
    National Surety Company, Respondent, v. The Empire State Surety Company, Appellant.
    First Department,
    March 10, 1911.
    Guaranty and suretyship — indemnity against fraud and dishonesty of employee—liability of surety for money retained under claim of right.
    A corporation appointed to act as an agent of the plaintiff in procuring insurance and collecting premiums agreed to hold the premiums in trust, but was entitled to retain a percentage thereof as commissions, remitting only the net balance to the plaintiff. A bond of indemnity furnished by the agent agreed to reimburse the plaintiff for such loss as it might suffer by reason of the “fraud or dishonesty of the employee in counection with the duties pertaining to the office or position to which the employee has been appointed,” and further provided that the surety should not be liable for a loss occasioned by. a " breach of contract,” by the employee. In an action to recover of the indemnitor for commissions which the agent had retained under a claim of right and whi.ch had been openly deducted as commissions to the plaintiff’s knowledge, Held, that a judgment fertile plaintiff entered on a verdict directed by the court should be reversed and that the evidence did not indicate any fraud on the part of the agent.
    Appeal by the defendant, The Empire State Surety Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the cleric of the county of New York on the 13th day of June, 1910, upon the verdict of a jury rendered by direction of the court after a trial at the New York Trial Term.
    
      Charles Haldane, for the appellant.
    
      William J. Griffin, for the respondent.
   Scott, J.:

The defendant appeals from a judgment entered upon the direction of a verdict. The action is upon a surety company bond given to indemnify the plaintiff, also a surety company, against the fraud or dishonesty of an employee. Plaintiff appointed a corporation known as Leclcy & ¡Ruffin, Inc., its agent to procure applications for insurance in the State of Virginia, and to collect the premiums thereon. The agent agreed to hold all premiums received by it as a fiduciary trust awaiting remittance to the principal; it was to pay the expenses of conducting the agency, and was to be compensated by a percentage of cash premiums collected. The agent further agreed to keep proper books, and, not later than the tenth of each month, to forward to the home office of the principal an accurate, detailed report of all premiums collected or received and not previously remitted, accompanied with draft or post-office order for the net amount due the company. In conformity with this provision it was the course of business for the agents to retain their earned commissions, remitting only the net balance of premiums collected. The agreement provided that the agent should furnish a bond “ conditioned for the due accounting and paying over to ” the principal of all moneys which might become due to the principal. The bond which was furnished and accepted and upon which plaintiff now sues was not in this form and imposed a much narrower liability upon the surety. It undertook to make good and reimburse plaintiff for such loss, not exceeding a specified sum, as plaintiff might sustain “ by reason of said fraud or dishonesty of the employee in connection with the duties pertaining to the office or position to which the employee has been appointed.” Another clause of the bond provided that the company should not be liable for a loss occasioned by a “ breach of contract ” by the employee.

The circumstances under which this claim upon defendant has arisen relate to a commission claimed by the agent to be due to it upon certain bonds alleged to have been written, upon the agent’s procurement, for the contractors for the Ashokan dam in the State of New York. Whether or not the agent had any substantial claim to such commissions does not clearly appear, because practically all the evidence relating to it was excluded. From what does appear, however, read in conjunction with what is suggested by the questions which were not permitted to be answered, it may be inferred that the question of the agent’s right to the commission was at least debatable. On June 10, 1908, the agent wrote the plaintiff that it was preparing its regular monthly statement, and would like to know what amount to take credit for on the Ashokan dam contract. To this plaintiff replied saying that it was not a party to the bond and, therefore,-the agent was not entitled to the'commission. The evidence on the trial seems to contradict this statement as to plaintiff’s participation in the bond. On June 24,1908, the agent transmitted its monthly statement showing the collections made by it, and deducting commissions including $1,396.90 for its commission on the Ashokan dam contract. Plaintiff refused to acquiesce in this deduction and demanded that the sum be remitted, which, however, was not done. The matter continued to be the subject of some correspondence, and finally on September 3, 1908, plaintiff terminated the agency contract and sent an accountant to settle up the business. He proceeded to Virginia and settled up the accounts, receiving every assistance from the officers of the agent, and finally all matters between plaintiff and its agent were satisfactorily settled and adjusted except the matter of the agent’s claim for commissions on the Ashokan dam contract, which amount the agent insisted upon retaining and the plaintiff insisted upon receiving. It is for this amount that the present suit is brought.

It is to be observed that defendant’s liability is limited to losses sustained by plaintiff by reason of the fraud and dishonesty of the agent. In directing a verdict the trial court, in effect, held as matter of law that the retention of the disputed commissions constituted fraud or dishonesty. Upon the present record we cannot concur with that view. There was no attempt to mislead the plaintiff or to conceal anything. The commission was openly deducted and defendant’s attention pi-omptly and pointedly called to the deduction. On the face of the evidence we can see no indication of the sinister elements which usually go to make up fraud and dishonesty. There appears to have been an honest difference of opinion. Of course it is possible for an agent to attempt to cover up a case of fraud by a simulation of frankness. The evidence does not show or suggest that this is such a case, but if it were, the question would be a proper one for the jury. If the agent in good faith, although erroneously, believed that it was entitled to retain the disputed commissions it would not constitute fraud or dishonesty to do so. At the most, therefore, the question whether or not the agent’s acts amounted to fraud or dishonesty was one for the jury, under proper instructions as to the meaning of those terms. Other grounds of appeal, argued upon the briefs, need not be discussed "as what has already been said calls for a reversal of the judgment.

The judgment should be reversed and a new trial granted, with costs to appellant to abide the event.

Ingraham, P. J., McLaughlin, Laughlin and Miller,. JJ., concurred.

Judgment reversed, new trial ordered, costs to appellant to abide event.  