United States Fidelity & Guaranty Co. v. Howard

• Decision Date: 07 November 1933
• Docket Number: No. 7067.,7067.
• Parties: UNITED STATES FIDELITY & GUARANTY CO. v. HOWARD.
• Court: U.S. Court of Appeals — Fifth Circuit

67 F.2d 382 (1933)

UNITED STATES FIDELITY & GUARANTY CO. v. HOWARD.

No. 7067.

Circuit Court of Appeals, Fifth Circuit.

November 7, 1933.

Robert L. Anderson and R. Lanier Anderson, Jr., both of Macon, Ga., for appellant.

E. W. Jordan, of Sandersville, Ga., and Jno. R. L. Smith and Jos. LeConte Smith, both of Macon, Ga., for appellee.

Before BRYAN, SIBLEY, and HUTCHESON, Circuit Judges.

HUTCHESON, Circuit Judge.

In October, 1927, the schedule fidelity bond which in 1905 the appellant had executed to the First National Bank of Sandersville on certain of its employees was by continuance certificate made to cover, in the amount of $10,000, O. J. May then elected vice president. By the bond appellant covenanted broadly to secure the bank against loss caused by the dishonest or bad faith acts or omissions of its employees. It covenanted, subject to the provisions and agreements contained in the bond, "to pay to the employer the amount of any loss or damage that shall happen to the employer in respect of any funds, property or estate belonging to or in the custody of the employer, through the dishonesty of any of the employees, or through any act of omission or commission of any of its employees, done or, omitted in bad faith, and not through mere negligence, incompetency or any error of judgment and whether such dishonesty or such act of omission or commission occurs in the performance of any duty or trust specifically assigned to such employee or occurs otherwise."

Less than two years afterwards, and while the times were still flush, the bank on March 14, 1929, closed its doors, insolvent. Lohn, the liquidator appointed by the Comptroller, undertook to get together and realize on its assets. After he had been working at this for some time, he in February, 1930, notified the appellant that he had discovered that the bank's condition was in part due to a breach of the bond, in that May had, dishonestly and in bad faith, despoiled it with worthless paper. Thereafter, within the times fixed in the bond, proofs of loss were filed and this suit brought.

According to appellee, all the bank's troubles and losses had their root in the fact that May and Holt, the president, had, immediately after May's appointment, begun a systematic exploitation of its resources, which continued until the bank failed; that in the course of it the bank was despoiled of its assets by May's fraud, dishonesty, and bad faith. This spoliation was effected, not by a downright purloining of the bank's funds, but by siphoning them out through watered loans to his and Holt's creatures, represented by paper having a nominal, but no real, value. The jury took appellee's view, and cast appellant for the amount of the bond. Feeling itself aggrieved by the verdict of the jury, appellant comes here, assigning as errors the failure of the trial court to direct a verdict for it and the giving and refusal of instructions.

The points relied on under its assignments, all properly preserved, are brought forward and presented by appellant and met by appellee with such clarity and precision as to invite and facilitate like clarity and precision in their disposition. Broadly speaking, except for the one direct defense seriously urged by appellant, of no breach of the bond, that is, that the evidence wholly failed to show loss to the bank through the bad faith or dishonesty of May, the appellant's other grounds on the refusal to direct as well as its points on the charge are in the nature of pleas in avoidance. These, admitting for the purpose of the plea May's breach of his bond, deny liability for that breach, because of breaches by appellee of its obligations. These are: (1) That the answer appellee gave to the question, "Is applicant in debt to your bank?" that May owed $7,650 was not true and correct, in that, while it did truly state the amount of his direct indebtedness, it did not disclose that the bank held May's indorsement on $42,299.67 of paper which he had discounted to it. (2) In that the undisputed proof showed that the promissory representations made by the bank (a) that an auditing committee appointed by the bank would examine Mr. May's books and accounts semiannually, and (b) that a committee would pass on the security of its loans, were not complied with. (3) In further avoidance they urge that the undisputed proof showed that the president and cashier of the bank had such actual knowledge of the breaches which the company now complains of as would, under the terms of the bond, relieve the company from further liability. (4) That the proof showed that Lohn, the receiver, did not, in accordance with the requirements of the bond, give the company prompt notice of the discovery of the loss he claimed, and did not submit proofs of loss within six months after such knowledge had been...