Opinion
14389
December 1, 1936.
Before SEASE, J., Saluda, December, 1934. Affirmed.
Suit by W. Scott Farley, as Receiver of the Planters National Bank of Saluda, against the American Surety Company of New York and others. From an order overruling a demurrer to the complaint, the named defendant appeals.
The decree of Judge Sease is as follows:
This matter comes before me on a demurrer to the complaint by the defendant American Surety Company. The sole ground of the demurrer is that the facts alleged in the complaint failed to state a cause of action against the defendant American Surety Company. In passing on the demurrer, therefore it is assumed that all of the allegations of the complaint are admitted.
The complaint alleges that the comptroller of the currency appointed W. Scott Farley, the plaintiff herein, as Receiver of the Planters National Bank of Saluda on the 22nd day of June, 1931, and that immediately after his appointment as Receiver the plaintiff took charge of the bank, and since that time has been engaged in the liquidation of the bank. It appears that at the time of the closing of the bank R.C. Pitts was the acting president of the bank, having succeeded his father, Milledge T. Pitts, who died on December 10, 1930. When the plaintiff took charge of the bank, he inquired immediately of R.C. Pitts, about the bonds of the former officers of the bank, and was informed by R.C. Pitts that he, the said R.C. Pitts, was not under bond and that his predecessor in office, his father, Milledge T. Pitts, had not been under bond. It appears that the plaintiff nevertheless made a diligent search of the records of the bank to see if there were bonds covering the former officers of the bank and made inquiry of the directors of the bank about the existence of such bonds. This inquiry and search did not reveal any bond covering Milledge T. Pitts for any period during the many years that he was connected with the bank, and the directors could not give any definite information as to whether Milledge T. Pitts had been under bond during these years. The plaintiff did find bonds in the bank covering the other officers of the bank and along with said bonds found continuous renewal certificates thereon for a great many years.
It appears from the complaint that during the fall of 1931 attorneys representing one Dudley Sheppard of Elberton, Ga., made demand on the plaintiff for certain papers and funds held by the bank, which they claimed as the property of Dudley Sheppard, and that the plaintiff upon investigating the matter found that the Dudley Sheppard account had run for a number of years in the bank and the investigation of this claim required several months. However, after several months' investigation and after numerous conferences with the attorneys representing Dudley Sheppard, the plaintiff's investigation disclosed the fact that Milledge T. Pitts, as president of the Planters National Bank of Saluda, S.C., had misappropriated funds and securities of Dudley Sheppard which had been deposited in trust with the bank, and that Milledge T. Pitts, in connection with the account of Dudley Sheppard, had fraudulently abstracted certain funds from the bank. It is further alleged that the plaintiff ascertained that interest items aggregating some $30,000.00 or more, which were credited on sundry notes, had not been credited on the books of the bank, and had in fact either not been received by the bank, or, if collected, had been fraudulently misappropriated or misapplied by the said Milledge T. Pitts.
It appears that, when the plaintiff discovered the losses which came about through the fraudulent acts of Milledge T. Pitts, he had no knowledge or information that Milledge T. Pitts had been under bond for any period during his connection with the bank. However, on March 17, 1932, when the plaintiff was going through some old files of the bank on another matter, he ran across a check drawn by Edwards Edwards, agent, dated January 9, 1928, payable to the order of American Surety Company, the said check having written thereon "Bond M.T. Pitts." The plaintiff, thinking that perhaps this check might cover the bond of Milledge T. Pitts, as president of the Planters National Bank, at once conferred with his attorneys in Greenwood, and the same day they ascertained the address of the general agent of the American Surety Company in Atlanta, Ga., and sent him a telegram as follows: "Will Call You Phone Friday Morning Nine Thirty Your Time And Would Thank You To Tell Me At That Time Whether Your Company Carried Bond On M.T. Pitts President Planters National Bank of Saluda S C Year Nineteen Thirty If So Please Have Copy of Bond Before You"; and on the following day, March 18, 1932, the plaintiff called the Atlanta office of the American Surety Company on the telephone and was advised that the American Surety Company had been carrying a bond on Milledge T. Pitts up to December 10, 1930, on which date he died; that plaintiff thereupon advised the American Surety Company in the same telephone conversation as to the loss and claim under the bond and requested that a copy of the bond be mailed to him, and the Atlanta office of the American Surety Company promised to mail to the plaintiff that day a copy of the bond. It appears, however, that the plaintiff received a letter from the Atlanta office of the surety company, dated March 18, 1932, advising that it had been found that there was no copy of the bond in the Atlanta office, and that the home office of the company in New York City was being asked to give plaintiff whatever information was wanted. The plaintiff thereupon telegraphed the claim department of the American Surety Company at its home office in New York City on March 19, 1932, asking for a copy of the bond, and on the same date wrote the claim department of the American Surety Company a letter, quoting the telegram and advising of loss under the terms of the bond; that thereafter, under date of March 21, 1932, the American Surety Company forwarded a photostatic copy of the original bond issued by the company, but stated that the original bond had been canceled and surrendered, and that all rights thereunder had terminated. Thereafter the plaintiff wrote the American Surety Company asking that he be advised at what time and by whom said bond was surrendered and canceled and asked for regular forms for making detailed proof of loss under the bond. The American Surety Company replied that it could not consistently comply with plaintiff's request to furnish claim blanks because all rights had terminated under the bond and further stated that the company's file did not inform of the exact time and by whom the bond was surrendered and canceled. It appears that after considerable correspondence the plaintiff was finally advised by the American Surety Company under date of April 23, 1932, that the bond of Milledge T. Pitts had been surrendered and canceled by R.C. Pitts under date of February 9, 1931. Thereupon plaintiff through his attorneys forwarded by registered letter to the home office of the American Surety Company a detailed proof of loss under the bond of Milledge T. Pitts. A copy of this proof of loss is attached to and made a part of the complaint.
A copy of the bond is also attached to the complaint, and it seems to me that the defendant surety company's demurrer really raises but one issue, and that is whether there was coverage under the bond. For the sake of argument on the demurrer, it is admitted that there was a loss under the terms of the bond. The main issue in the case is whether there was coverage under the bond, that is, whether the bond was in force at the time notice of loss was given to the defendant surety company. This question turns largely upon the following provision of the policy: "Provided, however, that loss be discovered during the continuance of this suretyship or within fifteen months next after its termination and notice thereof delivered to the surety at its Home Office in the City of New York within ten days after such discovery."
The position of the plaintiff is that he has complied with the provisions of the policy as to notice because this provision provides definitely for a period of fifteen months and ten days after the termination of the bond for the loss to be discovered and notice thereof given to the surety company.
The surety company takes the position that the bond of Milledge T. Pitts was canceled automatically by his death on December 10, 1930. However, the allegations of the complaint are that the bond was actually canceled in February, 1931. This apparently is borne out by the letters of the defendant surety company with reference to this matter as alleged in the complaint. However, assuming that the surety company's position is correct and that the bond terminated with the death of Milledge T. Pitts on December 10, 1930, the plaintiff still takes the position that the notice was given to the defendant surety company within the period of fifteen months and ten days, provided under the section of the bond above noted. It definitely appears that notice of the loss under the bond was given to the surety company on March 18, 1932. The period of fifteen months after December 10, 1930, would have run up to and including March 10, 1932. The additional period of ten days would have brought the time up to and including March 20, 1932. The demurrer concedes that notice of the loss was given to the Atlanta office of the American Surety Company on March 18, 1932, and that notice was given to the New York office, which is the home office, both by telegram and by letter on March 19, 1932.
The defendant surety company does not contend that the loss was not discovered and notice given within the period of fifteen months and ten days provided by the bond, but merely relies on the technical defense that the notice was not given within ten days after the discovery of the loss. The demurrer of the defendant surety company, therefore, does not go to the merits of the claim which the plaintiff has against the defendant American Surety Company but raises a purely technical objection and defense, to wit, that notice was not given within the time required by the bond. The defendant surety company does not contend that it was prejudiced by any delay which there may have been in giving notice under the terms of the bond, or that its position has been altered in any way by the delay in giving notice under the terms of the bond. The defendant surety company does not contend that by the delay it has lost any rights or defenses which it might have had to the merits of the claim under the bond. Therefore, in view of the fact that the demurrer admits all of the allegations of the complaint which establish loss under the bond and interposes a purely technical defense, I feel that any doubt about the question of coverage under the bond should be resolved against the defendant American Surety Company.
It is also well to bear in mind that the American Surety Company is a paid surety and not a voluntary surety.
"Although a voluntary surety is a favorite of the law, and entitled to stand on the strict letter of his contract, the rule of strictissimi juris does not apply to a corporation organized to enter into bonds and undertakings for a profit. Such companies are essentially insurers, and their contracts, being usually expressed in terms prescribed by themselves, should be construed most strongly in favor of the obligee therein." Board of Commissioners et al. v. Clemens, 85 W. Va., 11, 100 S.E., 680, 7 A.L.R., 373.
This same doctrine is universally recognized. See 21 R. C.L., 1160.
In our own case of Jennings v. Clover Leaf Life Casualty Company, 146 S.C. 41, 143 S.E., 668, the Court held that a substantial compliance with life and accident insurance policy provisions is all that is required.
In the case of Edgefield Manufacturing Company v. Maryland Casualty Company, 78 S.C. 73, 58 S.E., 969, Mr. Justice Woods, writing the opinion of our Court, held that the stipulation in the policy that the insured should give immediate notice of an accident and full information concerning it and send the summons immediately to the Insurance Company meant that these things should be done with reasonable promptness under the circumstances, not that they should be done literally without the lapse of any time. In the Edgefield case it appeared that the officers of the insured company had been stricken by an epidemic of smallpox. Thereafter Mr. A.S. Tompkins took temporary charge of the offices of the mill. In March, 1904, Mr. Tompkins was made aware for the first time that his company had casualty insurance by finding the policy among the papers of the company and on the same day gave the casualty company notice of the accident and offered to send to the company the summons served. Under these circumstances the Court held that the delay was excusable, because as soon as Mr. Tompkins found that there was a policy he gave prompt notice to the insurer.
It has been universally held by the Courts that a contract of the type of the one sued on in this case is not simply a contract of suretyship but is an insurance contract. This doctrine was clearly established in the case of Van Buren County v. American Surety Company, 137 Iowa, 490, 115 N.W., 24, 126 Am. St. Rep., 290. In this case the Court held that the business of corporations organized for profit in assuring performance of contracts is governed by essentially the same principle of law as insurance.
In Brandt on Suretyship (3d Ed.) Vol. 1, p. 39, the doctrine is laid down that, "where the company's contract amounts to an agreement between it and the obligee to indemnify the obligee against loss arising from a certain specified source, for instance, defalcation by an employee, it is treated as an insurance policy and construed according to the rules of construction applicable to insurance policies. Where such an instrument will fairly and reasonably bear either of two constructions, the one that is more favorable to the obligee should be adopted."
In the case of Supreme Council v. Fidelity Casualty Company of New York (C.C.A.), 68 F., 48, 58, the Court said: "The bond is in the terms prescribed by the surety, and any doubtful language should be construed most strongly against the surety, and in favor of the indemnity which the assured had reasonable ground to expect. The rule applicable to contracts of fire and life insurance is the rule, by analogy, most applicable to a contract like that in this case."
The doctrine has been well established in insurance cases that a beneficiary who is ignorant of the death of an insured or of the existence of the policy cannot have his claim defeated if he makes his claim within a reasonable time after obtaining knowledge of these facts. This doctrine is clearly set out in the following note in 111 Am. St. Rep., 612: "Although a life insurance policy provides that the insurer must be given notice of the accident to, and proof of the death of, the insured within a specified time thereafter, or the policy will be forfeited, yet a beneficiary who is in ignorance of such death and of the existence of the policy complies with such conditions, if within a reasonable time after obtaining knowledge of these facts he gives the insurer notice and makes proof: Munz v. Standard Life, etc., Ins. Co., 26 Utah, 69, 72 P., 182 62 L.R.A., 485, 99 Am. St. Rep., 830, and see the cases cited in the cross-reference note thereto. Other decisions bearing on this question are Matthews v. American Cent. Ins. Co., 154 N.Y., 449, 48 N.E., 751, 39 L.R.A., 433, 61 Am. St. Rep., 627; Paul v. Fidelity, etc., Co., 186 Mass. 413, 71 N.E., 801, 104 Am. St. Rep., 594; Mead v. Phoenix Ins. Co., 68 Kan., 432, 75 P., 475, 64 L.R.A., 79, 104 Am. St. Rep., 412."
This doctrine is also laid down in the case of Johnson v. Maryland Casualty Co., 73 N.H. 259, 60 A., 1009, 111 Am. St. Rep., 609. In this case the Court held that the position of the casualty company would practically require the insured to do an impossible thing.
The case of Continental Casualty Company v. Lindsay, 111 Va., 389, 69 S.E., 344, 345, which was decided by the Supreme Court of Appeals of Virginia, was a case where the beneficiary of a casualty policy was ignorant of its existence till several months after the insured's death, but immediately gave the insurance company notice of death when the policy was found. The policy contained a provision that it should be forfeited unless the beneficiary should give notice within fifteen days after the accident. The Court in this case said:
"We are of opinion that when the existence of an insurance policy is not known for several months after the death of the insured, and the beneficiary therein, as soon as the policy is found, gives notice to the company, then all has been done that could be required under the circumstances. It would be a harsh rule that would forfeit the policy because the beneficiary had not given notice within 15 days after the accident, as prescribed in the policy, when she did not know of its existence for several months thereafter. Compliance with the terms of a policy as to notice and proof of loss within a reasonable time after knowledge of its existence under all the circumstances of the particular case is all that is required. Woodmen Accident Association v. Pratt, 62 Neb. 673, 87 N.W., 546, 55 L.R.A., 291, 89 Am. St. Rep., 777; Solomon v. Fire Ins. Co., 160 N.Y., 595, 55 N.E., 279, 46 L.R.A. [682], 683, 73 Am. St. Rep., 707; May on Ins., Vol. 2, § 462. See, also, Wooddy v. O.D. Ins. Co., 31 Grat. [72 Va.], 362, 31 Am. Rep., 732."
The case of Woodmen Accident Ass'n v. Pratt, 62 Neb. 673, 87 N.W., 546, 549, 55 L.R.A., 291, 80 Am. St. Rep., 777, was a case where the existence of the policy was not known, it being stated that neither the insured's wife or any other member of his family knew of the existence of the policy and by a mere accident the wife, in looking over some of the insured's papers, found the policy and forthwith gave notice in writing to the defendant company. The defendant denied liability on the sole ground that the notice had not been given within ten days from the date the insured was injured. The Court held that the provision in the policy requiring notice to be given within ten days was sufficiently complied with, if the beneficiary of the insured exercised due diligence and reasonable effort to meet such requirement. In discussing this issue, the Court in its opinion said:
"In respect to the rule of construing provisions in a contract of insurance for notice of accident and injury or loss or damage and proof of the same to be given `forthwith' or `immediately,' or within a stipulated time, the authorities are not entirely harmonious; and yet, from the examination we have been able to make in the limited time at our command, the great weight of authority is to the effect that the exercise of due diligence and reasonable effort on the part of the insured to meet the requirements thus imposed, to be determined under all circumstances as disclosed in each individual case, is deemed a compliance with such provisions, although not within the time, according to the strict letter of the terms used in defining the same."
In the case of Solomon v. Continental Fire Insurance Company, 160 N.Y., 595, 55 N.E., 279, 280, 46 L.R.A., 682, 73 Am. St. Rep., 707, the Court said: "In several recent cases this Court has discussed the distinction between the two classes of conditions which are to be found in policies of fire insurance. As to those which operate upon the parties prior to the loss, such as the condition and situation of the property, the relations of the insured to it, and the statements and representations preceding the contract, it has been said that they are matters of substance, upon which the liability of the insurer depends, are important in pointing out the conditions and circumstances under which the insurer has agreed to become liable, and consequently should receive a fair construction according to the intention of the parties. It has also been said in the same cases that, where the liability of the insurer has become fixed by a loss within the range of the contract, Courts are reluctant to deprive the insured of the benefit of that liability by any narrow or technical construction of the conditions which prescribe the formal requisites by which the right is to be made available, and therefore that those provisions should be reasonably, and not rigidly, construed: McNally v. Phoenix Ins. Co., 137 N.Y., 389, 33 N.E., 475; Paltrovitch v. Phoenix Ins. Co., 143 N.Y., 73, 37 N.E., 639, 25 L.R.A., 198; Sergent v. Liverpool, etc., Ins. Co., 155 N.Y., 349, 355, 49 N.E., 935."
The case of Van Buren County v. American Surety Company, 137 Iowa, 490, 115 N.W., 24, 126 Am. St. Rep., 290, referred to above, was a case very similar in some respects to the present case and as the title indicates was against the same defendant. The following is quoted from the opinion in that case: "Where circumstances render a condition affecting the remedy impossible of performance, it will not be allowed to defeat recovery on a meritorious claim."
In the case of Trippe v. Provident Fund Society, 140 N. Y., 23, 35 N.E., 316, 22 L.R.A., 432, 37 Am. St. Rep., 529, the policy provision was as follows: "Notice of any accidental injury, for which claim is to be made under this certificate, shall be given in writing, addressed to the president of the society at New York, stating the full name, occupation, and address of the injured member, with full particulars of the accident and injury and failure to give such written notice within ten days from the date of either injury or death shall invalidate any and all claims under this certificate."
The Court said in the discussion of this case: "The condition upon which the defense is based was to operate upon the contract of insurance only subsequent to the fact of a loss. It must therefore receive a liberal and reasonable construction in favor of the beneficiaries under the contract. McNally v. Phoenix Ins. Co., 137 N.Y., 389, 33 N.E., 475. * * * It is quite conceivable that in many cases of death by accident the fact cannot be, and is not, known until days, or even weeks, after it has occurred. Such conditions in a policy of insurance must be considered as inserted for some reasonable and practical purpose, and not with a view of defeating a recovery in case of loss by requiring the parties interested to do something manifestly impossible. The object of the notice was to enable the defendant, within a reasonable time after the death or injury, to inquire into all the facts and circumstances while they were fresh in the memory of witnesses, in order to determine whether it was liable, or not, upon its contract. * * * The fair and reasonable construction of this condition, therefore, is that the 10 days within which the notice is to be given did not begin to run from the date of the accident, or the disappearance of the insured, but from the time when the body was found. * * * To hold that the plaintiff was bound to give notice of the death of her husband * * * before she had any knowledge of the facts, would be to require her, by a technical and literal construction, to do an impossible thing, which was not within the intention of the parties when the contract was made. Insurance Companies v. Boykin, 12 Wall., 433 [ 20 L.Ed., 442]."
In passing on the demurrer, it must be taken as an established fact that the liability of the surety company, which is really an insurer, has become fixed by a loss within the range of the contract. The sole question, therefore, is whether this Court will deprive the insured of the benefit of that liability by a narrow or technical construction of the conditions which prescribe the formal requisites by which the right is to be made available. Under the facts, which are conceded by the demurrer, I do not feel that the insurer should be allowed to take advantage of such a narrow and technical construction of the contract.
Counsel for the surety company in the argument on the demurrer relied largely on the position that the Receiver is chargeable with the knowledge of the former officers that there was a bond covering Milledge T. Pitts. This position, as I see it, is not logical because I do not see how even the corporation would have been chargeable with the notice which was had by, or in the knowledge of, a defaulting and conniving officer. As I see it, the question of knowledge is not whether the directors or officers knew they had a bond prior to the receivership, but the question is whether the Receiver had knowledge of the bond when he took charge. If he had had such notice or knowledge, he could have protected himself. At that time notice to the president or acting president could not be imputed to the Receiver for the reason that the president and acting president were acting adversely and fraudulently and against the interest of the Receiver. Should the surety company be allowed to take advantage of the fact that the Receiver, who stands as the agent of the Court and as agent of the government to protect creditors and others, did not know that there was a bond, especially when the Receiver had made a diligent search to ascertain if such a bond was in existence?
The demurrer admits the default of the employees, admits that the Receiver did not know of the existence of the bond, admits the concealment of the existence of the bond. The surety company relies solely upon the failure to give the notice.
It has been held almost universally by the Courts that the principal is not charged with notice to an agent, who is acting adversely to the interest of the principal.
This is covered in our own South Carolina case of Little et al. v. Southern Cotton Oil Company, 156 S.C. 480, 153 S.E., 462. This same doctrine is applied where the agent is committing a fraud. Doscher v. Merritt, 129 S.C. 531, 125 S.E., 33; Knobelock v. Germania Savings Bank, 50 S.C. 259, 27 S.E., 962.
It seems that this doctrine is clearly applicable to the facts in the present case because it is admitted by the demurrer that R.C. Pitts, the acting president of the bank immediately prior to the receivership, concealed the existence of the bond from the Receiver, when, as a matter of fact, R.C. Pitts knew that he had surrendered the original bond to the surety company for cancellation about four months before the inquiry was made by the Receiver. It is therefore admitted by the demurrer that R.C. Pitts, through connivance and fraud, concealed the existence of this bond. It is significant, I think, that R.C. Pitts actually sent the original bond back to the defendant surety company. This certainly was not necessary and was very unusual because the bond under its terms remained in full force for some time thereafter, even accepting the defendant's view. It also is very unusual that all renewal certificates for a long period of years were removed from the files of the bank. Certainly the knowledge of R.C. Pitts would not be chargeable to the bank because he was acting fraudulently and against the interest of the bank. It would be even more inconceivable to charge his knowledge to the Receiver. Prior to the surrender of the bond Milledge T. Pitts had died, possibly a suicide. There is absolutely nothing in the record to show that any one else knew of the existence of the bond except R.C. Pitts, who concealed its existence from the Receiver. It is admitted by the demurrer that the directors stated that they did not know whether Milledge T. Pitts had been under bond.
Pomeroy's Eq. (4th Ed.), Vol. 2, § 675, lays down this doctrine: "It is now settled by a series of decisions possessing the highest 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."
This same section states that a presumption arises that no communication was made by the defaulting agent to his principal and consequently the principal is not affected with constructive notice.
There is an extensive note in 24 Am. St. Rep., 233, in which this doctrine is laid down: "Notice to the agent is not notice to the principal when the agent acts for himself, in his own interest, and adversely to that of his principal: Frenkel v. Hudson, 82 Ala., 158, 2 So., 758, 60 Am. Rep., 736; Wikersham v. Chicago Zinc Co., 18 Kan., 481, 26 Am.Rep., 784; Reid v. Bank of Mobile, 70 Ala., 199. * * * Where the agent is in collusion with a third person to defraud the principal, the latter will not be responsible for the knowledge of the agent in relation to such fraud: National, etc., Ins. v. Minch, 53 N.Y., 144."
This same doctrine that, where an agent acts in his own interest, notice is not imputed to the principal, is set out in 1 American English Encyclopedia, 1145.
The United States Supreme Court in the case of Nichols W. Casey, Receiver, v. Cavaroc et al., 96 U.S. 467, 24 L.Ed., 779, held that the Receiver of a national bank does not represent the corporation alone but represents all interested parties. Under this view of the Receiver's status, I do not see how he could be charged with the knowledge of a defaulting officer or the knowledge of conniving and defaulting officers that one of them had been under bond — especially when one of them had fraudulently removed the bond and renewal certificates from the bank.
In the recent case of Schneider v. Thompson, 58 F.2d 94, 97, the United States Circuit Court of Appeals for the Eighth Circuit held that notice to agent whose conduct raises a clear presumption that he would not communicate facts to principal, as where he acts in his own interest and adversely to that of principal, is not notice to principal. This same case holds further that knowledge of acts of agent committing fraud for his own benefit is not imputed to principal. In the opinion in this case the Court quotes from American Surety Company v. Pauly, 170 U.S. 133, 18 S.Ct., 552, 42 L.Ed., 977 as follows:
"The presumption that the agent informed his principal of that which his duty and the interests of his principal required him to communicate does not arise where the agent acts or makes declarations not in execution of any duty that he owes to the principal, nor within any authority possessed by him, but to subserve simply his own personal ends, or to commit some fraud against the principal. In such cases the principal is not bound by the acts or declarations of the agent unless it be proved that he had at the time actual notice of them, or, having received notice of them, failed to disavow what was assumed to be said and done in his behalf."
The Court in this opinion also cites from 7 Ruling Case Law, p. 657, § 659, as follows: "An exception to the general rule that notice to an agent is notice to his principal arises in case of such conduct of the agent as raises a clear presumption that he would not communicate the fact in controversy, as where the agent acts for himself in his own interest and adversely to that of the principal; and this rule is applied to officers and agents of a corporation. So where a corporate officer or agent is engaged in committing an independent fraud on his own account and the facts to be imputed relate to this fraudulent act, the corporation is not charged with the knowledge of the officer or agent."
Apparently counsel for the defendant Surety Company relied on the case of Schneider v. Thompson referred to above. A careful reading of this case, I think, supports the plaintiff's contention because undoubtedly the officers of the bank would come under the exception to the general rule, which is discussed by the United States Circuit Court of Appeals in that case. In that case, the Court found that the facts did not bring the officer of the bank within the exception to the general rule. In the present action, I feel that the demurrer of the defendant Surety Company leaves it as an established fact that these officers do come under the exception to the general rule discussed in the Schneider case.
The presumption that a defaulting agent will not inform his principal is clearly set out in 2 Corpus Juris, p. 868, as follows:
"General Rule. The rule that notice to an agent is notice to the principal does not apply when the circumstances are such as to raise a clear presumption that the agent will not transmit his knowledge to his principal; and accordingly, where the agent is engaged in a transaction in which he is interested adversely to his principal or is engaged in a scheme to defraud the latter, the principal will not be charged with knowledge of the agent acquired therein, unless the fraud is of such a character that its consummation will not be inferred with by imparting the knowledge of the facts acquired by the agent to his principal."
Corpus Juris in support of this doctrine cites the following South Carolina cases: " Wardlaw v. Troy Oil Mill, 74 S.C. 368, 54 S.T., 658, 114 Am. St. Rep., 1004; Knobelock v. Germania Sav. Bank, 50 S.C. 259, 27 S.E., 962 (holding that knowledge of the agent while engaged in a fraud for his own benefit cannot be imputed to the principal unless the principal also is benefited by the fraud.)"
The defendant Surety Company takes the position that the knowledge of Milledge T. Pitts himself would be imputable to the bank and therefore to the plaintiff as Receiver of the bank. The defendant Surety Company also takes the position that the knowledge of R.C. Pitts, who canceled the bond. would be imputable to the bank and therefore to the Receiver. Under the facts in this case as admitted by the demurrer, I cannot agree with these positions. It appears to me that the plaintiff, the Receiver of the Planters National Bank of Saluda, was unusually diligent in using every means at his disposal to give prompt notice to the defendant Surety Company as soon as he had any information which led him to believe that Milledge T. Pitts had been bonded.
It appears that for many years the defendant American Surety Company was paid an annual premium to insure the honesty and fidelity of Milledge T. Pitts as an officer of the Planters National Bank of Saluda. The demurrer of the American Surety Company admits that the defalcations of Milledge T. Pitts come under the terms and within the range of the contract. The sole defense of the American Surety Company raised by the demurrer is the purely technical defense that the notice of loss was not given within ten days after the discovery of loss. Under the facts of this case I do not feel that the insured should be allowed to take advantage of such a narrow and technical construction of the contract, and I therefore conclude that the demurrer should be overruled.
It is therefore ordered, adjudged, and decreed:
First, that the demurrer of the defendant, American Surety Company, be, and the same is hereby, overruled.
Second, that the defendant American Surety Company could have twenty days after notice of the filing of this order within which to answer.
Messrs. Grier, Park, McDonald Todd, for appellant, cite: Notice of loss: 21 R.C.L., 1073; 80 S.C. 151; 177 S.C. 363; 37 F.2d 550; 171 S.C. 1; 171 S.C. 123; 158 S.C. 394; 75 F.2d 23; 4 F.2d 203; 125 F., 887; 24 N.W., 451; 183 U.S. 402; 197 Mass. 101; 125 A.S.R., 332; 69 F.2d 147; 58 F.2d 7; 52 F.2d 709. Where failure to give notice excused: 37 S.C. 69; 15 S.E., 344; 60 A., 1009; 58 A., 1057; 46 S.E., 678; 89 Am. Rep., 777; 78 S.C. 73; 75 A.L.R., 1503. Receiver takes assets as trustee: 3 R.C.L., 679; 125 S.C. 332; 136 S.C. 111; L.R.A., 1916-F., 709; 42 F.2d 953; 56 A.L.R., 1247; 64 F.2d 413; 146 U.S. 499; 208 U.S. 541. Notice to agent is notice to principal if agent acting for principal: 50 S.C. 259; 39 S.C. 294; 145 S.C. 91; 48 A.L.R., 459; 21 R.C.L., 838; 2 L.R.A. (N.S.), 994; 110 U.S. 7; 37 F.2d 452; 165 F., 602.
Messrs. Mays Featherstone, B.W. Crouch, Jeff D. Griffith and M.J. Yarbrough, for respondent, cite: Surety is an insurer and contract to be construed most favorably to party protected thereby: 163 F., 690; 13 F.2d 758: 20 F.2d 514; 21 F.2d 744; 28 F.2d 698; 30 F.2d 56; 191 U.S. 416; 24 S.Ct., 142; 48 L.Ed., 242; 200 U.S. 197; 26 S.Ct., 168; 50 L.Ed., 437; 244 U.S. 376; 37 S.Ct., 614; 61 L.Ed., 1206. Failure to give notice of loss: 8 F.2d 678; 137 Iowa, 490; 115 N.W., 24; 126 A.S.R., 290; 133 P., 782; Ann. Cas., 1915-B., 1272; 142 P., 1077; Ann. Ca., 1916-B., 238; 122 A., 484; 33 A.L.R., 489; 16 F.2d 847. Notice to agent: 156 S.C. 480; 153 S.E., 462; 129 S.C. 531; 24 L.Ed., 779; 7 R. C.L., 657; 2 C.J., 868; 74 S.C. 368; 54 S.E., 658; 114 A.S.R., 1004; 50 S.C. 259; 27 S.E., 962; 170 U.S. 156; 42 L.Ed., 986; 11 Wall, 356; 20 L.Ed., 167.
December 1, 1936. The opinion of the Court was delivered by
This appeal is from an order overruling a demurrer to the complaint. The action was commenced in June, 1933. In so far as the appellant, American Surety Company of New York, is concerned, the suit is upon a fiduciary bond issued by it in November, 1912, and in which Milledge T. Pitts, formerly president of Planters National Bank of Saluda, and who died in December, 1930, was the principal. The bond, which is set out as an exhibit to the complaint, contained the usual coverage found in bonds of this kind, and was continuous in its operation, being renewed, from year to year merely by the payment of yearly premiums.
We have given careful consideration to the questions raised by the exceptions; and, while we are not in agreement with all that is said in the Circuit Order, we think, under the facts alleged in the complaint and admitted by the demurrer to be true, Judge Sease reached the correct conclusion. We therefore approve the result of his decree. See Peurifoy, Receiver, v. Loyal et al., 154 S.C. 267, 151 S.E., 579; Garner v. Volunteer State Life Insurance Company, 171 S.C. 1, 171 S.E., 370; Lee v. Metropolitan Life Insurance Company, 180 S.C. 475, 186 S.E., 376.
The judgment of the Circuit Court is affirmed.
MESSRS. JUSTICES BONHAM, BAKER and FISHBURNE and MR. ACTING ASSOCIATE JUSTICE A.L. GASTON concur.