New Amsterdam Casualty Co. v. FARMERS'CO-OP. UNION

• Decision Date: 17 September 1924
• Docket Number: No. 6593.,6593.
• Citation: 2 F.2d 214
• Parties: NEW AMSTERDAM CASUALTY CO. et al. v. FARMERS' CO-OP. UNION OF LYONS, KAN.
• Court: U.S. Court of Appeals — Eighth Circuit

2 F.2d 214 (1924)

NEW AMSTERDAM CASUALTY CO. et al. v. FARMERS' CO-OP. UNION OF LYONS, KAN.

No. 6593.

Circuit Court of Appeals, Eighth Circuit.

September 17, 1924.

Francis S. Howell, of Omaha, Neb. (Edward P. Smith, William A. Schall, and Frank E. Sheehan, all of Omaha, Neb., on the brief), for plaintiffs in error.

W. W. Stahl, of Lyons, Kan. (Ben S. Jones, of Lyons, Kan., on the brief), for defendant in error.

Before SANBORN and LEWIS, Circuit Judges, and FARIS, District Judge.

SANBORN, Circuit Judge.

This writ of error was sued out to reverse a judgment of $5,000 for alleged errors in the trial of an action on a bond issued by the defendant below, whereby it agreed to indemnify the plaintiff to the extent of $5,000 against the loss of any money or other personal property "through the fraud, dishonesty, forgery, theft, embezzlement, misappropriation, or wrongful abstraction of Lon Prose," the general manager of the plaintiff. The Farmers' Co-operative Union of Lyons, Kan., was the plaintiff, and the New Amsterdam Casualty Company of Baltimore, Md., was the defendant. The plaintiff's principal place of business was at Lyons. It was by its articles of incorporation empowered "to purchase and sell grain, live stock, and other farm products, both for itself and on commission." It owned three elevators, and its business was to buy and sell grain. It bought grain of farmers, put it into its elevators, paid the farmers part of its value, settled with them, and paid them the balance at the price of the grain when the farmer called for the settlement. Its purchases in a season exceeded its storage capacity, and in order to have room it sold wheat which it received before the farmers called for settlements, and bought other wheat to be delivered in the future to protect itself against loss in case the price of wheat advanced. Mr. Prose managed this business, bought and sold, in the name of and for the plaintiff, wheat, corn, and oats from March, 1919, until April 20, 1921, when he ceased his connection with that business.

The plaintiff alleged in its complaint that from August 30, 1920, until May 20, 1921, Prose bought and sold in its name through the Root Grain Company, a member of the Board of Trade of Kansas City, and at Kansas City, grain options, which on the trial proved to be mere contracts to deliver grain to it in the future, and contracts by it to deliver grain to purchasers in the future, and thereby incurred a loss of about $21,000, and that he did this without the knowledge of or notice to the plaintiff. It alleged that it did not ascertain the full amount of its loss by these transactions until July 18, 1921, and that immediately after the discovery of the loss, and within five days thereafter, it notified the defendant and made full proof thereof. By its answer the defendant admitted the execution of the bond and denied the other averments of the complaint. The case was tried by a jury. There was a conflict between the evidence produced by the respective parties. At the close of all the evidence defendant's counsel moved the court to direct the jury to return a verdict in its favor, the court denied the motion, the defendant excepted, and this and other rulings are assigned as errors. The ruling on the motion to direct the jury, however, presents the serious questions in this case.

The court submitted three questions to the jury: First, did the plaintiff, within five days after it discovered any alleged dishonest act of Mr. Prose, notify the defendant thereof? Second, was the plaintiff ignorant of the fact that Mr. Prose was buying and selling wheat futures in its name while he was acting as its general manager? And, third, were such purchases and sales, under the facts of this case, wrongful as against the plaintiff? And the court instructed the jury that, if they did not find an affirmative answer to each one of these questions, they should return a verdict for the defendant.

Counsel for the defendant assert that the evidence was such that the court ought to have instructed the jury to find a negative answer to each of these questions and invoke an examination of this evidence by this court. The rule in the national courts, pursuant to which this examination must be made, is:

It is the duty of the trial court to direct a verdict at the close of the evidence in two classes of cases: (1) That class in which the evidence is undisputed; and (2) that class in which the evidence is conflicting, but is of so conclusive a character that the court, in the exercise of a sound judicial discretion, ought to set aside a verdict in opposition to it. Woodward v. Chicago, M. & St. P. Ry. Co., 145 F. 577, 578, 75 C. C. A. 591; Missouri Pac. Ry. Co. v. Oleson, 213 F. 329, 330, 130 C. C. A. 31; Randall v. Baltimore & Ohio R. Co., 109 U. S. 478, 482, 3 S. Ct. 322, 27 L. Ed. 1003; Southern Pacific Co. v. Pool, 160 U. S. 438, 440, 16 S. Ct. 338, 40 L. Ed. 485; Delaware, etc., Railroad Co. v. Converse, 139 U. S. 469, 472, 11 S. Ct. 569, 35 L. Ed. 213; Union Pacific Ry. Co. v. McDonald, 152 U. S. 262, 283, 14 S. Ct. 619, 38 L. Ed. 434; Patton v. Tex. & Pac. Ry. Co., 179 U. S. 658, 663, 21 S. Ct. 275, 45 L. Ed. 361; Frick v. International Harvester Co., 247 F. 869, 871, 160 C. C. A. 91; Holland et al. v. Director General of Railroads (C. C. A.) 273 F. 929; Waters-Pierce Oil Co. v. Van Elderen, 137 F. 557, 569, 70 C. C. A. 255; Chapman v. Yellow Poplar Lumber Co., 89 F. 903, 905, 32 C. C. A. 402; Canadian Northern Ry. Co. v. Senske, 201 F. 637, 644, 120 C. C. A. 65.

We turn to the examination of the evidence on the first question, the notice of the dishonest act. The bond reads: "Upon the discovery by the employer of any dishonest act on the part of the employee the employer shall, at the earliest practicable moment, and at all events not later than five days after such discovery, give written notice thereof, addressed to the surety at the office of its general agency at Omaha, Nebraska." The acts, which the plaintiff charged in its complaint were dishonest acts of Mr. Prose, were the buying and selling of grain options in the name of the plaintiff through the Root Grain Company on the Board of Trade in Kansas City prior to April 20, 1921, when he left the plaintiff and its business. The first notice of any claim of such or any dishonest act of Mr. Prose was given to the defendant on May 27, 1921.

The only complaint at the trial was that Mr. Prose, as manager of the plaintiff, bought and sold grain futures in the conduct of the plaintiff's business in its name. The burden was on the plaintiff to prove that it gave notice of the alleged first dishonest act it discovered within five days after such discovery. Mr. Prose testified that at the meeting of the board of the plaintiff in November, 1919, the matter of buying and selling grain futures was discussed, and a motion was made and carried to instruct him to buy corn and oats futures to meet the company's needs, as his judgment dictated. A written certificate of that fact, dated January 17, 1920, signed by Mr. Shepherd, the president of the plaintiff, whose signature was verified on the writing by a notary public and by the testimony of two witnesses, was received in evidence.

Mr. Lawrence, a professional auditor, testified that prior to May 20, 1921, he had been examining the books, records, papers, and accounts of the plaintiff; that he had had the report of Mr. Fouts, another auditor, who had made an earlier examination thereof, and thought he had examined that report; that he had had in his possession Exhibits L to Q, among which are canceled checks of the plaintiff, which aggregate $8,500, each of which bears on its face the written statement that it is on "option acct." and two of them bear the statement "for draft on option acct. of Root Grain Co." These checks bear dates between September 22 and November 28, 1920, and are quite persuasive that dealing in grain futures was not a novel practice of the plaintiff in the earlier months of 1921, when the grain futures from which plaintiff claims its loss were bought and sold. After Mr. Lawrence had made this examination of the books and accounts, he reported on the evening of May 20, 1921, to the plaintiff's board, or to the president and managing members of the board, that the books indicated a loss, and that it might have been through deals that Mr. Prose had been carrying on in speculating on the market in Kansas City. Speaking of the time of...