Central State Bank v. Royal Indemnity Co.
| Decision Date | 11 June 1926 |
| Docket Number | No. 25324.,25324. |
| Citation | 167 Minn. 494,210 N.W. 66 |
| Parties | CENTRAL STATE BANK v. ROYAL INDEMNITY CO. |
| Court | Minnesota Supreme Court |
Appeal from District Court, Hennepin County; E. A. Montgomery, Judge.
Suit by the Central State Bank against the Royal Indemnity Company to reform surety bonds. Judgment for plaintiff, and defendant appeals. Affirmed.
Kingman, Cross, Morley & Cant, of Minneapolis, for appellant.
Paul J. Marwin, of Minneapolis, for respondent.
Statement of case: Plaintiff is a banking corporation with its principal place of business in Minneapolis, and E. L. Forsythe was its cashier and active manager. Defendant is a New York corporation with authority to transact indemnity insurance in this state, and Elmer H. Cords was its duly authorized local agent at Minneapolis. The John F. Sinclair Company is a Minnesota corporation with its principal place of business in Minneapolis, and John F. Sinclair, residing there, was its president.
Sinclair was also president of the Farmers' State Bank of Hingham, the Security State Bank of Kremlin, the Security State Bank of Box Elder, and the Gildford State Bank of Gildford, all in the state of Montana. The Sinclair Company was the owner of a majority of the capital stock of the four banks. In December, 1919, these banks each issued a certificate of deposit for $5,000, payable to the Sinclair Company and by it assigned to the plaintiff bank. As security for the payment at maturity of each of such certificates, plaintiff held the bond of the bank which issued it, with the Hartford Accident & Indemnity Company as surety. Such bonds were not subject to cancellation by the surety.
In November, 1920, the Hartford Company informed Sinclair that it did not care to carry the risk longer on account of the stringent financial situation in Montana. Sinclair requested the plaintiff bank to carry the certificates another year, which it refused to do unless their payment at maturity was secured by good surety company bonds. Sinclair then took the matter up with Mr. Cords, informed him fully as to the situation, and exhibited to him the proposed renewal certificates already issued by the Montana banks. Forsythe testified at the trial, in effect, that he exhibited to Cords the certificates which plaintiff held and explained that the plaintiff was protected and could demand payment, but that it would accept renewals for one year provided a surety bond be written assuring the payment of the renewal certificates at maturity; that Mr. Cords then informed him that he would refer the matter to defendant's home office and advise him whether it would take the risk.
On December 4th, Cords called Forsythe over the telephone and informed him that the company would write the bonds, saying: Cords then prepared applications for the bonds on regular depository application blanks which contained a clause permitting the company to cancel the bonds on five days notice. Sinclair signed the applications for the Montana banks. Shortly thereafter, Cords delivered the bonds to Sinclair, which contained the cancellation clause. Sinclair, without reading the bonds, took them, together with the renewal certificates, and delivered them to Forsythe, who accepted them and surrendered the old certificates, acting on behalf of the plaintiff bank. Upon receiving the bonds, Forsythe looked them over in the way of verifying the dates, amounts, names, etc., but failed to observe the cancellation clause. He testified that he had transacted much business with the Jones-Davis Insurance Agency, with which Cords was associated, and that he had learned to have implicit faith in their integrity and accuracy in transacting insurance business and that he trusted them; that he believed the bonds had been drawn and executed in accordance with the oral agreement and talk between Cords and himself; and that he had no different idea until he received the notice of election to cancel the bonds in November.
Mr. Cords testified as a witness, called by the defendant, to the effect that when he delivered the bonds to Sinclair he knew they were not what plaintiff and Sinclair wanted or what they requested orally, but he thought he would take a chance; that the application blanks which he used were not the proper blanks for the policy which they wanted, but he used them because he did not have the right kind on hand; and that when appellant attempted to cancel the bonds, he expressed strong disapproval thereof to Mr. Sinclair.
The certificates were presented to the banks which issued them, on December 5, 1921, and payment demanded, which was refused. Notice of default in payment was given by plaintiff to defendant, but no payment was made except the interest to December 5, 1921. The assets of each of the Montana banks were, on November 1, 1921, and ever since have been, wholly insufficient for the payment of their debts and liabilities, and receivers for each of such banks were appointed during the year 1922.
The original complaint was for recovery upon the bonds. Defendant pleaded in its answer the cancellation clause and its election to terminate its liability thereunder. In its reply, plaintiff admitted an election to terminate the bonds, pleaded an agreement that the bonds were to secure the payment of the certificates at maturity, that defendant knew that the bonds were to secure the payment of the particular certificates at their maturity, and that the banks which issued the same were insolvent at the time of the attempted cancellation of the bonds. About three weeks before the trial, the complaint was amended by setting forth therein the agreement referred to in the reply that the cancellation clause was placed in the bonds by mutual mistake, that the banks which issued the certificates and their receivers were and are nonresidents of the state of Minnesota and could not be found therein, and asking for the reformation of the bonds to correspond with the oral agreement by eliminating therefrom the cancellation clause. By agreement, the original answer and reply were to stand as the answer and reply to the amended complaint.
The cause was tried to the court, a jury was impaneled for the purpose of answering certain specific questions, and its findings of fact were adopted by the trial judge. After the trial and before the case was decided, plaintiff moved for leave to amend the amended complaint, upon due notice. Counsel for defendant appeared and opposed the motion. The motion was granted and the pleading amended so as to conform to the proofs by inserting an allegation of fraud on the part of the defendant with reference to the insertion of the cancellation clause in the bonds, contrary to the verbal agreement of the parties. Findings were thereafter made and an order filed awarding judgment in favor of plaintiff as asked for in the complaint. Thereafter, plaintiff's costs and disbursements were taxed and allowed at $216.40, and judgment was entered upon the findings and order of the court. The appeal is from the judgment so entered.
Appellant questions the right of respondent to amend its complaint after trial. Section 9281, G. S. 1923, applies. It provides that the court may allow pleadings to be amended after trial so as to conform to the proofs upon such terms as may be just. The complaint, as amended before trial, asked for reformation of the bonds upon the ground of mutual mistake. At the trial, defendant's agent, who prepared...
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