Hart, J.,
(after stating the facts). The bond sued on is one of indemnity. Among other recitals not material here, the agreement is that the surety shall “make good and reimburse to the employer all and any pecuniary loss sustained by the employer of money, securities or other personal property in the possession of the employee, or for the possession of which he is responsible, by any act of fraud or dishonesty on the part of said employee in the discharge of the duties of his office or position as as set forth in said statement referred to, amounting to larceny or embezzlement.”
' A subsequent provision of the bond requires the employer, upon the employee becoming guilty of an offense covered by the bond, to lay information before the proper officer, and to furnish every aid and assistance not pecuniary, capable of being rendered, in bringing the employee promptly to justice.
In construing the provisions of a similar bond in the case of Monongahela Coal Co. v. Fidelity & Deposit Co. of Maryland, 36 C. C. A. 444, the court said:
“These provisions all relate to the obligations of the company. From them it appears that the liability of the company is restricted to claims based upon the larceny, embezzlement, or at least the dishonesty of the employee. The obligation of the company does not cover every liability or claim which might accrue in favor of the employer and against the employee. A loss by carelessness or inattention to business might be the * foundation of a just claim against the employee by the employer, which would impose no liability on the company by the terms of its obligations in the bond. If, with the consent of the employer, express or implied from the course of dealings between it and the employee, the latter" used or retained moneys, charging itself with them, it would be.no obligation covered by the insurance on "indemnity of the company. It follows, therefore, that the fact that the account between the employer and the employee shows an indebtedness from the latter to the former is not sufficient of itself to support a claim on the bond against the company. To recover in an action on the bond, defense being made, there must be an allegation of the breach of it, sustained by evidence.”
This view is sustained by the following authorities: Williams v. U. S. Fidelity & Guaranty Co., (Md.) 66 Atl. 495; Guarantee Co. v. Mech. Savings Bank, 40 C. C. A. 542; Milwaukee Theater Co. v. Fidelity, etc., Co., 66 N. W. (Wis.), 361; Reed v. Fidelity, etc., Co., (Pa.) 42 Atl. 294.
The difference between liability on a fidelity bond insuring an employer against loss through the fraud or dishonesty of an employee and one insuring against the fraud and dishonesty of such employee amounting to larceny or embezzlement is discussed and clearly pointed out in the case of U. S. Fidelity & Guaranty Co. v. Egg Shippers Strawboard & Filler Co., 78 C. C. A. 345.
The evidence shows that, commencing in May, 1903, and continuing up to the time his employment was 'terminated in 1904, Smith drew on his account as agent in the Bank of Yel'lville checks in favor of various parties. The aggregate amount of these checks was $817.53. Smith attempts to account for these amounts. He accounts for about one-half of it as being used in the business of the company, and the remainder seems to have been used for his own personal expenses and for the purchase of some jewelry. The record does not disclose that the rest of the money found to be due the bank by Smith has been accounted for in any way. The bank contends. that the fact of Smith drawing these checks on this account as agent at the Bank of Yellville is evidence of appropriation of its funds, amounting to larceny and embezzlement under the terms of the bond. The plaintiff bank and the Bank of Yellville during this period exchanged statements according to the usual course of business. A comparison of the monthly statement received by the plaintiff bank from the Bank of Yellville with that received from Smith at the end of the month would have disclosed what items, if any, Smith had drawn and not used in the business with which he was intrusted.
Smith made no attempt to conceal these amounts, Or the fact that he drew on his agent’s account in -favor of the various persons. A comparison of these checks or drafts with the time checks would have disclosed whether or not they were given in discounting the amounts to become due the laborers; for the time checks given the laborer contained his name and the amount due him on pay day. A checking up with Smith of his expense account would have shown whether these checks were a part of it. He was allowed to draw on his account as agent for his expense fund, and was not required to itemize it.
After Smith was notified by the bank that his account was short, he assisted in every way possible to discover the discrepancy in his accounts. A part of it, amounting in the aggregate to over $1,000, was found. Smith is not shown to have any money or to have made any investments. True, there is some testimony to show that he was extravagant, but it must be remembered that he was -allowed a liberal expense account, which was not confined to his actual expenses, and that the opportunity to spend money on a line of railroad not in operation and being constructed through a country containing only small towns, could not have been great. There is some' testimony that he gambled. This he denies. But in any event it is not shown that he gambled habitually, but only occasionally, and then with men who could not afford to play for high stakes. The law presumes, every man honest until the (contrary is shown. We do not think the evidence establishes that the discrepancy arose from the fraud .or dishonesty of Smith amounting to larceny or embezzlement. Under the course of business adopted by the parties, the accounts of the bank showing the amount of money drawn by Smith and the time checks received by the bank are not sufficient evidence that Smith appropriated the funds. The books of the plaintiff bank charged every thing to Smith. Nothing was charged to the principal contractor, to the • subcontractors, or to the local banks, with whom Smith was permitted to deposit money for the use of the subcontractors in discounting time checks. If mistakes were made at any of the local banks or at any of the the subcontractors’ camps, the plaintiff bank had no way 'to take this into account, but the mistakes would be carried into the account of Smith as' a shortage. The plaintiff bank knew that Smith kept no set of books, and that if any time checks were lost ' or were miscarried in the mails there would be no way to account for them.
The appellant Guaranty Company contends that the statement of the bank on the faith of which the bond was issued contains misrepresentations and promises unfulfilled that render the bond void.
The representations and warranties made in the application for the bond are as follows:
“Q. To whom and how frequently will he account for his handling of the funds and securities?
“A. Once a month to the bank.
“Q. What means will you use to ascertain whether his accounts are correct?
“A. Check up his remittances.
“Q. ITow frequently will they be examined?
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Hart, J.,
(after stating the facts). The bond sued on is one of indemnity. Among other recitals not material here, the agreement is that the surety shall “make good and reimburse to the employer all and any pecuniary loss sustained by the employer of money, securities or other personal property in the possession of the employee, or for the possession of which he is responsible, by any act of fraud or dishonesty on the part of said employee in the discharge of the duties of his office or position as as set forth in said statement referred to, amounting to larceny or embezzlement.”
' A subsequent provision of the bond requires the employer, upon the employee becoming guilty of an offense covered by the bond, to lay information before the proper officer, and to furnish every aid and assistance not pecuniary, capable of being rendered, in bringing the employee promptly to justice.
In construing the provisions of a similar bond in the case of Monongahela Coal Co. v. Fidelity & Deposit Co. of Maryland, 36 C. C. A. 444, the court said:
“These provisions all relate to the obligations of the company. From them it appears that the liability of the company is restricted to claims based upon the larceny, embezzlement, or at least the dishonesty of the employee. The obligation of the company does not cover every liability or claim which might accrue in favor of the employer and against the employee. A loss by carelessness or inattention to business might be the * foundation of a just claim against the employee by the employer, which would impose no liability on the company by the terms of its obligations in the bond. If, with the consent of the employer, express or implied from the course of dealings between it and the employee, the latter" used or retained moneys, charging itself with them, it would be.no obligation covered by the insurance on "indemnity of the company. It follows, therefore, that the fact that the account between the employer and the employee shows an indebtedness from the latter to the former is not sufficient of itself to support a claim on the bond against the company. To recover in an action on the bond, defense being made, there must be an allegation of the breach of it, sustained by evidence.”
This view is sustained by the following authorities: Williams v. U. S. Fidelity & Guaranty Co., (Md.) 66 Atl. 495; Guarantee Co. v. Mech. Savings Bank, 40 C. C. A. 542; Milwaukee Theater Co. v. Fidelity, etc., Co., 66 N. W. (Wis.), 361; Reed v. Fidelity, etc., Co., (Pa.) 42 Atl. 294.
The difference between liability on a fidelity bond insuring an employer against loss through the fraud or dishonesty of an employee and one insuring against the fraud and dishonesty of such employee amounting to larceny or embezzlement is discussed and clearly pointed out in the case of U. S. Fidelity & Guaranty Co. v. Egg Shippers Strawboard & Filler Co., 78 C. C. A. 345.
The evidence shows that, commencing in May, 1903, and continuing up to the time his employment was 'terminated in 1904, Smith drew on his account as agent in the Bank of Yel'lville checks in favor of various parties. The aggregate amount of these checks was $817.53. Smith attempts to account for these amounts. He accounts for about one-half of it as being used in the business of the company, and the remainder seems to have been used for his own personal expenses and for the purchase of some jewelry. The record does not disclose that the rest of the money found to be due the bank by Smith has been accounted for in any way. The bank contends. that the fact of Smith drawing these checks on this account as agent at the Bank of Yellville is evidence of appropriation of its funds, amounting to larceny and embezzlement under the terms of the bond. The plaintiff bank and the Bank of Yellville during this period exchanged statements according to the usual course of business. A comparison of the monthly statement received by the plaintiff bank from the Bank of Yellville with that received from Smith at the end of the month would have disclosed what items, if any, Smith had drawn and not used in the business with which he was intrusted.
Smith made no attempt to conceal these amounts, Or the fact that he drew on his agent’s account in -favor of the various persons. A comparison of these checks or drafts with the time checks would have disclosed whether or not they were given in discounting the amounts to become due the laborers; for the time checks given the laborer contained his name and the amount due him on pay day. A checking up with Smith of his expense account would have shown whether these checks were a part of it. He was allowed to draw on his account as agent for his expense fund, and was not required to itemize it.
After Smith was notified by the bank that his account was short, he assisted in every way possible to discover the discrepancy in his accounts. A part of it, amounting in the aggregate to over $1,000, was found. Smith is not shown to have any money or to have made any investments. True, there is some testimony to show that he was extravagant, but it must be remembered that he was -allowed a liberal expense account, which was not confined to his actual expenses, and that the opportunity to spend money on a line of railroad not in operation and being constructed through a country containing only small towns, could not have been great. There is some' testimony that he gambled. This he denies. But in any event it is not shown that he gambled habitually, but only occasionally, and then with men who could not afford to play for high stakes. The law presumes, every man honest until the (contrary is shown. We do not think the evidence establishes that the discrepancy arose from the fraud .or dishonesty of Smith amounting to larceny or embezzlement. Under the course of business adopted by the parties, the accounts of the bank showing the amount of money drawn by Smith and the time checks received by the bank are not sufficient evidence that Smith appropriated the funds. The books of the plaintiff bank charged every thing to Smith. Nothing was charged to the principal contractor, to the • subcontractors, or to the local banks, with whom Smith was permitted to deposit money for the use of the subcontractors in discounting time checks. If mistakes were made at any of the local banks or at any of the the subcontractors’ camps, the plaintiff bank had no way 'to take this into account, but the mistakes would be carried into the account of Smith as' a shortage. The plaintiff bank knew that Smith kept no set of books, and that if any time checks were lost ' or were miscarried in the mails there would be no way to account for them.
The appellant Guaranty Company contends that the statement of the bank on the faith of which the bond was issued contains misrepresentations and promises unfulfilled that render the bond void.
The representations and warranties made in the application for the bond are as follows:
“Q. To whom and how frequently will he account for his handling of the funds and securities?
“A. Once a month to the bank.
“Q. What means will you use to ascertain whether his accounts are correct?
“A. Check up his remittances.
“Q. ITow frequently will they be examined?
“A. About three times per month.
“Q. By whom will they be examined?
“A. Cashier of the bank.
“Q. When were his accounts last examined?
“A. This day, January 30, 1903.
“Q. Were they reported correct?
“A. Yes.
“Q. Is there now or has there been any shortage due by applicant ?
“A. No.
“Q. Is lie now in debt to you?
“A. No.
“Q. If so, state the amount and nature of-such indebtedness.
“Q. Have you ever sustained loss through the dishonesty of any one holding the position of applicant ?
“A. No.”
A contract to indemnify an employer against the dishonesty or default of employees is subject to 'the same rules of construction as apply to other insurance contracts. 19 Cyc. 517; American Bonding Co. v. Morrow, 80 Ark. 49.
The only attempt to comply with the terms of the bond in this regard was that whenever money was delivered to Smith for -the purpose of buying time checks it was charged to his account, and when time checks or expense accounts were sent in by him his account was credited with these amounts. A balance was struck, and he was considered to have on hand the amount of that balance. No effort was made to ascertain if the money was actually on hand, nor to ascertain in whose possession it was. The plaintiff bank knew that Smith left money with the various subcontractors or deposited it with the local banks -most accessible to them, to be used by them in discounting and buying up time checks. No inquiry was ever made nor report given of the amounts in the hands of the various subcontractors. Had this been done at stated inerváis, the bank could have known in whose hands its money really was, and any mistake made by any of the numerous persons handling the money 'could have been promptly corrected, and no shortage would probably have resulted. The questions asked and the answers given in the application for the bond show that it was in the contemplation of the parties to adopt some system whereby the bank should know at frequent intervals the exact state of the accounts between it- and the employee, who was the principal in the bond. Evidently this result could not be accomplished unless the checking up meant not only the examination of the record of the amounts furnished Smith and the time checks remitted by him, but where the money was put out in the hands of numerous persons, .as was done in this case, it also required that the part of-the duty of plaintiff bank in checking up the accounts of Smith and requiring of him an account of his handling of the funds once a month would be not only to ascertain the balance that should be on hand, but to find out in whose hands it actually was at the time.
Reversed and dismissed.
Wood, J., not participating.