In Error to the Circuit Court of the United States for the Eastern Division of the District of Washington.

This is an action upon a policy of fidelity insurance issued by the American Bonding & Trust Company of Baltimore City to the defendant in error, the Spokane Building & Loan Society, a corporation of Spokane, Wash. The bond was in the sum of $3,000, dated January 17, 1902, and insured the defendant in error against loss through the embezzlement of its secretary, R. L. Bogardus, for a term of one year. After the execution of the policy, the plaintiff in error changed its corporate name to “American Bonding Company of Baltimore.” Prior to the delivery of this bond, and before it became effective, the bonding company requested the building and loan society to answer in writing certain interrogatories concerning the risk about to be assumed under the bond. Accompanying these written questions, and as part of the same instrument, which was addressed to the Spokane Building & Loan Society, was the following statement: “An application has been made to this company to issue a bond of security for Mr. R. L. Bogardus as secretary in your service, at Spokane, to the amount of $3,000.00. This company desires to have written answers to the following questions, and these answers will be taken as the basis of the bond if issued.” At the foot of this employer’s statement was the following agreement: “It is agreed that the above answers are warranted to be true by the obligee, and are to be taken as conditions precedent, and as the basis of the said bond applied for, or any renewal or continuation of the same, that may be issued by The American Bonding & Trust Company of Baltimore City to the undersigned, upon the person above named. Dated at Spokane, Wash., this 13th day of January, 1902. Signature of the Employer Spokane Building & Loan Society. By S. S. Glidden, Prest. Official Capacity. [Seal of Spokane Building & Loan Society.]” The building and loan society made written answer to the interrogatories, signed the agreement above set out, and returned the same to the bonding company, which thereupon executed its fidelity bond.

The employer’s statement, besides others, contained the following questions and answers: “Q. 13. When were his accounts last examined? A. Being done now by a committee. Q. 14. Were they, at that time, in every respect correct, and proper funds, securities and values on hand to balance? A. Yes, last year. (Later: Now complete and found correct.) Q. 15. (a) Is there now, to your knowledge, any shortage due you by the applicant? A. (a) No. (b) Has he ever been short with you? (b) No. Q. 16. (a) Is he now in debt to you? A. (a) No. (b) If so, state amount and nature of indebtedness? (b) -. Q. 17. H¿ve you ever sustained loss through the dishonesty of any one holding the position of applicant? A. No.”

Among other provisions, the bond contained the following stipulations: “(2) That all the representations made by the employer, his or its officers, to the surety, are warranted by the employer to be true; that the employee has not, to the knowledge of the employer, his or its officers, been in arrears or a defaulter in that position covered by this bond or in any other position: (3) That the surety’s liability hereunder shall cease immediately as to subsequent acts of the employee from and after: (a) Discovery by the employer, his or its officers, of any default hereunder on the part of the employee.”

During the term covered by this bond, R. L. Bogardus embezzled'funds of the Spokane Building & Loan Society to the amount of $3,880. The acts of embezzlement all occurred between September 30 and October 17, 1902.

The bonding company defended the action brought upon this bond on two grounds: First. That the answers to the interrogatories were warranted by the building and loan society to be true, whereas, in fact, the answers to questions 13, 14, 15, 16, and 17 were false, in that, at the time these questions were answered, Bogardus was short in his accounts, his accounts were not correct in every respect, he did not have proper funds, securities, and values on hand to balance, and was in debt to the society. Second. That on the 19th day of September, 1902, the Spokane Building & Loan Society discovered a default under the bond, i. e., discovered that Bogardus was short in his accounts; that the terms of this bond released the bonding company from all acts of embezzlement occurring after the discovery of a default; and that the defalcations in question all occurred after September 19, 1902.

In making his opening statement of this second defense to the jury, counsel said: “Gentlemen of the Jury: I will prove, in addition to what I have already stated, and in addition to what has already been brought out in the evidence, that on the 19th day of September, 1902, President S. S. Glidden, one of the officers of the Spokane Building & Loan Society, discovered a default under this bond; that is, he discovered that Mr. Bogardus was short in his accounts. Then, under the provisions of the bond, which is already in evidence, which provides that we shall not be liable for a default occurring after the discovery of a default — under that bond we shall ask, upon the evidence that has been introduced, and some in addition to that, a verdict at your hands on the ground that on the 19th of September, 1902, the plaintiff discovered a default under this bond, and that the pleadings themselves show that the acts of embezzlement complained of, which they are seeking to hold us for, occurred after that date.” Thereupon plaintiffs below moved the court to strike out this defense and rule out all evidence thereunder, for the reason that the facts therein stated did not constitute a defense. This motion the court granted on the ground that the default referred to by counsel in his statement was not known or discovered by the managing board of the plaintiff corporation, but simply by its president

It is claimed by the plaintiff in error that the court erred in ruling out the second affirmative defense, and all evidence thereunder, upon counsel’s opening statement thereof. It is further claimed that the court erred in giving instructions 2 and’3 to the jury, and in refusing to give instruction 4, asked by defendant. These instructions read as follows: “(2) This defense, as presented, is manifestly based upon the theory that this contract was made in two parts: That the statement made by the plaintiff to the defendant is one part of the contract, and the policy of insurance or guaranty issued by the plaintiff to the defendant Is the corresponding part; but that is not legally a correct theory of the case. The parties might have made a contract in that form, but that is not what they did do. All their preliminary negotiations and correspondence on the subject are merged in the policy that was issued, and this is a contract in one part; the liability of the defendant is to be determined by what is set forth in its policy or bond. Now, this policy refers to these answers to the interrogatories, and, so far as the bond itself contains a stipulation with respect to those parts, that stipulation is binding upon both sides, and the plaintiff is bound by that stipulation. (3) The material part of this contract with reference to this defense is contained in the second paragraph of the first one of the conditions annexed to the contract, and reads as follows: ‘That all the representations made by the employer, his or its officers, to the surety, are warranted by the employer to be true.’ Now, this is presented in the pleadings, and the defense has proceeded as if there were a period after the word ‘true,’ and that it was made an absolute condition that the answers should be taken as absolutely true, or else there was no contract; but the contract as it is set forth and admitted here is different. There is no period after the word ‘true,’ but a semicolon, and what follows thereafter is to be taken as a part of the same sentence, and as explanatory and as modifying the condition that the answers are to be true. Now, this is what is to be taken as true, ‘That the employs has not, to the knowledge of the employer, his or its officers, been in arrears or a defaulter in that position covered by this bond or in any other position; that the employer, his or its officers, upon becoming aware of the employs gambling, speculating, or committing any disreputable, lewd, or unlawful act, will immediately notify the surety in writing.’ By this language the warranty that the answers are true is qualified by the condition that they are, so far as the employer had any knowledge, to be taken as true, or warranted to be true. (4) By the terms of the bond here sued upon, and the employer’s statement here in evidence, the Spokane Building & Loan Society warranted the truth of certain statements, and, among other things, the plaintiff warranted the truth of the statement that Romaine L. Bogardus had never been short to the society. Now, if you should find that Romaine L. Bogardus had in fact been short to the society, or, in other words, that the statement was not true, then your verdict must be for the defendant.”

There are seven assignments of error which are claimed by the plaintiff in error to present two questions to be disposed of by the court: First. Did the fact that a default was discovered under the bond by the president of the Spokane Building & Loan Society on September 19, 1902, preclude said society from recovering for acts of embezzlement occurring after that time? Second. Was it a defense to the action on the bond to prove that Bogardus was short in his accounts, did not have proper funds, securities, and values on hand to balance, had been in arrears to the society, and was in debt to the society at the time the employer’s statement was signed?