Williams v. United States Fidelity & Guaranty Co.

Schmucker, J., delivered the opinion of the Court. The appellant, G. Harlan Williams, in his capacity of receiver of the Home. Fire Insurance Company of Baltimore sued the appellee in debt on its bond of indemnity given to that company. The suit was instituted in the Superior Court of Baltimore City and was removed on affidavit of the plaintiff to the Circuit Court for Baltimore county where it was tried.

At the trial in the Court below, the learned Judge granted a prayer offered by the defendant at the close of the testimony for the plaintiff instructing the jury to find for the defendant because the plaintiff had offered no evidence legally sufficient under the pleadings to entitle him to recover. A verdict was rendered in accordance with this instruction and judgment was entered thereon for the defendant and the plaintiff appealed. There are fifteen bills of exception in the record of w'hich the first fourteen relate to rulings on evidence and the fifteenth to the Courts action on the prayer offered at the close of the plaintiff’s case. As the prayer if properly granted finally disposes of the controversy and a consideration of the propriety of the Courts action thereon involves a review of the entire case we will give that our first attention.

The bond declared on by the appellant, as plaintiff below, was an employer’s guaranty bond, originally issued to cover the period of one year.from August ist, 1902, and extended by agreement executed at Baltimore on July ist, 1903, to cover the ensuing year. By its terms the appellee undertook to reimburse and make good to the Insurance Company, the employer, to the extent of $10,000 all loss sustained by it of moneys, &c., “in the possession or custody of the employee (Tuttle) or for the possession or custody of which he is re ⁴⁹³ sponsible, directly occasioned by larceny or embezzlement on the part of the employee in connection with the duties of his office or position. ” A subsequent clause of the bond provided that the obligor should not be responsible for loss occasioned by any mere error of judgment or bona fide mistake, adding, “This bond being intended only to cover such dishonest acts of the employee in connection with the position in the service of the employer hereinbefore referred to as amount to larceny or embezzlement.” A further .clause provided that the obligor should not be liable under the bond for the amount of any balance that may be found due the employer from the employee and again asserted that it was the true intent and meaning of the bond that the obligor should be responsible there under only for moneys, &c., “diverted from the employer through larceny or embezzlement on the part of the employee within the period specified in the bond.” The breach alleged in the declaration is that, within the period prescribed in the bond, Tuttle had as agent of the Insurance Company collected various sums of money on its behalf, of which he had.stolen or embezzled the sum of $7,680. A statement or account verified by the oath of the plaintiff was filed, with the declaration, charging Tuttle with his monthly balances from October, 1903, and crediting him with his commissions and sundry expenditures and debiting him, at its foot, “To net balance due Home Fire Ins. Co. $7680.69.” The reiterated declarations in the bond restricting the liability of the surety to losses occasioned by the larceny or embezzlement of the employee or by such dishonest acts as amount to larceny or embezzlement are too distinct and positive to be ignored or explained away.

The bond should receive at our hands a reasonable construction so as to give effect to the intention of the parties thereto and carry out the purpose for which it was executed (Union Ins. Co. v. U. S. Fidelity Co., 99 Md. 423 ) but the plain language used by those parties in defining the limit of the liability of the obligor requires us to hold that there can be no recovery in this case for any acts or conduct of the employee which fall short of ⁴⁹⁴ larceny or embezzlement. It therefore becomes important for us to determine what are the essential elements of those two offenses. Larceny, at common law, was the felonious taking the property of another against his will with the intent to convert it to the use of the taker or, as some authorities hold, the use of the taker or a third person.

Embezzlement, which is a statutory offense, consists in the fraudulent appropriation to one’s own use of money or goods entrusted to him by another. In larceny the felonious intent must have existed at the time of the taking of the property whereas in embezzlement the fraudulent act consists in the appropriation of the property to the use of the taker or third party, but the felonious or fraudulent intent is of the essence of the offense in each case. Boitvier’s Law Diet, under “Larceny” and “Embezzlement;” Wharton’s Crim. Law, sec. 883 &c. and 1009 &c; 15 Cyc. 488; A. & E. Encycl., vol x, p. 979 et seq. vol. 18, p. 459.

It was not seriously contended in this case that the acts of Tuttle in failing to pay over to the Insurance Co. an alleged balance of its funds in his hands amounted to larceny at common law as the funds were paid to him by the company’s consent. It was however contended that as his office was at Syracuse in New York the alleged offense must be regarded as committed in that State, and that it amounted to larceny as defined by the New York statute. A copy of that statute was put in evidence in the case and appears in the record. By it larceny, embezzlement, obtaining property under, false pre fences and felonious breach of trust. are included under one definition.

It provides that a person who “with the intent to deprive or defraud the true owner of his property or the use thereof or to appropriate the same to the use of the taker or any other person,” either takes from the possession of the owner or other person, or fraudulently obtains possession of, or secretes, withholds or appropriates to his own use or that of any person other than the owner any money or property, or, having it in his possession as agent or trustee, &c., appropriates the same to his own use or that of any person other than the owner or person entitled to the benefit thereof, steals such ⁴⁹⁵ property and is guilty of larceny. A section of the Insurance Law of New York was also offered in evidence, which provides that the agent of any Insurance Company who as such collects or receives any money shall be responsible in a fiduciary or trust capacity to the company therefor. This statutory modification of the definition of larceny, including embezzlement, as interpreted by the Courts of New York has not done away with the necessity of proving the felonious orfrazidulent intent at the time of taking, or appropriating or withholding the property in order to establish the offense. People v Pollock, 51 Hun. 613 ; People v. Lawrence, 137 N. Y. 547 ; People v. Henderson, 90 N. Y. 12 ; People v. Loomis, 67 N. Y. 329 ; People v. Grim, 3 N. Y. 317 .

In a number of suits brought on bonds which, like the one now before us, by their terms limited the liability of the surety to losses by larceny or embezzlement or by dishonest acts amounting to those offenses, it has been held that proof of a balance due from the employee to the employer and a failure to pay the same when demanded was not sufficient to bind the surety. There must be proof of dishonest acts of the employee within the contemplation of the bond. Fraud and dishonesty are not presumed, they must be proven. Monongehela Coal Co. v. Fidelity & Deposit Co., 94 F. R. 736; Guarantee Co. v. Mech.

Savings Bank, 100 F. R. 550; Clifton v. Fidelity, &c., Co., 66 N. W. Rep. 361 ; Reed v. Fidelity, &c., Co., 42 At. Rep. 294 . Let us now consider in the light of these principles the facts of the present case. It appears from the evidence, all of which was for the plaintiff, that late in March or early in April, 1900, an agreement was entered into between the Home Fire Insurance Company of Baltimore, acting by its president, G. Harlan Williams, and his son, Howard T. Williams, who was its secretary, and Robert R. Tuttle, by which Tuttle became the general agent of the company for Pennsylvania and New York with his headquarters at Syracuse, New York.

There is no evidence of a formal written contract between the parties. G. Harlan Williams testified, in reply to the question whether the company had a verbal or written contract with ⁴⁹⁶ Tuttle, that he thought “the commencement was verbal.” “It may have been in correspondence.” “I have not a clear recollection of it.” “I cannot say whether it was by specific contract or just a verbal understanding.” The following letter purporting to have been addressed by him on April 4th, 1900, to Tuttle was shown to him and he was asked if the signature to it was his. “We are in receipt of your favor dated 2nd inst., in which you ask us to write a letter embodying the arrangement made between the company and yourself as its general agent. As we understand it, you are to give us careful, judicious services, covering that part of New York outside of what is known as the Metropolitan and Suburban Districts, in consideration whereof we are to allow you 30 per cent commission, and in addition 10 per cent contingent commission upon profits of the company in the territory above referred to. By profits is meant the actual remittances from you to the home office less losses sustained by the company in your jurisdiction.

We believe this covers the agreement between us,” (signed G. Harlan Williams, Prest.) Mr. Williams admitted his signature to the letter to be genuine but he said at the same time “that letter never meant a written contract,” but simply referred to the agreements that arose out of the conversations between the parties. He further said that'the company “allowed-Tuttle to settle small losses in his territory, up to $100, and upon approval to deduct the amount from net remittances, to pay agents licenses of ten dollars and charge in his account, also to pay fire department taxes; cancellations would come through Tuttle and he would charge the company with the amount paid by him to policy holders and deduct that amount from next balance; the company never dealt directly with its policy holders but always with its agents; that the company required Tuttle to pay unearned premiums to policy holders and permitted him to charge the same to the company;” that Tuttle was to settle monthly and at first did so but not latterly; that in twenty-six instances concerning which letters were shown the witness Tuttle had settled his monthly balances “upon a credit” of from two months and twenty-nine days to four months and four days. ⁴⁹⁷ Howard T. Williams, who had been secretary of the company for the eleven years preceding the appointment of the receiver and who assisted the receiver in the discharge of his duties, testified, when asked to state the substance of the negotiation leading up to making Tuttle the New York agent of the company, said "The substance of that negotiation which covered over several meetings was to the effect that he was to be our general agent for the State of New York for the procurement of business; he was to select his agents for the procurement of his business, he was to inspect that business paying the travelling expenses and salaries of his agents. We were to pay him 30 per cent commission and to pay all agents licenses, fire department taxes, the State fees for entrance, all adjustment expenses and the losses and if any profit showed over and above that he was to have 10 per cent contingent; he ' was to be responsible for all agent’s balances, use due diligence in the collection thereof and to remit us in 90 days the account current.” This witness further said that in making up such accounts current Tuttle would take the total amount of premiums written by all his different agents and then he would deduct from that amount his commissions, any rebates or cancellations he would have, any little bills he may have paid for small fire losses or fire department taxes or things of that kind; and strike a balance which the company would then carry on its books as the amount due it for that month’s business, which it would charge him with and when he remitted that would be the amount of his remittance. On cross-exam-, ination this witness reiterated the asssertion that under the arrangement with Tuttle the latter was entitled to retain in his possession his monthly balances for three months before remitting, and stated that G. Harlan Williams, the witness’ father, had been mistaken in