DENMAN, Circuit Judge.
Appellant Hyland brought this suit in equity against the Millers National Insurance Company and seven other insurance companies to recover from and apportion between them the amount of loss sustained by him in fire, admitted to be incendiary, in his bag factory, in Sacramento street, San Francisco, on October 19, 1929. Appellant carried fire insurance with the defendant companies totaling $185,000 on his stock of bags and burlap.
All but two of the eight defendants pleaded failure to settle the loss by arbitration, and that such failure was due to the conduct of the plaintiff and the arbitrator appointed by him. This, if true, defeats recovery. Appellant’s bill seeks equity for the apportionment of the liabilities of each of the insurers, for, under the terms of all the policies, the liability of each is affected by the liability of the others. His unclean hands as to the six infects his claim of equitable jurisdiction over the others. All the defendants pleaded that in his proofs of loss Hyland was guilty of fraud and false swearing. If true, this, by the terms of the policies, also defeats any recovery.
There are other issues and cross-issues relative to the amount and effect of certain of the insurance policies as between the defendants. If either of the, above defenses is sustained, these other issues need not be considered.
At the conclusion of the trial, the District Judge made his findings of fact and conclusions of law in an opinion which he [737]*737adopted for that purpose. He found that the proofs of loss were deliberately overstated, with plaintiff’s knowledge, in an effort to deceive the insurance companies. He found that this false swearing consisted both of wilful overstatement of out of sight loss, and fraudulent statement of the amount of damage to goods remaining after the fire. He found that the failure to arbitrate! the loss was due to the conduct of the plaintiff. He concluded as a matter of law that plaintiff was entitled to take nothing, and dismissed the bill. Appellant Hyland on this appeal claims that the evidence does not support these findings.
The statement of evidence in this case covers over 3,300 pages and takes up 6 large volumes of printed record. The witnesses were heard orally by the District Judge. There was much conflict in their testimony. Some were impeached or attempted to be impeached. It is a case particularly calling for the rule that the findings of the chancellor will be taken as correct unless clearly against the weight of the evidence. National Reserve Ins. Co. v. Scudder (C.C.A.9) 71 F.(2d) 884; U. S. v. McGowan (C.C.A.9) 62 F.(2d) 955, 957; Arkansas Natural Gas Corp. v. Pierson (C.C.A.8) 84 F.(2d) 468, 470; Ditto v. Dufur (C.C.A.8) 88 F.(2d) 266, 269.
A. The Appellant made no “fair effort” at an arbitration to adjust his claims, but fraudulently frustrated the arbitration provided by the statute.
The principle Of adjustment of claims arising under the insurance policies by arbitration, in which each of the parties chooses an arbitrator or appraiser, and a third, an umpire, is, in turn, chosen by them, was very early established in the great enterprise of fire insurance. Such a beneficent substitute for the complicated and time-consuming processes of common law has been recognized by all the courts. Nowhere has its obvious requirement of integrity on the part of the parties in this quasi judicial process of arbitration been more clearly recognized than in the courts of the State of California, under whose laws the policies before us must be construed.
In the early case of Old Saucelito L. & D. D. Co. v. Commercial Union Assur. Co., 66 Cal. 253, 258, 5 P. 232, 236, the court said: "We think the language of the stipulations [in the policy] brings this case within the principle laid down in the English case above referred to; that it is the clear meaning of the contract that if the amount of loss cannot otherwise be adjusted to the satisfaction of the parties it shall be adjusted by the mode of arbitration therein prescribed; and that until such adjustment, or a fair effort on the part of the insured to obtain it, no cause of action arose.” (Italics supplied.) The agreement for arbitration in the Saucelito Case provided as follows (66 Cal. 253, 255, 5 P. 232, 233) : “10. That in case of difference of opinion as to the amount of loss or damage, such difference shall be submitted to the judgment of two disinterested and competent men, mutually chosen (who, in case of disagreement, shall select a third), whose award shall be conclusive and binding on both parties.”
The California Supreme Court holds that without any express provision making the arbitration “or a fair effort on the part of the insured to obtain it” a condition precedent to litigation, nevertheless on a showing of the absence of such a fair effort on the part of the insured, the insured could not recover.
In 1909 the California Legislature adopted the process established in the policies of the insurance companies and required of both the insured and the insurer that arbitration of the amount of a fire loss by a tribunal of three arbitrators should be a condition precedent to recovery. Cal.Stat.1909, pp. 404-408; now St. 1935, p. 596, Gen.Laws, 1935 Supp., Act 3748, § 2071, p. 932. Each party is to choose a member of this quasi judicial tribunal; they in turn choose an umpire. The character of the two members of the tribunal chosen by the parties is described by the statute in the words providing that the insurer and the insured are each “to appoint a competent and disinterested appraiser * * * and the two so chosen shall before commencing the appraisement select a competent and disinterested umpire.”
The two appraisers appointed by the parties “together shall estimate and appraise the loss or part of loss as to which there is disagreement, stating separately the sound value and the damage.” If these two fail to agree “they shall submit their differences to the umpire.” The tribunal then becomes a three-party tribunal. There shall be an “award in writing.” This award becomes effective when “duly verified” by any two of the three. The award “shall determine the amount or amounts of such loss.”
Under the decision of the Saucelito Case a recovery cannot be had on the policy un[738]*738less there is “a fáin effort on the part' of the insured to obtain” such a quasi judicial determination of the amount of the loss.
The California statute next provides for the contingency where there has been such a fair effort on the part of the insured and the arbitration has failed. It recognizes the decision of the Saucelito Case in the following language of the statutory requirement for fire policies (Cal.Stat. 1909, p. 408; now St.1935, p. 596, Gen.Laws, 1935 Supp. §2071, p. 932): “If for any reason not attributable to the insured, or to the- appraiser appointed by him, an appraisement is not had and completed within ninety days after said preliminary proof of loss is received by this company, the insured is not to be prejudiced by the failure to make an appraisement, and may prove the amount of his loss in an. action brought without such appraisement.”
All but two of the appellee insurance companies here contend that this quasi judicial tribunal was attempted to be created, but that its adjudicating integrity was destroyed ab initio by the insured Hyland, since his member of the tribunal was already corrupted by him and was a corrupt person not only not having the character of disinterestedness essential to a proper participancy in an award in which he with one other would adjudicate the amount, but was a man for years bound to Hyland by a secret course of corrupt conduct, most reprehensible from the standpoint of business ethics, if not criminal in character.
The evidence amply sustains the contention of these appellees.
The witnesses showing the character of the arbitrator chosen by Hyland were all heard by the court below and its findings of the dishonesty of both Hyland and his appointee is supported by the usual presumption in equity appeals, where the evidence is heard in open court by the lower tribunal.
Not only did appellant Hyland make “no fair effort” to have his loss determined by the body prescribed by the policies and the statute, but he made a most vicious and fraudulent effort to deceive the appellee insurance companies into believing that he had appointed a “competent and disinterested.appraiser,” whereas in fact he destroyed the possibility of creating the kind of tribunal prescribed by the' statute and policies by injecting into that tribunal a corrupt member tied to him by fraud, if not by crime; who had previously assisted him in fabricating evidence of a loss in this same fire;. who was bound to him by secret commissions paid to him in dealings with his appointee’s employer ; and who was secretly on the payroll of Hyland, for the purpose of defrauding and cheating the appointee’s employer. We further find that for these reasons, attributable to the insured, no appraisement was had and that the process of appraisement required by the policies and the statute never could have properly functioned. We agree with the statement of the Tenth Circuit that in such a situation we are entitled to hold) against Hyland that “the whole proceeding would be a useless ceremony.”
“There can no longer be dny doubt as to the validity of the appraisal clause in fire insurance policies. The insured, upon seasonable demand, must comply therewith or there can be no recovery. Hamilton v. Liverpool & L. & G. Ins. Co., 136 U.S. 242, 10 S.Ct. 945, 34 L.Ed. 419; Aetna Ins. Co. v. Murray (C.C.A.10) 66 F.(2d) 289; St. Paul Fire & Marine Ins. Co. v. Eldracher (C.C.A.8) 33 F.(2d) 675; Phoenix Ins. Co. v. Everfresh Food Co. (C.C.A.8) 294 F. 51. But while the appraisers are appointed by the parties, they are not subject to the control of the parties. Shawnee Fire Ins. Co. v. Pontfield, 110 Md. 353, 72 A. 835, 132 Am.St.Rep. 449; Fritz v. British America Assur. Co., 208 Pa. 268, 57 A. 573. They are not agents in law and ought not to be in practice. If appraisers were subject to the direction of the parties, the whole proceeding would be a useless ceremony, for if the parties cannot agree upon the loss by direct negotiation (and the appraisal clause is operative only in case of disagreement) they could not agree through agents subject to their direction.” Norwich Union Fire Ins. Soc., Limited, v. Cohn (C.C.A.) 68 F.(2d) 42, 43, 44, 94 A.L.R. 494.
In arriving at this conclusion, which we would reach if not already established by the law of California in the Saucelito Case, we note that the recognition of the place of arbitrating tribunals in legal civil procedure has been advanced from the area of fire insurance to a general arbitrating law applicable to all business. California Code Civil Procedure, § 1280, et seq., added by St. 1927, Cal., p. 404.
The evidence upon which this finding is based is clear and convincing. Hyland appointed as a member of the appraising tribunal one George P. Colbert, who was head of the importing department of the H. M. New-■hall Company, a firm of high standing in this community. Colbert was, as the District [739]*739Court finds, “ostensibly” a man of high standing in the community.
The insurance companies would have no reason to suspect that one in such a position would be a person capable of the frauds committed with Hyland. They were not exposed until Colbert’s confession of them in the course of the trial below. The firm of Newhall Company was also engaged in the bag business a.nd there were many transactions between that'company and Hyland in which Colbert was the* managing agent for the Newhall Company. Colbert’s confession, substantiated by other evidence on the books of Hyland, shows that Hyland paid to Colbert secret commissions amounting to as much as % cents per yard on hundreds of thousands of yards of burlap sold to Hyland by the Newhall Company — Colbert acting as Hyland’s secret agent in the sale, and that such transactions were approved in the books of Hyland by Hyland himself. The corruption of such commercial bribery has been well stated by the Sixth Circuit: “Any agreement or understanding between one principal and the agent of another, by which such agent is to receive a commission or reward if he will use his influence with his principal to induce a contract, or enter into a contract for his principal, is pernicious and corrupt, and cannot be enforced at law.” (Italics supplied.) City of Findlay v. Pertz (C.C.A.6) 66 F. 427, 434, 29 L.R.A. 188.
Such conduct is none the less corrupt because it may not have been a criminal bribery: “The whole transaction was tainted with corruption. It was not necessary to show that the money transaction between Doheny and Fall constituted bribery as defined in the Criminal Code or that Fall was financially interested in the transaction or that the United States suffered or was liable to suffer any financial loss or disadvantage as a result of the contracts and leases. It is enough that these companies sought and corruptly obtained Fall’s dominating influence in furtherance of the venture.” Pan-American Petroleum & Transport Co. v. U.S., 273 U.S. 456, 500, 47 S.Ct. 416, 422, 71 L.Ed. 734.
It further appeared that in the month preceding the fire, Hyland paid to Colbert the sum of $250 and caused the payment to be entered on Hyland’s payroll account. Placing it in that account not only was a confirmation of the existence of Colbert’s secret employment, but, in the method of Hyland’s accounting, less likely to expose this damning fact.
We thus find Hyland’s member of the adjudicating tribunal Hyland’s mere tool, bound to him in fraud, and now appearing as Plyland’s admitted agent in these frauds for which may well have been the compensation he received in the month preceding the fire. Hyland must have demanded the assistance of his tool immediately after the fire, for we find Colbert, out of a clear sky, on the Monday, after Saturday of the fire, discussing it with Alexander Logie, whose high standing is admitted by all the parties. Logie testified he was then requested by Colbert to suppress any information he (Logie) had concerning the price of bags. It seems that Logie was one of San Francisco’s leading bag merchants and receiving cable information from the Orient concerning the bag market. It is pointed out that this effort on the part of Colbert was really of little value, because the insurance companies could get this information elsewhere. However, in the light of what happened immediately subsequent to the request to Logie, this attempt at suppression, however slight its value, evidenced the participancy of Colbert immediately after the fire in Hyland’s fraudulent schemes against the insurance companies.
The fire occurred in October, 1929. It is fair to presume that the conspiracy b'o gan, if not before the fire, immediately after-wards. Sometime in November, 1929, Hyland sent for Colbert, had him procure the blank letterheads and other stationery of the Newhall Company and proceeded to type on it a large number of fictitious contracts, dated several months before the fire, for the purchase of large quantities of bags and bagging material. These fictitious contracts, signed by Hyland and by the Newhall Company, per Colbert, never appeared upon the records of the Newhall Company and were unknown to anyone in that Company except Colbert. The conspirators agreed that they should be cancelled and the cancellations were made.
The purpose of the conspiracy was to deceive the insurance companies insuring against the same fire’s interference with the “Use and Occupancy” of Hyland’s building, in which his business was conducted. It was to enhance the volume of the business which was the determining factor in adjusting the loss with these Use and Occupancy insurers.
The contracts and the cancellations were in fact presented in the adjustment of the use and occupancy insurance, though it does [740]*740not appear and it is immaterial here as to whether the conspirators were successful there in deceiving those companies. What concerns this case is the character of Colbert as a possible member of the arbitrating tribunal as shown from the conspiracy with Hyland, which, whether or not technically a crime,'permits a fair inference of an attempt to obtain money under false pretenses.
It is obvious that such a member of the arbitrating group would not consent to any umpire until one was obtained who would be likely to yield to the kind of presentation of facts relative to the value of the property destroyed in the fire which the dishonest Colbert would present. That is to say, it is obvious that Hyland’s appointee frustrated the constitution of the tribunal required by the policies and the statute. Colbert proposed various names for the umpire, all of whom had trade relations with Hyland which made them undesirable, and one-half of whom Colbert was compelled to admit in the course of his confession were not such disinterested and competent appraisers as the policies required. It is not surprising that the umpire was not chosen until after the ninety days provided in the policies, before which suit could not be commenced.
The negotiations for an umpire continued and the insurance companies indicated they would accept Mr. Logie, one of the nominees of Colbert. By this time, Colbert concluded Mr. Logie did not satisfy the requirement of the conspirators, for he told Mr. Logie he better not serve. Whereupon Mr. Logie declined. The duplicity of Hyland’s tool is apparent from the following from Colbert’s letter to Mr. Maris, the companies’ nominee, written after Colbert had persuaded Logie not to act as umpire (Tr. 1281) : “It gave me great pleasure to have you find out after interviewing Mr. Alexander Logie, one of the gentlemen suggested by me, that he was in no way beholden to Mr. Hyland and could give a fair and unbiased decision in the case. It is indeed regrettable that Mr. Logie found it necessary to decline to act as he would have been a very capable and just umpire.” (Italics supplied.)
It is argued that the transaction concerning the persuasion of Mr. Logie not to act is not relevant because occurring after the ninety-day period within which suit could not be brought. This obj ection is not well taken. There is no ninety-day limit on the arbitration. If the arbitrators thereafter reach an award, it is nevertheless binding if suit has not been brought. This duplicity and willingness to frustrate the arbitration, though coming shortly after the ninety-day period, is cumulative evidence of the corrupt character of the man appointed in January by Hyland.
Hyland’s counsel argue that the provisions for the appointment of arbitrators must be strictly construed in favor of the insured. We are unable to see the pertinence of invoking this principle. It is not to be applied to the facts of.a particular case requiring’the statutory policy provision to be construed for a favorable verdict to the insured. It is applicable in the case where every insured person will be favored by the interpretation. In determining that the group of arbitrators shall be made up of truly disinterested persons, it is as important to the insured as to the insurer that insistence should be had on the integrity and arbitral competence of those participating in the quasi judicial deliberation. It is as important for the insured that the insurer shall not conspire with his arbitrators to cheat the insured, as it is for the insurance company that it should not have palmed off on it as a disinterested arbitrator such a person as Hyland appointed.
The conspiracy to manufacture fictitious contracts, apparently, but not in fact, between Hyland and the Newhall Company, did not stop with the use of those manufactured for the use and occupancy insurance adjustment. After the trial below had been begun the conspirators again began their fabrication. It seems that the figures in the contracts created for the use and occupancy adjustment were not high enough and they were refalsified by Colbert and Hyland to indicate higher prices for the type of bags alleged to be destroyed, and which were covered by the insurance of the instant suit. Cancellations, as in the use and occupancy matter, were made so that the contracts did no more than falsely to indicate agreed prices for large volumes of material prior to the fire. That they were not introduced to deceive the court may well be accounted for by the fact that Hyland realized the conspiracy was suspected. This, however, does not detract from the evidential character of the transaction as to the fraudulent intent of the conspirators or the anti-judicial character of Hyland’s appointee to the group of arbitrators.
It is suggested that this evidence showing frustration of the arbitration proceedings by Hyland and his appointee Colbert [741]*741should not be considered by us because the defense to which it is relevant was not properly pleaded by the insurance companies. The answers set up that arbitration “was not had due to the acts of the plaintiff and the appraiser appointed by him.” This is obviously sufficient to present the issue as to whether Colbert was disinterested. If he was not disinterested and plaintiff appointed him knowing of his bias and relied on that bias to defeat an honest arbitration, it is clearly shown that arbitration was not had “due to the acts of the plaintiff and the appraiser appointed by him.”
B. The Appellant’s fraud, and false swearing defeats recovery on his claim.
The incendiary fire occurred in plaintiff’s bag factory on the night of October 19, 1929. Subsequently plaintiff prepared and served on defendants his proofs of loss totalling $73,601.96. Of this figure $15,645.25 represented goods obliterated or burned out of sight. In the complaint which began the action below he claimed his loss to be $106,-992.83, of which'$46,139.46 was alleged to have been burned out of sight.
The trial court found that the out of sight loss was not oyer $2,000, and that its overstatement in the proofs of loss constituted false swearing on the part of Hyland. If this finding is correct, it will not be necessary to consider the court’s further finding as to the fraudulent overstatement of the damage to the goods remaining after the fire.
In examining the evidence upon which the court’s finding as to out of sight loss., two aspects should be investigated, separately: (1) Was the out of sight loss, claimed to be over $15,000, materially overstated; (2) if so, was plaintiff guilty of fraud or false swearing when he swore to such proof of loss?
B. (1) The extent of the. out of sight loss was materially overstated.
The court’s finding of the out of sight loss is supported by the testimony that burlap in bales is very slow to burn and that the fire arising from the kerosene in the pans placed by this incendiary was what the witnesses from the San Francisco Fire Department call a “flash” fire. That is to say, that it was a fire that flared up quickly and then subsided very rapidly in intensity.
Battalion Chief Mahoney who responded immediately to the alarm testified that the fire at the Hyland plant was easy to extinguish; that it was under control in twenty or thirty minutes; that the fourth floor, where the blaze was comparatively serious, was “overhauled” (to make sure that no fire was still burning) in little more than an hour; that when he arrived he saw fire only on the third and fourth floors; that all the baled stock on the fourth floor was identifiable after the fire, “stood intact.”
Marshal Kelly of the fire patrol substantiates the testimony of others that the fire was a “flash” fire, consuming very little material.
Battalion Chief Edward O’Neill was in charge of the fire on the third floor. He testified that the fire on the third floor was out in fifteen minutes from the time he commenced working, which was a few minutes after the fire was discovered. He testified that the fire on the second floor was out in ten minutes and “possibly three-quarters of an hour on the mezzanine and first floor”; that burlap does not burn readily in the sort of fire at the Hyland plant; that there was no evidence of stock being burned out of sight, no considerable quantity of ashes and debris. He tells of seeing the baled burlap burning on the top and sides, but that it was really extinguished before more damage was done to the bales. He says of the fire generally, that it was the fastest stopped fire he had ever experienced in an occupancy of that sort.
Engineer W. D. Gardner visited the premises two days after the fire. He made an extensive survey of the sewing machines, presses and other equipment in the plant. Elis testimony abundantly justifies a finding that very little if any merchandise could have been burned out of sight. The fire damage to the machines and their wooden stands consisted of a small amount of charring and blistering. Printer’s ink, inflammable, was found unburned. Ink rolls, highly susceptible to heat, were intact. The thread in many of the sewing machines showed no more effect than slight discoloration.
The court’s conclusion as to the comparatively small amount of damage to the burlap is fortified by the testimony of R. V. Smith, insurance adjuster, who visited the premises and saw the burlap merely “scorched” or burned on the sides and top. He demonstrated in court that burlap does not burn easily.
In addition to hearing witnesses, the trial judge himself visited the premises at Sacramento street and also the plant of the [742]*742Pacific Bag Company to which the machinery was removed after the fire. This constitutes sufficient evidence to support the findings.
The finding of intentional overstatement is further supported by the accounting and figures which Hyland offered to support his statement. Some of his stock was in the factory in which the incendiary set the fire and some in a warehouse on Sansome street in San Francisco.
A count was taken right after the fire by one Radford. The Radford inventory shows (not deducting for damage) that there was $86,097.98 worth of goods at the factory after the fire.
In his proofs of loss plaintiff claimed that the inventory at the factory immediately before the fire was $102,453.23. The difference between this figure and that of the Radford inventory is $15,645.25, claimed to be burned out of sight.
The court, on the other hand, found that the goods on hand at the time of the fire amounted to about $88,000. In this view, the out of sight loss would be slightly over $1,-000.
To arrive at his figure of $102,453.23, Hyland employed Hood & Strong, accountants, to build an apparent inventory, taking as a starting point a physical inventory of December 31, 1928. (This despite the fact that another firm of accountants, Ernst & Ernst, had made an inventory as of May 31, 1929.)
Starting, with the inventory .of December 31, 1928, Hood & Strong added purchases and other expenses from that date to the date of the fire, October 19, 1929. From the total was deducted a figure termed “cost of sales.” This last figure was obtained by totalling the sales between December 31 and October 19, and subtracting from that total 4.9 per cent, of it, this being the percentage of gross profits for the year 1928. This percentage amounted to more than $66,000. It is obvious that if the rate of profit in 1929 varied to a substantial extent from the 1928 rate, the apparent inventory of October 19, 1929, would be materially altered.- Manifestly an inventory built in this manner is very hypothetical and unreliable.
Subsequently, and for purposes of the complaint filed in this action, Hyland procured Hood & Strong to make another inventory, taking as their starting point the Ernst & Ernst count of May 31, 1929. ■ The same system was used as in the first inventory. But by this second Hood & Strong report Hyland has an inventory at the factory, before the fire, of $132,947.44. His out of sight loss, consequently, goes up from $15,000 to some $46,000.
The gross discrepancy between the two reports of Hood & Strong is in itself sufficient to justify the trial court in rejecting proof of loss based upon so hypothetical and unreliable a method. In addition, there is considerable evidencé that there were material amounts of duplication in the second Hood & Strong report. We need not discuss it here except to remark that it is sufficient, if believed, to warrant the court in refusing to credit the accuracy of these proofs.
Aside from the internal weakness of the Hood & Strong reports, there is a wealth of evidence contradicting them. The general ledger of the Hyland bag company shows goods on hand at the factory before the fire in the amount of $89,383.59, more thán $12,000 less, than the first Hood & Strong report and more 'than $40,000 less than the second.
George P. Taylor, Hyland’s bookkeeper, kept a count of goods on hand which he called a “summary of stock sheets” and which others term a “perpetual inventory.” This was not in evidence, having been lost somehow before the trial, but Taylor testified that it showed goods on hand before the fire amounting to between $88,000 and $89,000. This tallies closely with what the general ledger shows.
The testimony as to the accuracy of the ledger and of Taylor’s summary was sharply conflicting. There was ample evidence to warrant the trial court in concluding that both were vastly more accurate than the hypothetical Hood & Strong reports.
The intrinsic weakness of the Hood & Strong inventories, the duplications therein, the evidence from the general ledger, and bookkeeper Taylor’s summaries, all tending to show the out of sight loss claim was grossly overstated, corroborates the testimony concerning the physical conditions stated above.
We conclude that the evidence not only justifies the trial court in holding that the out of sight claim was grossly overstated, but makes it difficult to see how any other conclusion could have been reached.
B. (2) Plaintiff was guilty of fraud or false swearing when he swore to this grossly exaggerated proof of loss.
[743]*743Mere overvaluation, of course, does not void a claim on the fraud and false swearing provision of the policy. There must be a deliberate overstatement with intent to deceive. Insurance Cos. v. Weide, 81 U.S.(14 Wall.) 375, 383, 20 L.Ed. 894; Jose Rivera Soler & Co. v. United Firemen’s Insurance Co., 299 U.S. 45, 49, 50, 57 S.Ct. 54, 55, 56, 81 L.Ed. 30.
When a claim as manifestly overstated as the one in this case is sworn to by the president of a large bag company, presumably familiar with his own business, the court is justified in drawing some inference that the overstatement was deliberate.
Evidence to the contrary consists of the testimony of Hyland to the effect that he did not personally supervise his factory; he did not know how many goods he had in it; he left his bookkeeping and insurance matters to his bookkeeper; that he was content to take the word of his bookkeeper and of accountants Hood & Strong as to how many goods he had and how much of them was lost or damaged.
On the other hand he testifies that: “I am and have been familiar with the general system of maintaining records that prevailed in our office — in the Hyland Bag Company— during the year 1929.” He goes on to identify all the bookkeeping forms and manner of records, most of which were designed by himself. Fie seems to know when each was in use and when one form superseded another.
If he knows all this, it is reasonable to assume that he knew what the general ledger showed and what Taylor’s “perpetual inventory” showed as to the amount of goods in the plant on the night of October 19, 1929.
It is very strange that a man as interested in bookkeeping forms as Hyland declared himself to be, should content himself with a proj ected “apparent inventory” built up from the basis of December 31, 1928, almost ten months earlier, using an arbitrary figure of rate of profit, without any research or examination on his own part, without the slightest investigation of whether such an apparent inventory checked with his own books, and content to take the accountant’s word for everything.
Particularly is this true when we consider that Ernst & Ernst had made an inventory for May 31, 1929. It is a fair inference that Hyland knew of this inventory. Yet in his first proofs of loss he swears to a projected inventory made up’by another firm of accountants on the basis of a physical count made five months before the Ernst & Ernst count. It is somewhat fanciful to believe that Hyland, who was the one man vitally interested in the amount of loss, who personally designed most of his own bookkeeping forms, could be so naive in these matters that he would accept and swear to, without question, the first manifestly hypothetical Hood & Strong report, made without any reference to a later inventory which Flyiand must have known to exist.
More light on the extent of Plyland’s personal knowledge is thrown by the testimony relative to the proofs of loss on goods which were damaged but not alleged to be burned out of sight. Here again Hyland asserts that his bookkeeper, Taylor, and his adjuster, Sugarman, did all the work on the pricing of the inventory of salvaged goods and the proofs of loss in connection therewith.
Yct he admits that he personally handled all the large purchases; that he “made notations from various reports of auditors * * * which figures, I may add, I knew to be correct from my own personal investigation” ; ‘fl was familiar with the value on October 19, 1929, and I am today.”
R. V. Smith, adjuster for some of the insurance companies, testified to a conversation with Mr. Iiyland relative to the pricing of the salvaged goods. He says:
“They filed the proofs of loss about the 24th or 25th of December, as I recall it. It was a short time before that. They were in my office. I asked Mr. Hyland at that time how he fixed the prices on that schedule. He told me that those were from telegrams that he received quoting prices, and they were in code, and he deciphered them properly. I asked him if he did not think it the proper thing to let me have the key to the telegrams and let me make comparisons on those, so I would have something to check on; I explained to him at the time that I had been unable to get price verifications from other burlap brokers or other dealers, they were somewhat reluctant about giving me prices; I told him I would have to make some check on it before I could agree to any value. He told me that those were his private affairs, and that was all the information I could have on the subject. I also asked him at that time if he was satisfied with the grades as well as the prices that he had given me, and he told me that he was, and that I would find that those were 100 percent right.
[744]*744“ * * * I said, Tf you file a proof of loss and you set up incorrect grades or incorrect quantities, or incorrect prices, and swear that those are the correct prices, you will vitiate your policy contract, and by the terms of the contract you might lose all your insurance.’ I said, T want to warn you of that.’ I said, T have called Mr. Sugarman’s attention to that, and I want you to know that I told him about it.’ I addressed that conversation to Mr. Hyland. Mr. Hyland was a little bit peeved at that and said, ‘We will take .all the chances on that.’ ”
There was ample evidence to warrant the trial judge in concluding that Hyland was well acquainted with the pricing and grading of the salvaged merchandise on his proofs of loss, and personally participated in making up and presenting such proofs. If this be true, it is very persuasive against the theory that on his out of sight loss he would innocently and without any investigation take the overstated report of an accountant as correct.
.Furthermore, Hyland’s credibility is seriously weakened by the disclosures relative to the fictitious Newhall contracts (fully discussed, supra). Also by the fact that he told the insurance companies in his proofs of loss that he had no knowledge or belief as to the origin of the fire, when there is ample evidence that he was well aware of its incendiary origin.
It should be concluded, therefore, that the trial judge was well justified in finding that plaintiff was guilty of fraud and false swearing when he swore to his out of sight loss. This makes it unnecessary to consider the involved question of whether there was fraud in the proofs of damage on salvaged merchandise.
Affirmed.