Case ID: ohio-st_34/html/0411-01.html
Source: Caselaw Access Project
Author: {"author": "\n      McIlvaine, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Dinsmore, Trustee, etc. v. Tidball et al.
    If a principal, having knowledge, or a belief founded on reasonable and reliable information, that his agent is a defaulter, requires sureties for bis-fidelity in the future, and holds him out as a trustworthy person, whereby such security is obtained, he can not afterward avail himself of a guax-anty so obtained from a pei’son who was ignorant of what was known to, and ought to have been disclosed by, the employer.
    Error to the District Court of Stark county.
    The original action was brought by plaintiff in error on a bond executed to him by defendants in error, Tidball as-principal, and his co-defendants, Shimp and Brosius, as-sureties, to indemnify the Adams Express Company against loss from the unfaithfulness or dishonesty of the principal as station agent of the company at Alliauce, Ohio, to recover on account of money embezzled by Tidball while acting as such agent.
    The sureties defended, chiefly upon the ground that,, previous to the execution of the bond, their principal having been engaged in the same employment, had proved a defaulter by appropriating moneys belonging to the company to his own use, all of which was known to the company, but of which the sureties were ignorant, and that they were induced to sign the bond by reason of the fraudulent concealment of the dishonesty of their principal from-, them by the company, its agents, and managers.
    From a bill of exceptions containing all the testimony and part of the charge, it appears that Tidball had been station agent of the company at Alliance for some months-previous to the execution of the bond, during which period. he had embezzled moneys from time to time. After the first embezzlement, it was his habit, for the purpose of avoiding detection, to replace moneys appropriated to his own use, by other moneys abstracted from packages subsequently coming into his hands. About the 30th of December, 1871, the date of the bond, one Damsell, who ••resided at Crestline, Ohio, a route agent of the company, who had supervision of local agencies, was at Alliance, looking after a collection of $700 made by Tidball, and which had been delayed in reaching the consignee. At this time Damsell, in pursuance of general instructions, ■ demanded a bond with sureties from Tidball, and furnished to him a printed form, to he executed by him and his sureties, without knowledge as to the parties who were to become sureties. This printed form was afterward signed by the defendants, in the absence of Damsell, and being thus executed, was transmitted to Damsell at his home in •Crestline. This was the same bond upon which suit was brought, and, without referring to the former employment of Tidball, it does recite the fact that the company had required security for the faithful performance of his duties, •and that it had agreed to employ him as such agent.
    As to the knowledge of the company, previous to the •execution of the -bond, of the defalcations of the agent, Tidball, the testimony was conflicting.
    On the trial, in the court of common pleas, the court, ■among other things, charged the jury as.follows:
    “ If you find that William K. Tidball, at and before the time this bond was required of him, was intentionally and •dishonestly a defaulter to the Adams Express Company, as to moneys intrusted to said company, which he had received as its agent at Alliance, Ohio, and that the witness, Damsellj acted for said company in demanding and receiving said bond, and, before receiving the same, either knew of such default, or, if he did not know it, believed, upon reasonable and reliable ground of information or belief, that such default existed, then, if suitable and reasonable opportunity existed, it was the duty of Damsell, as the agent of said company, to make known to the sureties upon the-bond (and defendants), Shimp and Brosius, such fact of Tidball’s delinquency, or said Damsell’s belief of such de- • linqueney, before accepting said bond, although said Dam-sell did not know before said bond was signed by said Shimp and Brosius, who the sureties thereon were to be, and, as Damsell did not give such information, if you find further that the defendants, Shimp and Brosius, in signing • said bond, acted under a belief, from the recitals of said bond, that said Adams Express Company considered said Tidball a trustworthy person, and would not have signed the bond but for such belief, then the plaintiff can not recover against said Brosius or Shimp, or either' of them.
    “ But if said Tidball had not been a defaulter at the time of the acceptance of said bond by Damsell, or if he had been, was so by mere mistake, or other cause not involving intentional wrong, and Damsell, at the time aforesaid, knew or believed such delinquency existed, it was not the duty of Damsell to make this knowledge or belief known to said defendants, or either of them, and his failure to do so would not vitiate the bond.
    “ Or if Damsell was, at the time of accepting the bond,. at such a distance from the said sureties that under the cir- ■ cumstances shown by the testimony, he could not reasonably inform them of such delinquency of Tidball, he was not bound to give them this information, although Tidball had been dishonestly a defaulter, and Damsell knew or believed that fact, and his failure to do so would not vitiate the bond or prevent plaintiff from recovering upon it against the de- - fendants, Shimp and Brosius.”
    A verdict and judgment were rendered against the prin- - cipal and in favor of the sureties. This judgment was affirmed in the district court.
    The plaintiff now seeks to reverse the judgment below upon the grounds that the court erred in its charge, and - the verdict is contrary to the testimony.
    
      
      J. T. Brooks, for plaintiff in error:
    The fact that the agent was a defaulter at the time of the .giving of the bond, and known to be so by the employer, and that the employer did not seek out the sureties and inform them of it, they being ignorant of the default, is no ■ defense. Ætna Life Ins. Co. v. Mabbett et als., 18 Wis. 667; Etting v. Bank of U. S. 6 Peters (condensed), 217; 11 Wheat. 59 ; Atlas Bank v. Brownell, 9 R. I. 168 ; Magee et al. v. M. Life Ins. Co., 92 S. C. U. S. (2 Otto, 93); Ham v. Greene, 34 Ind. 18; Wayne v. Com. Nat. Bank, 52 Pa. St. 343 ; Lee et als. v. Jones, 17 C. B. (N. S.), 482 ; Hamilton v. Watson, 12 Cl. & Pin. 109 ; The N. B. Ins. Co. v. Lloyd, 10 Exch. 523; Smith v. Bank of Scotland, 1 Dow; Railton v. Matthews, 10 Cl. & Fin. 934; Franklin Bank v. Cooper, 36 Me. 179, 39 ; Ib. 542.
    The concealment or withholding of facts material for the surety to know must have been fraudulent, and this is :¡i question of fact for the jury. This the court did not do, .but declared that it was a fraud in law.
    The doctrine of the text-books and of the case of Franklin Bank v. Cooper, 39 Me., that if the defalcation be known to the employer, and concealed from the surety, amounts to .a fraud, is not really in conflict with the principle here claimed. Mere non-communication is not concealment. ■Concealment is something done intentionally, a design of ■¡the mind to hide the facts from the surety, having opportunity to communicate them. Be G-ol. on Guar. & Sur. 366. 'The intent and the opportunity are facts to be found by •the jury, before court or jury can say concealment exists. Understood in this way, it is no doubt correct to say that if the defalcation be known to and concealed by the employer it is a fraud. Perhaps the charge in the case of Franklin Bank v. Cooper, 39 Me. 546, goes farther, and de- . dares it to be a fraud in law ; but it will be noticed that the facts were exceptionally strong in that case, and were .not really disputed.
    Another objection to the charge of the court is that it instructed the jury that Bamsell was bound to give the information to the sureties, before accepting the bond, although he “ did not know, before said bond was signed by said Shimp and Brosius, who the sureties thereon were to be.”
    This goes farther than any decided case that we know of.
    Mr. Damsell lived in Crestline, Ohio, while the sureties lived in Alliance, Ohio, and the bond after its execution was sent to Mr. Damsell, at Crestline, when, for the first time, he learned who the sureties were, and yet, under this instruction, he was bound to abstain from accepting it until he had first communicated to the sureties his information •or belief as to the defalcations ; and this is in no wise affected by the fact that the court further left it to the jury to say whether he had reasonable opportunity to communicate with the sureties. We claim that if Damsell had no knowledge or information of who the sureties were to be, until after the execution of the bond, and its delivery to him as a completed instrument, there is no rule of law or equity, which bound him to refuse the instrument until he notified the sureties of their principal’s former misconduct.
    Equity is indeed based upon good morals, but in its application to the affairs of life it does not go to romantic lengths, it stops short at the practical, and does not pretend to enforce all principles deducible ex cequo et bono. The rule of the court in this instance carries us to the extreme limit of morals and conscience, beyond the practical in the affairs of life, and in a case, too, where there is no fiduciary relation in the true sense of that term.
    Take the bond in suit, does it not show upon its face that the company want faith in Tidball’s honesty, and desire a guaranty that he will be honest in their service ? Does it not in plain and unmistakable terms notify the sureties that the company had not full confidence in his honesty, and is it not sufficient to put them, the sureties, on their guard ? Nor do sureties in such cases — certainly they did not in this case — rely upon and sign the bond upon the faith of such holding out the servant as trustworthy; on the contrary, they sign because they are friends of the servant, and rely upon their own knowledge of his honesty, and their faith in it, and are willing to indorse him without inquiry. See-Nee v. Jones, ante.
    
    
      J, A. Ambler, for defendants in error :
    The real question in this case is, can a company which has a known thief in its employ take the bond of an innocent third party, having no knowledge of his delinquencies, as surety for his honesty, without disclosing the facts, and hold the security thus obtained ?
    It is true that the bonds of such agents are taken, as is suggested, to provide against dishonesty of the principal;, and that the sureties must understand that his dishonesty is a contingency that may make them liable. But ordinarily the surety signs because he has confidence in the integrity of the principal — his dishonesty is only a possible-contingency. If this possibility has already, within the knowledge of the employer, ripened into a probability, or-if the employer knows that the supposed honesty of the agent is a myth — that he has already shown himself a criminal in the very employment — should he take the bond without disclosing to the surety ?
    The difference between the cases of carelessness or indebtedness or criminality of the agent, is the difference between an ordinary risk and one that is extraordinary. The ordinary risk is one that, in the absence of inquiry, the-surety may be presumed to know. In the experience of men, it is not uncommon to continue careless or insolv-. ent employes, but it is uncommon and extraordinary to continue known and dishonest agents in places of trust, and there is no presumption that the surety knows of the-increased risk! Concealment under the circumstances, amounted to a fraud. McGee v. Insurance Co., 2 Otto, 99 ; Bank v. Brownewell, 9 R. I. 168 ; 1 Story’s Eq. Jur., §§ 204, 214, 215, 324, 383 ; Hamilton v. Watson, 12 Cl. & Fin. 109 ; Etting v. Bank, 11 Wheat. 59.
    The cases cited in plaintiff’s brief, as establishing that in the absence of inquiry the party may be silent and accept the security, are cases of insolvency, prior indebtedness, mismanagement, or carelessness, and are not in point in the case at bar. I do not think any ease can be found, where the security was for honesty in a future employment, in a place of trust, in which the employe had already been purposely dishonest to the knowledge of the employer, and this undisclosed, in which the surety has been held; while many cases go much further, and hold that the failure to communicate material circumstances, which do not indicate dishonesty or crime known to the party taking the security, and which he would reasonably presume was not known to the surety, avoids the obligation, although no inquiry was made; and the text books-sustain the doctrine uniformly. 1 Story Eq. Jur., § 215 2 Parsons on Contract, 777; 1 Parsons on Notes and Bills, 236, 242 ; Franklin Bank v. Cooper, 36 Maine, 195 ; Franklin Bank v. Stevens, 39 Maine, 539 ; Franklin Bank v. Cooper, 39 Maine, 542 ; Kidney v. Stoddard, 7 Met. 252; North British Ins. Co. v. Lloyd, 28 E. L. & E. 456; Railton v. Matthews, 10 Cl. & Fin. 934; Small v. Currie, 23 E. L. & E. 633, 637; Guardians of Stokely Union v. Strothers, 24 E. L. & E. 183; Owen v. Homans, 25 E. L. & E. 1.
    The claim that the express company is relieved of liability for the fraud, because it did not designate the sureties, procure their signatures, or put their names in the body of the bond, but left Tidball to procure his own sureties, is-not tenable.
    The bond was drawn by Damsell, as the agent of the company, and by him delivered to Tidball to procure the-sureties. The recitals of the bond indicated that, in the judgment of the company, he was a proper person for the - employment; and when it was exhibited to the sureties they had a right to assume that there was nothing out of the ordinary course of things to be apprehended. Smith v. Bank, 1 Dow. 276 ; Hamilton v. Watson, 12 Cl. & Fin. 109, 119 ; Wyths v. Labouchere, 3 De Gex. & J. 593, 609 ; Phillips v. Foxall, L. R. 7 Q. B. 666 ; 3 Moak, 259.
   McIlvaine, J.

We think there was no error in the ■charge of which the plaintiff in error can complain. This is clearly so as to the second and third paragraphs, wherein •the liability of the sureties was affirmed in case the jury found the facts therein enumerated to be proved.

The only instruction, under which a verdict for the sureties •could bavebeen rendered, is found in the first paragraph. By this instruction, the elementary facts necessary to be found in order to exonerate the sureties were : 1. That the agent of the company, previous to the execution of the bond, ¡had been guilty of embezzlement while in the same employment. 2. That the company or its officers had knowledge of his default, .or, at least, believed, upon reasonable .and reliable information, that such default existed. 3. That such knowledge or belief was not communicated to the ¡sureties, although a reasonable opportunity to do so existed. 4. That the sureties had no knowledge or information in respect to such defalcation. 5. That the sureties, in signing the bond, “ acted under a belief, from the recitals of said bond, that said Adams Express Company •considered said Tidball a trustworthy person, and would not have signed the bond but for such belief.”

Admitting that a principal, in accepting a guaranty for •the faithful and honest conduct of his agent, is not bound, under all circumstances, to communicate to the guarantor 'every fact within his knowledge, which increases the risk; yet, we think there can be no doubt, either upon principal •or authority, that where an agent has acted dishonestly in his employment, the principal, with knowledge of the fact, can not accept a guaranty for his future honesty from one who is ignorant of the agent's dishonesty, and to whom the agent is held out by the principal as a person worthy of confidence. The failure to communicate such knowledge, under such circumstance, would be a fraud upon the guarantor.

The bad faith, in withholding from the guarantor such information, so material to the risk assumed, is manifested not only by the fact that the dishonest character of the ■agent was peculiarly within the knowledge of the principal; but the holding of him out as a person entitled to con.fidence by continuing him in the service, was equivalent to a declaration that the principal had no knowledge of the dishonesty of the agent.

Assuming that the company had knowledge of Tidball’s embezzlements (or a belief founded upon reasonable and reliable information, which is the same in effect), the •sureties were not deceived simply by the fact that the agent was continued in the service, but also from the fact that it was printed on the face of the bond, prepared by the company, that it had agreed to employ him as agent in its future business. That he had previously been in the .same employment, was known to these sureties, and while they are chargeable with a knowledge of the general character of their principal in the bond, they are certainly excusable, under the circumstances, for not making special inquiry of the company, as to the manner in which he had •conducted himself while in its employment.

As to the alleged error in overruling the motion for a new trial ou the ground that the verdict was contrary to the evidence, all that need be said is, that after reading the testimony, we do not feel warranted in disturbing the judgment on this ground.

It is, however, particularly claimed that under the charge, "the jury could not have found from the testimony that a reasonable opportunity existed for communicating to the sureties, the fact of Tidball’s delinquencies as agent before the execution of the bond, as it clearly appears that the ■company did not know, and had no means of knowing who the sureties were to be, until after the bond was signed and transmitted by mail to Damsell, at Crestline. In regard to this point, it is enough to say that under the circumstances of this case, the absence of such opportunity is not a matter •of excuse. But, if it were otherwise, then I would say that information of Tidball’s delinquencies could have been communicated upon the face of the bond, as was the fact that the company had agreed to continue him in its employment.

Judgment affirmed.