Court Opinion

ID: 8747465
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:12:47.104613+00
Date Added: 2024-06-11T17:00:45.047872
License: Public Domain

SANBORN, Circuit Judge
(dissenting). I agree with the district judge who tried this case below, and I think the judgment he rendered should be affirmed. It is neither a fulfillment nor a lawful excuse for a failure to fulfill a covenant to pay a debt, to perform an act, or to cause the performance of an act by a third party that the covenantor made a rule for the payment of the debt, or for the performance of the act, and carefully inspected, but was ignorant of, the failure to make the payment or the failure to do the deed while the debt was not paid and the covenanted act was not performed. It is true, as the majority remark, that the requirement of such a covenant is. not that the promisor shall pay a watchman or a spy to see whether or not the payment is made or the covenanted deed is done. The requirement of the covenant is more. It is that the promisor shall make the payment, or cause the third party to perform the covenanted act. And a careful inspection by the covenantor of the acts of the third person, and the adoption of a rule that such person shall do a promised act, that he shall make a covenanted indorsement of checks with the words “For Deposit,” and ignorance of his failure while he utterly fails to make the indorsement are no more a fulfillment, or a lawful excuse for the failure to fulfill, a covenant that he shall do the act, than a careful inspection of the failure to make a promised payment of a debt, the adoption of a rule that it shall be paid, and ignorance that it is not paid while no part of it is in fact paid are a fulfillment, or a lawful excuse for a failure to fulfill, a covenant to pay a debt. The very purpose of a covenant is to relieve the covenantee of all inquiry relative to the matters covenanted, and to impose upon the covenantor the absolute obligation to make them as he guaranties that they shall be; and nothing short of that is a fulfillment of his warranty. The application and bond in this case are to be read together, and they constitute but a single contract. By this contract the plaintiff covenanted with the defendant that during the term of the bond its employe Kelly, who was under its control, and subject to its orders, should “fully” practice indorsing the checks he received with the words “For Deposit” for the purpose of preventing the loss or conversion by him of the funds those checks represented; and the defendant, as the surety of Kelly on his bond, covenanted that it would insure the plaintiff against loss by his dishonest or fraudulent acts. In this state of the case the performance of the covenant of the plaintiff was a condition precedent to the liability of the defendant, the surety on the bond. The plaintiff received the bond, and knew that the defendant stood in the relation of a surety. By the application which it tendered to induce the plaintiff to become the surety it agreed in so many words that the indorsement of the words “For Deposit” by its cashier, Kelly, on the checks he received, should be a condition of the defendant’s liability as surety. And the general rule is that if a condition known to the obligee, upon which a surety agrees to be bound, is not complied *969with, the surety is discharged. 2 Brandt, Sur. § 403; Jones v. Keer, 30 Ga. 93, 95; Cunningham v. Wrenn, 23 Ill. 64, 65; Lynch v. Colegate, 2 Har. & J. 34, 37; Holl v. Hadley, 4 Nev. & M. 515, 520; Bonser v. Cox, 4 Beav. 379, 384; U. S. v. Hillegas, 3 Wash. C. C. 70, 76, Fed. Cas. No. 15,366; Whitcher v. Hall, 5 Barn. & C. 269;. Combe v. Woolf, 8 Bing. 156, 161.
Again, the contract of these parties consisted of mutual covenants,. —a covenant by the plaintiff that its cashier, Kelly, should invariably indorse its checks with the words “For Deposit,” and a covenant by-the defendant that it would pay the losses resulting from the fraudulent and dishonest acts of Kelly if he failed to do so. The plaintiff failed to fulfill any part of its covenant. It failed in toto. Kelly received and used many of his employer’s checks, but he never indorsed one of them with the words “For Deposit” during the entire term of the bond. As the plaintiff has committed a complete breach of its covenant, it cannot enforce the fulfillment of the covenant of the defendant. He who commits the first substantial breach of a covenant cannot maintain an action against the other contracting party for a subsequent failure to perform it. Rice v. Deposit Co., 103 Fed. 427, 432, 433, 43 C. C. A. 270, 276; Imperial Fire Ins. Co. v. Coos Co., 151 U. S. 463, 467, 14 Sup. Ct. 379, 38 L. Ed. 231; Guarantee Co. of North America v. Mechanics’ Sav. Bank & Trust Co. (decided by the supreme court Jan. 6, 1902) 22 Sup. Ct. 124, 46 L. Ed. -; Hubbard v. Association, 100 Fed. 719, 40 C. C. A. 665; Seal v. Insurance Co., 59 Neb. 253, 80 N. W. 807; Brady v. Association, 60 Fed. 727, 9 C. C. A. 252. The case of Rice v. Fidelity Deposit Co., 103 Fed. 427, 432, 433, 43 C. C. A. 270, 276, which was decided by this court on July 16, 1900, was, in my opinion, identical in every essential particular with the case in hand, and the law applicable to the facts of these cases has not changed since that case was decided. - In that case the covenant contained in the answer of the employer in the application for the bond was that the checks should be countersigned by the bookkeeper, and the bookkeeper did not countersign-them. We held that the employer could not recover, and, among other things, we said:
“The legal effect of these contracts was to create the relation of principal and surety between Perry and the fidelity company. The plaintiffs were necessarily aware of this relation. They agreed, in so many words, by the Instrument of August -30, 1895, that the countersignature of their bookkeeper on the checks of Perry against their account should be a condition of the liability of this surety: and the general rule is that if a condition, known to the obligee, upon which a surety agrees to be bound, is not complied with, the surety is discharged. 2 Brandt, Sur. § 403; Jones v. Keer, 30 Ga. 93, 95; Cunningham v. Wrenn, 23 Ill. 64, 65; Lynch v. Colegate, 2 Har. & J. 34, 37; Holl v. Hadley, 4 Nev. & M. 515, 520; Bonser v. Cox, 4 Beav. 879, 384; U. S. v. Hillegas, 3 Wash. C. C. 70, 76, Fed. Cas. No. 15,866; Whitcher v. Hall, 5 Barn. & C. 269; Combe v. Woolf, 8 Bing. 156, 161. Again, the bond and the instrument of August 30, 1895, must be read, construed, and enforced together. The contract of these parties consists of all the stipulations and agreements in both instruments. Both instruments are parts of a single contract. When they are so read, the agreement of these parties is found to contain mutual covenants, — a covenant of the employers-that they will invariably require the countersignature of their bookkeeper, Gribble, on all checks of Perry against their account, and a covenant of the *970"fidelity company that it will pay the losses resulting from the dishonest and fraudulent acts of Perry. Now, the plaintiffs have entirely failed to keep their1 covenant. Consequently they cannot enforce the fulfillment of the covenant of the fidelity company. He who commits the first substantial breach of a ,contract cannot maintain an action against the other contracting party for a subsequent failure to perform. Cattle Co. v. Martindale, 63 Fed. 84, 89, 11 C. C. A. 33, 38, 27 U. S. App. 277, 284, 285; Norrington v. Wright, 115 U. S. 188, 204, 205, 6 Sup. Ct. 12, 29 L. Ed. 366; Filley v. Pope, 115 U. S. 213, 6 Sup. Ct. 19, 29 L. Ed. 372; Rolling Mill Co. v. Rhodes, 121 U. S. 255, 261, 264, 7 Sup. Ct. 882, 30 L. Ed. 920; Beck & Pauli Lithographing Co. v. Colorado Milling & Elevator Co., 3 C. C. A. 248, 52 Fed. 700, 10 U. S. App. 465, 470; King Philip Mills v. Slater, 12 R. I. 82, 34 Am. Rep. 603; Smith v. Lewis, 40 Ind. 98; Hoare v. Rennie, 5 Hurl. & N. 19; Pope v. Porter, 102 N. Y. 366, 371, 7 N. E. 304; Dwinel v. Howard, 30 Me. 258; Robson v. Bohn, 27 Minn. 333, 344, 7 N. W. 357; Reybold v. Voorhees, 30 Pa. 116, 121; Stephenson v. Cady, 117 Mass. 6, 9; Branch v. Palmer, 65 Ga. 210; Fletcher v. Cole, 23 Vt. 114, 119.”
These remarks are applicable to, and should control the decision of, this case.
It is further submitted that, if these views are erroneous, and if the mere adoption of a rule that one shall do an act, and ignorance whether it is complied with or not, constitute either the fulfillment, or a legal excuse for the failure to fulfill, a guaranty that he will perform it, then, by the same mark, the adoption of a rule by the defendant that the plaintiff’s loss from the fraudulent or dishonest acts of the cashier shall be paid without the payment of it must constitute either a payment of that loss or a legal excuse for a failure to pay it, and the judgment ought not to require the defendant to do more than to adopt such a rule. It ought not to require it to pay the loss. The defendant should have the benefit of the rule applied to the plaintiff.