
    BANK OF TARBORO v. FIDELITY AND DEPOSIT CO.
    (Filed May 28, 1901.)
    1. EVIDENCE — Fidelity and Guaranty Insurance — Bond—Principal and Surety — Surety Companies.
    
    In an action by a bank upon tbe bond of its casbier, a memorandum of tbe examination of tbe casbier before tbe directors prior to tbe suit, is competent evidence.
    2. PRINCIPAL AND SURETY — Bond—Surety Company — Fidelity and Guaranty Insurance — Acts 1899, Chap. 80, Sec. 5.
    
    Under Acts 1899, Cbap 80, Sec. 5, a surety company can be released from its liability on a bond only by getting off tbe bond.
    3 FIDELITY AND GUARANTY INSURANCE — Bond—Construction —Principal and Surety — Surety Company.
    
    A surety bond should be construed most strongly against tbe company and most favorably to its general intent and essential purpose.
    4. FIDELITY AND GUARANTY INSURANCE — Bond—Breach— notice — Principal and Surety — CasMer.
    Where tbe plaintiff, in action on a surety bond, witbin a reasonable time and with due diligence, under the circumstances, gives notice of tbe default of its casbier, it is a sufficient compliance with tbe requirement of immediate notice.
    5. FIDELITY AND GUARANTY IN SUR AN CE — B ond — Breach— Notice — Principal and Surety — Cashier.
    Where a surety company on bond of casbier is not notified immediately of default of tbe casbier, it does not suffer by tbe delay.
    6. FIDELITY AND GUARANTY INSURANCE — Insurance—B ond— Breach — Principal and Surety — Cashier—Instructions.
    In an action on surety bond, an instruction that tbe care and supervision required of officers of a bank was sue** as ordinarily prudent men would give, tvas correct.
    
      ActioN by tbe Bank of Tarboro against the Fidelity and Deposit Company, of Maryland, heard by Judge A. L. Goble and a jury at Fall Term, 1900, of the Superior Court of Edgecombe County. From a judgment for the plaintiff, ihe defendant appealed.
    
      H. G. Connor & Son, and G. M. T. Fountain, for the plaintiff.
    
      John L. Bridgets, for the defendant.
   Douglas, J.

This case has been here before, and is reported in 126 N. C., 320. As far as that decision goes, it will be considered as final in the determination of this case.

The following are the issues as submitted and answered:

“1. Did Mehegan, as cashier and while in the performance of the duties of his office, between December 15, 1895, and September 3, 1897, fraudulently take from the assets and money of plaintiff bank the sum of $5,000.00, and on May 27, 1897, for the purpose of concealing his fraudulent conduct, charge said amount to the City National Bank of Norfolk on the books of the plaintiff bank ?
“Ans. Yes.
“2. Did the defendant Mehegan, between December 15, 1896, and September 3, 1897, as cashier, fraudulently take from the assets of the plaintiff bank a sum of money by means of overdraft on said bank aggregating $1,000.00, and more?
“Ans. Yes.
“3. Did the defendant Mehegan, between December 15, 1895, and September 3, 1897, as cashier, fraudulently take from the assets and money of said bank the sum of $9,550.00, or other amount, and by false entries on the books of said bank conceal the same from the plaintiff bank?
“Ans. Yes.
“4. Did the defendant Mehegan, as cashier, between May 12, 1897, and August 6, 1897, fraudulently take from the money and assets of said bank tbe sum of $5,000.00, wbicb be concealed by making false entries in tbe books of. said bank ?
“Ans. Yes.
“5. Did tbe defendant Mebegan, between December 15, 1895, and September 3, 1897, as cashier, fraudulently take money and assets of tbe bank and convert tbe same to his own use ?
“Ans. Yes.
“6. Did tbe defendant, from September, 1896, to September 1, 1897, as cashier, fraudulently take from the money and assets of tbe said bank tbe sum of $452.21, which be applied to bis own use ?
“Ans. Yes.
“7. Did tbe defendant Mebegan, as cashier, on tbe 3d August, 1897, fraudulently issue a cashier’s check on tbe said bank to <T. M. Norñeet to tbe amount of $600.00 for the purpose of paying an individual indebtedness of said Mebegan ?
“Ans. Yes.
“8. Did tbe defendant Mebegan fraudulently discount noies and bills, and pay for tbe same with money of tbe bank without the knowledge and assent of tbe proper committees?
“Ans. Yes.
“9. Did tbe plaintiff notify tbe defendant Fidelity anh Deposit Company of tbe alleged default of tbe said J. G. Mebegan as required by tbe bond ?
“Ans. Yes.
“10. Did the plaintiff, after tbe execution of tbe surety contract, increase its capital stock?
“Ans. Yes. (This was answered by tbe jury, Yes, in April, 1896.)
“11. Were tbe representations in tbe certificate for tbe renewal of tbe surety bond as to tbe dealings and accounts of tbe said Mebegan, cashier, true and correct when they were made?
“Ans. Yes.
“12. Were such representations as to the dealings and. accounts of the said Mehegan, cashier, on the said certificate false, to the knowledge of the plaintiff, at the time they, were made?
“Ans. Yes.
“13. Did said representations constitute a material inducement of the defendant company to continue said bond from December 15, 1890, to December 15, 189Y ?
“Ans. Yes.
“14. Did the plaintiff cause to be observed due and customary supervision over said Mehegan, cashier, for prevention of default?
“Ans. Yes.
“15. Did the Fidelity and Deposit Company have notice' of the increase of the capital stock before the extension of' the bond?
“Ans. Yes.”

The defendant assigns -for error: “1. That the Court erred in admitting the written statement as excepted to„ 2. For error in instructing the jury as set out in the chargo-to the jury. 3. In that the instructions are inconsistent,, contradictory and misleading. 4. In the construction of the-meaning of the words ‘immediately notified.’ 5. In instructing the jury that the same supervision and duty required of the officers of the plaintiff bank, over the management of the-affairs of the bank, was such care, supervision and duty as the-orclinarily prudent business man would give. 6. For refusing" L> instruct the jury as requested in the several prayers submitted by the defendant.”

The first assignment of error can not be sustained. The-admitted paper was a memorandum of the examination of the-defendant Mehegan before a committee of the Board of Directors of the plaintiff bank, and taken down by the witness; Davis, wlio testified, as follows: “Mehegan was present before tbe committee; be was examined; bis examination was put in writing. I read every sentence to Mehegan, as Mr. I ountain propounded the questions; then I wrote down Me-hegan s answer. I read the questions and answers as they were made, and he said that they were correct. The entire gaper is in my handwriting. Then read the whole over to Mehegan. lie never refused to slign, never was asked to sign, it.” Under such circumstances, we think the paper was admissible as part of the testimony, of Davis, with whose credibility, of course, its own was involved. Bryan v. Moving, 94 N. C., 687; State v. Pierce, 91 N. C., 606; State v. Jordan, 110 N. C., 491, 495.

We do not think that either the second or third assignments can be sustained. Tbe Judge’s charge extends through 15 pages of the printed record, and is full, clear and explicit, and, we think, free from substantial error. Many of the points raised by the defendant come under the principles decided when tire case was first before us. We then said (126 N. C., 344) : “The object of the contract was to secure the plaintiff against the fraudulent acts of its cashier. The complaint alleges the execution of the bond and its renewal, and sets out their substantial features, the alleged fraudulent acts of the cashier, and notice to the defendant company. These facts being proved would have made out tbe plaintiff’s case. Nothing else appearing, the plaintiff would have been entitled to recover, and if the defendant company relied upon breaches of the contract on the part of the plaintiff to defeat a recovery, it should have specifically pleaded them. The burden of proving them would have rested upon the defend: ant. To require the plaintiff to set out each and all of the fifty conditions and stipulations in the bond and application, and then prove affirmatively'that he had performed each one of them, would practically defeat any recovery, and would amount to a denial of justice.”

That this is now the law of this ease, and our opinion of its correctness has been confirmed by subsequent investigation and further reflection. The object of an indemnifying bond is to indemnify; and if it fails to do this, either directly or indirectly, it fails to accomplish its primary purpose, and becomes worse than useless. It is worthless as an actual security, and misleading as a pretended one.

The defendant lays great stress upon section 5, chapter 300, Laws 1893, which is as follows: “Any company executing such bond, obligation or undertaking may be released from its liability as surety on the same terms as are or may be by law prescribed for the release of individuals upon any such bond, obligation or undertaking.” It seems clear to us that (lie only object of that section was to enable such company to release its liability by getting off the bond whenever an individual could do so; but not to remain on the bond and limit its liability by such unreasonable restrictions as would practically amount to a release by tending to defeat a recovery. Moreover, that section says: “On the same terms as are or may be by law prescribed.” Where are any such terms prescribed by law as those which appear, in the bond before us, and which the defendant is so strenuously endeavoring to bring within the terms of that section? We are sure that act never intended to authorize trustees, guardians or administrators to give bond with such stipulations, construed as the defendant is now asking us to construe them. The defendant again insists that it should have the same right to limit its liability as is possessed by an individual. That may be; but no member of this Court has ever seen or heard of a bond in snc-h a form being tendered by a private surety. In its very form and essence, the bond before us resembles an insurance contract, and differs materially from the ordinary forms coming down to us by immemorial usage. Therefore, we must plage such bonds in the general! class of insurance poli-

cies, and construe them uponi tibe same general principles; that is, most strongly against the company, and most favorably to their general intent and essential pttrpose. Bank v. Fidelity Co., 126 N. C., 320, 325; Am. Surety Co. v. Panly (No. 1), 170 U. S., 133. In the latter case, Justice Harlan, speaking for a unanimous Court., s©:ys on page 144: “If, looking ait all ills provisions, the bond is fairly and reasonably susceptible of two constructions, one favorable to the bank and the other favorable to the surety company, the former, if consistent with the objects for which the blond was given, must be, adopted, and this for the reason that the instrument which the Court is invited to interpret was drawn by 'the attorneys, officers, or agents of the surety company. This is a well-osltiablislhed rule in the law of insurance. National Bank v. Insurance Co., 95 U. S., 673; Westen Insurance Co. v. Cropper, 32 Pa. St., 351, 355; Reynolds v. Insurance Co., 47 N. Y., 597, 604; Insurance Co. v. McConkey, 127 U. S., 661, 666; Fowkes v. Manchester, etc.; Asso., 3 Best & Smith, 917, 925. As said by Lord St. Leonards,, in Anderson v. Fitzgerald, 4 H. L. Cases, 484, 507, 'It (a life policy) is, of course, prepared by the company, and if, therefore, there should be any ambiguity iu it, must be taken, according to law, most strongly against the person who prepared it.’ There is no sound reason why this rule should not be applied in the present case. The object of 'the bond in suit was to indemnify or insure the bank against loss arising from any act of fraud or dishonesty on the part of O’Brien in connection wiitli his dirties as cashier, or with the duties to which in the employer’s service he might be subsequently appointed. That object should not be defeated by any narrow interpretation of its provisions, nor by adopting a construction favorable to the company if there be another construction equally admissible under the terms of tine instrumient executed for the protection of the hank.” To the sarnie effect are the cases of Fire Insurance Co. v. Coos Co., 151 U. S., 452; London Asso. v. Campa- nia de Moagans do Bareiro, 167 U. S., 149; Horton v. Insurance Co., 122 N. C., 498; Grabbs v. Insurance Co., 125 N. C., 389, 398, and cases therein cited. The same principle of construction, lias been applied to the contracts of common carriers. Wood v. Railway Co., 118 N. C., 1056, 1063; Mitchell v. Railway Co., 124 N. C., 236; Jeffreys v. Railway Co., 127 N. C., 377; Hinkle v. Railway Co., 126 N. C., 932.

The defendant has voluntarily become by virtue of the statute what may be called a “common surety,” no't exactly in the nature of a common earner like railroad and telegraph companies, but still one of those public agencies to. which! are given unusual powers and which have assumed the most sacred responsibilities. Permitted by law to act as sole sureties for trustees, guardians, ‘administrators and other fiduciaries, they are held by the policy of .the law to the full measure of the responsibility they have voluntarily assumed. They may make such reasonable regulations as are necessary for their own protection or the proper transaction of their business; but such stipulations will be most strongly construed ■against a forfeiture of the indemnity for which alone the bond is given, and in favor of a fair and equitable construction of the essential purposes of the contract.

The fourth exception is equally untenable. On that point his Honor charged as follows: “If you find from the testimony that the plaintiff bank, in a reasonable tame ‘and with due diligence under the circumstances as explained in these instructions, and in view of "all the facts in evidence, gave notice of the default of the said Mehegan, you should ans'wer the 9th issue ‘Yesd The plaintiff was not required by the terms of the bond to give mortice to defendant company upon suspicion that Mehegan was guilty of .fraudulent conduct. The plaintiff was not required to give notice to the defendant company until it. had actual knowledge of such facts as would justify the chaage of default, ’and it. was entitled to' a reasonable time to investigate the condition of said Mehegan’s ac■counts before ilfc Was required to give such noticie', if such investigation was necessary to ascertain the facts which would , justify 'the charge of fraud.”

In this we see no error. The plaintiff was. not required to act upon mere suspicion in preferring so grave a charge as fraud or embezzlement. Moreover, reasoning from analogy lo tihe rights of a guarantor, the defendant does not appear to have suffered any material injury from such delay, even if the plaintiff had been responsible for 'the delay, which the jury found to the contrary. Bulb the defendant contends “that, if the surety is ‘immediately notified’ of the defalcation, upon its discovery, 'the surety would have an opportunity to deal with the defaulter, and secure some part, if not all, of its loss; this case proves at once the wisdom and justice of such a provision, for by not notifying the surety ‘immediately,’ the plaintiff was enabled to get all the security the defaulting principal, the cashier, could giv&> and the surety ■had no opportunityThe plaintiff had the right to resort to all the property of the defaulting cashier, whether he gave bond or not; and if the defendant means to contend that by signing the cashier’s bond as surety it acquired a right, of reimbursement superior to that of the bank, we can only say that it does not so appear to us either from the terms of the bond or the general principles of law.

The, fifth assignment of error ciejui not be sustained, as we think the charge of his Honor was correct. In fact no other rule justly capable of practical application suggests itself ■to us.

The sixth exception is equally untenable. The defendant submitted twelve special instructions, occupying five pages of the printed record. It is useless as, well as impracticable to consider each in detail. All we need now say, in addition to what has already been said, is that they were all properly refused, either for intrinsic error or because sufficiently given in bis Honor's charge. In -the absence of substantial error the judgment of t-lie Court, below is

Affirmed.  