rights of the Federal government in equitable terms, as the President of lands thus held by it do not differ the United States may provide, does from the right of the private owner not have the effect of placing such of land within the state, and the gov- right of way beyond the right and the ernment is to be treated like other exercise of the state's power of erni. proprietors as to all servitudes, ease- nent domain for the purpose of acments, and other charges: Union P. quiring a legal right to cross the right R. Co. v. Burlington & M. River R. Co. of way. Union P. R. Co. v. Leaven(1880) 1 McCrary, 452, 3 Fed. 106; worth, N. & S. R. Co. (1887) 29 Fed. United States V. Ames (1845) 1 728. Woodb. & M. 76, Fed. Cas. No. 14,441; It is clear that before government Flint & P. M. R. Co. v. Gordon (1879) land, appropriated for a specific pur41 Mich. 420, 2 N. W. 648; Camp v. pose, may be taken by eminent domain Smith (1858) 2 Minn. 155, Gil. 131; proceedings, it must be for a purpose State V. Bachelder (1860) 5 Minn. clearly supreme or paramount to the 223, 80 Am. Dec. 410, Gil. 178; Simon- purpose for which it is being used or son v. Thompson (1870) 25 Minn. 450. to which pre-eminence is expressly It has been held that an act of Con- given by law or the Constitution. gress incorporating a railroad, and United States v. Chicago (1849) 7 providing that any other railroad com- How. (U. S.) 185, 12 L. ed. 660. pany now incorporated or hereafter to For example, land reserved by the be incorporated shall have the right government for military purposes is to connect its road with the road and not subject to be taken by the state branches provided for by this act at by eminent domain proceedings for such places, and upon such just and public streets. Ibid. A. G. S. NATIONAL SURETY COMPANY, Piff. in Err., V. United States Circuit Court of Appeals, Ninth Circuit - February 28, 1919. (256 Fed. 601.) Insurance fidelity - information - overdrawing of account. 1. One applying for fidelity insurance for his employee cannot withhold from the insurer information that the employee is in the habit of overdrawing his account and that it is overdrawn at the time the application is made. [See note on this question beginning on page 558.] Appeal — findings of facts by court. sitting without a jury are conclusive 2. Findings of facts by the court on appeal. [See 2 R. C. L. 202 et seq.] ERROR to the District Court of the United States for the Southern Division of the Southern District of California (Trippet, District Judge) to review a judgment in favor of plaintiff in an action on an indemnity bond. Reversed. The facts are stated in the opinion of the court. Argued before Gilbert, Ross, and the defendant of the knowledge which Morrow, Circuit Judges. it possessed of its employee's habits Messrs. O'Melveny, Millikin, & Tul- of overdrawing and drinking was a ler and Hocker & Austin, for plaintiff misrepresentation to it of such a charin error: acter that, but for its “having been The concealment by plaintiff from made, either the suretyship would not (256 Fed. 601.) have been entered into, or, being en- Magee v. Manhattan L. Ins. Co. 92 tered into, the extent of the surety's U. S. 93, 23 L. ed. 699; Watertown F. liability might be thereby increased," Ins. Co. v. Simmons, 131 Mass. 85, 41 and that in consequence the surety is Am. Rep. 196; Atlantic & P. Teleg. Co. relieved from its obligation. v. Barnes, 64 N. Y. 385, 21 Am. Rep. 1 Brandt, Suretyship, $$ 16, 447; 621; Home Ins. Co. v. Holway, 55 Bank of Monroe v. Anderson Bros. Iowa, 571, 39 Am. Rep. 179, 8 N. W. Min. & R. Co. 65 Iowa, 692, 22 N. W. 457; Southwestern Co. v. Wynnegar, 929; Frisch v. Miller, 5 Pa. 310; State 111 Miss. 412, 71 So. 737; Charlotte, C. v. Dunn, 11 La. Ann. 549; Fishburn v. & A. R. Co. v. Gow, 59 Ga. 685, 27 Am. Jones, 37 Ind. 119; Warren v. Branch, Rep. 403; Roper v. Sangamon Lodge, 15 W. Va. 21; Farmers' Nat. Bank v. 91 Ill. 518, 33 Am. Rep. 60; Ham v. Van Slyke, 49 Hun, 7, 1 N. Y. Supp. Greve, 34 Ind. 18; Wilmington, C. & A. 508; Woolley v. Louisville Bkg. Co. 81 R. Co. v. Ling, 18 S. C. 116; LanKy. 527; Wilmington, C. & A. R. Co. v. cashire Ins. Co. v. Callahan, 68 Minn. Ling, 18 S. C. 116; Anaheim Union 277, 64 Am. St. Rep. 475, 71 N. W. Water Co. v. Parker, 101 Cal. 494, 35 261; Colby Wringer Co. v. Coon, 116 Pac. 1048; Graves v. Lebanon Nat. Mich. 208, 74 N. W. 519; Anaheim Bank, 10 Bush, 23, 19 Am. Rep. 50; Union Water Co. v. Parker, 101 Cal. United States Fidelity & G. Co. v. 483, 35 Pac. 1048; Palatine Ins. Co. Blackly, 117 Ky. 127, 77 S. W. 709; v. Crittenden, 18 Mont. 413, 45 Pac. Comstock v. Gage, 91 Ill. 328; Conger 555. v. Bean, 58 Iowa, 321, 12 N. W. 284; Drabek v. Grand Lodge, B. S. B. S. Ross, Circuit Judge, delivered the 24 Ill. App. 82; Dinsmore v. Tidball, opinion of the court: 34 Ohio St. 411; Smith v. Josselyn, 40 The defendant in error applied to Ohio St. 409; Folmar v. Siler, 132 Ala. the plaintiff in error to become 297, 31 So. 719; Smith v. Silsby, 55 Cal. surety, beginning October 15, 1915, 470; Wilson v. Monticello, 85 Ind. 10; for certain of its employees for the Deposit Bank v. Hearne, 104 Ky. 819, amounts and in the positions set op48 S. W. 160; Powers Dry Goods Co. posite their names, respectively, inv. Harlin, 68 Minn. 193, 64 Am. St. Rep. 460, 71 N. W. 16; Belleview Loan cluding one T. F. Hayes. & Bldg. Asso. v. Jeckel, 104 Ky. 159, “These employees, and each and 46 S. W. 482; United States L. Ins. Co. every of them, while in the service of v. Salmon, 157 N. Y. 682, 51 N. E. 1094; the undersigned employer," the apMacey v. Heger, 195 Pa. 125, 45 Atl. plication expressly declared, "have 675; Jungk v. Holbrook, 15 Utah, 198, always performed their respective 62 Am. St. Rep. 921, 49 Pac. 305; Con- duties in a faithful and satisfactory necticut General L. Ins. Co. v. Chase, 72 Vt. 176, 53 L.R.A. 510, 47 Atl. 825; manner. There has never come to Armstrong v. Cook, 30 Ind. 22; Blest the notice or knowledge of the emv. Brown, 4 De G. F. & J. 367, 45 Eng. ployer any act, fact, or information Reprint, 1225, 8 Jur. N. S. 602, 6 L. Ť. tending to indicate that they or any N. S. 620, 10 Week. Rep. 569; London of them are negligent, unreliable, General "Omnibus Co. v. Holloway deceitful, dishonest, or unworthy of (1912] 2 K. B. 72, 81 L. J. K. B. N. S. 603, 106 L. T. N. S. 502, Ann. Cas. confidence. As far as the employer 1912D, 1283; Glidden v. United States knows, the habits of each and all of Fidelity & G. Co. 198 Mass. 109, 84 N. them are good, and the employer E. 143, Sooy v. State, 39 N. J. L. 135; knows no reason why you cannot Guardian Fire & L. Assur. Co. v. safely become surety for them and Thompson, 68 Cal. 209, 9 Pac. 1; Guar each of them. antee Co. of N. A. v. Mechanics' Sav. "The above and foregoing stateBank & T, Co. 183 U. S. 402, 46 L. ed. 253, 22 Sup. Ct. Rep. 124. ment and representations are each, Messrs. W. G. Van Pelt and E. S. every, and all warranted by the emWilliams, for defendant in error: ployer to be true, and are made for Prior indebtedness, or an arrearage the purpose of inducing the National in accounts, where there is no dis Surety Company to become such honesty, owing by the principal to the obligee, need not be disclosed to surety, and said statements and repthe surety, and failure to disclose the resentations shall apply to each and same is not a concealment. every employee hereafter added to the schedule to be covered by said Pease, 180 U. S. 126, 45 L. ed. 457, bond as therein provided. 21 Sup. Ct. Rep. 329; Meyer v. Ever“Dated at Los Angeles the 15th ett Pulp & Paper Co. 113 C. C. A. day of October, 1915." 643, 193 Fed. 857, 863. Upon that application the plaintiff The court below, however, found in error issued its policy to the de- these further facts to be true: That fendant in error in consideration of when Hayes (who had been the the payment of an annual premium agent of the milling company at computed at an agreed rate and pay- Woodland, California, before being able on the 15th day of October dur- transferred as its agent at Salt ing each and every year that the Lake, Utah) left Woodland he was bond should continue in force, agree- overdrawn in his accounts in the ing "to make good within sixty (60) sum of about $812.68, which overdays after satisfactory proof there- drawing had been expressly perof, to the Globe Grain & Milling mitted by the milling company, and Company, of Salt Lake City, Utah, was in the nature of a loan by it to employer, any loss which the em- him; that the same was not comployer may sustain by reason of municated by the milling company any act of personal dishonesty, or any of its officers to the insurance forgery, theft, larceny, embezzle- company, which made no inquiry as ment, wrongful conversion, or ab- to any indebtedness owing by Hayes straction on the part of any to the milling company; that when employee named in the schedule" Hayes was sent by the milling comattached, including said Hayes, the pany to Woodland he stated to the amount of whose bond was $5,000. president of that company that on Subsequent to the issuing of the account of some bu ess ventures in bond Hayes embezzled from the de- which he had been formerly engaged fendant in error $5,000, resulting in in Mexico he had lost some money the present action by it to recover of and was in debt and was obliged to the insurance company the amount make certain payments, and thereso embezzled, with costs. fore asked the president of the millThe case was tried before the ing company to be allowed to overcourt without a jury by stipulation draw his account while at Woodland, of the parties, and resulted in cer- which request was granted, and that tain findings of fact upon which he was so overdrawn when he left judgment was entered in favor of Woodland in the sum of $812.68, bethe insured. sides which he then owed the milling Allegations of fact made in de- company $500 on a note, advanced to fense of the action, to the effect that him by the milling company in order Hayes drank to excess, was accus to enable him to maintain a loan at tomed to overdraw his account with the Merchants' National Bank of the milling company, and was an Los Angeles for $2,500, which latter habitual gambler on horse races and loan was secured by stock held by at poker prior to the giving of the Hayes in a corporation operating in insurance, with the knowledge of the Mexico; that between September, president of the insured, were neg 1914, when Hayes left Woodland, atived by the findings made by the and the 1st of December, 1915, the trial court, and under the well-estab- overdraft was reduced to $304.32, lished rule such findings are conclu and that, including the $500 note, he sive upon us, how- was on the day last mentioned inAppeal-findings of facts by ever convicing we debted to the milling company in the might otherwise sum of $804.32; that when he was consider the argument of the plain- sent to Salt Lake the permission tiff in error that upon the evidence theretofore given him to overdraw such findings should have been his account was withdrawn by the otherwise. Tyng v. Grinnell, 92 U. president of the milling company, S. 467, 23 L. ed. 733; Dooley V. who had, however, always implicitly (256 Fed. 601.) believed in his integrity and hones- did not, show merely the personal ty; that after the said Hayes went account of the agent of the comto Salt Lake City as such agent, and pany in the place where the stateparticularly after February 1, 1916, ment was made, but might, and was he abstracted, used, and applied intended to, and did, show the perthe money of the milling company sonal accounts of other parties in betting on horse races, in buying owing to the company in the grain on margins in the grain regular course of business, as well market, and otherwise for his own as general expense accounts and personal use, of which, however, the other items of expense incurred by miilling company had no notice un- the agent or representative of the til May 31, 1916, at which time it im court. company in the regular course of his mediately discharged him from its business for and on behalf of the employment; that on or about March company; that it was customary and 1, 1916, a balance sheet dated Feb- regular for large amounts to be enruary 29, 1916, prepared by or under tered under that caption in such rethe direction of Hayes at his office in ayes at his office in ports, which had nothing to do with Salt Lake City, showing assets and the personal standing or account of liabilities of the milling company at the agent at the agency where the its Salt Lake agency and containing statement was prepared; that the an item marked “Personal Accounts, said statement of February 29, 1916, $3,239.70,” was received through was the only statement or report the mail at the office of the milling sent by Hayes to the milling comcompany at Los Angeles, from the pany from October 15, 1915, to May office of Hayes at Salt Lake; that the 31, 1916, except statements relative time when such statement was de- to his grain purchases and sales in livered through the mail was not the the regular course of his business for time when the outside agencies of the company; that all of the abstracthe milling company were expected tions of Hayes at the Salt Lake office or required to report to its Los were entered by him on the books of Angeles office, and was not looked the company, and that credits he for there, that such statement was placed on those books consisted at received by a clerk of the milling times of winnings by him on horse company at its Los Angeles office, races or on marginal transactions in whose duties were those of assistant the stock or in the grain market, but auditor, and was filed by him with- no part of the same was ever known out any examination, and without to the company, and that between calling it to the attention of any of October 15, 1915, and May 31, 1916, the officers of the milling company; the milling company never checked that while it did not so appear in the or audited or examined the books of said statement of the said item of Hayes at the Salt Lake office, and did $3,239.70 marked as “Personal Ac- not know their contents in any recounts," $1,099.02 was then an over- spect; that neither the company nor draft of Hayes at the Salt Lake its officers ever knew that Hayes was office, and the balance of the said overdrawing his account at the Salt sum of $3,239.70 consisted of sun- Lake office until May 31, 1916. dry personal items owing to the mill- The evidence shows without coning company in the regular course of flict (and the same is without conbusiness by various customers with flict with any of the findings) that it whom it was doing business at its was the custom of the milling comSalt Lake office; that the entry, pany to permit its employees to over“Personal Accounts,” in the balance draw their accounts, but that when sheet, which was a printed form pre- Hayes was sent to Utah that permispared by the milling company for sion was expressly withdrawn from general use throughout its business, him. He was first sent there in the both at Los Angeles Los Angeles and its its early part of January, 1915, by the branches, was not intended to, and milling company to buy grain for it, returning to Los Angeles several not know what its own books times between that time and the showed, especially in view of the fact month of July of the same year, dur- that there must have been some reaing which month he returned to the son for the express withdrawal by company's Salt Lake office with in- the defendant in error, when it sent structions to there open a set of Hayes to Utah, of the privilege of books, and where the company estab- overdrawing his account, which it lished a branch office and a bank ac- had theretofore accorded him along count about September 15th, with with its other employees. We think Hayes in charge. From that time to the case fairly comes within the true May 31, 1916, there was never any doctrine of the case of Guarantee Co. audit made of the company's books of N. A. v. Mechanics' Sav. Bank & kept by Hayes at Salt Lake. It will T. Co. 183 U. S. 402, 46 L. ed. 253, be seen, therefore, that notwith- 22 Sup. Ct. Rep. 124, and accordingly standing the peculations of Hayes the judgment is reversed, and cause were entered by him on the books of remanded to the court below, with the company, and could have been directions to enter judgment for the easily discovered by their exami- defendant, with its costs. nation, no examination of them Gilbert and Morrow, Circuit whatever was made by the com Judges, concurring: pany, and it did not even know of We are of the opinion that the the overdrawing of his account, judgment should be reversed, and contrary to the express order of its that upon the findings of the court president, until May 31, 1916. below judgment should be directed Can it be properly held that the to be entered in favor of the plaintiff company was not bound to know that in error upon the following grounds: its books showed upon their face the Prior to the date of the applicaembezzlement of its funds by one of tion for insurance, Hayes had been the employees, the honesty of whom in the service of the insured for it applied to the plaintiff in error to more than five years, and during the insure, upon an application which ex whole of that time he had been perpressly warranted the truth of its mitted to overdraw his account. statement that there had never come No restriction was placed upon the to its notice or knowledge any act, amount which he might overdraw; fact, or information tending to in- the permission being to overdraw in dicate that he was negligent, unre a "reasonable amount." After beliable, deceitful, dishonest, or un ing in the service of the insured at worthy of confidence, and that it Woodland, California, for several knew no reason why the insurance years, he was transferred in Jancompany could not safely become uary, 1915, to Salt Lake City, where surety for him? We think not. Be- he remained until he was discharged. yond question, the defendant in At the date of the application, error knew that the permission it October 15, 1915, his account at had, along with its other employees, Woodland was overdrawn in the sum theretofore accorded Hayes of over- of $717.13, in addition to which he drawing his account, was expressly owed the insured upon a note $500, withdrawn from him when he was which was originally an overdraft, sent to Utah, and beyond question and he was overdrawn on his Salt the company's own books kept by Lake account in the sum of $432.93. him at its Salt Lake office showed He testified that, when he was disupon their face his embezzlement of charged on June 1, 1916, his account the funds of the company at the was overdrawn about $6,600. His very time it applied to the plaintiff heaviest overdraft at any time at in error for the insurance in ques- Woodland was $1,154.33 in excess of tion. Under such circumstances, we the $500 note. Blewett, the assistare of the opinion that the applicant ant auditor of the insured, checked cannot be heard to say that it did up Hayes's account before he went |
