Alabama Fidelity & Cas. Co. v. Alabama Penny Sav. Bank

• Decision Date: 18 January 1917
• Docket Number: 2 Div. 598
• Citation: 76 So. 103,200 Ala. 337
• Parties: ALABAMA FIDELITY & CASUALTY CO. v. ALABAMA PENNY SAV. BANK.
• Court: Alabama Supreme Court

76 So. 103

200 Ala. 337

ALABAMA FIDELITY & CASUALTY CO. v. ALABAMA PENNY SAV. BANK.

2 Div. 598

Supreme Court of Alabama

January 18, 1917

Rehearing Denied June 7, 1917

Appeal from City Court of Selma; J.W. Mabry, Judge.

Action by the Alabama Penny Savings Bank against the Alabama Fidelity & Casualty Company. Judgment for plaintiff, and defendant appeals. Affirmed.

John R Tyson, of Montgomery, for appellant.

Mallory & Mallory, of Selma, for appellee.

McCLELLAN J.

This is an action, instituted by the appellee against the appellant to recover on an instrument executed by the appellant to the appellee, indemnifying, under conditions defined, the appellee for one year beginning the 30th of July, 1912 against pecuniary loss, to the extent of $5,000, the appellee might sustain during that period "by reason of any fraudulent or dishonest acts" of one Hunter "amounting to embezzlement or larceny" in connection with the duties of said Hunter as paying and receiving teller of the employing bank, the appellee. The defenses interposed were stated in a large number of original and amended pleas; the rulings on some only of which are brought into question and under review. The trial was by the court without jury, and plaintiff was given judgment for $5,700.

The first assignment of error pressed in brief for appellant complains of the action of the court in sustaining demurrer to original plea 2. Its theory was that the employé had been guilty, before the execution of this bond, of acts of dishonesty amounting to embezzlement, which were "known, or ought to have been known, to the officers of the bank" (italics supplied), and that the bank retained him in its employ and did not, in violation of the bank's duty, disclose to the defendant the facts of this employé's dishonesty; whereas, if such disclosure had been made, the defendant would not have executed the bond sued on.

Aside from the probable fault inhering in the plea's failure to set forth the facts which the pleader characterizes as acts of dishonesty amounting to embezzlement, the plea was rendered seriously defective by the interpolation of the alternative averment, italicized in the above quotation from the plea.

When an employer has knowledge of previous dishonesty of an employé and accepts the assurance of an indemnitor of the employé's future fidelity in the employer's service, without disclosing such knowledge to the innocent indemnitor, a fraud is committed against the indemnitor, and he is not bound. Saint v. Wheeler, 95 Ala. 362, 381, 10 So. 539, 36 Am.St.Rep. 210; London Gen. Omnibus Co. v. Holloway, 23 Ann.Cas. 1280, and notes at pages 1286, 1287. This wholesome doctrine is predicated of knowledge only, not upon a failure or omission to gain knowledge where that could have been acquired by inquiry or investigation; and so, even though the employer had notice of facts which, if diligently followed up, would have brought knowledge of acts of dishonesty on the part of his retained employé, since notice is not the equivalent of knowledge. Osborn v. Ala. S. & W. Co., 135 Ala. 571, 577, 33 So. 687.

Like considerations justified the trial court in sustaining the demurrer to amended plea 5, which charged, in substance, that, before the indemnity was given, the employé "was short in his accounts," that "some of the officers of the said bank had notice or knowledge that he was short in his accounts prior to the execution of the bond sued upon," and that, in violation of its duty, the bank failed to disclose the fact of such shortage to the defendant at or prior to the execution of the bond. Since one obliged by his duties to keep records of daily transactions in a bank may be short in his accounts in consequence of innocent mistake, not the product of dishonest purpose, it cannot be affirmed that the averments quoted from amended plea 5 were effective to charge dishonesty in the premises; there being no allegation that he was short in respect of funds or other values to which he had access or with reference to the care of which he had duties.

The complaint, in its three counts, declares upon a liability of the defendant attributable to the infidelity of Hunter in connection with his duties as paying and receiving teller of the plaintiff. Original plea 11 would avoid the defendant's liability under the contract declared on because, it is averred, Hunter was permitted, by and with the consent of the employer's officers, to discharge the duties of cashier, and to have control of and to handle assets of the bank beyond those powers usually conferred upon paying and receiving tellers, without accounting to the cashier daily, for assets so handled by him. Original plea 12 proceeded upon the same general theory, concluding with the averment that Hunter was permitted, by and with the consent of the officers of the employer, to discharge the duties of cashier, notwithstanding the employer had a cashier. Following rulings on demurrers adverse to these pleas, the defendant amended them. As we interpret the pleas after the addition to them of the matter introduced by their amendment, they then sought to set up as a defense the cumulative, ultimate fact that the practice described in original pleas 11 and 12 and permitted by the officers of the employer operated to remove the safeguards that a daily accounting by the paying and receiving teller with the cashier would have afforded if the teller had only performed the duties usually imposed upon a paying and receiving teller, thereby enhancing the risk above that assumed by the indemnitor when it assured the fidelity of Hunter as paying and receiving teller only. Whether the consideration is of the original or of the amended pleas 11 and 12, it is certain that in neither of them was it asserted that Hunter was made cashier of the employer, a banking office distinct from that known as paying and receiving teller, to Hunter's fidelity with respect to which the indemnitor gave its assurance.

Hence the doctrine of the cases holding to nonliability of the indemnitor for infidelity in a different office or position from that in which fidelity is assured is without application to the inquiry raised upon the sufficiency vel non of these pleas, original or as amended. And it is also clear that these pleas, original or as amended, do not assert that the infidelity declared for was by Hunter while serving as cashier of the employer. Detroit Bank v. Ziegler, 49 Mich. 157, 13 N.W. 496, 43 Am.Rep. 456.

And it is to be further noted, by way of appropriate elimination in order to disclose the question presented in this connection, that these pleas do not aver any affirmative obligation, intentionally or otherwise, assumed by the employer to engage and to retain, during the life of this indemnity, a cashier, or any false or fraudulent representation, inducing the indemnity given by the defendant that it had, and would continue to have during the period of the indemnity, a cashier. The averments that the employer did have a cashier and a paying and receiving teller, the subject of this indemnity, were not, of course, the equivalent of an allegation that the employer assumed an obligation to provide a cashier, or that the employer represented, to induce the indemnity, that it would have the services of a cashier during the life of the indemnity.

Considering these pleas in their true legal effect, it is manifest that the matters sought to be availed of as defenses are these: The increase of the teller's duties by the employer, without the consent of the teller's indemnitor and the consequent enhancement of the indemnitor's risk through the added temptation to and opportunity for dishonesty by the employé arising from the wider powers allowed him while performing duties referable to the office of cashier, or duties not usually attaching to the office of paying and receiving teller. It does not appear from the complaint that Hunter's acts of dishonesty were other than in his capacity as paying and receiving teller. As stated, these pleas do not assert that the acts of dishonesty declared for were in another capacity, viz. as cashier. So, if these pleas were to be perfected as defenses under their theory, they must have carried the averment that the added duties were such as that their performance materially interfered with the discharge by the employé of the duties dishonestly breached by him in his capacity as such teller. Mayor, etc., v. Kelly, 98 N.Y. 467, 50 Am.Rep. 699, a deliverance approved, in the pertinent particular by this court in its decision in Saint v. Wheeler Man. Co., 95 Ala. 362, 375, 10 So. 539, 36 Am.St.Rep. 210.

The fact that because of such added duties the employé may be or is subjected to greater temptation to dishonesty is immaterial. Mayor, etc., v. Kelly, supra. There are decisions in other jurisdictions, of which Kellogg v. Scott, 58 N.J.Eq. 344, 44 A. 190, is an illustration, that conclude to a different effect; but this court has long since accepted the doctrine we have stated. There was no error in sustaining the demurrers to original and amended pleas 11 and 12.

Assignment of error numbered 6 brings into question the ruling of the trial court in sustaining demurrer to "amended plea 16." Original plea 16 was amended and then re-amended; but the only error assigned with respect thereto presents for review the court's ruling on amended plea 16, which reads:

"(16) That one of the plaintiff's officers, in the line and scope of his duties as such officer, and in the discharge of his said duties, discovered a defalcation of said Hunter amounting to embezzlement or larceny, committed by said Hunter while discharging the duties of paying and receiving teller, and during the currency of the bond sued upon, and pla

...