Commercial Bank v. American Bonding Co.

• Decision Date: 25 May 1916
• Docket Number: No. 1765.,1765.
• Citation: 194 Mo. A. 224,187 S.W. 99
• Parties: COMMERCIAL BANK v. AMERICAN BONDING CO.
• Court: Missouri Court of Appeals

187 S.W. 99

194 Mo. A. 224

COMMERCIAL BANK v. AMERICAN BONDING CO.

No. 1765.

Springfield Court of Appeals. Missouri.

May 25, 1916.

Rehearing Denied June 24, 1916.

Appeal from Circuit Court, New Madrid County; Sterling H. McCarty, Judge.

Action by the Commercial Bank against the American Bonding Company. Judgment for plaintiff, and defendant appeals. Affirmed.

Everett Reeves, of Caruthersville, for appellant. John A. Hope, of St. Louis, and Riley & Riley, of New Madrid, for respondent.

FARRINGTON, J.

The plaintiff (respondent) recovered a judgment for the full penalty of an indemnity bond, and the defendant appealed.

Walter L. Meier, a bookkeeper in the employ of the plaintiff bank at New Madrid, Mo., was required in October, 1907, to give a bond to cover any defalcations or embezzlements. This bond was bought of and signed by the defendant. In the application for the bond were certain questions asked the president of the bank which he as such answered in writing and signed, among which are the following:

"5. Is the applicant now, or has he been from any cause, indebted to the bank or its officers? If so, give particulars, stating amount, how incurred, and how payment is secured. Answer: No.

"6. (a) Is the applicant now or about to be engaged or interested in any other business or employment other than in the bank's service? Answer: No."

"12. (a) Has applicant always faithfully, honestly, and punctually accounted to you for all moneys and property heretofore under his control or custody as your employé? Answer: Yes. (b) Are applicant's accounts at this date in every respect correct and proper securities, property, and funds on hand to balance his accounts? Answer: Yes."

Immediately after these and other questions and answers in the application the following appears:

"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 American Bonding Company of Baltimore in favor of the undersigned upon the person above named."

The bond was renewed each year before the issuing of a renewal receipt, and before each renewal receipt was issued the cashier of the bank made the following written statement:

"This is to certify that since the issual of the above bond Mr. Walter L. Meier, hereinafter called employé, has faithfully, honestly, and punctually accounted for all moneys and property in the said employé's control or custody as my or our employé, has always had proper funds and securities on hand, and is not now in default as such employé."

Each renewal receipt provided:

"In consideration of the sum of twelve and 50/100 dollars, American Bonding Company of Baltimore hereby continues in force its surety bond No. 282440 for the fidelity of Walter L. Meier, in favor of the Commercial Bank, New Madrid, Missouri, from the 4th day of October, 1908, to the 4th day of October, 1909 (dates being appropriate, of course), in the penalty of five thousand dollars, covering the same position and subject to all the covenants and conditions set forth and expressed in said bond heretofore issued by this company on the 17th day of October, 1907."

It is uncontroverted that at the times the renewal receipts were issued covering the defalcations and embezzlements allowed by the judgment of the trial court Meier was heavily overdrawn at the bank in sums ranging from $1,000 to $4,000, which overdrafts were made by him without the knowledge or consent of the bank, and it is further beyond controversy that when such overdrafts were discovered Meier was told by the officers of the bank to reduce them. They were afterwards reduced and taken care of, being paid to the bank by friends of Meier who were also officers and stockholders in the bank. It is admitted that he owed the president of the bank who signed the original application several thousand dollars when the renewals on which the recovery was based were issued. It is a fact that Meier ventured in the automobile business and became indebted therein several thousand dollars, buying such business and giving his notes and a mortgage to secure the same to the man who was president of the bank, and who signed the original application. It is also a fact beyond question that Meier had little or no property to stand good for his indebtedness, which included the overdrafts and the individual indebtedness to officers of the bank, and that the fact of his indebtedness and the amount of property he owned were well known to the bank's officers. It appears that he became engaged in the picture show business when these renewals were issued. His salary from the bank was $1,000 per year. All his business ventures were failures, and he defaulted and embezzled from the bank between $6,000 and $7,000, which he states was lost by him in gambling at a game designated in the record as "shooting craps." The following admission was made during the trial:

"It is admitted that the plaintiff gave the defendant American Bonding Company no notice of any kind or character of the alleged overdrafts, defaults, errors, embezzlements, or any other misconduct of Walter L. Meier in his employment with the Commercial Bank prior to W. H. Garanflo's letter dated November 8, 1912, which has been offered in evidence, and that no other notice than the notice and proof of loss heretofore offered in evidence in this case by the plaintiff was ever given to the defendant American Bonding Company."

The bond contained the following provisions:

"15. This bond is made, issued, and accepted or renewed upon the following conditions:

"(1) This bond shall not lapse at the end of the above time if it shall be continued in force by a renewal receipt or receipts, executed by the surety, but shall continue in force for the term or terms of such renewal. The liability of the surety, however, shall not be cumulative.

"(2) That all the representations made by the employer, his or its officers, to the surety are warranted by the employer to be true; that the employé has not to the knowledge of the employer, his or its officers, been in arrears or a defaulter in the position covered by this bond or in any other position. * * *"

A number of defenses were set up by the defendant, including the knowledge of the officers of the bank as to Meier's gambling, the question of the good faith of the bank's officers in relation to the overdrafts, the failure on their part to notify the defendant of these overdrafts, the failure on their part to properly investigate the books and accounts of Meier, and the failure on their part to use ordinary diligence to discover the false charges and actual embezzlements that took place.

The case was referred to a referee who found all the issues as to good faith, knowledge, and the like, in favor of the bank, and, there being evidence to support such findings, this disposes of these questions here. Lackland v. Renshaw & Surety Co., 256 Mo. loc. cit. 152, 165 S. W. 314. He found that Meier had embezzled $6,013.69 between November 27, 1911, and October 9, 1912, the false charges on the books being 21 in number, and ranging in amount from $55 up to $1,000. The finding of the referee treated of Meier's overdrafts, debts, and ventures into other business in this fashion:

"I do not find that the bank was prohibited from making loans to Meier or to his auto company, or to his picture show company, nor was Meier deprived of the right to engage in other business under his contract with the bond or with the bank."

Sections 7024, 7026, and 6937, R. S. 1909, do not cover this character of contract, and, as was held in Pacific Mutual Ins. Co. v. Glaser, 245 Mo. loc. cit. 386, 150 S. W. 549, 45 L. R. A. (N. S.) 222, this section was not intended to restrict the freedom of contract except in those instances falling within its provisions.

This case is to be governed by the general law of contracts. That general law is well settled, and is that a warranty is "parcel of the contract" (Salts v. Prudential Insurance Co., 140 Mo. App. 142, 120 S. W. 714), and that warranties must be absolutely true whether material to the risk or not (Aloe v. Mutual Reserve Life Ass'n, 147 Mo. 561, 49 S. W. 553; Pacific Mutual Life Ins. Co. v. Glaser, supra; Krey...