Statement of the Case. ing cash, securities and vouchers, if any) last examined, and by whom? A. December 31, 1892, by finance committee (were they found correct) of bank and found correct. "Q. 14. In case of applicant handling cash or securities, how often will the same be examined and compared with the books, accounts and vouchers, and by whom? A. Not less than quarterly, and often monthly, by finance committee. "Q. 15. In case of applicant acting as teller: (a) Will he be required to balance his cash daily, and report same to president or cashier? (b) And will a record of same be kept? A. "Q. 16. Will applicant handle funds or securities not subject to a routine check, or periodical examination? If so, please describe their nature? A. No." "The above answers and representations are true to the best of my knowledge and belief.” The cashier's bond was then executed and delivered to the bank, and provided: "Whereas the said employé has been appointed cashier at Nashville, Tennessee, in the service of the said employer and has been required to furnish security that he shall not be guilty of any fraudulent act in the performance of his duties in the said capacity, by which the said employer shall suffer pecuniary loss, and whereas the said company, in consideration of the sum of one hundred dollars, now therefor paid for the term expiring January 1, 1894, and for the purposes of the renewal of this contract the sum or premiums of one hundred dollars, hereafter to be therefor paid to the said company, on or before the first day of January, 1894, and a like payment for each and every succeeding term of one year, so long as the said company shall consent to receive it-hath agreed upon the terms, and subject to the provisos and conditions hereinafter contained and endorsed thereon, hereby to become such security to the said employer: "Now, therefore, this bond witnesseth, that the said employé for and on his own behalf and the said company fully relying on the truth of the statement and declaration contained in a certain document distinguished as employer's guarantee proposal No. 154,806, dated the 10th day of Jan., 1893, and signed Lewis T. Baxter, president on behalf of the said employer, and Statement of the Case. lodged with the said company at its office in Montreal, and on the strict performance and observance hereafter, by the said employer of the contract thereby created, do hereby, respectively, severally and jointly covenant with the said employer to reimburse unto the said employer or his or their representatives or assigns, the amount of any loss not exceeding in the whole sum of twenty thousand dollars, which, during the currency of this bond, shall be sustained by the said employer by reason of any act of fraud committed by the said employé in connection with the duties of said appointment and constituting embezzlement or larceny-such reimbursement to be made within three calendar months next after proof shall have been given to the satisfaction of the directors of the said company, of the occurrence of such loss, and the proof thereof to include, if the company shall so require, an affidavit to be made or taken by the person, for the time being entitled to the benefit of this guarantee, to the effect that he hath been actually defrauded by the said employé, and that he suffers absolute and ultimate loss thereby to the full amount claimed hereunder, and that the contract created as aforesaid hath been fully performed and observed on the part of the said employer. "Provided always, that this bond and guarantee hereby granted or undertaken, shall be subject and liable to the terms and conditions hereupon endorsed." Among the terms and conditions referred to were these: "This bond is granted upon the following express conditions:" "1. Any misstatement of a material fact, in the declaration within mentioned, or in 'any claim made under this bond, will render this bond void from the beginning. "2. That the said employer shall use all due and customary diligence in the supervision of said employé for the prevention of default, and to that end shall cause an inspection or audit of his accounts to be made at least once within twelve months, and if the said employer shall at any time during the currency of this bond, become aware of any act or default on the part of said employé which would constitute a claim hereunder, and shall continue said employé in his service without notification to the said company, the said company will not be responsible Statement of the Case. hereunder for any loss or default which may occur subsequent to said act or default of said employé. "3. That any written answers or statements made by or on behalf of 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 issue 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 guarantee, or of its continuance. "4. That the said employé has not, to the knowledge or belief of said employer, been guilty of any serious dereliction of duty, or default in this or any other service, or that his habits have been such as to incur said employer's censure, previous to the issue of this bond. "5. The said employer shall, immediately, upon it becoming known to him or them, that the said employé has been guilty of any act entitling the said employer to claim under this bond, notify the said company, at its head office; and this bond shall become absolutely void, both as to existing and future liability if the said employer shall neglect or omit to so notify the said company. * * * * * "8. That in addition to the supervision to be exercised by the said employer as mentioned in the statement and declaration within referred to the said company shall be afforded every reasonable facility to examine from time to time as they may desire, for the purposes of this bond, the books, papers and affairs of the said employer entrusted to the keeping and charge of the said employé." It appeared from the evidence that Schardt defaulted as teller and collector from September 12, 1890, to January 1, 1893, in the sum of $78,819.24, subdivided as follows: From September 1, 1890, to January 16, 1891, $5879.34; from January 16, 1891, to January 1, 1892, $22,290; from January 1, 1892, to January, 1893, $50,649.90; and as cashier, from January 16, 1893, to April 15, $22,964.17. The principal books of the bank were: A general ledger, showing generally the accounts of the bank, including the ac Statement of the Case. count in totals of the deposits made and checked out daily; a cash book, giving each day's business; a daily balance book, which was a summary of the general ledger; these three books were kept by Schardt; and an individual ledger, which showed in detail the deposit account of each individual depositor, and was kept by a clerk, who had no other duties, and was known as individual bookkeeper. The aggregate of the amounts due each depositor shown on the individual ledger and the totals due depositors on the general ledger and daily balance book should have agreed, but this they did not do because, after the latter part of 1890, the general ledger and daily balance book did not correctly show the amount due to all depositors, although the individual ledger correctly gave the amount due to each depositor. Up to the latter part of 1890 trial balances were taken from the individual ledger every two weeks, or once a month, and entered in a trial balance book, and these balances were compared with the balances on the general ledger and any differences settled and corrected, but at that time Schardt told the individual bookkeeper that it was not necessary to take off trial balances any longer, and thereafter none were taken off. Schardt, as teller, abstracted the funds of the bank and understated on the general ledger the amount due to depositors by the amount he abstracted. The difference in the balances represented the shortage at the respective dates. The individual and general ledger were out of balance January 16, 1891, $2098; January 1, 1892, $19,600, and January 1, 1893, $69,700. The leading expert accountant testified that he was employed to examine the books on April 15, 1893, and went to the bank on the morning of that day between eight and eight thirty o'clock, and that by four o'clock that afternoon he had discovered that while the daily balance book kept by Schardt showed less than $18,000 due depositors, the individual ledger from "A" to "L," (leaving "M" to "Z" to be examined) showed an indebtedness due depositors of in the neighborhood of $55,000. He reported at once that something was radically wrong; although it required considerable time subsequently to ascertain the exact condition of the bank. Quarterly examinations of the bank's condition were made Statement of the Case. by the finance committee, but the individual bookkeeper was not requested to furnish the total amount shown on the individual ledger to be due depositors. The committee "examined no book except the daily balance sheet, with which we compared the reports as made out by Schardt." "Q. In what way could you tell that the amounts reported by Schardt were correct? A. We only had his word for it and the reports that he made to us and the exhibit on the daily balance book." "Q. In what way did you verify the statement on the book kept by Schardt which would have shown and purported to show the amount due individual depositors? A. We made no verification of it only in the manner in which I have stated. Q. Have you stated any manner in which you verified this particular account? A. We took his word for it, which we had to do or go into an examination of all the books." Schardt also abstracted proceeds of notes paid to him as teller. This shortage was not concealed on the books. The amount of notes in the bank did not equal the amount called for by the books by the amount abstracted. January 1, 1892, the books showed a defalcation of $28,169.34, of which $19,600 was abstracted deposits and $3765.44 proceeds of notes collected and not accounted for. January 1, 1893, the books showed a defalcation of $78,819.24, of which $69,700 was abstracted deposits and $401544 proceeds of notes collected. The following evidence was also introduced: Charles Sykes, who was the cashier of the bank from January, 1890, to January, 1893, testified: "Q. 6. Did you at any time during that year receive information that John Schardt was speculating; if so, state when, how and all the circumstances? A. Yes, sir; I did receive such information. Some time in the summer or fall of 1892 a gentleman by the name of Kyle came here from New York, representing Myers & Co., of New York. Kyle wanted me to become interested in the brokerage business and represent Myers & Co. at this point. I told him that I did not like the idea because it would be purely a speculative business, and he |