National Bank of Paulding v. Fidelity & Casualty Co.
| Decision Date | 31 December 1954 |
| Docket Number | Civ. No. 1576. |
| Citation | 131 F. Supp. 121 |
| Parties | The NATIONAL BANK OF PAULDING, Plaintiff, v. The FIDELITY and CASUALTY COMPANY, and Maryland Casualty Company, Defendants. |
| Court | U.S. District Court — Southern District of Ohio |
Headley, Sibbald & Taft, Cincinnati, Ohio, for plaintiff.
Harshman & Young, Dayton, Ohio, for defendant Fidelity & Casualty Co.
Landis, Ferguson, Bieser & Greer, Dayton, Ohio, for defendant Maryland Casualty Co.
The plaintiff, The National Bank of Paulding, brought this action against defendants The Fidelity and Casualty Company of the State of New York and Maryland Casualty Company, a corporation of the State of Maryland, to recover from each of said defendants, the sum of $15,000, which it claimed to be due under a surety bond issued by each of the defendants to secure the plaintiff against certain losses.
Each of the defendants has filed an answer in which it admits certain facts alleged by the plaintiff in its complaint.
Both of the defendants deny any liability under clauses "B" and "E" of the bonds, and further claim that the loss sustained by the plaintiff was money loaned to its customer, M. G. Stoller, and therefore, was not covered by the bonds by virtue of Section 1(d) of the bonds. Another defense raised by the defendants is that the plaintiff failed to give written notice and proof of loss, as required by the bonds.
Photostatic copies of the bonds are attached to the complaint and are almost identical in content. The numerically numbered and lettered subdivisions that will be used in this Decision are identical in both bonds.
Each of the parties has filed a motion for summary judgment and the case is now before the Court upon these motions. The plaintiff's motion is supported by affidavits of M. G. Stoller, Walter K. Sibbald, O. E. White and the supplementary affidavit of O. E. White. There is attached to the original affidavit of O. E. White photographic copies of documents to which reference will be herein made. The defendants took the deposition of O. E. White, which deposition was filed and is also before the Court.
The Court is of the opinion that there are no disputed facts before the Court and that the pleadings, the affidavits and deposition contain all of the facts essential to decide the motions before the Court. The facts, briefly stated, are as follows:
Prior to March of 1951, M. G. Stoller had engaged in an extensive business of buying, selling and warehousing seeds and grain at Paulding, Ohio, under the trade-name of Stoller Seed House & Elevator. For ten years or more, prior to March, 1951, Mr. Stoller had been a customer of the plaintiff bank. His custom was to carry on and make transactions with the bank in the following manner:
He would deliver a shipment of grain or seed to the railroad company and get from the railroad company a uniform order bill of lading consigned to the order of Stoller Seed House at the destination of his customer, with directions to the carrier to notify the customer at destination. He would draw a sight draft on the purchaser, payable to the order of The National Bank of Paulding, attach this sight draft and an invoice to the customer to the uniform order bill of lading and present it to the bank. The bank would credit Mr. Stoller's account with the amount of the purchase order and send the draft and other papers to its correspondent bank in the city of destination. When the sight draft had been accepted and paid and the money returned to the plaintiff bank, it would charge Mr. Stoller's account with discount at a given rate.
On or about the 15th day of March, 1951, Mr. Stoller began a series of eight transactions with the plaintiff bank which extended through March 24, 1951 and which cost the bank an initial loss of $141,555. In each of these transactions which caused the loss, Mr. Stoller obtained a credit to his account by presenting to the bank an entirely fictitious set of papers. Without having made any delivery of grain to the railroad, he prepared a uniform order bill of lading which was not signed by the railroad company and with it, presented to the bank an invoice and sight draft drawn upon an alleged customer with whom he had no pending transaction. The plaintiff claims that it is protected under paragraph (B) of the bonds which provides coverage as follows:
"Any loss of property through robbery, larceny (whether common law or statutory), burglary, theft, false pretenses, * * * whether effected * * * with or without negligence on the part of any of the employees * * * while such property * * * (is) lodged or deposited within an office or premises * * * (of the insured)."
The plaintiff claims further that it is also protected under Clause (E) of the bonds, which provides coverage as follows:
"Any loss sustained by the insured through having in good faith and in the course of business, * * * purchased or otherwise acquired, * * or given any value, extended any credit * * * on the faith of, * * * any securities, documents, or other written instruments which prove to have been counterfeited or forged as to the name of any * * issuer * * * or raised, or otherwise, altered, or lost, or stolen. * * *"
The defendants claim that they are not liable to the plaintiff under the paragraphs in question by reason of the exception from coverage of Section 1(d) of the bonds. Under the heading of "This Bond Does Not Cover" Section 1(d) provides:
"Any loss the result of the complete or partial non-payment of or default upon any loan made by or obtained from the insured, whether procured in good faith or through trick, artifice, fraud or false pretenses, except when covered by insuring Clause (A) or (D)".
The above quotation is from the bond of the defendant The Fidelity & Casualty Company of New York. The analogous provision in the bond of the defendant, Maryland Casualty Company, is the same except that it excepts (E) as well as (A) and (D).
Counsel for the plaintiff claim that the transactions prior to March 14, 1951, were sales by Stoller of commercial paper to the plaintiff bank. In support of this claim, Sections 1301.63 and 1305.27 of the Revised Code of Ohio are cited. It is a fact in this case that when the bank sent these drafts through for collection, it requested that they be returned without protest in the event of non-payment. By the sections of the Ohio statutes above cited, the plaintiff bank took the foreign bills without recourse. This would indicate a sale. The fact that the plaintiff bank gave Mr. Stoller credit when these instruments were deposited with the bank and charged his account with interest when the money was received by the bank, is some evidence of a loan. Whether or not the transactions prior to March 14, 1951, are classified as loans or purchases seems to the writer of this opinion to be of little consequence. The Court is primarily concerned with the nature of the eight transactions between March 14 and March 25, 1951. In the case of In re Grand Union Company, 2 Cir., 219 F. 353, a loan of money was defined. Syllabus 2 of that case reads as follows:
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...begins with a review of prior cases considering related problems. The closest case on the facts is National Bank of Paulding v. Fidelity and Casualty Co., S.D.Ohio 1954, 131 F.Supp. 121. Stoller, who bought, sold, and warehoused seeds and grain, was in the practice of drawing sight drafts o......
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