A statement recklessly made, without 349; Graves v. Lebanon Nat. Bank, 10 knowledge of its truth, is a false state- Bush, 28, 19 Am. Rep. 50; McShane v. ment, knowingly made. Howard Bank, 73 Md. 135, 10 L. R. A. 552, 20 Atl. 776. Cooper v. Schlesinger, 111 U. S. 148, 28 L. ed. 382, 4 Sup. Ct. Rep. 360; Nevada Bank v. Portland Nat. Bank, 59 Fed. 338. Mr. Edward H. East argued the cause and filed a brief for respondent: Prior to the act of April 30, 1893, dealing in futures, whether actual delivery was intended or not, was privileged or licensed by the state of Tennessee and was not gambling or gaming or in any sense unlawful. State v. Duncan, 16 Lea, 79. To prove that a man was a stockholder in a brokerage association does not necessarily prove that he was speculating or gambling or indulging in any disreputable or unlawful habits. Scott v. National Bank, 72 Pa. 471, 13 Am. Rep. 711. A provision requiring written notice to the obligor of any act of the cashier involving loss to the bank, to be given as soon as practicable after the bank had knowledge of such act, does not require notice upon suspicion, but only after the bank has knowledge of such facts as would justify the charge of fraud and dishonesty against the cashier. American Surety Co. v. Pauly, 170 U. S. 133, 42 L. ed. 977, 18 Sup. Ct. Rep. 552. The cashier or his sureties are not released from liability because of the negli gence or misconduct of the president or of the board of directors. Amherst Bank v. Root, 2 Met. 541; Minor v. Mechanics Bank, 1 Pet. 71, 7 L. ed. 58; First Nut. Bank v. Drake, 29 Kan. 328. 44 Am. Rep. 646; McShane v. Howard Bank, 73 Md. 150, 10 L. R. A. 556, 20 Atl. 779; Frelinghuysen v. Baldwin, 16 Fed. 453; Phillips v. Bossard, 35 Fed. 100. Sureties are not exonerated because of the neglect of the directors to examine into the affairs of the bank. Sparks v. Farmers' Bank, 3 Del. Ch. 303. Neglect of directors to supervise the accounts does not discharge the sureties of a teller. State use of Southern Bank v. Atherton, 40 Mo. 217. This rule also applies to sureties of bookkeeper. Chew v. Ellingwood, 86 Mo. 272, 56 Am. Rep. 434; Frankfort Bank v. Johnson, 24 Me. 504; Tapley v. Martin, 116 Mass. 278. And the sureties of a cashier who committed fraud unknown to the directors are not discharged because such directors were guilty of gross negligence. The bank was not obligated under this contract, or independently of it, to ransack Schardt's past life, or to run down rumors and suspicions and report them to the Guarantee Company. The company had its agent at Nashville to do this character of work. State ex rel. Southern Bank v. Atherton, 625, Fed. Cas. No. 14,911. 40 Mo. 209. Lieberman v. First Nat. Bank (Del.) 40 Atl. 384. In the case of an ordinary surety upon the bond of an officer of a bank, it has been held that negligence of the officers of a bank, in failing to examine the books and to discover the defalcations of the paying teller, does not release the sureties on his bond, given for the faithful performance of his duties. Nor are the sureties of a cashier discharged by failure of directors to examine his books. United States v. Cutter, 2 Curt. C. C. A surety is not discharged because of the failure of the government agents to discharge their duty. United States v. Robertson, 5 Pet. 666, 8 L. ed. 266. Every illegal act of the officers of a bank, although sanctioned by usage, is void. Minor v. Mechanics Bank, 1 Pet. 46, 7 L. ed. 47. It is not the business or duty of directors to go back to original entries. Briggs v. Spaulding, 141 U. S. 132, 35 L. ed. 662, 11 Sup. Ct. Rep. 924. Lieberman v. First Nat. Bank (Del.) 40 Atl. 382; Amherst Bank v. Root, 2 Met. 540: Tapley v. Martin, 116 Mass. 275; Franklin Bank v. Stevens, 39 Me. 532; Farmington v. Stanley, 60 Me. 472; Wayne v. Commercial Nat. Bank, 52 Pa. 343; Phil-room for two constructions of its provilips v. Bossard, 35 Fed. 100; Sparks v. Farmers' Bank, 3 Del. Ch. 302. Graves v. Lebanon Nat. Bank, 10 Bush, 23, 19 Am. Rep. 50, has been overruled in every case in which it has been discussed, and stands alone and unsupported. Lieberman v. First Nat. Bank (Del.) 40 Atl. 386; Ashuelot Sav. Bank v. Albee, 63 N. H. 161, 56 Am. Rep. 501. It is good faith, and not diligence, which is required of the creditor as a condition of his right to hold the surety, but the creditor or obligee on a bond is not obliged, for the benefit of the surety, to watch the principal beyond what he literally contracted to do. Amherst Bank v. Root, 2 Met. 540; Wayne v. Commercial Nat. Bank, 52 Pa. When a contract is so drawn as to leave sions, it must be interpreted most strongly against the party who prepared it, and delivered to the other party for his protection. American Surety Co. v. Pauly, 170 U. S. 160, 42 L. ed. 987, 18 Sup. Ct. Rep. 563. The words that the facts are true "to the best of insured's knowledge" imply a wil ful untruth to avoid the policy. 1 Biddle, Ins. § 562; Clapp v. Massachusetts Ben. Asso. 146 Mass. 519, 16 N. E. 433; United Brethren Mut. Aid Soc. v. Kinter, 12 W. N. C. 76; France v. Etna L. Ins. Co. 94 U. S. 561, 24 L. ed. 287; Northwestern Mut. L. Ins. Co. v. Gridley, 100 U. S. 614, 25 L. ed. 746; First Nat. Bank v. Hartford F. Ins. Co. 95 U. S. 673, 24 L. ed. 563. The fact that a bank cashier has at one time cwned stock in a brokerage association, or has had one or more transactions in speculation, cannot be said to constitute habits or create "associations." Etna L. Ins. Co. v. Davey, 123 U. S. 739, 31 L. ed. 315, 8 Sup. Ct. Rep. 331; 3 Joyce, Ins. § 2076. spection or audit of the accounts or books The company, not unnaturally, contends that as when the bond was renewed in January, 1892, the bank's books showed that the employee was a defaulter in the sum of Representations, expectations, belief, or $19,600 understated liabilities, and of $3,opinion, without fraud, do not avoid a pol-765.44 abstracted from bills receivable, icy. 2 Joyce, Ins. §§ 1903, 1904; Benham v. United Guarantee & Life Assur. Co. 7 Exch. 744, 21 L. J. Exch. N. S. 317. both of which could have been detected by the taking of a trial balance, as is customary, or a mere comparison between the books kept by Schardt and the individual ledger, The bond or policy issued on the teller and a correct footing of the notes, the bank and collector contains no warranty by its had not only not complied with its engagewords or construction. ments above referred to, and falsely certified to a verification which in fact had not been had, but was guilty of such laches as in itself to defeat a recovery. Phoenix Mut. L. Ins. Co. v. Raddin, 120 500. The cashier's policy or bond does make Gage v. Lewis, 68 Ill. 604; Towle v. Na- The addition of the words "so far as the of fraud. Fisher v. Crescent Ins. Co. 33 Fed. 549. [416] *Mr. Chief Justice Fuller delivered the opinion of the court: These are matters which, while not controlling our decision, should be considered in connection with that aspect of the case which we regard as decisive. In addition to the provisions already mentioned, it was agreed "that the employer shall at once notify the company, on his becoming aware of the said employee being engaged in speculation or gambling, or indulging in any disreputable or unlawful habits or pursuits." The legislation of Tennessee and the decisions of its courts placed dealing in futures, when either party did not contemplate delivery, in the category of gambling, and aimed to suppress it. Allen v. Dunham, 92 Tenn. 257, 21 S. W. 898; McGrew v. City The The evidence showed that in the summer or fall of 1892 the cashier of the bank was told that the teller was part owner in a concern engaged in speculative business; he at once informed the president of the bank,[418] and also called Schardt's attention to the matter, who admitted that he had once been engaged in such a concern, but said he had sold out, and also that he had speculated to some extent, but had ceased to do so. cashier further testified that he afterwards received an anonymous letter that Schardt The teller's bond, as originally given, ex- was speculating, and showed it to the presipired January, 1889, and was renewed from dent; that he spoke to Schardt about it; year to year. Before each renewal the bank that the latter said he thought he knew the was informed by the company that it was author, and asked for the letter, that he necessary that a certain certificate by the might bring the party before the cashier president or cashier should be furnished, and make him acknowledge that it was false. which was done, and stated, among other The letter was given him, but nothing came things, that the accounts of the teller had of it, although he was asked about it more been examined and verified by the finance than once. This conversation was reported committee of the bank. The bond provided to the president. A leading director and a member of the finance committee was shown [417] that it *was issued and renewed "on the express understanding that the employee has by another director an anonymous letter to not, within the knowledge of the said em- him, to the same effect, which was reported ployer, at any former period, either in this to the president. The letter stated that or other employment, been guilty of any de- Schardt was in partnership in a bucket shop. fault or serious dereliction of duty;" "that Schardt said it was a lie, and brought his the employer shall observe, or cause to be partners before the president and the two observed, all due and customary supervision directors, and they said that they had over the said employee, for the prevention of opened a brokerage association with default:" and that there shall be "an in-Schardt, but that Schardt had sold out. A statement recklessly made, without 349; knowledge of its truth, is a false state- Bush, ment, knowingly made. Cooper v. Schlesinger, 111 U. S. 148, 28 L. ed. 382, 4 Sup. Ct. Rep. 360; Nevada Bank v. Portland Nat. Bank, 59 Fed. 338. Mr. Edward H. East argued the cause and filed a brief for respondent: Prior to the act of April 30, 1893, dealing in futures, whether actual delivery was intended or not, was privileged or licensed by the state of Tennessee and was not gambling or gaming or in any sense unlawful. State v. Duncan, 16 Lea, 79. To prove that a man was a stockholder in a brokerage association does not necessarily prove that he was speculating or gambling or indulging in any disreputable or unlawful habits. Scott v. National Bank, 72 Pa. 471, 13 Am. Rep. 711. A provision requiring written notice to the obligor of any act of the cashier involving loss to the bank, to be given as soon as practicable after the bank had knowledge of such act, does not require notice upon bank has suspicion, but only after the knowledge of such facts as would justify the charge of fraud and dishonesty against the cashier. American Surety Co. v. Pauly, 170 U. S. 133, 42 L. ed. 977, 18 Sup. Ct. Rep. 552. The bank was not obligated under this contract, or independently of it, to ransack Schardt's past life, or to run down rumors and suspicions and report them to Guarantee Company. The company had its agent at Nashville to do this character of work. the Howard the board of Amherst B. 58; First Nat Sureties are not Sparks v. Farmers Neglect of directorcounts does not disen teller. State use of Souther 40 Mo. 217. This rule also applies Chew v. Ellingwood, S And the sureties of a Lieberman v. First Nat. b Nor are the sureties of a United States v. Cutter, 2 State ex rel. Southern Bank v. Atherton, 625, Fed. Cas. No. 14,911. 40 Mo. 209. In the case of an ordinary surety upon the bond of an officer of a bank, it has been held that negligence of the officers of a bank, in failing to examine the books and to discover the defalcations of the paying | teller, does not release the sureties on his bond, given for the faithful performance of his duties. Lieberman v. First Nat. Bank (Del.) 40 Atl. 382; Amherst Bank v. Root, 2 Met. 540: Tapley v. Martin, 116 Mass. 275; Franklin Bank v. Stevens, 39 Me. 532; Farmington v. Stanley, 60 Me. 472; Wayne v. Commercial Nat. Bank, 52 Pa. 343; Phillips v. Bossard, 35 Fed. 100; Sparks v. Farmers' Bank, 3 Del. Ch. 302. Graves v. Lebanon Nat. Bank, 10 Bush, 23, 19 Am. Rep. 50, has been overruled in every case in which it has been discussed, and stands alone and unsupported. Lieberman v. First Nat. Bank (Del.) 40 Atl. 386; Ashuelot Sav. Bank v. Albee, 63 N. H. 161, 56 Am. Rep. 501. It is good faith, and not diligence, which is required of the creditor as a condition of his right to hold the surety, but the creditor or obligee on a bond is not obliged, for the benefit of the surety, to watch the principal beyond what he literally contracted to do. Amherst Bank v. Root, 2 Met. 540; Wayne v. Commercial Nat. Bank, 52 Pa. A surety is not discharged be failure of the government age. charge their duty. United States v. Robertson, 5 8 L. ed. 266. Every illegal act of the officers although sanctioned by usage, is v Minor v. Mechanics Bank, 1 Pet ed. 47. It is not the business or duty of When a contract is so drawn as to room for two constructions of its : sions, it must be interpreted most st ly against the party who prepared delivered to the other party for his tion. American Surety Co. v. Pauly. 160, 42 L. ed. 987, 18 Sup. Ct. F The words that the facts are t best of insured's knowledge" i ful untruth to avoid the polic 1 Biddle, Ins. § 562; Clapp [415 his conduct on its | of keeping accounts, there is always a risk h of the stipula of defalcation. The prevention of defaults or their detection at the earliest possible opinion said: moment are of even more vital importance is that the em- to financial institutions than to the guaran} ecoming aware tors of the fidelity of their employees. The red in specula provisions intended to protect the company to consider at in this case were not in themselves unreams here used, sonable, and, so far as they operated to comabsence of pel the bank to exercise due supervision and to disclose examination and due vigilance, were consistin this inent with sound public policy. We think it as to the was the duty of this bank to have made a reason- prompt investigation, or, at all events, to , such in have notified the company at once of the inld make formation that it had; and we decline to the at- hold that the bank's misplaced confidence in Schardt affords sufficient ground for enforcing the liability of the surety company on the theory of good faith. a past r to Our conclusion is that the failure of the bank in the particulars adverted to defeats a recovery on the teller's bond for defalcation after information of Schardt being enegaged in speculation was received. It also results that there can be no re- so of the questions and answers in the ). Have you known or heard anything un- 9. Or of any matters concerning him In Pauly's Case the president and the Cashier were confederates in the dishonesty of the cashier, for the purpose of defrauding the bank; and also it was held no part of the duties of the president under the circumstances there disclosed to certify to the integrity of the cashier as he did. In this case the dishonesty was that of the cashier r-alone; the statements were required to be sand were made on behalf of the bank, and This director subsequently heard again that | And it required immediate notification on In these circumstances was it the duty of the bank to notify the company of what it had heard? In American Surety Co. v. Pauly, 170 U. S. 133, 144, 42 L. ed. 977, 982, 18 Sup. Ct. Rep. 552, 556, which was an action against the maker of a bond given to insure a bank against loss arising from acts of fraud or dishonesty on the part of its cashier, the applicable rule was thus laid down: In Pauly's Case, where the bond required that the company should be notified in writing "of any act on the part of the employee which may involve a loss for which the company is responsible hereunder, as soon as [420] practicable after the occurrence of such act may have come to the knowledge of the employer," it was ruled that it had been properly held "that the surety company did not intend to require written notice of any act upon the part of the cashier that might involve loss, unless the bank had knowledge, not simply suspicion, of the existence of such facts as would justify a careful and prudent man in charging another with fraud or dishonesty." of," or "to be put on one's guard in respect to," and that no other meaning is equally admissible under the terms of the instrument. These are the definitions of the lexicographers, distinctly deducible from the derivation of the word "aware," and that is the sense in which they are here employed. It is used in the same sense in the cashier's certificate on the renewals of the teller's bond. "If, looking at all its provisions, the bond is fairly and reasonably susceptible of two constructions, one favorable to the bank and the other favorable to the surety company, But the bond before us not only contained the former, if consistent with the objects that clause, but the clause under considerafor which the bond was given, must be tion, which was a different and additional adopted; and this for the reason that the clause intended to secure the safety of preinstrument which the court is invited to in-vention through timely warning. [419]terpret was drawn by the attorneys, * officers It seems to us that the obvious meaning or agents of the surety company. This is of "becoming aware," as used in this bond, a well-established rule in the law of insur- is "to be informed of," or "to be apprised ance. . . As said by Lord St. Leonards in Anderson v. Fitzgerald, 4 H. L. Cas. 484, 507 'it [a life policy] is, of course, prepared by the company, and if, therefore, there should be any ambiguity in 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 with his duties 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 der the terms of the instrument executed for the protection of the bank." But this rule cannot be availed of to refine away terms of a contract expressed with sufficient clearness to convey the plain meaning of the parties, and embodying requirements compliance with which is made the condition to liability thereon. To be aware is not the same as to have knowledge. The bond itself distinguishes between the two phrases, and uses them as not synonymous with each other. And, in view of the plain object of the clause, we cannot regard the words as equivalent to "becoming satisfied," though perhaps they may be to "having reason to believe." Even then these facts would have demanded inun-vestigation or notification, for we think the bank cannot be heard to say it did not have reason to believe that Schardt was speculating when it took his professions of repentance as sufficient assurance that he had ceased speculating, and turned its back on any independent inquiry or investigation. Our understanding of the provision is that what the company stipulated for was prompt Whatever the common-law duty on the notification of information by the bank in part of the employer to notify the guarantor regard to speculation or gambling on the of the fraud or dishonesty of the employee part of the employee. It was entitled to exwhose fidelity is guaranteed, the parties to ercise its own judgment on that informa this contract undertook to declare the duty tion, and had not agreed to rely on the of the bank to the company in certain speci- bank's belief in that regard. It had the fied particulars. It required that the em- right to inves ate for itself, whether the[421] ployee should not have been guilty of pre-bank did so or not. Notification of the exvious default or dereliction within the istence of reason for inquiry was exactly knowledge of the employer. It provided what the clause was intended to secure. for notification of any act of the employee The bank neither investigated nor gave the which might involve a loss without unrea- company notice of the information it had, sonable delay after the occurrence of the and substituted its own judgment as to the act came to the knowledge of the employer. ' value of that information for that of the |