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and the magnitude of the shortage would be an answer to any suggestion of bad faith.
This brings up the only remaining objection to decree on this bond, namely, the failure to report speculation on Schardt's part. Proof on this point is to this effect: That in the summer or fall of 1892 a man by the name of Kyle, from New York, representing a brokerage concern of that city, desired Sykes, then cashier, to become the local representative of that concern. Sykes remarked that he did not like a speculative business like that, whereupon Kyle said it made no difference; that Schardt was interested in a similar business. Sykes spoke of this to Baxter, the president of the bank, and also to Schardt, who said he had at one time been interested in such concern, but had sold his interest, and said that to some extent he had speculated at one time, but had ceased to do so. After this Sykes says he received an anonymous letter, saying Schardt had been speculating. On Schardt's attention being called to this letter by Eatherly, a director, and on examination it was shown that at one time Schardt, Searight, and Dr. Barry agreed to form a brokerage association, each putting in $200. Schardt soon became dissatisfied, and sold out to Searight. This is evidently what Kyle had referred to in the previous interview with Sykes, though no details were given. This, then, was what the officers of the bank knew or learned, and Cooley, with his duty to look up information, and on the ground, and familiar in banking circles, never heard of this. The language of the bond is that the employer shall report "on his becoming aware of the employé being engaged in speculation." Without now stopping to consider at length the meaning of the terms here used, I am of opinion that, in the absence of fraud or bad faith, the failure to disclose the result of the inquiry made in this instance did not invalidate the bond as to the surety. Certainly, speculation in a reasonable and substantial sense is meant, such in length of time or magnitude as would make it serious. This, when brought to the attention of the bank officials, was a past event, and apparently in itself unimportant. The bank was under no duty by the contract or independently of it to actively institute or prosecute inquiries about Schardt, or to run down loose rumors or anonymous letters. State v. Atherton, 40 Mo. 209; Supreme Council Catholic Knights of America v. Fidelity & Casualty Co. of New York, 11 C. C. A. 96, 63 Fed. 48. It was only on "becoming aware of the employé being engaged in," etc., that report was to be made. This refers to knowledge coming to the bank officials in the usual way that such knowledge comes, and imposes no original, active duty in this respect; and it is pertinent to remark that if the bank was left under an active duty of vigilance as to supervision of habits or inspection of accounts with a view to prevent fraud, there would be little or no motive to secure and pay for insurance like this.
It remains to consider the objections to recovery on the cashier's bond. The bank answered that there never had been a default in the position of cashier. The proof is that the bank and its former cashier, Durr, had a controversy about certain commissions made v.68F.no.4-30
by the cashier, which he thought was an individual matter, while the bank officers thought that while engaged by the bank the cashier should account to it, as his time was paid for. It was no default within the terms of the contract. The objection that Schardt was allowed to keep books while insured as cashier only is overruled. The bond, it is true, insures Schardt as cashier, but there is no limitation in terms against performance of other duties, and the cases already cited hold that there is none by implication.
The statement that Schardt's accounts had been examined December 31, 1892, and found correct, is next objected to as false. What has been said on this subject applies here. There can be no reasonable doubt that, where examinations are spoken of as made, they refer to those by the finance committee, and it is expressly so stated here. It is not probable that any examination the bank would have caused to be made would prove satisfactory as looked at after the facts are all known, unless the same had detected Schardt.
The last objection is that the bank falsely stated that it knew nothing in regard to Schardt's conduct which defendant should know, and the speculation is here again referred to. What has been said disposes of this point. All of the answers made in the application for the cashier's bond are followed by this statement: "The above answers and representations are true, to the best of my knowledge and belief." Some stress is put upon condition 3 on this bond as making the statements in the application warranties. The condition is this:
"(3) That any written answers or statements made by or on behalf of the said employer in regard to or in connection with the conduct, duties, accounts, or methods of supervision of the said employé, delivered to the company. either prior to the issuance of this bond or to any renewal thereof, or at any time during its currency, shall be held to be a warranty thereof, and form a basis of this guaranty, or of its continuance."
Without deciding whether this has the effect insisted on (Moulor v. Insurance Co., 111 U. S. 341, 4 Sup. Ct. 466; Insurance Co. v. Raddin, 120 U. S. 183, 7 Sup. Ct. 500), it is to be observed:
First. That these terms and conditions, printed and indorsed on and common to all the bonds, are to be read and construed with the application, in which the written statements made when the contract is executed define more particularly, in part, the duties as finally agreed upon.
Second. That this condition (excepting the term "conduct") relates to duties to be performed under and during the currency of the cashier's bond, and is prospective only in its operation, as more fully ap pears when placed side by side and read with No. 8; and, as the bond was canceled in so short a time,-April 15, 1893,-there is really little or no basis for this contention.
Again, if the statements were made warranties in the fullest sense, this does not change or enlarge the answers as made. It would have the effect to make everything material, and require the answer to be true at all events. But where, as in this instance, the answers are to the best of the bank president's knowledge and belief, defendant would have to show that they were
knowingly false. It is to be borne in mind, in regard to the examinations and reports to be made, that whether that duty was sufficiently discharged is to be determined by the circumstances as they appeared at the time the duties were being performed, and not as seen after all the disclosures are made, and the embezzlement, and how it occurred, with Schardt's dishonesty, are known. It is not difficult, after a disaster has occurred, to look back and criticise freely. It is that wisdom after the event which is the possession of many, while foresight is the gift of few. Comparatively few human transactions would stand an after-event test.
The issues respecting examination and report of speculation are fairly close, especially the latter, and on both sides of which much might be and has been well said.
Decree will go on both bonds, with interest after the amounts were payable under the terms of the bonds, with costs. The liability of defendant is secondary to that of Schardt's estate and of all assets and security which the bank holds on account of this shortage, and the decree will be so drawn as to give effect in defendant's favor to its rights growing out of the suretyship relation to the liability.
AULTMAN, MILLER & CO. v. HOLDER.
(Circuit Court, E. D. Michigan. May 13, 1895.)
1. CONTRACTS-LAW OF PLACE.
Plaintiff, an Ohio corporation, having its principal place of business at A., in that state, made a contract with defendant, a resident of Michigan. The contract was executed by defendant in Michigan, and subsequently countersigned by plaintiff's agent in that state and approved at plaintiff's main office at A., pursuant to a provision, contained in it, that it was "not valid unless countersigned by our manager at L. and approved at A.” Held, that the contract was made in Ohio, and was not within the terms of a statute of Michigan relating to contracts made in that state. 2. INTERSTATE COMMERCE-TAXATION-MICHIGAN STATUTE.
The statute of Michigan (Act No. 182 of 1891, as amended by Act No. 79 of 1893), providing that "every foreign corporation ** which shall hereafter be permitted to transact business in this state * * * shall pay to the secretary of state the franchise fee of one-half of one mill upon each dollar of the authorized capital stock. *** All contracts made in this state ** by any corporation which has not first com-plied with the provisions of this act shall be wholly void,"-is void, as a regulation of interstate commerce, as applied to the business of a foreign corporation engaged in selling its wares by itinerant agents in the state of Michigan.
This was an action of assumpsit by Aultman, Miller & Co. against William Holder. The case was submitted to the court, without a jury, upon an agreed statement of facts. Judgment for plaintiff.
The plaintiff is a corporation organized under the laws of the state of Ohio, and is engaged in the business of manufacturing agricultural implements at Akron, in that state, and sells reapers and mowers in Michigan, through local agents at different places, who sell on commission for the company, and as its agents. A written contract is entered into between the company and the agent milar in form to that sued upon in this case. The action is assumpsit, and
is brought against he defendant, William Holder, who is a citizen of Michigan, resident of Lansing, and acted for the plaintiff as a commission agent under the contract executed by himself at Lansing, February 27, 1894, and there countersigned by the local agent of the plaintiff under these provisions of the contract: "This contract not valid unless countersigned by our manager at Lansing, and approved at Akron." The parties have signed and filed a stipulation of facts of which the following is a copy:
"To Said Court: It is agreed between the parties to the above action that the following facts are agreed upon without the submission of evidence, and the parties ask that this stipulation of facts be made a part of the record: First. It is agreed that the contract referred to between the parties was executed, accepted, and approved, as set forth in the said contract. Second. It is agreed that the provisions of the contract, in so far as plaintiff is concerned, have been fulfilled. Third. It is agreed that the balance due, amounting to five thousand and fifty-two and fifty-six hundredths dollars ($5,052.56), is correct. Fourth. It is agreed and admitted that Aultman, Miller & Co. is a corporation organized and existing under the general laws of Ohio, having its corporate office in the city of Akron, county of Summit, and state of Ohio, and having its manufactory at the same place. Fifth. It is agreed and admitted that Aultman, Miller & Co. does not manufacture any goods whatever within the state of Michigan. Sixth. It is agreed that Aultman, Miller & Co. sells its goods by means of local commission agents, and that it has a general agent at the city of Lansing, and that its commission agents are under similar contracts with the plaintiff to the one set forth in this action. Seventh. It is agreed and admitted that all contracts are sent to Aultman, Miller & Co., at Akron, Ohio, for approval or rejection before taking any effect. Eighth. It is agreed and admitted that the goods sold by Aultman, Miller & Co. in the state' of Michigan, and manufactured at its factory at Akron, Ohio, are shipped from the factory upon orders received from commission agents, forwarded by the general agent from Lansing to Akron. Goods are shipped either direct to the commission agent or in bulk to Lansing, or various points throughout the state, and reshipped in smaller lots direct to the commission agent. Ninth. It is agreed and admitted that Aultman, Miller & Co. own a warehouse in the city of Lansing, for the transfer of such reshipments, for the temporary storage of a small stock of extras or repairs, which experience has shown may be suddenly needed by customers throughout the state during the harvest season. A portion of the commission agents throughout the state also keep on hand a very small stock of repairs, for the immediate use of their customers. These are partially commission goods and partially goods sold direct to them. Tenth. It is agreed and admitted that accounts with every commission agent in the state of Michigan are kept at the office of the plaintiff in Akron, Ohio. Eleventh. It is agreed and admitted that the plaintiff effects settlement with its commission agents by sending to its general agent copies or statements of all such accounts, that the general agent and his assistant check over the season's work with the commission agent, collect pay for the machines sold in notes or cash, or both, and forward the same direct at once to the plaintiff at Akron, Ohio, and that the notes so taken are subject to the approval or rejection of the plaintiff. Twelfth. It is agreed and admitted that all notes taken by the commission agents of Aultman, Miller & Co. are sent through its general agent at Lansing, to the factory at Akron, Ohio, where they are numbered, recorded, filed, and retained until just before maturity, when they are sent direct to banks or express companies for collection and remittance direct to Akron, Ohio. F. A. Baker, Attorney for Plaintiff.
"Wood & Wood, Attorneys for Defendant." As will be seen, it is agreed and admitted that the balance due the plaintiff from the defendant, arising out of the business done by the defendant for the plaintiff at Lansing, as its agent as aforesaid, under the contract referred to, amounted on the 3d day of November, 1894, to $5,052.56. The declaration sets forth fully the breaches of contract relied upon by the plaintiff, from which this balance arose. The plea of the defendant is the general issue, with notice in accordance with the authorized practice at law in the courts of Michigan that the defendant will show under said plea that Act No. 182 of the Laws of Michigan for the year 1891, as amended by act No. 79 of the Laws
of Michigan for the year 1893, provides that: "Every foreign corporation or association which shall hereafter be permitted to transact business in this state, which shall not, prior to the passage of this act have filed or recorded its articles of association under the laws of this state, and been thereby authorized to do business herein, shall pay to the secretary of state, the franchise fee of one-half of one mill upon each dollar of the authorized capital stock of such corporation or association and a proportionate fee upon any and each subsequent increase thereof; and that every corporation heretofore organized or doing business in this state which shall hereafter increase the amount of its capital stock shall pay a franchise fee of one-half of one mill upon each dollar of such increase of authorized capital stock of such corporation or association and a proportionate fee upon any and each subsequent increase thereof; provided that the fee herein provided, except in cases of increase of capital stock shall in no case be less than five dollars; and in case any corporation or association hereafter incorporated under the law of this state or foreign corporation authorized to do business in this state, has no authorized capital stock, then in such case each and every corporation or association so incorporated or doing business in this state shall pay a franchise fee of five dollars. All contracts made in this state after the first day of January, 1894, by any corporation which has not first complied with the provisions of this act shall be wholly void. This act is ordered to take immediate effect. Approved May 13th, 1893." The notice further declares that the contract set forth in plaintiff's declaration, and upon which the right of recovery is based, was made and is to be performed in the state of Michigan, within the meaning of the said act. Also that said plaintiff, being a foreign corporation, was, at the time of the execution of said contract, doing business in the state of Michigan, within the meaning and application of said statute, and has not complied with the requirements thereof, nor before nor since the passage of such statute has it filed or recorded its articles of association with the secretary of state for the state of Michigan, nor paid to said secretary of state the franchise fee of onehalf of one mill upon each dollar of its authorized capital stock; that, owing to plaintiff's noncompliance with said statute, the said contract is absolutely void and without force as against said defendant.
F. A. Baker, C. A. Sadler, and C. C. Kirkpatrick, for plaintiff.
SWAN, District Judge. The questions arising in this case have been argued with great learning and ability by counsel, and, although the discussion has taken a wide range, it has left for determination but two inquiries: (1) Was the contract sued upon made in this state? (2) Is the statute upon which the defense is founded a regulation of commerce obnoxious to the constitutional grant of the power over that subject conferred upon congress?
In regard to the first of these questions, it will be noticed that the provision of the statute upon which reliance is had for the avoidance of the defendant's liability for the sum found due from him to the plaintiff limits its penalty to "contracts made in this state after the first day of January, 1894." This contract was made, it is admitted, after that date. What was the locality of its execution? It did not become a contract until all the parties executed it. By its express provision it was not to be valid until countersigned by the agent of the plaintiff at Lansing, and approved at Akron, Ohio. This latter requisite the approval of the plaintiff-is the crowning act of its consummation, as expressing the agreement of the parties. It, therefore, was not made until, by plaintiff's approval, it was perfected and adopted. Until then it was an imperfect obliga tion, having no force whatever. The act which gave it vitality was