American Bonding Co. of Baltimore v. Morrow

• Decision Date: 23 July 1906
• Parties: AMERICAN BONDING CO. OF BALTIMORE v. MORROW.
• Court: Arkansas Supreme Court

Page 613

96 S.W. 613

AMERICAN BONDING CO. OF BALTIMORE v. MORROW.

Supreme Court of Arkansas.

July 23, 1906.

Appeal from Prairie Chancery Court; Jno. M. Elliott, Chancellor.

Action by W. H. Morrow, as receiver of the Bank of De Valls Bluff, against the American Bonding Company of Baltimore. From a judgment in favor of plaintiff, defendant appeals. Reversed.

The American Bonding Company of Baltimore is a foreign corporation doing business in the state of Arkansas as a surety company, and, on August 31, 1900, executed to the Bank of De Valls Bluff, of De Valls Bluff, Ark., a surety bond in the sum of $5,000, undertaking to indemnify said bank against any loss sustained on account of any larceny or embezzlement committed by its cashier, G. C. Strong, during a term of one year, commencing on the 1st day of September, 1900. The bond contained the following, among other conditions and stipulations, viz.: "This bond shall not lapse at the end of the above if it shall be continued in force by a renewal receipt or receipts, executed by the surety, but shall continue in force for the term or terms of such renewal. The liability of the surety, however, shall not be cumulative. That all the representations made by the employer, his or its officers, to the surety are warranted by the employer to be true. That the employé has not, to the knowledge of the employer, his or its officers, been in arrears or a defaulter in the position covered by this bond, or in any other position, and that the employer, his or its officers, upon becoming aware of the employé gambling, speculating or committing any disreputable, lewd or unlawful act will immediately notify the surety in writing. That the surety's liability hereunder shall cease immediately as subsequent acts of the employé from and after discovery by the employer, his or its officers, if any default hereunder on the part of the employé." This bond was issued upon a written application signed by officers of the bank, containing various statements in response to questions propounded; the truth of which were declared to be warranties by the applicant. Renewal receipts were subsequently issued by the surety, extending the period of the suretyship from September 1, 1901, for one year, and from September 1, 1902, for another year.

The renewal receipts were in the following form (omitting caption): "In consideration of the sum of $25, the American Bonding & Trust Company of Baltimore City, hereby guaranties the fidelity of George C. Strong in favor of Bank of De Valls Bluff from the 1st day of September, 1901, to the 1st day of September, 1902, in the same amount, in the same position, and subject to all the covenants and conditions set forth and expressed in the surety bond No. 44,228 of this company, heretofore issued on the 1st day of September, 1900." The last renewal receipt extending the bond for one year from September 1, 1902, was issued upon a written application signed by the president of the bank, and containing the following, among other questions and answers, viz.: "4 (a) Has applicant uniformly given satisfaction in his personal conduct and habits?" Answer: "Yes." "(b) Has he kept his accounts correctly and made proper settlements of all cash and securities entrusted to his care?" Answer: "Yes." "(c) Have you any knowledge or any information or are you aware of any habit of the applicant or of any circumstances unfavorably affecting the risk to the surety on the bond applied for? If so, state particularly." Answer: "No." "5. Is he now or has he been from any cause indebted to the bank or its officers? If so, give particulars, stating amount, how incurred, and how payment is secured." Answer: "Does not owe the bank or its officers." "6. Is he now or about to be engaged or entrusted in any other business or employment than the bank's service?" Answer: "No." "11. In case of applicant handling cash or securities how often will the same be examined and compared with the books, accounts and vouchers and by whom?" Answer: "The auditing committee monthly." "12 (a) At what date and by whom were the applicant's books and accounts (including cash, securities and vouchers, if any) last inspected and examined?" Answer: "August 15, by auditing committee, W. J. Wilkins and J. I. Booe." "(b) Were they at that time in every respect correct and proper securities and funds on hand to balance?" Answer: "They were."

The plaintiff, W. H. Morrow as receiver of the bank of De Valls Bluff brought suit at law against said company to recover the sum of $11,038.56, alleged to have been misappropriated and used by the cashier Strong (which said misappropriation, it is alleged, amounted to larceny or embezzlement) during the said three years covered by said bond and the several renewals thereof. The defendant answered, and the cause was transferred to the chancery court upon the motion of defendant alleging "that the transactions and defalcations, if any, as charged against said Strong in the complaint embraced money and various items of account extending over a period of three years and are of such an intricate nature, and so intermingled upon the books and among the papers of the said bank that it is impossible to ascertain accurately the amount of defalcation, if any, or the amount due from said Strong to said bank without the aid of a master in chancery." Said defendant in its answer denied that Strong, by acts amounting to larceny or embezzlement, had appropriated the funds of the bank. Alleged untruthfulness of the answers to questions in the several applications for the bond and renewal receipts were set forth as breaches of the contract which released the surety from liability. It is also set forth as a defense that, according to the terms of the bond, the surety is in no event liable for an amount in excess of $5,000. On final hearing the chancellor found that Strong's defalcation during the period named in the bond was $1,150.50; during the period named in the first renewal receipt $4,066.72; and during the period of the second renewal receipt $5,851.34; and rendered a decree against the surety company for $10,068.06, from which...