American Surety Co. v. North Texas Nat. Bank

• Court: Texas Court of Appeals
• Writing for the Court: Looney
• Citation: American Surety Co. v. North Texas Nat. Bank, 14 S.W.2d 88 (Tex. App. 1929)
• Decision Date: 05 January 1929
• Docket Number: (No. 10320.)
• Parties: AMERICAN SURETY CO. OF NEW YORK et al. v. NORTH TEXAS NAT. BANK et al.

14 S.W.2d 88

AMERICAN SURETY CO. OF NEW YORK et al. v. NORTH TEXAS NAT. BANK et al.

(No. 10320.)

Court of Civil Appeals of Texas. Dallas.

January 5, 1929.

Rehearing Denied February 23, 1929.

Appeal from District Court, Dallas County; Claude M. McCallom, Judge.

Action by the North Texas National Bank against the American Surety Company of New York, the Royal Indemnity Company, and others. From the judgment, defendants named appeal. Affirmed in part, reformed, and affirmed in part, and reversed and rendered in part.

Saner, Saner & Jack and Turner & Rodgers, all of Dallas, for appellants.

Thomas, Storey & Grady and Touchstone, Wight, Gormley & Price, all of Dallas, for appellees.

LOONEY, J.

North Texas National Bank brought suit against W. C. Spangler, Southwest National Bank of Dallas, American Surety Company, and the Royal Indemnity Company. Plaintiff's allegations are, in substance, that Spangler was employed by it as teller, and through his dishonest and criminal acts it sustained a loss of $38,571.28; that by its bankers' blanket bond issued July 7, 1925, the Royal Indemnity Company, called Indemnity Company, obligated itself to indemnify plaintiff to an amount not exceeding $100,000 from and against any loss it might sustain through any dishonest or criminal acts of any of its employees; that the loss sustained was within the period covered by the bond, for which both Spangler and the company were liable; that on May 13, 1925 (effective May 16, 1925), plaintiff succeeded by contract of purchase to the banking business of Southwest National Bank, called Southwest Bank; that on and prior to July 7, 1923, Spangler was also employed by Southwest Bank in same capacity, that is, as teller; that the American Surety Company, called Surety Company, by its bankers' blanket bond, effective July 7, 1923, to July 7, 1925, agreed to indemnify said bank to an amount not exceeding $100,000 against any loss it might sustain through any dishonest or criminal acts of any of its employees, etc.; that upon the succession to its business by plaintiff, the liability of Surety Company, by a rider attached to said bond, was continued in favor of plaintiff to July 7, 1925, and thus the Surety Company became liable to plaintiff for all loss sustained by reason of Spangler's dishonest or criminal conduct committed from and including May 16, 1925, to July 7, 1925; and further alleged that, if the loss occurred prior to May 13, 1925, the Southwest Bank was liable to it under the terms of the succession contract.

The Surety Company answered by general and special exceptions, general and special denials. The Southwest Bank answered by general demurrer and denial, and, in a cross-bill, over against Surety Company, alleged, in substance, that by different bonds issued it agreed to indemnify Southwest Bank against loss from any dishonest or criminal acts of any of its employees; that prior to the sale of its banking business to North Texas Bank, Spangler, one of its employees, embezzled from it the principal sum of $38,571.28, which was replaced by Spangler on May 16, 1925, but interest thereon was not paid, wherefore it prayed for judgment against both Spangler and the Surety Company for the interest that accrued upon the various sums embezzled. In answer to the cross-bill, the Surety Company pleaded misjoinder of causes of action, general denial, the statutes of limitation of two and four years (Rev. St. 1925, arts. 5526, 5527), and prayed that, if judgment should, in any event, be rendered against it in favor of either plaintiff or Southwest Bank, that it have judgment over against Indemnity Company.

Indemnity Company urged general and special exceptions, general denial, and a special plea to the effect that the bond issued by it to plaintiff upon which the suit is based became effective July 7, 1925; that Spangler's embezzlements were committed prior to that date; that the loss resulted when the money was actually appropriated; and that his acts of concealment did not create a loss within the meaning of the bond. The Indemnity Company prayed, however, that if, in any event, judgment should be rendered against it in favor of plaintiff, for a loss that accrued prior to July 7, 1925, that it have judgment over against Surety Company for the same amount.

The case was tried without a jury and resulted in judgment for plaintiff against both Indemnity Company and Surety Company for the principal sum of $38,571.28, with $9,605.04 interest; in favor of Indemnity Company over against Surety Company for same amount; in favor of each of these companies against Spangler for same amount; in favor of Southwest Bank on its cross-bill against Surety Company for $3,672.36 interest; that plaintiff take nothing on its cross-bill against the Indemnity Company. Both bonding companies have appealed.

The material facts are these: Spangler was employed as teller, first by the Security National Bank of Dallas, until it was succeeded by Southwest Bank on June 19, 1921, was continued by the latter in same capacity, until it was in turn succeeded by plaintiff bank on May 16, 1925, and thereafter served the latter in the same capacity until the discovery of his shortage September 1, 1925.

Spangler began to embezzle money prior to January 10, 1919, while in the service of Security National Bank, and continued at intervals during his service with Southwest Bank until April, 1925, when the aggregate amount of his embezzlements reached the principal sum of $38,571.28. He succeeded in concealing his wrongdoing by withholding for a day or two evidence of deposits made by customers, and when other deposits were made would pass the latter in with the withheld credit slips, when proper credits would be entered on the books in favor of said depositors, and, in turn, would withhold evidence of the other deposits, which were credited later in the same way. On Monday, May 16, 1925, the first day he served North Texas Bank as teller, in like manner, he caused money deposited by a group of its customers, equal in amount to his shortage. to be passed to the credit of customers of the Southwest Bank of the Saturday preceding, evidence of whose deposits he had withheld, and throughout the time he served North Texas National Bank as teller, from day to day, he withheld evidence of deposits, equal in amount to his shortage, which, within a day or two, could be properly credited with money deposited by other customers, until detected September 1, 1925. On the next day he made a full confession and at that time had on his person evidence of deposits made September 1, 1925, by five certain depositors, that equaled his shortage. These five depositors had not been credited, as the money deposited by them was passed by Spangler to the credit of a preceding group, whose deposit slips he had in like manner been withholding. Plaintiff bank recognized and discharged its liability as debtor to these five depositors by making proper settlements.

Aside from questions that grew out of the cross-bill of Southwest Bank against Surety Company, for the recovery of interest to be discussed later, this contest is largely between the two bonding companies as to which should be compelled to pay the loss sustained by plaintiff. The Indemnity Company contends that the loss occurred prior to the effective date of its bond, whilst the contention of Surety Company is that the loss occurred after its bond expired, but each company prays, in the event of an adverse judgment as to it, for judgment over against the other.

The pertinent provisions of the bonds of these companies are in effect the same — that is, each agreed to indemnify its insured against any loss through any dishonest or criminal act of any of its employees, etc., to an amount not exceeding $100,000. It follows, therefore, that the mere commission of dishonest or criminal acts by Spangler was not sufficient to fix the obligation of indemnitor to pay; a loss must result therefrom before liability under the bond could exist. Therefore if, on September 2, 1925, Spangler, with outside money, could have caused proper credits to be entered in favor of the five depositors of September 1, 1925, whose deposits he diverted in favor of prior depositors, plaintiff would have lost nothing, and there could have been no recovery on the bond, notwithstanding the many acts of dishonesty and crime committed by him during the preceding ten years. When Spangler received the money of the five customers of the bank September 1, 1925, the relation of debtor and creditor was created between them and plaintiff bank, although they received no credits for the amounts deposited. Plaintiff discharged its liability to these, and, in doing so, was compelled to draw upon its resources other than general deposits. This was not the case as to other depositors; they had been properly credited, and presumably were paid from general deposits in due course of business, and thus, on September 2, 1925, Spangler's protacted dishonesty and crimes reached a climax, culminating in loss to plaintiff of the sum of $38,571.28.

Indemnity Company, combatting this idea, cites an array of authorities in support of its contention that the loss to plaintiff did not occur during, but prior to, the effective date of its bond.

After careful examination, we are of the opinion that each case cited is distinguishable from the present case, either on the facts or conditions of the bonds involved. The cases seemingly relied upon by Indemnity Company with greatest confidence are: Fidelity & Casualty Co. of New York v. National Bank (C. C. A.) 71 F. 116; First National Bank v. National Surety Co. (C. C. A.) 130 F. 401, 66 L. R. A. 777; Royal Indemnity Co. v. Vitrified Products Co., 117 Ohio St. 278, 158 N. E. 827.

Fidelity & Casualty Co. of New York v. National Bank (C. C. A.) 71 F. 116, was a suit on a bond to recover the sums embezzled by an employee of plaintiff bank. The bond...