American Surety Co. v. Pauly (No. 1), 170 U.S. 133 (1898)

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American Surety Co. v. Pauly (No. 1)

No. 168

Argued January 6-7, 1898
Decided April 18, 1898
170 U.S. 133

ERROR TO THE CIRCUIT COURT OF

APPEALS FOR THE SECOND CIRCUIT

Syllabus

In an action against the maker of a bond, given to indemnify or insure a bank against loss arising from acts of fraud or dishonesty on the part of its cashier, if the bond was fairly and reasonably susceptible of two constructions, one favorable to the bank and the other to the insurer, the former, if consistent with the objects for which the bond was given, must be adopted.

Under the condition of the bond in this case, requiring notice of acts of fraud or dishonesty, the defendant was entitled to notice in writing of any act of the cashier which came to the knowledge of the plaintiff of a fraudulent or a dishonest character as soon as practicable after the plaintiff acquired knowledge, and it is not sufficient to defeat the plaintiff’s right of action upon the policy to show that the plaintiff may have had suspicions of dishonest conduct of the cashier; but it was plaintiffs duty, when it came to his knowledge, when he was satisfied that the cashier had committed acts of dishonesty or fraud likely to involve loss to the defendant under the bond, as soon as was practicable thereafter to give written notice to the defendant; though he may have had suspicions of irregularities or fraud, he was not bound to act until he had acquired knowledge of some specific fraudulent or dishonest act that might involve the defendant in liability for the misconduct.

When the bank suspended business and the investigation by the examiner commenced, O’Brien ceased to perform the ordinary duties of a cashier, but within the meaning of the bond, he did not retire from, but remained in, the service of the employer during at least the investigation of the bank’s affairs and the custody of its assets by the national bank examiner, which lasted until the appointment of a receiver and his qualification. Held that the six months from "the death or dismissal or retirement of the employee from the service of the employer" within which his fraud or dishonesty must have been discovered in order to hold the company liable did not commence to run prior to the date last named.

The making of a statement as to the honesty and fidelity of an employee of a bank for the benefit of the employ, and to enable the latter to obtain a bond insuring his fidelity, was no part of the ordinary routine business of a bank president, and there was nothing to show that, by any usage of this particular bank, such function was committed to its president.

The presumption that an agent informs his principal of that which his duty and the interests of his principal require him to communicate does not arise where the agent acts or makes declarations not in execution of any duty that he owes to the principal, nor within any authority possessed by him, but to subserve simply his own personal ends or to commit some fraud against the principal, and in such cases the principal is not bound by the acts or declarations of the agent unless it be proved that he had at the time actual notice of them, or, having received notice of them, failed to disavow what was assumed to be said and done in his behalf.

When an agent has, in the course of his employment, been guilty of am actual fraud contrived and carried out for his own benefit, by which he intended to defraud and did defraud his own principal or client, as well as perhaps the other party, and the very perpetration of such fraud involved the necessity of his concealing the facts from his own client, then under such circumstances, the principal is not charged with constructive notice of facts known by the attorney and thus fraudulently concealed.

The case is stated in the opinion.