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. Howard Bank, 73 Md. 135, 10 L. R. A. 552, ment, knowingly made. 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 | The cashier or his sureties are not released from liability because of the negligence 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. Howard 58; First Nat. Bank v. Drake, 29 Kan. 328. 44 Am. Rep. 646; McShane v. 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. Lieberman v. First Nat. Bank (Del.) 40 Atl. 384. 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 United States v. Cutter, 2 Curt. C. C. work. 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 It is good faith, and not diligence, which Root, 2 Met. 540; Nor are the sureties of a cashier discharged by failure of directors to examine his books. 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 When a contract is so drawn as to leave room for two constructions of its provisions, 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. 183 U. S. 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. Representations, expectations, belief, or opinion, without fraud, do not avoid a policy. 2 Joyce, Ins. §§ 1903, 1904; Benham v. United Guarantee & Life Assur. Co. 7 Exch. 744. 21 L. J. Exch. N. S. 317. The bond or policy issued on the teller and collector contains no warranty by its words or construction. Phoenix Mut. L. Ins. Co. v. Raddin, 120 U. S. 183, 30 L. ed. 644, 7 Sup. Ct. Rep. 500. The cashier's policy or bond does make an effort to create a limited warranty in respect to certain things mentioned therein-such as "conduct," "duties," accounts, or methods of supervision-but it is fatally defective in these particulars because it is signed by a third party on information and belief. Gage v. Lewis, 68 Ill. 604; Towle v. National Guardian Assur. Soc. 3 Giff. 42; Benham v. United Guarantee & Life Assur. Co. 7 Exch. 744. The addition of the words "so far as the same are known to the applicant," in an application for insurance, has been held to reduce or lower what otherwise would have been a warranty to a representation which could not be recovered upon in the absence of fraud. Fisher v. Crescent Ins. Co. 33 Fed. 549. See also Wilkins v. Germania F. Ins. Co. 57 Iowa, 529, 10 N. W. 916; Redman v. Hartford F. Ins. Co. 47 Wis. 89, 32 Am. Rep 751, 1 N. W. 393; Connecticut Mut. L. Ins. Co. v. Fisher, 30 Fed. 662; First Nat. Bank v. Hartford F. Ins. Co. 95 U. S. 673, 24 L. ed. 563; Moulor v. American L. Ins. Co. 111 U. S. 335, 28 L. ed. 447, 4 Sup. Ct. Rep. 466. spection or audit of the accounts or books The company, not unnaturally, contends 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 be coming 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 de livery, in the category of gambling, and aimed to suppress it. Allen v. Dunham, 92 Tenn. 257, 21 S. W. 898; McGrew v. City Produce Exchange, 85 Tenn. 578, 4 S. W. 38; Palmer v. State, 88 Tenn. 553, 8 L. R. A. 280, 13 S. W. 233; Acts 1883, chap. 251. 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. The [416] Mr. Chief Justice Fuller delivered the cashier further testified that he afterwards opinion of the court: The teller's bond, as originally given, expired January, 1889, and was renewed from year to year. Before each renewal the bank was informed by the company that it was necessary that a certain certificate by the president or cashier should be furnished, which was done, and stated, among other things, that the accounts of the teller had been examined and verified by the finance committee of the bank. The bond provided [417] that it was issued and renewed "on the express understanding that the employee has not, within the knowledge of the said employer, at any former period, either in this or other employment, been guilty of any default or serious dereliction of duty;" "that the employer shall observe, or cause to be observed, all due and customary supervision over the said employee, for the prevention of default:" and that there shall be "an in received an anonymous letter that Schardt was speculating, and showed it to the president; that he spoke to Schardt about it; that the latter said he thought he knew the author, and asked for the letter, that he might bring the party before the cashier and make him acknowledge that it was false. The letter was given him, but nothing came of it, although he was asked about it more than once. This conversation was reported to the president. A leading director and a member of the finance committee was shown by another director an anonymous letter to him, to the same effect, which was reported to the president. The letter stated that Schardt was in partnership in a bucket shop. Schardt said it was a lie, and brought his partners before the president and the two directors, and they said that they had opened a brokerage association with Schardt, but that Schardt had sold out. 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: ance. 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." But the bond before us not only contained that clause, but the clause under consideration, which was a different and additional clause intended to secure the safety of prevention through timely warning. "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, the former, if consistent with the objects for which the bond was given, must be adopted; and this for the reason that the instrument which the court is invited to in[41]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 As said by Lord St. Leon- of," or "to be put on one's guard in respect ards in Anderson v. Fitzgerald, 4 H. L. Cas. to," and that no other meaning is equally 484, 507 'it [a life policy] is, of course, pre-admissible under the terms of the instrupared by the company, and if, therefore, there ment. These are the definitions of the lexishould be any ambiguity in it, must be cographers, distinctly deducible from the 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 suflicient clearness to convey the plain meaning of the parties, and embodying requirements compliance with which is made the condition to liability thereon. derivation of the word "aware," and that 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 repent ance 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 investe 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 substi ted its own judgment as to the act came to the knowledge of the employer. ' value of that information for that of the company. In our view this conduct on its | of keeping accounts, there is always a risk part amounted to a breach of the stipula tion. The Circuit Judge in his opinion said: "The language of the bond is that the em ployer shall report on his becoming aware of the employee being engaged in specula tion.' 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." 68 Fed. 459, 465. The circuit court of appeals said: "There is not the least evidence of any bad faith on the part of any of these officers of the bank, including Sykes, the old cashier, in not making a disclosure of what was known, but only of bad judgment in not being more considerably affected by their information." 26 C. C. A. 161, 47 U. S. App. 115, 80 Fed. 781. These quotations show that the circuit court of appeals and the circuit court concurred in the opinion that if the president and directors had such confidence in Schardt that they did not feel called upon to make any investigation in view of the information that they had received, or to notify the company of that information, and were not guilty of intentional bad faith, then the bank could not be held to have violated the stipulations of the bond on its part. of defalcation. The prevention of defaults or their detection at the earliest possible moment are of even more vital importance to financial institutions than to the guarantors of the fidelity of their employees. The provisions intended to protect the company in this case were not in themselves unreasonable, and, so far as they operated to compel the bank to exercise due supervision and examination and due vigilance, were consistent with sound public policy. We think it was the duty of this bank to have made prompt investigation, or, at all events, to have notified the company at once of the information that it had; and we decline to 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. Our conclusion is that the failure of the bank in the particulars adverted to defeats a recovery on the teller's bond for defaication after information of Schardt being engaged in speculation was received. It also results that there can be no recovery at all on the cashier's bond. If the bank had observed the stipulation in the teller's bond to which we have referred, it is obvious that there would have been no [423] cashier's bond, and the question would not have arisen. But this it did not do, and the bond was given. The bond provided that the company covenanted with the bank in reliance on the statement and declaration of the president on behalf of the bank, and on the bank's strict observance of the contract; that any misstatement of a material fact in the declaration should invalidate the bond; that the bank should use "all due and customary diligence in the supervision of said employee for the prevention of default;" "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 su 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." Two of the questions and answers in the declaration were as follows: Q. Have you known or heard anything unfavorable as to his habits or associations, past or present?—A. No. As will have been seen, we are unable to accept this conclusion. The company's de-pervision of the said employee, delivered to fense did not rest on the duty of diligence growing out of the relation of the parties, [422]but on the *breach of one of the stipulations entered into between them. The question was not merely whether the conduct of the bank was contrary to the nature of the contract, but whether it was not contrary to its terms. Engagement in speculation or gambling was what the company sought to guard against because experience had admonished it of the probability that speculation or gambling would lead to acts involving loss of which it would be responsible. Bad faith, in the view of the courts below, would not exist if the bank had such confidence in Schardt's integrity that it accepted his bare statement that he was not speculating as cashier were confederates in the dishonesty In Pauly's Case the president and the overcoming the weight of his admission that of the cashier, for the purpose of defraudhe had been. How anything but such a de-ing the bank; and also it was held no part nial could be expected it is not easy to see, of the duties of the president under the cir nor how careful and prudent men could have cumstances there disclosed to certify to the been justified in omitting independent in- integrity of the cashier as he did. In this quiry. case the dishonesty was that of the cashier The truth is that, in spite of strict super-alone; the statements were required to be vision and the pursuit of the best systems and were made on behalf of the bank, and Q. Or of any matters concerning him about which you deem it advisable for the company to make inquiry?—A. No. to the president acted for the bank in so doing; and the bonds were procured by the bank, and the bank paid the premiums. There can be no doubt that the bank was responsible for the representations of its cashier in the one instance and its president in the other in procuring these contracts of indemnity. The representations made in the declaration on which the cashier's bond was issued were clearly misrepresentations. The teller's bond required notification if the bank were informed of speculation on Schardt's part. The president had heard [424]of such speculation, and knew that speculating was something unfavorable as Schardt's habits; and the president of course knew that the matters concerning him, of which he had heard, were such as it was advisable for the company to make inquiry about. True, the second question was if he had heard of matters about which he deemed it advisable for the company to inquire, and the word "deem" might be said to give a considerable discretion, but it was not a discretion to be abused. That the company would consider it advisable to make inquiry is too plain for argument. The whole tenor of the bond renders any other conclusion impossible. We cannot regard the representations of the president as consistent with good faith, and he was not even called as a witness by the bank to explain his conduct, if he could have done so. The decrees of both courts are reversed, and the cause remanded to the Circuit Court for further proceedings consistent with this opinion. WILLIAM R. TUCKER, Vice-Consul of v. LEO ALEXANDROFF. (See S. C. Reporter's ed. 424-470.) construction extradition Treaties 1. A convention in a treaty which is operative upon both of the signatory powers, and is intended for their mutual protection, should be interpreted in a spirit of uberrima fides, and in a manner to carry out its manifest purpose. A vessel which has been launched, but is still in process of construction under a contract to build a protected cruiser for the imperial Russian government, is a Russian ship of war, within the meaning of the provision of the treaty of 1832 with Russia, which authorizes the arrest and surrender of deserters Istad, 10 L. ed. U. S. 826. On habeas corpus in cases of foreign extradi 3. 4. 3. from the ships of war of that country, although under such contract the vessel may be rejected for deficient speed or excessive draft, and during her construction is at the risk of her contractors until actually accepted or actual possession taken, where the contract also provides that the vessel shall be constantly subject to inspection by a board appointed by the Russian Ministry of Marine, and that whether finished or unfinished, the vessel and all materials intended for her construction, when brought upon the premises of the contractors, shall immediately become the exclusive property of the Russian Ministry of Marine. Seamen become obligated to merchant vessels from the time they sign the shipping articles, and from that time they may incur the penalties of desertion. A member of the Russian naval service sent to the United States as one of the force or dered to take possession and serve as the crew of a protected cruiser built for the imperial Russian government, who deserts before the crew is organized as such and without ever setting foot upon the vessel, is, nevertheless, a deserter from a Russian ship of war, within the meaning of the treaty of 1832 with Russia, authorizing the arrest and surrender of deserters from ships of war of that country, although such cruiser had not yet been commissioned as a member of the Russian navy. The production by a Russian vice-consul, of official documents showing that a person sought to be arrested and detained as a deserter from a Russian ship of war formed part of her crew, required by the treaty with Russia of 1832 as a condition of receiving the assistance of the local authorities, is waived by petitioner for a writ of habeas corpus to Inquire into a detention under such proceedIngs, by his admission upon the hearing accompanying the offer of the passport under which he entered the United States, that he came to the United States as a member of the Russian navy, detailed to become one of the crew of such cruiser, and that he came for that express purpose. [No. 303.] Argued November 15, 18, 1901. Decided N WRIT of Certiorari to the Circuit Court of Appeals for the Third Circuit to review a decree affirming an order of the District Court for the Eastern District of Pennsylvania discharging a prisoner from custody. Reversed. See same case below, 48 C. C. A. 97, 107 Statement by Mr. Justice Brown: The petition set forth that the petitioner NOTE. On the construction and operation of was illegally detained *upon a commission- 420 treaties-see note to United States v. The Am-er's warrant, issued upon the affidavit of Captain Behr, to the effect that he was a duly engaged seaman of the Russian cruiser Variag whose term of service had not expired, and that he had, on or before April 25, 1900, deserted from said vessel without tion-see note to Re Huse, 25 C. C. A. 23. On extradition of persons accused of crime on demand of foreign governments-see note to Kentucky v. Dennison, 16 L. ed. U. S. 717. |