Harrisburg Savings & Loan Ass'n v. United States Fidelity & Guaranty Co.

46 A. 910, 197 Pa. 177, 1900 Pa. LEXIS 721

• Court: Supreme Court of Pennsylvania
• Decided: July 11, 1900
• Docket: Appeal, No. 1
• Status: Published

Opinion

Opinion by

Mr. Justice Mestrezat,

This was an action of assumpsit brought to recover the penalty of a bend given by Enos A. Ferrin and the defendant as his surety to secure Ferrin’s “ honesty in the performance of his duties in the position ” of general manager of the plaintiff association. The bond is in the penal sum of $2,000 and is dated January 6, 1898. It covers the period from January 1, 1898, to January 1,1899. The condition of the bond is that the defendant “ shall, within three months next after notice, accompanied by satisfactory proof of a loss as hereinafter mentioned, has been given to the company, make good and reimburse to the employer (the plaintiff) all and any pecuniary loss sustained by the employer, of money, securities or other personal property in the possession of the employee (Ferrin), or for the possession of which he is responsible, by any act of fraud or dishonesty, on the part of said employee, in connection with the duties of the office or position hereinbefore referred to, and occurring during the continuance of this bond, or any renewal thereof, and discovered during the said continuance, or within six months thereafter, or within six mouths from the death, or dismissal, or retirement of the employee from the service of the said employer. ” But it is provided that the defendant “ shall not be liable, by virtue of this bond, for any mere error of judgment, or injudicious exercise of discretion on the part of the said employee, in and about all, or any matters wherein he shall have been vested with discretion, either by instruction, or rules and regulations of the said employer.” The plaintiff’s statement avers that “ between the 1st day of January, 1898, and the 15th day of April, 1898, the said Enos A. Ferrin perpetrated divers acts of fraud and dishonesty in connection with the duties of his office and position as general manager of the plaintiff company, and fraudulently appropriated to his own use and embezzled large sums of money of the goods and property of the plaintiff which he had, during the period stated, received and collected for and on account of the plaintiff by virtue of his employment and position as general manager, amounting to and aggregating the sum of $3,969.48. ” The statement further avers that immediately upon the discovery of the fraud and embezzlement due notice of the same was given to the president of the defendant company and demand was made upon him for the loss sustained by reason of the defalcation.

The defense to the plaintiff’s claim interposed at the trial was (1) that notice of the default of the general manager was not given to the defendant within the time required in the conditions of the bond, and (2) that the duties of the general manager had been changed and enlarged subsequently to the defendant’s contract as surety, and that the loss sustained by the plaintiff did not occur while Ferrin was in the performance of his duties as general manager of the plaintiff association and is, therefore, not covered by the defendant’s bond. Both questions, arising under this defense, were submitted to the jury and found in favor of the plaintiff. The latter question is raised substantially by the various assignments of error, and is the only matter for consideration here.

On the trial in the court below the application for the bond, the bond itself, and the by-laws of the plaintiff association were placed in evidence. In his application to the defendant company, Ferrin was required to “ state fully the nature and duties of the position,” and in pursuance thereof he set forth in his application, inter alia, as follows: “ The duties of my position are clearly set forth in section 7, article 2 of the bylaws of the association, copy of which is attached hereto. It is to be noted that my position is purely clerical in its character, no executive powers being vested in me as general manager. Itemized reports are made to the directory at each meeting of all cash received in office and disbursements are only made by them in open meeting upon orders signed by the president and secretary. Moneys received in payment of dues are deposited in bank each day and the same does not exceed $500 to $600 at any time. A complete system of credit slips are used and the books, vouchers, etc., are placed subject to inspection of directors at all times. Pennsylvania Banking Department makes periodical examination of all accounts.” The correctness of the matters contained in the application are certified to by defendant’s local agent and the president of the plaintiff association. The parts of the by-laws relied upon as pertinent to the present inquiry are the following sections of article 2, section 7, referred to in the application: “ It shall be the duty of the general manager, subject at all times to the direction of the board of directors and in accordance with the by-laws, to have supervision of the affairs of the association. He shall perform such duties in the detail work of the association, as shall be prescribed from time to time, by the board of directors.” Section 6. “It shall be the duty of the treasurer to receive all moneys due the association and to keep account of the same. He shall keep a loan fund account, a contingent fund account and an expense fund account. All moneys in the loan and contingent fund accounts shall be transferred by him to the trustee, on the last business day of each month. The money in the expense fund account shall be held by the treasurer, and paid out by him, only upon orders signed by the president and countersigned by the secretary.” The treasurer is required to give security, and all moneys due the association are, by the by-laws, made payable to him. The duties of the secretary are prescribed by the by-laws, among which are that he “ shall cause proper books of account and record to be kept of the business of the association ; and shall have in charge all books and papers belonging to the association (securities excepted),” and also the custody of the corporate seal.

The subject of the first assignment of error is the admission of testimony against the defendant’s objection to show the duties performed by the general manager while in the service of the plaintiff association and the amount of money received and embezzled by him in the performance of said duties. It appeared from this testimony that he had charge of the boobs of the association, had charge of cash received by him at the office and deposited it in bank; and that the entries in the books of the cash received were made by him or under his supervision. This was followed by testimony tending to show that Ferrin, from the organization of the association until his defalcation, produced at each meeting of the board of directors a statement, which was accepted by the board, showing the amount of money received by him and that it was in the treasurer’s hands. We think the testimony covered by this assignment was admissible. It amounted simply to showing that one of the duties of the general manager, the faithful performance of which was secured by the bond, was the receipt and temporary custody of the funds of the association. This testimony in no way changed or enlarged the liability of the surety on its bond to the plaintiff nor did it show any duties or responsibilities different from those set forth in the statement of the plaintiff’s president on the faith of which the bond was given, or different from those prescribed in the bylaws. That the receipt of the money of the association by the general manager was contemplated as one of his duties by the defendant when it became his surety is apparent. The application for the bond clearly discloses the fact and of this the defendanthad notice before it assumed the obligation. Section 7 of article 2 of the by-laws which the application says clearly sets forth the general manager’s duties, provides that “he shall have supervision of the affairs of the association ” under the direction of the board of directors and “ perform such duties in the detail work of the association as shall be prescribed from time to time by the board of directors.” These are extensive powers, and aside from other authority to receive the funds of the association evidently contemplated by the parties, were amply sufficient to authorize the directors to confer authority on him to receive the money which he embezzled. The testimony shows that he received the money of the association and, in an itemized statement, reported it to the board of directors at each semi-monthly meeting. This action on the part of Ferrin was approved by the board. He had performed this duty since the organization of the association, and hence it, by the ratification and approval of his action in this respect, must be regarded as one of the general manager’s duties “ prescribed from time to time ” by the board of directors, and a duty which the defendant should have expected to be performed by him.

The second, third and fourth assignments of error relate to portions of the general charge in which the court submitted to the jury to determine whether the loss for which this action was brought was covered by the contract. It is contended by the appellant that the action of the court in submitting this question to the jury was erroneous, and that it was for the court, and not for the jury, to determine whether or not the plaintiff’s loss was secured by the defendant’s bond. The learned counsel for the appellant urges most strongly that the duties imposed upon the general manager were defined in section 7, article 2 of the by-laws, and that Ferrin had only such duties in the way of supervision and general management of the business of the corporation as were incident to that position, and that he had nothing to do with the financial operations of the corporation, and that all matters relating thereto were covered by the duties of the treasurer. It is claimed that the contract between the parties shows such to be his duties, and that it should have been so construed by the court, and the question as to his duties should not have been submitted to the jury.

We cannot agree with the contention of the learned counsel. It is true, as he suggests, that the liability of a surety is not to be extended by implication beyond the terms of his contract and that any material alteration therefrom may discharge the surety. Ferrin was appointed general manager of the association, and as such he gave the bond in suit to secure his employer against any fraud or dishonesty in the performance of the duties of his position. But what were those duties ? They were not specifically defined in the contract itself so that the court could, as a matter of law, ascertain and determine them. This became the duty of the jury under the evidence in the case. In the application on which the security was obtained, Ferrin was required to “ state fully the nature and duties of the position.” In complying with this requirement, he states that his duties are clearly set forth in section 7, article 2 of the by-laws, but he follows this with the statement that his position is “purely clerical” and that he had no executive powers ; that “ itemized reports are to be made to the directory at each meeting of all cash received in the office, and disbursements are only to be made by them in open meeting upon orders signed by the president and secretary; ” that “ moneys received in payment of dues are deposited in bank each day; ” that “ a complete system of credit slips are used and the books, vouchers, etc., are placed subject to inspection of the directors at all times,” and that the “ Pennsylvania Banking Department makes periodical examination of all accounts.” Perrin’s employer, the plaintiff, by its president, on December 29, 1897, certified that the statements are correct and that “ when last examined on the 11th of May last, and in process now, 1897, his accounts were found in every respect correct.” Upon the faith of this “statement in writing relative to the duties, responsibilities and checks to be used upon the employee in said position,” the defendant entered into this contract and agreed to reimburse the plaintiff for any pecuniary loss it might sustain by reason of the fraud or dishonesty of the general manager. From the parol testimony in the case, it appears that apart from any duties prescribed by the board of directors under section 7, article 2 of the by-laws, Ferrin transacted the business required to be performed in this statement. He was not authorized to perform executive duties. He received the moneys due the association at the office and made itemized statements of the cash so received to the directors at each meeting. Making the “ itemized reports ” to the directors, mentioned in the application, is not specifically prescribed by the by-laws as the duty of any official of the corporation. Tlie “ checks to be used upon the employee ” were set forth in the statement and consisted of the system of credit slips, inspection of books by the directors and the examination of accounts by the Pennsylvania Banking Department. The other matters contained in the statement were evidently duties to be performed by the employee. When the bond was given, both the plaintiff and the defendant knew the contents of this statement, and, as we have seen, contracted with special reference to it. It was therefore strong and convincing evidence for the jury on the question as to what the parties understood the duties of Ferrin to be under his appointment as general manager. The whole evidence submitted fully justified the finding of the jury that it was the duty of the'general manager, as understood by both parties to the contract, to receive the money, which, by Ferrin’s fraud and dishonesty, the plaintiff lost.

It is contended, however, that under the by-laws all the financial operatio2is of the plaintiff association were to be transacted by the treasurer, and that upon him alone was devolved the duty of receiving and accounting for the money of the association. Under the evidence, it appears that the treasurer did receive some money direct from the parties from whom it was due, but-most of the money due the association was received by Ferrin, whose statements to the directors showed the amount received and that it was in the hands of the treasurer. But while such duties were imposed on the treasurer, it does not necessarily follow that the parties in their contract did not contemplate the temporary handling of the money by the general manager. As we have said, there was evidence amply sufficient to justify the jury in finding that such was their understanding. The issue in this controversy did not involve a determination of the duties of the treasurer, but only the right of Ferrin while discharging the duties of general manager to receive and account for the money of the association which he embezzled. This question was for the jury and its finding is conclusive of the fact.

The fifth assignment alleges error in the answer of the court to the defendant’s second point for charge. This point assumes as a fact that it was not the duty of Ferrin as general manager to handle the moneys of the plaintiff, and on this assumption, requests the court to say to the jury that the defendant was not responsible on its bond for the money received and embezzled by Ferrin. The practical effect of an affirmance of this point would have been to withdraw the case from the jury and for the court to have determined as a fact what, as we hold, was a question for the determination of the jury under all the evidence in the case. This would have been error.

The matter complained of in the sixth assignment was the refusal to affirm the defendant’s fourth point for charge. This point requested the court to charge that if the jury believe that the duties and responsibilities of Ferrin, as general manager, were enlarged after the execution of the bond by permitting him to receive moneys which, under the by-laws, should have been paid to the treasurer, an entirely different office, with different duties and greater responsibilities, and no notice of such enlargement of duties and responsibilities was given the defendant, it was such a variance of the terms of the bond as would discharge the defendant from liability on its contract. The learned court below very properly, as we think, submitted to the jury to determine whether the receipt of the money of the association was part of the duties of the general manager as understood by the parties when the defendant entered into the contract of suretyship, with the instruction that if it was, <the plaintiff could recover, but if it was not, there could be no recovery. The practical effect of the defendant’s request in the point under consideration was that if subsequent to the execution of the bond, other duties were imposed upon Ferrin than those contemplated in his contract, the defendant was not responsible for his defalcation regardless of the question whether the money was embezzled while Ferrin was in the discharge of such additional duties. But if the moneys embezzled were received by him under the appointment and in pursuance of his duties, the faithful performance of which were secured by the bond, the mere fact of the imposition upon him of other and greater duties and responsibilites, in no way interfering with or modifying those imposed by his original appointment, would not discharge the surety. As said by Mr. Justice Williams in Shackamaxon Bank v. Yard, 150 Pa. 358, “The duties of the new office must be such as to interfere with or modify the old. If they are not, the sureties cannot complain. It is not enough that some change in the work of the appointee, the principal, has been made. It must also appear that the change was such as to interfere with or modify the duties for the faithful performance of which the sureties are bound, so as to make it inequitable to enforce their undertaking upon a state of facts not within the contemplation of the parties when it was made.” The language of the point was not broad enough to justify the court in affirming it, and hence, it was properly refused.

The defendant by its eighth point, which is the subject of the last assignment, asks the court to give binding instructions to the jury to find for the defendant. Our conclusions in reference to the fifth and sixth assignments of error justified the court in refusing this point.

The assignments of error are overruled and the judgment is affirmed.