PRINCIPAL AND SURETY - FIDELITY BONDS - EFFECT OF FAILURE TO MAKE DISCLOSURES REGARDING BONDED EMPLOYEES

Authors

Francis T. Goheen, University of Michigan Law SchoolFollow

Abstract

The defense on a fidelity bond given by the cashier was the failure of the officers of the obligee bank to disclose that prior to the execution of the bond the bank examiner had discovered and advised the officers that the cashier had, without the knowledge and consent of the officers and directors, become indebted to the bank in the. sum of $889.60 by paying his own checks drawn on the bank. When the overdraft was called to his attention the cashier immediately repaid the bank. The surety insisted that despite the fact that the officers of the bank may have in good faith believed in the cashier's honesty, the fact of his shortage was so material to the risk that the failure to disclose it was fraudulent as a matter of law. On this theory the trial judge directed a verdict for the surety. It was held on review that the surety should be released only if there was fraud in fact; that there was no fraud in fact if the officers of the bank sincerely believed the employee to be trustworthy unless, knowing that the bond would not be issued if the insurer knew the facts, they deliberately withheld them to obtain its execution, and that the question of the belief and the intent of the officers was one for the consideration of the jury. First State Bank v. New Amsterdam Casualty Co., (C. C. A. 5th, 1936) 83 F. (2d) 992.

Recommended Citation

Francis T. Goheen, PRINCIPAL AND SURETY - FIDELITY BONDS - EFFECT OF FAILURE TO MAKE DISCLOSURES REGARDING BONDED EMPLOYEES, 35 Mich. L. Rev. 345 (1936).
Available at: https://repository.law.umich.edu/mlr/vol35/iss2/20