Craft v. Standard Accident Ins. Co.

• Decision Date: 25 April 1929
• Docket Number: 6 Div. 291.
• Citation: 220 Ala. 6,123 So. 271
• Parties: CRAFT v. STANDARD ACC. INS. CO.
• Court: Alabama Supreme Court

123 So. 271

220 Ala. 6

CRAFT v. STANDARD ACC. INS. CO.

6 Div. 291.

Supreme Court of Alabama

April 25, 1929

Rehearing Denied June 13, 1929.

Certiorari to Court of Appeals.

Action by Merritt Craft against the Standard Accident Insurance Company. Judgment for defendant was affirmed by the Court of Appeals (123 So. 265), and plaintiff petitions for certiorari. Writ granted; reversed and remanded.

Bradley Baldwin, All & White, of Birmingham, for petitioner.

Coleman Coleman, Spain & Stewart, of Birmingham, opposed.

BROWN J.

This is an action of assumpsit for the breach of the conditions of a contract whereby for an agreed premium the defendant undertook to indemnify and assure the plaintiff against loss resulting from acts of fraud, dishonesty, forgery, theft embezzlement, wrongful abstraction, or willful misapplication, on the part of plaintiff's employé Jones.

On the trial, the defendant was allowed, among other defenses, to plead, with the consent of Jones, a breach of the contract of employment between the plaintiff and Jones, in recoupment of the damages alleged to have been suffered as a consequence of the breach of the contract sued on, and accord and satisfaction between the plaintiff and Jones. On request of the plaintiff, the trial court made a special finding of fact, which is set out in extenso in the opinion of the Court of Appeals.

The Court of Appeals, dealing with the case on the theory that the contract sued on is one of suretyship, has sustained the finding of fact as related to the above-mentioned defenses, and affirmed the judgment.

To state the facts as found by the Court of Appeals, in respect to the plea of recoupment, in brief, "the plaintiff was the manager of a business in Birmingham, Alabama, which he either owned himself, or of which he was the managing head and personally responsible for all moneys coming into the business. As such manager he employed Mrs. Ida S. Jones to perform certain duties, among which was the handling of the books and the bank account, including the power to draw checks on the bank against the account of the business. To protect plaintiff against loss by reason of certain specified acts of Mrs. Jones, this defendant entered into a contract in writing with the plaintiff, whereby it agreed to indemnify or secure plaintiff against loss on account of certain specified acts of Mrs. Jones named in the contract." Mrs. Jones was employed by the year at a salary of $1,800, payable in monthly installments of $150; the employment being from October 1, 1924, to September 30, 1925.

In April, 1925, plaintiff gave Mrs. Jones notice that her services would not be needed after June 1st, and on May 5th she drew a check in favor of herself for $750, covering unearned salary for the months of May, June, July, August, and September, signed plaintiff's name thereto as manager, and cashed it at the bank, and advised plaintiff and his business associate by letter that she was ready and willing to perform her contract by rendering service for the balance of the time, and, if she could obtain employment elsewhere, she would refund such amount as she was able to earn. Whether Mrs. Jones continued to perform her duties after drawing the check up until June 1st, or voluntarily left the service of plaintiff, or was discharged for the wrongful abstraction of the money, does not appear from the finding of facts.

One of the distinguishing features between a contract of suretyship and one of guaranty or indemnity is that a contract of suretyship is the joint and several contract of the principal and surety, while the contract of a guarantor is his own separate undertaking, in which the principal does not join. Saint v. Wheeler & Wilson Mfg. Co., 95 Ala. 372, 10 So. 539, 36 Am. St. Rep. 210; J. W. Watkins Medical Co. v. Lovelady et al., 186 Ala. 414, 65 So. 52.

Another element distinguishing a contract of suretyship from one of indemnity or insurance is that the principal is liable over to the surety in the event of payment by the latter, as a matter of law independent of the doctrine of equitable subrogation. Martin v. Ellerbe's Adm'r, 70 Ala. 326; Riley v. Stalworth, 56 Ala. 481; U.S. Fidelity & Guaranty Co. v. Charles et al., 131 Ala. 658, 31 So. 558, 57 L. R. A. 212; 21 R. C. L. 1097, § 134; Brown v. Melloon, 170 Iowa, 49, 152 N.W. 75, Ann. Cas. 1917C, 1070, and note, 1073.

Judged by this test, the contract here is one of indemnity or insurance, and not of suretyship. Mrs. Jones was not a party to the contract, nor was it contemplated that she should be. Her liability to the plaintiff, if liable at all, arises from her wrongful withdrawal and appropriation to her use of the money covered by the check, a tort; while defendant's liability is purely contractual-a liability assumed in consideration of premiums paid, to indemnify or assure the plaintiff against loss resulting from the infidelity of plaintiff's employé, Mrs. Jones. Frost on Guarantee Insurance, §§ 27-30; Alabama Fidelity & Casualty Co. v. Alabama Penny Sav. Bank, 200 Ala. 337, 76 So. 103; Illinois Surety Co. v. Donaldson, 202 Ala. 183, 79 So. 667; 25 C.J. 1089, § 2; Tebbets v. Mercantile, etc., Co. (C. C. A.) 73 F. 95; Young v. American Bonding Co., 228 Pa. 373, 77 A. 623; First National Bank v. National Surety Co., 228 N.Y. 469, 127 N.E. 479.

The defendant having contracted with reference to the situation of the parties, reciting in the contract the relation of employer and employé between plaintiff and Jones, accepting the premiums, and inducing the plaintiff to rely on the offered indemnity, it is estopped, after the loss is sustained, to dispute the existence of such relation. Fidelity & Deposit Co. v. Mobile County, 124 Ala. 144, 27 So. 386; Tait v. Frow, 8 Ala. 543; Mitchell v. Ingram, 38 Ala. 395; Plowman v. Henderson, 59 Ala. 559; Williamson & McArthur v. Woolf, 37 Ala. 298; Henderson v. Bank of Montgomery, 11 Ala. 855; Hoxie v. Home Ins. Co., 32 Conn. 21, 85 Am. Dec. 240; 10 R. C. L. 814, § 121.

The statute (Code of 1923, § 10179) has not enlarged the class of claims that may be pleaded by the defendant in recoupment or reconvention of plaintiff's claim, and leaves such matter to be adjudged on the settled principles of the common law which defines recoupment "as the right of the defendant, in the same action, to claim damages from the plaintiff, either because he has not complied with some obligation of the contract upon which he sues, or because he has violated some duty which the law imposes on him in the making or performance of the contract." Lawton v. Ricketts, 104 Ala. 430, 16 So. 59; Carolina-Portland Cement Co. v. Alabama Const. Co., 162 Ala. 380, 52 So. 332; Merchants Bank v. Acme Lumber & Mfg. Co., 160 Ala. 435, 49 So. 782; Grisham v. Bodman, 111 Ala. 194, 20 So. 514; Washington v. Timberlake, 74 Ala. 259.

This principle negatives the right of a defendant to plead in recoupment of the damages claimed, damages growing out of an independent contract between the plaintiff and defendant, and certainly between the plaintiff and another not a party to the contract upon which the suit is founded. Mayberry v. Leech, Harrison & Forwood, 58 Ala. 339; Hembree v. Glover, 93 Ala. 622, 8 So. 660; Dalton v. Bunn & Allison, 152 Ala. 577, 44 So. 625; Walker v. McCoy, 34 Ala. 659; Mauldin, Montague & Co. v. Armistead, Ex'r, 14 Ala. 702; State Bank of Rock Island v. Bryan, 186 Ill.App. 207; Knickerbocker Trust Co. v. Condon, 147 A.D. 871, 133 N.Y.S. 95. In Merchants Bank v. Acme Lumber & Mfg. Co., 160 Ala. 435, 49 So. 782, the defendant was jointly and severally liable for the debt of Ambrose as surety, and the damages claimed in recoupment of plaintiff's claim arose from a breach of the contract to furnish the lumber, the price of which the plaintiff sought to recover in the suit.

The indemnity here involved was not given at the instance of the employé, and she is not a party thereto, and whether the acceptance by the plaintiff from the delinquent employé of an amount less than the loss sustained through her infidelity, in full accord and satisfaction of her liability, may be pleaded by the defendant in bar of the plaintiff's right to recover, depends on whether or not, in the absence of such settlement, the defendant, upon full satisfaction of the loss, would be entitled to be subrogated to plaintiff's right of action against the employé and has suffered a detriment because of her release from further liability. 31 C.J. 443, § 42; 25 C.J. 1116, § 33; Frost, Guarantee Ins. 402, § 132; Crown Bank v. London Guarantee & Accident Co., 17 Ont. Law 95.

Whether the right of subrogation exists, in the absence of a stipulation in the contract to this effect, is a question on which the authorities are not clear, and, inasmuch as this question was not treated by the Court of Appeals, and is not argued by the parties, we leave this an open question.

Two reasons appear in the finding of fact by the trial court, as set...