American Surety Co. v. West State Bank

• Decision Date: 08 March 1928
• Docket Number: (No. 620.)
• Parties: AMERICAN SURETY CO. OF NEW YORK v. WEST STATE BANK.
• Court: Texas Court of Appeals

Page 312

4 S.W.2d 312

AMERICAN SURETY CO. OF NEW YORK v. WEST STATE BANK.

(No. 620.)

Court of Civil Appeals of Texas. Waco.

March 8, 1928.

Rehearing Denied April 5, 1928.

Appeal from District Court, McLennan County; Sam R. Scott, Judge.

Action by the West State Bank against the American Surety Company of New York. Judgment for plaintiff, and defendant appeals. Affirmed.

Spell, Naman & Penland, of Waco, for appellant.

Sleeper, Boynton & Kendall, of Waco, for appellee.

GALLAGHER, C. J.

The West State Bank, appellee herein, sued the American Surety Company of New York, appellant herein, for $1,541.59 upon a fidelity bond executed by said company as surety for one August J. Peters, an employee of said bank. Appellee alleged that said Peters embezzled, wrongfully abstracted, and willfully misapplied to his own use and benefit the sum sued for. Appellant defended by a general denial and an allegation that said Peters was addicted to gambling; that he had, prior to the issuance of said bond, without authority, signed the names of depositors to checks on said bank, and had obtained money thereon from said bank, and had embezzled, wrongfully abstracted, and willfully misapplied the money so obtained; that, by reason of such facts, he was dishonest, morally delinquent, and utterly unfit for a position of trust. Appellant further alleged that the issuance of said bond was procured by appellee, acting through its president; that all said facts were known to appellee's said president; that he had abundant opportunity to disclose said facts to appellant and to its agent taking the application for said bond prior to the issuance thereof; that it was his duty to disclose the same, and all the same, to appellant's said agent, and that he wholly neglected and failed to discharge such duty; that none of said facts were known to appellant, and that, if they had been known, it would not have become surety on such bond; that by reason of the premises said bond never became a valid and binding obligation, but was wholly void, and of no force and effect.

The bond sued on was dated September 1, 1924, and was by its terms to remain in force for one year. Appellee's president applied to appellant's agent, who had an office in the bank at the time, for the issuance of the same. Some time during the summer preceding the issuance of said bond, appellee's said president discovered that said Peters, who was about 20 years of age at the time, and employed as a bookkeeper in said bank, had been signing his mother's name to checks on her account in said bank, withdrawing the amount of such checks in money therefrom and appropriating the same. Such checks amounted in the aggregate to between $400 and $500. Appellee's said president immediately took the matter up with young Peters' mother, who finally consented to recognize said checks as proper charges against her account. During the conversation with reference thereto, he advised her that, if she refused to recognize said checks trouble to her said son would probably result. He testified in that connection that he had in mind making a claim on a fidelity bond issued by another company as surety for said Peters, which bond was in force at that time.

Mrs. Peters testified that he promised in that connection to have a conversation with young Peters about his conduct, and to reprove him therefor; to raise his salary; and to arrange for him to make a monthly deposit to her account until the amount of money so withdrawn was returned. Peters continued in the employ of appellee until April 13, 1925, when he was discharged for gambling. He immediately disappeared, and his whereabouts were unknown at the time of trial. Shortly after his discharge, it was found that the account of his grandmother, Mrs. Skopic, had been removed from the active ledger, and that, when the same was restored thereto, the books were out of balance in the sum of $1,541.59, and a shortage of that amount existed in the cash on hand in said bank. The evidence is sufficient to sustain a finding by the trial court that said sum was embezzled, wrongfully abstracted, and willfully misapplied by said Peters to his own use and benefit. It was agreed on the trial of the case that appellant's agent, at the time he received the application for said bond, did not know of any prior default or delinquency on the part of said Peters, and that, if he had known the facts concerning the unauthorized drawing of checks by said Peters upon his mother's account and his appropriation of the proceeds thereof, he would not have accepted said application. It was also agreed that appellant's agent in Dallas who issued said bond would not have issued the same if he had known any of said facts. The policy sued on was introduced in evidence, and did not have attached to it any application therefor, nor was any reference made therein to such application. Appellee, for the purpose of showing that said policy was issued in pursuance of an application therefor in writing signed by said Peters, and that the same included a "Certificate of Employer," introduced said application in evidence. It appeared therefrom that the same was made on a regular form used by appellant, and the same included as a part thereof a certificate signed by appellee as follows:

"The accounts of the applicant for this bond were last examined on the 30th day of July, 1924, and found correct in every respect. He has been in the service of the employer since the 20th of July, 1923, and has never to my knowledge been in arrears or default.

"From all that I know and have heard, I believe him to be entitled to confidence and qualified to discharge the duties of the position named in the within named application. Proper accounts are kept and adequate examinations of his transactions will be made."

The case was tried before the court and judgment rendered in favor of appellee against appellant for the sum of $1,541.59, the amount sued for. Said judgment is here presented for review.

Opinion.

Appellant's first proposition presented as ground for reversal is that, under the undisputed facts in this case, the trial court should have rendered judgment in its favor on the ground that appellee, when it had an opportunity to do so, withheld and failed to disclose facts material to the risk insured against by the policy sued on. The Legislature of this state in 1903 (General Laws, p. 94) enacted a comprehensive law prescribing rules to govern in determining the validity and enforceability of contracts of insurance when sought to be avoided by the insurer on the ground of fraud by the insured in securing the same, and the conditions upon which such defense might be made. According to the provisions of said act, no insurance contract thereafter made can be avoided on the ground of misrepresentations in the application therefor or in obtaining and securing the same, unless the insurer, within a reasonable time after discovering the falsity of the representations so made, gives notice that it refuses to be bound by such contract or policy. Said act further provides that every contract or policy of insurance shall be accompanied with a copy of the application therefor and of all questions asked and answers given thereto. The provisions of said act above referred to were, without material change, incorporated in the Revised Statutes of 1911, and retained in the Revised...