THE

PACIFIC REPORTER

VOLUME 227

FRANCIS v. HOARD et al. (No. 18401.) (Supreme Court of Washington. July 9, 1924.) 1. Contracts 303 (1)-Failure to notify party to do work agreed held not to justify his nonperformance.

Where, under a contract to share profits of a building contract, plaintiff was required to superintend the brick work, and he knew when such work was ready for performance, his nonperformance could not be justified, because he was not notified by other parties to the contract to perform.

2. Contracts 317-One failing to perform services agreed held not entitled to share of profits in building contract.

Plaintiff who failed to furnish part of money and superintend certain work as he agreed to do in a contract to share the profits of a building contract was not entitled to any share in the profits.

Department 2.

cially unable to secure such a bond, and sought an interview with the appellant William I. J Francis, whom he desired to assist in the securing of the bond. At the interview Francis suggested that he would see the respondent M. Hoard. He went to see` Hoard, and made inquiry as to what percentage the latter would charge to bond or have bonded a building contract. To this Hoard replied that he would not consider the matter unless he was a party to the contract, and suggested to Francis that he bring the party that he was representing to his office. Shortly afterwards Kelgren, Francis, and Hoard met in the latter's office. Hoard again declined to have anything to do with the matter unless he was a party to the contract. A conversation then took place looking to some arrangement by which the three of them might be interested in the contract. The question arose as to whether they should proceed under a corporation or a partnership and it was finally concluded that a corpo

Appeal from Superior Court, King County; ration should be formed. The parties again Hall, Judge.

Action by William I. J. Francis against M. Hoard and another. From a judgment n. o. v for defendants, plaintiff appeals. Ar

firmed.

Wingate & Benz, of Seattle, for appellant. Rummens & Griffin, of Seattle, for respondents.

MAIN, C. J. The purpose of this action was to recover a portion of the profits arising out of a building contract. The cause was tried to the court and a jury, and resulted in a verdict in favor of the plaintiff in the sum of $2,500. A motion for judgment notwithstanding the verdict was interposed and sustained by the trial court, and a judgment was entered dismissing the action. From this judgment the plaintiff appeals

The facts may be summarized as follows: One Gus Kelgren had a tentative contract for the construction of a building in the city of Seattle, the cost of which was to be approximately $135,000, but the contract could not be consummated until he furnished a bond in the sum of $50,000. He was finan

met during the afternoon of that day and at that time Kelgren in writing assigned to Hoard a one-half interest in the contract.

Francis objected to this. Further conversation took place between them, and, as Francis claims, and so testified, it was agreed that Kelgren should have 50 per cent. of the profits arising from the performance of the contract, and that the other 50 per cent. should be divided equally between himself and Hoard. Francis was to superintend the brickwork and also furnish $2,000 or $3,000 for the purpose of financing the enterprise. The building contract provided for the retaining by the owners of 20 per cent. as a guaranty of its performance. The bond was given and the contract was signed by the Kelgren-Hoard Company, by M Hoard and G Kelgren A day or two later another conversation occurred between Hoard and Francis, in which the latter claims that Hoard again agreed to divide the profits with him as above indicated. The construction of the building was then entered upon, and it was completed some time early in the year 1921. Francis did nothing in connection with the construction of the building, and seems

For other cases see same topic and KEY-NUMBER in ail Key Numbered Digests and Indexes 227 P.-1

to have had no conversation and done noth, ing further with reference to the matter until on the 14th day of April, 1922, when he wrote a letter to Hoard demanding his shåre of the profits and threatening suit in the event that the request was not complied with. Thereafter the present action was begun. Whether it be considered an action for an agreed share of the profits or an action for damages, as it is called in the appellant's brief, can make no difference.

3. Bonds 50-Conditions in statutory bond repugnant to statute treated as surplusage. Conditions in statutory bond repugnant, to the statute are to be treated as surplusage, under Rem. Comp. Stat. § 777.

4. Principal and surety 59-Bond held statutory bond under statute providing for execu. tion of bonds by bank's employees and officers and not common-law bond.

Bank's bond which covered provisions of Rem. Comp. Stat. § 3239, requiring boards of directors of banks and trust companies to require officers and employees to give surety company bonds, though not in exact language of such statute, but which in addition to such statutory requirements insured bank against the bond required by such statute and not loss through robbery, burglary and theft, held a common-law bond, so that other provisions of bond as to effect of failure to give notice of losses and to commence action within specified period, and as to terms of surety company's liability not covered by such statute, were in

Department 1.

Appeal from Superior Court, Pierce County; Chapman, Judge.

[1, 2] It will be unnecessary to review all the questions presented in the briefs, because there is one fatal defect to the appellant's right of recovery According to his own testimony, he was to superintend the brickwork, and the only reason that he gives for not appearing and offering his services when this work was ready to be performed (which fact he knew) was that he was not notified. He also testified, as already stated, that he was to contribute $2,000 or $3,000 towards the financing of the enterprise As-operative under section 777. suming that the facts are as testified to by Francis, though they are unequivocally denied by Hoard, we are unable to see how there can be a recovery by Francis, since he did not do the things which by the contract, as he defines it, he was required to do. Knowing that the brickwork was ready he was not justified in declining to offer his services as superintendent thereof simply by reason of the fact, as he claims that he was not notified. Further than this, he did not assist in the financing of the job as his undertaking required him to do. As we view it, Francis, having failed to do the things which he was required to do under the contract, cannot now recover for what he claims was an agreed share of the profits or damages for the breach of the contract, which-pensated surety, on November 26, 1918, furever the action may be construed to be. The judgment will be affirmed.

Action by John P. Duke and others against the National Surety Company. Judg ment for plaintiff, and defendant appeals. Affirmed.

See, also, Duke v. American Casualty Co. of Tacoma (Wash.) 226 Pac. 501.

Hayden, Langhorne & Metzger, of Tacoma, for appellant.

F. D. Oakley, Guy E. Kelly, and Thomas MacMahon, all of Tacoma, for respondents.

MACKINTOSH, J. The appellant, a com

nished a bond to the Scandinavian American Bank of Tacoma, of which the respondent is

FULLERTON, BRIDGES, and MITCH- now representative as the supervisor of ELL, JJ., concur.

DUKE et al. v. NATIONAL SURETY CO. (No. 18538.)

(Supreme Court of Washington. June 25, 1924.)

1. Principal and surety 59-Bonds of compensated surety construed most strictly against him.

Bonds of compensated sureties are to be most strictly construed against the surety, and where the terms are susceptible of more than one construction the court will adopt that construction most consistent with the purpose to be accomplished.

banking in charge of its liquidation, it having become insolvent. We will hereafter refer to the bank as though it were the actual respondent. This bond was renewed on October 26, 1919, and again on November 26, 1920, for one year. The bank became insolvent in January, 1921. Respondent has made claim against the appellant on the bond, alleging that the bank suffered losses in amounts exceeding the amount of the bond and asking recovery for the full amount of the bond. So far as material the bond agrees to

"hold it [the bank] harmless from and against loss to an amount not exceeding $50,000 of money, currency, bullion, bonds, debentures, scrip, certificates, warrants, transfers, coupons, bills of exchange, promissory notes, checks or 2. Bonds 50-Provisions of statute read in- other similar items hereinafter referred to as to statutory bond.

Provisions of statute are read into statu

tory bond.

property.

**

"(a) Through any dishonest act of the employees, wherever committed and whether com

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

(227 P.)

mitted directly or by collusion with others. I will adopt that construction most consistent with the purpose to be accomplished, which "(b) Through robbery, burglary, theft, hold-would be the construction most favorable to up, destruction or misplacement while the prop- the beneficiary. Stearn's Suretyship (3d Ed.) erty is within any of the insured's offices. "(c) Through robbery, holdup or theft by any person whomsoever while the property is in transit within twenty miles of any of the offices. ⭑

This bond does not cover:

"(d) Any loss, the result of any loan made by the insured or by any of the employees, whether authorized or unauthorized, unless such loan be made with intent on the part of such employees to defraud the insured. *

*

P. 404; Southern, Surety Co. v Kinney, 74 Ind. App. 205, 127 N. E. 575; Northern Pacific Ry. Co. v. Fidelity & Dep. Co., 74 Wash. 543, 134 Pac. 498; Costello v. Bridges, 81 Wash. 192, 142 Pac. 687, L. R. A. 1915A, 853. Another rule is that in a statutory bond the provisions of the statute are read into the bond, and if there are conditions contained in such a bond repugnant to the statute such conditions are to be treated as surplusage. Snohomish County v. Ruff, 15 Wash. 637, 47 Pac. 35, 441; Davis v. Virges, 39 Wash. 256, 81 Pac. 688; Wenatchee Orchard Co. v. Thompson, 60 Wash. 644, 111 Pac. 874; Denny-Renton Clay Co. v. National Surety Co., 93 Wash. 103, 160 Pac. 1; Salo v. Pacific "(6) No action or proceeding shall be brought Coast Cas. Co., 95 Wash. 109, 163 Pac. 384, under this bond in regard to any loss unless begun within twelve months after the insured L. R. A. 1917D, 613. The corollary to this shall learn of such loss, or in case such lim-rule is that where the bond is a statutory itation be void under the law of the place gov-one the statutory conditions which are not erning the limitation hereof then within the expressed in the bond will be inserted thereshortest period of limitation permitted by such in. These two rules are virtually covered law by section 777, supra.

"(4) The insured shall give to the underwriter written notice of any loss hereunder as soon as possible after the insured shall learn of such loss, and within ninety days after learning of such loss shall file with the underwriter an itemized proof of claim, duly sworn to. *

"(11) This bond shall terminate as to any employee (a) as soon as the insured shall learn of any default hereunder, committed by such employee."

[4] We come first to the determination of whether this bond can be construed as a bond given under section 3239. That section provides that a bank shall require a surety

Section 3239, Rem. Comp. Stat., is as fol- bond conditioned for "the faithful and honlows:

"The board of directors of each bank and trust company shall require its active officers and employees and such other officers as they shall designate, each to give a surety company bond, in such sum as the board shall specify and the state bank examiner shall approve, conditioned for the faithful and honest discharge of his duties and for the faithful application of all moneys, funds and valuables which shall come into his possession, or under his control."

Section 777, Rem. Comp. Stat., reads:

"No bond required by law, and intended as such bond, shall be void for want of form or substance, recital, or condition; nor shall the principal or surety on such account be discharged, but all the parties thereto shall be held and bound to the full extent contemplated by the law requiring the same, to the amount specified in such bond. In all actions on such defective bond, the plaintiff may state its legal

effect in the same manner as though it were a perfect bond."

[1-3] The first question for determination is whether the bond is a statutory one, as claimed by the respondent, or a common-law bond, as claimed by the appellant. In the determination of this question certain general rules are to be borne in mind. One of these is that, in dealing with the bonds of a compensated surety, they are to be most strictly construed against the surety, and where the terms of such a bond are susceptible of more than one construction the court

It is

est discharge of the employees' duties in the faithful application of all funds which may come into their possession." The bond here, in subdivision (a) though not in the exact language of the statute, covers the exact matter referred to in the section quoted, and were there nothing more in the bond than this there would be no hesitancy in declaring the bond to be a statutory bond. pointed out, however, that subdivisions (b) and (c) relate to matters not covered by the statute and constitute the bond really a contract of insurance. It is true that the matters in (b) and (c) have no relation to the statutory requirements, but it is to be noticed that they do not limit the statutory requirements, but go beyond them and afford an added protection to the bank. Those authorities which strike provisions in statutory bonds limiting the statutory requirements would seem to justify the holding that where there are provisions in bonds in addition to those required by statute, and not repugnant thereto, such additional provisions are effective and that in reality the bond partakes of two characteristics-that it is not only a statutory bond, but is a common-law bond in so far as it contains provisions additional to the statutory provisions. This court, in Puget Sound State Bank v. Galluccil, 82 Wash. 445, 144 Pac. 698, Ann. Cas. 1916A, 767, construing a question somewhat analogous, gave countenance to this view, where we said:

"The law seems to be well settled that bonds, what is required to be done, and so disposes of this nature may be required by, and given of this contention. to, a public corporation in excess of, or without any statutory authority and the beneficiaries thereunder be none the less entitled to

(227 P.)

(3) Larson made a note payable to a bank in Nome, Alaska, which he deposited in his bank and credited the amount to his personal account. As a cash item the note was forwarded to the Nome bank, which did not pay it, the testimony showing that that bank had not authorized Larson to make or send the note to it.

(4) Larson had a note in the Merchants' Loan & Trust Co. of Chicago, interest upon which, in the amount of $2,035.18, he directed the Chicago bank to charge to the account of the Scandinavian American Bank.

learned of the defaults of its employee was charged to the bank as one of its exwhich occurred even before the bond was re- penses. newed the first time, in 1919. So far as this bond is a statutory bond such provisions are inoperable, and so far as it is a commonlaw bond it is not necessary for us to determine their effect here. The case of Fidelity Co. v. Duke (C. C. A.) 293 Fed. 661, does not hold that a bond similar to the one given here is not a statutory bond, but sent the case back for a new trial to determine the question whether the bond had been required by the board of directors or approved, and as bearing on this question, to determine whether any other bond had been given and whether the parties contemplated that the bond was given by virtue of the statute. The case of Smith v. Tukwila, 118 Wash. 266, 203 Pac. 369, is only authority to the effect that where a bond is required by statute and a bond is given which, as that case says, "does not meet any of the require ments of the statute," such a bond is not a statutory bond, but that it may be construed as a common-law bond, there being no pro vision of law by which a common-law bond might not be taken. If the bond before us, like the bond in the Smith Case, did not meet any of the statutory requirements there could be no question, of course, that it was not a statutory bond, no matter what may have been the intent of the parties in executing it, and, there being no provision in the banking law or anywhere else in the statutes forbidding a bank taking a common-law bond, it would be construed to be a bond of that nature.

Being satisfied, therefore, that this bond is a statutory bond, the only question remaining in this case is to determine the appellant's liability thereunder.

One Larson was, durng the life of this bond, vice president and general manager and later president of the bank, and numerous of his transactions are set up as having resulted in loss to the bank and constituting dishonest acts. The sum total of the losses resulting from these acts exceeded by many times the appellant's liability. It only be comes necessary to determine whether there are a sufficient number of these in amount to cover that liability, and we may exclude various items about which there may be a serious question.

Taking up the items which the evidence appears clearly to establish as having resulted in a loss and having been the result of dishonest acts we find the following:

(1) An item of $20,000, which arose in this manner: The capital stock of the bank was increased, and Larson subscribed for 1,443% shares of the increase, and for this sale to himself he paid himself a commission of $20,000, out of the bank's funds.

(2) Larson had a personal hotel bill in the sum of $1,445.09 which, under his direction,

(5) At the time of the failure of the bank Larson had an overdraft in the sum of $1,589.20, and while ordinarily an overdraft though unlawful may not necessarily have been dishonest, under all the circumstances of this bank and Larson's knowledge of them it is plainly apparent that this overdraft comes within the category of dishonest transactions.

(6) The account of one Lindeberg, a depositor, was charged in the sum of $31,250, which was paid by Larson to Johnson, another officer of the bank, who was desirous of disposing of his stock in the bank. A cashier's check was drawn for this amount to pay it upon the order of Larson for the purpose of paying Johnson, and the transaction was held in the cash account for two or three days, when Larson ordered that it be charged to Lindeberg's account. Such a transaction, of course, was illegal. The Lindeberg indebtedness to the bank was far in excess of the amount which could be loaned to any one person under the law, and the Lindeberg indebtedness has resulted in a loss of more than the amount of this bond. As was said in National Surety Co. v. Williams, 74 Fla. 446, 77 South. 212:

"When Wilder (dishonest cashier) put his note, which was of no value, in the bank, and issued a certificate of deposit of the bank for a like amount, which he used to purchase propeffect the same as if he had taken the cash erty for himself, the transaction was in legal out of the bank and used it in the purchase of such property. In this situation it cannot be successfully contended that he has not misappropriated the funds of the bank from which it has suffered pecuniary loss, nor that such misappropriation was not fraudulent and dis

honest."

All of these transactions were without the authority of the board of directors and without their consent or actual knowledge, although some of the transactions might have been discoverable by a thorough examination of the books of the bank, but were not discoverable by such an examination as the law holds the directors accountable to make. The sum total of the loss as a result of these clearly dishonest acts exceeds the amount for which the appellant is liable, and