Massachusetts Bonding & Ins. Co. v. Hudspeth

• Decision Date: 12 February 1938
• Docket Number: No. 10955.,10955.
• Citation: 94 F.2d 467
• Parties: MASSACHUSETTS BONDING & INS. CO. v. HUDSPETH. In re WARD-GARRISON HOTEL CORPORATION.
• Court: U.S. Court of Appeals — Eighth Circuit

94 F.2d 467 (1938)

MASSACHUSETTS BONDING & INS. CO. v. HUDSPETH In re WARD-GARRISON HOTEL CORPORATION.

No. 10955.

Circuit Court of Appeals, Eighth Circuit.

January 28, 1938.

Rehearing Denied February 12, 1938.

James B. McDonough, of Fort Smith, Ark., for appellant.

Joseph M. Hill, of Fort Smith, Ark. (Henry L. Fitzhugh and John Brizzolara, both of Fort Smith, Ark., on the brief), for appellee.

Before GARDNER, SANBORN, and THOMAS, Circuit Judges.

GARDNER, Circuit Judge.

This is an appeal from a judgment based upon a verdict directed in favor of the appellee, plaintiff below, in an action brought to recover on a fidelity bond. We shall refer to the parties as they were designated in the lower court.

The Ward-Garrison Hotel Corporation on August 12, 1935, filed its petition for reorganization under section 77B of the National Bankruptcy Act, 11 U.S.C.A. § 207 and note. On approval of the petition, the court ordered the debtor to continue temporarily in possession of its property and to operate its business until the further order of the court. The order authorized the debtor "to deposit all moneys now in the possession of the debtor as well as all moneys that may hereafter come into the possession of the debtor in City National Bank of Fort Smith, Arkansas, which moneys may be withdrawn by the debtor as required in order to so carry on its business, on check, draft or order duly signed by such officers and/or agents of the debtor as are now authorized to do so by existing resolutions of the Board of Directors of the debtor, provided, however, that no such checks shall be countersigned by a referee." The debtor was ordered to close its present books of account as of the close of business on August 15, 1935, and to open new books of account as of the opening of business on August 16, 1935, and to cause to be kept therein due and proper accounts of the earnings, expenses, receipts, and disbursements of the debtor, and to preserve proper vouchers for all payments made. On September 11, 1935, the court continued in effect, until further order, the order leaving the debtor in possession. It also then ordered that Perry Keith, the manager of the hotel, be paid a salary of $250 a month for his services, and that M. M. Hord be paid a salary of $125 a month for her services as auditor and bookkeeper (in addition to accommodations furnished them), and that no other salaries should be paid to any officer or director of the debtor without the approval of the court first obtained.

The bond forming the basis of this action was first executed November 16, 1933, to the Ward Hotel Company of Fort Smith, Ark., as employer, and by it the defendant obligated itself to pay "such direct loss as the Employer shall have sustained * * * through larceny or embezzlement committed by any employee or employees named in the schedule attached hereto." On November 16, 1935, while the debtor was in possession of its property and business under order of the bankruptcy court, the bond, by endorsement, was amended as to obligee to read, "Ward Garrison Hotel Corporation, Ormand Griffin, President." This endorsement reads as follows:

"Endorsement

"Attached to and forming part of Bond No. S-31616 issued by the Massachusetts Bonding and Insurance Company on behalf of various employees in favor of Ward Hotel Company, et al.

"In the amount of $____ Dated ____

"It Is Understood And Agreed That effective the 11th day of November 1935, the name of the Employer (Obligee) in the annexed bond is hereby amended to read as follows: `Ward Garrison Hotel Corporation, Ormand Griffin, President.'

"Except as herein specifically modified, the conditions, provisions and limitations of said bond shall continue unchanged."

This was signed by the defendant, acting through its vice president and assistant secretary.

The schedule of employees affixed to the bond effective November 11, 1935, included Margaret M. Hord, auditor, for an amount of $3,000.

On April 2, 1936, the bankruptcy court appointed Cooper Hudspeth as trustee of the hotel corporation, and he thereafter qualified. By order of his appointment he was directed, subject to the control of the judge of the court, to operate the business of the debtor, and as incident thereto to employ and discharge help, purchase supplies, and make all necessary disbursements.

Margaret M. Hord died April 7, 1936, and on that same date a deputy United States marshal, pursuant to directions of plaintiff, took possession of the cash and records that had been in Mrs. Hord's possession. A subsequent audit by an accountant disclosed a shortage of $4,015.61. This shortage was determined by charging Mrs. Hord with the balance on hand at the close of business on November 30, 1935, the date of the last previous audit made by this same accountant, plus the total receipts shown by the books up to April 7th, and crediting her with the amount shown by the books to have been expended and the balance actually remaining on hand. When the records and books that had been in Mrs. Hord's possession were taken over, there were found in the room occupied by her as an office certain memoranda, checks, and drafts, and these were placed in the cash box where they were found by the accountant, among them being certain I.O.U.'s signed by Ormand Griffin. These memoranda, checks, and drafts amounted in the aggregate to $6,789.88. There was also found to be a deposit of $2,000 made in the bank to the hotel's credit on December 7, 1935, which was not reflected in the hotel books as kept by Mrs. Hord, but it appeared that the deposit was made by her, the deposit ticket being in her handwriting and being made up of two $1,000 checks payable to her order.

From a study of the accounts and the exhibits, it appeared, and the accountant so testified, that Mrs. Hord had made a practice of paying out cash from the cash box for Mr. Griffin, without having deposited it in the bank or having made out a voucher for its disbursement. Deducting the $2,000 from the total of $6,789.88 left a balance of $4,789.88. There still remained a difference between the shortage reflected by the bank account and the total of the memoranda, checks, and drafts of $774.24, which was not explained. In any event, a shortage in excess of $3,000, the amount of the bond applicable to Mrs. Hord's defalcations, is claimed by plaintiff to be established.

The evidence showed that Griffin often drew checks or customer's drafts on a bank of Fort Smith, and that Mrs. Hord had instructed the bank to notify her if his account had not sufficient funds to meet the checks, which frequently occurred. She would then, as above noted, furnish the money to the bank to cover the checks.

On April 14, 1936, the shortage was reported by the accountant to plaintiff, and on April 18, 1936, he wrote the bonding company, reporting the loss and asking that a copy of the bond be furnished him. Formal proof of loss was mailed to the company on May 18th, and the action was commenced July 23, 1936, after counsel for the defendant had notified plaintiff that the company denied liability.

At the close of all the evidence, both parties moved for a directed verdict and the court granted the motion of the plaintiff. On this appeal this action of the court is challenged on a number of grounds, which may be in substance stated as follows: (1) The memoranda, checks, and drafts found in Mrs. Hord's room were not sufficient proof of a shortage; (2) the accountant's item "Cash Advanced to Guests" was erroneously listed as a disbursement; (3) there was no loss within the meaning of the bond because the money was received by Griffin, who was not covered by the bond; (4) Griffin being the obligee named in the bond, the defendant was not liable for misappropriations by him; (5) there was no evidence that the money was taken without the consent or against the will of the owner or custodian; (6) an annual audit of the accounts of each employee had not been made as required by the terms of the bond as a condition precedent to right of recovery; (7) the bond did not cover the debtor in bankruptcy, but inured only to the corporation; (8) the employer having failed to give immediate notice on discovery of the acts of Mrs. Hord, plaintiff was not entitled to recover; (9) the acts of Mrs. Hord did not amount to larceny or embezzlement as the terms were used in the bond.

In the final analysis, the only question presented on this appeal, is the sufficiency of the evidence to sustain the verdict as directed by the court and the judgment entered thereon. In considering this question, we shall assume without deciding that defendant did not waive its right to have the issues submitted to a jury by having itself moved for a directed verdict. Chicago, M., St. P. & P. R. Co. v. Flanders, 8 Cir., 56 F.2d 114. It claims that its motion was more than a mere request for a peremptory instruction. In considering whether there was any substantial evidence tending to sustain defendant's defense, we shall consider the evidence in the light most favorable to it. Skaggs Safeway Stores v. Dunkle, 8 Cir., 49 F.2d 169; Gunning v. Cooley, 281 U.S. 90, 50 S.Ct. 231, 74 L.Ed. 720.

Defendant erroneously assumes that the accountant based his testimony regarding the shortage upon the memoranda, checks, and drafts, including the I.O.U.'s by Griffin, found in the room in which Mrs. Hord kept the books of the hotel company, but the accountant found a shortage without reference to these documents. He determined this shortage by the very simple process of taking the difference between the balance which the books showed should be on hand and the actual balance on hand on April 7. The evidence respecting these memoranda, checks, drafts, and I.O.U.'s was not for the purpose of establishing the amount of the shortage, but for the purpose of showing that Mrs. Hord had been misapplying or embezzling funds. Evidence other than that of the accountant showed...