Court Opinion

ID: 8833710
Source: CourtListenerOpinion
Date Created: 2022-11-26 16:12:26.169316+00
Date Added: 2024-06-11T17:04:59.960025
License: Public Domain

Mr. Justice Gridley delivered the opinion of the court. In United States Fidelity & Guaranty Co. v. First Nat. Bank of Dundee, 233 Ill. 475, 481, it is decided (1) that a bond which is issued by a guaranty company to indemnify an employer against loss from the dishonesty of an employee is “an insurance contract, and as such subject to the rules of construction applicable to insurance policies generally”; (see People v. Rose, 174 Ill. 310, 313); (2) that “contracts of guaranty insurance are made for the purpose of furnishing indemnity to the assured, and they should be liberally construed to accomplish the purpose for which they are made”; (see Guarantee Co. of North America v. Mechanics’ Sav. Bank & Trust Co., 80 Fed. 766, 772 et seq.); (3) that “the law is well settled, in its application to insurance contracts, that a misrepresentation of a material fact, in reliance upon which a contract of insurance is issued, will avoid the contract,” and that “a material misrepresentation, whether made intentionally and knowingly or through mistake and in good faith, will avoid the policy”; (see also T. Wilce v. Royal Indemnity Co., 289 Ill. 383, 389); and (4) that a statement in a renewal certificate of a bank cashier’s guaranty bond that his books and accounts were examined by the bank “from time to time in the regular course of business” and found to be correct, does not mean that such a thorough and exhaustive examination was made as would necessarily discover the slightest irregularity that might exist, however cunningly covered up; and (p. 484) that “if bank officers are to be held to such a rigid method of examination and supervision over the accounts of their employees there would be but little necessity, if any, for purchasing fidelity insurance.” In Title Guaranty & Surety Co. v. Nichols, 224 U. S. 346, where the action was on a fidelity bond given to protect a bank against the dishonesty of its cashier, it was decided in substance that the mere fact that the examination of the cashier’s books and accounts, made by a competent person, had failed to discover discrepancies covered up by false entries, or other bookkeeping devices, did not necessarily prove that the examination had not been a reasonable one and made in good faith. In Remington v. Fidelity Deposit Co., 27 Wash. 429, a guaranty bond for the faithfulness of an employee, a bookkeeper and cashier, provided that the bond might be continued from year to year, so long as the company should consent, upon payment of the agreed annual premium. About the time of the expiration of the period of the bond, the employer, in order to continue it in force for another year, signed and delivered to the company a certificate that the books and accounts of said employee had been examined and found “correct in every respect and all moneys handled by him accounted for,” and that “he has performed his duties in an acceptable and satisfactory manner and we know of no reason why his guaranty bond should not be continued. ’ ’ At the time this certificate was made the employer had no knowledge or suspicion that his employee was in default or dishonest in any way, but as a matter of fact at that time, as it subsequently developed, the employee had embezzled a considerable sum of money. After discovery of the defalcation the employer notified the company, and, upon its refusal to make any payment, brought suit. The bond insured the employer from “pecuniary loss * * * sustained by any act of fraud or dishonesty amounting to larceny or embezzlement * * * occurring during the continuance of this bond, and discovered during said continuance, or within six months after * * * the expiration or cancellation of this bond.” On the trial the court instructed the jury to find for the company and entered judgment in its favor. In reversing the judgment and remanding the cause the court said (p. 441) : “The default was discovered within a month after the renewal was made. Certainly the respondent, under the original contract, was liable for any defalcation discovered within six months after the expiration of the contract, according to the terms thereof. A part of the defalcation complained of had accrued during the first year of the bond, and a part after the renewal thereof.” In the present case it appears from the undisputed facts that prior to the issuance of the original bond plaintiff, the employer of Witt, delivered to the company a written statement making therein certain representations as to then existing facts and as to certain acts to be performed by plaintiff during the period of the bond, which expired (unless continued by future agreement) on May 1, 1918; that these representations were agreed to be considered as warranties and conditions precedent to the issuance and continuance of the bond; that said representations as to the then existing facts were true and correct when made, and that the acts which were represented would be performed by plaintiff during the continuance of the bond were in fact performed in good faith as represented; that Witt began his defalcations in September, 1917, and accomplished them in the manner as above shown by the testimony of the president of plaintiff; that under the conditions existing in.plaintiff’s business, these defalcations were somewhat cunningly performed; that he continued in his dishonest work until about April 27, 1918 (about 4 days prior to the expiration of the original bond), when his defalcations were first discovered; that plaintiff immediately notified the company thereof and fully complied with the conditions of the bond as to notice and proof of loss; that plaintiff as the result of Witt’s acts suffered a pecuniary loss of $908.44; that all of this loss was actually suffered before the expiration of the original bond on May 1,1918, with the exception of $19.31, the proceeds of one of the checks in question which as appears was actually paid out of plaintiff’s funds in bank on May 3,1918; that on March 27,1918, prior to the expiration of the original bond, plaintiff, desirous of continuing the bond in force for another year, delivered its certificate to the company in which it certified (as shown by the paper above set forth) to the honesty of Witt and that he was not then in default to plaintiff; that this certificate was made in good faith by plaintiff but as a matter of fact it was at the time untrue; that the company, relying on said certificate and the representations therein contained, continued said bond in force for another year, beginning May 1, 1918; and that, under the provisions of the original bond, the company was not liable thereunder for any act of the employee after May 1,1918, but that any claim thereunder might be presented within 12 months after May 1, 1918, or, in case of the discovery of the employee’s default prior to May 1,1918, within 12 months after such discovery. We are of the opinion that, under the undisputed facts of the present case and under the law as disclosed from the decisions above referred to, the trial court erred in entering a finding and judgment in favor of the defendant company. We think' that plaintiff was entitled to recover the full amount of its pecuniary loss, less the sum of $19.31, or the sum of $889.13. The loss of the sum of $19.31 occurred during the time that the renewal bond was in force. That bond was issued by the company in reliance upon plaintiff’s certificate of March 27, 1918, above mentioned. The representations therein contained were in fact untrue, although at the time-they were made plaintiff had no knowledge of Witt’s defalcations, and believed said representations to be true and in good faith signed the certificate. But plaintiff as to said representations “assumed knowledge of the facts and cannot now allege want of knowledge.” (T. Wilce Co. v. Royal Indemnity Co., 289 Ill. 383, 389; Hartford Life & Annuity Ins. Co. v. Gray, 91 Ill. 159; Whyland v. Chicago Bonding & Surety Co., 209 Ill. App. 485, 489.) It is here strenuously urged by- counsel for the defendant company that under the decision in the Why-land case, supra, this court should affirm the judgment entered by the trial court in. the present case. We do not construe the decision in the Whyland case as counsel does, and the facts in that case are different from the facts in the present case. In the Whyland case it appears in substance that the company insured the fidelity of plaintiff’s cashier and bookkeeper, Sprange, for one year from November 5, 1913, by delivering a bond containing almost identically the same conditions as the bond now in question, except as to amount; that before the bond was issued, plaintiff, in an “ employer’s statement” made certain representations as to audits and examinations of Sprange’s books and ac-‘ counts which, it was stated, would be made “at least once in every-months ’ ’ during the period the .proposed bond was to be in force; that it was agreed that said representations should be considered as warranties; that prior to the expiration of the original bond plaintiff, desiring a renewal thereof for another year, signed and delivered to the company a. certificate, certifying to the honesty of Sprange and his not being then in default, in language almost identical to the certificate in the present case, and the bond was renewed for another year; that during the period of the original bond Sprange became a defaulter; that he commenced embezzling plaintiff’s moneys in June, 1914, and continued doing so from time to time thereafter during the remaining period of the original bond and during a portion of the period of the renewal bond until his dishonest acts were discovered about March 1, 1915; that up to the time of the expiration of the period' of the original bond his embezzlements had amounted to about $1,900, and his subsequent embezzlements brought the total sum up to about $3,050; that no audits or inspections whatsoever of his books and accounts had been made by plaintiff during the period of the original bond; that his embezzlements had been performed in such a clumsy and obvious manner that even a superficial examination, made at any time, of his books and accounts would have disclosed them; and that the jury returned a verdict in favor of the company upon which verdict a judgment was entered accordingly. This court affirmed the judgment on appeal, holding in substance that under the facts and circumstances disclosed plaintiff could not recover for any amount, either for the sums embezzled during the period of the original bond or during the period of the renewal bond; and further holding that it was not a case where an alert examiner, making an honest examination, might not have discovered the frauds, as was the case of United States Fidelity & Guaranty Co. v. First Nat. Bank of Dundee, 233 Ill. 475. The obvious distinction between the facts in the Whyland case and those in the present case is that in the Whyland case the representations, made prior to the issuance of the original bond, as to audits and examinations of the employee’s books and accounts, had not been complied with in any particular, while in the present case they had been fully and in good faith carried out. Furthermore, even if in the present case it would seem, in the light of what subsequently developed, that plaintiff’s auditor, J. B. Cook, was somewhat negligent in not having extended his examination so as, on each audit, to have compared the pay roll lists made out by Witt with the pay roll cards prepared by plaintiff’s superintendent, still, we think, that such mere negligence, if any there was, should not militate against plaintiff’s recovery for the loss sustained during the period of the original bond. (19 Cyc. 831; Fidelity & Guaranty Co. of New York v. Western Bank [Ky.], 94 S. W. Rep. 3; Firemen’s Ins. Co. v. Appleton Paper & Pulp Co., 59 Ill. App. 511, 512; Holdom v. Ancient Order United Workmen, 159 Ill. 619, 623.). It is further contended that, inasmuch as the bill of exceptions or stenographic report does not disclose that plaintiff took an exception to' entry of the judgment appealed from, the sufficiency of the evidence to support the judgment cannot here be inquired into. Previous to the amendment in 1911 of section 81 of the Practice Act (J. & A. 8618), where the case had been tried by the court without a jury as the present case was, this contention would have had merit. (Climax Tag Co. v. American Tag Co., 234 Ill. 179; Miller v. Anderson, 269 Ill. 608, 612.) But since the passage of the amendment to said section of our statutes it has no merit. (Miller v. Anderson, supra; City of Lewistown v. Harrison, 282 Ill. 461, 466.) For the reasons indicated the judgment of the municipal court is reversed and judgment will be entered here in favor of the appellant, Auto Truck Steel Body Company, and against the appellee, Chicago Bonding & Insurance Company, in the sum of $889.13. Reversed and judgment here for $889.13. Mr. Presiding Justice Matchett and Mr. Justice Barnes concur.