Court Opinion

ID: 5264355
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:53:05.880742+00
Date Added: 2024-06-11T08:28:07.489622
License: Public Domain

Kiley, J. (dissenting):
On the 13th day of November, 1918, the National Surety Company issued its undertaking, bond or policy of insurance to the New York National. Insurance Company in the penal sum of $50,000. On the 16th day of December, 1918, the same company issued its undertaking, bond or policy to the Seneca Fire Insurance Company in the penal sum of $100,000. On the 26th day of May, 1919, the Maryland Casualty Company issued its undertaking, bond or policy to the Seneca Fire Insurance Company in the penal sum of $100,000. On the 2d day of June, 1919, the United Fidelity Guaranty Company issued its undertaking, bond or policy to the New York National Insurance Company in the penal sum of $50,000. The insurance companies so secured as in and by these several instruments intended and provided were fire insurance companies. The occasion for these several contracts was the application by these two fire insurance companies to these indemnity companies, for the better security of their several deposits in the North Penn Bank of Philadelphia, Penn., in language and words as follows: “ does agree that if, during a term commencing at nine o’clock on the [day named in the instrument] and ending at the close of banking hours on the [day named in the instrument] the said bank for a cause amounting to insolvency or to temporary or permanent suspension of general payments, shall fail to pay to the depositor upon proper order any sum or sums which shall be at the time legally due the depositor, the company will, within ten days after receipt of proof, satisfactory to it of a default hereunder, pay to the depositor any such amount ” not exceeding the penalty of the *228bond. This means that the sureties will pay the amount due the depositor if the bank, by reason of inability or insolvency, fails to pay, on demand for the same. In the first instance the only valid excuse the surety company would have is that insurance companies did not have any money on deposit in such bank. The North Penn Bank suspended payment on the 18th day of July, 1919. The Seneca and the New York National Insurance companies had large deposits in the bank at that time, the loss or unavailability of which so crippled the said fire insurance companies that they were taken over by the Superintendent of Insurance of this State. The surety companies were called upon to pay the loss to the extent of their liability provided for in their contract of guaranty. They welched; the result was four actions in the Supreme Court of this State upon their several contracts of guaranty. The four actions are all based upon the same questions, all are by the same plaintiff and against the two surety companies above referred to; what I am about to say is equally applicable to each and all of the appeals. The answers set up as a defense that the insurance companies did not have any money on deposit in said bank; and second that the contracts of insurance were induced by fraudulent acts of the said insurance companies, evidenced by either their acts of omission or commission. The trial court was asked to indulge such inference and to reach such conclusion from indirect evidence produced upon the trial, which said court refused to do, and from his conclusions to the contrary and the judgments entered upon such findings these appeals are taken; in other words, we are asked to acquiesce in the suggestion, earnestly urged upon us, that the guaranties did not guarantee and that the procurance thereof was a mere idle ceremony. The circumstances urged to that end are as follows: first let me observe that the proposition that these fire insurance companies did not have any money on deposit in ,ythe North Penn Bank is dependent on the solution of the second proposition above set forth as a defense. On the state of facts found in this record, and which made it a question of fact, the trial court found that said fire insurance companies did have money on deposit, and with that finding I am in accord. The circumstances above referred to and which now call for consideration have to do with the second proposition, viz., fraud. The James J. Boland Company, Inc., was a Delaware corporation doing an insurance brokerage business at Scranton, Penn. At all times material to the consideration of the question here involved it had an income of $150,000 a year. James J. Boland was its president and his wife was its treasurer; one Jones was its secretary. As Mr. Justice Kellogg says, they, the officers, were ambitious to extend and *229enlarge its business and of necessity its field of operation; at that time they could not have had any other object; they purchased all of the capital stock of the New York National Insurance Company aforesaid for about $375,000, and a majority of the capital stock of the Seneca Insurance Company for about $340,000. These two fire insurance companies were New York State corporations. The Boland Company did not have sufficient ready cash to pay this large consideration and were compelled to borrow a large part of it. To carry through such a financial proposition by the Boland Company, with such resources as it had, was a gigantic undertaking in itself besides, in case of failure, involved to a certainty the destruction of a good business which that company had developed and had ready at hand. Nevertheless it was undertaken and completed so that the Boland Company got possession and control of the two fire insurance companies, with a gross income of about $300,000 each annually. I cannot conceive of any criticism that can be made of the Boland Company for attempting this venture, except that of an error of judgment or the gratification of an excessive ambition. This proposition could not be floated without aid of resources outside of the Boland Company. It was done with the aid of banks from Buffalo to New York city and in the State of Pennsylvania. If this had ultimately succeeded it would have been hailed, and rightly so, as an unusual success. Nothing succeeds like success and nothing defeats like defeat. The North Penn Bank was one of the moneyed institutions which was prevailed upon to aid the Boland Company in this enterprise. James J. Boland was the prime mover and recognized head of the movement to finance and carry on the undertaking. He was president of the three companies aforesaid in which he was interested, still a young man of indomitable energy and perseverance; he floated those loans and did it within the law of commerce and finance; no criminal charge is laid against him and he still is free. The Boland Company was the general agent of the Seneca and New York National companies and all premiums were paid to it, and from which sums it deducted its commissions and the balance should have been deposited, by arrangement, in the North Penn Bank. Some of them were so actually deposited; the balance was deposited by means of checks from the Boland Company drawn upon its account in the North Penn Bank, and for which the Boland Company gave its notes or notes bearing its indorsements. I am not unmindful of the fact that some of those notes were not entered upon the books of the bank, but many of them were, and as to those there is no question that the relation of debtor and creditor existed between the Boland Company and the bank. (Consolidated Nat. Bank v. *230First Nat. Bank, 129 App. Div. 538; affd., 199 N. Y. 516; Oddie v. National City Bank of New York, 45 id. 735.) I hold that the same rule holds true as to notes delivered and received by the bank though not entered on the books. Moyer was cashier of the bank and from the evidence, aside from any presumption, he had authority to make loans and take the notes. (Bell v. Hanover National Bank, 57 Fed. Rep. 821.) The board of directors could so authorize him, but could not avoid their own responsibility. (Wheeler v. Aiken County Loan & Savings Bank, 75 Fed. Rep. 781.) The trial court found that these notes so delivered were bona fide transactions; it was a question of fact and is sustained by the evidence. It should be borne in mind that neither the Boland Company nor James J. Boland had any relation with the North Penn Bank, except that of debtor and creditor. They were not officers or employees of the bank. Moyer, the cashier and active and sole manager of the bank and its affairs, went to Scranton and made examination of the Boland Company’s affairs; he found them with a business yielding $150,000 a year income, and so far as the Boland Company’s affairs with the bank, he was satisfied. If the Boland Company had been the only ones with big loans he would have had no occasion for apprehension. It is urged that misrepresentation was fraudulently made by these fire insurance companies to induce the defendants to enter into this contract of guaranty. If affirmative and active misrepresentation is meant, there is not one word of any affirmative misrepresentation in the evidence in this record, made by the fire insurance companies or the Boland Company. I doubt whether that is what is meant, but what we are asked to find is that the alleged acts of omission on the part of the Boland Company in not disclosing the condition of the North Penn Bank and the fire insurance companies therewith, was such fraud as to avoid these contracts. The fire insurance companies had no business with said bank except as a depositor of its funds, and as before observed, the Boland Company had only the arrangement of debtor and creditor; it had been agreed with the bank that it might give notes and check against the fund so created for deposit in the accounts of the fire insurance companies in the bank. This was a straight business transaction, no fraud there, and there was no overdraft of the Boland Company. That I am right with reference to the status of the Boland Company notes, and that the bank at the time understood their relation as I have outlined it here, is apparent from the evidence. Marie T. Seirup, one of the bookeepers at the bank, testified: “ I took it [referring to a check] with the understanding that I was never to send any checks back on any of the large corporations such as the *231Boland Company and the Fletcher Company, because it was understood that they had notes to cover their overdrafts and I was never to return any checks on those accounts.” This tells in a few words the policy and arrangement between the bank and the Boland Company. In view of the large income asssured from the Boland Company, the Seneca Company and the New York National Company, when they got under way, this wajs not an impossible arrangement, and without resorting to any violent assumption, it is again asserted that if the Boland Company had been the only large creditor, the bank would have successfully weathered that gale. It is urged that the vice existing here consists in the silence of the Boland Company as agent of the insured, in that it did not disclose such facts as it possessed of the condition of the bank. The trial court found, and I concur, that the Boland Company did not know more than I have outlined above. There is no evidence that the Boland Company or any of its officers were speculating outside of its own legitimate operations, no kiting of checks; that they were stealing or converting money to any purpose other than to pay up the large indebtedness incurred in the purchase of the two insurance companies — in the absence of such evidence the presumption is that the money was used legitimately. The evidence bears out the contention that the Boland Company, knew nothing of the condition of the North Penn Bank aside from its own relation therewith. It will be recalled that the Boland Company moved from Scranton, Penn., to New York city. Boland swears this was about June 10, 1919. Moyer was called as a witness by the defense and testified to a conversation he had with James J. Boland and Jones after they had moved to New York and in the Boland Company office there — both Boland and Jones were present. The part of the conversation detailed by Moyer and very pertinent here is as follows: “ I said to Mr. Boland it would be a very serious matter for me if anything should happen to that bank, and he said it would not only be "a serious matter with myself, but it would be a very serious matter with both of them. Then Mr. Jones asked me if there were any other accounts in the bank that were giving me any concern or worry outside of the James J. Boland Company account, and I stated that we had one other account, a large account, upon which we had advanced considerable money on a war contract, and that was also giving me quite a little bit of worry, but ive expected that to be liquidated in a very short time.” Moyer was defendant’s witness and was anything but friendly to the Boland Company, as will appear from reading his evidence. In the face of this evidence and other evidence of equal potency, we cannot find that the Boland Company had knowledge of any straight*232ened condition in this bank before these insurance contracts were made. Eleven days before the bank closed its doors James J. Boland, for the Boland Company, deposited $35,000 in cash in this bank. Did he know at that time it was tottering to its fall? The appellants urge that he made that deposit in an effort to prevent the crash and the consequent destruction of his fire insurance companies. If the Boland Company had the knowledge imputed to it by the defendant, sufficient to charge it with fraud because ifc did not impart that knowledge to the defendants, then James J. Boland knew that putting $35,000 in cash into that bank was as fatal to that money’s continued existence as to have thrown it into a burning building. To hold that with such knowledge he made that deposit is to endow him with a degree of idiocy that eliminates him from any consideration as a factor in a conspiracy that must rest on a gold basis standard. Experience, observation, acquired knowledge and common sense make obvious the fact that two primal factors, one and sometimes both, are present to work the destruction of any bank, viz., dishonesty and corruption of its officers and employees, and in competency and indifference in its board of directors. This record is devoid of any evidence showing knowledge on the part of the Boland Company of either of those factors. Of course I am not unmindful of the contention of the defendants that it was a conspiracy between J. J. Boland and Moyer, the managing officer of the bank, and that it was necessary to that end that J. J. Boland have all such knowledge; but what was the conspiracy? To bring about just what has happened, destroy the bank and destroy the three companies that went down with the bank in this crash. The Boland Company did not have that knowledge, they did not want any such result; it had knowledge, through its officers, of its relation with the bank; that relation, as before observed, was that of debtor and creditor, and it was not necessarily fatal, and if it was not for outside or other inside weakness of which the Boland Company.had no knowledge, it was not even probably fatal. Under such circumstances, J. J. Boland, as president of the Seneca and the New York National Fire Insurance companies, was not called upon to give any notice to the defendants. (Western N. Y. Life Ins. Co. v. Clinton, 66 N. Y. 326; American Surety Co. v. Pauly, No. 1, 170 U. S. 133; Howe Machine Co. v. Farrington, 82 N. Y. 121; Casco Nat. Bank v. Clark, 139 id. 307; Utica S. M. Co. v. Casualty Co., 210 id. 399; Atlantic State Bank v. Savery, 82 id. 291.) The last citation holds that a bank is not chargeable with, or affected by, the knowledge acquired by a director in his individual capacity and not as an officer of the bank or while engaged in its business; nor *233is there any presumption that he communicated his knowledge to the bank. (Henry v. Allen, 151 N. Y. 1.) The findings of the trial court were supported by evidence of facts given upon the trial. A fair question of fact was presented upon every issue litigated. The Appellate Division is not authorized to disturb the findings unless they are unsupported by testimony or made against the weight of evidence. (Benedict v. Arnoux, 154 N. Y. 715, 724.) Stress is laid on the fact that a demand for $180,000 (Christmas fund) could not be met at once, or that $200,000 could not be paid immediately if the Superintendent of Insurance of the State of Pennsylvania should call upon it for that amount to be made. The North Penn Bank is a State bank, and while I am not advised of the amount of reserve it was required to keep in specie in the bank, it is inconceivable that a bank with $150,000 capital should be called upon to keep any such an amount on hand. These facts are known or should have been known by the defendants. What is the province of these surety companies? Is it not to insure against contingencies which entail losses? Or is it to take money from the business public for such insurance where there is no possibility of a loss? These defendants know that there is nothing so uncertain as a sure thing. It is their province to insure against just such contingencies as, in fact, exist here. In American Bonding Co. of Baltimore v. Spokane Building & Loan Society (130 Fed. Rep. 737) the surety company insured an officer of the association who was faithless to his trust. An expression on the province and purpose of sureties is found in the opinion, which is peculiarly applicable here. “ They undertake that he shall be honest though all around him are rogues. Were the rule different, by a conspiracy between the officers of a bank or other moneyed institutions, all these sureties might then be discharged. It is impossible that a doctrine leading to such consequences can be sound.” Speaking of the facts under consideration in that case the court further said: “ If bonding corporations are to be sustained by the business interests of this country as being useful and worthy of support, they should be required to meet their obligations in all such cases as we have presented in this record.” When the facts presented by the evidence are susceptible of two meanings, fraud or honesty, honesty must be found. (American Surety Co. v. Pauly, No. 1, 170 U. S. 133; Lopez v. Campbell, 163 N. Y. 340; Aspell v. Campbell, 64 App. Div. 393.) It was found by the trial court that the Boland Company had no overdraft in the North Penn Bank when it failed. This finding is supported by evidence of record. If there was an overdraft it was not fraudulent nor criminal under the laws of Pennsylvania that we are advised. In Payne v. Freer (91 N. Y. 48) *234the court says: “As between a banking firm and a depositor not a member of the firm, an overdraft is a loan.” There were overdrafts and peculations in that bank, outside of the Boland Company’s indebtedness, of about $1,000,000, but the evidence fairly bears out the contention of plaintiff that Boland did not know of these. It will be recalled that in addition to issuing these policies, these defendants, one or both of them, insured officers or employees of the bank; they had rights and opportunities for investigation which were not open to Boland. They urge that their stockholders should not suffer diminution of dividends by having to meet these judgments; should others suffer on that account? Are they to be exempted from all obligation to investigate and thus defeat the very purpose for which their creation was permitted? There is one other question, not material from my standpoint, but which, as a matter of the administration of the law, should receive attention; that is the question of the competency of some of defendant’s evidence. That much of the evidence was incompetent does not admit of a doubt. (Cushman v. Amend, 176 App. Div. 224.) When the claim is that the verdict is against the weight of evidence, such evidence should not be permitted to tip the scales so as to reverse the judgment of the trial court. Finally in the case of Donaldson v. Hartford Accident & Indemnity Co. (269 Penn. St. 456) practically the same facts were present as are found here. The failure of the same bank was involved. The decision in that case was against the contention of defendants in this case. ■ I favor affirmance of all of these judgments, with costs. The appeal from the order denying an extra allowance should be dismissed, with costs.
Judgment reversed on law and facts and complaint dismissed, with costs to the defendant, appellant. The court disapproves of findings 7, 16, 17, 18, 21, 22, 23, 24, 25, 28, 29, 30, 31, 32, 33, 39, 41, 42 and 43. It finds the defendant’s requests to find numbered as follows: 22-33, inclusive, 40, 50-54, inclusive, 56, 58-63, inclusive, 67, 68, 70, 71, 73-77, inclusive, 82, 84, 86-90, inclusive, 92, 95, 95a, 98, 102, 103. It finds the facts stated in requests 55, 66, 68, 69, 79, 83, 85, 91, 93, 94, 96, 99, 100, 101, except the statements therein made as to the knowledge of the New York National Insurance Company, and it finds in lieu thereof that said company had such knowledge when it procured the bond in suit. It also finds plaintiff’s conclusions of law Nos. 2, 3, 4 and 5. It finds that irrespective of the evidence as to the Boland Company overdrafts and irrespective of defendant’s exhibit No. 13, the New York National Insurance Company at the time it procured the bond in suit had knowledge of the insolvency of the North Penn Bank. Order and findings to be settled before H. T. Kellogg, J.