COMMUNITY FED. SAV. & L. ASS'N v. General Casualty Co.

• Decision Date: 15 February 1960
• Docket Number: No. 16298.,16298.
• Parties: COMMUNITY FEDERAL SAVINGS AND LOAN ASSOCIATION OF OVERLAND, a Corporation, Appellant, v. GENERAL CASUALTY COMPANY OF AMERICA, a Corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

274 F.2d 620 (1960)

COMMUNITY FEDERAL SAVINGS AND LOAN ASSOCIATION OF OVERLAND, a Corporation, Appellant, v. GENERAL CASUALTY COMPANY OF AMERICA, a Corporation, Appellee.

No. 16298.

United States Court of Appeals Eighth Circuit.

February 15, 1960.

Harry S. Gleick, St. Louis, Mo., made oral argument on behalf of appellant.

G. W. Marsalek, St. Louis, Mo., presented argument for the appellee.

Before SANBORN, VAN OOSTERHOUT and MATTHES, Circuit Judges.

VAN OOSTERHOUT, Circuit Judge.

This is a suit by plaintiff, a corporation organized pursuant to act of Congress, engaged in the business of a savings and loan association in St. Louis County, Missouri, upon a Savings and Loan Blanket Bond issued by defendant.

Jurisdiction based upon diversity of citizenship and the requisite amount is established.

It is undisputed that the $200,000 bond sued upon was in force and effect at the time of plaintiff's loss. The bond afforded a number of coverages. The coverage involved in this suit is thus stated:

"Fraud.

"5. Any loss of Property through any other form of fraud or dishonesty by any person or persons, whether Employees or not."

In the body of the bond under the heading in large type reading: "The Foregoing Agreement Is Subject To The Following Conditions And Limitations:" it is stated:

"Section 1. This Bond Does Not Cover:

* * * * * *

"(c) 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 dishonesty, except when covered by Insuring Clause 1 or 2."

It is conceded that insuring Clauses 1 and 2 are not here involved. The question for determination is whether under the facts of this case the exclusion clause is operative so as to preclude a recovery upon plaintiff's claim based upon fraud.

This litigation arises as a result of losses sustained by plaintiff in connection with three first mortgage loans made by plaintiff to H. M. G. Building Company, Inc., secured by deeds of trust upon described lots in South Twin Subdivision in St. Louis County, Missouri, upon each of which lots it had erected or was erecting a house.

The loans here involved are:

                       Date:              Security:       Amount
                  August 19, 1954     3 lots and houses  $ 45,000
                  September 8, 1954  17 lots and houses   297,500
                  October 5, 1954     5 lots and houses    87,500
                

In support of the August 19 and September 8 loans, the H. M. G. Building Company, Inc., furnished separate affidavits as to each lot offered as security to the effect that the building upon such lot was completed and that all bills for labor and material had been paid.

As to the October 5 loan, oral representations to the same effect were made and affidavits so stating were promised but never delivered.

It is stipulated that such affidavits and representations are false and that they were relied upon by plaintiff in making the loans.

It is clearly established that many of the houses on the lots described in the trust deeds were not completed at the time the loans were made and that many labor and material bills incurred in erecting such houses were unpaid.

Plaintiff advanced an additional $342,279.92 to complete the houses and to settle and pay the mechanic's lien claims.

Plaintiff received out of the sale of the houses and other securities that it had obtained from the mortgagor a total of at least $629,829.92.

Plaintiff has established that it has suffered a substantial loss in these transactions, the exact amount of which is not here material.¹

The trial court found that false affidavits were furnished and that false representations were made by the borrower and that a fraud had been committed which brought about plaintiff's loss, and that while plaintiff was not diligent in its investigation, fraudulent devices and practices were resorted to by the borrower, inducing plaintiff to make the loans and refrain from making inquiry. The parties came at least very close to stipulating the presence of all of the necessary elements of fraud. Inasmuch as we believe the exclusion issue to be decisive in this case, we shall assume for the purposes of this opinion that the trial court reached a permissible conclusion upon the fraud issue, and will forego setting out the facts pertaining to the fraud issue.

The court then found that while plaintiff's loss fell within coverage "5" pertaining to fraud, exclusion "1(c)" hereinabove set out barred recovery. In its declaration of law the court states:

"The Court therefore declares the law herein to be that under the facts and circumstances of this case, plaintiff\'s claim falls within the exclusion clause aforesaid as a loss resulting from non-payment and default upon a loan obtained from plaintiff.

"The Court further declares the law to be that said exclusion clause includes loans procured through trick, artifice, fraud and dishonesty.

"The Court further declares the law to be that the exclusion clause above referred to does not eliminate all of the coverages provided by the bond in question, and therefore cannot be considered as an exclusion which causes a complete failure of consideration.

"The Court declares the law to be that under the facts and circumstances of this case, the loss here incurred was as the result of a loan and that while fraud, deceit, trick and dishonesty were practiced in obtaining said loan, and while the bond in question provided coverage for losses through fraud and dishonesty, nevertheless, this is not a credit insurance obligation, and therefore the factual situation comes within the provisions of the exclusion clause aforesaid."

The parties treat the bond as a Missouri contract. Since we find nothing in the record to indicate that the law of some other state should control, we shall assume that Missouri law applies. See Fidelity Trust Company v. American Surety Company, 3 Cir., 268 F.2d 805, 807; Sulzbacher v. Travelers Ins. Co., 8 Cir., 137 F.2d 386, 390.

Plaintiff in its brief asserts that the exclusion clause will not operate to deprive plaintiff of the right of recovery under the insuring clause of the bond which protected plaintiff from loss of property through any form of fraud or dishonesty. Plaintiff concedes that it has found no cases squarely in point in Missouri or elsewhere to support this proposition. We also are unable to find any cases so holding. In such a situation, this Court accepts the considered views of the trial judge as to the applicable local law, unless convinced of error. See Homolla v. Gluck, 8 Cir., 248 F.2d 731, 733-734 and cases cited. Plaintiff urges that the reasoning of Provident Trust Co. v. National Surety Corporation, 3 Cir., 138 F.2d 252, supports its position. We do not agree. The court there found that there were two conflicting exclusions with relation to the forgery coverage and that by reason thereof the application of the exclusion relied upon by the defendant would render the other exclusion clause meaningless. The court found that a confusing situation was thereby presented as to which exclusion was intended to be operative.

Plaintiff also relies upon Fidelity & Casualty Company of New York v. Bank of Altenburg, 8 Cir., 216 F.2d 294, and Hartford Accident & Indemnity Co. v. Federal Deposit Ins. Corp., 8 Cir., 204 F.2d 933. The exclusion clause involved in each of the cases just cited is practically identical to that found in the present bond. Both of the cases arose in Missouri. No issue was apparently raised as to the validity of the exclusion clause or its inconsistency with the insuring clause. Both cases involved losses suffered by banks as a result of a depositor's check kiting activities. The court in each case held that no loan resulted from the check kiting operations and that hence the loan exclusion clause would not prevent recovery. The cases afford plaintiff no support. They assume without discussion the validity of the loan exclusion clause.

The courts of Missouri have strictly adhered to the rule that absent ambiguity there is no room for construction of contracts. Unless ambiguity exists, courts have no occasion to resort to rules of interpretation. Unequivocal language in written contracts must be given its plain meaning and enforced as written. State ex rel. Prudential Ins. Co. of...