just and true accounts of all moneys received and expended and all property bought and sold for or on account of said firm by him or under his direction, and shall faithfully and fully, and as often as required, account for and pay over to said firm any and all moneys belonging thereto collected or received by him, or which in any manner come into his hands in the course of his employment by said firm; and shall forthwith and on demand repay to said firm any and all moneys he shall have withdrawn therefrom for his own use in excess of the compensation due him for his services under the terms of his agreement with said firm in that behalf (whether such moneys shall have been so withdrawn with the consent of said firm or otherwise), as often as it shall be determined that such overdraft has been made, then the above obligation to be void; otherwise to remain in full force and virtue."

This action was brought to recover an amount of money said to be due on the bond, and trial was by the court. No evidence was introduced tending to show any other settlement or accounting than that had when Arons' term of employment ended. In fact plaintiffs admitted that they never ascertained, and could not, at the time of the trial, ascertain, what the respective monthly profits of the business had been. At the conclusion of the plaintiff's case and again at the conclusion of the entire case, the defendant sureties moved the court to dismiss the same as to them upon the ground that, as it affirmatively appeared from the evidence and admissions that no monthly settlements or accounting had been had as provided for in the contract of employment, the sureties upon the bond had been released from liability. These motions were denied, and the court made its findings of fact and conclusions of law ordering judgment in plaintiffs' favor.

The court found the allegation in the complaint that no settlement or accounting was had between the parties until after Arons' employment ceased, to be true. We agree with the court below in its construction of the contract, but we cannot concur in its holding that the sureties were not discharged by the failure and omission to have monthly accountings and settlements between Arons and plaintiffs. The former was to have advanced to him $100 each month for personal expenses and on account of his compensation under an agreement that, if this amount, with other sums of money which came into his possession, ex

ceeded one-half of the net profits of the business, the excess should be promptly refunded. What the profits were, and the sum due to plaintiffs, if anything, were to be provisionally ascertained each month; and, had this been done, it is quite certain that the plaintiffs would have discovered before the expiration of 13 months that the business was not profitable, while Arons would have learned that he was far from earning a living out of it. The natural result would have been for both parties to terminate their contract relation, and avoid further loss. It is evident that there would be much less hesitation on the part of a person called upon to become a surety upon a bond given for the faithful performance of a contract with such conditions than if the real situation was not to be ascertained for months. The condition in the employment contract whereby monthly accountings and settlements were agreed upon was an exceedingly beneficial one for all concerned. It was an essential feature of the contract whereby Arons agreed to conduct plaintiffs' business enterprise for an indefinite period of time, his compensation to be determined by the net profits. The contract of suretyship was departed from and varied when this provision was wholly disregarded, and the case is brought directly within the rule that, if an essential condition of such a contract is not complied with, a surety is not bound. A new trial must be had. Order reversed.

AETNA INS. CO. v. FOWLER ET AL.

108 Mich. 557, 66 N. W. 470. 1898.

Error to Saginaw; WILBER, J. Submitted January 15, 1896. Decided March 11, 1896.

ASSUMPSIT by the Aetna Insurance Company against Charles G. Fowler, Chester Brown, and Gustavus H. Fuerbringer upon an indemnity bond. From a judgment for plaintiff on verdict directed by the court, defendants Brown and Fuerbringer bring error. Reversed.

MONTGOMERY, J. Action on the bond of an insurance agent.

1

Defendant Fowler was employed as the agent of the company at Saginaw, and in December, 1883, executed a bond, with his codefendants as sureties, the conditions being as follows:

"The condition of this obligation is such that whereas the above-named Charles G. Fowler has been appointed agent of the Aetna Insurance Company in Saginaw, Saginaw county, State of Michigan, who will receive as such agent sums of money for premiums, payments of losses, salvages, collections, or otherwise, for goods, chattels, or other property of the said insurance company, and is to keep true and correct accounts of the same, pay over such money correctly, and make regular reports of the business transacted by him, to the said Aetna Insurance Company, and in every way faithfully perform the duties as agent, in compliance with the instructions of the company through its proper officers, and at the end of the agency, by any cause whatever, shall deliver up to the authorized agent of said company all its money, books, and property due from or in possession. Now, then, if the aforesaid agent shall faithfully perform all and singular the duties of the agent of the Aetna Insurance Company, then this obligation shall be null and void."

The instruction to agents were to send statements of all business transacted during the previous month as early as the 12th of each month. The testimony shows that for three months prior to September 1, 1893, the defendant Fowler failed to send remittances, and it was shown that it was not the custom of the company to insist upon absolute promptness in remittance, but that after three months' delay it was the custom of the company to discharge the delinquent agent. The testimony further shows that in the latter part of July or the first of August, 1893, the special agent of the company, a Mr. Neal, visited Saginaw, and, as he described it, found the agency in a "rocky condition;" and, while counsel were disagreed as to the effect of his testimony, we think it is at least open to the construction that he then learned that Fowler had misappropriated the funds of the company, and invested them in realty. The circuit judge directed a verdict for the plaintiff. The recovery included a shortage in accounts before August 1st, and a shortage of $344.16 arising from the August business.

Two contentions are made: First, that it was the duty of the company to notify the sureties of any delay in the remittance,

at once, and that the continuance of the agent after failure to remit in accordance with the instructions of the company to agents released the sureties as to future transactions; and, second, that the company, on the discovery of the misappropriation of funds, August 1st, was bound to discharge the agent, or, at least, the sureties were not bound to respond for his future defalcations, unless, after being informed of his previous acts of dishonesty, they consented to his retention.

We think that the court below correctly ruled that the mere fact that the company had knowledge that the agent had failed to remit did not impose upon it the duty to notify the sureties or discharge the agent. Watertown Fire Ins. Co. v. Simmons, 131 Mass. 85 (41 Am. Rep. 196); Atlantic, etc., Tel. Co. v. Barnes, 64 N. Y. 385 (21 Am. Rep. 621). The duty which the company owed to the sureties was not a duty of active vigilance, to ascertain whether the agent had been guilty of fraud (the sureties' undertaking was a guaranty of his fidelity), but what was due from the employer was good faith to the sureties. Just as it would have been a fraud to withhold knowledge of previous dishonesty of the agent presumably not known to the sureties, but possessed by the company, so it would be a breach of good faith for the company to continue the agent in a place of trust after discovering his dishonesty or defalcation, which is presumptively and in fact unknown to the sureties, and without notifying the sureties of the facts, and giving them an opportunity to elect as to whether they will continue the risk. This is the doctrine of the leading case of Phillips v. Foxall, L. R. 7 Q. B. 666. The cases of Watertown Fire Ins. Co. v. Simmons and Atlantic, etc., Tel. Co. v. Barnes are not inconsistent with this. The substance of the holding in each of these cases is that the mere failure of remittance does not necessarily amount to notice of dishonesty on his part, and that applies to the present case as regards the charges occurring before August. There is no evidence that prior to August the company had actual notice that Fowler had converted any of the funds to his own use, or was more than negligent in remitting or collecting the premiums; but as to the transactions in August the case is different. Under section 9191, 2 How. Stat., it is made an offense for an insurance agent to receive and invest money of the company

without its assent; and, as we before stated, we think there was testimony tending to show notice to the company about the 1st of August that Fowler had invested the funds of the company in realty. If the company, through its special agent, then knew this fact, it cannot be said not to have notice of the dishonesty of the agent; and, if it had such notice, it was the duty of the company not to longer trust its funds with the agent until the sureties had consented, with knowledge of the facts, to be held responsible for the acts of a dishonest agent. See, further, 2 Brandt, Sur. § 423; Connecticut Mut. Life Ins. Co. v. Scott, 81 Ky. 540.

Judgment reversed, and a new trial ordered.

The other Justices concurred.

Liability of Surety when Principal Discharged or not Originally Bound.*

RUSSELL v. ANNABLE.

109 Mass. 72. 1871.

CONTRACT, brought August 3, 1870, against one of the sureties in the following bond given under the Gen. Sts. c. 123, § 104, to dissolve an attachment:

"Know all men by these presents, that Erastus Dennett and Chas. R. Pottle, of Boston in the county of Suffolk, as principal, and George M. Stevens, of Cambridge, and John F. Annable, of Somerville, in the county of Middlesex, as surety, are holden and stand firmly bound and obliged unto Arthur W. Russell, of Cambridge in said Middlesex, in the full and just sum of two hundred dollars, to be paid unto the said Russell, his executors, administrators or assigns, to which payment, well and truly to be made, we bind ourselves, our heirs, executors and administrators, jointly and severally, firmly by these presents, sealed with our seals, dated the twenty-second day of July in the year of our Lord one thousand eight hundred and sixty-nine. The condition of this obligation is such, that, whereas the said Russell has caused the goods and estate of said Dennett & Pottle, to the

* See Sec. 894, Vol. 6, Cyclopedia of Law.