed on new business, 
 when there was no stipulation in the bond or the original 
 agreement between the agent and the company, that the 
 commissions should remain fixed and unaltered. 
 
 Harper vs. Xat. Life Ins. Co., 56 Fed. 281. 
 
 Nor will the change from commissions to salary release 
 the surety. 
 
 Socialistic Co. Op. Pub. Assn. vs. Hoffman, 33 N. 
 Y. Supp. 695. 
 
 Xor change in compensation. 
 
 Saint vs. Wheeler (t Wilson Mfg. Co., 95 Ala. 362. 
 
 131. — Extension of Charter of Obligee, or Increase of Capital 
 Stock. 
 
 Extending the charter of a bank without taking new 
 surety relieves sureties under first charter for defalcation 
 'of cashier under neAv charter. 
 
 Thompson vs. Young, 2 Ohio, 437. 
 
 The increase of the capital stock, the borrowing of money 
 and increase of the circulation of a banking company will 
 not discharge the sureties on the bond of its treasurer. 
 
 Morris Canal «S: Banking Co. a's. Van Yorst, 1 Zab. 
 
 (K J.) 100. 
 Lionberger vs. Kreiger, 88 Mo. 160. 
 Bank vs. Wallaston, 13 Harr. (Del.) 90.
 
 CHANGE OF EMPLOYMENT. 181 
 
 Held otherwise in — 
 
 Grocers' Bank vs. Kingman, 82 Mass. 473. 
 
 ]SJ"or will an increase of tlie capital stock of a railroad 
 company and consequent increase of duties of ticket seller 
 release his sureties. 
 
 Eastern K. K. Co. vs. Loring, 138 Mass. 381. 
 
 "Where one railroad which had leased another took a bond 
 from one of its employees, and subsequently the two rail- 
 roads were consolidated Imder a new name, the sureties are 
 liable for a default committed after the consolidation. 
 
 Pa. & ITorthwestern K. E. Co. vs. Harkins, 149 Pa. 
 St. 121. 
 
 132. — Change in Partnership of Risk. 
 
 Where a firm composed of A. & E. were appointed 
 agents and gave bond with sureties conditioned against loss 
 through neglect, carelessness, theft or fraud of A. and E., 
 or either of them, or anyone to whom they may entrust 
 the business of the obligee, and where a suit on said bond 
 was defended on the ground that the bond secured the 
 honesty of the firm only, and that before the embezzlement 
 in question took place E. had withdrawn from the firm, and 
 that at the time of the alleged misappropriation the busi- 
 ness of the agency was being carried on by A. and L., it 
 was held the sureties were not liable for the misappropria- 
 tion by one of the members of such firm after the dissolu- 
 tion of the partnership. 
 
 Standard Oil Co. vs. Arnestad, 6 'N. D. 255. 
 
 Where a corporate fidelity bond Avas executed on behalf 
 of an individual factor, who was a member of a firm which 
 was imder contract with the obligee, and such contract was 
 made known to the surety, and where said individual agreed 
 to keep the funds of the obligee separate from any other
 
 182 TllK LAW OK l\\)l:IA'VY liO.NDS. 
 
 funds, held, liiat tlic obligc;e could recover (Jii tLe iiideiniiity 
 contract, though its business with the factor was in the 
 name of the firm of which he was a member. 
 
 Clifton Mfg. Co. vs. United States Fidelity k Guar- 
 anty Co., 60 S. C. 128. 
 
 The sureties on the bond of a general agent to sell sew- 
 ing machines are not released by the taking of a partner 
 by such agent and the goods being delivered to the place 
 of business of the partnership. 
 
 Palmer vs. Bagg, 56 N. Y. 523. 
 
 But where the sureties had obligated themselves to pay 
 the every indebtedness of such an agent and he subsequently 
 took a partner, held, the sureties only liable for indebted- 
 ness of their principal. 
 
 White Sewing Machine Co. vs. Hines, 61 Mich. 423. 
 
 And where an insurance agent, with knowledge of the 
 company, took a partner, held, to release sureties. 
 
 Conn. Mutl. Life Ins. Co. vs. Scott, 81 Ky. 540. 
 
 Held otherwise in — 
 
 Gilbert vs. State Ins. Co., 3 Kan. App. 1. . 
 
 133. — Change in Partnership of Obligee. 
 
 The formation of a partnership by the employer, to- 
 gether witli n verbal change in the compensation of the 
 employee, will release the surety of the latter. 
 Bagley vs. Clarke, 20 Super. Ct. 94. 
 
 134. — Miscellaneous Cases. 
 
 A private fidelity bond guaranteeing the performance of 
 a sewing machine agent's contract provided that said con- 
 tract might be varied or modified by mutual agreement as 
 to the manner of carrvins: on the business or as to the com-
 
 CHANGE OF EMPLOYMENT. 183 
 
 pensation of the agent. Held, such provision did not au- 
 thorize the agent to have in his possession a larger number 
 of machines than the number specified in the contract. 
 
 Victor Sewing Machine Co. vs. Scheffler, 61 Calif. 
 530. 
 
 D. with sureties gave bond dated 1873, reciting that he 
 had been appointed an assistant clerk to the bank, and 
 conditioned for the faithful performance of his duties, as 
 such. From 1872 until 1874 he held the lowest position in 
 the bank. In the latter year he was promoted to the next 
 highest clerkship at an increased salary. In 1876 he was 
 further promoted to the position of bookkeeper, and took 
 charge of the individual debit and credit books and exclu- 
 sive charge of the individual ledger. His place as book- 
 keeper was so near the money drawer that he might have 
 abstracted funds therefrom and covered the fraud by alter- 
 ing the footings of the books. His embezzlements, begin- 
 ning in 1876, amounted to a large sum, and were concealed 
 by false entries in the books. After his second promotion 
 his sureties had no notice of the change made by the bank 
 in his position and duties. Upon a suit on the bond, held, 
 that the defendants were not liable for any want of faith- 
 fulnes on the part of D. after his second promotion. 
 
 That when he was promoted to the position of book- 
 keeper he ceased to be an assistant clerk within the meaning 
 of the bond. 
 
 That upon a fair construction of the contract, the sureties 
 could not have contemplated a liability after such a promo- 
 tion. 
 
 That the promotion involved a material alteration of 
 the principal's duties, increased the perils of the sureties, 
 and released them from the bond. 
 
 Manufacturers' Bank vs. Dickerson, 41 iST. J. L. 448. 
 
 See generally — 
 
 Brillion Lumber Co. vs. Barnard, 131 Wis. 284
 
 184 
 
 THK LAW OF IIDKLITY H<K\DS. 
 
 iSuretic's uii an oilicial bond are discliarged when the du- 
 ties and obligations of the office are essentially changed by 
 statute and their risk increased. 
 
 The imposition of new duties upon an officer does not 
 change his oHice, but invests him with a new office. 
 White vs. East Saginaw, 43 Mich. 567. 
 
 In an action upon a corporate fidelity bond filed as the 
 official bond of a register in chancery to recover money re- 
 ceived by such register and deposited to his credit in a 
 bank, Avhereby it was lost to the plaintiff by reason of the 
 bank's failure, a plea which sets up as a defense that the 
 sum claimed was received by the register who preceded the 
 defendant in the office and by him deposited in said bank, 
 and that upon the defendant's coming into office his prede- 
 cessor gave a check for said sum upon said bank, which 
 check was placed to the credit of the defendant as register 
 in chancery on the books of said bank, after which time the 
 bank failed, presents no defense to the maintenance of the 
 suit. 
 
 Parks vs. Bryant, 142 Ala. 627.1 
 
 To the same effect is another late case : 
 
 A bond taken by a county judge from an official followed 
 the statute, and the fact that it did not follow the letter of 
 the Act creating the fund sought to be secured by the bond 
 did not release the surety, for by the terms of the statute 
 the bond is binding. 
 
 United States Fidelity &: Guaranty Co. vs. Common- 
 wealth, 31 Kv. L. R. 1179. 
 
 1.— See U. S. Fidelity & Guar- 
 anty Co. vs. T'nion Trust & Sav- 
 ings Co., 142 Ala. .^)32. Chap. 7. 
 
 sec. 105, ante, for another case 
 referrint: to same controversy.
 
 FAITHFUL PERFORMANCE OF DUTY. 
 
 185 
 
 CHAPTER XV* 
 
 FAITHFUL PERFORMANCE OF DUTY. 
 
 135. Embraces competency, skill 
 and diligence, as well as 
 . integrity. 
 
 136. Miscellaneous cases. 
 
 137. Same. 
 
 135. — Embraces Competency, Skill and Diligence, as Well as In= 
 tegrity. 
 
 The tei-ms "well and faithfully" or "faithfully," or "well 
 and truly" as used. in fidelity bonds are equivalent to each 
 other. Morse on Banks and Banking, sec. 24. The condi- 
 tion of an official bond of a bank cashier, that the officer who 
 gives it shall "well and truly" execute the duties of his office, 
 included not only honesty, but reasonable skill and diligence. 
 If the duties are performed negligently and unskillf uUy ; if 
 they are violated from want of capacity or want of care; 
 they can never be said to have been "well and truly executed." 
 Minor vs. Mechanics Bank, 1 Pet. 46. 
 
 A bond for the "faithful performance" of duty is a se- 
 curity for competent skill and ordinary diligence, as well as 
 for integrity, in the discharge of the duties of the office. 
 American Bank vs. Adams, 29 Mass. 303. 
 
 So the condition in the bond of an assistant cashier of a 
 bank that he will "honestly, faithfully and efficiently dis- 
 charge the duties of such position" is a guaranty not only 
 of the personal honesty of such officer, but also a guaranty 
 of his competency, skill and diligence in the discharge of
 
 18(> TJIK LAW Ol'' JIJiKLirV ItO.NDS. 
 
 liis duties. Hence his sureties are liable for moneys fraud- 
 ulently withdrawn from the bank by its cashier with the 
 knowledge and passive acquiescence of the assistant cashier. 
 Held, further, that his sureties are liable for loss resulting 
 from his negligence, even though the directors may not 
 have used due diligence. 
 
 Fiiila vs. Ainsworth, 63 ISTeb. 1; 68 JiTeb. 308. 
 
 The sureties in the official bond of a cashier of a bank, 
 conditioned "that he shall well and truly perform the du- 
 ties of cashier, to the best of his abilities," not only under- 
 take for the fidelity and honesty of the principal, but also 
 that he shall perform the office with competent skill and 
 ability; and if he transcends the known powers of a cash- 
 ier by changing the securities of the bank without their 
 knowledge, and loss has thereby accrued, the sureties are 
 answerable therefor. 
 
 Barrington vs. Bank of Washington, 14 Serg. A: R. 
 (Pa.) 405. 
 
 Under the bond of a bank cashier conditioned for faith- 
 ful performance of duties, his sureties are liable for his em- 
 bezzlement of the funds of the bank, under the pretense that 
 he had borrowed the same. 
 
 McShane vs. Howard Bank, 73 Md. 135. 
 
 The condition of a bank teller's bond "faithfully to per- 
 form all the duties assigned to him in said bond, and make 
 good to the said bank all damages which the same shall 
 sustain through his unfaithfulness, or want of care," com- 
 prehends damages arising from his want of care, as well as 
 from his unfaithfulness. The neglect of the cashier to 
 settle the daily accounts of the teller according to the by- 
 laws of the bank does not discharge the sureties. 
 Union Bank vs. Forrest. 3 Cr. C. C. 218.
 
 FAITHFUL PERFORMANCE OF DUTY. 187 
 
 A private fidelity bond on behalf of a saleswoman, con- 
 ditioned for the faithful performance of duty, was breached 
 by her failure to render weekly reports as required by her 
 contract, but a waiver of this requirement by the employer 
 discharged the surety. 
 
 Singer Mnfg. Co. vs. Boyette, 74 Ark. 1. 
 
 The charter of a bank reqr.ired a bond from the cashier 
 "with condition of good behavior." The bond thereupon 
 taken was conditioned that the cashier should "well and 
 truly and with fidelity perform and discharge the duties 
 enjoined on him as cashier of such bank, agreeably to the 
 laws and regulations therein made and provided." Held, 
 that the condition of the bond was a sufficient compliance 
 with the charter and was valid. 
 
 Farmers & M. Bank vs. Polk, 1 Del. Ch. 167. 
 
 136. — Miscellaneous Cases. 
 
 The by-laws which define the duties of the secretary of a 
 savings bank enter into and form part of the contract of 
 the sureties upon the bond of the secretary, which is con- 
 ditioned that he shall faithfully perform the duties of his 
 office so long as he shall be continued in said office, and do 
 all things required of him by the by-laws of the corpora- 
 tion. 
 
 Humboldt S. k L. Soc. vs. Wennerhold, 81 Calif. 
 528. 
 
 Where a bond stipulates that the secretary of a corpora- 
 tion shall in all respects fully, faithfully, well and truly 
 perform all the duties of his said trust according to the con- 
 stitution, by-laws, rules and regulations of said association, 
 and at the end of his official term surrender all books, etc. ; 
 he must exercise reasonable diligence in paying over any 
 moneys received by him, and if he fail to do so, and the 
 monevs are stolen from him, he is liable therefor. So also
 
 188 TIMO LAW OF I'IDKLITY BONDS. 
 
 are his sureties. (Safe in office of corporation broken open 
 and robbed at night.) 
 
 Odd Fellows' Mutl. Aid Assn. vs. James, 63 Calif. 
 
 593. 
 (See Chicago, B. & Q. R. R. Co. vs. Bartlett, 120 
 Til. 603.) 
 
 The provision in an insurance company official's bond 
 that he shall "faithfully perform all other duties now or 
 hereafter required of him by virtue of his office," not only 
 has reference to matters previously enumerated in the 
 bond, but includes any breach of duty. 
 
 Where the articles of a mutual insurance company pro- 
 vide for the creation of a fund to pay the expenses of liti- 
 gation, a diversion by an official to that purpose of assess- 
 ments collected to pay death losses is a breach of the con- 
 ditions of his official bond providing for the faithful dis- 
 charge of duty. 
 
 Sherman vs. Harbin, 125 Iowa, 179.^ 
 
 The sureties on the bond of a bank clerk conditioned 
 that he should well and faithfully perform the duties as- 
 signed him are not liable for losses occasioned by his mis- 
 take, but are liable for such losses, though the mistake was 
 innocently made, where it is concealed by fraudulent en- 
 tries on the books of the bank. 
 
 Union Bank vs. Closey, 10 Johns. 271 ; 11 Johns. 
 182 (K Y.). 
 
 Under bond for faithful performance of duties, sureties 
 are not liable for advances made to insurance agent. 
 Burlington Tns. Co. vs. Johnson, 120 111. 622. 
 
 The bond of the paymaster of a railway company condi- 
 tioned that ho would faitlifully perform the duties required 
 
 1. — See Chapter 1. sec. 17. (7»/''
 
 FAITHFUL PERFORMANCE OF DUTY. 
 
 189 
 
 of him as paymaster, "and promptly pay over and promptly 
 account for all moneys belonging to the company received 
 by him as such agent, and should deliver to the company 
 all property belonging to it when required," does not make 
 him an insurer of the moneys in his hands against theft or 
 robbery without his fault or negligence. 
 
 Chicago, B. & Q. R. E. Co. vs. Bartlett, 120 111. 603. 
 
 (See Odd Fellows' Mutl. Aid Assn. vs. James, 63 
 Calif. 593.) 
 
 The sureties on a general freight agent's bond are not 
 liable for default of his subordinates appointed by the rail- 
 road, under a general clause in the bond, that "such agent 
 shall well and truly perform and execute the duties of 
 freight agent, and shall render a just and true account of 
 all moneys, &c., which shall come into his charge or posses- 
 sion." 
 
 Chicago & Alton R. E. Co. vs. Higgins, 58 111. 128. 
 
 The sureties on the bond of a bank teller conditioned "to 
 make good to the bank all damage which it should sustain, 
 through his unfaithfulness or want of care," are not liable 
 for the value of a check on another bank cashed by the teller 
 in the usual course of business for an individual of good 
 credit. 
 
 Union Bank vs. Mackall, 2 Cr. C. C. 695. 
 
 137. — Same. 
 
 A teller of a bank is not liable for losses incurred during 
 his absence from the bank.^ 
 
 Bank of U. S. vs. Johnson, 3 Cr. C. C. 228. 
 
 2. — For case involving unex- 
 plained loss of bank's funds, to 
 wtiich several employees had ac- 
 cess, see United States Fidelity 
 
 & Guaranty Co. vs. Des Moines 
 Nat. Bank. 145 Fed. 273. Chapter 
 8, sec. 109, ante.
 
 190 TJli; LAW OF IIDKLITY BONDS. 
 
 Where ii fidelity insurance company by its bond cove- 
 nants with a receiver engag(!d in operating a railroad that, 
 during the continuance in force of such bond, certain speci- 
 • fied employees of the receiver shall "faithfully and hon- 
 estly discharge their duties, &c., and deliver all property, 
 &c., belonging to the employer, or for which the employer 
 shall be liable to another." 
 
 Held, the insurance company was not liable for damages 
 resulting from a wrongful delivery of freight, such delivery 
 having been made prior to the execution of the bond. 
 Dorsey vs. Fidelity & Casualty Co., 98 Ga. 456. 
 
 See in this connection Chapter 8 on Culpable ISTegligence.
 
 TEEM OF OFFICE. 
 
 J91 
 
 CHAPTER XVL 
 
 TERM OF OFFICE. 
 
 1.JS. Attachment and termina- 
 tion of liability. 
 
 139. Digest of authorities. 
 
 140. Same. 
 
 141. Same. 
 
 142. Same. 
 
 143. Same. 
 
 144. Same. 
 
 145. Bonds of public officers. 
 
 146. Same. 
 
 138. — Attachment and Termination of Liability. 
 
 Little difficulty is experienced in practice in determining 
 the period covered by a coi'porate fidelity bond, for the rea- 
 son that such bonds almost invariably state in precise terms 
 the time of the commencement and termination of liability. 
 In private fidelity bonds, however, following common law 
 forms, the question frequently arises as to when the surety's 
 liability begins, and more frequently as to when it ends. The 
 varying phraseology in the recitals in such bonds renders 
 generalization in the application of the decisions inadvisa- 
 ble, and necessitates an examination of the cases. The au- 
 thorities are therefore here collected, and provide ready ref- 
 erence for investigation of the subject. 
 
 « 
 139. — Digest of Authorities. 
 
 If the bond of a bank cashier is silent as to the term for 
 which it is to run, the Court will determine its life from the 
 facts and circumstances surrounding the parties at the time 
 of its execution, and where it was given by a bank officer 
 appointed by the finance committee to fill a vacancy, it will 
 be held to cover the period intervening between such ap- 
 pointment and its confirmation by an election of a board of 
 directors. 
 
 Fancher vs. Kaneen, 5 Ohio Nisi Prius, n. s. 614.
 
 192 'I'lIK LAW OF I'IDKLITY HONDS. 
 
 Where iieitlier the elmi'ter nor liy-laws of a corjioratioii 
 fixes the tonn of office of its cashier, but vests the appoint- 
 ment of all officers in the "directors for the time being," a 
 cashier so appointed holds his office during the pleasure of 
 the directors, unless they at the time of appointment limit 
 the duration of his office to a specified term. Consequently, 
 where a cashier was elected and gave bond in one year, and 
 Avas re-elected the next year, but failed to give a new bond, 
 it was held that he was in office by virtue of his first elec- 
 tion, and his sureties were liable for his acts during the 
 second term. 
 
 The fact that the bank neglected to have the cashier's 
 bond renewed on his re-election, whereby the bond of the 
 original sureties remained in force after the period they 
 had been led to expect, does not estop tbe bank from pro- 
 ceeding on the bond, it not appearing that the expectation 
 as to the time their bond was to be in force was due to rep- 
 resentations by the bank. 
 
 Sparks vs. Farmers' Bank, 3 Del. Ch. 274. 
 
 Cashier of a national bank gave bond conditioned for 
 the faithful performance of duty "forever, so long as he 
 should occupy the position." He was elected to hold office 
 during the pleasure of the board and subsequently was an- 
 nually re-elected for nine years. All defaults were commit- 
 ted after the first year. Held, the surety was not liable. 
 . First Xat. Bank vs. Briggs, 69 Vt. 12. 
 
 But where cashier of bank Avas elected to hold his office 
 during the pleasure of the board of directors his sureties are 
 liable for any default occurring while be continues to act 
 as cashier. 
 
 Phillips vs. Bossard, 35 Fed. 99. 
 
 So where one has been appointed clerk in a bank, to con- 
 tinue in office during the will of the present, or any future.
 
 TERM OF OFFICEi. 193 
 
 board of directors of said bank, the office is not an annual 
 one, although the directors are elected annually. 
 
 Louisiana State Bank vs. Ledoux, 2 La. Ann. 674. 
 
 If a bank treasurer holds the office for no fixed term, but 
 at the sufferance of the corporation, and the bond, purports 
 to be given for an unlimited time, and not for a particular 
 term, there is no implied limitation of it to any other term 
 than the indefinite one he was holding. In such a case, a 
 limitation is not implied from the expiration and extension 
 of the bank's charter. 
 
 Hall vs. Brackett, 62 N". H. 509. 
 
 140. — Same. 
 
 Where a person appointed cashier of a bank by the board 
 of directors, under a local statute, gave a bond conditioned 
 for the faithful performance of his duties, without any 
 limitation as to time, and. where there is no showing that 
 his appointment was for a limited period or that he was 
 ever reappointed. Held, that the mere fact that the direct- 
 ors from whom he received his appointment held their 
 offices 'for one year only does not limit the liability of the 
 surety on the bond to one year, but he is liable for any 
 default occurring under the appointment, whether before 
 or after the expiration of the year. 
 
 ■ Merchants' Bank vs. Honey, 58 Kas. 603. 
 
 One was elected cashier of a bank in 1814 and annually 
 for the three following years by directors, chosen annually, 
 and he contiuned to serve till 1823, when he committed a 
 breach of duty. Held, that his bond given when he was 
 first elected for the faithful performance of his duties, 
 "so long as he should continue in said office," extended to 
 said breach. 
 
 Dedham Bank vs. Chickering, 20 Mass. 335. 
 
 13
 
 194 Till', LAW OF 1 IDlJ.nv BONDS. 
 
 Oxw luiviiiff hccii clcclod dii'cctor of a bank in 1849, gave 
 at that time a hond with sureties, conditioned for the due 
 perforniaiuH! of his duties as director "while he should ho 
 a director of said bank." He Avas annually re-elected and 
 acted as director for sevei-al years afterwards, but never 
 gave any other bond. Jfcld. that the bond did not cover 
 his official defaults occurring after the expiration of the 
 term of office under iiis first election. 
 
 Treasurer vs. Mann, 34 Vt. 371. 
 
 A bond conditioned foi- the proper performance by a 
 cashier of his duties "for and during all the time he shall 
 hold the said office" binds the sureties for all such time, 
 irrespective of the fact that he is reappointed at the be- 
 ginnnig of each year. 
 
 "Westervelt vs. Mohrenstecker, 76 Fed. 118. 
 
 The bond of a bank cashier did not specify the term 
 covered. A statute in force at the time made such term 
 "one year-^ and until their successors are duly elected and 
 qualified." The cashier was re-elected at two successive 
 annual elections, but gave no new bond. During the third 
 year he became a defaulter. Held, that his sureties were 
 not liable. The bond was not in force when the defalca- 
 tion occurred. 
 
 Savings Bank of Hannibal vs. Hurst, 72 Mo. 507. 
 
 A surety on the official bond of an officer of a corpora- 
 tion whose term of office is one year is not liable for de- 
 faults occurring beyond the first year ; although the princi- 
 pal is continued in office for a longer ]ieriod by new ap- 
 pointments made from year to year. 
 
 Kingston Mut. Tns. Co. vs. Clark. 33 Barb. (X. Y.) 
 196.
 
 TERM OF OFFICE. 195 
 
 141. — Same. 
 
 Where the cashier of a bank is elected ''for one year," 
 and the recitals in his fidelity bond refer to his term of 
 office, the surety on his bond is not liable for defalcations 
 committed after the expiration of the term of office to 
 which the bond refers. 
 
 Blades vs. Dewey, 136 I^. C. 176. 
 
 Sureties on the bond of an officer of a private corpora- 
 tion whose office is annual, with power in him to hold until 
 his successor is elected and qualified, are bound only for the 
 year for which he was chosen and for such further time as 
 is reasonably sufficient for the election and qualification of 
 his successor, and no longer. Guaranteeing the good faith 
 and honesty of such officer "during his continuance in 
 office," means not an indefinite period, or for the time he 
 may possibly hold such office by new elections, but his con- 
 tinuance in office under his then election and for the legal 
 term. 
 
 Mutual Loan, <S:c., Assn. vs. Miles, 16 Fla. 204. 
 
 Under a statute which provided that a cashier should re- 
 tain his place until removed therefrom, or another ap- 
 pointed in his stead, a cashier was appointed and gave bond 
 for the faithful discharge of the duties of his office. He 
 was subsequently reappointed, but gave no new bond. Held, 
 his sureties were liable for defaults committed during the 
 terms to which he was reappointed. 
 
 Amherst Bank vs. Koot, 43 Mass. 522. 
 
 The bond of a savings bank cashier must be construed in 
 connection with the terms of his appointment, and if his 
 election to the position is for a definite period, the bond 
 ceases to be effective on the expiration of the term and the
 
 196 Tin: i.AW (U'' IJJJKLITV BONDS. 
 
 sureties thereon ai-e not liable for his delalcution occurring 
 thereafter. 
 
 Ida Co. Savings Bank vs. yeidenstricker, 128 Iowa, 
 54. 
 
 No form of adjudication against a principal can pre- 
 clude a surety from showing that the breach of duty upon 
 which that adjudication was founded occurred prior to the 
 date of the bond, and is not within the terms of the con- 
 tract, if the bond is not retroactive. 
 State vs. Banks, 76 Md. 137. 
 
 142. — Same. 
 
 Under a fidelity bond securing against personal dishon- 
 esty, the obligor is not liable for funds collected by factors 
 before the bond went into effect, although afterwards dis- 
 honestly converted by them. 
 
 Sinclair & Co. vs. National Surety Co., 132 Iowa, 
 549. 
 
 Whether a secretary of a corporation was a defaulter at 
 the time his bond was written is a question for the jury in 
 a suit on said bond. 
 
 Anaheim AVater Co. vs. Parker, 101 Calif. 483. 
 
 If it appears from all the circumstances that the intention 
 of the parties to a fiduciary bond, given to secure a building 
 and loan association against loss by its secretary, was that 
 the contract, being unlimited by its terms to the unexpired 
 part of the secretary's term, should cover his acts of defal- 
 cation during his continuance in office, whether by re-elec- 
 tion or holding over, the bond Avill cover the principal's 
 defalcations according to such intention. Such secretary 
 was elected in January, 1891, and was in that position when 
 he applied in October, 1805, to a bond company to become 
 his surety. The only other evidence as to the duration of 
 his term was a minute in the record that he was elected at
 
 TERM OF OFFICEi. 197 
 
 a meeting held on Marcli 16tli, 1896. There was no by-law 
 fixing his tenure. The bond company received $50, "as the 
 premium for one year," and issued him a bond, dated Oct. 
 28th, 1895, which was not by its terms limited in duration, 
 but when that year expired a premium for the next year 
 was demanded and paid, and what was called a "renewal 
 bond" was issued. Held, that the parties to the bond under- 
 stood that it was to covei* any defalcations occurring within 
 one year from the date of the bond, and that it was not 
 their intention to limit it to so much of a term of one year 
 as was unexpired when the bond was issued. 
 
 N'orth St. Louis Bldg. & Loan Assn. vs. Obert, 169 
 Mo. 507. 
 
 The sureties on the bond of the treasurer of a railroad 
 company, conditioned for the faithful discharge of duty 
 "during his continuance in office during the present year 
 and for such period as he may from time to time be elected 
 to said office," are not liable for defaults which occur after 
 an omission to re-elect him at a regular meeting, although 
 he continues to act as treasurer, and is re-elected at the next 
 regular meeting thereafter. 
 
 Lexington & W. C. K. R. Co. vs. Elwell, 90 Mass. 
 371. 
 
 143. — Same. 
 
 An antedated bond of an insurance agent does not bind 
 the sureties for the period preceding the date of its deliv- 
 ery if its language is not retrospective. A surety is not 
 presumed to have meant to become answerable for acts com- 
 mitted before he signed the obligation. 
 
 Hyatt vs. Grover & Baker Sewing Machine Co., 41 
 Mich. 225. 
 
 The bond of the secretary of a private corporation re- 
 cited that he had been elected for tenn of one year or
 
 11)8 TIIK LAW OF I ll>l I.ITY BONOS. 
 
 until liis siu'cossor is elected and qualified. The articles of 
 iucorpofiition prdvidcd tli;it the secretary .sliould liold liis 
 oiiice till his successor was elected and qualified. The by- 
 laws provided that he should keep the accounts of the cor- 
 poration, receive the moneys and pay same over to the treas- 
 urer. Having held over and acted as secretary for several 
 months after the expiration of the year for which he was 
 first elected, in an action brought by the corporation against 
 his sureties, held, the sureties assumed their obligation with 
 reference to the articles and by-laws, and cannot question 
 the nature of the duties of their principal. 
 
 The obligation of the sureties was not limited to the 
 first year, but continued during the entire time he acted as 
 secretary, and it is immaterial whether the shortage oc- 
 curred prior or subsequent to the expiration of such year. 
 Danvers Farmers' Elevator Co. vs. Johnson, 93 
 Minn. 323. 
 
 The phrase "during such further time as (an officer of 
 an association) may continue to hold said office" applies to 
 such further time beyond the term of one year as the prin- 
 cipal might hold the office by virtue of his first election, and 
 that it was not intended to cover the time under which he 
 might hold office under any subsequent election. 
 O'Brien vs. Murphy, 175 Mass. 253. 
 
 Under articles of incorporation which provide that the 
 treasurer shall be elected annually, and shall hold his office 
 until his successor shall be elected and qualified, and which 
 make the giving of a bond a necessary qualification, the lia- 
 bility of the sureties on such a bond, continues until their 
 principal's successor is duly elected and qualified. 
 
 St. Louis Union Society vs. Mitchell, 26 ^fo. App. 
 206.
 
 TERM OF OFFICE^ 199 
 
 144. — Same. 
 
 A bond stipulating for the good conduct of an officer 
 holding office for a fixed term, and until "another" officer 
 be appointed, will not remain in force after the reappoint- 
 ment of such original officer, the term "another" in this 
 case not meaning another person. 
 
 Citizens' Loan Assn. vs. N'ugent, 40 N". J. L. 215. 
 
 Where an agent was employed and gave bond, and per- 
 formed his obligations fully, and ceased to work for the em- 
 ployer for two years, when he again entered said employ- 
 ment without the consent of the surety. Held, the surety 
 was not liable for a default in the second employment. 
 Stone vs. Kennly, 24 Weekly Dig. (N. Y.) 126. 
 
 The secretary of a corporation was elected June, 1881, 
 for one year and until his successor should be elected and 
 qualified. He thereupon gave a bond. The by-laws au- 
 thorized the directors to remove at pleasure all officers, and 
 fix their terms of office. In June, 1882, the secretary was 
 re-elected. Held, sl suit could not be maintained on his 
 bond for defaults committed after his re-election. 
 
 Fresno Enterprise Co. vs. Allen, 67 Calif. 505. 
 
 Where a bond given by a secretary of a corporation is 
 not retrospective in its terms, it does not cover past delin- 
 quencies, and the sureties are not liable for money converted 
 by the secretary prior to its execution, but the corporation is 
 bound to show a conversion after the execution of the bond 
 in order to charge the sureties. 
 
 Anaheim Water Co. vs. Parker, 101 Calif. 483. 
 
 A bond of the treasurer of a corportaion who is elected 
 for one year, which provides for his honesty and faithful- 
 ness "during his continuance in office" without any provi- 
 sion showing that it is intended as a continuing security,
 
 200 TIIK LAW OF JIDKLITY BONDS. 
 
 other than the words quoted, is limited to tlie term lor 
 which he is elected, and does not cover defaults made after 
 the expiration of that term and his re-election. 
 
 Ulster Co. Savings Inst. vs. Ostrander, 163 X. Y. 
 430. 
 
 Where an officer who is elected annually gives a bond 
 for the faithful discharge of the duties of his office, his 
 sureties are bound only for one year, although there is no 
 time specified in the bond and although he should be re- 
 elected several years in succession. 
 
 South Carolina Soc. vs. Johnson, 1 McC. (S. C.) 41. 
 
 See also — 
 
 Brillion Lumber Co. vs. Barnard, 131 Wis. 284. 
 
 145. — Bonds of Public Officers. 
 
 While not properly within the scope of this work, certain 
 cases relating to the bonds of public officials are here ap- 
 pended for illustration of the general subject under dicus- 
 sion: 
 
 Sureties on the general bond of an annual officer are gen- 
 erally held to be liable only for one year. The sureties are 
 presumed to have contracted with reference to the law, and 
 the general words of the obligation are restrained and lim- 
 ited thereby. 
 
 Brandt, sec. 186. 
 
 The clause in a bond of suretyship for a public official, 
 guaranteeing the faithful discharge of his duties for a 
 psecified term and "until his successor is appointed," will 
 not hold the surety for defaults committed beyond a reason- 
 able time after the expiration of his term, and what is rea- 
 sonable time is a question for the jury. 
 
 Camden vs. Greenwald, 65 X. J. L. 485.
 
 TEEM OF OFFICE,. 201 
 
 Where the hond of a city treasurer elected to succeed 
 himself is conditioned that he shall well and faithfully per- 
 form the duties of his office "for and during the term for 
 which he was elected, &c.," the sureties are not liable for 
 defalcations prior to the acceptance and approval of the 
 bond by the common council, though it is of prior date, 
 since the term for which the bond is given does not com- 
 mence until such bond is so accepted and approved. 
 
 Grand Haven vs. U. S. Fidelity & Guaranty Co., 128 
 Mich. 106. 
 
 When an official bond is given by an officer holding for 
 a definite term, the obligations of such bond being, in gen- 
 eral terms, conditioned for the good behavior of the officer, 
 will not extend beyond such definite term. 
 
 !N'or will the case be altered by the fact that such officer 
 
 holds for a definite term, and until his successor shall be 
 
 appointed, such latter term extending the obligation to a 
 
 reasonable period only for the appointment of a successor. 
 
 Rahway vs. Crowell, 40 K J. L. 207. 
 
 Where clerk and treasurer of a city was elected for one 
 year, and gave bond for the faithful performance of his 
 duties "for the present year," but at the expiration of said 
 year held over during the next year until he was suspended, 
 no successor having been appointed, it was not error in the 
 Court to charge in an action on the bond that said treas- 
 urer and his sureties Avere liable for all moneys that came 
 into his hands as such treasurer until his successor was 
 appointed. 
 
 Mayor vs. Brooks, 49 Ga. 179. 
 
 146. — Same. 
 
 Sureties for the fidelity of an officer appointed for a lim- 
 ited term are not liable for his defaults beyond the term 
 under which the bond was furnished. 
 
 State vs. Powell, 40 La. Ann. 241.
 
 202 TJM'; LAW OF KlDKLirV lt()M>S. 
 
 WluTc tlic Icgislulurc liiia cxteudcd tlic term oi oliico of 
 uii officer beyond the limit fixed by law at the time of bis 
 election and qualification, the sureties upon his bond can- 
 not be held liable for his official acts during such extended 
 term. 
 
 County of King vs. Ferry, 5 Wash. 536. 
 
 The fact that a public officer continues to hold offici' and 
 discharge the duties thereof after the expiration of his 
 original term, whether by continuing after re-election with- 
 out qualifying for the second term, or by holding over until 
 a successor is elected and qualified, will not subject the sure- 
 ties upon the official bond given for his original term of 
 oflice to liability for losses sustained by him while so hold- 
 ing over and continuing in office beyond the tenure for 
 which the bond had been given. 
 
 City of Ballard vs. Thompson, 21 Wash. 669. 
 
 The contract of a surety is strictly construed. The ex- 
 tent of his liability is that expressed in the instrument 
 signed by him, or necessarily implied in the words used 
 therein; and when he becomes bound for the act or de- 
 faults of an officer, public or private, whose term of office 
 is fixed by law, or prescribed by charter, ordinance or by 
 law, and such specific term is recited in the bond, subse- 
 quent general words will not enlarge the term or the obliga- 
 iton of the surety. 
 
 Montgomery vs. Hughes, 65 Ala. 201. 
 * See also Anderson vs. Bellinger, 87 Ala. 334. 
 
 Crescent Brewing Co. vs. Handley, 90 Ala. 486. 
 
 May vs. Ala. IN'at. Bank, 111 Ala. 510. 
 
 In an action on the official bond of the city clerk of the 
 city of Montgomery, Ala., it was held there was no liability 
 on the sureties on such bond after the expiration of the 
 term fixed by the charter of the city. 
 
 Montgomery vs. Hughes, 65 Ala. 201.
 
 TERM OF OFFICIi. 203 
 
 When tlie term of office for wliich. an official bond has 
 been given has expired and no second bond exacted, the re- 
 sponsibilities of the sureties on the first bond cannot be ex- 
 tended so as to hold them liable for the acts of a next tenn^ 
 for which other sureties on a new bond would have been 
 responsible. 
 
 Board vs. McKowen, 48 La. Ann. 251. 
 
 Sureties for the fidelity of a person in an office of limited 
 duration are not liable beyond that period, nor are they 
 liable for past defaults, unless made so in terms. 
 Patterson vs. Freehold, 38 N. J. L. 255. 
 
 A bond procured by a State officer to be issued by a 
 bonding company guaranteeing the faithful performance of 
 duty by such officer, which is in terms indefinite as to dura- 
 tion, will, in the absence of any stipulation to the contrary, 
 be regarded as remaining in force during the incumbency 
 of such officer on his present term. 
 
 Bryant vs. Am. Bonding Co., 77 Ohio St. 90. 
 
 Where the terms of a bond clearly show that it was in- 
 tended to be retrospective as well as prospective, sureties 
 may be held liable for defaults occurring before the execu- 
 tion of such bond. 
 
 McMullen vs. Winfield B. & L. Assn., 64 Kan. 298.
 
 204 TIIK LAW OF Kini.MTY BONDS. 
 
 CHAPTER XVn. 
 
 SUCCESSIVE BONDS. 
 149. Same. 
 
 147. Digest of authorities 
 
 148. Official bonds. 
 
 147. — Digest of Authorities. 
 
 Much lias already been said upon this subject in the 
 chapters on Term of Office and Application of Payments and 
 Successive Fidelity Bonds. Certain additional cases are here 
 collected illustrative of the manner in which liability has 
 been determined between different sureties on successive 
 bonds for the same principal in the same position, or w^here 
 the bond sued on only covers a part of the term of ser^dce. 
 
 In a suit by a building association against its former 
 secretary and the sureties on three successive bonds, held, 
 the sureties on each bond were only liable for defalcations 
 made with respect to funds in the hands of the principal at 
 the time of the execution of such bond and such funds as 
 subsequently came into his hands. 
 
 Citizens' Savings L. & B. Assn. vs. Weaver. 127 111. 
 App. 252. 
 
 Where bond was given to cover term of employment, and 
 subsequently another bond was given and accepted for one 
 year, and old bond retained, held, liability not concurrent, 
 but confined to last bond for defaults committed during such 
 year. 
 
 Aetna Life Ins. Co. vs. Am. Suretv Co.. 34 Fed. 291.
 
 SUCCESSIVE BONDS. 205 
 
 Though the office of cashier of a bank is usually treated 
 as elective for one year only, yet the surety will be liable 
 for the acts of such cashier if he continue in office after the 
 year, but on the re-election and qualification of the cashier 
 for a second term the liability on the old bond ceases. 
 Sparks vs. Farmers' Bank, 3 Del. Ch. 274. 
 
 In an action by an insurance company on the bond of its 
 agent to recover premiums alleged to have been received by 
 the agent, and which he failed to pay over to the com- 
 pany, it was no defense to the action that the agent paid to 
 the company during the life of the bond a sum of money 
 equal to the amount of the premiums collected by him dur- 
 ing that time, where it appears that the agent had been 
 acting as agent for the company prior to the execution of 
 the bond, and at the time of its execution was indebted to 
 the company, and the premiums collected by him after the 
 execution of the bond were applied by him to the payment 
 of his former indebtedness to the company. 
 
 Boyd vs. Agricultural Ins. Co., 20 Col. App. 28. 
 
 Presumably, money which came into the hands of an 
 official of a building association and should have been there 
 was still in his possession, and the burden was on the surety 
 to prove that the funds presumably in the hands of his 
 principal had been misappropriated before he became liable 
 on the bond. 
 
 McMullen vs. T^infield B. & L. Assn., 64 Kan. 298. 
 
 One had been elected treasurer of a society annually for 
 a number of years. Upon one re-election the treasurer's 
 books showed a balance in his hands. He gave bond witli 
 sureties to deliver at the expiration of his term all moneys, 
 etc., in his hands. He subsequently resigned, having re- 
 ceived since his last election less money than he paid out 
 during the same time, but from moneys previously received 
 there was a balance against him. Held, that the sureties
 
 206 Tin; I, AW OF iii)i:i,nv i'.onds. 
 
 wore liable on the Ijuiid at the suit of the society. The 
 plaintiffs were not bound to inform the sureties of the 
 amount with which the treasurer stood charged unless asked. 
 In the absence of evidence to show that he had used the 
 funds improperly, the ])resumption was that they were in 
 his hands when the bond was given. 
 
 Beyerlc vs. JIaiii, 61 Pa. St. 226. 
 
 When suits are brought by the same plaintiffs against the 
 same i)rincipal defendant on separate obligations to secure 
 the faithful ])erforniance of official duties by the principal 
 defendant, and there are different sureties on the several 
 bonds Avhicli were given for different terms of official serv- 
 ice, and who are defendants in the suits brought on their 
 respective bonds, the suits cannot be consolidated, though 
 the plaintiff may be unable to state under which term of 
 official service a misappropriation of funds by the principal 
 defendant occurred. 
 
 Screwmen's Ben. Assn. vs. Smith, 70 Tex. 168. 
 
 148. — Official Bonds. 
 
 While as has been indicated in the chapter on. Term of 
 Office, a consideration of the subject of official bonds is not 
 properly within the scope of this work, nevertheless refer- 
 ence to such cases will be of material assistance and the cases 
 relating particularly to the point under discussion are here 
 collected. 
 
 Sureties on the official bond of an officer are not liable 
 for moneys misapplied before the date of such bond, but 
 Avhere an indebtedness is shown at the date of the bond the 
 presumption is that such funds were in the hands of the 
 principal, and the burden is on the sureties to show a mis- 
 appropriation prior to the execution of the bond. 
 
 Hetten vs. Lane, 43 Tex. 270. 
 
 Barrv vs. Scre"\vmen's Ben. Assn., 67 Tex. 250.
 
 SUCCESSIVE BONDS. 207 
 
 In an action by the State upon a State treasurer's bond 
 the obligors can be held responsible for moneys received 
 officially by the treasurer during the period covered by the 
 bond, and applied by him to the satisfaction of the defalca- 
 tions Avhich he had committed before that period, the State 
 having received the moneys without knowledge of the mis- 
 application. 
 
 Sooy vs. State, 41 K J. L. 394. 
 
 Where a city treasurer, who was a defaulter in the pre- 
 vious years of his official existence, is elected his own suc- 
 cessor and has given a new bond, the sureties on such bond 
 can only be held liable for his failure to perform his official 
 duties during the time he held office under his last appoint- 
 ment. 
 
 Independent of any actual appropriation of moneys to 
 make good the misappropriation of previous years, sound 
 legal principle will not permit the application of city funds, 
 received by the treasurer subsequent to the taking effect of 
 the last bond, to the relief of the sureties on the bond or 
 bonds covering the time when the treasurer was guilty of 
 fraud or embezzlement. 
 
 Hoboken vs. Kamena, 41 N. J. L. 435. 
 
 . Sureties of a town collector are liable for delinquencies 
 caused by the payment of prior deficiencies, if the funds 
 were received in good faith by the town. 
 
 Inhabitants vs. Miles, 185 Mass. 582. 
 
 The sureties on the official bond of a city treasurer are 
 liable only for defaults of their principal during the term 
 for which their bond was given ; and when such principal 
 has held the office for preceding terms their liability is to 
 be determined by considering the term for which they were 
 sureties by itself, precisely as if he had succeeded some 
 other person, and then requiring them to account for all the 
 public money that came to his hands during that term.
 
 '20S TJIK LAW OF FIDELITY BONDS. 
 
 A dclaultiiig afi;ciit caiiiKjt make good his default as be- 
 tween hiuiself and his sureties, on the one hand, and his 
 principal, on the other, by taking the principal's money for 
 the purpose. 
 
 Detroit vs. Weber, 29 Mich. 24. 
 
 149. — Same. 
 
 Where an officer is re-elected and becomes his own suc- 
 cessor, and at the commencement of his second term re- 
 ports a certain sum in his hands, and gives bond with sure- 
 ties to account for and pay over the moneys coming into 
 his hands during the term, his sureties when sued will be 
 responsible for the sum so reported in his hands, and will 
 not be allowed to show that the defalcation, in fact, oc- 
 curred during the previous term, and throw the liability on 
 his sureties for that term. 
 
 Roper vs. Trustee, 91 111. 518. 
 
 Sureties on the bend of a collector for taxes are not 
 released because the collections covered by their bond have 
 been paid into the treasury on account of the tax collector 
 for preceding years. Such a disposition was itself as much 
 a misappropriation as if he had devoted it to his private 
 debts. » 
 
 State vs. Powell, 40 La. Ann. 234. 
 
 When a deficit is shown to have occurred during a first 
 term of an official he will not be permitted to apply moneys 
 subsequently received by him to closing up past accounts, 
 thus leaving a deficit at the end of another or second term. 
 Board vs. McKowan, 48 La. Ann. 251. 
 
 The sureties of a reappointed officer are liable for any 
 balance in his hands at the time of his reappointment, 
 which he received in his preceding term. 
 
 The sureties in the second term are not liable for a de- 
 fault committed in his first.
 
 SUCCESSIVE BO^'DS. 209 
 
 But no default will be presumed because a balance ap- 
 pears to have been in his hands at the end of his first term. 
 
 The burden of proof is on the sureties in the last term 
 to show a default if any occurred prior to the execution of 
 the bond by themselves. 
 
 Bruce vs. United States, 17 How. 437. 
 
 Where a public officer has used moneys coming into his 
 hands officially during a subsequent term to make good a 
 default committed by him in a prior term, the sureties 
 upon his bond for the subsequent term are liable for the de- 
 fault thereby made in the moneys received during the sub- 
 sequent term. 
 
 It is the duty of an officer receiving funds during a sec- 
 ond term to make a legal application of them, and he can- 
 not legally apply them to the payment of an earlier defal- 
 cation ; and though his sureties upon his bond for the sec- 
 ond term are not liable for a defalcation which occurred 
 during his first term, they are liable for a misapplication, 
 of funds received during his second term to cover such prior 
 defalcation. 
 
 People vs. Hammond, 109 Calif. 384. 
 
 In an action upon a county treasurer's official bond to 
 recover a shortage, his sureties are estopped from denying 
 the truth of their principal's reports as to amount of monej? 
 on hand made just prior to the execution of the bond and 
 during its life, for the purpose of showing that the defalca- 
 tion occurred during his previous term. 
 
 Territory vs. Cook, 2 Ariz. 383. 
 
 14
 
 210 
 
 TIIK LAW OF FIDKI.n'Y HONDS. 
 
 CHAPTER XVHL 
 
 SIGNATURE OF PRINCIPAL. 
 
 150. Necessary where so stipu- 
 
 lated ill tlie contnut. 
 
 151. Leading case. 
 
 152. Leading case, continued. 
 15*. Recent decisions. 
 
 154. Reference to fidelity bonds 
 generally — Cases in con- 
 flict. 
 
 155. Rules as established iu sev- 
 eral States. 
 l.")t;. Miscellaneous illustrations. 
 
 157. Digest of authorities rela- 
 
 tive to bonds other than 
 fidelity — Surety liable. 
 
 158. Same — Surety not liable. 
 
 159. Miscellaneous observations. 
 
 150. — Necessary Where so Stipulated in the Contract. 
 
 Corporate fidelity bonds are usually in the form of indem- 
 nnifying contracts, conditioned to bold the obligee harmless 
 from loss occasioned by the fraud or dishonesty of the em- 
 ployee. He is required to sign the contract — not to bind 
 himself thereby to th'e employer, — but to obligate himself to 
 reimburse and save harmless the surety for assuming the 
 obligation on his behalf/ and in theory to give assent to the 
 
 1. — Where a surety company 
 furnishes a bond on the express 
 condition that the principal will 
 indemnify it against all losses, 
 attorneys' fees and expenses of 
 every kind which for any cause 
 it may sustain by reason of hav- 
 ing executed the bond, such sui-e- 
 ty may. in the absence of bad 
 faith, recover its attorneys' fees 
 expended iu a suit on the bond, 
 although the principal employed 
 counsel to represent both and so 
 notified the surety. United States 
 Fidelitv & Guaranty Co. vs. .John 
 
 Hittle, 121 Iowa, 352. 
 
 A stipulation on the part of an 
 employee in his application to a 
 guaranty company for a bond 
 guaranteeing his fidelity that re- 
 ceipts showing a payment by said 
 company of any loss on his ac- 
 count shall be conclusive evidence 
 against him is valid and binding 
 and not against public policy. 
 Guarantee Co. vs. Pitts. 78 Miss. 
 837. Held otherwise in the eariy 
 case of Fidelity & Cas. Co. vs. 
 Eickhoff, 63 Minn. 170.
 
 SIGNATURE OF PRINCIPAL.. 211 
 
 suretyship. Many such instruments provide, by specific stip- 
 ulation, that the contract shall not take effect, unless so 
 signed by the "principal," the subject of the undertaking. 
 Such stipulations are valid and binding, and the absence of 
 the signature of the principal, unless waived, will prevent a 
 recovery on the contract. 
 
 1 5 1- — Leading Case. 
 
 In the leading case of Union Central Life Ins. Co. vs. 
 United States Fidelity & Guaranty Co., 99 Md. 423 (1904), 
 suit was brought by the insurance company against the fidel- 
 ity company upon a bond executed by the latter, by which it 
 gaiaranteed the honesty of an employee of the insurance com- 
 pany. The bond contained the following provision : ''That it 
 is essential to the validity of this bond that the employee's 
 signature be hereunto subscribed and witnessed." There is 
 a clause in the bond by which the employee covenants and 
 agrees with the fidelity 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 signa- 
 ture of the employee opposite a seal intended as the em- 
 ployee's seal. The bond sued on was delivered by the fidelity 
 company to the insurance company, but it never was signed 
 by the latter's employee whose fidelity is guaranteed. The 
 premium was paid for the first year. Before the expiration 
 of the first year the bond was renewed, upon payment of an 
 additional premium, and a renewal receipt was given, where- 
 in it was stated that the fidelity company continued in force 
 the same bond for another period "subject to all the cove- 
 nants and conditions of said original bond heretofore issued 
 on the 15th day of June, 1900." Subsequently, the bond was 
 again renewed, and a second renewal certificate of the same
 
 212 IlIK J.AW OF J-lDKl.lTY BONDS. 
 
 tenor and rH'ccl as the first was issued, continuing the bond 
 in force lor another year. The Court sustained a demurrer 
 to the declaration. The Court of Appeals, speaking by the 
 late Chief J udge McSherry, said : 
 
 152. — Leading Case, Continued. 
 
 "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 be- 
 coming operative and eifective * * * If a recovery be per- 
 mitted on 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 guaranty. 
 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 imder this bond.' 
 The liability of an indemnitor is measured by the contract 
 into Avliicli he enters, and is never enlarged by mere con- 
 struction to include a term specifically excluded. Inasmuch 
 as an indemnitor's liability is one dependent wholly upon 
 contract, it Avould be anomalous to hold that he is answer- 
 able imder conditions directly contrary to the express stipu- 
 lations of his undertaking. When he covenants to be bound 
 provided certain antecedent conditions are complied with bv 
 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 authori- 
 ties 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 insiirance, we 
 cannot understand how the indemnitor can be held account- 
 able upon it in the teeth of the explicit covenants that it 
 should not be answerable imless designated provisions dis- 
 tinctly 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 
 mav Avaive conditions inserted for iis protection, but there
 
 SIGJfATUKE OF PBI^N'CIPAL. 213 
 
 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 fail- 
 ure of the indemnified to have its employee sign it, the re- 
 newal receipts could not give it validity. The renewal re- 
 ceipts in terms reasserted the provisions of the bond, and do 
 not purport to continue the bond in force w^ithout reference 
 to the conditions upon the observance of which its validity 
 in the first instance depended. * * * 
 
 "The life insurance company, the indemnified, cannot 
 complain that there is any hardship inflicted upon it by hold- 
 ing 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 guaran- 
 teed, 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 indemni- 
 fied 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 con- 
 dition was complied with. Without prolonging this discus- 
 sion, we think the Court was clearly right in sustaining the 
 demurrer to the plaintiff's declaration and its judgment will 
 be affirmed." 
 
 153. — Recent Decisions. 
 
 This case was quoted with approval and the precedent fol- 
 lowed by the Supreme Court of jSTew York, Appellate Term, 
 in Adelberg vs. United States Fidelity & Guaranty Co., 90 
 N". Y. Supp. 465 ; and Platauer vs. American Bonding Co.,
 
 i^l-^t TIIIO LAW OF l-II)KLnV BOMjS. 
 
 92 K. V. Sui)p. 238. To Iho siiriie efFect is Blackmorc vs. 
 Cuannilcc Co.. 71 Fed. .">G3, and United States Fidelity & 
 Giinriinty ( 'oniiiany vs. Kidgley, 1)7 N. W. (Neb.) 836, which 
 held further that, the fact that tlie obligor retained the prem- 
 ium ])aid by the employee does not constitute a waiver of the 
 signature of the employee to the bond. Somewhat similar to 
 the Union Central Life Insurance Co. case just referred to 
 is the recent case of Aetna Indemnity Co. vs. J. R. Crowe 
 Coal & Mining Co., 154 Fed. 545. in which there was a 
 bond and three renewals. The bond was not signed by the 
 employee hut his execution thereof ivas not made a considera- 
 tion for nor a condition of the creation- of liahility hy the 
 insurer. The execution of renewals on said bond for a valu- 
 able consideration received and appropriated by the defend- 
 ant are held to clearly affirm the original contract notwith- 
 standing the absence of the signature of the employee, and to 
 estop it from asserting its invalidity when repeatedly so af- 
 firmed by it, although there is no evidence tending to show 
 that the surety had loi owl edge when the renewals were issued 
 that the original bond had not been signed. 
 
 In another recent case (American Bonding & Trust Co. 
 vs. New Amsterdam Cas, Co., 125 111. App. 33) the provi- 
 sion in the bond is as follows : "That it is essential to the con- 
 dition of this bond that the employee's signature be hereto 
 subscribed and witnessed, and that the acceptance of the em- 
 ployer be also executed in like manner." Held, the bond is 
 not invalid for the failure of the employer to sign the same 
 until after it had expired by limitations. 
 
 On demurrer to the declaration it was held that where a 
 fidelity insurance company received premiums for two re- 
 newals of a bond, ivith Jcnowledgc that the bond was not 
 signed hy the employee whose fidelity was insured, as re-
 
 SIGNATURE OF PRIXCIPAL. 215 
 
 quired bj the bond, it was estopped to set up the absence of 
 such signature to prevent a recovery on the bond. 
 
 Proctor Coal Co. vs. United States Fidelity & 
 Guaranty Co., 124 Fed. 424. 
 
 Where the corporate fidelity bond of the secretary of a 
 building and loan association was not signed by him, but 
 his name was signed on the back thereof as attesting the 
 approval of the bond by the vice-president, it was held 
 such attestation did not constitute a signing of the instru- 
 ment, and the surety was not liable. 
 
 The principal of a bond in an application therefor bound 
 himself to the surety company to reimburse it for all loss, 
 etc., it might incur on the bond or any renewal thereof. 
 Held, that since the reimbursement of the surety company 
 was not the sole object of the principal's signature on the 
 bond, the obligation in the application would not lessen the 
 necessity for his further signature on a renewal bond. 
 
 North St. Louis Bldg. k Loan Assn. vs. Obert, 169 
 Mo. 507. 
 
 But, it seems, where the sole purpose of the signature of 
 the principal is for the purpose of contracting to reimburse 
 the surety, and the bond does not in terms provide it shall 
 be invalid in the absence of such signature, that in such 
 case the signing of the application for that purpose would 
 supply the omission. 
 Ibid. 
 
 154. — Reference to Fidelity Bonds Generally — Cases in Conflict. 
 
 Passing now from consideration of fidelity indemnifying 
 bonds of corporate sureties which provide therein for the 
 execution thereof by the employee, to the general common 
 law form of fidelity bond, in which the employee is named in 
 the body of the instrument as an obligor, and which purports
 
 21G rilK I, AW OI'- MKIJJIV IJO.ND.S. 
 
 to biiul him with the sui-ely to the ciiijtloyor all the authori- 
 ties ai;r('c thiit. as remarked l»_v the Sii|)remc ('ourt of Ne- 
 braska (47 Neb. 45G), ''the adjudications are hopelessly ir- 
 reconcilable." Probably much of the conflict, apparent and 
 real, has grown out of the fact that in the earlier cases, deal- 
 ing with uHcomjx'nsated individual sureties, the rule that 
 sureties are favorites of the law was applied, while in later 
 cases this nile has been much relaxed and held altogether 
 inapplicable to corporate compensated sureties. (See review 
 of authorities under Chapter 1.) Notwithstanding the afore- 
 said conflict, various attempts have been made to formulate 
 rules to cover cases of this kind. Perhaps the most recent is 
 that of the United States Circuit Court of Appeals in United 
 States Fidelity & Guaranty Co. vs. Haggart, 163 Fed. 801. 
 and although referring to the bond of a deputy United States 
 IMarshall. is nevertheless applicable to fidelity bonds gener- 
 ally. 
 
 In all cases where the principal in a bond would be liable 
 without reference to the bond for acts which constitute a 
 breach, and by the terms of the bond the parties bind them- 
 selves severally, as well as jointly, to perform its conditions, 
 the failure of the principal to sign the bond does not render 
 it void as to the surety or release him from liability 
 thereon. 
 
 igg. — Rules as Established in Several Stales. 
 
 The Supreme Court of Illinois says: 
 
 "We have given the authorities bearing on the question 
 due consideration, and we are not inclined to adopt the view 
 held by the Courts, that a bond signed by the sureties with- 
 out the signature of the principal may not be binding upon 
 those who execute it." 
 
 Trustees vs. Sheik, 110 111. 579.
 
 SIGNATUEE OF PRINCIPAL. 217 
 
 The Supreme Court of South Dakota, referring to official 
 bonds, says : 
 
 "After a careful review of the authorities, and the rea- 
 soning upon which they are based, we think the better rule 
 is that an official bond in which the officer is named as prin- 
 cipal, but which is not executed by him, is prima facie in- 
 valid, and not binding upon the sureties." 
 
 Board of Education vs. Sweeney, 1 S. D. 642. 
 
 The Supreme Court of Missouri says : 
 
 "If the name of the principal is called for in the bond, 
 and it is not signed by him, the bond is not only void as to 
 him, but to all who sign it as sureties, whether it is in form 
 joint or several; and in order for the obligee to hold the 
 surety he must show that the surety consented to be bound 
 without the signature of the principal." 
 
 j^orth St. Louis Bldg & Loan Assn. vs. Obert, 169 
 Mo. 507. 
 
 Also held that the fact that the surety was one organized 
 for the purpose of becoming such for profit was immaterial. 
 Ibid. 
 
 See also — Bunn vs. Jetmore, 7 Mo. 228. 
 
 The Supreme Court of Oklahoma says : 
 
 "The omission of the name of the principal, as one of the 
 signers of a bank cashier's bond, even where his name ap- 
 pears in the body of the bond, as principal, is a mere tech- 
 nical defect, and will not release the sureties, except in case 
 where the sureties sign upon conditions known to the obli- 
 gee, that the bond is not to take effect until signed by the 
 principal." 
 
 Clark vs. Bank, 14 Okla. 572.
 
 218 TiiK I, AW OK i.-ii)i;r,rrv honds. 
 
 156. — Miscellaneous — Illustrntions. 
 
 A Federal Court, has thus statod the pruiKjsilion : 
 
 Where tlic faihirc ttf a iiriiicipal named in a bond to sign 
 it in no way affeets the rights or liability of the sureties, 
 as where he is equally bound by the contract to secure the 
 performance of which the bond is given, and under the 
 laws of the State the rights of the sureties are the same in 
 that case as though he has signed the bond, his omission to 
 sign it does not relieve the sureties from liability thereon. 
 St. Louis Brewing Assn. vs. Hayes, 97 Fed. 859. 
 
 The reason underlying the discharge of the sureties from 
 liability in cases where the bond has not been signed by the 
 principal is the increased liability of the surety caused by 
 the failure of the principal to sign the obligation executed 
 by the surety. 
 Ibid. 
 
 Brandt on Sur. & Guar., sec. 461, holds: 
 
 If the instrument in its body purports to be signed by 
 the principal, but is not so signed, this is sufficient notice 
 to the obligee that it is imperfect, and the sureties may 
 show as a defense that they signed upon condition that the 
 principal also should sign. 
 
 The fact that the instrument is not executed by all those 
 named in its as obligors is sufficient to put the obligee upon 
 inquiry and charge him with notice of the condition. 
 
 In Goodyear Dental Vulcanite Co. vs. Bacon, 148 Mass. 
 542, the bond of the treasurer of a corporation pui*porting to 
 have been executed by himself and sureties, but not signed bv 
 principal held valid on demurrer against sureties. 
 
 To the same effect is Herrick vs. Johnson, 11 Mete. 
 (Mass) 26, on indenture of employment. .
 
 SIGNATURE OF PEIlSrCIPAL. 219 
 
 But see Wood vs. Washburn, 19 Mass. 24, discharging 
 sureties on administration bond not signed by principal, 
 Bowditch vs. Haraion, 183 Mass. 290, and Russell vs. 
 Annable, 109 Mass. 72, on bond to dissolve attachment, and 
 Bean vs. Parker, 17 Mass. 591, on bail bond. 
 
 In Wild Cat Branch vs. Ball, 45 Ind. 213, it was held 
 that : 
 
 Sureties on the fidelity bond of the treasurer of a private 
 corporation are not liable where the bond is not signed by 
 the principal. 
 
 To the same effect is — 
 
 N"ovak vs. Pitlick, 120 Iowa, 286. 
 
 157. — Digest of Authorities Relative to Bonds Other Than Fidel* 
 ity — Surety Liable. 
 
 Briefly reviewing the cases on bonds other than fidelity, 
 the following hold that the surety is liable notwithstanding 
 the failure of the principal to sign : 
 
 Indemnity bond to ojficer — 
 
 Woodman vs. Calkins, 13 Mont. 363. 
 Leow vs. Stocker, 68 Pa. St. 226. 
 Bollman vs. Pasewalk, 22 Neb. 761. 
 
 Indenture of employment — 
 
 Herrick vs. Johnson, 11 Mete. (Mass.) 26. 
 
 To pay debts — 
 
 • Parker vs. Bradley, 2 Hill (N. Y.) 584. 
 
 To pay claims — 
 
 Williams vs. Marshall, 42 Barb. 524.
 
 220 rilK LAW OF KIDII.nv BONDS. 
 
 Supersedeas — 
 
 MoClellan vs. Pyett, 49 Fed. 259. 
 
 Appeal — 
 
 Kinc; vs. Thompson, 110 Fed. .319. 
 San Roman vs. Watson, 54 Tex. 254. 
 Lindsay vs. Price, 33 Tex. 280. 
 Skelton vs. Wade, 4 Tex. 148. 
 MoKellar vs. Peck, 39 Tex. 381. 
 
 County Treasurer — 
 
 People vs. Breyfogle, 17 Calif. 504. 
 State vs. Bowman, 10 Ohio St. 445. 
 Douglass vs. Bardon, 79 Wis. 641. 
 Hall vs. Lafayette Co., 69 Miss. 529. 
 
 School Treasurer — 
 
 Trustees vs. Sheik. 110 111. 579. 
 
 State Treasurer — 
 
 State vs. Hill, 47 l^eb. 456. 
 
 Contract — 
 
 Kurtz vs. Forquer, 94 Calif. 91. 
 Cockrill vs. Davie, 14 Mont. 134. 
 People vs. Bartlett, 151 Mich. 233. 
 Mayor vs. Kent, 25 J. & S. CN. Y. Sup. Ct) 
 109. 
 
 A ttachment — 
 
 Pierce vs. Miles, 5 Mont. 552. 
 Langstaff vs. Miles, 5 Mont. 554. 
 Mcintosh vs. Hurst, 6 Mont, 288.
 
 SIGNATURE OF PRINCIPAL,. 221 
 
 Guardian — • 
 
 Matthews vs. Mauldin, 142 Ala. 434. 
 
 Bail and recognizance — 
 
 Ullson vs. State, 29 Kas. 452. 
 
 Tax collector — 
 
 Pima Co. vs. Snyder, 5 Ariz. 45. 
 MoLeod vs. State, 69 Miss. 221. 
 
 Sherijf— 
 
 State vs. McDonald, 40 Pac. (Idaho) 312. 
 
 Replevin — 
 
 Philippi Church vs. Harbough, 64 Ind. 240. 
 Howe vs. Handlej, 28 Me. 241. 
 Cahill's Appeal, 48 Mich. B16. 
 
 158. — Same — Surety Not Liable. 
 
 In the following cases the surety is held not liable in the 
 absence of the signature of the principal : 
 
 Official — • 
 
 Baker Co. vs. Huntington, 48 Ore. 593. 
 School Dist. vs. Lapping, 100 Minn. 139. 
 
 Executors and administrators — 
 
 Weir vs. Mead, 101 Calif. 125. 
 Wood vs. Washburn, 19 Mass. 24. 
 
 City recorder — 
 
 City of Sacramento vs. Duiilnp, 17 Calif. 421.
 
 222 TJIK ].A\V OF I'lDKHTY BONDS. 
 
 County treasurer — 
 
 People vs. HarUey, 21 Calif. 585. 
 
 Appeal — • 
 
 State vs. Austin, 35 Minn. 51. 
 Ney vs. Orr, 2 Mont. 559. 
 State vs. Haarla, 26 X. W. 906. 
 
 Prison hounds — 
 
 Curtis vs. Moss, 2 Rob. (La.) 367. 
 
 Dissolve attachment — 
 
 Bowditch vs. Harman, 183 Mass. 290. 
 Russell vs. Annable, 109 Mass. 72. 
 Clements vs. Cassilly, 4 La. Ann. 380. 
 
 Bail — ■ . . 
 
 Bean vs. Parker, 17 Mass. 591. 
 
 Notary Public — 
 
 Martin vs. Horiisby, 55 Minn. 187. 
 
 Probate Judge — 
 
 Board of Education vs. Sweeney, 1 S. D. 642. 
 
 Payment of money — 
 
 Bonser vs. Cox, 4 Bear (Eng.) 379. 
 
 Township treasurer — 
 
 Johnston vs. Kimball, 30 Mich. 187. 
 
 Forthcoming — ■ 
 
 Green vs. Kindy. 43 Mich. 279.
 
 SIGNATURE OF PRINCIPAL. 223 
 
 Cost- 
 Hall vs. Parker, 39 Mich. 590. 
 
 Constable — 
 
 Bunn vs. Jetmore, 70 Mo. 228. 
 
 Contract — • 
 
 Gay vs. Murphy, 134 Mo. 99. 
 Bjoin vs. Anglinn, 97 Minn. 526. 
 Am. Kad. Co. vs. Am. Bonding & Trust Co., 110 
 N"-. W. (Neb.) 138. 
 
 Sherijf- 
 
 State vs. Martin, 56 Miss. 108.. 
 
 159. — Miscellaneous Observations. 
 
 1^0 reference is here made to those cases in which the 
 public official having enjoyed the emoluments of the office is 
 held estopped to deny that he executed the official bond. 
 
 An opinion by Chief Justice Marshall held that a bond 
 could not be delivered to the obligee as an escrow, Moss vs. 
 Riddle & Co., 5 Cranch, 351, although the Supreme Court 
 had previously held that such delivery could be made. 
 Pawling vs. United States, 4 Cranch, 219. 
 
 A bond, perfect on its face, apparently duly executed by 
 all whose names appear therein, purporting to be signed, 
 sealed and delivered by the several obligors, and actually 
 delivered by the principal without stipulation, reservation 
 or condtiion, cannot be avoided by the sureties upon the 
 ground that they signed it on condition that it should not 
 be delivered unless it should be executed by other persons 
 who did not execute it, when it appears that the obligee
 
 224 •J'lIK LAW ()!•• I'IDI.MIV HONKS. 
 
 had no notice of hwcIi condition, and nothing to j)iit him 
 on inquiry as to the manner of its execution, and also that 
 lie hiis hccti induced upon tlif fnith of such l)ond to act 
 to his own prejudice. 
 
 Brandt, Sec. 458.
 
 KNOWLEDGE OF DEFAULT, 225 
 
 CHAPTER XIX. 
 
 WHAT CONSTITUTES ''KNOWLEDGE" OF DEFAULT. 
 
 160. Obligee i-equired to act on | 161a. Knowledge of unfavorable 
 
 actual knowledge, not '. facts not connected with 
 
 mere suspicion. I employnient. 
 
 161. Digest of autliorities. 
 
 i6o. — Obligee Required to Act on Actual Knowledge, Not Mere 
 Suspicion. 
 
 Corporate fidelity bonds nsiiallj require that notice be 
 given the surety of any default or serious dereliction of duty 
 on the part of the employee, immediately after knowledge of 
 such fact has been acquired by the obligee. As to what con- 
 stituted ''knowledge" as the term is here used has been the 
 subject of judicial inquiry in several cases. It seems to be 
 welled settled that the obligee is not required to give notice 
 to the surety unless and until he has actual knowledge, not 
 constructive notice, or merely suspicion, of the existence of 
 facts which would justify a careful and prudent man in 
 charging another with fraud or dishonesty. But if the ob- 
 ligee has notice of facts sufficient to put him upon inquiry, 
 he is obliged to investigate, or notify the surety in order that 
 it may have an opportunity to do so. 
 
 Fillowing are the cases upon the subject : 
 
 i6i. — Digest of Authorities. 
 
 A provision in a fidelity insurance bond that the insur- 
 ing company shall be notified of any act by the employee 
 which may involve a loss for which the company is re- 
 sponsible "as soon as practicable after the occurrence of 
 15
 
 22G TJIK I, AW OF I-IDKLI'IY HONDS. 
 
 such act sliall have coiiic to the knowledge of th(! employer" 
 does no) r('(|uir(' notice unless the hank had knowledge, not 
 merely sus]ticion, of the existence of facts which would jus- 
 tify a careful and prudent man in charging another with 
 fraud oi- dishonesty. 
 
 Am. Sur. Co. vs. Pauly, 170 U. S. 133. 
 
 Am. Sur. Co. vs. Pauly, 170 U. S. 160. 
 
 Under an employer's indemnity bond, providing that the 
 employer shall, on discovery of any fraudulent act on the 
 part of the bonded employee, immediately give notice there- 
 of to the indemnity company, the employer is not bound 
 to report his suspicions to the company, even though they 
 are strong enough to justify, in his opinion, the discharge 
 of the employee; but after suspicion is aroused reasonable 
 diligence must be used in pursuing inquiries as to the facts, 
 fidelity k Guaranty Co. of X. Y. vs. Western 
 Bank, 29 Ky. L. R. 639. 
 
 An employer's liability bond provided that the insurer 
 should indemnify the employer against fraudulent or dis- 
 honest acts of the employee amounting to embezzlement or 
 larceny, subject to the condition that the insurer should be 
 notified in writing of any fraudulent or dishonest act on 
 the part of the employee wliicli might involve a loss for 
 which the company was responsible, immediately after the 
 occurrence of such act should have come to the employer's 
 knowledge. Tfrld, that the notice required was one which 
 would charge the employee with the commission of a fel- 
 ony, and hence the employer was not bound to give such 
 notice until it has acquired knowledge sufficient to justify 
 a reasonable man in making such a charge. 
 
 Aetna Tnd. Co. vs. J. R. Crowe Coal and Mining 
 Co., 154 Tod. .545. 
 
 Under the corporate fidelity bond of a bank employee, 
 requiring the bank to give notice to the company of acts
 
 KNOWLEDGE OF DEFAULT. 227 
 
 of default as soon as sucli acts came to the knowledge of tlie 
 bank, the work "knowledge" means actual knowledge and 
 not constructive notice. 
 
 Fidelity & Casualty Co. vs. Gate City ISTat. Bank, 
 97 Ga. 634. 
 
 The obligee in the bond of an insurance association offi- 
 cial is not under obligations to notify the surety of the 
 wrongful act of such official, where the association did not 
 have actual knowledge of the wrongful act of such officer. 
 Sherman vs. Harbin, 125 Iowa, 174. 
 
 i6ia. — Knowledge of Unfavorable Facts Not Connected With Eni= 
 ployment. 
 
 Unless the contract especially stipulates for notice of facts 
 unconnected with the subject matter of the guaranty, such, 
 for example, as engaging in speculation, or gambling, or fre- 
 quenting disreputable resorts, the obligee is not required to 
 give notice of the misconduct of the employee, unless such 
 misconduct relates to the service in which he is engaged.^ 
 The decision to this effect by the Supreme Court of Indiana, 
 by its manifest justice, will doubtless commend itself to 
 other Courts : 
 
 The knowledge by an employer of the misconduct of an 
 employee, whose conduct and fidelity have been guaranteed 
 by another, which will, if concealed, release the guarantor, 
 must relate to the service in which the employee is en- 
 gaged, and must be something more than mere moral de- 
 linquency, unconnected with the subject-matter of the guar- 
 anty. 
 
 LaRose vs. Logansport T^at. Bank, 102 Tnd. 332. 
 
 1. — See Guarantee Co. vs. Me- 
 chanics' Savings Banlv, 183 IT. S. 
 402. Chap. 2, sec. 53. note.
 
 22b 
 
 TUK LAW Ol'- ]-|lJl.MlV BONDS. 
 
 CHAPTER XX. 
 
 162. 
 
 163. 
 
 KNOWLEDGE OF OFFICER OF CORPORATION. 
 
 Corpora tion ordinarily : 164. Cases holding corporation 
 
 bound by knowledge of 
 managing officers. 
 Cases liolding corporation 
 bound by knowledge of 
 managing agent. 
 
 not bound by knowledge 
 of managing agent. 
 
 162. — Corporation Ordinarily Bound by Knowledge of Managing 
 Officers. 
 
 In the preceding chapter reference was given to the cases 
 defining what constitutes hiowledge hj the obligee of a de- 
 fault on the part of the employee. Reference is here made 
 to the cases in which the obligee is a corporation, and the 
 subject of inquiiy is, under what circumstances will the cor- 
 porate obligee be bound by knowledge or information by one 
 or more of its officers or agents as to the official misconduct 
 of another officer or agent ? 
 
 There is some conflict in the authorities. The rule of law 
 would seem to be that a corporation is bound by the knowl- 
 edge of its managing officers, especially if acquired in the 
 usual course of the business of the corporation, and this is 
 doubtless the rule deducible from the authorities subject to 
 the exception shown. The Supreme Court of the United 
 States in the case of Guarantee Co. vs. Mechanics Bank, 183 
 U. S. 402, held that a bank was chargeable with the informa- 
 tion received by its president, cashier, and two directors to 
 the eifect that the bank's teller was engaging in speculation, 
 and the failure to convey such information to the surety, or
 
 KNOWLEDGE OF CORPOKATION OFFICER. 229 
 
 to investigate the report, prevented a recovery on the bond of 
 the teller, 
 
 163. — Cases Holding Corporation Bound by Knowledge of Man= 
 aging Agent. 
 
 The rule finds further support and illustration in the fol- 
 lowing authorities: 
 
 A corporation can only act by its legally authorized 
 agents or officers, and a knowledge of any officer or agent 
 in respect to a matter pertaining to or connected with his 
 official duty is, in law, the knowledge of the corporation. 
 Delbridge vs. Lake, 82 111. App. 388. 
 
 The knowledge of the agents and officers of a corporation 
 regarding business in their charges is notice to the corpora- 
 tion; otherwise, save with its consent, a corporation would 
 never be bound by notice of any sort. 
 
 Union Natl. Bank vs. Ins. Co., 52 La. Ann. 36. 
 
 Knowledge of default of a servant received by the agent 
 of a private corporation having supervision over such serv- 
 ant and not communicated to his surety, would release the 
 surety for subsequent defaults. 
 
 Saint vs. Wheeler & Wilson Mfg. Co., 95 Ala, 362. 
 
 The knowledge of the president and secretary of a life 
 insurance company is the knowledge of the company em- 
 ploying them. 
 
 Conn. Mutl. Life Ins. Co. vs. Scott, 81 Ky. 540. 
 
 The knowledge of the president of a corporation is 
 knowledge of the corporation. Harrison vs. Lumbermen, 
 &c., Ins. Co., 8 Mo. App. 37. In Holden vs. N'ew York 
 and Erie Bank, 72 T^. Y. 286, it was held that a bank is 
 chargeable with the knowledge of its cashier, whether ac- 
 quired by him as its agent or individually.
 
 2JiO I'lll-: J. AW Ol'' Kllil.ia TV IJO.NUS. 
 
 'riic I'lilc is ollierwise, liovvcvcr, wlicre there is fi-aud or 
 (•<>lliisi(;ii lictwccii ilic (itliccr liiixiii^- i<ii<)wle(lge aii«l tin- bond- 
 ed ClllllldVCC. 
 
 Jt is tlius stated by the Su])reine Court: 
 
 Tlie presumption that the agent informed his principal 
 of wliat his duty and the interests of his principal required 
 him to communicate does not arise when the agent acts or 
 makes declarations not in the execution of any duty owing 
 his principal; nor any authority possessed by him, but to 
 subserve his own personal ends or commit some fraud 
 against his principal. 
 
 Am. Sur. Co. vs. Pauly, 170 U. S. 133. 
 
 The principle of law discussed in the case of The Dis- 
 tilled Spirits, 11 Wall. 356, 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 construct- 
 ively) 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 employee subsequent to the 
 execution of the bond (and from negligence or wrongful 
 motives, not disclosed to the corporation) of" a wrong com- 
 mitted by the official v.hose faithful performance of duty 
 was guaranteed bv the bond. 
 
 The mere knowledge of one or more directors of a bank, 
 less than a majority of the board, and of the vice-president 
 of the bank, of the default of the president, is not imputa- 
 ble to the bank. 
 
 It is well settled that, in the absence of an express agree- 
 ment, the surety on a bond given to a corporation, condi- 
 tioned for the faithful performance by an employee of his
 
 KNOWLiJiJDGE OF COKPOKATIO^s OiFICEK. 231 
 
 duties, is not relieved from liability for a loss within tKe 
 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 employees of the 
 indemnified corporation, conniving at or co-operating with 
 the wrongful act of the bonded employee, will not be im- 
 puted to the corporation. 
 
 Fidelity & Deposit Co. vs. Courtney, 186 U. S. 342. 
 
 To the same effect is the following case : 
 
 Ordinarily a corporation is chargeable with any facts 
 which are known to its agents, but in transactions of a dis- 
 honest character between co-employees, where one partici- 
 pates in the perpetration of a fraud upon the corporation 
 for the benefit of the other, the law does not infer that the 
 agent will communicate the facts to the corporation, and 
 under such circumstances the corporation is not bound. 
 Wells-Fargo & Co. vs. Walker, 9 N. M. 456. 
 
 164. — Cases Holding Corporations Not Bound by Knowledge of 
 Managing Agent. 
 
 The cases given below appear to be in conflict with the 
 general rule : 
 
 Where a corporate fidelity obligation given to a bank 
 required the bank to give notice of default of an employee 
 immediately after knowledge of such default was acquired, 
 but contained no stipulation making it in the least degree 
 incumbent upon the bank to exercise any diligence or care 
 in inquiring into or supervising the conduct of the em- 
 ployee, or any of his co-employees, and imposed upon it no 
 duty vouching for the fidelity of the latter, information or 
 knowledge on the part of the bank's cashier, he being only 
 such a co-employoo as to the matters concerning which the 
 company had sti])ulated for notice, would not be imputable 
 to the bank itself. 
 
 Fidelity cV (^isualty Co. vs. Gate City Xat. Bank, 97 
 Ga. 634.
 
 2'.}'2 THK LAW OK IMDKLI TY BONDS. 
 
 Under llio Code of the State of Washington providing 
 that all corporate management shall be vested in a board 
 of trustees, where an application for fidelity insurance by 
 a building and loan association stated that the secretary 
 insured derived his authority from the board of trustees, 
 knowledge on the part of a single officer, trustee, or the 
 president of the association, that the secretary was indebted 
 to it at the time the policy was issued could not be im- 
 puted to the corporation without proof that the officer's 
 knowledge had been communicated to the board, so as to 
 constitute a breach of warranty in the policy that the secre- 
 tary was not indebted to the association at the time of the 
 issuance thereof. 
 
 Am. Bonding Co. vs. Spokane Bldg. & Loan See, 
 130 Fed. 737. 
 
 JEl. 1 • 1 J- 
 
 For further consideration of the general subject under dis- 
 cussion see Chapter 4, sec. 87, et seq. ante
 
 BANK EMPLOYEE. 
 
 233 
 
 CHAPTER XXL 
 
 BANK EMPLOYEE. 
 
 165. Digest of authorities. 
 
 166. Same. 
 
 167. Same. 
 
 168. List of cases relative to 
 bank employees. 
 
 165. — Digest of Authorities. 
 
 The liability of the surety on the bond of an employee of 
 a bank differs in no wise from the liability of the surety on 
 other fidelity bonds. The cases here collected are merely 
 for the purpose of illustrating the general subject, and of 
 showing a variety of ways in which the question has arisen : 
 
 Where a bank teller is made cashier, the fact that he 
 
 continues to act as teller does not increase the risk of the 
 
 sureties on his bond as cashier, and will not discharge them. 
 
 Hibernian Savings Bank vs. McGinnis, 9 Mo. App. 
 
 578. 
 
 A condition in the bond of an assistant cashier of a bank 
 that he will "honestly, faithfully and efficiently discharge 
 the duties of such position" is a guaranty not only of the 
 personal honesty of such officer, but also a guaranty of his 
 competency, skill and diligence in the discharge of his du- 
 ties. Hence his sureties are liable for moneys fraudulently 
 withdrawn from the bank by its cashier with the knowl- 
 edge and passive acquiescence of the assistant cashier. 
 Held, further, that his sureties are liable for loss resulting 
 from his negligence, even though the directors may not 
 have used due diligence. 
 
 Fiala vs. Ainsworth, 63 Neb. 1 ; 68 Neb. 308.
 
 2o-i TJIK LAW Ol-' I'lDKJ.riV IJONDS. 
 
 One In't'iuuc suiciy ior tlu- good conduct of a cashier of 
 a banking company upon liis reappointment to that office. 
 Before such reai)pointment he had been guilty of frauds 
 on the company', and afterwards, previous to an examina- 
 tion by \\iv directors of the company into the state of their 
 casli, he borrowed moneys as such cashier, which he placed 
 in the bank, and thus concealed his prior defalcation; and 
 after such examination he took out the said moneys and 
 repaid to those of whom he had borrowed them. 
 
 Held, to be a fraud within the condition of the bond 
 given upon his reapiHiintiiicnt. 
 
 Ingraham vs. Alarine Bank, 13 Mass. 208. 
 
 The mere fact that the directors of a bank knew of and 
 sanctioned overdrafts will not release from liability the 
 sureties of a teller who caused a loss to the bank by per- 
 mitting overdrafts. 
 
 Market St. Bank vs. Stumpe, 2 Mo. App. 545. 
 
 In an action on the bond of a bank teller it was shown 
 that the teller, upon being discharged, in making final set- 
 tlement of his accounts stole from the drawer of a clerk in 
 the bank a large sum of the bank's money and paid it over 
 to the cashier. Held, the sureties on the bond of the teller 
 were liable for such theft. 
 
 State Bank vs. Welles, 20 Mass. 394. 
 
 In an action against the sureties upon a bond given to a 
 bank, and conditioned for the faithful discharge by C of 
 "all his duties as clerk of said bank," and against the mis- 
 appropriation of any of the funds of the bank "which may 
 come imder the care or control of said C. as clerk,"' the 
 evidence showed that C. during the whole term of his em- 
 ployment, performed the duties, to some extent, usually 
 performed by a teller, of paying and receiving money over 
 the eoimter of the bank. It Avas found as a fact that **the 
 duties as clerk" contemplated in the bond did not mean
 
 BANK EMPLOYEE. 235 
 
 merely duties of a bookkeeper, but that they embraced the 
 duty of receiving and paying out money at the counter of 
 the bank. 
 
 Held, that the defendants were not entitled to a rul- 
 ing as matter of law that there had been such a change in 
 the duties of the clerk as to discharge them from liability. 
 Roolstone Bank vs. Carleton, 136 Mass. 226. 
 
 A bank may maintain an action on the bond of its cash- 
 ier for the balance of a note discounted by him against the 
 instructions of the directors, even after it has brought suit 
 on the note. 
 
 Cassell vs! Mercer ^"at. Bank, 22 Ky. L. R. 1009. 
 
 1 66. — Same. 
 
 The cashier of a bank gave bond conditioned that he 
 "shall well and faithfully discharge the duties imposed 
 upon him as the cashier of said bank." Held, that the em- 
 bezzlement by the cashier of the funds of the bank, under 
 the pretense that he had borrowed the same, was the direct 
 violation of a duty imposed upon him, and was a breach 
 of the condition of his official bond, and his sureties were 
 therefore responsible for loss consequent upon his dishon- 
 esty. 
 
 McShane vs. Howard Bank, 73 Md. 135. 
 
 The bond of an assistant bookkeeper of a bank condi- 
 tioned for his faithful performance during the time he 
 should continue in its employment of all the duties and 
 services in said bank which should "from time nt time be 
 required of him," and for his faithfully and honestly ful- 
 filling "all the trusts that shall be in him reposed, in his 
 said appointment of clerk of the said" bank, was discharged 
 from liability where his position was frequently changed, 
 and he was made note teller and discount clerk, in which
 
 230 TIIK LAW OF riDKMTY BONDS. 
 
 position liii'frc sums of moncv wore rocoivcd by him daily 
 and his rcs|>(iiisil)ilit y was fijivatly increased. 
 First Nat. P,ank vs. (Jerke, 68 Md. 449. 
 
 The surety of a hank cashier is not liable for overdrafts 
 on the bank paid by tiie cashier without authority from the 
 bank where it is not shown that the cashier received any 
 part of such ainount or any benefit therefrom. 
 
 Guarantee Co. of N. A. vs. Mechanics' Savings 
 Bank, 100 Fed. 5.59. 
 
 167. — Same. 
 
 It was not negligence to intrust a bonded bank messen- 
 ger with the keys of the vault and combination of the safe 
 of the bank. 
 
 German Am. Bank vs. Auth. 87 Pa. St. 419. 
 
 The sureties on the bond of a bank cashier are liable for 
 the value of certain shares of the stock of the bank assigned 
 to him by a debtor of the bank for the purpose of avoiding 
 the prohibition of the National Banking Act prohibiting 
 a national bank from loaning on the security of its own 
 shares, and to procure the endorsement of certain notes, 
 which stock was subsequent! v ))l(>dged by the cashier as 
 collateral on indivi ' .c:..is made to him by other banks 
 and forfeited and sold. 
 
 Walden Nat. Bank vs. Birch, 130 N. Y. 221. 
 
 A bank teller's bond covers any duties to which in the 
 natural course of the business of the bank he may be as- 
 signed by the cashier or other proper officer. 
 
 Detroit Savings Bank vs. Ziegler, 49 Mich. 157. 
 
 The by-laws of a bank providing for periodical exami- 
 nation of its affairs formed no part of the contract of a 
 surety on the bond of a clerk. 
 
 Louisiana State Bank vs. Ledoux. 2 La. Ann. 674.
 
 BANK EMPLOYEE. 237 
 
 The books of a bank and the statements of the bank sent 
 to the Comptroller of the Currency, under the J^ational 
 Banking Law, are not admissible in evidence to prove the 
 negligence of the bank officers in failing to discover that 
 the cashier was a defaulter, nor as tending to establish the 
 fact of knowledge on the part of the bank of the existence 
 of the defalcation. 
 
 Bowne'vs. Mt. Holly Bank, 45 N. J. L. 360. 
 
 See also in this connection Chapter 14 on "Uncommuni- 
 cated change of employment." 
 
 1 68. — List of Cases Relative to Bank Employees. 
 
 Appended hereto is a list of cases dealing with the liability 
 of sureties on bonds of bank employees: 
 
 Amherst Bank vs. Boot, 43 Mass. 522. 
 American Bonding Co. vs. Morrow, 96 S. W. 
 
 (Ark.) 613. 
 Ashuelot Savings Bank vs. Albee, 63 N. H. 152. 
 American Bank vs. Adams, 29 Mass. 303. 
 American Sur. Co. vs. Pauly, 170 U. S. 133; 
 
 170 IT. S. 160. 
 Atlas Bank vs. Brownell, 9 K. I. 168. 
 Blades vs. Dewey, 136 K C. 176. 
 Barrington vs. Bank of Washington, 14 Serg. & 
 
 K. (Pa.) 405. 
 Bank of Carlisle vs. Hopkins, 17 Ky. 245. 
 Bank of Tarboro vs. Fidelity & Deposit Co., 126 
 
 N. C. 320; 128 K C. 366. 
 • Bowne vs. Mt. Holly Bank, 45 N. J. L. 360. 
 Bostwick vs. Van Voorhis, 91 E". Y. 353. 
 Blackmore vs. Guarantee Co., 71 Fed. 363. 
 Bank vs. Wallaston, 3 Harr (Del.) 90. 
 Bank of U. S. vs. Johnson, 3 Cr. C. C. 228.
 
 238 riiK LAW oi' I'lDi'.rjTY ho.nds. 
 
 JJutclielor vs. I'lantcr's Nat. Bank, 78 Ky. 435. 
 Clark vs. Bank, 14 Okla. 572. 
 Chew vs. Ellingwood, 86 Mo. 260. 
 California Sav. Bank vs. Am. Sur. Co., 87 Fed. 
 
 118. 
 Cassell vs. Mercer Nat. Bank, 22 Ky. L. R. 1009. 
 Deposit Bank vs. lleamc, 104, Ky. 819. 
 Dime Savings Institution vs. American Surety 
 
 Co., 68 N. J. L. 440. 
 Detroit Savings Bank vs. Ziegler, 49 Mich. 157. 
 Dedham Bank vs. Chickering, 20 Mass. 335. 
 Fanchor vs. Kaneen, 5 Ohio nisi pinus n. s. 614. 
 First National Bank vs. Fidelity t^' Guaranty 
 
 Co., 110 Tenn. 10. 
 First National Bank vs. Briggs, 69 Vt. 12. 
 Fidelity & Deposit Co. vs. Courtney, 186 U. S. 
 
 342. 
 Fidelity & Casualty Co. of New York vs. Bank 
 
 of Timmonsville, 139 Fed. 101. 
 First Nat. Bank of Nashville vs. National Surety 
 
 Co., 130 Fed. 401. 
 Frelinghuysen vs. Baldwin, 16 Fed. 452; 6 N. 
 
 J. L. J. 207. 
 Fourth Nat. Bank vs. Spinney, 120 N. Y. 560. 
 Farmers & Mechanics' Bank vs. Polk, 1 Del. 
 
 Ch. 167. 
 Fidelity & Casualty Co. vs. Gate City Nat. 
 
 Bank, 97 Ga. 634. 
 First Nat. Bank vs. Gerke, 68 Md. 449. 
 Fidelity & Guaranty Co. of N. Y. vs. Western 
 
 Bank, 29 Ky. L. R. 639. 
 First Natl. Bank of Stanford vs. Mattingley, 92 
 
 Ky. 651.
 
 BANK EMPLOYEE. 239 
 
 First National Bank of Omaha vs. Goodman, 55 
 
 Neb. 418. 
 Fiala vs. Ainswortli, 63 Neh. 1 ; 68 :Neb. 308. 
 Fidelity & Casualty Co. vs. Consolidated Natl 
 
 Bank, 71 Fed. 116. 
 Grocers Bank vs. Kingman, 82 Mass. 473. 
 Garnett vs. Farmers Nat. Bank, 91 Ky. 614. 
 Graves vs. Lebanon Nat. Bank, 73 Ky. 23. 
 German American Bank vs. Auth, 87 Pa. St. 
 
 419. 
 Guarantee Co. of N. A. vs. First Nat. Bank of 
 
 Lynchburg, 95 Va. 480. 
 Guarantee Co. of N. A. vs. Mechanic's Savings 
 
 Bank, 183 U. S. 402. 
 Home Savings Bank vs. Traube, 75 Mo. 199. 
 Hibernia Savings Bank vs. McGinnis, 9 Mo. 
 
 App. 578. 
 Hall vs. Brackett, 62 N. H. 509. 
 Hobart vs. Dovell, 38 N. J. Eq. 553. 
 Ingraham vs. Maine Bank, 13 Mass. 208. 
 Ida County Savings Bank vs. Seidenstricker, 
 
 128 Iowa, 54. 
 Jennery vs. Olmstead, 90 N. Y. 363. 
 Jackson vs. Fidelity & Casualty Co., 75 Fed. 
 
 359. 
 Lieberman vs. First National Bank, 2 Penn. 
 
 (Del.) 416. 
 Louisiana State Bank vs. Ledoux, 2 La. Ann. 
 
 674. 
 Lionberger vs. Kreiger, 88 Mo. 160. 
 LeRose vs. Logansport Nat. Bank, 102 Ind. 332. 
 Market St. Bank. vs. Stumpe, 2 Mo. App. 545. 
 Mt. Vernon Bank vs. Porter, 52 jVIo. App. 244. 
 Morris Canal & Banking Co. vs. Van Vorst, 1 
 
 Zab. (N. J.) 100.
 
 240 TllK LAW OF J-lDJiLlTY JiONUS. 
 
 ^Morciiunlri iJuiik vt;. iloucy, oH Kun. UOo. 
 JVlcSbauc vs. Howard Uank, 73 Md. 135. 
 Missouri K. & T. Co. vs. Geruiiin iS'at. Bank, 77 
 
 Fed. 119. 
 JMinur vs. jMecbanics Bank, 1 Bet. 40. 
 National Bank of Asheville vs. Fidelity & Casu- 
 alty Co., 89 Fed. 819. 
 National Mechanics Banking Ass'n v. Conkling, 
 
 90 N. Y. 116. 
 Pendleton vs. Bank, 17 Ky. 171. 
 Phillips vs. Bossard, 35 Fed, 99. 
 Planters Bank vs. Larakin, R. M. C. (Ga.) 29. 
 Pryse vs. Fanners Bank, 17 Ky. L. R. 1056. 
 Roolstone Natl. Bank vs. Carleton, 136 Mass. 
 
 220. 
 Sparks vs. Farmers Bank, 3 Del. Ch. 274. 
 Savings Bank of Plannibal vs. Hunt, 72 Mo. 597. 
 State vs. Atherton, 40 Mo. 209. 
 Shackaraaxon Bank vs. Yard, 150 Pa. St. 351. 
 State Bank vs. Welles, 20 Mass. 394. 
 Treasurer vs. Mann, 34 Yt. 371. 
 Tapley vs. Martin, 116 Mass. 275. 
 Taylor vs. Bank, 25 Ky. 564. 
 Third Natl. Bank vs. Owen, 101 Mo. 558. 
 Ulster Co. Savings Inst. vs. Young. 161 N. Y. 
 
 23. 
 Union Dime Savings Inst. vs. Feltz, 123 N. Y. 
 
 627. 
 UnioD Bank vs. Forrest, 3 Cr. C. C. 218. 
 Union Bank vs. Mackall, 2 Cr. C. C. 695. 
 United States Fidelity lS: Guaranty Co. vs. Des 
 
 Moines Nat. Bank, 145 Fed. 273. 
 United States Fidelity <Sr Guaranty Co. vs. First 
 
 National Bank of Dundee, 233 HI. 475.
 
 INSURANCE AGENT. 241 
 
 CHAPTER XXIL 
 
 BONDS OF INSURANCE AGENTS. 
 
 169. Important case — Discus- 1 171. Table of cases on bonds of 
 
 sion. insurance agents. 
 
 170. Digest of authorities. 
 
 169. — Important Case — Discussion. 
 
 Inasmuch as there has been considerable litigation relating 
 to the bonds of insurance agents, a list of substantially all 
 the cases on the subject is appended to this chapter for the 
 convenience of the investigator, and to enable a ready refer- 
 ence to the law of this particular branch of business. 
 
 One of the most important cases, in its far reaching eifect. 
 is that of Williams vs. United States Fidelity & Guaranty 
 Co., 105 Md. 490,^ recently decided by the Court of Appeals 
 of Maryland, a synopsis of which is as follows: 
 
 Suit was brought against a surety company on an in- 
 demnity bond given to a fire insurance company guaran- 
 teeing it against loss through larceny or embezzlement by 
 an agent of the insurance company. A breach was alleged 
 in the declaration and a statement filed claiming that there 
 was a balance due the insurance company. The employee 
 claimed the right to credits for returned premiums and ex- 
 penses in excess of the balance against him, and the surety 
 company filed a bill of particulars with one of its pleas 
 showing a balance in favor of the employee. At the close of 
 the plaintiff's case, the lower Court granted the defendant's 
 
 1. — See Chapter 26, sec. 185, 
 post. 
 
 16
 
 242 THK LAW OK I'lDKLII V HOND.S. 
 
 prayer, iiisti-nctiii^f tin- jurv to find for the dcfcridiint on 
 the ground tli;il I lie pl.-iintill' Inid ollri-cd no evidence legal- 
 ly sufficient lo entitle liini to recover under the pleadings, 
 and judgment was accordingly entered for the defendant. 
 Held, that the judgment should he aflirmed, as there could 
 be no recovery in this case for any acts or conduct which 
 falls short of larceny or embezzlement, and that the claim 
 of the eini)loyce is not of such a character as to raise a 
 priiua facie presumption of dishonesty amounting to lar- 
 ceny or embezzlement, and that the evidence was not legal- 
 ly sufficient to warrant the finding of a verdict for the 
 jilaintiff under the bond. 
 
 It will be observed that the bond in this case, following the 
 "usual form of corporate fidelity bonds, guarantees against loss 
 by reason of larceny or embezzlenicnt. If the agent being 
 such in the usual acceptation of the term, and not merely an 
 employee, being in legal custody of the funds of the company, 
 and hence cannot be convicted of larceny for misappropriat- 
 ing them ; and having an interest therein by way of commis- 
 sions, cannot under the authorities, be convicted of embezzle- 
 ment because of such interest, it may be pertinently inquired 
 under what circumstances can a liability arise under a bond 
 of this character executed on behalf of an insurance agent? 
 Its moral effect upon the agent is doubtless good. Its value 
 to the insurance company as a legal obligation would seem to 
 be open to question. 
 
 170. — Digest of Authorities. 
 
 As illustrative of the general subject of the liability on 
 bonds of insurance agents, whether corporate or otherwise, 
 and as showing some of the questions likely to arise therein, 
 particular reference may be made to the following cases : 
 
 In a suit on the fidelity bond of a general agent of an 
 insurance company, conditioned that he would make month-
 
 INSURANCE AGENT. 243 
 
 \j payments of all moneys which he might receive for or 
 owe them, it was held the sureties were liable for balances 
 which sub-agents had collected and not paid over. 
 
 Phoenix Mutl. Life Ins. Co. vs. Holloway, 51 Conn. 
 310. 
 
 An agent of an insurance company gave a bond, with 
 sureties, to the company, conditioned for the faithful per- 
 formance of his duties as agent, according to the by-laws 
 of the company. A by-law required that the agents of the 
 company should render monthly accounts and pay each 
 month the balance due the company. The agent rendered 
 his accounts regularly, but one month did not pay the 
 whole balance due from him, and thereafter for more than 
 a year his indebtedness to the company increased from 
 month to month until it exceeded the penal sum in the 
 bond, when, for the first time, the sureties were notified. 
 Held, that these facts did not discharge the sureties. 
 
 Watertown Ins. Co. vs. Simmons, 133 Mass. 85. 
 
 Surety on bond of an insurance agent is not liable for a 
 premium for which credit has been given, but not col- 
 lected. 
 
 Byrne vs. Aetna Ins. Co., 56 111. 321. 
 
 A firm, upon being appointed agents of an insurance 
 company of which a member thereof had formerly repre- 
 sented the company, cannot charge their sureties by assum- 
 ing liability for premiums due from the former agent. 
 Ball vs. Watertown Ins. Co., 34 Mich. 137. 
 
 Under bond for faithful performance of duties, sureties 
 are not liable for advances made to insurance agent. 
 Burlington Ins. Co. vs. Johnson, 120 111. 622.
 
 244 TiiK LAW OF Kii)i;i-rrv ijonds. 
 
 AVlu;ii the urtiflc's oi' a iiiutual iii.suruiicc; coinpuny pro- 
 vide for the creation of a fund to i)ay the expense of liti- 
 gation, a diversion by an official to that purpose of assess- 
 ments collected to pay death losses is a breach of the condi- 
 tions of his official bond providing for the faithful dis- 
 charge of duty. 
 
 Sherman vs. ITarbin, 125 Iowa, 179. 
 
 171. — Table of Cases on Bonds of Insurance Agents. 
 
 Aetna Life Ins. Co. vs. Am. Surety Co., 34 Fed. 
 
 291. 
 Aetna Life Ins. Co. vs. Mabbett, 18 Wis. 667. 
 Aetna Ins. Co. vs. Fowler, 108 Mich. 557. 
 American Bonding Co. vs. iSTew Amsterdam Cas. 
 
 Co., 125 111 App. 33. 
 Amicable ]\Iut'l. Ins. Co. vs. Sedquick, 110 
 
 Mass. 163. 
 Arbaugh vs. Shockney, 34 Ind. App. 268. 
 Byrne vs. Aetna Ins. Co., 36 111. 321. 
 British Am. Assur. Co. vs. Xeil, 76 Iowa, 645. 
 Burlington Ins. Co. vs. Johnson, 120 111. 622. 
 Boogher vs. Ins. Co., 103 U. S. 90. 
 Boyd vs. Agi-icultural Ins. Co., 20 Col. App. 28. 
 Ball vs. Watertown Fire Ins. Co., 44 Mich. 137. 
 Capital Fire Ins. Co. vs. Watson, 76 Minn. 387. 
 Conn Mutual Life Ins. Co. vs. Scott, 81 Ky. 540. 
 Crapo vs. Brown, 40 Iowa. 487. 
 Dwelling House Ins. Co. vs. Johnston, 90 Mich. 
 
 170. 
 Englor vs. Peoples Fire Ins. Co., 46 Md. 322. 
 Equitable Life Assur. Soc. vs. Coat-s. 44 Mich. 
 
 260. 
 Foster vs. Franklin Life Ins. Co.. 72 S. W. Rep. 
 
 91.
 
 INSURANCE AGENT. 245 
 
 Fidelity Miitl. Life Ass'n vs. Dewey, 83 Minn. 
 
 389. 
 Pidelity & Cas. Co. vs. Brown, 69 Kan. 550. 
 Germania Fire Ins. Co. vs. Herman, 193 Mass. 
 
 67. 
 Gilbert vs. State Ins. Co. 3 Kan. App. 1. 
 Guardian Fire Ass'n. vs. Thompson, 68 Calif. 
 
 208. 
 Hyatt vs. Grover & Baker Sewing Machine Co., 
 
 41 Mich. 225. 
 Herbert vs. Lee, 118 Tenn. 133. 
 Hunt vs. Fidelity & Casualty Co., 99 Fed. 242. 
 Harper vs. Nat. Life Ins. Co., 56 Fed. 281. 
 Hecox vs. Citizens Ins. Co., 2 Fed. 535. 
 Home Ins. Co. vs. Hoi way, 55 Iowa, 571. 
 Harrison vs. Lumberman, etc., Ins. Co., 8 Mo. 
 
 App. 37. 
 Indiana & Ohio Live Stock Ins. Co. vs. Bender, 
 
 32 Ind. App. 287. 
 Iliff vs. Western-Southern Life Ins. Co., 11 Cir. 
 
 Ct. 426. 
 John Hancock Mut. Life Ins. Co. vs. Lowenberg, 
 
 120 N. Y. 44. 
 Lancashire Ins. Co. vs. Callahan, 68 Minn. 277. 
 Manhattan Life Ins. Co. vs. First Natl. Bank, 
 
 20 Col. App. 529. 
 Manchester Fire Ins. Co. vs. Redfield, 69 Minn. 
 
 10. 
 National Life Ins. Co. vs. Ohlhaber, 17 B. 
 
 (Ohio), 353. 
 New England Mut'l. Life Ins. Co. vs. Randall, 
 
 43 La. Ann. 260. 
 New York Life Ins. Co. vs. Hamlin, 100 Wis. 
 
 17.
 
 24G TIIK J.AW OF I'lDlIJIV IMJ.NJJS. 
 
 A'oiihcrji Assiir. ( '<.. vs. ilutcbkiss, !J0 Wis. 415. 
 jNorthwest( i-ii .Mut'l. l.ilV- In.s. Co. vs. Moonej, 
 
 108 ]^. Y. 113. 
 ^Norwich Union Fire Ins. Co. vs. liuchalter, 
 
 102 Mo. App. 332. 
 Pacific Fire Ins. Co. vs. Pacific Surety Co., 93 
 
 Calif. 7. 
 PahiliuG Ins. Co. vs. Crittenden, IS Mont. 413. 
 Phcnix Ins. Co. vs. Guarantee Co. of K. A., 115 
 
 Fed. 964. 
 Phcnix Ins. Co. vs. Findley, 59 Iowa, 591. 
 Phoenix Mut'l. Life Ins. Co. vs. Holloway, 51 
 
 Conn. 310. 
 Portage Co. Ins. Co. vs. "Wetmore, 17 Ohio, 330. 
 River vs. l^ew Hampshire Fire Ins. Co., 9 Wyo. 
 
 81. 
 Royal Ins. Co. vs. Clark, 61 Minn. 476. 
 Rapp vs. Phoenix Ins. Co., 113 HI. 380. 
 Rockford Ins. Co. vs. Rogers, 15 Col. App. 23. 
 Security Mut'l. Life Ins. Co. vs. Aetna Ind. Co.. 
 
 108 K Y. Supp. 171. 
 Sherman vs. Harbin, 125 Iowa, 179. 
 Spring Garden Ins. Co. vs. Lemmon, 117 Iowa, 
 
 69L 
 Sun Life Ins. Co. vs. Ignited States Fidelity (t 
 
 Guaranty Co., 130 K C. 129. 
 Taylor vs. Standard Life »S: Accident Ins. Co., 
 
 47 :N"eb. 673. 
 Thompson vs. Commercial Union Assurance Co., 
 
 20 Col. App. 331. 
 Traders Ins. Co. vs. Hecker. 67 Minn. 106. 
 Union Central Life Ins. Co. vs. United States 
 
 Fidelity &^ Guaranty Co., 99 Md. 423. 
 U. S. Life Ins. Co. vs. Salmon, 157 :N^. Y. 682.
 
 INSURANCE AGENT. 
 
 24:7 
 
 Watertown Ins. Co. vs. Simmons, 131 Mass. 85. 
 Western Xew York Life Ins. Co. vs. Clinton, 66 
 
 N. Y. 327. 
 Williams vs. United States Fidelity & Guaranty 
 
 Co., 105 Md. 490.
 
 L'I8 
 
 'J' UK I. AW oi' I nil 1,1 rv honds. 
 
 CHAPTER XXIIL 
 
 LIMITATIONS. 
 
 172. Provisions relative tliereto 
 
 iu cori)orate fidelity bonds. 
 
 173. I>()(trineof Supreme Court. 
 
 174. Digest of authorities. 
 17.">. Same. 
 17t;. Same. 
 
 172. — Provisions Relative Thereto in Corporate Fidelity Bonds. 
 
 Corporate fidelity bonds usually contain stipulations pro- 
 viding that claims shall be made and proofs of loss submitted 
 within a specified time, for example, three, six or nine 
 months, and providing further that no suit shall be instituted 
 on the policy unless brought within twelve months next after 
 presentation of the claim. 
 
 173. — Doctrine of Supreme Court. 
 
 In Riddlesbarger vs. Hartford Fire Ins. Co., 7 Wall. 386, 
 the Supreme Court of the Fnited States held that a condi- 
 tion in a policy of insurance against the maintenance of any 
 action, to recover a claim upon the policy, unless commenced 
 within twelve months after the loss, is valid. May on Ins., 
 (4th Ed. 1139). And in Thompson vs. t*henix Ins. Co., 
 136 IT. S. 287, the same Court, citing the above case, held 
 the validity of such a stipulation could not be questioned. 
 This rule was recognized and applied in the case of a cor- 
 porate fidelity bond in California Sav. Bank vs. Am. Sur. 
 Co., 87 Fed. 118; also in Granite Bldg. Co. vs. Saville, lOl 
 Va. 217. There is no question that such provisions are rea- 
 sonable, valid and enforceable, and applicable as well to 
 fidelity insurance contracts as to other classes of insurance.
 
 LIMITATIONS. 249 
 
 The Court of Appeals of Kentucky has held that the twelve 
 months' limitation clause is void as against public policy, as 
 tending to restrict the jurisdiction of the Courts. Union Cen- 
 tral Life Ins. Co. vs. Spinks, 84 S. W. 1160. Petition for 
 review by Supreme Court dismissed for want of jurisdiction, 
 209 U. S. 539. 
 
 174. — Digest of Authorities. 
 
 For illustration of the manner in which the rule is applied 
 to corporate fidelity bonds, reference may be made to the fol- 
 lowing cases : 
 
 Where a bond provided that the insurer would be liable 
 for loss discovered within six months from "the death or 
 dismissal or retirement of the employee from the service 
 of the employer," held, that the mere suspension of a na- 
 tional bank, and the taking possession thereof by an exam- 
 iner did not effect the "retirement" of the cashier; but 
 where he actually continued to render service he must be 
 deemed to have remaind in the service of his employer at 
 least until the appointment of a receiver by the Comp- 
 troller. 
 
 Where a bank suspended business on the 12th of Novem- 
 ber, and an examination of its affairs during January, Feb- 
 ruary and March following indicated irregularities in the 
 accounts of its cashier, but the particulars thereof were not 
 ascertained until May and notice given the surety by the 
 receiver on May 23, and the cashier remained in the service 
 of the receiver till March, held, sufficient notice to prevent 
 forfeiture under provision requiring notice of claim within 
 six months from the death, dismissal or retirement of the 
 employee from the service of the employer. 
 
 The "retirement" of a national bank president from the 
 service of the bank in the meaning of a bond of fidelity 
 insurance is not effected by the mere suspension of the 
 bank, and the taking possession thereof by an examiner; 
 and in the absence of some other action he continues in
 
 J.")(l TIIK i.AW 01«" KlDI.LirV IJD.NDS. 
 
 siU'li service uiilil :it least a reeeiver is appointtMl by the 
 CoinptrollcM-. 
 
 'Am. Sur. (\). vs. Pauly, 170 U. S. IGO.' 
 
 Certain corporate fidelity bonds, guaranteeing against 
 the dishonesty of the officials of a bank, provided that any 
 claim thereunder must be discovered and presented during 
 the continuance of said bonds or renewals thereof, or with- 
 in six months thereafter, or within six months from the 
 death, dismissal or retirement of the officials. The bonds 
 provided further, that no suit shall be brought thereon 
 unless the same is commenced within twelve months next 
 after the first discovery of such dishonesty. Suit was 
 brought on the bonds on February 1, 1895, alleging mis- 
 appropriations of the bank's funds by the insured officials 
 between April 20th, 1S93, and July 1st, 1893. As a reason 
 for the delay in bringing suit and to avoid the limitation 
 of the policy, it was alleged in tlie declaration that the 
 bank suspended payment on July 24th, 1893 ; that on 
 July 26th the Comptroller of the Currency, by the bank 
 examiner, took possession of all the books and assets of the 
 bank, and on August 14th appointed a receiver; that the 
 examiner alleged sundry frauds against the bank officials, 
 of which the receiver gave notice to the surety company, 
 but that the bank itself did not and could not then dis- 
 cover the fraud; that imnaediately after the suspension of 
 the bank its officials and a majority of its directors were 
 arrested and put under bonds on criminal charges, whereby 
 there were no officials of the bank to make investigations 
 or institute proceedings ; that on May 21st, 1894, the bank 
 resumed business, and its assets were restored to it by the 
 receiver, though its books were retained by the District 
 Attorney; and that on said May 21st the bank instituted 
 an investigation, discovered the frauds, and within 12 
 
 1. — See Chapter 1. see. 10. note, 
 and Chapter 1. see. Hi. ante.
 
 LIMITATIONS. 251 
 
 raontlis commenced suit. It was also averred that, after 
 notice of frauds was given to the surety company by the 
 receiver, the company was also notified that it was impos- 
 sible to give the full particulars of the claim as required by 
 the bonds within three months, and that facts were stated 
 showing why it was impossible to get at the details neces- 
 sary to bring suit within twelve months. 
 
 Held (one judge dissenting), that these allegations of 
 the declaration were sufficient to avoid the effect of a fail- 
 ure to bring suit within the twelve months' period of limita- 
 tion, and that it was error to sustain a demurrer to the 
 declaration. 
 
 Jackson vs. Fidelity & Casualty Co., 75 Fed. 359.^ 
 
 175. — Same. 
 
 A contract by a surety company to indemnify an em- 
 ployer against loss by reason of the dishonesty or culpable 
 negligence of its employees limited the liability of the com- 
 pany to such losses as should occur during the continuance 
 of the contract, and should be discovered "during said con- 
 tinuance, and within six months after the death, dismissal 
 or retirement of the employee causing such loss." Held, 
 that at the expiration of the year for which indemnity was 
 given, the liability of the company ceased as to an undis- 
 covered loss by an employee who still remained in the posi- 
 tion to which his fidelity had been guaranteed, although he 
 subsequently died, and the loss Avas discovered within six 
 months thereafter. 
 
 Florida Cent. & P. R. Co. vs. Am. Sur. Co., 99 Fed. 
 674.3 
 
 The recital in an employer's indemnity bond, tluit where- 
 as a prior bond between the same parties had expired, and 
 
 2. — See Chapter 1, sec. 1(J, ante. 
 3. — See riiaptev 1, sec. IS, note. 
 ante.
 
 252 TlIK I. AW OF FIDKIJ rV I50NDS. 
 
 \vlii'rt'a.s it allowed six months from expiration in which 
 to make claims for losses thereunder, the right of the em- 
 ployer to make such claims within six months was recog- 
 nized by the second bond, notwithstanding any other pro- 
 visions therein, estops the employer to assert that under 
 the first bond he could recover for claims presented more 
 than six months after its expiration. 
 
 Under a bond given an employer for the term of a year 
 by which a company covenants that, during its continu- 
 ance, his employee shall faithfully perform his duties, and 
 at the cessation of said employment he shall turn over to 
 the employer all money and property, and indemnifies the 
 employer against loss by default of the eniployoo occurring 
 during the continuance of the bond, and discovered during 
 said continuance, or within six months thereafter, or with- 
 in six months from the death, dismissal or retirement from 
 the employer's service of the employee, recovery can be 
 had for no default not discovered within six months after 
 the termination of the year for which the bond was given, 
 notwithstanding the employee thereafter continued in the 
 employment, and similar bonds were given from year to 
 year. 
 
 Lombard Inv. Co. vs. Am. Sur. Co., 65 Fed. 476.^ 
 
 A condition in a fidelity insurance bond that any claim 
 thereunder shall be made as soon as practicable after dis- 
 covery of the loss, and within six months after the expira- 
 tion of the bond, is a material stipulation and a condition 
 precedent to recovery thereon. 
 
 California Sav. Bank vs. Am. Sur. Co., 87 Fed. 118. 
 
 A clause in an indemnity bond limiting the right to make 
 a claim thereunder against the surety therein to six months 
 after the default of the principal, is reasonable and valid, 
 and will be sustained, and is not affected by another clause 
 
 4. — See Chapter 1. sec. IS. note. ante.
 
 LIMITATIONS. 253 
 
 in tlie bond limiting the time within whicli suit may be 
 brought to twelve months after the discovery of fraud or 
 dishonesty. One clause refers to the intention to assert a 
 claim, and the other to an actual suit to enforce it. 
 
 The fact that accounts are complicated and a settlement 
 difficult to make will not excuse the non-compliance with a 
 clear and explicit provision in an indemnity bond that the 
 right to make a claim thereunder shall cease at the end of 
 six months from the death of the principal in said bond. 
 There is no rule of law or consideration of policy that 
 should induce a Court to refuse to give effect to a stipula- 
 tion of this kind, which is reasonable in itself and founded 
 on a valuable consideration. 
 
 Granite Building Co. vs. Saville, 101 Ya. 217. 
 
 176. — Same. 
 
 The fact that an insurer in a bond of fidelity insurance 
 has actual knowledge of a loss does not excuse the insured 
 from giving notice thereof within the time prescribed by 
 the conditions of the bond. 
 
 California Sav. Bank vs. Am. Sur. Co., 87 Fed. 118. 
 
 A bank employee's bond, conditioned for the reimburse- 
 ment of any loss sustained by reason of fraud or dishon- 
 esty in connection with his duties, provided that any claim 
 under the bond should embrace and cover only acts and de- 
 faults committed during its currency and within twelve 
 months next before the date of discovery of the act or de- 
 fault upon which such claim was based. Held, that the 
 bond did not cover a default committed more than twelve 
 months prior to its discovery, which would, however, have 
 been discovered within a year from its commission had not 
 such discovery been prevented by the act of the employee 
 in falsifying the books during the year preceding the dis- 
 covery. 
 
 Fidelity & Cas. Co. vs. Consolidated T^at. Bank, 71 
 Fed. 116.
 
 254 'I'lii; I. AW <»i'' i'ii>i:i.nv uoxds. 
 
 WlicTc ;i bank cusliicr's fidelity bond, given March 7, 
 1901, covered only acts and defaults committed during its 
 currency and within 12 months next before the date of the 
 discovery of the act or default on which the chiim was 
 based, it did not cover an alleged larceny of silver coin 
 claimed to have been deposited May 10, 1900, but not found 
 in the bank's vaults when the cashier absconded in August, 
 1901, there being no evidence as to when the same was 
 taken. 
 
 Fidelity & Casualty Co. vs. Bank of Timmonsville, 
 139 Fed. 101. 
 
 If parties by their contract agree that no suit shall be 
 sustained thereon unless commenced within six months after 
 the cause of action shall acci'ue, such stipulation will be 
 binding on them ; and no action can be maintained on the 
 contract unless conimenced within the period therein lim- 
 ited. 
 
 North Western Ins. Co. vs. Phoenix Oil Co., 31 Pa. 
 St. 448. 
 
 Defendant agreed to indemnify plaintiff for one year 
 against embezzlements of its collector, provided same were 
 committed and discovered within the year and reported 
 within 30 days thereafter. Held, that such stipulation was 
 a condition precedent to right of action on the certificate, 
 and need not be pleaded as a defense. 
 
 Sullivan vs. Fraternal Societies' Co. of Ind. Union, 
 73 N. Y. Supp. 1094. 
 
 A compensated surety can only insist upon forfeiture 
 clauses w^herc the failure to comply therewith probably 
 inflicts a loss on the surety. 
 
 Hefferman vs. United States Fidelity & Guaranty 
 Co., 37 Wash. 477.
 
 LIMITATIONS. 255 
 
 Further reference may be made to the following cases : 
 Ins. Co. vs. Downs, 13 S. W. (Ky.) 882. 
 Kusel vs. Ins. Co., 131 Iowa, 54. 
 McMullan vs. Winfield B. & L. Ass'n., 64 Kan. 
 
 298. 
 Eising vs. Andrews, 66 Conn. 58. 
 Proctor Coal Co. vs. United States Fidelity & 
 
 Guaranty Co., 124 Fed. 424.
 
 j.m; 
 
 TiiK I, AW oi' Kii>i;r,riY iionds. 
 
 CHAPTER XXIV. 
 
 CASHIER AS AGENT OF BANK. 
 
 177. Urdiuaiily acts and state- 
 lueuts binding on bank. 
 
 17S. Cases in which bank not 
 bound by acts of cashier. 
 
 179. Cases holding otherwise. 
 
 ISO. Payment of preniiiinis im- 
 portant element in deter- 
 mining whether bank 
 bound by acts of cashier. 
 
 181. List of cases. 
 
 177. — Ordinarily Acts and Statements Binding on Bank. 
 
 The qiie.stion sometimes arises in litigation on lidelity 
 bonds whether the cashier of a bank, in making representa- 
 tions as to the accounts and conduct of another employee of 
 the bank, or in taking other action in connection with the 
 procurement of a bond bj such employee, or in subsequently 
 receiving information material to the risk, is the agent of 
 the bank, and his acts and conduct binding thereon. Ordi- 
 narily it would seem the cashier of a bank occupying the 
 peculiar position of that office, would be the proper repre- 
 sentative of a bank to whom to make inquires concerning the 
 accounts of an employee for whom a bond is proposed to be 
 written, and that, in responding to such inquiries he would 
 be the agent of the bank and his acts binding on his princi- 
 pal.^ The authority of the cashier to make such statements 
 and representations has generally not been questioned as will 
 appear by reference to Chapter 2, on ''Representations and 
 "Warranties." True, it has been held in the Pauly Case (170 
 F. S. 133), that the president of a I^ational Bank has no 
 power, in the ordinary course of business, to certify to the 
 
 1. — As to duties of cashier of 
 bank, when his acts bind bank, 
 see note to Cecil Nat. Bank vs. 
 
 Watsontown Bank. 2n T.. Kd. (V 
 S.I 1039.
 
 CASHIER AS AGKNT OF BANK. 257 
 
 fidelity or integi-ity of a cashier for the purpose of enabling 
 him to procure a bond insuring his fidelity, and that the 
 bank could not be deemed to have any knowledge of such cer- 
 tificate (also United States Fidelity & Guaranty Co. vs. 
 Muir, 115 Fed. 264) ; yet it was held by the United States 
 Supreme Court in the next corporate surety case to reach that 
 Court (Guaranty Co. of N. A. vs. Mechanics Savings Bank 
 and Trust Co., 183 U. S. 402), that a bank was bound by 
 the knowledge of its president as to speculation of its teller, 
 against which the latter's surety had provided for notice.- 
 
 £78.— Cases in Which Bank Not Bound by Acts of Cashier. 
 
 The acts of the cashier have been held not to bind the 
 bank in the following cases : 
 
 Although a corporate fidelity bond given on behalf of 
 an employee of a bank may have required the bank, upon 
 the discovery of any fraud or dishonesty on the part of 
 such employee, to give notice thereof to the company, and 
 also, immediately after knowledge by the bank of the occur- 
 rence of any act on his part involving a loss to the com- 
 pany of more than $100.00 to notify the company of the 
 same; yet where such contract contained no stipulation 
 making it in the least degree incumbent upon the bank 
 to exercise any diligence or care in inquiring into or super- 
 vising the conduct of this particular employee, or of any of 
 his co-employees in its service, and imposed upon it no 
 duty vouching for the fidelity or efficiency of the latter, or 
 of requiring them to A\'atch and report upon his actions and 
 doings, information or knowledge on the part of the bank's 
 cashier, he being only such a co-employee as to the matters 
 concerning which the company had stipulated for notice, 
 would not be ini])utable to the bank itself. 
 
 The Fidelity & Casualty Co. vs. The Gate City Nat. 
 Bank, 97 Ga. 634. 
 
 2. — See Chapter 2, sec. 53, note, ante. 
 
 17
 
 258 lUK I, AW OK J'IDKM'iV I{()MJS. 
 
 Ill ti suit by the bank agaiiist the surety of the teller, it 
 is no defense that tlu; dcfciidanl was induced to beconu; 
 surety because of the false rei)resentations of the cashier, 
 "that the (oiler's accounts were all straight; that there 
 would be HO risk in going on his bond, as he was a good, 
 rcdiable and honest man, and as paying teller would not 
 take anything," it not ai)j)earing that the cashier was au- 
 lliori/.cd by (lie bank to make any representations in the 
 matter, or that it was in the line of his duty as cashier. 
 Such representations could not bind the bank, and the 
 surety would take them at his own risk as the individual 
 judgment of the cashier. 
 
 Lieberman vs. First Xat. Bank, 2 Penn. (Del.) 416. 
 
 179. — Cases Holding Otherwise. 
 
 On the other hand, in a case directly involving the power 
 of an assistant cashier of a bank to make representations to 
 an indemnity company regarding the accounts of the presi- 
 vdcnt it was held : 
 
 In an action upon contract the party seeking to 
 recover cannot claim the benefits thereunder, and at the 
 same time repudiate the burden. So the receiver of a bank 
 Avill not be permitted to repudiate certain statements made 
 by the assistant cashier of a bank with reference to the 
 duties, accounts, &c., of its president, upon tbe faith of 
 which a surety company issued a bond, and at the same 
 time recover on the bond for defaults of the president. 
 
 Willoughby vs. Fidelity &: Deposit Co., 16 Okla. 546. 
 
 In Johnson Co. vs. Chamberlain Banking House, 113 X. 
 W. 1055, it was held: 
 
 The cashier of a bank is the proper officer to execute a 
 bond on its behalf to secure a deposit of public money made 
 therein, and the bank Avill be bound bv such execution.
 
 CASHIEE AS AGENT OF BANK. 25i) 
 
 180. — Payment of Premiums Important Element in Determining 
 Whether Bank Bound by Acts of Cashier. 
 
 An important element in determining whether the cashier 
 is acting for the bank, is the payment of premiums for cor- 
 porate fidelity bonds. It is apprehended that in the absence 
 of fraud and collusion between the cashier and the officer or 
 employee whose fidelity is to be guaranteed, where the bank 
 pays the premiums, there can be no doubt that written state- 
 ments made by the cashier in response to request therefor, in 
 the regular course of the business of the bank would be 
 binding thereon. Likewise that knowledge of the cashier ac- 
 quired in the regular course of his duties as such would be 
 the knowledge of his principal and he would in accordance 
 with the general rule, be presumed to have conveyed it to 
 such principal. 
 
 181. — List of Cases. 
 
 Further reference may be made to the following cases : 
 Franklin Bank vs. Cooper, 36 Me. 179. 
 Graves vs. Lebanon Bank, 10 Bush. (Ky.) 23. 
 Veazie vs. Williams, 8 How. 134. 
 Bennett vs. Judson, 21 JiT. Y. 238. 
 Halden vs. N. Y. & Erie Bank, 72 ]^. Y. 286. 
 Elwell vs. Chamberlin, 31 ¥. Y. 611. 
 Story on Agency, sec. 140.
 
 200 
 
 llll'; l.AW (»)• KIDKMTV JiO.NDS. 
 
 CHAPTER XXV, 
 
 EVIDENCE. 
 
 182. Admissions of principal and 
 records Icept by liim usu- 
 ally admissible and bind- 
 ing on surety. 
 
 1S3. Digest of authorities. 
 184. Burden of proof. 
 
 182. — Admissions of Principal and Records Kept by Him Usually 
 Admissible and Binding on Surety. 
 
 It is of course not within the scope of this brief work to 
 enter upon any general discussion of the law of evidence. 
 There are collected here certain cases referring particularly 
 to fidelity bonds. 
 
 It has generally been held that admissions made by the 
 principal concerning the business in which he is engaged in 
 the service of his employer, as well as reports made by him 
 in the course of the business, and the books and records kept 
 by him, are admissible in evidence in a suit against the sure- 
 ties on his bond. 
 
 The admission of an employee made when charged with 
 fraud and contemporaneously with his examination of his 
 employer's books with relation to charges against him are 
 binding on the surety. 
 
 Hall vs. United States Fidelity it Guaranty Co., 77 
 Minn. 24. 
 
 The statement of the treasurer of an incorporated society 
 made in accordance with his duty and during the period 
 covered by the bond, but after his removal for misconduct,
 
 EVIDENCE. 261 
 
 is competent against his sureties and is prima facie evi- 
 dence of the facts therein stated. 
 
 Father Matthew Y. M. Soc. vs. Fitzwilliams, 84 Mo. 
 406. 
 
 In an action on a fidelity bond indemnifying an em- 
 ployer against loss by reason of the dishonesty of an em- 
 ployee, the testimony of the employee as to the amount 
 of his collections under his employment was admissible. 
 
 Supreme Ruling of Fraternal Mystic Circle vs. ISTa- 
 tional Surety Co., 99 T^T. Y. Supp, 1033. 
 
 In an action upon the bond of an employee the books kept 
 by him as a part of his duties during the period of service 
 covered by the bond are evidence against the surety, but 
 not so as to unverified invoices and books kept by the em- 
 ployee before said period. 
 
 Brillion Lumber Co. vs. Barnard, 131 Wis. 284. 
 
 In an action against the sureties on the bond of the sec- 
 retary of a secret society, it is held that certain admissions 
 by the principal on the bond, although made subsequently 
 to the acts to which they relate, were properly admitted to 
 charge the sureties, such admissions being against the in- 
 terest of the principal and he having since died. 
 Drabek vs. Grand Lodge, 24 111. App. 82. 
 
 The admission of a servant, the principal in an em- 
 ployee's bond, with respect to matters pertaining to the per- 
 formance of his guaranteed duties, made while he is en- 
 gaged in their discharge, is always competent evidence 
 against the surety upon his bond. 
 
 Guarantee Co. vs. Phoenix Ins. Co., 124 Fed. 170.
 
 2G2 THE LAW OF FIDKLITY BONUS. 
 
 To the saiao general effect are the following: 
 
 Ca]iital Fire Ins. Co. vs. Watson, 76 Minn. 3S7. 
 Amlicrst iiank vs. lioot, 43 Mass. 522. 
 Guarantee Co. of X. A. vs. Mutual Bldg. & Loan 
 
 Ass'n., 57 111. App. 254. 
 Goldman vs. Fidelity & Dep. Co., 125 Wis. 390. 
 Atlas Bank vs. Brownell, 9 R. I. 168. 
 
 The admissions of a bank cashier as to his indebtedness 
 to the bank are competent, though not conclusive, evidence 
 against the sureties. 
 
 McShane vs. Howard Bank, 73 Md. 135. 
 
 In an action on a corporate fidelity bond, conditioned 
 to make good Ipss occasioned by fraud or dishonesty amount- 
 ing to larceny or embezzlement, entries, receipts and re- 
 ports made by the principal during the life of the bond, in 
 the ordinary course of his duty as treasurer, charging him- 
 self with certain items, were not conclusive against the 
 surety as to the time when such items were received. 
 
 Supreme Council C. K. of A. vs. Fidelity <Sr Cas- 
 ualty Co., 63 Fed. 48. 
 
 Under a bond guaranteeing a contract of agency, decla- 
 rations of the agent after the disposition and conversion of 
 property by him to his o\yn use held inadmissible, such 
 declarations having no direct connection with his preceding 
 acts so as to bind his sureties. 
 
 Lee vs. Brown, 21 Kan. 458. 
 
 In an action on a fidelity insurance policy indemnifying 
 an employer against loss by reason of the fraud or dishon- 
 esty of an employee amounting to "larceny or embezzle-
 
 EVIDENCE. 263 
 
 ment," the declarations of the employee, made after the 
 alleged embezzlement are not binding on the insurer. 
 
 Wieder vs. Union Surety & Guaranty Co., 86 ]Sr. Y, 
 Supp. 105. 
 
 J 83. — Digest of Authorities. 
 
 Following are cases referring generally to the subject of 
 evidence ou fidelity bonds : 
 
 In an action on an indemnity bond for loss due to the 
 embezzlements or larcenies of an agency director it ap- 
 peared that no books were kept in the office of the director, 
 except a cash book prepared by a cashier in the director's 
 employ from check stubs and such other data as he was 
 able to find. A witness for plaintiff who investigated the 
 director's office detailed the situation and conversations had 
 by him with the cashier, and a statement of loss based part- 
 ly on "data secured" from the cashier was introduced in 
 evidence. The indemnity company then offered the cashier 
 as a witness, and sought to give his version of the conversa- 
 tion with the plaintiff' s witness. Held, that the cashier's 
 evidence was erroneously excluded. 
 
 Security Mutl. Life Ins. Co. vs. Aetna Ind. Co., 108 
 K Y. Supp. 171. 
 
 A report filed by the treasurer of a corporation after the 
 bond was executed, in accordance with his official duty, and 
 in ])ursuance of the laws of the corporation, was admissible 
 to show that the money was in his hands after the bond was 
 executed, but the sureties could show the report was un- 
 true. 
 
 Barry vs. ScreAvmen's Ben. Assn., 67 Tex. 250. 
 
 In an action on the bond of a bank caslii(>r, tlic question 
 of the scope of llic antiiority of the cashier in discounting 
 paper and in ])('riniltiiig overdrafts is ordinarily a matter
 
 2<I4 TlIK J, AW OK KIDKI-II V liONDH. 
 
 of law, and it is error to leave lo the jiirv the dccisioii of 
 what is "williiii the scojie" of his authority. 
 
 Pryso VH. Fanners' I'.aiik, IT Ky. L. \l. 1056. 
 
 Whore it is coneedetl in an action on tiie hoinl of a 
 bank cashier that eerlaiii collateral was einhezzled durint? 
 the term covered by his bond, the burden is on the sureties 
 to show that any ])art of said collateral was subsequently 
 returned and ])laced in the files of the bank. 
 
 Faucher vs. Kaneen, .5 Ohio Xisi Prius, n. s. 614. 
 
 Where, in an action on plaintiff's defaulting cashier's 
 bond against the surety, a witness testified to taking in 
 writing the testimony of the cashier in his examination be- 
 fore a committee of jilaintiflF's directors, writing dowTi the 
 questions and answers as they w^ere made, all of which were 
 in his handwriting, it was proper to admit the written 
 memorandum in evidenc(> as part of the testimony of such 
 witness. 
 
 Bank of Tarboro vs. Fidelity k Deposit Co., 128 X. 
 C. 366. 
 
 In an action on a fidelity bond insuring a corporation 
 against loss through the fraud or dishonesty of an officer 
 to recover a loss resulting from his acts, the testimony char- 
 acterizing such acts necessarily takes a wide range, and 
 evidence of his general course of conduct in plaintiff's af- 
 fairs, though not directly relating to the transactions in 
 issue, is properly admissible to show the spirit and intent 
 which moved him. 
 
 United States Fidelity \- GTiaranty Co. vs. Egg 
 Shippers' Strawboard Filler Co., 148 Fed. 352. 
 
 Evidence that at the lime of executing a salesman's bond, 
 and unknown to the guarantors, the salesman was already 
 largely indebted to the (Mnployer. is irrelevant. 
 
 John A. Tolman Co. vs. Butt. 116 Wis. 597.
 
 EVIDENCE. 265 
 
 In an action on a fidelity bond, the testimony of the 
 surety that he would not have become such if he had known 
 certain facts alleged to have been concealed from him by 
 the person to whom the bond was given is admissible. 
 
 Kemington S. M. Co. vs. Kezertee, 49 Wis. 409. 
 
 A recovery against the principal for his defalcations as 
 secretary of an incorporated company is not evidence 
 against the surety on his official bond, either of the fact of 
 embezzlement or of the amount embezzled; but it would be 
 admissible, it seems, in connection with proof that it was 
 for the same defaults for which the surety was sued, and 
 that it had been partly paid or discharged. 
 
 Firemen's Ins. Co. vs. McMillan, 29 Ala. 147. 
 
 The obligors in a bond are estopped to deny the cor- 
 porate existence of the body to whom it was given. 
 
 Father Matthew Y. M. Soc. vs. Fitzwilliams, 84 
 Mo. 406. 
 
 Contracts of guaranty will be liberally construed to ac- 
 complish the purpose of indemnity for which they were 
 made, and while a misrepresentation of a material fact, in 
 reliance upon which the contract was made, will avoid the 
 contract in equity, irrespective of the question of knowl- 
 edge of the falsity of the representation, yet the charge of 
 false representation raises a question of fact, upon which 
 the guaranty company has the burden of proof. 
 
 United States Fidelity & Guaranty Co. vs. First 
 l^ational Bank of Dundee, 233 111. 475. 
 
 184. — Burden of Proof. 
 
 With reference to the burden of proof it may be said that 
 the rule as laid dowm in the leading insurance case of Camp- 
 bell vs. Insurance Co., 98 Mass. 28,^ to the effect that the 
 
 1. — See Chapter 2, see. 32, ante.
 
 :;<)(> 'rill'; i,a\v ok i'Idkuiv ii(;MJ.s. 
 
 biu'deu of j)ruof is upuu the plainliii" to ])r('sent a case in all 
 respects conforming lo the terms under which the risk was 
 assumed, is not applicable to corporate fidelity bonds. Under 
 these instruments, the burden of proof is not upon the plain- 
 til? to show compliance with all the provisions therein on his 
 part to be performed, but upon the defendant to show the 
 breach or non-performance of any of such provisions. 
 
 Sinclair & Co. vs. Natl. Surety Co., 13 Iowa, 
 549.
 
 SCOPE OF LIABILITY. 267 
 
 CHAPTER XXVL 
 
 SCOPE OF LIABILITY. 
 
 185. Miscellaneous Illustrations ISO. Same. 
 
 of cases held to establish 
 liability on fidelity bonds 
 and cases holding other- 
 wise. 
 
 1S7. Same. 
 188. Same. 
 
 185. — Miscellaneous Illustrations of Cases Held to Establish 
 Liability on Fidelity Bonds and Cases Holding Otherwise. 
 
 Under this title there are collected, without any attempt at 
 classification, decisions illustrating circumstances and condi- 
 tions which have been held to create liability, and those 
 which have not. 
 
 Defendant, a surety company, executed to plaintiff a 
 bond, by which it agreed to make good such pecuniary loss 
 as plaintiffs might sustain during a certain period by rea- 
 son of any fraudulent or dishonest act of plaintiff's agent, 
 in connection with his duties, amounting to embezzlement 
 or larceny. The agent paid over to plaintiff all the money 
 collected during the period covered by the bond, but he 
 directed a part of the same to be credited on other accounts 
 owing to the plaintiff, without knowledge by the plaintiff 
 that the money collected by the agent from certain accounts 
 was so applied to the payment of other accounts for which 
 the agent was also liable. Held, that this action amounted 
 to a fraudulent conversion by the agent of the money col- 
 lected, and that the defendant is liable therefor under the 
 bond. 
 
 American Bonding & T. Co. vs. Milwaukee Har- 
 vester Co., 91 Md. 733.
 
 208 Till: I, AW OF KII)KI,I1'»' I'.OMj.S. 
 
 A buiRl foiiditioiind to reimburse an employer for such 
 pecuniary loss as he might sustain by any act of fraud or 
 dishonesty amounting to larceny or embezzlement, com- 
 mitted by a designated employee in the performance of his 
 duties as bookkeeper, or in such other position as he might 
 be called on to fill, covered a loss sustained by the fraudu- 
 lent act of the employee in raising the amounts of checks 
 Avhich it was his duty to fill out, whether such duty per- 
 tained to his office as bookkeeper, or to any other capacity 
 in his employer's service. 
 
 The fact, though conceded, that a bank was liable for a 
 loss resulting to iin ()l)ligee in a fidelity bond through the 
 fraudulent act of his employee in raising the amount of 
 cliecks drawn on the bank, would not release such em- 
 ployee's surety on a fiduciary bond from liability to the 
 obligee. 
 
 Champion, &;c., vs. American Bonding k T. Co., 115 
 Ky. 863. 
 
 Suit was brought against a surety company on an in- 
 demnity bond given to a fire insurance company guarantee- 
 ing it against loss through larceny or embezzlement by an 
 agent of the insurance company. A breach was alleged in 
 the declaration and a statement filed claiming that there 
 was a balance due the insurance company. The employee 
 claimed the right to credits for returned premiums and ex- 
 penses in excess of the balance against him, and the surety 
 company filed a bill of particulars, with one of its pleas 
 showing a balance in favor of the employee. At the close 
 of the plaintiff's case, the loAver Court granted the defend- 
 ant's prayer, instructing the jury to find for the defendant 
 on the ground that the plaintiff had offered no evidence 
 legally sufficient to entitle him to recover under the plead- 
 ings, and judgment was accordingly entered for the de- 
 fendant. Held, that the judgment should be affirmed, as 
 there could be no recovery in this case for any acts or 
 conduct which fell short of larceny or embezzlement, and
 
 SCOPE OF LIABILITY. ' 269 
 
 that the claim of the employee is not of such a character 
 as to raise priina facie presumption of dishonesty amount- 
 ing to larceny or embezzlement, and that the evidence was 
 not legally sufficient to warraiit the finding of a verdict for 
 the plaintiff under the bond. 
 
 Williams vs. United States Fidelity & Guaranty Co., 
 105 Md. 490.1 
 
 Where a contract of guaranty stipulates that the guaran- 
 tors shall be liable for all moneys which an employer may 
 from time to time advance to an employee in excess of the 
 amount due the latter for commissions, it must be shown 
 to warrant a judgment against the guarantors on account 
 of moneys advanced that the advancement was made in the 
 course of business covered by the contract of employment, 
 and that proper credits had been given the employee for 
 commissions earned. 
 
 Tolman Co. vs. McClure, 10 Ind. App. 28. 
 
 186. — Same. 
 
 Where the secretary of a building association procures 
 the issue of checks of the association in the names of ficti- 
 tious paj^ees, his collection of such checks would estop him 
 from asserting their original invalidity, even if they were 
 invalid, and would amount to embezzlement under section 
 6843, and the sureties on his bond are liable for the acts 
 complained of. 
 
 Livingstone vs. The Fidelity & Deposit Co., 7 Ohio 
 Cit. Ct., n. s. 66. 
 
 A corporate fidelity bond conditioned that the surety 
 "will make good and reimburse to the employer any pecu- 
 niary loss sustained by him of money, securities or other 
 personal property in the possession of the employee in the 
 discharge of the duties of his office amounting to larceny 
 or embezzlement," does not make the surety liable for 
 
 1.— See Chapter 22, sec. 1(j9, ante.
 
 270 TIIK J. AW OF FIDKMTY BONDS. 
 
 iiioncy iidviinced by tlic ciiiployer to the eiiiployee to enable 
 him to prosecute his work, expecting him to be charged 
 with it all ill his final Hcttloment, or for money that the 
 employer paid to his cnij/loyee's creditors, but is responsible 
 for money collected by the employee on contracts for the 
 employer. 
 
 U. S. Fidelity & Guaranty Co. vs. Overstreet, 27 
 Ky. L. R. 248. 
 
 When the articles of a mutual insurance company pro- 
 vide for the creation of a fund to pay the expenses of liti- 
 gation, a diversion by an official to that purpose of assess- 
 ments collected to ])ay death losses is a breach of the condi- 
 tions of his official bond ])roviding for the faithful dis- 
 charge of duty. 
 
 Sherman vs. Harbin, 125 Iowa, 179. 
 
 In an action on the bond of a bank teller it was shown 
 that the teller upon being discharged, in making final set- 
 tlement of his accounts, stole from the drawer of a clerk in 
 the bank a large svnu of the bank's money and paid it over 
 to the cashier, llrid. tl!-^ sureties on the bond of the teller 
 were liable for such theft. 
 
 State Bank vs. Welles, 20 Mass. 394. 
 
 Sureties on the bond of a sewing machine agent are not 
 responsible for his transactions outside of the territory 
 assigned to him by his contract with the company. 
 
 White Sewing Moohine Co. vs. Mullins, 41 Mich. 
 339. 
 
 An agent of an insurance company executed a bond con- 
 ditioned to properly account for and pay over all moneys 
 and property of his principal coming into his hands as 
 such agent accordiuT to the instructions of his principal. 
 He insured certain property and issued a policy which the 
 company refused to accept and directed him to cancel it
 
 SCOPE OF LIABILITY. 271 
 
 and return the premium to the insured, which he promised 
 to do, and notified the company that he had done so, which 
 was not true, and he retained the premium. The insured 
 property was burned and the company compelled to pay the 
 loss. Held, that upon such default the agent's bondsmen 
 were liable for the loss which the company was legally com- 
 pelled to pay the insured. 
 
 Koyal Ins. Co. vs. Clark, 61 Minn. 476. 
 
 187. — Same. 
 
 The agent of an insurance company is not bound for do- 
 faults of a cashier appointed by company to assist him. 
 Equitable Life Assur. Soc. v. Coats, 44 Mich. 260. 
 
 Where the principal in a bond given to secure the faith- 
 ful performance of his duties as teller of a bank had, pre- 
 vious to the execution of the bond, taken and appropriated 
 to his own use moneys of the bank, and after the giving of 
 the bond had applied moneys received to wrong accounts, 
 so as to cover up his defalcation. Held, that the surety was 
 not liable for the defalcation committed before the execu- 
 tion of the bond; and that for the mere misapplication of 
 the moneys subsequently received to wrong accounts, the 
 damages could only be nominal. 
 
 State vs. Atherton, 40 Mo. 209. 
 
 Obligations 'of an association, which should have been 
 paid by the treasurer during his former term, were car- 
 ried forward by him into his new term, and paid out of 
 current receipts. Held, that as such obligations Avere not 
 discharged when assessments were made sufficient to meel 
 them, but continued obligations until paid, their payment 
 out of the funds of the association did not amount to em- 
 bezzlement or larceny committed during the new term, and 
 the surety was not liable for the misappropriation. 
 
 Supreme Council Catholic Knights of America vs. 
 Fidelity & Cas. Co., 63 Fed. 48.
 
 iJll: lilK I, AW OF l-MDKI.I TV HO.MjS. 
 
 One bccaiiic surely lor the good conduct of a cashier of a 
 banking coiii|iaiiy, upon his rea])]iniiit iiimt to that office. 
 Before such reapitoiulnieiit lie liad been guiUy of frauds 
 on tlie coni})any; and afterwards, previous to an examina- 
 tion by the directors of the company into the state of their 
 cash, he borrowed moneys as such cashier, wliieh he placed 
 in the bank, and thus concealed his prior defalcation; and 
 after such examination he took out the said moneys and 
 repaid to those of Avhom lie had borrowed them. Held, to 
 be a fraud within the condition of the bond. 
 
 Ingraham vs. Maine Bank, 13 Mass. 208. 
 
 A bond executed by an agent, undertaking that he will 
 take care of and sell goods consigned to the principal, does 
 not bind the surety thereon for goods bought by the agent 
 for the principal. 
 
 Thompson vs. Fruit Growers' Co., .')0 S. W. 1094. 
 
 Sureties for a salesman are not liable for advances made 
 to him where he was to be compensated by commissions on 
 sales. 
 
 Charles Brown Grocery Co. vs. Wasson. 11 :] Ky. 
 414. 
 
 Where, during the life of his official bond, the president 
 of an assessment insurance company made excessive pay- 
 ments to certain beneficiaries, to the exclusion of others en- 
 titled to participate in the particular fund, he Avas liable 
 on his bond at the suit of the receiver of the association 
 for such sum as was due the unpaid beneficiaries from 
 such fund. 
 
 Sherman vs. Harbin, 124 Towa. 643. ' 
 
 i88. — Same. 
 
 The president of an assesment insurance company is 
 not liable on his oflficial bond for the individual act of 
 
 1. — See Chapter 1. sec. 17. ante.
 
 SCOPE OF LIABILITY. 273 
 
 the cashier, in depostiiig money to the credit of a fund to 
 which it did not belong. 
 
 Sherman vs. Harbin, 124 Iowa, 64o. 
 
 Where the bond of an insurance agent stipulated that 
 he should "receive and forward applications for and de- 
 liver policies, and receive and forward premiums upon the 
 same, within the city of D.," and he received the premiums 
 of certain parties who had been insured in D. by a former 
 agent of the company, but who had since removed there- 
 from. Held, that the failure to pay over to the company 
 such receipts was not a forfeiture of the bond subjecting 
 the sureties to liability. 
 
 Crapo vs. Brown, 40 Iowa, 487. 
 
 In an action on a cashier's bond for damages arising 
 from breach thereof by his misappropriation of money and 
 making of excessive loans, the fact that the bank and its 
 receiver have sued and obtained judgment upon notes taken 
 by the cashier for such misappropriated money and exces- 
 sive loans is no defense. 
 
 Westervelt vs. Mohrenstecker, 76 Fed. 118. 
 
 The sureties upon the bond of the secretary of a savings 
 bank are not liable for the misappropriation by him of 
 moneys belonging to borrowers from the bank, which have 
 been secured by note and mortgage to the bank, and placed 
 upon special deposit in bags marked with the borrowers' 
 names and subject to their call. 
 
 Humboldt S. cV L. Soc. vs. Wenncrhold, 81 Calif. 
 528. 
 
 If money is received on deposit by an iiicnrpornled com- 
 pany, without nnthoi'ity under its charter, and is fraudu- 
 lently embezzled by its secretary, the surety on his official 
 bond is not liable for it. 
 
 Firemen's Ins. Po. vs. '^^c"^rillan. 20 .Ma. 147. 
 IS
 
 i>7 I TiiK i,A\v oi- riiur.riv I!mm,s. 
 
 1SI>. 
 
 From State to Fedoral 
 
 10.-.. 
 
 
 Court — lie<iiiisitos. 
 
 10(;. 
 
 1!)0. 
 
 niseussion of necessary 
 
 107. 
 
 
 facts to permit removal. 
 
 108. 
 
 T.tl. 
 
 1 Mirest of authorities. 
 
 
 1!»2. 
 
 liemoval on accouut of prej- 
 tiilice or local influence. 
 
 100 
 
 103. 
 
 State statutes prohibiting 
 removal. 
 
 200 
 
 104. 
 
 Same — Keview of authori- 
 ties. 
 
 
 CHAPTER XXVII. 
 
 REMOVAL OF CAUSES. 
 
 Same — Same. 
 
 Same — Same. 
 
 Samt! — Same. 
 
 Discussion of constitution- 
 ality of such statutes. 
 
 Is cause removable wliere 
 Federal question involved? 
 
 Possible solution of (pies- 
 tion of conflict between 
 States and Federal (iov- 
 ernment. 
 
 189.— From State to Federal Court — Requisites. 
 
 It frequently becomes desirable, for reasons which will 
 readily siigoest themselves to the practitioner, to remove a 
 suit upon a c<5rjx)rate fidelity bond from a State to a Federal 
 Court. To procure such removal, the following requisites 
 must appear: 
 
 First. The suit must be for the sufficient jurisdictional 
 amount ; to wit, an amount exceeding two thousand dollars, 
 exclusive of interest and costs. 
 
 Secoiid. The defendant must bo a foreign corporation. 
 
 Third. The suit must be against the insuring company 
 alone, or if the 'Vmj.loyoe'' or "risk," being a citizen of the 
 State in which the suit is instituted, is made a party defend- 
 ant, the defendant corporation must cause his name to be 
 stricken out by proper procedure, where the controversy i-
 
 REMOVAL OP CAUSES. 
 
 27i 
 
 separable, and such party, although denominated a ''princi- 
 pal"' therein, has not become such in law by joining in the 
 obligation in favor of the insured. 
 
 FourtJi. The existence of prejudice or local influence which 
 would prevent the defendant from obtaining justice in the 
 State Court. 
 
 Fifth. The absence of prohibition of such removal by the 
 statjites of the State^ in which the suit is instituted. 
 
 190. — Discussion of Necessary Facts to Permit Removal. 
 
 1. ]S[othing further need be here said relative to the juris- 
 dictional amount necessary to authorize the removal of a 
 cause from a State to a Federal Court. 
 
 1. — Compliance icith State Stat- 
 utes hi) Foreign Surety Company 
 as Affecting Validity of Bonds 
 Executed by It — A surety bond 
 taken as security for the conduct 
 of an agent of a foreign corpora- 
 tion wliicli undertakes to do busi- 1 
 ness in Pennsylvania without com- 
 plying with the requirements of 
 the second section of Act of April 
 22, 1874, providing that a state- 
 ment showing the title and ob- 
 ject of the corporation, the loca- 
 tion of its offices, the names of its 
 agents, etc., shall be filed in the 
 office of the secretary of the 
 Commonwealth, is invalid. Mc- 
 Canna & Fraser Co. vs. Citizens' 
 T. & Surety Co., 76 Fed. 420, fol- 
 lowing Thom vs. Ins. Co., 80 Pa. 
 St. 1.5, and Johnson vs. Hulings, 
 103 Pa. St. 498. and affirming 74 ; 
 Fed. .'i07. See also Pitts. Cons't. | 
 Co. vs. West Side Belt R. R. Co., | 
 151 Fed. 125. 
 
 It was held in Iowa Lillooet 
 Gold Mining Co., Ltd., vs. United 
 States Fidelity & Guaranty Co., 
 14G Fed. 437, that a statute of 
 Iowa, similar to that of Penn- 
 sylvania, was not intended to 
 render void the contracts of such 
 a foreign corporation before it had 
 complied with its provisions; and 
 hence, that a fidelity bond exe- 
 cuted by a surety company for 
 its secretary was valid. To the 
 same effect is Spreyne vs. Gar- 
 field Lodge. 117 111. Apix 253. In 
 Groton Bridge Co. vs. American 
 Bridge Co.. 1.51 Fed. 87L held a 
 foreign corporation may main- 
 tain an action in a Federal Court 
 to enforce a contract made in 
 New York, although it has not 
 complied with the laws of New 
 York.
 
 27(1 TJIK LAW Ol' IIDKLIIV UO.NDS. 
 
 J. Sttv to llic I'licl lliat llic (lcrcii<lant corporatitjii luu.st be 
 II citizen of a State other than that in which the suit is file^l 
 
 to ciilitlc it to remove <^»n the iiroiiiid <pt' ilixcrsity of eitizcn- 
 shij/. 
 
 3. If" the action is instituted aizaints the insni'ini:: company 
 only, which is the ])roi)cr j)ractice, the defenchint has the right, 
 under the Federal Constitution and Acts of Congi'ess, to re- 
 move the case to a Federal Court, subject to the restrictions 
 here sho%\Ti. 
 
 Most corporate fidelity bonds are r((|uired To be sipied by 
 the "employee" or "i-isk," who thereby ^-ives his assent to the 
 execution of such instniment, and fuithermore obligates him- 
 self by an appropriate provision inserted in the instrument 
 to reimburse and save harmless the surety for any loss which 
 it may sustain liy reason of the execution of such suretyship. 
 AMiile the so-called principal is thus required to sign the obli- 
 gation, he is not a ])ro]ier ]>arty defendant to a suit on the 
 bond. 
 
 It most frequently happens in practice, however, that the 
 . principal is joined with the surety as a party defendant. In 
 such case the proper practice is for the surety to have the 
 name of the principal stricken out by appro])riate procedure, 
 and then to petition for removal as though the case had origi- 
 nally been brought against the surety alone. Care must be 
 taken to bring the case within the requirements of the Act of 
 Congress of xVugust 13, 1888, Ch. 86G, as laid down by the 
 Supreme Court in Goldey vs. ^Morning Xews, 150 V. S. 524. 
 that the petition for removal and bond must be filed "at the 
 time, or at any time before, the defendant is required by the 
 laws of the State, or the nile of the State Coxrt in which 
 such suit is brought, to answer or plead to the declaration or 
 com]daint of the plaintiff.''
 
 REMOVAL OF CAUSES. 277 
 
 191. — Digest of Authorities. 
 
 The employee does not join in such bonds for the pur- 
 pose of binding himself to the employer, but solely for the 
 purpose of obligating himself to the indemnitor. 
 Brandt, Sur. k Guar., sec. 1, 2 and 5. 
 
 When in a bond by which a surety company agrees to 
 indemnify an employer against loss arising from the defal- 
 cation of an employee, the latter united for the purpose 
 of assenting to the terms of the bond and of covenanting 
 to indemnify the surety company, such a bond is not a 
 joint obligation, and an action on it lies against the surety 
 company alone, without the joinder of the employee. 
 
 American Bonding & T. Co. vs. Milwaukee Har- 
 vester Co., 91 Md. 733. 
 
 Where the principal joins in a corporate fidelity bond 
 for the purpose of entering into an obligation to the surety 
 the liability is not joint. 
 
 Guarantee Co. of N. A. vs. Mechanics' Savings 
 Bank & Trust Co., 183 IT. S. 402. 
 
 Where the principal joins in a corporate fidelity bond 
 merely to enter into an obligation to save the company 
 harmless, and makes no promise or covenant to the ob- 
 ligee, the company and the treasurer are not jointly liable 
 on such bond. 
 
 Mayor, &c., vs. Harvey, 114 Ga. 733. 
 
 In a suit on the corporate fidelity bond of a bank officer, 
 on which the surety was a foreign corporation and the prin- 
 cipal was serving a term of imprisonment in another State, 
 a petition was made by the surety for the removal of the 
 case to a Federal Court. 
 
 Held, the obligation was a joint and several one, and the 
 principal a proper party to the suit; that the controversy
 
 278 Till': J, AW OF I'lDi.r.rrY Mo.xn.s. 
 
 was not a S('i)arablo one, and lience there could be no re- 
 moval. 
 
 Guarantee Co. vs. First National Bank of Lynch- 
 burg, 95 Va. 480. 
 
 Tho last nienlioned ease is apparently in conflict with the 
 text, but not actually so inasmuch as the obligation sued on 
 was not the usual form of corporate fidelity bond above re- 
 ferred to, but was a joint obligation of the principal and 
 surety. Of course in such case where the employee joines as 
 principal with the surety in the obligation to the obligee, he 
 is a nocossarv ])arty defendant, the cause is not a separable 
 one, and is not removable on the ground of diversity of citi- 
 zenship. 
 
 192. — Removal for Account of Prejudice or Local Influence. 
 
 4. The instances in which a foreign surety company could 
 procure the removal of a cause on the ground of the existence 
 of prejudice or local inti^uencc are not sufficiently numerous in 
 practice to require special consideration here. The jurisdic- 
 tional amount is the same as in the case of removal on the 
 ground of diversity of citizenship. In re Pennsylvania Co., 
 137 I". S. 451, and the Circuit Court must be legally satisfied, 
 by proof suitable to the nature of the case, of the truth of the 
 allegation that by reason of prejudice or local influence the 
 defendant will not be able to obtain justice in the State 
 Court. Thid. 
 
 Although the instances are infrequent, it sometimes be- 
 comes highly important, in the view of a defendant corporate 
 surety to remove, because of the existence of local influences 
 supposed to be hostile to its interests and such as to prevent a 
 fair and impartial trial of the question? involved, an action 
 pending against it to a Federal Court. .
 
 REMOVAL OP CAUSES. 279 
 
 A somewhat curious recent case furnishes apt illustration 
 of the point. A public official reported the loss of a large 
 sum of public funds, alleging that he had been overpowered, 
 bound and robbed. The law of the State providing no relief 
 to the official or his sureties in such case, the loss must fall 
 on a burglaiy policy issued by a foreign surety corporation, 
 if the official's declarations could be substantiated, or upon 
 his official bond, sigiied by about fifteen more or less promi- 
 nent individuals distributed throughout the agricultural 
 county in which he resided, if recovery could not be had upon 
 the burglary policy. Obviously, in such case, in a conflict be- 
 tween the interests of a foreign corporation on the one hand, 
 and those of numerous resident uncompensated individual 
 sureties on the other, a local jury would be calculated to give 
 the benefit of any doubt to the latter. And, hence, to secure 
 a fair and impartial trial, such a case should be removed 
 away from such controlling influences to the Federal Court 
 for the District, but here the corporate defendant is met with 
 the State's prohibition against such removal, under penalty 
 of forfeiture, referred to under the 5th sub-title of this 
 Chaj)ter. . 
 
 193. — State Statutes Prohibiting Removal. 
 
 5. Many of the States have enacted laws the intent and 
 purpose of which is to prevent the removal from the Courts 
 of such States to the Federal Courts of suits ))y or against 
 foreign corporations, and partieuhii'ly foreign insurance cor- 
 y)orations. The earlier of such statutes too]< the form of re- 
 quiring the foreigii cor])oration, when applying for pennis- 
 sion to do business in the State, to agree in advance not to 
 remove suits against it fi-o)u the State Coui'ts. Aflcr the Su- 
 preme Court had held that a statute requiring such agreeuicMit 
 was unconstitutional, as will be hereafter shown, the snbsc- 
 qnent statutes pi'o\i(l('(l (lint if such foreign corpoi'atioii did so
 
 liSO 'llIK l,A\V OK 1 HUM IV l;(».M^.S. 
 
 rfiiio\(' ;i ciiiisi- or lilc a pciitiun i<> do so its license to do 
 hiisiiiess within I Ik; State should be revoked. 
 
 194. — Same — Review of Authorities. 
 
 A statute of the State of Wisconsin, })ass('d in 1870, en- 
 acted as follows : 
 
 "That any firo insurance conipanv, association, or part- 
 nerslii]), incorporated by or organized under the laws of 
 any other State of tlif United States, desiring to transact 
 any such business as aforesaid by any agent or agents, in 
 this State, shall first appoint an attoniey in this State on 
 whom process of law can be served, containing an agree- 
 ment that such company will not remove the suit for trial 
 into the United States Circuit Court or Federal Courts, 
 and file in the office of the Secretary of State a written 
 instrument duly signed and sealed, certifying such appoint- 
 ment, which shall continue until another attorney be sub- 
 stituted." 
 
 In Insurance Company vs. Morse, 20 Wall. 445 (1874\ 
 the Supremo Court of the United States, (two justices dis- 
 senting) in ccmstrning this statute held : , 
 
 The Constitution of the United States secures to citizens 
 of another State than that in which suit is brought an 
 absolute right to remove their cases into the Federal Court, 
 upon compliance with the terms of the twelfth section of 
 the Judiciary Act. The obstruction of this right by the 
 statute above quoted is repugnant to the Constitution of 
 the United States and the laws in ]mrsuance thereof, and 
 is illegal and void. 
 
 The agreement of the insurance com]ianv, filed in pur- 
 suance of the Act, derives no su])]>ort from a statute thus 
 unconstitutional, and is as void as it would be had no such 
 statute been passed.
 
 REMOVAL OF CAUSES. 281 
 
 195. — Same — Same. 
 
 In Doyle vs. Continental Ins. Co., 94 U. S. 535 (1876), 
 the same legislation of the State of Wisconsin was before the 
 Supreme Court. It was shown that subsequent to the deci- 
 sion in the Morse Case, the Continental Insurance Company 
 removed a suit brought against it in the State Court, into the 
 Federal Court. That because of such removal, a demand was 
 made on the secretary of State to revoke the certificate or 
 license of the company to do business in the State. A temp- 
 orary injunction was issued restraining the defendant from 
 revoking the license because of said removal. A demurrer to 
 the bill was oveiTuled, and a decree entered making the in- 
 junction pei'petual. Upon appeal, the Supreme Court (three 
 justices dissenting) held : 
 
 The Court reaffirais the decision in Insurance Co. vs. 
 Morse, 20 Wall. 445, that an agreement to abstain in all 
 cases from resorting to the Courts of the United States is 
 void as against public policy, and that a statute of Wiscon- 
 sin requiring such an agreement, is in conflict with the 
 Constitution of the United States. 
 
 A State has the right to impose conditions, not in con- 
 flict with the Constitution or the laws of the United States, 
 to the transaction of business within its territory by an 
 insurance company chartered by another State, or to ex- 
 clude such company from its territory, or, having given a 
 license, to revoke it, with or without cause. 
 
 The Legislature of Wisconsin enacted that if any for- 
 eign insurance company transferred a suit brought against 
 it from the State Courts to the Federal Courts, the Secre- 
 tary of State should revoke and cancel its license to do 
 business within the State. An injunction to restrain him 
 from so doing, because such a transfer is made, cannot be 
 sustained. The suggestion that the intent of the Legisla- 
 ture is to accomplish an illegal result, to wit, the preven- 
 tion of a resort to the Federal Courts, is not accurate. The
 
 2S2 TIIK 1,A\V OF KIDKLITV U(JMjS. 
 
 etlect of this decision is that the conipany must forego 
 such resort, or cease its business in the State. The latter 
 result is here accomplished. 
 
 As the State lias the right to exclude such company, the 
 means by Avhich she causes such exclusion, or the motives 
 of her action, are not the subject of judicial inquiry. No 
 right of the complainant under the laws or Constitution 
 of the United States, by its exclusion from the State, is in- 
 fringed. 
 
 1 96. — Same — Same. 
 
 In Barron vs. Burnside, 121 U. S. 186 (1887). the Su- 
 preme Court held: 
 
 The statute of Iowa, approved April 6, 18s6, which re- 
 quires that every foreign corporation named in it shall, as 
 a condition of obtaining a permit for the transaction of 
 business in Iowa, stipulate that it will not remove into the 
 Federal Court certain suits which it would, by the laws 
 of the United States, have a right to remove, is void, be- 
 cause it makes the right to a permit dependent upon the 
 surrender by the foreign corporation of a privilege secured 
 to it by the Constitution and the laws of the United States. 
 
 The case of Home Ins. Co. vs. Morse, 20 Wall. 445. ap- 
 proved ; and the decision in Doyle vs. Continental Ins. Co., 
 94 U. S. 535, explained. 
 The Court says: 
 
 "The case of Doyle vs. Continental his. Co., 94 U. S. 
 535, is relied on by the defendant in error. In that case, 
 this Court said, that it had carefully reviewed its decision 
 in Insurance Co. vs. Morse, and was satisfied with it. In 
 referring to the second conclusion in Insurance Co. vs. 
 Morse, above recited, namely, that the statute of Wisconsin 
 was repugnant to the Constitution of the United States, and 
 was illegal and void, the Court said, in Doyle vs. Conti- 
 nental Ins. Co.. that it referred to that portion of the stat-
 
 EEMOVAL OF CAUSl:S. 283 
 
 ute wliicli required a stipulation not to transfer causes to 
 the Courts of the United States. * * * The point of the 
 decision seems to have been, that, as the State had granted 
 the license, its officers would not be restrained by injunc- 
 tion, by a Court of the United States, from withdrawing it. 
 All that there is in the case beyond this, and all that is said 
 in the opinion which appears to be in conflict with the 
 adjudication in Insurance Co. vs. Morse, must be regarded 
 as not in judgment." 
 
 197. — Same — Same. 
 
 In Security Mutual Life Ins. Co. vs. Prewitt, 202 U. S. 
 246 (1906), a statute passed by the State of Kentucky was 
 before the Supreme Court, which held (Mr. Justice Day and 
 Mr. Justice Harlan dissenting) as follows: 
 
 A State has the power to prevent a foreign corporation 
 from doing business at all within its borders unless such 
 prohibition is so conditioned as to violate the Federal Con- 
 stitution, and a State statute which, without requiring a 
 foreign insurance company to enter into any agreement not 
 to remove into the Federal Courts cases commenced against 
 it in the State Courts, provides that if the company does 
 so remove such a case its license to do business within the 
 State shall thereupon be revoked, is not unconstitutional. 
 
 Doyle vs. Continental Tns. Co., 94 U. S. 535, followed, 
 and held not to be overruled by Barron vs. Burnsido, 121 
 U. S. 1S6, or any othoi' decision of this Court. 
 
 Mr. Justice Peckham in delivering the opinion of the 
 Court reviewed the decisions in the Morse and Doyle Cases, 
 and said: 
 
 "Tn these two cases this Court decided tliat any agree- 
 ment made by a foreign insurance company not to remove a 
 cause to the Federal Court was void, whether made pursu- 
 ant to a statute of the State providing for such agreement.
 
 284 Tin: LAW OF |-ll)i;i.I TV ISd.NDS. 
 
 tir ill llic nhsciicc ol" siicli st;ilulc; l)iit tliat the Stati; hav- 
 ing; power to cxcIikIc altof^ctlicr a forcif^ii insurance coin- 
 |)nii_v fi-oiii doing business witliin the State, luul ])Ower to 
 enact a statute wliieli, in addition to i)roviding for the 
 agreement mentioned, also provided that if the company did 
 remove a ease from the State to a Federal Court, its right 
 to do business Avithin the State should cease, and its jjcr- 
 mit should be revoked. It was held there was a distinction 
 between the two ])ropositions, and one might be held void 
 and the other not. The case of Barron vs. Burnside, 121 
 U. S. 186, has been cited as overruling the Doyle Case, 
 and as holding that a statute of the nature of the one in 
 question here void as a violation of the Federal Constitu- 
 tion. * * * We do not think so. * * * The most that can 
 be contended for is that the Barron Case holds that where 
 the statute exacts a stipulation in advance, as a condition 
 of granting a permit, and the statute is not separable into 
 parts, the whole statute is void, and a provision for with- 
 drawing the permit, if a case is removed, is not saved. 
 That principle, as we have said, does not touch this case, 
 as there is no exaction of a stipulation at any time. * * * 
 The truth is that the effect of the statute is simply to place 
 foreign insurance companies upon a par with the domestic 
 ones doing business in Kentucky. ]^o stipulation or agree- 
 ment being required as a condition for coming into the 
 State and obtaining a permit to do business therein, the 
 mere enactment of a statute which, in substance, says if you 
 choose to exercise your right to remove a case into a Fed- 
 eral Court, yoiir right to further do business within the 
 State shall cease and your ]iermit shall be withdrawn, is 
 not open to nnj/ constitutional ohjection." 
 
 198. — Discussion of Constitutionality of Such Statutes. 
 
 The question havine: been squarely presented to the Court, 
 and having been twice argued by distinguished counsel, it is 
 settled, at least for the present, that State statutes providing 
 for the revocation of the permit of a foreign insurance cor-
 
 REMOVAL OF CAUSES. 285 
 
 poration upon its removing a case from the State to a Federal 
 Court are constitutional, whatever may be the views of the 
 2:)rofession. 
 
 Since the Frewitt decision, however, the State of Missouri 
 has passed two Acts, incorporating with a few minor excep- 
 tions, the langTiage of the Kentucky statute, upon which it 
 was based, making one Act applicable to foreign insurance, 
 including surety, companies, and the other applicable to rail- 
 way corporations incorporated elsewhere than in that State, 
 and adding to the latter Act a penalty of from two to ten 
 thousand dollars for continuing the business of passenger and 
 freight transportation within the State after a revocation of 
 their right to do business within the State, as provided by the 
 Act. Certain railway corporations applied to the United 
 States Circuit Court at Kansas City, Missouri, for an injunc- 
 tion to restrain the Secretary of State from enforcing the said 
 law providing for the revocation of their respective charters- 
 
 The Court granted the injunction, holding the Statute un- 
 constitutional, upon the authority of Barron vs. Bumside, 
 supra, and upon the gi'ound that it is in conflict with the 
 Federal constitution, being ropug-nant to the provision against 
 the passage of any law by a State impairing the obligations 
 of contracts ; that the statute would result not only in an im- 
 pairment, but a repudiation of the contract under which the 
 foreign railway coi*poratious entered the State ; that the en- 
 forcement of the Act would amount to confiscation and a])- 
 propriation by the State of the property of such coi-porations ; 
 and upon the further ground that a resident corporation may 
 sue in the Federal Court, if there is a Federal question, 
 while that right, as well as that of removal, is denied to a 
 non-resident company — rights which are given by the Con- 
 stitution and Acts of Congress.
 
 2S0 'I'lll'; LAW i)h' 1-\1>\:IAI\ J{(^M)S. 
 
 Obviously (licru is a disLinction between a railroad corpora- 
 tion, o])oratiii,ii- nndor the Iciiislative authority of the State 
 and owniiii:,- hinds nnd raili-oad ]»roperty tlierein, ^nd an 
 insurance company, operating under the permit of its Insur- 
 ance J)cpartment, revocabh> with or without cause, as said 
 by the Supreme CV>urt in Doyle vs. Ins. Co., supra. And the 
 revocation of the i)ormit of the hitter could be effected with 
 the loss of its business in the State, while the enforcement of 
 the penalty of the statute against a railroad coi7)oration, 
 would result, as the Court said in the recent case refeiTed to 
 in the confiscation of its property. But the results to follow 
 the enforcement of a law are not the measure of its constitu- 
 tionality. The entire statute therefore, it would seem, must 
 be constitutional or not. Doubtless the question, as presented 
 in the recent Missouri Case, will reach the Supreme Court. 
 
 199. — Is Cause Removable Where Federal Question Involved? 
 
 It has been held that a suit on the official bond of the 
 cashier of a national bank, conditioned for the faithful per- 
 formance of the duties thereof "according to law and the by- 
 laws" of the bank, involves a federal question, and is main- 
 tainable in a Federal Court, irrespective of the citizenship 
 of the parties. Walker vs. Windsor National Bank, 56 Fed. 
 7C). Anothei- inipoi'tant question is here presented: Will it 
 still be held, in such case, that a foreign surety corporation, 
 upon removing a suit against it to a Federal Court, will in- 
 cur the forefiture of its charter? Apparently so, under the 
 Prewitt decision, although it has been held that any attempt 
 by a State to define the duties of National Banks or to con- 
 trol the conduct of their afi^airs is absolutely void. 
 McClellan vs. Chipman, 164 U. S. 347.
 
 REMOVAL OF CAUSES. 287 
 
 200. — Possible Solution of Question of Conflict Between States 
 and Federal Government. 
 
 The whole question of conflict of authority between the 
 Federal Government and the several States, of which this is 
 a feature, will doubtless find solution in the assumption by 
 the Government of control of all insurance and surety cor 
 jDorations engaged in an interstate business.
 
 INDEX. 
 
 PAGIC 
 
 ACCOUNTS. 
 
 examination of employee's 42 
 
 illustration • 43 
 
 promissory warranty as to examination of 45 
 
 ADMISSIONS. 
 
 (See Evidence.) 
 AGENT. 
 
 insurance, bonds of 241 
 
 discussion 241 
 
 di,2;est of authorities 242 
 
 table of cases 244 
 
 not liable for agency balances 241, 268 
 
 liability for aij;enfs failure to cancel insurance 
 
 policy 270 
 
 not liable for defaults of cashier 271 
 
 failure of, to pay over premiums received from pre- 
 decessor 273 
 
 sewing machine, transactions out of territory 270 
 
 alteration of contract or territory of 175 
 
 ALTERATION. 
 
 of contract. 
 
 (see Contract.) 
 APPLICATION, 
 for bond. 
 
 representations and warranties in 33 
 
 statements concerning by officer of corporation.... GO 
 
 statements concerning l>y applicant 54 
 
 agreement in to reimburse surety 210 
 
 of payments, chapter on 1 r>7 
 
 in course of business 157 
 
 digest of authorities 157 
 
 of salvage, chapter on 152 
 
 digest of authorities 152 
 
 discussion 155 
 
 ARREST. 
 
 information for, requirement of by surety 140 
 
 19
 
 21)0 INDEX. 
 
 I'AOK 
 
 AUTIIOKITV. 
 
 ol' oUiciu" ol' corporal ion in iiuliiiit,' statcnicnls as pait of 
 
 apiilii-atioii Tor oniployi-c's boiid d'j 
 
 AUTHOKITIIOS. 
 
 (iS'ccDiGEST or AtTiiourriES. ) 
 
 BANK. 
 
 authority of oflicer of, in making statements as part of 
 
 applicatiou for employee's bond. C.) 
 
 natiouul, crimes by officers of V,jP> 
 
 cases 1*33 
 
 employee, liability same as on other fidelity bonds 233 
 
 di.i:;est of authorities i.'33 
 
 table of cases relativ'e to 'Sil 
 
 borrowing to cover default '27'2 
 
 bond not liable for special deposit 273 
 
 nor for funds received without authority 273 
 
 cashier, as agent of 256 
 
 ordinarily his ai Is binding on bank '2iHi 
 
 BOND. 
 
 (See Employee.) 
 
 (See Corporate Fidelity Bond.) 
 
 construction of corporate fidelity 1 
 
 as surety contract 4 
 
 as insurance contract S 
 
 as indemnifying contract 17 
 
 illustrations 18-24 
 
 summary 31 
 
 construction of judicial 32 
 
 construction of contract 32 
 
 otiicial. corporate fidelity as 141 
 
 successive fidelity. 
 
 liability where default in more than one term 13."> 
 
 liability limited to penalty of original bond 13."» 
 
 leading case 13r. 
 
 digest of authorities 137 
 
 conflict 13S 
 
 liability where original bond invalid 139
 
 INDEX. 291 
 
 PAGE 
 
 BOND, Continued. 
 
 successive 204 
 
 digest of authorities 204 
 
 official 200 
 
 corporate fidelity, as official 141 
 
 surety liable as upon statutory 141. 144 
 
 false inducement to execute, no defense 142 
 
 conflict 143 
 
 limitations in 248 
 
 representations and warranties in 33 
 
 burden of proof of 39 
 
 fraud in procuring TO 
 
 signature to 210 
 
 of insurance agent 241 
 
 of bank employee 233 
 
 BREACH. 
 
 of warranty 44-4G 
 
 of promissory warranty 45 
 
 *of bond, by obligee's failure to notify surety of delinciuency 
 
 of principal It3 
 
 of contract, knowledge of 22.1 
 
 BIRDEN OF PROOF. 
 (See Evidence.) 
 
 prima facie proof 13 
 
 of representation or warranty in coriiorate fidelity contract, .3!) 
 leading case 3!) 
 
 CASES. 
 
 (;S'ee Digest of Ai;thouities.) 
 
 CAUSES. 
 
 ( See Removal of Causes. ) 
 CHANGE. 
 
 of employment. 
 
 (See Contract.) 
 
 CHECKS. 
 
 fraudulent raising of by employee 207 
 
 to be observed by obligee 4.')
 
 2\)2 INDEX. 
 
 I' AUK 
 
 L'C>NS'li;i (TIOX. 
 
 uf <ur|Kiniti' fidelity bonds 1 
 
 as surety contract 4 
 
 as insuraiKo contract ' 8 
 
 as indcnuiifying contract 17 
 
 illustrations 18-24 
 
 summary .'il 
 
 of representations and warranties in 4U-18 
 
 illustrations 48-75 
 
 of .iudiclal bonds 3li 
 
 of contract and other similar bouds 32 
 
 of represeutations and warrauties 33 
 
 reference to local statutes concerning 34 
 
 judicial attitude 35 
 
 illustrations of 48-75 
 
 of representations and warranties, doubtful as former.... 47 
 court views entire contract 47 
 
 COXTRACT. 
 
 croporate tidelity, construction of 1 
 
 as surety -4 
 
 as insurance policy 8 
 
 as indemnity 17 
 
 illustrations 18-24 
 
 summary 31 
 
 bonds, construction of 32 
 
 knowledge of breach of -~'> 
 
 signature to (See Signatire and Principal) 210 
 
 alteration of 1"» 
 
 effect on liability of surety 175 
 
 risk performing duties of more than one otiice 177 
 
 change in duties of risk 178 
 
 extension of charter or increase of capital stock of 
 
 obligee 180 
 
 alteration of. 
 
 change in partnership of risk 181 
 
 change in partnership of obligee 1S2 
 
 miscellaneous illustrations 1S2
 
 INDEX. 293 
 
 PAGE 
 
 CORPORATE FIDI:LITY BOND. 
 
 construetiou of 1 
 
 as surety contract 4 
 
 as insurance contract S 
 
 as indemnifying conti-act 17 
 
 illustrations 18-24 
 
 summary 31 
 
 representations and warranties in 33 
 
 definitions of 36-40 
 
 rules of construction of 40-48 
 
 illustrations of 48-75 
 
 proof of breach of 39 
 
 signature to 210 
 
 limitations in 248 
 
 as official bond 141 
 
 surety liable as upon statutory 141 
 
 false inducement to execute no defense 142 
 
 conflict 143 
 
 CORPORATION. 
 
 authority of officer of. in making statements as part of 
 
 application of employee for bond 69 
 
 private, whether fraud, negligence or misstatement by one 
 
 officer will release sureties of another 91 
 
 leading case 116 
 
 discussion 118 
 
 digest of authorities 119-12.3 
 
 public, laches of officer of 109 
 
 knowledge of officer of 228 
 
 bound by 228 
 
 conflict 231 
 
 CULPABLE NEGLIGENCE. 
 
 discussion of 145 
 
 elastic term in insurance 145 
 
 illustrations 145 
 
 DEFAULT. 
 
 (See Immediatk Notice and Proof of Loss.I 
 
 Knowledge of 225 
 
 DEFINITIONS. 
 
 of representations and warranties 36-40
 
 -"•• I INDEX. 
 
 PAOE 
 
 DIGKST OF AiriKHM'I'llOS 
 
 construct ion of coriionitc lidclily buiid 4-33 
 
 roprest'iitations inul w.-irniiitii's 4.S-7n 
 
 fraud iu procuring bond 80-80 
 
 failure of obligee to promptly notify surety of default of 
 
 rislc 03-103 
 
 of doalinss with or indulgencf; to principal by obligee. . 103-10") 
 
 laches not imputable to Government of U. S 10i!-100 
 
 laches of State, municipal or other public corporations. 100-ll.j 
 
 laches of officers of private corporations 115-123 
 
 fraud or dishonesty — larceny or embezzlement 127-133 
 
 liability where bond and renewals 135-140 
 
 corporate fidelity bond as oUicial bond 141-144 
 
 culpable negligence 145-148 
 
 where surety, without denial of liability, requires fur- 
 ther proofs, information for arrest, or starts prose- 
 cution 149-151 
 
 application of salvage 152-15«:> 
 
 application of payments 1.57-101 
 
 immediate notice 1(>1-170 
 
 proof of loss 171-174 
 
 change of employment or alteration of contract 175-184 
 
 faithful performance of dutj- 185-190 
 
 term of office 191-200 
 
 term of public officer 200-203 
 
 successive bonds 204-209 
 
 signature of principal 211-223 
 
 knowledge of default 225-22 1 
 
 knowledge of officer of corporation 229-232 
 
 bank employee ' 233-240 
 
 bonds of insurance agents 241-24. 
 
 limitations 249-_oo 
 
 cashier as agent of bank 2.t i -2o9 
 
 evidence 2G0-26G 
 
 burden of proof -'^^ 
 
 general scope of liability 2fi7-2(3 
 
 removal of causes 2* » -284 
 
 DISHONESTY. 
 
 ( See Fbatjd. )
 
 INDEX. 295 
 
 PAGE 
 DUTY. 
 
 faithful performance of 185 
 
 embraces competency, skill and diligence as well as 
 
 integrity ISO 
 
 miscellaneous cases 187 
 
 of obligee 92 
 
 rule of good faitli by. c-ontinuous 97 
 
 U. S. Government 106 
 
 EMBEZZLEMENT. 
 ( See Fraud. ) 
 
 compared witli larceny 124 
 
 or larceny, meaning of terms 124 
 
 construed as wrongful misapplication of funds 133 
 
 EMPLOYEE. 
 
 employer's statement regarding accounts of 41 
 
 illustration 43 
 
 false statements by, not binding on insured, unless ratified, 48 
 
 obligation of, in application to repay surety 210 
 
 of bank, liability same as on other fidelity bond 233 
 
 digest of authorities 233 
 
 list of cases relative to 233 
 
 fraudulent raising of checks by 207 
 
 issuance of checks by 2C9 
 
 fraudulent misapplication of funds by 267 
 
 balances due by insurance agent as 268 
 
 advancement to, by employer 260. 270 
 
 diversion of funds by 270 
 
 theft by, upon being discharged 270 
 
 transactions outside territory of 175, 270 
 
 surety of, liable for loss following employee's failuie to 
 
 cancel fire insurance policy as directed 270 
 
 defaults of cashier appointed to assist 271 
 
 individual acts of cashier 272 
 
 defaults by, before givinc of bond 271 
 
 borrowing by, to cover default 272 
 
 bond of, to sell goods 272 
 
 surety of, not liable for advances 272
 
 2 KG - INDEX. 
 
 PAGE 
 K.MI'LOVKIO, Continued. 
 
 iiiisiippliciitioii (tf fiiiids \>y life iiisiiriiiicc iircsidoiit 272 
 
 bond of, not di.schiir^'cd Ity suit ou uolcs for snnio funds. . 27 
 
 bond of, not liable for special deposit 27 
 
 nor for money received without authority iT 
 
 failure of to ;H(tn]iit foi' funds received from jM-edecessor. . 27:i 
 
 sii^nature of 210 
 
 defaulting may be prosecuted by surety on subrogation. . . . 155 
 
 .surety not liable for debts contracted by 209 
 
 EMPLOYER. 
 
 Statement of, regardinir employee's accounts 41 
 
 illustration 43 
 
 statement by public officer as 75 
 
 authority of otficer of < orii(»ratiini to make statement as.. 69 
 EMPLOYMENT. 
 
 clian.ne of. ( fe'ee Contkact. ) 
 duration of. (See Trim <>i ( M i u k. t 
 EXAMINATION. 
 
 of accounts of employee 42 
 
 EXECUTION. 
 
 of contract 210 
 
 EVIDENCE. 
 
 relating to Hdelity bonds 2<i0 
 
 admissions of principal and records kept by liim usually 
 
 admissible and binding on him 260 
 
 digest of authorities 263 
 
 burden of proof 265 
 
 of representation or warranty in corporate fidelity 
 
 contract ; 39 
 
 l)rima facie, of claim 13 
 
 EXPENSES. 
 
 obligation of principal to pay 210 
 
 FATTIIFUL PERFORMANCE OF DUTY. 
 
 ( See Duty. ) 
 FALSE REPRESENTATION. 
 
 (See Reprksent.mions and Warranties.) 
 
 in pi'ocuring bond 76 
 
 by jniblic officials 89 
 
 by in-ivate corporations 91
 
 INDEX. 297 
 
 PAGIC 
 
 FEES. 
 
 attorneys, obligation of principal to pay 210 
 
 FIDELITY. 
 
 (See Corporate Fidelity Bond.) 
 
 FORFEITURES. 
 
 law is averse to 4() 
 
 FRAUD. 
 
 in procuring bond 70 
 
 Government or other sovereign body SO 
 
 private corporations 91 
 
 or dishonesty 124 
 
 FRAUDULENT. 
 
 concealment of facts in applying for bond 70 
 
 GOVERNMENT. 
 
 frauds by officers of, in procuring bonds for other officers. 89 
 laches not imputable to lOG 
 
 IMMEDIATE NOTICE. 
 
 discussion of 162 
 
 what is 162 
 
 x-easonable notice sufficient 163 
 
 digest of authorities 164 
 
 notice under accident policies 169 
 
 requirement of notice reasonable and imperative 170 
 
 INDEMNITY. 
 
 corporate fidelity bond, as bond of 17 
 
 illustrations 18-24 
 
 INDULGENCE. 
 
 by obligee, or dealings with principal 93 
 
 INFORMATION. 
 
 for arrest 149 
 
 INSURANCE. 
 
 ( See Agent and Employee. ) 
 
 agents, bonds of 241 
 
 discussion 241 
 
 digest of authorities 242 
 
 table of cases 244 
 
 JT'DICIAL BONDS. 
 
 construction of 32
 
 -!).S • INDEX. 
 
 k.\(>\vm;i»gI':. 
 
 <>r (Ic'linilt, what is 2L'."i 
 
 oltligco requirod to act on actual kiKiwIcdfic, nut iDcro 
 
 snsi)icion 22.", 
 
 (litest (»r authorities 22r( 
 
 of uiil'avorahh' facts not counectcd with eiui)loyiuent 227 
 
 of olllcor of corporation 228 
 
 by oblisee of defaults not communicated to surety uy, 
 
 LACHES. 
 
 hy obligee, discussion of 92 
 
 not imitutable to U. S. Government 100 
 
 digest of authorities 100 
 
 nor to State, or other public corporation 109 
 
 digest of authorities 109 
 
 by private corporations, Quere 115 
 
 digest of authorities ll.^> 
 
 LARCENY. 
 
 ( See Fraud. ) 
 
 compared with embezzlement 124 
 
 or embezzlement in civil case construed as wrongful mis- 
 application of funds 133 
 
 LEADING CASE. 
 
 burden of proof 39 
 
 false warranty 45 
 
 successive fidelity bonds 130 
 
 fraudulent representation 7S 
 
 negligence by obligee 80 
 
 effect of failure of obligee to communicate to surety de- 
 fault of principal 98 
 
 laches or fraud of one officer of private corporation as 
 
 affecting sureties of others 110 
 
 strict construction of insurance conti'act 
 
 construction against insurer in case of ambiguities 13 
 
 representations and warranties in insurance contracts 39 
 
 signature of principal 210 
 
 laibility of surety for insurance agent 241 
 
 removal of causes against State prohibition 283'
 
 ixDEx. 299 
 
 PAGE 
 
 LIABILITY. 
 
 of. surety, where he requires information for arrest, further 
 
 proofs of loss, etc 149 
 
 attachment and termination of 191 
 
 scope of 267 
 
 illustrative authorities 267 
 
 LIMITATIONS. 
 
 provisions relative thereto in corporate fidelity bonds 248 
 
 doctrine of Supreme Court 248 
 
 digest of authorities 249 
 
 MISREPRESENTATION. 
 
 in procuring bond 76 
 
 NATIONAL BANKS. 
 (See Bank.) 
 
 crimes by officers of 13S^ 
 
 NEGLIGENCE. 
 
 (See Laches.) 
 
 (See Culpable Negligence.) 
 
 of obligee 78. 92 
 
 review of authorities 100 
 
 NOTICE. 
 
 (See Immediate Notice.) 
 of loss ( See Proof of Loss ) 171 
 
 OBLIGEE. 
 
 indulgence or dealings by 93 
 
 laches of, genex-ally 78, 93 
 
 digest of authorities lOCi 
 
 OFFICE. 
 
 term of U51 
 
 attachment and termination of liability V.n 
 
 digest of authorities 191 
 
 bonds of public officers 200- 
 
 OFFICER. 
 
 (See Corporation . ) 
 
 of corporation, knowledge of binding on corporation 22S 
 
 conflict -"^l 
 
 authority of, in making statements as part of appli- 
 cation for employee's bond 69
 
 'MO 
 
 INDEX. 
 
 PAGE 
 
 OFF I ('Kit, Continued. 
 
 public, stiiteuK'iits by. in i-cfcrciHc to Mpplication of other 
 
 ofiicer 7.-, 
 
 bonds of 2(KJ 
 
 OFFICIAL. 
 
 successive, bonds liOO 
 
 corporate fidelity as ]41 
 
 PAULY CASE 13, 3 5, 10, 70, 72, 171, 22G, 230, 250, 25<J 
 
 PAYMENTS. 
 
 (See Application.) 
 
 application of l.-,7 
 
 in course of business l.")7 
 
 digest of authorities l.",7 
 
 PREMIUM. 
 
 life company not required to tender return of, when de- 
 fending for breach of representation or warrnaty 7". 
 
 Payment of, important element in determining whether 
 cashier is agent of bank in making employer's state- 
 ment therefor 259 
 
 PRINCIPAL. 
 
 Signature of ." 210 
 
 necessary where so stipulated in contract 210 
 
 leading case 211 
 
 recent decisions 212 
 
 reference to fidelity bonds generally 215 
 
 rules in several States 21(J 
 
 miscellaneous illustrations 21S 
 
 bonds other than fidelity — 
 
 surety liable 219 
 
 surety not liable 221 
 
 miscellaneous observations 223 
 
 admissions of, binding on surety 260 
 
 obligation of, to repay surety 210 
 
 surety not liable for debts contracted by 209 
 
 l'K<)MisSORY WARRANTY. 
 
 (See Repbesentation anh Warranty.) 
 
 PROSECFTE. 
 
 right of surety to. by subrogation 155
 
 PAGE 
 
 PKOOF. 
 
 burden of (See Evidence) 205 
 
 of loss, requiriug further 149 
 
 discussion of 171 
 
 sufficiency of 171 
 
 digest of authorities 171 
 
 strict, of larceny or embezzlement, not required iu civil 
 
 cases ■ 126 
 
 REMOVAL OF CAUSES. 
 
 discussion of 274-2S7 
 
 from State to Federal Courts 274 
 
 requisites 274 
 
 discussion 275 
 
 digest of authorities 277 
 
 for local prejudice 278 
 
 State statutes prohibiting 279 
 
 review of authorities 279 
 
 constitutionality of such statutes 284 
 
 is cause removable where Federal question involved? 286 
 
 possible solution of difficulty 287 
 
 REPRESENTATIONS AND WARRANTIES. 
 
 [See Fraud in Pbocuring Bond) 76 
 
 discussion of 33 
 
 subject of conflict 34 
 
 reference to local statutes relating to 34 
 
 judicial attitude regarding 35 
 
 definitions of 36-40 
 
 distinction between 36-40 
 
 leading case, regarding 38 
 
 rules of construction of 40-48 
 
 illustrations 48-75 
 
 false representation of immaterial fact 40 
 
 of material fact 41 
 
 doubtful statements construed as representations 47 
 
 court views entire contract 47 
 
 false statements by risk not binding on insured, unless 
 
 ratified 48 
 
 false inducement to surety to e.xecute corporate fidelity as 
 
 official bond 142
 
 o02 INDEX. 
 
 PAGE 
 
 Iti:i'i:i;si:N'l"ATI<)NS AM> WAUUANTIKS, continued. 
 
 ill iusuraiK*^ iKjlicies, list of ciiscs ~'> 
 
 by public ollicers ~'> 
 
 lite iius. company not requircnl to tender return of pi-cniiuni.s 
 
 when defendiiif: for breach of 7") 
 
 SALVAGE. 
 
 (See Ai'i'LicATioN.) 
 application of !•>- 
 
 di.iicst of authorities ir>li 
 
 first to unsecured loss 152 
 
 discussion 15."» 
 
 SIGNATURE. 
 
 (/S't'c Principal. ) 
 
 of principal 210 
 
 necessary wliere so stipulated in contract 210 
 
 leading case 211 
 
 recent decisions 212 
 
 reference to fidelity bonds generally 21."> 
 
 rules in several States 21<; 
 
 miscellaneous illustrations 218 
 
 bonds other than fidelity — surety liable 210 
 
 surety not liable 221 
 
 miscellaneous observations 223 
 
 STATE. 
 
 laches by officer of 100 
 
 digest of authorities 100 
 
 conflict 115 
 
 SI^BROGATION. 
 
 right to prosecute by 1 •">."! 
 
 SUCCESSIVE. BONDS. 
 
 (/Sec Successive FroELiTY Bonds.) 
 
 discussion of -<^ 
 
 digest of authorities 204 
 
 official bonds 20i : 
 
 SUrCESSIVK FIDELITY BONDS. 
 (Sec Successive Bonds.) 
 discussion of 135-140
 
 INDEX. 303 
 
 PAGE 
 
 SUCCESSIVE FIDELITY BONDS, Continued. 
 
 liability on, where default in more than one term 135 
 
 limited to penalty of original bond 135 
 
 leading case 136 
 
 digest of authorities ; 137 
 
 . conflict 138 
 
 liability where original bond invalid 139 
 
 SURETY. 
 
 liability of, where obligee failed to notify of default 93 
 
 liability for defaults, after knowledge by obligee non-com- 
 municated to surety 93 
 
 liability of, in cases of indulgence or dealings by obligee. . 93 
 
 in cases of laches or negligence by obligee generally, 93 
 
 where he requires information for arrest, &c 149 
 
 or institutes prosecution 149 
 
 illustration 149 
 
 not liable for advances to employee when compensated by 
 
 commissions 272 
 
 nor for debts contracted by principal 269 
 
 by subrogation, may prosecute 155 
 
 obligation of principal to repay 210 
 
 TERM. 
 
 ( See Office. ) 
 
 UNITED STATES GOVERNMENT. 
 
 laches not imputable to ini; 
 
 WARRANTY. 
 
 {See Representation and Warranty.) 
 
 false of immaterial fact 44 
 
 material fact 45 
 
 leading case 45 
 
 promissory 45
 
 UNIVERSITY OF CALIFORNIA LlltRARY 
 
 I. OS A limits 
 This book is 1)1 i; on the last date staiiiprcl IkIoh. 
 
 l)CT18 136l /r 
 MAY 1 1978 
 
 Form L9-Series 4939 
 
 LAW LIBRARY 
 
 UNT/ERSITY OF CALIFORNIA 
 
 LOS ANG£I^:S
 
 Ub auu mcnm nuv. 
 
 AA 000 869 345 9