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Opinion of the Court.
having received notice of them, failed to disavow what was assumed to be said and done in his behalf.
In llenry v. Allen, 151 N. Y. 1, 10, the court recognized the general rule. But after observing that it rested upon the agent's duty to disclose such facts to his principal, it held that one of the exceptions was that where the agent was "engaged in a scheme to defraud his principal, the presumption does not prevail, because he cannot in reason be presumed to have disclosed that which it was his duty to keep secret, or that which would expose and defeat his fraudulent purpose.”
To the same effect are Benedict v. Arnoux, 154 N. Y. 715, and Kettlewell v. Watson, 21 Ch. Div; 685, 707. In the latter case it was said that the presumption arising from the duty of the agent to communicate what he knows to his principal
may be repelled by showing that, whilst he was acting as agent, he was also acting in another character, viz., as a party to à scheme or design of fraud, and that the knowledge which he attained was attained by him in the latter character, and that therefore there is no ground on which you can presume that the duty of an agent was performed by the person who filled that double character."
In Commercial Bank v. Cunningham, 24 Pick. 270, 276, which involved the question whether certain notes held by a bank were to be deemed to have been made for the accommodation of a firm, one member of which was a director of the bank at the time the notes were taken, it was held that the knowledge of the latter, although a director, was no proof of notice to the corporation, “especially as he was a party to all these contracts, whose interests might be opposed to that of the corporation.". This principle is reaffirmed in Innerarity v. Merchants' National Bank, 139 Mass. 332, 333, in which the court said: “While the knowledge of an agent is ordinarily to be imputed to the principal, it would appear now to be well established that there is an exception to the construction or imputation of notice from the agent to the principal in case of such conduct by the agent as raises a clear presumption that he would not communicate the fact in controversy, as where the communication of such a fact would necessarily
Opinion of the Court.
prevent the consummation of a fraudulent scheme which the agent was engaged in perpetrating” – citing Kennedy v. Green, 3 Myl. & K. 699 ; Cave v. Cave, 15 Ch. D. 639; In re European Bank, L. R. 5 Ch. App. 358; In re Marseilles Extension Railway, L. R. 7 Ch. App. 161; Atlantic National Bank v. Harris, 118 Mass. 147; Loring v. Brodie, 134 Mass. 453.
In Terrell v. Branch Bank of Mobile, 12 Alabama, 502, 507, the question was as to the liability of the maker of a note executed in blank and delivered by him to a director of a bank to be filled up with a certain sum, and to be used in the renewal of a note of the maker already held by the bank. The director (Scott) filled up the note for a larger amount and bad it discounted for his own use, he acting as one of the directors when the discount occurred, but concealing the facts from the other directors. It was contended that the knowledge of Scott as director of the circumstances under which the note was made and offered for discount, his connection with the directory, and his presence when it was discounted by the bank, were in law a notice to the other directors of the facts. The Supreme Court of Alabama said: “It cannot be admitted that in receiving the blank of the defendant to be used for his benefit, Scott acted as the agent of the bank; and certainly he did not thus act in abusing the authority conferred on him by the defendant. But in filling up the blank for a larger amount than his authority required, and then offering the note for discount, he was in reality the representative of his own interest. Pro re nata, his powers as a director were suspended — he was contracting with the bank through his associates in the directory — he was borrow.. ing, not lending its money — though a member of the board and present too, it cannot be supposed that he coöperated with them in purchasing paper of which he was the avowed proprietor; and whether he did or not, it cannot be presumed that he made any disclosure which would prejudice his application for a loan."
In his treatise on Equity Jurisprudence, Pomeroy says: “It is now settled by a series of decisions possessing the highest
Opinion of the Court.
authority that when an agent or attorney has, in the course of his employment, been guilty of an actual fraud contrived and carried out for his own benefit, by which he intended to defraud and did defraud his own principal or client, as well as perhaps the other party, and the very perpetration of such fraud involved the necessity of his concealing the facts from his own client, then under such circumstances the principal is not charged with constructive notice of facts known by the attorney and thus fraudulently concealed.” Vol. 2, $ 675.
Further citation of authorities would seem to be unnecessary to support the proposition that if Collins gave the certificate that he might, with the aid of O'Brien as cashier, carry out his purpose to defraud the bank for his personal benefit, the law will not presume that he communicated to the bank what he had done in order to promote the scheme devised by him in hostility to its interests. In our judgment the Circuit Court of Appeals correctly held that plaintiff's right of action on the bond was not lost because its president, Collins, made to the defendants false representations as to the cashier's honesty; and that when two officers of a corporation have entered into a scheme to purloin its money for the benefit of one of them,“ in pursuance of which scheme it becomes necessary to make false representations to a third person ostensibly for the bank, but in reality to consummate such scheme and for the benefit of the conspirators, and not in the line of ordinary routine business of such officers and without express authority, the corporation being ignorant of the fraud, the officers are not in thus consummating such theft the agents of the corporation."
It is contended that admitting in evidence Collins' ledger account and the letter book was error to the prejudice of the substantial rights of the defendant. We cannot assent to this view, and as the matter was satisfactorily disposed of by the Circuit Court of Appeals, it is sufficient to refer to the opinion of that court for our views on this point.
It is said the claim or proof of loss mailed to the company on June 24, 1892, and the receipt of which was acknowledged July 8, 1892, was not served as soon as practicable
after the discovery of a loss for which the company was liable, nor within six months after the expiration or cancellation of the bond. We cannot assent to these propositions. It must be assumed froin the verdict that, within the meaning of the bond, the loss was discovered the latter part of May, and that written notice of it was given as soon thereafter as was practicable. As, for the reasons heretofore stated, O'Brien did not retire from the service of the bank prior at least to December 29, 1891, it is clear that the objection under consideration is not well taken. Under the facts found, it must be held that proper notice of the loss was given as soon as practicable after the discovery of the fraud of O'Brien and within six months after his retirement from the service of his employer, and that the claim was made in such form as to reasonably inform the company of its nature. When received, no objection was made that notice of it was not served in time, nor that it was not sufficiently full to indicate the grounds upon which the receiver would proceed against the company upon its bond.
Having considered all the questions which, in our judgment, need to be examined, and perceiving no error of law in the record to the prejudice of the substantial rights of the Surety Company, the judgments of the Circuit Court and the Circuit Court of Appeals are
AMERICAN SURETY COMPANY v. PAULY (No. 2).
ERROR TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.
No. 169. Argued January 7, 1893. – Decided April 18, 1898.
This was an action upon a bond guaranteeing a national bank against loss
by any act of fraud or dishonesty by its president. The bond was similar in its provisions to the one referred to in the case preceding this, and contained among other provisions the following: “Now, therefore, in consideration,” etc., .. “it is liereby declared and agreed, that subject to the provision herein contained, the company shall, within
Opinion of the Court.
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 all and any pecuniary loss sustained by the employer of moneys, securities or other personal property in the possession of the employé, or for the possession of which he is responsible, by any act of fraud or dishonesty, on the part of the emplove, in connection with the duties of the office or position hereint fore referred to, or the duties to which in the employer's service he may be subsequently appointed, and occurring during the continuance of this bond, and discovered during said continuance, or within six months thereafter, and within six months from the death or dismissal or retirement of the employé from the service of the employer. It being understood that a written statement of such loss, certified by the duly authorized officer or representative of the employer, and based upon the accounts of the employé, shall be prima facie evidence thereof." Held, (1) That this language was susceptible of two constructions, equally rea
sonable, and that the one most favorable to the insured should be accepted, namely, that the required written statement of loss arising from the fraud or dishonesty of the president of the bank, based upon its accounts, was admissible in evidence, if suit was
brought, and was prima facie sufficient to establish the loss. (2) That within the meaning of the bond in suit, the president of the
bank remained in its service at least up to the day on which the receiver took possession of books, papers and assets.
The case is stated in the opinion.
Mr. Henry C. Willcox and Mr. Walter D. Davidge for plaintiff in error. Mr. Walter D. Davidge, Jr., was on their brief.
Mr. Edward Winslow Paige for defendant in error.
MR. JUSTICE HARLAN delivered the opinion of the court.
This is an action by the receiver of the California National Bank of San Diego, California, upon a bond given July 1, 1891, by the American Surety Company of New York, to indemnify that banking association against loss by any act of fraud or dishonesty on the part of John W. Collins in connection with the duties of the office or position of president of the above bank, or the daties to which in the employer's (the bank's) service he might be subsequently appointed, and occurring during the continuance of the bond, “and dis