Bank of England, Ark. v. Maryland Cas. Co.

• Decision Date: 17 November 1923
• Citation: 293 F. 783
• Parties: BANK OF ENGLAND, ARK., v. MARYLAND CASUALTY CO.
• Court: U.S. District Court — Eastern District of Arkansas

293 F. 783

BANK OF ENGLAND, ARK., v. MARYLAND CASUALTY CO.

United States District Court, E.D. Arkansas.

November 17, 1923

As the facts are practically undisputed, and the defenses relied upon at the hearing were limited to those hereinafter set out, it is unnecessary to make special findings on some of the denials in the answer, which counsel for the defendant waived.

The defendant is a corporation, engaged under its charter in writing surety bonds; the plaintiff is a bank in the small town of England, Ark., with a capital of $25,000. On July 20 1917, the defendant executed its policy to the plaintiff for the term of one year, in consideration of the payment of a premium paid it by the plaintiff, whereby it covenanted 'to reimburse the plaintiff, after proof of loss, to the extent of $10,000 for such loss of money, securities, or other personal property belonging to or in the possession of the employer, for which the employer is legally liable, which the employer shall have sustained by reason of any act or acts constituting larceny or embezzlement committed by the employee, Miss Mamie McKenzie,' described as 'bookkeeper.' The policy contains a number of conditions which the policy declares 'shall be deemed conditions precedent to any right of the employer to recover thereon.'

It is unnecessary to set out any other of the conditions than those relied on by the defendant as a defense, which will be set forth later. The policy was renewed annually, the last renewal being for the year ending July 20, 1923. About January 23, 1923, the bank discovered for the first time that Miss McKenzie, the employee insured, had embezzled of the funds of the plaintiff the sum of $8,800, whereupon it immediately notified the defendant of it, and that she had made a written confession admitting said shortage, and on February 15, 1923, it filed its proper proofs of loss as required by the terms of the policy. The defendant at once notified plaintiff that it refused payment, upon the ground that plaintiffs had breached the conditions of the bond.

Before the original bond was executed by the defendant, the defendant required the plaintiff's president to answer certain questions in the application for the policy. The questions and answers therein are quite numerous, but for the purpose of this action it is only necessary to set out those which defendant in its answer relies on as relieving it from liability. It is alleged in the answer that;

'II. Further answering, defendant states that on July 16, 1917, Mamie McKenzie made written application to defendant for a bond to date from July 20, 1917, for $10,000 in favor of plaintiff, as security to cover her position as bookkeeper, in which she stated that her official title was bookkeeper and that she was acting as teller and receiving a salary of $50 per month.

'Defendant states that, before passing on said application or executing said bond, it sent to plaintiff a written communication stating that application had been made to it to issue plaintiff a fidelity bond for Mamie McKenzie as bookkeeper in plaintiff's services at England, to the amount of $10,000, and that before passing on the said application defendant must have an answer to a list of questions contained therein, and stated that said bond could not be executed until this form was fully completed and returned to the defendant.

'Defendant states that said written statement contains the statement that 'it is agreed that the above answers shall be warranties and form a part of, and be conditions precedent to the issuance, continuance, or any renewal of or substitution for, the bond that may be issued by the Maryland Casualty Company, in favor of the undersigned, upon the person above named, to wit, Mamie McKenzie.'

'Defendant states that among said questions and answers were the following:

7. (a) What will be the title of the applicant's position? Answer: Bookkeeper.

"(b) Explain fully his duties in connection therewith. Answer Keep the books of the bank and assist teller.

8. What salary will the applicant receive? Answer: $50.00.'

'Defendant states that on January 8, 1918, Mamie McKenzie was elected by the board of directors of plaintiff bank to the office of assistant cashier and that her salary was increased to $85 per month, and that on January 14, 1919, her salary as assistant cashier was increased to $110 per month, and that on January 13, 1920, her salary was increased to $135 per month.

'Defendant states that Mamie McKenzie, after her election as assistant cashier, assumed the duties of said cashier of said bank including all of the usual duties incident to the cashier of the bank, which were duties of a higher nature, and involved considerable more responsibility and control of the affairs of said bank, than the duties of a bookkeeper or teller.

'Defendant states that said written statement contains the following questions and answers:

''In case of the applicant acting as teller or handling cash, will he be required to balance his cash daily, and report same to his superior officer? Answer: Yes.'

''Will a record of such a report be kept? Answer: Yes.'

'Defendants state that Mamie McKenzie was not required to balance her cash daily, and did not do so, and did not report same to any superior officer, and that no record of such report was kept.

'Defendant states that among the questions and answers in said written statement were the following:

''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: Monthly.'

'Defendant states that Mamie McKenzie handled cash, and that the same was not examined and compared with the books, accounts, or vouchers monthly.'

'Defendant states that among said questions and answers contained in said written statement were the following:

''Has applicant always faithfully, honestly, and punctually accounted to you for all moneys and property heretofore under his control or custody as your employee? Answer: Yes, sir.'

''Are applicant's accounts at this date in every respect correct and proper securities, property, and funds on hand to balance his account? Answer: Yes.'

'Defendant states that if it were true, as alleged, that Mamie McKenzie was guilty of peculations and embezzlement, the same were committed for several years before July 20, 1923, and that, according to the bill of particulars filed herein, they consisted of numerous failures to account for moneys under her control or custody for a period dating more than three years prior to July 20, 1923.

'Defendant states that, if the allegations of said complaint are true in that respect, applicant did not faithfully, honestly, and punctually account to plaintiff bank for all moneys or property under her control or custody, and the applicant's accounts at the date of the execution of said written statement, and at the date of each renewal of said bond as hereinafter set out, were not correct and proper, and did not balance with the funds on hand.'

Another plea in the answer is:

'Defendant states that, pursuant to and on the faith of the written statements made in said written statement of July 18, 1917, which were agreed to be warranties and to form a part of and to be conditions precedent to the issuance, continuance, renewal, or substitution for the bond that might be issued by defendant company the defendant company issued, executed, and delivered to plaintiff bond No. 105638, in the amount of $10,000, which bond recited that whereas, Miss Mamie McKenzie, of England, Arkansas, thereinafter called the employee, had been appointed to the position of bookkeeper in the services of the Bank of England, thereinafter called employer; and whereas, the employer had delivered to the Maryland Casualty Company, thereinafter called the company, certain written statements relative to the employee, his conduct, duties, employment, and accounts, the manner of conducting the business of the employer, and other things connected with the issuance of said bond: Now, therefore, said bond is issued for the period from July 20, 1917, to July 20, 1918, and that defendant covenanted and agreed that it would within three months next after proof of loss satisfactory to the defendant had been filed, according to conditions and provisions of said bond, make good and reimburse the employer to the extent of the sum of $10,000 for such loss of money belonging to and in the possession of employer, which the employer shall have sustained by reason of any act or acts constituting larceny or embezzlement committed by the employee; but said bond provided that it was executed upon the following express conditions, which should be deemed conditions precedent to any right of the employer to recover thereunder:

''First. That the acceptance and retention of this bond by the employer shall be considered as conclusive evidence that the employer consents and agrees to all the terms, conditions and provisions contained therein, and all written statements made, or which at any time may be made by the employer, in connection with this bond, or any renewal thereof, are warranted by the employer to be true, and if any such statements shall be found to be untrue in any particular, or if the employer shall willfully suppress or misstate any fact in making any claim for, or in proving, any loss under this bond, then this bond shall become void, and the company shall not be liable to the employer for any claim whatsoever made under or by virtue of this bond.

"Second. That the duties of the employee, the system of accounting the safeguards established, and the method of compensation shall all remain in accordance with the written...