Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; Philip L. Sullivan, Judge.
Before SPARKS and MAJOR, Circuit Judges, and LINDLEY, District Judge.
This appeal is to review a judgment in favor of appellee in an action on two fidelity bonds issued by appellant, together with a superseded suretyship rider attached to the second. The first bond was issued May 14, 1927, and remained in effect until October 8, 1931, when it was canceled, and on said date the second bond, together with the rider, became effective.
Roy Lennstrum, one of the employees covered in each of the bonds, was secretary of appellee from March, 1921, to March, 1933, and in such capacity received the assessments paid by members of appellee.
An auditor working for appellee on January 9, 1933, reported to appellee's president that she was afraid there was a shortage in Lennstrum's accounts. Her suspicions were reported to members of the board, and she was directed to make a further audit. Her report was made to the board March 30, 1933, disclosing discrepancies amounting to $5,251.21. Up to this time Lennstrum had denied the shortage, but at this meeting merely insisted it was not as much as reported. On the following day appellee accepted his note for said amount, secured by certain collateral, without releasing him. About two months later it was discovered that Lennstrum had been raising checks which came into his possession, and this information was presented to the board on June 13, 1933. On the following day, appellant, by telegram, was notified by appellee for the first time of any fraud perpetrated by Lennstrum. The amount wrongfully received by Lennstrum on account of raised checks covered by the period of the first bond amounted to $3,587.50, and the amount received by him during the period of the second bond, including an item of $118 which he received for interest and failed to account for, was $868.50. The total of these items, plus interest on the same in the sum of $660.94, or a total of $4,916.44, was the amount of the judgment.
It is the contention of appellant that no losses occurring during the period of the first bond were recoverable unless they were discovered and reported within the period provided in said bond, which period ended on August 10, 1932, while it is the position of appellee that the superseded suretyship rider was attached to the second bond for the express purpose of permitting recovery of such losses according to the terms, conditions, and limitations of the second bond, wherein provision was made for recovery where discovery and claim was made within 15 months after its termination. It immediately appears that the claims of the respective parties requires an interpretation of the superseded suretyship rider, which is as follows:
"Superseded Suretyship Rider.
"To be attached to and form a part of Bond No. 16527, issued by the Hartford Accident and Indemnity Company, of Hartford, Connecticut (hereinafter called the Surety), in favor of Swedish Methodist Aid Association (hereinafter called the Employer), dated the 8th day of October, 1931, on behalf of various officers and/or employees.
"Whereas, the Employer has been carrying Fidelity suretyship as follows:
" Individual Fidelity Bond No. 15793, HO No. 639987 covering Roy M. Lennstrum as Secretary in the penalty of $10,000.00 effective May 10th, 1927.
"Individual Fidelity Bond No. 15792. HO No. 639988 covering Charles J. Ekstrand as Treasurer in the penalty of $15,000.00 effective May 10th, 1927, and
"Whereas, said fidelity suretyship, as of the effective date of the attached bond, has been cancelled, or has been terminated by agreement, as is evidenced by the issuance and ...