Brown v. Maryland Casualty Co.

Moulton, C. J.

This is an action upon a fidelity bond executed by the defendant company, by which it agreed to reimburse the plaintiff for loss which the latter might sustain by reason of any act or acts of fraud, dishonesty, forgery, embezzlement, wrongful abstraction or wilful misapplication on the part of B. Olin Barup while in the performance of his duties as manager of two gasoline filling stations of which the plaintiff was thé proprietor. Trial was by jury, with verdict and judgment for the plaintiff and the cause is here on defendant’s exceptions.

One of the express conditions of the bond, which was stated to be a condition precedent to the right of recovery thereunder, was that notice of loss should be sent by telegraph and by registered letter to the Company at its home office in Baltimore, Maryland, within ten days after discovery. By an exception taken to the denial of its motion for a verdict the defendant contends that compliance with this condition was not shown by the evidence.

Barup entered the employ of the plaintiff on or about May 10, 1937, and the bond was executed and went into effect upon that day. On July 26, the plaintiff took an inventory of the stock in the two stations, and discovered that there was a discrepancy between the merchandise on hand and that delivered to Barup, and for which he was accountable, amounting to $374.40. Upon this being called to Barup’s attention, he promised to check the inventory, and later explained the situation by informing the plaintiff that there were some items not included in the inventory, and that he had sold some merchandise on credit, which had since been paid for. Within a few weeks thereafter he paid into the plaintiff’s bank account the sum of $339.79, in installments. Some time after the taking of this inventory the plaintiff had a conversation with Des Rosiers, the insurance broker who had sold the bond. The date of the interview is uncertain; according to the plaintiff it was “right away” although he could not give the day, and according to Des Dosiers it was on September 2 or 3. The plaintiff called Des Dosiers’ attention to the discrepancy, or, as he put it, the ‘ ‘ difference. ’ ’ Des Dosiers testified that the plaintiff told him that he wanted the matter adjusted, and this remark the plaintiff did not deny. The plaintiff also testified that he wanted “to know why it .(the inventory) did not come out right,” and that he did not know whether anything was wrong, but that something was wrong if it was not in balance.

On September 30 another inventory was taken, which was not figured up until four or five weeks later owing to the illness of the plaintiff’s bookkeeper. This time there was a shortage of $536.61. Des Dosiers testified, and his testimony was uhcontradieted, that, during the latter part of October plaintiff -informed him that Barup’s accounts were short, that he wanted them adjusted, and that he would be interested to have Barup or the defendant adjust them.

A third inventory was taken on November 15, which disclosed a shortage of $895.28. The plaintiff then consulted the local adjuster of the defendant and a fourth inventory was taken immediately, hy which the shortage was discovered to be $976.67. Notice was sent to the home' office of the defendant by registered letter on November 17, and by telegram on November 18. No previous notice had been sent.

In his testimony Barup admitted taking money from the gasoline stations. After the last inventory he was charged with embezzlement, and pleaded guilty.

Where, as here, the contract provides that notice of loss shall be given within a certain time after discovery, the failure to do so will release the surety from the obligations imposed by the bond. U. S. Shipping Board, etc., Corp. v. Aetna Cas. and Surety Co., 68 App. D. C. 366, 98 Fed. 2d. 238, 242; Gentile v. Am. St. Bank and Trust Co., 315 Pa. 133, 172 Atl. 303, 305; Planter’s Svgs. Bank v. Am. Surety Co., 177 S. C. 363, 181 S. E. 222, 224. The rule in this respect is the same as in the case of an insurance contract which requires notice of accident to be given the insurer. Houran v. Preferred Acc. Ins. Co., 109 Vt. 258, 272, 195 Atl. 253. Since the purpose of the notice is to give the surety a reasonable opportunity to protect its rights, a delay beyond the specified time cannot be justified upon the contention that the employer had not ascertained the extent of the loss. Jellico Grocery Co. v. Sun Indemnity Co., 272 Ky. 276, 114 S. W. 2d. 83, 86. But the employer is under no obligation to inform the surety of a mere suspicion of dishonest conduct on the part of the employee. Perpetual Bldg. and Loan Ass’n v. U. S. Fidelity and Guar. Co., 118 Iowa 729, 92 N. W. 686, 688; Fidelity, etc., Co. v. Western Bank, 29 Ky. Law 639, 94 S. W. 3, 5; Thomas Holme Bldg, and Loan Ass’n v. New Amsterdam Cas. Co., 124 Pa. Sup. Ct. 187, 188 Atl. 374, 376; Inter-City Express Lines v. Hartford Acc. and Indemnity Co., La. App., 178 So. 280, 282; Pacific Coast Adjustment Bureau, v. Indemnity Ins. Co., 115 Cal. App. 583, 2 Pac. 2d. 218, 219. Apparent errors in the accounts of an employee, which do not at least imply a default, being consistent with integrity and explainable as the result of business inefficiency, do not, of themselves, necessarily call for notice to the surety. Perpetual Bldg. and Loan Ass’n v. U. S. Fidelity and Guar. Co., supra; Fidelity and Deposit Co. v. Maile, 177 Mich. 231, 142 N. W. 1087, 1089.

In Gilmour v. Standard Surety and Casualty Co., 292 Mass. 205, 197 N. E. 673, 676, the rule is thus given: “The contingency which made a notice necessary was not the occurrence of a loss, but rather the plaintiff’s discovery of a loss which had occurred. The provision as to notice is in the interests of the surety and the language cannot reasonably be construed to mean that the giving of the notice be deferred until such time as the plaintiffs had not only discovered but were actually able to prove that loss had occurred. That would be of no benefit to the surety. # * * But discovery of loss must mean knowledge of loss, that is, knowledge derived from known facts or reasonable inferences of fact. If such facts and inferences which should reasonably be drawn therefrom would inform the ordinary man in his situation that there had been a loss, he has discovered the loss within the meaning of the bond. If such facts and inferences do no more than create in his mind a mere suspicion of loss the necessity of notice does not arise.’’

It cannot be said as a matter of law that the shortage disclosed by the inventory of July 26, in view of the explanation put forward by Barup, was sufficient to charge the plaintiff with knowledge of wrongdoing on the part of his manager, or did more than engender a suspicion in his mind. If the matter had rested here, there would have been a jury question. But an entirely different situation was presented after the inventory of September 30. It clearly appears by the testimony of Des Hosiers that, by the end of October, at least, the plaintiff knew that there was again a shortage, that he had a definite belief that there had been a misappropriation, and that he proposed to call upon the guilty party or the defendant to make good the deficit. This testimony was direct and positive, and uncontradicted by cross examination or by other testimony, facts or circumstances. The witness was credible, and it is not suggested that he had an interest in the outcome of the litigation. “The general rule is that where a credible witness testifies distinctly and positively to a fact and is not contradicted, and there is no circumstance shown from which an inference against the fact testified to can be drawn, the fact may be taken as established, and verdict directed upon the evidence. * # * And a claim by counsel that uncontradicted testimony in a case is not true does not require a submission of the ease to the jury.” Neill v. Ward, 103 Vt. 117, 160, 153 Atl. 219, 238.

It may be that the inventory had not then been figured so that the exact amount of the shortage could not have been known, but, as we have seen, the event that gives rise to the' obligation to notify the surety is the discovery of the loss, not the ascertainment of the extent of it. The resulting figures of the inventory of September 30, and of the succeeding inventories in November served only to give information of the latter sort. The discovery of the loss, within the meaning of the bond, occurred before the end of October. The notices, sent on Novem- ■ ber 17 and 18, were not in compliance with the terms of the contract. It was error to deny the motion for a verdict.

What has been said makes the discussion of the other exceptions academic only, and no attention need be given them.

Judgment reversed and judgment for the defendant to recover its costs.