Bank of Oak Ridge v. Duncan

• Citation: 40 S.W.2d 656,328 Mo. 182
• Parties: Bank of Oak Ridge v. Ray B. Duncan and Fidelity & Casualty Company of New York, Appellants
• Decision Date: 24 June 1931
• Court: United States State Supreme Court of Missouri

40 S.W.2d 656

328 Mo. 182

Bank of Oak Ridge v. Ray B. Duncan and Fidelity & Casualty Company of New York, Appellants

Supreme Court of Missouri

June 24, 1931

Appeal from Scott Circuit Court; Hon. Frank Kelly, Judge.

Affirmed.

Oliver & Oliver for appellant, Fidelity & Casualty Company.

(1) The bank, a defunct corporation, had no right to institute or maintain this suit in its own name, and defendant's plea in abatement, filed at the inception of this suit, should have been sustained. Secs. 11700, 11702, 9755, 9816, R. S 1919; Richards v. Coal & Mining Co., 221 Mo. 149; Daugherty v. Pound Stone, 120 Mo.App. 300. (2) The plaintiff was entitled to a jury trial and the trial court committed error in denying the defendant a jury trial and appointing a referee to hear and determine the issues of fact and law, all over the objection of the defendant. The case was referred upon plaintiff's motion on the theory that it would be necessary to make a long accounting and that it would consume a great length of time. The record discloses that there was no accounting involved in the trial and that the trial of the case itself took but one and one-half days. Sec. 28, Art. II, Mo. Constitution; Smith v. Fire Ins Co. (Mo.), 6 S.W.2d 927; Ice Co. v. Tamm, 138 Mo. 385; Klingenburg v. Davis, 268 S.W. 99; Thornton v. Life Assn., 7 Mo.App. 544. (3) This surety was discharged and relieved of all liability because in 1923, during the life of one of the renewals of the bond, and prior to the renewals under which all of the alleged defalcations took place, the bank, for whose benefit this bond was executed, was guilty of affirmative acts of wrongdoing directly affecting the cashier, the bank's book, the bank's credit, the public, the bank commissioner, and directly affecting the willingness of this surety to renew the bond, to-wit, it, through its president and board of directors, caused this cashier to make false entries on the books of the bank and carry as assets at least three notes aggregating $ 6,200, signed by people who did not owe them, and placed there to deceive and cover up the real situation. All the directors, who admitted that this was true, further admitted that they did not notify this surety of it at any time -- even after the bank closed. Stearns on Suretyship (3 Ed.) 150; Bank v. Richmond, 235 Mo. 543; Guaranty Co. v. Natl. Bank, 95 Va. 480; American Bonding & Trust Co. v. Burke, 36 Colo. 49; Carpenter v. Ins. Co., 1 Story, 57. "A concealment or suppression of material facts which affect the risk of the promisor will amount to fraud and constitute a defense to the suretyship promise. The law requires good faith on the part of the beneficiary of the contract, and it is the duty of the creditor to disclose information which he has concerning the principal which, if known to the promisor, would prevent him from entering into the contract. Stearns on Suretyship (3 Ed.) 152; Third Natl. Bank v. Owen, 101 Mo. 581; Harrison v. Lumber Ins. Co., 8 Mo.App. 37; Benton County Bank v. Boddicker, 105 Iowa 548, 75 N.W. 632; Cooper Process Co. v. Surety & Bonding Co., 262 F. 66, 8 A. L. R. 1477; Capitol Fire Ins. Co. v. Watson, 79 N.W. 601. This rule applies to sureties for hire. Barnes v. Savings Bank, 149 Iowa 367, 128 N.W. 541. (4) There is no basis for the allowance of the ten per cent penalty and ten per cent attorneys' fees. The defense is meritorious. The record does not show any delay on the part of defendants in the prompt trial of the case or before it. Upon both the law and the facts this judgment should be reversed. The admissions of plaintiff's witnesses upon cross-examination made out and constituted a complete and meritorious defense. The defense has been made in good faith upon an honest belief that the plaintiff should not recover. Kurnetsky v. Ins. Co., 313 Mo. 158; Hartford Fire Ins. Co. v. Casey, 196 Mo.App. 299; State ex rel. Gott v. F. & D., 317 Mo. 1095; State ex rel. N. W. Nat. Ins. Co. v. Trimble (Mo.), 18 S.W.2d 21; Aufrichtig v. Life Ins. Co., 298 Mo. 15.

Spradling & Dalton for respondent.

(1) The bank had the right, under the law, to institute and maintain this suit in its own name. Sec. 11715, R. S. 1919; Bank v. Hill, 274 S.W. 492; State ex rel. v. Bonding & Surety Co., 215 S.W. 23. (2) This action involved the examination of the books and accounts of respondent bank, together with a lot of documentary evidence. A compulsory reference may be had in an action on a bond given to a bank by an official thereof, when, to maintain the action, the examination of a long account would be involved, or the examination of the books of the bank to determine the amount of the shortage. Bank v. Russell, 181 Mo.App. 716; Bank v. Owen, 101 Mo. 584; Ins. Co. v. Nevils, 274 S.W. 507. Where the case is a complicated one, involving much documentary evidence, and many accounts, it should be submitted to a referee. Philip v. Todd, 180 S.W. 1043; Sidway v. Land Co., 187 Mo. 677. (3) This cause was referred to a referee, who made a finding of facts and gave his conclusions of law, which were approved by the trial court. If such finding of facts and conclusions of law are supported by substantial evidence, it is conclusive on appeal. Commercial Bank v. Casualty Co., 187 S.W. 193; Ogle v. Building & Contracting Co., 207 S.W. 849; Coombs v. Lumber Co., 197 S.W. 343; Rolson v. Riggs, 203 S.W. 974; St. Charles Savings Bank v. Denker, 204 S.W. 905. (4) In a conversation with Harrison and Ford, defendant Duncan stated that he was short in his accounts about $ 10,000. In another conversation, when Duncan went to the office of Ford, he advised Ford that he had gone over the accounts twice and added them up on the adding machine, and that the accounts were short $ 10,000. In another conversation, defendant advised the prosecuting attorney how the shortage originated. These were the statements of the principal in this bond, relating to his official duties, and made while in the discharge of his duties, and within the period covered by the undertaking of his surety, and are admissible. St. Charles Savings Bank v. Denker, 205 S.W. 214; Father Matthew Society v. Fitzwilliam, 12 Mo.App. 445, 84 Mo. 407. (5) Appellant contends that it was discharged and relieved of any liability in 1923 on account of certain wrongdoing committed by respondent bank, although it had retained the premiums from that date until April 8, 1926, and has never returned, or offered to return, them to respondent. Appellant cannot assume the inconsistent position by contending that the policy is void and at the same time retain premiums to which it has no right if its contention is correct. Malo v. Ins. Co., 282 S.W. 80; Mackey v. Ins. Co., 284 S.W. 163; Julian v. Ins. Co., 279 S.W. 745; Block v. Ins. Co., 290 S.W. 436; Leithy v. Ins. Co., 20 S.W.2d 300. (a) The record in this cause fails to show one word by respondent bank or any of its officers inducing appellant to sign the bond. (b) Appellant guaranteed the honesty and fidelity of Duncan, though all around him were rogues. Chew v. Ellingwood, 86 Mo. 271. (6) The bank was closed by order of its board on June 16, 1925. It notified appellant of defendant's shortage on August 5, 1925. This action on the bond was instituted on June 10, 1926. Appellant had been requested a number of times to pay the amount of the bond, but refused to do so. Under such circumstances, the court had the right, under the law, to assess a penalty of ten per cent for vexatious delay and to fix a reasonable attorney's fee. Sec. 6337, R. S. 1919; State ex rel. v. Allen, 271 S.W. 761; Grocer Co. v. Bonding Ins. Co., 259 S.W. 855; State ex rel. v. Bonding & Surety Co., 215 S.W. 26; Exchange Bank v. Turner, 14 S.W.2d 433. (a) The appellant has raised no mooted or unsettled questions of law, and did not put the defendant, or any other witness, on the stand, and has in no way controverted, or attempted to controvert, the case made by respondent, but has steadfastly refused to pay the penalty of the bond. Under such circumstances, the court not only has the right, but it is its duty, to assess a penalty of ten per cent for vexatious delay and to fix a reasonable attorney's fee. Grocer Co. v. Bonding Co., 259 S.W. 855; State ex rel. v. Allen, 271 S.W. 760. (b) The question of vexatious delay is for the jury and need not be explicitly proved. Johnson v. Ins. Co., 275 S.W. 976.

Ferguson, C. Sturgis and Hyde, CC., concur.

OPINION

FERGUSON

This is a suit on a fidelity bond wherein defendant Ray B. Duncan is principal and defendant Fidelity & Casualty Company of New York, a corporation, is surety. The bond was to indemnify the Bank of Oak Ridge, a banking corporation organized under the laws of the State of Missouri and doing a general banking business at the village of Oak Ridge in Cape Girardeau County, Missouri, against any loss by reason of "any act or acts of larceny, embezzlement, fraud dishonesty, forgery, theft, wrongful abstraction or willful misapplication" committed by the principal, Ray B. Duncan, while employed by said bank.

In 1920 it was discovered that Wash Miller, the cashier of the Bank of Oak Ridge, had embezzled funds of the bank, whereupon he was dismissed from the position as cashier, subsequently convicted of embezzlement and sentenced to the penitentiary. Having served the sentence in the penitentiary, Miller returned to the Oak Ridge community and resumed operations in a manner hereinafter related, which resulted in his conviction for forgery and a second sentence to the penitentiary. Upon the dismissal of Wash Miller as cashier, in 1920 the defendant Duncan was employed and continued as cashier of said bank until June 16, 1925, when the bank was closed by order of its board of directors and "its affairs and assets" placed under the control of...