Town of Hamden v. American Surety Co.

MANTON, Circuit Judge

(dissenting).

This suit is on a bond executed by the appellant for the faithful performance of duties by Van de Bogart, as treasurer of the Town of Hamden, Conn., during his term of two years commencing October 7, 1931. Since October, 1925, he. served as treasurer for three terms, giving a bond fixed by the selectmen of the town for $20,000. Conn.General Rev.Stat.1930, §§ 303, 355. When Van de Bogart’s last term expired, he had on deposit with the Hamden Bank & Trust Company, of which he was vice president, moneys of the town substan*487tially in excess of 30 per cent, of the capital, surplus and undivided profits of the bank. The amount on deposit was $396,957.79 and the capital surplus and undivided profits were $341,111.73; the excess being $210,000. This was a violation of the laws of Connecticut (section 512, Rev.Stat.). The majority of the selectmen were directors of the bank, as was the collector of taxes and the town clerk. The annual report of the treasurer, filed with the town for the year ending October 5, 1931, disclosed the excessive deposit, and this was approved by the town meeting on November 30, 1931. At the close of business October 5, 1931, the value and amount of resources of the bank were insufficient to meet the amount of the deposit of the town or the excess over 30 per cent, of the capital, surplus or undivided profits, had the treasurer attempted to withdraw it. The bank, being unable to meet his demand, would have been forced into liquidation.

Under these circumstances, when he took office October 7, 1931, the selectmen demanded an increase of the bond from twenty to sixty-five thousand dollars, which was furnished to the town by the appellant on the application of the treasurer. The facts of overdeposit and the condition of the bank were not made known to the appellant. These facts were pleaded in the answer as a defense, charging that the selectmen, as a fraud on the appellant, directed the increase in the amount of the bond over the previous years. A demurrer to this defense was sustained.

The court below held that the selectmen were not under any duty to the appellant to make known these facts. The court was required to take judicial n»tice of the Connecticut statute requiring the selectmen to fix the amount of the bond. In such matters a town can only act through its agents, who, in this instance, are provided for by statute. Any matters connected with setting the amount of the bond and its acceptance are within the scope of the authority of the selectmen. The failure to disclose the breach of duty by the treasurer and the insolvent condition of the bank are sufficiently pleaded in the third defense. The facts showing excess deposits were in the treasurer’s report at the town meeting as required by the statutes (Gen.Statutes Conn. § 356), and the proceedings of this meeting must be kept by the town clerk as a public record (Gen.Statutes Conn. § 320). While there is no duty to disclose matters which could be 130 U.S. 643, 647, 9 S.Ct. 645, 32 L.Ed. 1054), there is a duty of disclosure by the selectmen, here, when they knew of the existing default due to the wrongful acts of the treasurer in making these overdeposits. Although the overdeposit was a matter of public record, the default was not. The fact of the bank’s insolvency was known to the majority of the selectmen, but probably could not have been discovered by the surety company at the time they wrote the new bond. It would require an extensive examination of the condition of the bank to be so informed. found out by the exercise of reasonable diligence (Andrus v. St. Louis Smelting Co.,

Since the allegations of the answer must be considered admitted on demurrer, that the selectmen were aware of the facts and they fixed the amount and accepted the new bond with such knowledge, they were under a duty to disclose the facts to the appellant.

Watertown Savings Bank v. Mattoon, 78 Conn. 388, 62 A. 622, was a case in which the directors of the savings bank accepted a bond for the treasurer of the bank whom they knew had embezzled the funds. The court held there was no fraudulent concealment because the statute required the treasurer to obtain the bond and he did this independent of any action by the directors. But in the instant case, the selectmen were intimately connected with the bank and they were required b.y statute to fix the amount of the bond; they accepted a bond for which they had fixed a higher sum without disclosing the factual situation as to the bank’s insolvency. This amounts to fraudulent concealment of material facts. See Griswold v. Hazard, 141 U.S. 260, 11 S.Ct. 972, 35 L.Ed. 678; Copper Process Co. v. Chicago Bonding & Ins. Co., 3 Cir., 262 F. 66, 8 A.L.R. 1477; U. S. v. Fidelity & Deposit Co. of Maryland, 2 Cir., 224 F. 866; Phillips v. United States Fidelity & Deposit Co., 200 App.Div. 208, 193 N.Y.S. 467; Howe Machine Co. v. Farrington, 82 N.Y. 121; Franklin Bank v. Cooper, 36 Me. 179.

The appellant would not have assumed the obligation of the bond if it had known these facts. They were material facts which fair dealing as well as duty required should have been disclosed before accepting the bond. See Zverina Realty Co. v. Maryland Casualty Co., 6 Cir., 67 F.2d 292; Williston on Contracts (1936) § 1249.

The demurrer to this defense should have been overruled. Accordingly, the judgment should be reversed.