
    Rankin, Receiver, v. The United States Fidelity & Guaranty Company.
    
      Terms of bond — Construed to be effective — Rather than defeat the intention — Bond for year to indemnify bank — Against dishonesty of cashier — Continuation of bond for another year — Construed as executed for two years, when — Bank cashier wrongfully extends credit to depositor — Bondsmen liable to bank — Question of notice of liability toAiondsmen — Law of indemniñcation.
    
    1. When the terms of a bond clearly indicate the intention of the obligor and obligee that there shall be an indemnity to the latter oh account of the default of an employe, doubtful terms will be so construed as to effectuate rather than to defeat that intention.
    2. A bond being executed for one year to indemnify a bank against the dishonesty of its cashier occurring during the term of the bond, or any renewal thereof, and discovered within six months of such term, or renewal, and there being a subsequent instrument to continue the former in force for another year according to its terms and conditions, the instruments will be construed as though the bond had been originally executed for two years, there being no terms employed in either instrument to indicate the intention that an act of dishonesty occurring in the first year must be discovered within six months from the expiration of that year.
    
      3. When, the cashier of a bank, by a certificate which he knows to be false, extends to one as a depositor of the bank a credit to which he is not entitled, and this is done pursuant to an arrangement that the cashier shall derive financial benefit from the transaction, and loss to the bank results, there arises a liability upon a bond to indemnify the bank for all losses arising “from the fraud or dishonesty of the cashier amounting to embezzlement or larceny.”
    4. A provision in .a bond of that character requiring the obligee upon the discovery of an act which may create a liability under the instrument to give notice thereof to the obligor at “the earliest practical moment” contemplates such and only such delay as in view of all circumstances may be reasonably necessary for the directors to acquire precise information respecting the default of the cashier and to enable them to determine whether it is of the grave character contemplated by the terms of the bond; and whether the giving of a notice 45 days after the first information of the bailie’s condition is a compliance with the provision should be determined by the jury under proper instructions.
    No. 12558
    Decided June 27, 1912.
    Error to the Circuit Court of Lorain county.
    The Citizens National Bank of Oberlin passed into the hands of a receiver, and he brought suit to recover from the defendant in error on its bond to indemnify the bank against loss which it might sustain by reason of the fraud or dishonesty of its cashier, A. B. Spear. It was alleged that the loss of the bank in consequence of his misconduct largely exceeded the amount of the bond, $15,000, and the prayer of the petition was for that sum with interest. By its terms the original bond was effective from February 5, 1903, to February 5, 1904. Its obligatory terms, in so far as they are material to questions to be determined in the present case, are as follows :
    
      
      “Now, Therefore, This Bond Witnesseth, That for the consideration of the premises the Company shall, during the term above mentioned or any subsequent renewal of such term, and subject to the provisions and conditions herein contained, at the expiration of three months next, after proof satisfactory to the Company, as hereinafter mentioned, make good and reimburse to the said Employer, such pecuniary loss as may be sustained by the Employer by reason of the fraud or dishonesty of the said Employe in connection with the duties of his office or position, amounting to embezzlement or larceny, and which shall have been committed during the continuance of said term, or of any renewal thereof, and discovered during said continuance or any renewal thereof, or within six months thereafter, or within six months from the death or dismissal or retirement of said Employe from the service of the Employer within the period of this Bond, whichever of these events shall first happen; the Company’s total liability on account of said Employe under this Bond or any renewal thereof not to exceed the sum of Fifteen Thousand Dollars.
    
      “Provided, That on the discovery ' of any act capable of giving rise to a claim hereunder, the Employer shall, at the earliest practical moment, give notice thereof to the Company, and any claim made under this Bond shall be in writing, addressed to the Company at its head office in the City of Baltimore.”
    On December 18, 1903, the company executed to the bank the following continuance of said original bond:
    
      
      “In Consideration of the sum of Thirty Seven & 50-100 Dollars, The United States Fidelity & Guaranty Company hereby continues in force bond No. 286619 in the sum of Fifteen Thousand Dollars on behalf of A. B. Spear in favor of Citizens Natl. Bank, Oberlin, Ohio, for the period beginning the 5th day of February, 1904, and ending on the 5th day of February, 1905, subject to all the covenants and conditions of said original bond heretofore issued on the 5th day of February, 1903.
    “Witness the signatures of the 2nd Vice-President and 4th Ass’t Secretary this 18th day of December, 1903.
    “Albert H. Buck, “4th Ass’t Secretary.
    
    Edw. J. Peniman, 2nd Vice-President.”
    
    The breach of the bond was alleged in the petition as follows:
    “Plaintiff says that the Citizens National Bank, of Oberlin, has suffered a pecuniary loss in the sum of $150,500.00 by reason of the fraud and dishonesty of A. B. Spear, in connection with the duties of his office and position as cashier of said bank, amounting to embezzlement or iarceny, in that said A. B. Spear conspired with, aided and assisted one C. L. Chadwick in unlawfully obtaining from the Citizens National Bank, of Oberlin, on August 12, 1903, $12,500.00; on October 2, 1903, $2,400.00; on October 14th, 1903, $5,000.00; on November 1st, 1903, $15,600.00; on December 7, 1903, $5,000.00; on February 23, 1904, $10,-000.00; by certifying as good, checks offered by the said Chadwick on the Citizens National Bank, of Oberlin, at the time and for the amounts mentioned, and on August 24', 1903, the sum of $80,000.00 by issuing to the said Chadwick two of the bank’s drafts upon its Depository in New York, payable to the order of the said Chadwick, one for $30,000.00 and the other for $50,000.00, when as a matter of fact the said Chadwick had no funds in said bank and the bank was not indebted to her in any way or in any sums whatsoever, nor had the directors or officers of said bank authorized the said Spear to loan said Chadwick the sums aforesaid, or any part thereof, all of which was well known to the said A. B. Spear and C. L. Chadwick at the time; and furthermore, in that the said A. B. Spear on or about the 28th day of September, 1903, unlawfully, without any right so to do, appropriated to his own use the sum of $20,000.00, being the property of the Citizens National Bank, of Oberlin. <
    “Plaintiff says that the fraud and dishonesty of said A. B. Spear, as aforesaid, was suspected by the Citizens National Bank, of Oberlin, and its representative, the Receiver thereof, on or about the 2nd day of January, 1905, and immediately thereupon notice thereof was given to the United States Fidelity & Guaranty Company, in writing, addressed to the Company’s head office in Baltimore, that the character of the transactions and the amount of the shortage were not discovered until February 2nd, 1905, and that Robert Lyons, Receiver of the Citizens National Bank, on behalf of said bank, on February 13, 1905, furnished the United States Fidelity & Guaranty Company reasonable particulars and proofs of the correctness of said claim, as herein set out, verified by affidavit.” • ■
    • The evidence substantially established the misconduct of Spear as alleged in the petition and a resulting loss to the bank greatly exceeding the penal sum of the bond, all occurring during the year following the execution of the original bond.
    Serious embarrassment of the bank which resulted from the transactions between Spear and Chadwick were under consideration at a meeting of the directors held November 30, 1904, and Spear then admitted that in the methods alleged he had wrongfully extended the credit of the bank to Chadwick with the expectation that it would result in benefit to himself and one Beckwith, who was president of the bank. It also appeared in evidence that at meetings of the directors they permitted Spear to read the records of the bank’s transactions instead of examining them themselves, and that he omitted to read the record of these transactions with Chadwick. There was also in evidence a letter from Chadwick to Spear concerning one of these transactions, in which she requested him to falsely certify a check for $15,500, and as an inducement said: “Now, I will pay you and Mr. B. well for this favor, and I am sure it will be safe.” There was no direct evidence that Spear actually received money for his part in the transaction.
    With reference to questions now controverted, the view which prevailed in the court of common pleas throughout the trial was, that the continuance executed by the company extended for one year the requirement that the fraudulent conduct should be discovered within six months; that the default of Spear was within the terms of the bond and that whether timely notice of the default had been given to the guaranty company was a question to be determined by the jury in view of the circumstances of tjie case. The jury returned a verdict for the bank for the amount of the bond. A motion for a new trial was overruled and a judgment followed the verdict. On a petition in error the circuit court reversed the judgment of the court of common pleas and rendered final judgment in favor of the guaranty company upon the ground that the conceded facts of the case showed, as a matter of law., that timely notice of the default had not been given to the company.
    
      Messrs. E. G., H. C. & T. C. Johnson and Messrs. Squire, Sanders & Dempsey, for plaintiff in error.
    The position taken by the receiver was that the renewal certificate continued in force the original bond of one year over the period of two years, and, that since the time for discovery was (by the language of the bond) “during said continuance or any renewal thereof or six months thereafter,” the maximum time for the discovery of acts committed during the first year of the bond was extended to six months after the expiration of the year covered by the continuation certificate. First Nat. Bank v. U. S. Fidelity & Guaranty Co., 110 Tenn., 10, 75 S. W. Rep., 1076; Fidelity & Deposit Co. v. Champion Ice Mfg., etc., Co., 133 Ky., 74, 117 S. W. Rep., 393.
    
      Were the acts of Spear such as were insured against? Do they amount to embezzlement or larceny within the meaning of the bond? Ger-mania Fire Ins. Co. v. Schild, 69 Ohio St., 136; Livingston & Taft v. Deposit Co., 76 Ohio St., 264; Bryant v. American Bonding Co., 77 Ohio St, 99; Stearns on Suretyship, 450; 19 Cyc., 5.18; City Trust, etc., Co. v. Lee, 107 Ill. App., 263, 204 Ill., 69, 68 N. E. Rep., 485; American Bonding & Trust Co. v. New. Amsterdam Casualty Co., 125 Ill. App., 33; American Bonding & Trust Co. v. Milwaukee Harvester Co., 91 Md., 733, 48 Atl. Rep., 72.
    Under all the circumstances existing at the time of the failure of the bank and subsequent thereto, the notice given January 13 was timely within the meaning of the bond; and, undoubtedly was not so long delayed as to establish, as a matter of law, a failure of performance of the requirement. Ætna Indemnity Co. v. I. R. Crowe Coal & Mining Co., 154 Fed. Rep., 545; Perpetual Building & Loan Assn. v. U. S. Fidelity & Guarantee Co., 118 la., 729; Fidelity & Deposit Co. v. Courtney, 18U. S., 342. 6
    
      Messrs. Stearns, Chamberlain & Royon, for defendant in error.
    The contract in question contains the ordinary safeguards which surety companies employ in their bonds of indemnity known as “fidelity risks.”
    The only safeguard provided for timely notice is that “discovery” of default must be within a certain time, and the effect of this' is that if the bank which has access to its own books and the means of discovery (the surety having none of these means of discovery) neglects to avail itself of its opportunities within the time limit, then it waives recovery on its bond.
    This arrangement must commend itself as eminently fair to the banks and reasonably safe to the surety if the time limit is not too long extended.
    The contract provides for a renewal or extension of the bond from year to year, with a provision that the penalty shall not be cumulative; that is, the penalty for one year shall not be added to the penalty of another year, and the combined penalty of all the years shall not be greater than that of any one year.
    If the covenant was capable of two distinct and reasonable meanings and the bank had adopted one of them and acted upon it, the surety could not complain that the interpretation which the bank had reasonably made and acted upon was held to prevail, but such is not the situation in this case. Coghlan v. Stetson, 19 Fed. Rep, 727.
    ' Whenever the courts have undertaken to construe the covenant involved in the case at bar they have always held the interpretation contended for by the plaintiff in error to be unreasonable. De-Jernette v. Fidelity & Casualty Co., 98 Ky, 558; Mayor of Brunswick v. Harvey, 114 Ga, 733; Proctor Coal Co. v. U. S. Fidelity & Guaranty Co., 124 Fed. Rep, 424; U. S. Fidelity & Guaranty Co. v. Williams, 96 Miss, 10, 49 So. Rep, 742; Germania Fire Ins. Co. v. Schild, 69 Ohio St, 136; Trustees v. Fidelity & Deposit Co., 76 Ohio St, 253.
    
      As to the meaning of the words, “amounting to embezzlement or larceny,” we cite: Reed v. Fidelity & Casualty Co., 189 Pa. St., 596; U. S. Fidelity & Casualty Co. v. Overstreet, 27 Ky. L. Rep., 248; U. S. Fidelity & Guaranty Co. v. Egg Shippers’, etc., Co., 148 Fed. Rep., 353; Guarantee Co. of N. A. v. Mechanics’ Sav. Bank & Trust Co., 100 Fed. Rep., 559; American Bonding & Trust Co. v. Milwaukee Harvester Co., 91 Md., 733; Williams, Recr., v. U. S. Fidelity & Guaranty Co., 105 Md., 490.
    Upon the question of notice, we refer to: Martin v. Webb, 110 U. S., 7; Orme v. Baker, 74 Ohio St., 337.
   Shaucic, J.

For three independent reasons counsel for the guaranty company insist that the court of common pleas erred in rendering-judgment against it. Although the judgment was reversed by the circuit court for but one of these reasons, counsel insist here, as they may, that the reversal should have been upon all of the grounds of error alleged. They urge that the action could not be maintained because the time limited by the terms of the indemnifying contract for the discovery of the defaults had been exceeded. The stipulation of the bond is that the company shall make good “such pecuniary loss as may be sustained by the employer by reason of the fraud or dishonesty of the said employe in connection with the duties of his office or position amounting to embezzlement or larceny, and which shall have been committed during the continuance of said term or any renewal -thereof and discovered during said continuance or any renewal thereof, or within six months thereafter.”

The acts of Spear which resulted in loss to the bank were committed prior to February 5, 1904, that is, within the period covered by the original bond, and they were not discovered until more than six months after that date. It is entirely clear that if the question involved a consideration alone of the terms of the original bond, the time limited for the discovery has been exceeded. But the terms of the original bond show that when it was executed, a renewal or continuation thereof was contemplated, and an instrument was executed whereby the company continued in force “the original bond subject to its covenants and conditions until- February 5, 1905.” It is obvious that these instruments are to be construed together; not only because they relate to the same subject-matter, but because each in terms refers to the other. On this point counsel are agreed. In favor of the obligee it is insisted that the instruments thus construed are, in legal effect, the same as though the original bond had been executed for two years instead of one, and that this view must determine all questions respecting the rights and liabilities of the parties, so that the company shall be liable for a single penalt)'-, and there is a continuance for a year of the period in which Spear’s default might create a liability for that penalty, as well as for the time of its discovery.

In favor of the obligor it is insisted that however it would be as to other questions which might arise, .there should, with resnect to the question presented, be such construction as would be required by an express stipulation that notwithstanding the continuance, a liability on account of a default occurring within the first year should be conditioned upon the discovery of that default within six months after the end of that year. There being no such express stipulation we have to inquire whether it is implied in the natural meaning of the words used and their grammatical and logical relation. It might be conjectured that the parties regarded the word “renew” used in the first instrument as synonymous with the word “continue” used in the second. But there need be no resort to conjecture since what the parties did in the second instrument was “to continue in force the former instrument for the period beginning the 5th day of February, 1904, and ending on the 5th day of February, 1905, subject to all the covenants and conditions of said original bond.” By the material stipulations of the original bond the obligor undertook to make good any loss which the obligee might sustain by reason of the fraud or dishonesty of its cashier “committed during the continuance of said term or any renewal thereof and discovered during said continuance or any renewal thereof, or within six months thereafter.” Here are no words of severalty or discrimination respecting the time of the discovery, and since it would not be within the proper function of interpretation to supply such words, the terms of the stipulation must be regarded as within the same construction. This view is enforced by the consideration that the term during whose continuance a default was contemplated by the original instrument is the term which was continued by the express terms of the second. No terms are used to suggest that any difference in the relation of the parties was intended by the second instrument than such as would have existed if the original bond had been for two years. It is conceivable that if this question had been anticipated by the parties at the time of the execution of these instruments, clearer terms would have been used to express their intention with respect to it. But certainly in view of their stipulations, nothing more favorable to the obligor can be concluded than that an interpretation against it is doubtful. ■It being entirely clear that within the contemplation of both parties their stipulations were for the purpose of affording indemnity to the obligee, all substantial doubts with respect to the meaning of the terms they employ should be so resolved as to effectuate that obvious intention. That rule of interpretation is familiar and it is illustrated in cases cited in the briefs.

Coupsel for the obligor further insist that the default of the cashier was neither embezzlement nor larceny, and that, therefore, it was not within the terms of its obligation to make good “such pecuniary loss as may be sustained by the employer by reason of the fraud or dishonesty of said employe * * * amounting to embezzlement or larceny.” The parties were stipulating for the indemnity of the obligee. They were not concerned with the enforcement of the criminal laws of the state. It was not intended to indemnify against loss from the cashier’s negligence or bad judgment. They adopted as descriptive of the misconduct contemplated, the phrase fraud or dishonesty amounting to embezzlement or larceny. If only indemnity on account of conduct amounting to technical embezzlement or larceny had been intended that intention would have been naturally expressed more clearly in fewer words. Certainly we should not reach the correct conclusion with respect to this question if we should deny all effect to the words “fraud or dishonesty amounting to,” which denial is involved in the argument of counsel for the obligor. It is very likely true that the cashier did not expect or intend that- the bank should suffer loss from his transactions with Chadwick. She had doubtless quickened the pulsation of his 'venerable heart with dazzling stories of her enormous wealth, and he reached the conclusion, usual in such cases, that he could fraudulently and dishonestly exercise his authority as cashier to his own pecuniary advantage, and without loss to the bank. The fraud, dishonesty and misuse of his authority as cashier were intended. That his conduct was for gain is the only motive suggested by the circumstances. If his own admission to that effect is not properly shown in the record, or if it is not competent in this case, that motive is clearly shown by the letter of Chadwick presented in the record, in which, during these transactions she effectively solicited the false certification of a check for a large amount, proposing as an inducement “I will pay you and Mr. B. well for this favor — and I am sure it will be safe.” To this the.only answer from counsel is, that there is no evidence that Spear ever realized any financial gain from these transactions. The reply may be as brief as the answer. Motive and intention may be as well shown by the hope of illicit gain' as by its realization. A decision in favor of the guaranty company upon this ground would imply that its business in this state consists in the collection of premiums.

A third proposition made by counsel for the obligor, if it is sound, justifies not only the reversal of the judgment' of the court of common pleas, but also the final judgment in favor of the guaranty company which the circuit court rendered. The proposition is that the facts which were conclusively established upon the trial showed that the obligee had failed to comply with the terms of the bond imposing upon it a duty in the following terms: “Provided that on the discovery of any act capable of giving rise to a claim hereunder the employer shall, at the earliest practical moment give notice thereof to the company.” The parties did not see fit to fix a definite date, or the time within which notice should be given to the company. In lieu of such precise stipulation they fixed the day for the giving of the notice by the flexible phrase “at the earliest practical moment.” By this they doubtless meant that the notice should be given as soon as it would be practicable to give it.- In determining the effect of this stipulation it must be assumed that the parties contemplated every consideration by which the minds and conduct of those representing the bank would naturally be affected, the character of the misconduct of the cashier which would create liability upon the bond, a precise comprehension of the requirement that it must be fraud or dishonesty amounting to embezzlement or larceny, the caution which prudent men would exercise in making so grave a charge against one who had been highly esteemed for integrity, as well as the confusion and doubt which would arise from the intervention by the Federal authorities to perform their duties, as prescribed by the law, under which the bank was organized and conducted. Obviously flexible terms were used because it was at the time of making the contract impossible to foresee all of the considerations which would naturally and, therefore, properly, determine the time when notice should be given. While counsel for the obligor claim too much from the evidence respecting discoveries made by the directors on November 30, 1904, it does appear that upon the evening of that day, which was Sunday, one of the directors called a meeting at his office. Fie called the meeting in view of the fact that upon the previvous day depositors had withdrawn money from the bank in unusual amounts and the cashier had upon that day expressed to him the opinion that the bank had become insolvent from the transactions with Chadwick. The object of the meeting was to determine whether the bank should open on the following day. No other purpose was contemplated in the call. At that meeting there was submitted the admission of the cashier to one of the directors that credit amounting to $240,000 had been extended to Chadwick, not upon collateral security furnished by her, but in reliance upon her ownership of more than two millions of securities which she represented she had on deposit in Cleveland, the expectation of the cashier and president that they would profit by these transactions, and that in his opinion the bank had become insolvent in consequence thereof. The correspondence with Chadwick at the time of these transaction was not present, nor was there conclusive evidence of the falsity of her representations as to her wealth. On the following day the condition of the bank was reported to the Comptroller of the Currency, who promptly took possession of the bank. Investigations by experts followed, the facts now known were conclusively ascertained, and on January IS, notice was given to the guaranty company. The attention of the directors at the meeting of November 30, was naturally confined to the only question they were called to consider, whether the bank should be opened on the following day. That question pressed for immediate determination. They were not then informed of the inculpating evidence contained in the subsequently discovered letters of Chadwick, nor of the details of the Chadwick transactions, nor of the later ascertained certainty that they had rendered the bank hopelessly insolvent. Even’ if all these facts had been known and considered at that meeting it would be natural, and, therefore, within the contemplation of the parties to the bond, that the directors by seeking the advice of counsel, and otherwise should exercise great caution before making so grave a charge as the notice would imply. These views are entirely consistent with those,relating to similar stipulations as construed in cases cited in the briefs. The obvious sincerity with which counsel for the company, even in the light of all that is now known, insist that there was no “act capable of creating a liability” under the bond, strongly suggests that the course taken by the directors was reasonable and natural. The rights and liabilities of the parties to this action are fixed by contract, and we need not advert to any of the cited cases which have been determined by a consideration of rules governing the relation of officers of banks to their stockholders and depositors. For the reasons stated the trial judge properly regarded the question of timely notice as one to be determined by the jury. It would not have been more obviously so if the stipulation had been for notice within a reasonable time.

The contention of counsel for the obligor is rather that the facts relating to the subject of notice were, as to their existence and significance, so clearly established that it was the duty of the court to decide that timely notice had not been given, which view we think erroneous for the reasons already given. It does not seem to be, nor could it well be claimed, that in the submission of this question to the jury the court erred to the prejudice of the obligor. It was said in the charge “earliest practical moment does not mean instantly, but it does mean very soon. , If the bank on November 30, knew of such acts of Spear as required notice to be given under the foregoing instructions, then notice in January would not be at the earliest practical moment. Whenever any discovery was made, which required notice, the. representative of the bank should have acted promptly and quickly and reasonably under all the circumstances, and it is for you to determine from all the evidence in the case just when the discovery was made, when notice was given, and whether or not notice was given at the earliest practical moment after the discovery.” Certainly the obligor could not complain of the terms in which the obligation of the bank was thus stated.

Upon these views we conclude that the judgment of the circuit court was not justified by the reasons which it gave, nor for any other reasons apparent upon the record.

The judgment of the circuit court will be reversed and that of the common pleas affirmed.

Judgment reversed.

Davis, C. J., Spear, Johnson, Donahue and O’Hara, JJ., concur.  