First National Bank of Crandon v. United States Fidelity & Guaranty Co. , 150 Wis. 601 ( 1912 )

BaR,Nes, J.

1. It is urged that the bond in this case was forfeited by reason of the fact that the employee Eidsmoe was promoted from the position of assistant cashier to that of’ cashier during its continuance, without notice to the defendant. The point is not well taken for two reasons. First, because the bond provides that “the employer may, at any time, transfer any and every employee for whom the company is . . . bound hereunder, from one position to another, and shift any employee about at pleasure without notice to the company, and the company shall be and remain liable to the employer.” Therefore under the terms of the bond itself the plaintiff had a right to make the shift which it did without notice to the defendant. Second, the proof showed that Eidsmoe performed the same work and was intrusted with the same responsibility while he was assistant cashier that he assumed while he was cashier, and that the change was one in name only and did not affect the character of the work done. No harm resulted to the defendant from making the change.

2. It is also insisted that the bond is a guaranty of collection and not of payment, and that therefore no recovery cou|d be had thereon until the plaintiff had exhausted its remedies against those primarily liable. . ,

The language of the bond is as follows: “The company covenants and agrees . . . that it will . . . pay to the employer the amount of any loss or damage that shall happen to the employer . . . through the dishonesty ... or through any act of omission or commission of any of the employees, done or omitted in bad faith.” The bond further provided' that the employer should promptly give notice in writing to the company after knowledge of any loss in respect to which the liability of the defendant was claimed and should within six months furnish the company proof of such loss, and that in default thereof the liability of the company should terminate. It further provided thM no action, suit, or proceeding at law or in equity should be maintained on the bond unless the same was commenced within one year'from the time of making claim upon the company for the loss in respect to which such action or proceeding was brought.

The language of the covenant is that the -defendant would pay to the employer the amount of any loss or damage that might happen, and not that it would pay 'the net amount of the loss after plaintiff had exhausted its remedies against those liable for the moneys withdrawn from the bank. This court has held that a bond of the kind involved in this case given for a money consideration has all the essential features; of an insurance contract, and that it is not to be construed according to the rules of law applicable to the ordinary accommodation surety. United Am. F. Ins. Co. v. American B. Co. 146 Wis. 573, 131 N. W. 994. Other cases so holding are United States F. & G. Co. v. First Nat. Bank, 233 Ill. 475, 84 N. E. 670; Farmers' & M. S. Bank v. United States F. & G. Co. (S. Dak.) 133 N. W. 247; American S. Co. v. Pauly, 170 U. S. 133, 18 Sup. Ct. 552.

If the plaintiff were required to exhaust its remedies against Price and Eidsmoe before it could have recourse against the defendant, it might well be that it could not comply with the conditions of the bond at all, because it might not be able to enforce its remedies against these parties within the time which the bond attempts to limit for the commencement of suit thereon. It appears to be quite clear that the language of the bond gives the plaintiff an absolute right to recover its loss from the surety as soon as it occurs, and not the qualified one to recover only so much of the loss as cannot be recovered from those responsible for it. Queenan v. Palmer, 117 Ill. 619, 7 N. E. 470. We do not find anything in the cases of LaRose v. Logansport Nat. Bank, 102 Ind. 332, 1 N. E. 805; Closson v. Billman, 161 Ind. 610, 69 N. E. 449; or Singer Mfg. Co. v. Littler, 56 Iowa, 601, 9 N. W. 905, relied on by appellant, which supports its contention.

3. It is argued that the officers of the plaintiff bank had knowledge of the practice of kiting checks which was being carried on after the month of June, 1909, and might have informed the surety of such fact or might have discharged the employee in time to have prevented all loss under the bond, and that because of its failure to do either, the surety is discharged under the clause in the bond set forth in the statement of facts and defining the matters .and things which it was the duty of the bank to disclose to the defendant.

The finding of the circuit court negatives actual knowledge of the practice of kiting checks after the time stated. It is true there is evidence in the case from which the court might have found that such knowledge existed, but the officers of the bank denied having such knowledge, and a finding in accordance with their testimony is fairly supported by the evidence.

4. It is further urged that an examination of the hooks of the plaintiff bank would disclose the practice that was being pursued, and that the officers of the bank were chargeable with knowledge of what was contained in their books, particularly inasmuch as they represented, when the application for the bond was made, that periodical examinations of the bank would be made by its officers.

The language of the bond is that the employer would notify the defendant of certain facts if the same should “come to the knowledge of the employer.” We interpret this provision of the bond to mean actual knowledge and not mere constructive notice, which is a very different thing from knowledge, although in some cases its legal effect may be the same. The bond did not require the plaintiff to notify the defendant of matters of which it had knowledge and also of matters of which it might have had knowledge had its officers made a critical examination of its books from time to time.

5. It is urged that in its application for the bond the plaintiff represented that the bank would be examined about once a month by its officers and directors; that monthly meetings were had and cursory examinations were made,- that plaintiff was bound to make efficient examinations from time to time, and that if such examinations had been made the cashier’s default would have been discovered, and that plaint-, iff is precluded from recovery by reason of the negligence and carelessness of its officers in conducting their examinations.

This issue is not raised by the pleadings. Negligence is not set up as a defense in the answer, it is not made the subject of any finding by the court, and was not discussed by the court in the exhaustive opinion which it rendered in the case. The bond itself does not require any examinations to be made. If defendant wished to rely, on representations made in the application for the bond, it should have so advised the other party by its pleading.

Treating the question as being properly before the court does not affect the ultimate conclusion to he reached in the case. There was evidence strongly tending to show that the default in question could not have been discovered except by an examination of the draft register, and that while a thorough and critical examination would uncover the wrongdoing, an ordinarily careful one might no.t.

Mere negligence on the part of the insured which results in loss is not a defense against a fire insurance policy, but is one of the risks covered by the insurance. Pool v. Milwaukee M. Ins. Co. 91 Wis. 530, 540, 65 N. W. 54; Karow v. Continental Ins. Co. 57 Wis. 56, 62, 64, 15 N. W. 27. Neither is it a defense in an action on the bond of a surety corporation unless it is such that it amounts to fraud or bad faith. Fidelity & D. Co. v. Courtney, 186 U. S. 342 (22 Sup. Ct. 833) and cases cited at page 361. The case of United States F. & G. Co. v. First Nat. Bank, supra, is to the same effect. We think the doctrine of these cases is sound and should be followed.

6. It is next insisted that at the time the bond was applied for the officers of the plaintiff knew that the practice of kiting checks had been carried on, and that it was its duty to disclose that information in its application for the bond, and furthermore that it was its duty to inform the defendant of that fact under the clause which obligated the plaintiff to inform the defendant of any dishonest transaction in which Eidsmoe participated or of any transactions carried on by him in bad faith and not through mere negligence or error in judgment.

The court found in substance that the original transactions of Price with the bank were permitted through ignorance on Eidsmoe’s part of the banking business, and were the result of an error in judgment and not of any bad faith. Eidsmoe was notified on June 12, 1909, to stop the practice which had been pursued, and he did practically stop it for a period of three months. If the acts complained of were not done in bad faith or with a dishonest purpose, no notice was required. We are unable to say that the inference -winch the trial court .drew from the testimony and from all of the facts and circumstances disclosed by the case is not fairly supported by the evidence, and we do not think the finding on this question of fact should be disturbed by this court.

7. It is also urged’ but not very strenuously, that the last acts complained of were the result of errors and not of dishonesty or bad faith on Eidsmoe’s part. The circuit court found the contrary, and this finding is clearly supported by the testimony. These transactions occurred after Eidsmoe had received direct and explicit instructions not to cash any checks given by Price oñ outside banks, unless he had advice from the banks on which the checks were drawn that they would be paid on presentation. There was also some testimony tending at least to show that Eidsmoe profited to some extent by permitting Price to withdraw moneys from the bank in the manner in which he did.

Byv the Court. — Judgment affirmed.'