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rights of the Federal government in lands thus held by it do not differ from the right of the private owner of land within the state, and the government is to be treated like other proprietors as to all servitudes, easements, and other charges: Union P. R. Co. v. Burlington & M. River R. Co. (1880) 1 McCrary, 452, 3 Fed. 106; United States V. Ames (1845) 1 Woodb. & M. 76, Fed. Cas. No. 14,441; Flint & P. M. R. Co. v. Gordon (1879) 41 Mich. 420, 2 N. W. 648; Camp v. Smith (1858) 2 Minn. 155, Gil. 131; State v. Bachelder (1860) 5 Minn. 223, 80 Am. Dec. 410, Gil. 178; Simonson v. Thompson (1870) 25 Minn. 450.

It has been held that an act of Congress incorporating a railroad, and providing that any other railroad company now incorporated or hereafter to be incorporated shall have the right to connect its road with the road and branches provided for by this act at such places, and upon such just and

equitable terms, as the President of the United States may provide, does not have the effect of placing such right of way beyond the right and the exercise of the state's power of eminent domain for the purpose of acquiring a legal right to cross the right of way. Union P. R. Co. v. Leavenworth, N. & S. R. Co. (1887) 29 Fed. 728.

It is clear that before government land, appropriated for a specific purpose, may be taken by eminent domain proceedings, it must be for a purpose clearly supreme or paramount to the purpose for which it is being used or to which pre-eminence is expressly given by law or the Constitution. United States v. Chicago (1849) 7 How. (U. S.) 185, 12 L. ed. 660.

For example, land reserved by the government for military purposes is not subject to be taken by the state by eminent domain proceedings for public streets. Ibid. A. G. S.




United States Circuit Court of Appeals, Ninth Circuit — February 25, 1919.

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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. 2. Findings of facts by the court

sitting without a jury are conclusive 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 Argued before Gilbert, Ross, and Morrow, Circuit Judges.

Messrs. O'Melveny, Millikin, & Tuller and Hocker & Austin, for plaintiff in error:

The concealment by plaintiff from

of the court.

the defendant of the knowledge which it possessed of its employee's habits of overdrawing and drinking was a misrepresentation to it of such a character that, but for its "having been made, either the suretyship would not

(256 Fed. 601.)

have been entered into, or, being entered into, the extent of the surety's liability might be thereby increased," and that in consequence the surety is relieved from its obligation.

1 Brandt, Suretyship, §§ 16, 447; Bank of Monroe v. Anderson Bros. Min. & R. Co. 65 Iowa, 692, 22 N. W. 929; Frisch v. Miller, 5 Pa. 310; State v. Dunn, 11 La. Ann. 549; Fishburn v. Jones, 37 Ind. 119; Warren v. Branch, 15 W. Va. 21; Farmers' Nat. Bank v. Van Slyke, 49 Hun, 7, 1 N. Y. Supp. 508; Woolley v. Louisville Bkg. Co. 81 Ky. 527; Wilmington, C. & A. R. Co. v. Ling, 18 S. C. 116; Anaheim Union Water Co. v. Parker, 101 Cal. 494, 35 Pac. 1048; Graves v. Lebanon Nat. Bank, 10 Bush, 23, 19 Am. Rep. 50; United States Fidelity & G. Co. v. Blackly, 117 Ky. 127, 77 S. W. 709; Comstock v. Gage, 91 Ill. 328; Conger v. Bean, 58 Iowa, 321, 12 N. W. 284; Drabek v. Grand Lodge, B. S. B. S. 24 Ill. App. 82; Dinsmore v. Tidball, 34 Ohio St. 411; Smith v. Josselyn, 40 Ohio St. 409; Folmar v. Siler, 132 Ala. 297, 31 So. 719; Smith v. Silsby, 55 Cal. 470; Wilson v. Monticello, 85 Ind. 10; Deposit Bank v. Hearne, 104 Ky. 819, 48 S. W. 160; Powers Dry Goods Co.

v. Harlin, 68 Minn. 193, 64 Am. St. Rep. 460, 71 N. W. 16; Belleview Loan & Bldg. Asso. v. Jeckel, 104 Ky. 159, 46 S. W. 482; United States L. Ins. Co. v. Salmon, 157 N. Y. 682, 51 N. E. 1094; Macey v. Heger, 195 Pa. 125, 45 Atl. 675; Jungk v. Holbrook, 15 Utah, 198, 62 Am. St. Rep. 921, 49 Pac. 305; Connecticut General L. Ins. Co. v. Chase, 72 Vt. 176, 53 L.R.A. 510, 47 Atl. 825; Armstrong v. Cook, 30 Ind. 22; Blest v. Brown, 4 De G. F. & J. 367, 45 Eng. Reprint, 1225, 8 Jur. N. S. 602, 6 L. T. N. S. 620, 10 Week. Rep. 569; London General Omnibus Co. v. Holloway [1912] 2 K. B. 72, 81 L. J. K. B. N. S. 603, 106 L. T. N. S. 502, Ann. Cas. 1912D, 1283; Glidden v. United States Fidelity & G. Co. 198 Mass. 109, 84 N. E. 143; Sooy v. State, 39 N. J. L. 135; Guardian Fire & L. Assur. Co. v. Thompson, 68 Cal. 209, 9 Pac. 1; Guarantee Co. of N. A. v. Mechanics' Sav. Bank & T. Co. 183 U. S. 402, 46 L. ed. 253, 22 Sup. Ct. Rep. 124.

Messrs. W. G. Van Pelt and E. S. Williams, for defendant in error:

Prior indebtedness, or an arrearage in accounts, where there is no dishonesty, owing by the principal to the obligee, need not be disclosed to the surety, and failure to disclose the same is not a concealment.

Magee v. Manhattan L. Ins. Co. 92 U. S. 93, 23 L. ed. 699; Watertown F. Ins. Co. v. Simmons, 131 Mass. 85, 41 Am. Rep. 196; Atlantic & P. Teleg. Co. v. Barnes, 64 N. Y. 385, 21 Am. Rep. 621; Home Ins. Co. v. Holway, 55 Iowa, 571, 39 Am. Rep. 179, 8 N. W. 457; Southwestern Co. v. Wynnegar, 111 Miss. 412, 71 So. 737; Charlotte, C. & A. R. Co. v. Gow, 59 Ga. 685, 27 Am. Rep. 403; Roper v. Sangamon Lodge, 91 Ill. 518, 33 Am. Rep. 60; Ham v. Greve, 34 Ind. 18; Wilmington, C. & A. R. Co. v. Ling, 18 S. C. 116; Lancashire Ins. Co. v. Callahan, 68 Minn. 277, 64 Am. St. Rep. 475, 71 N. W. 261; Colby Wringer Co. v. Coon, 116 Mich. 208, 74 N. W. 519; Anaheim Union Water Co. v. Parker, 101 Cal. 483, 35 Pac. 1048; Palatine Ins. Co. v. Crittenden, 18 Mont. 413, 45 Pac. 555.

Ross, Circuit Judge, delivered the opinion of the court:

The defendant in error applied to the plaintiff in error to become surety, beginning October 15, 1915, for certain of its employees for the amounts and in the positions set opposite their names, respectively, including one T. F. Hayes.

"These employees, and each and every of them, while in the service of the undersigned employer," the application expressly declared, "have always performed their respective duties in a faithful and satisfactory manner. There has never come to the notice or knowledge of the employer any act, fact, or information tending to indicate that they or any of them are negligent, unreliable, deceitful, dishonest, or unworthy of confidence. As far as the employer knows, the habits of each and all of them are good, and the employer knows no reason why you cannot safely become surety for them and each of them.

"The above and foregoing statement and representations are each, every, and all warranted by the employer to be true, and are made for the purpose of inducing the National Surety Company to become such surety, and said statements and representations shall apply to each and every employee hereafter added to

the schedule to be covered by said bond as therein provided.

"Dated at Los Angeles the 15th day of October, 1915."

Upon that application the plaintiff in error issued its policy to the defendant in error in consideration of the payment of an annual premium computed at an agreed rate and payable on the 15th day of October during each and every year that the bond should continue in force, agreeing "to make good within sixty (60) days after satisfactory proof thereof, to the Globe Grain & Milling Company, of Salt Lake City, Utah, employer, any loss which the employer may sustain by reason of any act of personal dishonesty, forgery, theft, larceny, embezzlement, wrongful conversion, or abstraction on the part of any employee named in the schedule" attached, including said Hayes, the amount of whose bond was $5,000. Subsequent to the issuing of the bond Hayes embezzled from the defendant in error $5,000, resulting in the present action by it to recover of the insurance company the amount so embezzled, with costs.

The case was tried before the court without a jury by stipulation of the parties, and resulted in certain findings of fact upon which judgment was entered in favor of the insured.

Allegations of fact made in defense of the action, to the effect that Hayes drank to excess, was accustomed to overdraw his account with the milling company, and was an habitual gambler on horse races and at poker prior to the giving of the insurance, with the knowledge of the president of the insured, were negatived by the findings made by the trial court, and under the well-established rule such findings are conclu

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Pease, 180 U. S. 126, 45 L. ed. 457, 21 Sup. Ct. Rep. 329; Meyer v. Everett Pulp & Paper Co. 113 C. C. A. 643, 193 Fed. 857, 863.

The court below, however, found these further facts to be true: That when Hayes (who had been the agent of the milling company at Woodland, California, before being transferred as its agent at Salt Lake, Utah) left Woodland he was overdrawn in his accounts in the sum of about $812.68, which overdrawing had been expressly permitted by the milling company, and was in the nature of a loan by it to him; that the same was not communicated by the milling company or any of its officers to the insurance company, which made no inquiry as to any indebtedness owing by Hayes to the milling company; that when Hayes was sent by the milling company to Woodland he stated to the president of that company that on account of some business ventures in which he had been formerly engaged in Mexico he had lost some money and was in debt and was obliged to make certain payments, and therefore asked the president of the milling company to be allowed to overdraw his account while at Woodland, which request was granted, and that he was so overdrawn when he left Woodland in the sum of $812.68, besides which he then owed the milling company $500 on a note, advanced to him by the milling company in order to enable him to maintain a loan at the Merchants' National Bank of Los Angeles for $2,500, which latter loan was secured by stock held by Hayes in a corporation operating in Mexico; that between September, 1914, when Hayes left Woodland, and the 1st of December, 1915, the overdraft was reduced to $304.32, and that, including the $500 note, he was on the day last mentioned indebted to the milling company in the sum of $804.32; that when he was sent to Salt Lake the permission theretofore given him to overdraw his account was withdrawn by the president of the milling company, who had, however, always implicitly

(256 Fed. 601.)

believed in his integrity and honesty; that after the said Hayes went to Salt Lake City as such agent, and particularly after February 1, 1916, he abstracted, used, and applied the money of the milling company in betting on horse races, in buying grain on margins in the grain market, and otherwise for his own personal use, of which, however, the milling company had no notice until May 31, 1916, at which time it immediately discharged him from its employment; that on or about March 1, 1916, a balance sheet dated February 29, 1916, prepared by or under the direction of Hayes at his office in Salt Lake City, showing assets and liabilities of the milling company at its Salt Lake agency and containing an item marked "Personal Accounts, $3,239.70," was received through the mail at the office of the milling company at Los Angeles, from the office of Hayes at Salt Lake; that the time when such statement was delivered through the mail was not the time when the outside agencies of the milling company were expected or required to report to its Los Angeles office, and was not looked for there; that such statement was received by a clerk of the milling company at its Los Angeles office, whose duties were those of assistant auditor, and was filed by him without any examination, and without calling it to the attention of any of the officers of the milling company; that while it did not so appear in the said statement of the said item of $3,239.70 marked as "Personal Accounts," $1,099.02 was then an overdraft of Hayes at the Salt Lake office, and the balance of the said sum of $3,239.70 consisted of sundry personal items owing to the milling company in the regular course of business by various customers with whom it was doing business at its Salt Lake office; that the entry, "Personal Accounts," in the balance sheet, which was a printed form prepared by the milling company for general use throughout its business, both at Los Angeles and its branches, was not intended to, and

did not, show merely the personal account of the agent of the company in the place where the statement was made, but might, and was intended to, and did, show the personal accounts of other parties owing to the company in the regular course of business, as well as general expense accounts and other items of expense incurred by the agent or representative of the company in the regular course of his business for and on behalf of the company; that it was customary and regular for large amounts to be entered under that caption in such reports, which had nothing to do with the personal standing or account of the agent at the agency where the statement was prepared; that the said statement of February 29, 1916, was the only statement or report sent by Hayes to the milling company from October 15, 1915, to May 31, 1916, except statements relative to his grain purchases and sales in the regular course of his business for the company; that all of the abstractions of Hayes at the Salt Lake office were entered by him on the books of the company, and that credits he placed on those books consisted at times of winnings by him on horse races or on marginal transactions in the stock or in the grain market, but no part of the same was ever known to the company, and that between October 15, 1915, and May 31, 1916, the milling company never checked or audited or examined the books of Hayes at the Salt Lake office, and did not know their contents in any respect; that neither the company nor its officers ever knew that Hayes was overdrawing his account at the Salt Lake office until May 31, 1916.

The evidence shows without conflict (and the same is without conflict with any of the findings) that it was the custom of the milling company to permit its employees to overdraw their accounts, but that when Hayes was sent to Utah that permission was expressly withdrawn from him. He was first sent there in the early part of January, 1915, by the milling company to buy grain for it,

returning to Los Angeles several times between that time and the month of July of the same year, during which month he returned to the company's Salt Lake office with instructions to there open a set of books, and where the company established a branch office and a bank account about September 15th, with Hayes in charge. From that time to May 31, 1916, there was never any audit made of the company's books kept by Hayes at Salt Lake. It will be seen, therefore, that notwithstanding the peculations of Hayes were entered by him on the books of the company, and could have been easily discovered by their examination, no examination of them whatever was made by the company, and it did not even know of the overdrawing of his account, contrary to the express order of its president, until May 31, 1916.

Can it be properly held that the company was not bound to know that its books showed upon their face the embezzlement of its funds by one of the employees, the honesty of whom it applied to the plaintiff in error to insure, upon an application which expressly warranted the truth of its statement that there had never come to its notice or knowledge any act, fact, or information tending to indicate that he was negligent, unreliable, deceitful, dishonest, or unworthy of confidence, and that it knew no reason why the insurance company could not safely become surety for him? We think not. Beyond question, the defendant in error knew that the permission it had, along with its other employees, theretofore accorded Hayes of overdrawing his account, was expressly withdrawn from him when he was sent to Utah, and beyond question the company's own books kept by him at its Salt Lake office showed upon their face his embezzlement of the funds of the company at the very time it applied to the plaintiff in error for the insurance in question. Under such circumstances, we are of the opinion that the applicant cannot be heard to say that it did

not know what its own books showed, especially in view of the fact that there must have been some reason for the express withdrawal by the defendant in error, when it sent Hayes to Utah, of the privilege of overdrawing his account, which it had theretofore accorded him along with its other employees. We think the case fairly comes within the true doctrine of the case of Guarantee Co. of N. A. v. Mechanics' Sav. Bank & T. Co. 183 U. S. 402, 46 L. ed. 253, 22 Sup. Ct. Rep. 124, and accordingly the judgment is reversed, and cause remanded to the court below, with directions to enter judgment for the defendant, with its costs.

Gilbert and Morrow, Judges, concurring:


We are of the opinion that the judgment should be reversed, and that upon the findings of the court below judgment should be directed to be entered in favor of the plaintiff in error upon the following grounds:

Prior to the date of the application for insurance, Hayes had been in the service of the insured for more than five years, and during the whole of that time he had been permitted to overdraw his account. No restriction was placed upon the amount which he might overdraw; the permission being to overdraw in a "reasonable amount." After being in the service of the insured at Woodland, California, for several years, he was transferred in January, 1915, to Salt Lake City, where he remained until he was discharged. At the date of the application, October 15, 1915, his account at Woodland was overdrawn in the sum of $717.13, in addition to which he owed the insured upon a note $500, which was originally an overdraft, and he was overdrawn on his Salt Lake account in the sum of $432.93. He testified that, when he was discharged on June 1, 1916, his account was overdrawn about $6,600. His heaviest overdraft at any time at Woodland was $1,154.33 in excess of the $500 note. Blewett, the assistant auditor of the insured, checked up Hayes's account before he went

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