Baltimore Bank & T. Co. v. United States Fidelity & G. Co.

• Decision Date: 18 January 1971
• Docket Number: No. 20045.,20045.
• Citation: 436 F.2d 743
• Parties: BALTIMORE BANK & TRUST COMPANY, Appellee, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

436 F.2d 743 (1971)

BALTIMORE BANK & TRUST COMPANY, Appellee, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Appellant.

No. 20045.

United States Court of Appeals, Eighth Circuit.

January 18, 1971.

Samuel J. Molby, James F. Duncan, Kansas City, Mo., for appellant.

Henry G. Eager, John J. Kitchin, Kansas City, Mo., for appellee; Swanson, Midgley, Jones, Eager & Gangwere, Kansas City, Mo., of counsel.

Before MEHAFFY, LAY and BRIGHT, Circuit Judges.

MEHAFFY, Circuit Judge.

This appeal is from a judgment awarded plaintiff, Baltimore Bank & Trust Company, against its Bonding Company, United States Fidelity & Guaranty Company, under a bankers' blanket bond for a loss sustained by reason of its acceptance of a promissory note on a loan, it being later determined that the note was forged. We affirm.

This is a diversity case and the substantive law of Missouri is controlling.

The trial was to a jury and defendant's request for submission of special questions resulted in a special verdict, the jury finding that the Bank sustained a loss in the amount of $27,000.00 by accepting as collateral a so-called Logan note and a Latham note. The Logan note was in the principal amount of $10,000.00 and the Latham note was in the amount of $17,000.00. It was admitted that the Logan note was a forgery but the jury found that the Latham note was not a forgery although the evidence was controverted. As a result of the jury's conclusion, judgment was entered in favor of the Bank in the sum of $11,023.40, representing the principal and interest on the Logan note. Defendant filed a motion for judgment notwithstanding the verdict and plaintiff filed a motion for a "partial new trial" as to the transaction upon which it lost. The court denied both motions and only the defendant has appealed.

Clause (E) of the bond insures or indemnifies the Bank for the following:

"(E) Any loss through the insured\'s having, in good faith and in the course of business, whether for its own account or for the account of others, in any representative, fiduciary, agency or any other capacity, either gratuitously or otherwise, purchased or otherwise acquired, accepted or received, or sold or delivered, or given any value, extended any credit or assumed any liability, on the faith of, or otherwise acted upon any securities, documents or other written instruments which prove to have been counterfeited or forged as to the signature of any maker, drawer, issuer. * * *"

E. C. Riley had been a customer of the Bank since 1964 and over a three-year period obtained and repaid several loans, one as large as $100,000.00 and another for $91,000.00. Between February 16, 1967 and March 16, 1967 Riley made deposits totalling $150,000.00 to his checking account and wrote checks for approximately the same amount. The Bank paid all of the checks which Riley wrote, but thirteen of those which he deposited, which had been endorsed to him by various payees, were later returned unpaid. As a result, Riley's checking account became overdrawn in the amount of $39,643.82. Being unable to make up this deficiency, Riley obtained two loans from the Bank to cover it. The first loan was obtained on March 24, 1967 in the amount of $31,302.45 evidenced by a thirty-day promissory note and collateralized by fifty shares of stock in South Range Motors, Inc. An additional loan was obtained by Riley from the Bank on April 7, 1967 in the amount of $8,341.37. This note was secured by a pledge of fifty shares of stock in E. C. Riley Implement Company.

The Bank was pressing Riley for payment of the loans but he was unable to do so, and on July 20, 1967 the Bank permitted him to replace or pay off the previous loans with two new notes using different collateral. One was a thirty-day note in the amount of $15,000.00 and the other was a three hundred sixty-day note in the amount of $24,500.00 secured by a pledge of the following items:

(1) A $15,000.00 promissory note payable to E. C. Riley dated July 14, 1967 and signed by American National Trust and Republic National Trust;

(2) A $10,000.00 promissory note of Joseph Logan payable to E. C. Riley and secured by a combine and a tractor;

(3) A $12,802.50 promissory note of Howard V. Reece payable to E. C. Riley and secured by four combines; and

(4) A $17,000.00 promissory note of John D. Latham payable to E. C. Riley and secured by four combines.

Upon making the new notes, the security for the two previous notes was returned to Riley.

Riley was unable to meet his obligation to pay the loan and the Bank sought collection from the makers of the notes which were pledged as security. It collected from Reece on his note but was unable to collect on the Logan, Latham or American National Trust and Republic National Trust notes. Both Logan and Latham contended that the notes purportedly made by them were forgeries, and the Bank filed its proof of loss with the Bonding Company, alleging that these two notes totalling $27,000.00 had been forged and that it was insured under the bankers' blanket bond. Defendant denied the claim.

Defendant's argument on appeal is that the Bank failed to prove the amount of the loss it sustained as a result of the "exchange of collateral" on July 20, 1967. The Bank asserts that there is abundant evidence that it sustained a loss "through having, in good faith, and in the course of business, acquired, accepted, received, extended credit or otherwise acted on the faith of * * *" the Logan note which was admittedly forged, all within the reasonably intended coverage of the bankers' blanket bond, and that in any event the matter of stock value should not be considered...