Court Opinion

ID: 8811100
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:03:21.639899+00
Date Added: 2024-06-11T17:04:17.631225
License: Public Domain

GILBERT and MORROW, Circuit Judges
(concurring). We arc of the opinion that the judgment should be reversed, and that upon the findings of the court below judgment should be directed to be entered in favor of the plaintiff in error upon the following grounds:
Prior to the date of the application for insurance, Hayes had been in the service of the insured for more than five years, and during the whole of that time he had been permitted to overdraw his account. No restriction was placed upon the amount which, he might overdraw; the permission being to overdraw in a “reasonable amount.” After being in the service of the insured at Woodland, Cal., for several years, he was transferred in January, 1915, to Salt Lake City, where he remained until he was discharged. At the date of the. application, October 15, 1915, his account at Woodland was overdrawn in the sum of $717.-13, in addition to which he owed the insured upon a note $500, which was originally an overdraft, and he was overdrawn on his Salt Lake account in the sum of $432.93. He testified that, when he was discharged on June 1, 1916, his account was overdrawn about $6,600. .His heaviest overdraft at any time at Woodland was $1,154.33 in excess of the $500 note. Blewett, the assistant auditor of the insured, checked up Hayes’ account before he went to Salt Lake and he testified: “I knew then that he was overdrawn too much.” The president of the insured stated to the general auditor of the surety company that “Hayes being short $1,000 or so in Woodland was entirely different from his being short $7,000 or $8,000 in Salt Lake City.” If there was a difference, it was but a difference in degree. Hayes, having been permitted habitually to overdraw his account prior to going to Salt Lake, thereafter continued to indulge his habit and largely increased his overdraft. No examination of his account was made while he was at Salt Lake.
The parties to the contract were not on a plane of equal opportunity for information, and the fact that Hayes’ account was overdrawn, and that he was in the habit of overdrawing the same at and before the time when the contract was entered into, was one that should not have been withheld from the surety company. It is not conceivable that the surety, if advised of that habit, would have entered into the contract. In Frost on Guaranty Insurance, § 74, it is said:
. “The chronic defaulter, for the purpose of becoming a ‘risk’ under a, fidelity insurance policy, is persona non grata to the insurer. The surety companies, as a matter of prudence and business policy, invariably decline a ‘risk’ who has been seriously in arrears in any previous employment. The reasonableness of this position has never been questioned, either by the courts or the public, so far as we are aware.”
Where the insured states in its application that nothing is known concerning the employe’s habits affecting his title to confidence, when the fact was the employe was engaged in hazardous speculation with the knowledge of the insured, there can be no' recovery upon the bond. United States Fidelity & Guaranty Co. v. Blackly Hurst & Co., 117 Ky. *606127, 77 S. W. 709. In Belleview L & B. Ass’n v. Jeckel, 104 Ky. 159, 46 S. W. 482, it was held that if a party taking a guaranty from a surety conceals from him facts which go to increase his risk, and suffers him to enter into the contract under false impressions as to the real state of facts, such concealments will amount to a fraud, because the party is bound to make the disclosure, and the omission to make it, under the circumstances, is equivalent to an affirmation that the facts do not exist. Of similar import is Deposit Bank of Midway’s Assignee v. Hearne, 104 Ky. 819, 48 S. W. 160; Hebert v. Lee, 118 Tenn. 133, 101 S. W. 175, 12 L. R. A. (N. S.) 247, 121 Am. St. Rep. 989, 11 Ann. Cas. 1029.
“There is no principle of law better settled than tbat persons proposing to become sureties to a corporation for the good conduct and fidelity of an officer to whose custody its moneys, notes, bills, and other valuables are intrusted, have the right, to be treated with perfect good faith. If the directors are aware of secret facts materially affecting and increasing the obligation of the sureties, the latter are entitled to have these facts disclosed to them.” Morse on Banking, p. 226.
Not only was there failure to disclose to the surety company the habitual overdraft of Hayes, but the application for the fidelity bond contained statements, warranted to be true, one of which was: That there had never come to the notice or knowledge of the employer any act, fact, or information tending to indicate that the employé was unworthy of confidence, and that his employer knew “no reason why you cannot safely become surety for him.” We think that there was a clear breach of the warranty of want of knowledge of facts tending to indicate that Hayes was worthy of confidence, and of the warranty that his habits were good, and that his employer knew of no reason why the bonding company should not become surety for him.