Case Name: ÆTNA INDEMNITY CO. v. J. E. CROWE COAL & MINING CO.
Court: United States Court of Appeals for the Eighth Circuit
Jurisdiction: United States
Decision Date: 1907-04-27
Citations: 154 F. 545
Docket Number: No. 2,354
Parties: ÆTNA INDEMNITY CO. v. J. E. CROWE COAL & MINING CO.
Judges: Before SANBORN, HOOK, and ADAMS, Circuit Judges.
Reporter: Federal Reporter
Volume: 154
Pages: 545–576

Head Matter:
ÆTNA INDEMNITY CO. v. J. E. CROWE COAL & MINING CO.
(Circuit Court of Appeals, Eighth Circuit.
April 27, 1907.)
No. 2,354.
1. Insurance — Employee’s Liability Bond — Signature of Servant.
Where the execution hy a servant of an employer’s liability bond was not made a consideration Cor 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 tipies for a further new consideration, subject to the conditions 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 originally signed by the servant as contemplated.
[Ed. Note. — For cases in point, see Cent. Dig. vol. 28, Insurance, § 1041.
Guaranty insurance, see note to American Credit Indemnity Co. v. Wood, 19 C. C. A. 271.]
2. Same — Notice.
An employer’s liability bond provided that the insurer should indemnify the employer against fraudulent or dishonest acts of the omployfi 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 employe which might involve a loss for which (lie company was responsible, immediately after the occurrence of such act should have come to the employer’s knowledge. Held, that the notice required was one which would charge the employe with the commission of a felony, and hence the employer was not bound to give such notice until it had acquired knowledge sufficient to justify a reasonable man in making such a charge.
3. Same — Evidence.
In an action on an employer’s liability bond, evidence held to sustain a finding that plaintiff gave immediate notice of the employe’s default, after acquiring knowledge that such default amounted to the crime of embezzlement or larceny, against which the bond only granted indemnity.
4. Same — Renewal—Contract—Representations.
An original employer’s liability bond was issued in 3901, insuring plaintiff against the employe's misconduct for a year. It was renewed for a new consideration for the succeeding year, and again for the years 1903 and 1904; the renewal reciting that it was made in consideration of $20 premium, and continued the bond in force to June 1, 1904, “subject to all the covenants and conditions thereof.” Held, that the renewal did not include a statement issued February 24, 1903, in which plaintiff represented that checks signed by the insured employs should be safeguarded by certain other signatures, so that a failure to perform such representation did not relieve defendant from liability on the bond.
5. Same — Correspondence—Construction.
Where there is doubt and uncertainty concerning the effect of correspondence on an employer’s liability bond, such doubt should be resolved in favor of sustaining the contract as executed in favor of the insured.
TEd. Note. — For cases in point, see Cent. Dig. vol. 28, Insurance, § 295.]
6. Same — Nature of Contract.
An employer’s liability bond is essentially a contract of indemnity against loss, governed by the rules applicable to ordinary Ufe and fire insurance policies.
7. Same — Application for Insurance — Acceptance.
An application for insurance is a proposition to the insurance company which must: be accepted as made, if at all.
[Ed. Note. — For cases in point, see Cent. Dig. vol. 28, Insurance, §§ 190, 198.]
8. Same — ActioN on Policy — Trial—Instructions—Construction.
In an action on an employer’s liability bond, tbe court charged that the-employer’s statement, made by plaintiff and pleaded by defendant as being the basis and part of the contract, was confessed by the pleadings and admitted to have been executed and delivered to plaintiff by defendant. Held, that such instruction should be construed to mean that plaintiff admitted only that the statement was executed and delivered for some -purpose, and not that it was the basis of the contract.
9. Pleading — Reply—Failure to Verify — Effect.
' Rev. St. Mo. 1899, § 746 [Ann. St. 1906, p. 731], provides that, when any petition or other pleading shall be founded on any instrument of writing charged to have been executed by the other party, the execution of the instrument shall be adjudged confessed, unless the party charged to have executed the same denies its execution by verified answer or replication. Held, that where a verified answer pleaded that a written instrument had been made by plaintiff to defendant, and was the basis of an employer’s liability bond sued on, plaintiff’s failure to verify its replication of general denial only admitted the execution and delivery of such instrument, and was sufficient to join issue on the question whether the statement was the basis of the contract.
10. Writ of Error — Presumptions—Verdict.
Where the record on a writ of error does not clearly show that the-jury’s finding was contrary to the instructions of the court when taken as a whole, it will be presumed that the jury followed the instructions,, and that the verdict is right.
[Ed. Note. — For cases in- point, see Cent. Dig. vol. 3, Appeal and Error, § 3757.]
11. Same — Assignment of Errors — Incorporation in Brief.
Under Circuit Court of Appeals rule 24 (150 Fed. li), declaring that the brief for the plaintiff in error shall contain a specification of the errors relied on, and shall set out separately and particularly each error asserted and intended to be urged, an objection that a false or misleading issue had been tried to the prejudice of plaintiff in error could not be reviewed, where no such error was so assigned.
[Ed. Note.- — For cases in point, see Cent. Dig. vol. 3, Appeal and Error, § 3094.]
12. Same — Right to. Allege Error.
Where the trial of an alleged false issue was induced by defendant’s own procurement, over plaintiff’s objection, defendant could not object thereto on a writ of error.
[Ed. Note. — For eases in point, see Cent. Dig. vol. 3, Appeal and Error, §§ 3591, 3593.]
13. Same — Prejudice.
Where a judgment was for the right party and in the interest of substantial justice, it will not be reversed On a writ of error because the court proceeded on an erroneous theory.
[Ed. Note. — For cases in point, see Cent. Dig. vol. 3, Appeal and Error, § 4034.]
14. Same — Scope of Review — Damages—Excessiveness.
Where a verdict returned in the federal court has been allowed to stand by the trial judge, it cannot be set aside on appeal as excessive.
[Ed. Note.- — For cases in point, see Cent. Dig. vol. 3, Appeal and Error, § 3948.]
15. Same — Instructions.
Where, in an action on a fidelity bond, the court gave an instruction with reference to the allowance of a credit in favor of defendant, whether the verdict contravened such instruction was reviewable on a writ of error.
16. Same — Peejudice.
Where, in an action on a fidelity bond, the verdict returned was in strict accord with the proof touching the amount of the employe's embezzlement, and under no theory was defendant entitled to a credit which the jury disallowed, defendant was not entitled to a reversal because the disallowance of such credit was contrary to an ambiguous instruction with reference thereto.
[Ed. Note. — For cases in point, see Cent. Dig. vol. 3, Appeal and Error, § 4231.]
Sanborn, Circuit Judge, dissenting.
ín Error to the Circuit Court of the United States for the Western District of Missouri.
W. lb Homer (Botsford, Deatherage & Young, on the brief), for plaintiff in error.
W. E. Guthrie (Boyle, Guthrie & Smith, on the brief),-for defendant in error.
Before SANBORN, HOOK, and ADAMS, Circuit Judges.

Opinion:
ADAM'S, Circuit Judge.
The mining company brought its action against the indemnity company to recover on a contract whereby the latter undertook to indemnify the former to the extent of $5,000 against loss which might be occasioned by embezzlement or larceny of its- funds by David C. Graves, its bookkeeper and cashier, during the year beginning June 1, 1903, and ending June 1, 1904. The defendant agreed to indemnity against "fraudulent or dishonest acts" of Graves "amounting to embezzlement or larceny," subject, however, to a condition in the following words:
That it "shall be notified in writing, of any fraudulent or dishonest act on the part of the employee, which may involve a loss for which the company is responsible hereunder, immediately after the occurrence of such act shall have come to the knowledge of the employer."
An embezzlement amounting to some $7,000 occurred while the contract was in force, and a preliminary notice of its possibility was given the defendant on May 28, 1904, and a final notice of its actual occurrence was given June 24, 1904. After refusal by defendant to reimburse the plaintiff to the extent of $5,000, this suit was instituted in the Circuit Court, and resulted in a judgment for $4,409.23; that being the amount of embezzlement found to have occurred during the year covered by the contract. On this writ of error taken by defendant the proceedings below are challenged (1) because the contract was not signed by Graves, (2) because immediate notice of loss was not given, (3) because of breach of warranties made in the statement upon the faith of which the contract was made, (4) because the verdict was- excessive and contrary to the court's instructions, (5) because erroneous instructions were given to the jury.
Did the failure of Graves to sign the contract invalidate it?
It seems to have been originally prepared with the intention of having him sign it, but for some unexplained reason it was not done. While the contract is denominated a bond, it has few, if any, of the characteristics of a bond. It is essentially a contract of indemnity. Graves was mentioned in it, nor as principal, but as an independ ent party. No reference was made to him in the body of the instrument, except in one clause, which is to the effect that Graves will save the indemnity company harmless from any loss or damage it might sustain. Two separate and distinct contracts between different parties appear to have been contemplated; one between plaintiff and the indemnity company, consisting of a contract of indemnity, and the other between* Graves and the indemnity company, consisting of a contract of guaranty. In the former, Graves was not concerned; in the latter, plaintiff was not concerned. The execution of the contract by Graves is, in terms, made neither a consideration for nor condition of the creation of liability by the indemnity company. The bare fact that these separable contracts were possibly originally' intended to be incorporated in one writing does not render them any. the less separable and distinct in their nature and purpose.
Moreover, if there were any doubt on this subject, defendant subsequently adopted the instrument, as it was actually signed, as the contract between itself and plaintiff. The instrument sued on was a renewal of that contract. The latter was made June 14, 1901, and insured the plaintiff against the misconduct of Graves for the period of one year from June 1, 1901, to June 1, 1902. After the year had expired, an obligation for a new consideration paid by plaintiff was executed by defendant extending the insurance so as to cover the year ending June 1, 1903. A like extension followed covering the year ending June 1, 1904.' During this latter period the embezzlement in question occurred. These different extensions were all based upon and recognized the original contract of June 14, 1901, known and numbered by the defendant as bond T. 1,774. The last renewal bore date June 30, 1903, and reads as follows:
"In consideration of the payment of the sum of $20.00, being the premium for the third year upon bond F. 1,774 of the .¿Etna Indemnity Company for $5,000, ⅜ * ⅜ said bond is hereby continued in force until June 1, 1904, subject to all the conditions and covenants thereof."
These renewals, executed for valuable consideration received and appropriated hy defendant, clearly affirm the original «contract notwithstanding the absence of Graves' signature and estop it from asserting its invalidity when repeatedly so affirmed by it.
Was immediate notice of loss, within the meaning of the contract, given to defendant? This question is presented on an exception taken to the action of the trial court in refusing to instruct the jury to return a verdict for defendant. Our consideration is therefore limited to an inquiry whether there was any substantial .evidence before the jury tending to show that the required notice was given.
The contract of indemnity obligated defendant to reimburse plaintiff for the pecuniary loss it might sustain by reason of fraudulent or dishonest acts of Graves amounting to embezzlement or larceny. The notice required to be given was, in the language of the contract, "of any fraudulent or dishonest act of Graves involving a loss for which the company is responsible"; that is, a loss arising out of embezzlement or larceny by the employé. This notice was required to be given, not immediately after any fraudulent or - dishonest act amounting to embezzlement should be committed, but only /'immediately after the occurrence of such act shall have come to the knowledge of the employer." From this analysis of the contract it appears that the notice required was one that would charge the employe with the commission of a felony, and was required to be given only after knowledge should have come to the employer of the commission of such offense.
In the case of Fidelity & Deposit Co. v. Courtney, 186 U. S. 342, 22 Sup. Ct. 833, 46 L. Ed. 1193, an indemnity contract much like the one now before us, requiring "immediate notice," of a default, was under consideration, and it was held that a notice given "with due diligeuce under the circumstances of the case, and without unnecessary or unreasonable delay," would answer the requirement of the contract; that "immediate notice" is given when it is reasonably immediate.
In American Surety Co. v. Pauly, 170 U. S. 133, 145, 18 Sup. Ct. 552, 557, 42 L. Ed. 977, the Supreme Court, in considering the knowledge required to move an employer to give a notice like that required in this case, approved an instruction given by the trial court in the following ivords:
"And in considering this issue yon are to inquire, first, when it was that Hie plaintiff became satisfied that the cashier had committed dishonest or fraudulent acts which might render the defendant liable under this policy, lie may have had suspicions of irregularities. He may have had suspicions of fraud. But he was not bound to act until he had acquired knowledge of some specific fraudulent or dishonest act which might involve the defendant in liability for misconduct."
And in doing so observed as follows:
"It may well be held that the surety company did not intend to require written notice of any action upon the part of the cashier that might involve loss, unless the bank had knowledge, not simply suspicion, of the existencia of such fads as would justify a careful and prudent man in charging another with fraud or dishonesty. If the company intended that the bank should inform it of mere rumors or suspicions, ⅞ such intentions ought to have been clearly expressed in the bond."
These authorities place a reasonable and practical construction upon contracts of the kind in question, one under which the rights of both parties are fairly- respected and protected. The serious effect of making a criminal charge upon the character, business, social standing, and future prospects of an employé, as well as a proper appreciation of the personal responsibility assumed in making a false charge by an employer, reasonably call for great circumspection and caution in making it. Immediate notice — that is, literally speaking, instantaneous notice — is not required to be given, but only such notice as reasonable diligence, under all the circumstances of the case, dictates after knowledge of facts requiring it is obtained. And this is not required to be given on mere rumor of irregularities or suspicion of dishonesty; neither is absolute or complete knowledge of an accomplished crime necessary before the employer is required to act, but only such knowledge of facts as would justify a careful and prudent man in believing a crime to have been committed.
We are accordingly brought to a consideration of the question whether there is any substantial evidence in the record tending to show that plaintiff gave "immediate notice/' as just defined, after it had acquired "knowledge," as just defined, of any dishonest acts of its employé amounting to embezzlement or larceny.
A general consideration of the evidence will suffice to answer the question. Graves had been a trusted employé of plaintiff for five or six years; had during those years been advanced on his merits from the position of bookkeeper to that of secretary and cashier. He handled from $50,000 to $80,000 per month. Until the events next referred to occurred, no suspicion had befallen him. On April 22, 190-1, plaintiff employed an expert bookkeeper for the purpose of revising and improving its system of bookkeeping. This expert immediately entered upon the discharge of his general task and soon discovered that there was a discrepancy of $212.47 between the cashbook and the cash in the cashier's possession. On the following day Graves was advised of this discrepancy, admitted its correctness, and gave some plausible explanation of it. The expert testified, in substance, that he was satisfied on April 23 d that there was a shortage in Graves' accounts and irregularities in his bookkeeping, and that there was great room for improvement in the system. He gave out no specific information about the amount of delinquency because, as he says, he could not prodiice evidence, and was not prepared to make any absolute statement of the facts. He defines what he meant by the word "shortage" by saying:
"I just mean this: That according to his own figures as he had them, and as his books according to his system showed, he had a discrepancy of $212.47."
The above are the substantial facts concerning the discovery made on April 23d, the date from which defendant claims immediate notice should be calculated; but the expert was permitted to draw deductions, not only from the facts, but from the appearance of Graves at the time. He testified that Graves seemed to be in trouble. That:
"If a man is laboring under a great strain, and feels that he is about to be discovered in criminal acts, he will certainly show some evidence of fear, and will show concern, and this is what Mr. Graves showed — very considerable concern." ,
He further testified that Graves appeared to droop and complained of feeling sick. It was from such nebulous and unsubstantial data as this that tire expert was made on cross-examination to draw the deduction that he believed as early as April 23 d that there was a defalcation; and it is on this general kind of evidence we are asked to hold that plaintiff had such knowledge of the commission of the crime of embezzlement by Graves as required it "immediately" after April 23d' to give the preliminary notice to defendant.
This evidence seems to us to amount to nothing more than ground for a suspicion or general distrust, and certainly does not necessarily warrant the conclusion under the authorities already cited that plaintiff, whose officers co-operated with the expert, then had that kind of knowledge of the commission of the crime of embezzlement as would justify it in making a charge of that kind and require it im mediately thereafter to give the preliminary notice. All the evidence concerning the discovery made by the expert on the first day of his service is subject to inferences of different kinds, and we cannot say that they were consistent alone with the guilt of Graves. Many a bookkeeper, without doubt, has made mistakes, been short in his cash, confused in liis accounts, and shown anxiety and distress over them, without having committed the crime of embezzlement. It is certain, we think, that all reasonable men, in the exercise of an honest and impartial judgment, would not have concluded from the facts as disclosed by this record, with all the reasonable inferences deducible from them, that plaintiff knew on April 23d that Graves had committed the crime of embezzlement or larceny, and therefore we cannot hold that for want of notice of loss to defendant immediately thereafter recovery is precluded.
On April 23d the expert commenced and prosecuted a thorough investigation into Graves' accounts. The latter had adopted ingenious devices for covering his defalcations. More money had been charged to expenses than ought to have been, less money had been credited to customers and deposited in the bank than ought to have been, and the books of the plaintiff had been doctored in one way or another to meet the necessities of the situation. The handling of $50,000 to $80,000 per month by Graves afforded temptation and opportunity alike. The expert was required to disentangle these accounts, and in so doing to investigate the actual transactions, between defendant and divers persons, out of which the accounts sprung. He, in connection with plaintiff's officers, devoted himself assiduously to this task until May 28th, when plaintiff first notified defendant that an examination of the accounts was being made, and that "there appeared to be every evidence that there would be a shortage," which it would call upon defendant to pay under its renewal bond F. 1,774. The examination proceeded until June 24, 1901, when, the expert •testified, he was first certain he had arrived at the truth. On that date plaintiff wrote defendant as follows:
"With further reference to my letter of May 28th and our conversation of .Tune 8th, in regard to probable shortage of D. G. Graves, our former bookkeeper and cashier, the accountant who has been checking our books has made report to-day, and the total deficit is $7,121.25. We will claim protection under bond F. 1,774, which was issued June 1, 1901, and renewed, your No. 3,571, dated June 30, 1903. If representative of your company wants to verify our investigation, wo have everything in shape so that lie can do so."
Thereafter, defendant wrote plaintiff as follows:
"We beg to acknowledge receipt of your favors of the 24th inst. and of the 28th ult. addressed to Mr. T. II. Mastín, Jr., Kansas City, Mo., in reference to above bond [bond F. 1,774]. We have to state that the information contained in said letter is not sufficient to establish a claim under our bond, 'therefore we beg to notify you that we shall reserve all our rights in the premises. Kindly forward to us at once for our information a verified statement setting forth the dates and amounts of each item of the alleged deficit and full particulars regarding same."
After receipt of the last letter plaintiff proceeded at much expense and trouble, occupying the time of a paid expert for two months, to prepare and send to defendant the information requested in its last letter. This correspondence strongly suggests a waiver of any imperfect notice, if such'had occurred; but we find no occasion to resort to that doctrine. The foregoing letters clearly indicate by their silence on the subject of notice that defendant had received all the notice required. No complaint concerning it is found; but in defendant's last letter it is strongly suggested that plaintiff had not made sufficient research into the accounts to give defendant &och information as it required to .determine its liability.
As we understand the argument of defendant's counsel, they place their reliance upon the evidence, disclosing plaintiff's knowledge, as early as April 23d, of facts which required it "immediately" thereafter to give the notice; and contend that, because no notice was given until the preliminary notice of May 28th and the final one of June 24th, it conclusively appeared that no immediate notice was given as required by the contract. We have already discussed and disposed of that contention, and our conclusion is only reinforced by the conduct of the parties after April 24th, as just detailed. From all the evidence we are clearly of opinion that the trial court committed no error in refusing to instruct a verdict for defendant on the ground that no immediate notice of loss was given to defendant.
The cases of National Surety Co. v. Long, 60 C. C. A. 623, 125 Fed. 887, and United States Fidelity Co. v. Rice, 78 C. C. A. 164, 148 Fed. 206, relied on by defendant, have.no application to facts such as are disclosed by this record. In those cases notice was required to be given immediately after the occurrence of such a single definite and easily ascertained fact as readily permitted the court to fix the time when notice was required under the contract. In this case, on the contrary, so many elements of law and fact enter into a consideration of the time when notice was required as renders the determination thereof peculiarly appropriate for the jury.
Was there such a breach of warranty of failure to perform conditions on which the contract of indemnity was issued as precluded a recovery in this case?
Some time before February 24, 1903, defendant submitted to plaintiff a blank form of a statement, consisting of questions, with spaces left for the insertion of answers thereto, with the request that plaintiff fill in the appropriate answers and sign the statement. This document, so far as our present purpose requires, is as follows:
"Employer's statement covering application made by David O. Graves, of Kansas City, Mo., to the .¿Etna Indemnity Company, Hartford, Conn., for an indemnity bond in the position of cashier and bookkeeper under the service of the undersigned employer. In order that the above application may be passed upon at once, please answer fully all the following questions in so far as they apply to the given case and return at your early convenience. [Signed] E. S. Pegram, Secretary" [of defendant company].
"(1) Amount of bond? $5,000.
"To date from? February 1st, 1903, to February 15th, 1904.
"(2) To whom payable? Give exact title. The J. R. Crowe Coal & Mining Co. ⅜
"(14) Will he be authorized to sign checks on your behalf? Yes.
"Will there be any countersignatures on such checks? If so, whose? General managers or presidents."
After answering many other questions which were propounded, the statement concluded with the following words:
"It is hereby agreed by the undersigned that the above answers are to bo taken as conditions precedent to and as the basis oi' 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 supervision above described shall be observed.
"[Signed] J. R. Orowe Coal & Mining Co."
Defendant averred in its answer that the contract sued on was made in reliance upon the statement of February 24th so made by the plaintiff, and that thereby plaintiff, among other things, warranted that Graves should not sign checks without the countersignature of either the general manager or president of plaintiff company, and that the plaintiff breached its warranty by subsequently, during the year covered by the contract, permitting Graves to sign checks without the safeguards agreed upon and warranted to be enforced.
For the purposes of the present discussion, we may assume that proof was offered and given tending to establish, among other things, that Graves was permitted to sign checks without any countersignature. The trial court, at the request of defendant, refused to instruct the jury that Ihe answers contained in the statement of February 24th were warranties, and that if any of them was not true in fact the contract sued on was void, and refused on like request to instruct that, if checks were permitted io be signed by Graves without countersignatures of the general manager or president, the contract was avoided, and errors are duly assigned on the court's action.
Without referring to other breaches of warranty relied on by defendant, founded on the statement, the foregoing is deemed sufficient to fairly present the legal proposition involved.
Counsel for plaintiff contend that there is no sufficient evidence showing, or tending to show, that the renewal contract sued on was executed by defendant or accepted by plaintiff on the faith of the statement of February 24th, and therefore that no breach of any warranty contained in the statement, and no failures to perform any of its promises, can affect plaintiff's right of recovery in this case.
The contract sued on makes no reference to the statement of February 24th. It reads as follows:
"Hartford, Conn., June 30, 1903.
"In consideration oí the payment of the sum of $20.00, being the premium for the third year upon bond F. 1.774 of the IF.tna Indemnity Company for $5.000 issued June 1, 1903 on behalf of David O. Graves in favor of the J. ⅛. Crowe Coal & Mining Company, Kansas City, Mo., said bond is hereby continued in force to June 1, 3901, subject to all the covenants and conditions thereof. * ⅜ *
"[Signed] Charles Findley, President.
"K. S. Pegram, Secretary."
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 known 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 instrument. The original bond 1,774 was a lengthy instrument containing many terms, covenants, and stipulations of the parties and filled with many conditions of defeasance of one kind or another. To all those terms, covenants, stipulations, and conditions the plaintiff clearly became bound, and any violation of any of them might ipso facto have defeated recovery on the contract as written. In the face of such affirmative reference to the terms and conditions of one instrument, and in the light of the accepted maxim "expressio unius exclusio alterius," it requires very clear proof that the parties intended to contract with reference to any other instrument containing other terms or conditions.
Turning now to the statement of February 24th, we perceive nothing in the terms employed or in any implications suggested to indicate an intention to make the statement the basis of or consideration for any renewal of the old bond. The request by defendant's secretary to answer the questions propounded found at the beginning of the statement was made in connection with tire representation that Graves had just made an application to defendant for an indemnity bond which required immediate action by defendant. The general scheme of the statement and the language used indicate that the bond contemplated was a new one, just applied for by Graves, and one which should be dated February 1, 1903, and should run to February 15, 1904. By the last clause of the statement the answers made by the plaintiff were agreed to be taken as conditions precedent to and as the basis of execution of said indemnity bond; that is, the bond to run from February 1, 1903, to February 15, 1904. No 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 application and statement of February 24th seem to have been intended for the purpose of originating a new contract — certainly some contract other than the renewal of the old one of 1901. The parties were competent to contract and had it in their power either to renew the old or make a new contract. They determined to renew the old one, because they did it; and the application of Graves for a new one to date February 1, 1903, and running to February 15, 1904, was not accepted, because no such contract as that application contemplated was ever made. Accordingly, the agreement found at the end of the statement making the answers to questions propounded in it warranties or conditions precedent to the validity of the bond has no application to this case.
Parties have an undoubted right to make their own contracts, and, when they are reduced to writing in plain and unambiguous.language, they must stand as written and be enforced accordingly. It does not follow that, because plaintiff proposed to defendant, or was willing to make the truth of certain statements a condition precedent to liability on one proposed contract, it intended to make those statements conditions of liability, if some other and different contract should be 'afterwards made by the parties.
But it is contended that, outside of the language employed by the parties in the written instrument, they agreed by correspondence that the warranties contained in the statement of February 21th should be conditions precedent to the validity of the contract renewing the old bond B. We find no such agreement in any correspondence pass - ing between defendant and plaintiff. Many letters passed between defendant and its local agents in Kansas City about the advisability of having an employer's statement different from that obtained from plaintiff prior to the execution of the original contract and of the necessity of having a different statement made before any further renewals should be granted. 'An effort was made to so connect the local agents with plaintiff as to raise a presumption that it must have known and assented to defendant's requirements, but such knowledge and consent was not in our opinion established.
If there is doubt and uncertainty about the effect of. the correspondence upon the contract, they should, on familiar principles, be resolved in favor of sustaining the contract as made and signed, and not of defeating it; in favor of the insured, rather than the insurer. National Bank v. Insurance Co., 95 U. S. 673, 678, 24 L. Ed. 563; Grace v. American Central Ins. Co., 109 U. S. 278, 282, 3 Sup. Ct. 207, 27 L. Ed. 932; Moulor v. American Life Ins. Co., 111 U. S. 335, 341, 4 Sup. Ct. 400, 28 L. Ed. 417; London Assurance v. Companhia De Moagens, 167 U. S. 149, 159, 17 Sup. Ct. 785, 42 L. Ed. 113; Liverpool, etc., Ins. Co. v. Kearney, 180 U. S. 132, 130, 21 Sup. Ct. 320, 45 L. Ed. 460; McMaster v. New York Life Ins. Co., 183 U. S. 25, 40, 22 Sup. Ct. 10, 46 L. Ed. 64; Royal Ins. Co. v. Martin, 192 U. S. 149, 162, 24 Sup. Ct. 247, 48 L. Ed. 385; Bankers' Mutual Ins. Co. v. State Bank of Goffs (C. C. A.) 150 Fed. 78.
Without dwelling on the improbability of rational and experienced business men making a contract ignoring the language of the statement of February 24th, and expressly making it subject to the covenants and conditions of some other instrument, if they had in fact agreed that the contract should be subject to the conditions of that statement, a brief reference to certain undisputed proof and applicatory law will on other well-established principles dispose of this case. In December, 1902, when negotiations were in progress looking toward an extension of bond F. 1,774 for the second year, which had then partially expired, defendant wrote its local agents in Kansas City informing them that the employer's statement on which the original bond was based was not the proper one, and inclosed a blank form on which the statement of February 21th ivas subsequently written, to be filled out by plaintiff. The blank contained no reference to the original contract. It was left to plaintiff to fill it out as it desired. Accordingly, it filled it out as already seen, with no reference to the original contract, but with particular reference' to a proposed bond. It amounted to a proposition to defendant, in effect, that if it would issue a new bond on Graves' pending application to date February 1, 1903, and to run to February 15, 1901, it would agree to perform certain conditions, and that the performance thereof should he a condition precedent to its validity. This proposition was forwarded to the home office of the defendant in New York and received there on the 2d day of March, following. Some correspondence ensued between the defendant and its local agents in Kansas City, not shown to have been communicated to plaintiff. After which, defendant, regardless of the terms of plaintiff's proposition, returned to its agents, to be delivered to plaintiff; a renewal of the original bond insuring it .against Graves' defalcations from June 1, 1902, to June 1, 1903.
After that renewal expired, without any further negotiations, and without making any reference to the proposition of February 24th, it executed its second renewal of the old bond, subjecting plaintiff, not to the covenants and conditions of the application and statement of February 24th, but to the terms and conditions of the old bond.
The contract sued on is essentially a contract of indemnity against loss, and the general rules governing the construction of ordinary life and fire insurance policies are applicable to it. Jackson v. Fidelity & C. Co., 21 C. C. A. 394, 75 Fed. 359, 365; Guarantee Co. v. Mechanics' Savings Bank, 26 C. C. A. 146, 80 Fed. 766; Champion, etc., Co. v. American Bonding & Trust Co., 115 Ky. 863, 872, 75 S. W. 197, 103 Am. St. Rep. 356; American Surety Co. v. Pauly, supra. The statement of February 24-th was obviously made to secure favorable action on Graves' pending application; and in effect formed a part of it.
It is well settled that an application for insurance is a proposition to the insurance company which must be accepted as made, if at all. If a policy is executed and offered to the applicant different in any material respects from the application, it is in effect a rejection of the application, and a new proposition by the company, which the applicant may accept or reject at his pleasure. Insurance Co. v. Young's Administrator, 23 Wall. 85, 23 R. Ed. 152; Minneapolis, etc., Ry. Co. v. Columbus Rolling Mill, 119 U. S. 149, 7 Sup. Ct. 168, 30 L. Ed. 376; McNicol v. New York Rife Ins. Co. (C. C. A.) 149 Fed. 141.
From the foregoing, as well as from a consideration of all the evidence, which has been critically examined, it is clearly apparent, we think, that defendant never accepted the proposition found in the statement of February 24th, but for reasons satisfactory to itself proposed to renew and to continue the liability created by the original contract. That proposition of defendant was accepted by plaintiff. It paid for and received the renewal contract. A loss occurred under it, and the defendant must be held to respond to its obligations created by it. We think there was no error in refusing to instruct that a failure to observe the conditions of the statement of February 24th entitled defendant to a verdict.
It is suggested that the trial court found as a fact that the statement of February 24th formed a part of the contract sued on. We do not so understand it.
The correspondence between defendant and its local agents at Kansas City, together with some oral testimony attempting to bring it home to plaintiff, was'the only means by which defendant claimed to connect that statement with the contract. The contract itself made no reference to it, but did refer to another instrument as its basis. Apart from that correspondence, defendant's counsel neither in argument nor brief claimed that the statement was the foundation of the contract in suit or had any connection with it. All of that correspondence, and the futile attempt to show plaintiff's consent to it, was offered subject to plaintiff's vigorous objection and exception. The court could only have received it subject to the requirement of bringing it home to plaintiff company. At the conclusion of all the evidence, the court obviously thought that no such connection had been made, for in its charge it made use of the following language:
•'There was a good deal oí correspondence, you will recall, introduced in evidence here between the indemnity company, in the East, and the local agents representing them, in Kansas City. I admitted that correspondence, not that I thought it was binding on the coal company, but I admitted that evidence to show the history and the development of the transaction."
The view of the trial judge so expressed was regarded by the defendant as fatal to its contention. This appears from the exception which it took to the charge in the following language:
"The defendant excepts to that part of the charge of the court in which the court charged the jury that tile correspondence between the defendant and its agent in Kansas City was not binding on the plaintiff."
It is true that the court instructed the jury:
"That the employer's statement-made by plaintiff dated February 24, 1903, and pleaded by defendant in its answer herein as being the basis and part of the contract of indemnity sued on. stands confessed by the pleadings and is admitted to have been executed and delivered to plaintiff by defendant."
But this is not a declaration that plaintiff admitted that the statement was the basis of the contract, or anything more than that it was executed and delivered for some purpose by it. If it was intended to state any further admission, the meaning of the pleadings was obviously misconceived.
The defendant pleaded as a part of its answer that plaintiff, on February 84, 1903, executed and delivered to it a statement partly in writing and partly in print, and, after setting out the same and the signatures of the parties thereto in full, made the further allegation that, upon the basis and in consideration of the statement so executed, it signed and delivered to plaintiff the contract sued on. The plaintiff for its replication filed a general denial, without verification, of all the allegations of the answer.
Section '746, Rev. St. Mo. 1899 [Ann. St. 1906, p. 731], provides that:
"When any petition or other pleading shall be founded upon any instrument of writing charged to have been executed by the other party, * ⅞ * the execution of such instrument shall be adjudged confessed unless the party charged to have executed the same deny the execution thereof by answer or replication verified by affidavit."
The failure of plaintiff to verify its replication justified the court in declaring what the proof unquestionably showed that the execution of the instrument was admitted, but did not justify it in declaring that it was admitted that the statement formed the basis of or constituted a part of the contract sued on, an issue which was the subject of spirited contest throughout the trial. That was an issue tendered separately from the other by the defendant, and one in which plaintiff ef fectually joined by the unsworn replication. Hart v. Harrison Wire Co., 91 Mo. 414, 421, 4 S. W. 123; Cox v. Bishop, 55 Mo. App. 135.
It is also true that the charge in some of its phases apparently proceeds on the palpably false assumption that, notwithstanding the fact that the correspondence and evidence failed to connect plaintiff with the statement, it and all its warranties and conditions were obligatory on the plaintiff; but it is likewise true, as already pointed out, that the court refused to give defendant's instructions that a breach of any of the warranties or conditions found in the statement would constitute a defense to the action. After a careful reading of the charge as a whole and of the requests refused, we have reached the conclusion that the court did not find, or intend to declare, that the statement of February 24th formed a part of the contract sued on. On the contrary, we reach the opposite conclusion, namely, that the court, by holding that the correspondence failed to bind plaintiff to its contents, and refusing to-give defendant's requested instructions, necessarily concluded that the statement of February 24th was not a part of the contract sued on. Moreover, if the statement formed a part of the contract the evidence was clear and undisputed that there were such breaches of its warranties as precluded recovery by plaintiff, and rendered a verdict for defendant inevitable. But the court itself obviously did not think that such result was inevitable, because it permitted a recovery by plaintiff,, and after full deliberation denied a motion for a new trial. No court would have granted a new trial quicker for a disregard by the jury of its instructions than the learned court from which this case came. For the foregoing reasons, we think the finding of the jury is not necessarily contrary to the charge. Where the record does not clearly show that the finding is contrary to the instruction of the court when taken as a whole, the presumption is that the jury followed it, and that the verdict is right. Gregory v. Morris, 96 U. S. 619, 24 L. Ed. 740.
It is further suggested that the judgment cannot be affirmed without improperly taking cognizance of errors committed against plaintiff' when it has prosecuted no writ of error in its own behalf, and that, if we could do so, the defendant was by the effect of the combined' errors deprived of a trial according to the law and evidence, was made-to try a false issue, and that other issues in the case were obscured tattle prejudice of the defendant by the submission of the false issue and confused instructions concerning it. We cannot appreciate the force-of these suggestions because of the condition of the record and charge-of the court already considered, and particularly because of the fact that counsel for defendant has assigned no error calling our attention to those features of the trial. It is true a general assignment of error was made, based on the court's refusal to instruct a verdict in favor of the defendant.
But rule 24 of this court provides that the brief of the plaintiff in error "shall contain," among other things, "a specification of the errors relied upon and shall set out separately and particularly each error-asserted and intended to be urged." That rule was intended to sharply direct the attention- of the court to the vital questions at issue and to require the argument of counsel to be concentrated upon the important questions in controversy. City of Eincoln v. Sun Vapor Street-Eight Co., 8 C. C. A. 253, 59 Fed. 756, 758. Counsel for defendant conformed to this rule, and specified the errors which they are now relying upon, and gave several reasons why the peremptory instruction should have been given in its favor, without making any complaint or remotely suggesting that any false or misleading issue had been tried, or that any combination of errors had deprived it of a trial on the law and the evidence, or that any issue had been confused. If the defendant has not yet appreciated that it did not get a lawful trial or was otlu* vise prejudiced by the proceedings below, we do not deem it our duty to act for it and assign errors in its behalf.
Again, if auj' false issue was tried below, it was by defendant's own procurement. It offered the correspondence to show an agreement between, the parties that the statement of February 24-th should form the basis of the contract sued on. That evidence was objected to by plaintiff, and admitted at defendant's insistence, over plaintiff's protest. It signally failed to support defendant's contention, and should have been -excluded or ultimately ruled out. The experiment, or false issue, as it is called, was therefore of defendant's own seeking and at plaintiff's great trouble and expense. .Defendant, even if it had assigned the trying of such false issue as error, cannot be heard to complain of the consequences of that error because it brought them upon itself.
, After a careful and critical consideration of the terms and conditions of the contract as actually executed by defendant company and of all the evidence introduced by defendant to add to or vary those terms and conditions, we cannot, under well-settled law recently stated by this court in Connecticut Fire Ins. Co. v. Buchanan, 73 C. C. A. 111, 141 Fed. 877, 4 D. R. A. (N. S.) 758, reach any other conclusion than that there was no competent evidence to ingraft upon the contract as executed any of the warranties or conditions found in the statement of February 24th. The judgment was in harmony with this conclusion, and at another trial, so far as this issue is concerned, no other judgment could be lawfully rendered. If, therefore, any errors were committed adverse to defendant's contention, or even if the court adopted any erroneous theory, the record conclusively shows that neither of them were or could have been prejudicial to the defendant's real rights. Such should therefore, in the interests of a rational administration of justice, be disregarded.
It was recently held by this court that, even if a trial proceeded on an erroneous theory, if the judgment reached was for the right party, it, in the interests of substantial justice, should not be reversed when it is clear that the erroneous procedure or error did not prejudice, and could not have prejudiced, the rights of the losing party. Cook v. Foley (C. C. A.) 152 Fed. 11. With that reasonable doctrine we fully agree, and we think the present case is brought within its contemplation. We cannot see how the confusion or error, if any such existed in the trial of the issue last referred to, injuriously affected the defendant's chances for a fair trial on the other issues of the case; but if they had any tendency in that direction, and even did prejudicially affect the defendant's rights, it is not complaining about it. No assignment of error to that effect is either made, specified in the brief, or argued by .its counsel. In such circumstances we cannot interfere.
Was the verdict excessive or contrary to the court's instruction?
We are not at liberty to consider the first part of this question. The action of the trial court in allowing the verdict to stand concludes review by us. Illinois Cent. R. Co. v. Davies, 76 C. C. A. 613, 146 Fed. 247, and cases cited. But whether the verdict so contravenes the court's instructions as to require a reversal of the judgment is open for consideration. The court gave a certain instruction relating to the allowance of a credit in favor of the defendant of the sum of $1,500. The facts out of which any claim to such a credit could arise are as follows: Crowe, the president of the company, with a view of encouraging the employé in the early, stage of his employment, sold him at a low price and on credit a few shares of his individual holdings of the capital stock of the plaintiff company, with an understanding that such dividends as should be declared on the shares and such moneys as Graves might from time to time pay on account should be applied towards the agreed price, and with the further understanding that, whenever Graves should leave the service of the company, the shares should be returned to Crowe, and that he should refund to Graves the aggregate of what he might have paid on them. Graves died in May, 1904, and under the agreement between him and Crowe the amount'of $1,500 was due from Crowe to Graves' estate, pursuant to •the understanding mentioned. The defendant pleaded in its answer that this money was held by the company for the purpose of being applied in reduction of Graves' defalcation, and asked that the amount thereof be credited to the defendant on whatever liability should be established against it. The instruction in question is not entirely clear. Two different meanings are imputed to it by opposite counsel; one consistent with the verdict, and the other inconsistent with it. Under no conceivable view of the facts did the plaintiff company have any funds in its hands belonging to Graves which could or should have been applied by way of reduction of the amount due it by reason of Graves' defalcation. The jury, doubtless, did not understand the instruction to require the allowance in favor of the defendant, and did not make any such allowance in reaching its verdict, and it is fairly to be presumed, from the fact'that the learned trial court did not set aside the verdict, that he did not understand the jury had misinterpreted the instruction in question. Where the record does not clearly show that the finding of the jury is contrary to the instruction of the court, the presumption is that they followed it. Gregory v. Morris, supra. In any event, the failure to allow the credit of $1,500 did not prejudicially affect defendant's rights. The verdict reached was in strict accord with the proof touching the amount of Graves' embezzlement during the year covered by the contract, and if the jury had allowed the unjust and unwarrantable credit it would have been error. We will not strain ourselves to find, a technical error in procedure which will result in a substantial error in fact.
Were the instructions given to the jury on the subject of "immediate notice" erroneous?
We have carefully examined the full charge and all the observations of the court bearing upon the meaning of the words "immediate notice of loss," as found in the contract sued on, and find them in substantial accord with the^views already expressed by us on that subject. We are utiable to say that the disconnected expression complained of by defendant's counsel, when taken in connection with the whole charge, conveyed any false impression to the jury.
We have now considered all the important questions argued by counsel. Others of less moment are suggested in the assignment of errors.
To them we have given careful consideration, and, finding nothing in them to affect the result already foreshadowed, the judgment must be affirmed, and it is so ordered.