Dantzler Lumber & Export Co. v. Columbia Cas. Co.

• Citation: 156 So. 116,115 Fla. 541
• Court: United States State Supreme Court of Florida
• Decision Date: 21 June 1934
• Parties: DANTZLER LUMBER & EXPORT CO. et al. v. COLUMBIA CASUALTY CO.

156 So. 116

115 Fla. 541

DANTZLER LUMBER & EXPORT CO. et al. v. COLUMBIA CASUALTY CO.

Florida Supreme Court, Division B.

June 21, 1934

Rehearing Denied July 31, 1934.

Suit by the Columbia Casualty Company against the Dantzler Lumber &amp Export Company and others. From an order overruling defendants' motion to dismiss complainant's bill defendants appeal.

Affirmed.

BROWN J., dissenting. Appeal from Circuit Court Hillsborough County; L. L. Parks, judge.

COUNSEL

Kenneth I. McKay and McKay, Withers & Ramsey, all of Tampa, for appellants.

William C. Brooker, of Tampa, for appellee.

OPINION

BUFORD Justice.

We adopt the statement of the case as presented by counsel for the respective parties.

The appellee, Columbia Casualty Company, filed bill of complaint against the appellants, Dantzler Lumber & Export Company, a Florida Corporation L. N. Dantzler, Jr., and Alvin C. Ernst, Lester W. Blyth, Harry C. Royal, and Forrest H. Figsby, copartners doing business under the firm name of Ernst & Ernst.

Summarized, the bill of complaint alleged:

(a) That the Columbia Casualty Company is a corporation organized under the laws of the state of New York, and authorized to do business in the state of Florida, as a surety company for compensation.

(b) That Dantzler Lumber & Export Company is a corporation organized under the laws of Florida, engaged in the lumber export business at Tampa, Hillsborough county, Fla.

(c) That L. N. Dantzler, Jr., is vice president and treasurer of Dantzler Lumber & Export Company, and resides at Tampa, Hillsborough county, Fla.

(d) That Ernst & Ernst is a copartnership composed of the persons named in the bill, all of the members of the copartnership being nonresidents of the state of Florida; said copartnership being engaged in business as public accountants and maintaining an office in the state of Florida.

(e) That Ernst & Ernst contracted with Dantzler Lumber & Export Company to make annual audits of books and accounts of said company, and did make audits of said books and accounts for the period from September 20, 1926, to August 7, 1931, and reported said audits of the books and accounts to said Dantzler Lumber & Export Company, said audits being made at or near the end of each calendar year, and that said audits were made by auditors or accountants in the employ of said Ernst & Ernst, and that said auditors were unrestricted in making and reporting said annual audits, and were required to make complete and detailed audits and reports, and were under agreement with said Dantzler Lumber & Export Company to make examination of all cash transactions for the period covered by each audit, including inspection of vouchers and other supporting data.

(f) That one W. Frank Alderman was employed as bookkeeper by Dantzler Lumber & Export Company during the period above mentioned, and that said Alderman, by means of issuing certain checks against the bank accounts of said Dantzler Lumber & Export Company fraudulently obtained possession of and embezzled moneys of said Dantzler Lumber & Export Company to the aggregate amount of $39,425.61; that of said sum $1,670.09 was embezzled during the year 1927, $4,716.62 in the year 1928, $15,670.70 in the year 1929, $8,693.20 in the year 1930, and $8,675 in the year 1931.

(g) That said Ernst & Ernst was negligent and careless in making its audits of the books and accounts of said Dantzler Lumber & Export Company, and that by the exercise of due care, caution, and vigilance, as they were in duty bound to do, they would have discovered the embezzlement, that it was the duty of said auditors, pursuant to their contract of employment, to examine every cash transaction and to investigate supporting data, and that, had said auditors, in making said audits, examined the cash transactions wherein the cash above mentioned was withdrawn by said Alderman by the checks above mentioned, with due care and accuracy required of auditors, and pursuant to their contract of employment, the embezzlement committed by Alderman would have been discovered at the time of the audit in 1927, which would have terminated the said embezzlements and resulted in a loss of only $1,670.09, which was the amount of the embezzlement committed by said Alderman prior to the 1927 audit, but that, through the failure of said Ernst & Ernst to use due care and vigilance, and to properly perform their contract to examine all cash transactions and supporting data and report the same in their annual audits, the said embezzlements committed by the said Alderman were not discovered and were permitted to continue until August, 1931, during which time the amount of the embezzlements so committed by the said Alderman aggregated the sum of $39,425.61.

(h) It is further alleged in the bill that in each report of the audit of the books and accounts of Dantzler Lumber & Export Company by Ernst & Ernst, commencing the year 1927 and continuing through succeeding years including 1930, it was certified by the auditors that 'all record cash receipts for the year under review were traced directly into the bank deposits and disbursements through the bank account were verified by an examination of said checks, invoices or other supporting data on file.' It is alleged that, had the auditors compared the checks with the invoices and other supporting data, it would have been found that Alderman was wrongfully and fraudulently withdrawing the money from his employer, Dantzler Lumber & Export Company, from the bank account of checks made payable to 'Yourselves,' and that said checks were cashed by the paying teller of the bank; that a careful, reasonable, and intelligent audit of said accounts and the tracing of said checks would have disclosed that there was no supporting data for them and that they were not connected with any business transactions of Dantzler Lumber & Export Company; that Dantzler Lumber & Export Company relied upon the accuracy of said auditors' reports and believed them to have been made in good faith as stated therein; that, had the auditors, Ernst & Ernst, made the examination it reported to Dantzler Lumber & Export Company it had made, the defalcation of Alderman would have been discovered, Alderman would have been discharged and further loss obviated. And it is alleged that by and through the fraud of Ernst & Ernst the Dantzler Lumber & Export Company sustained losses in the approximate sum of $37,755.52 in excess of that occurring prior to the time of the first audit in 1927 when the defalcation should have been discovered and disclosed.

(i) That the Columbia Casualty Company had executed a surety bond in the sum of $10,000, payable to said Dantzler Lumber & Export Company, protecting said Dantzler Lumber & Export Company against loss through embezzlements by certain of its employees, including the said Alderman, and that, in accordance with the terms of its bond, for the making of which it received an annual premium of $75 from Dantzler Lumber & Export Company, it responded to its said liability and paid the full penalty of said bond, to wit, the sum of $10,000, to said Dantzler Lumber & Export Company, whereas, if the said embezzlements had been discovered by said auditors at the end of the year 1927, as the bill charges should have been done if said auditors had exercised due diligence and had not been careless in the performance of their contract, the liability of said Columbia Casualty Company on its bond would have been limited to said sum of $1,670.09, being the total of the embezzlements committed by the said Alderman up to that time.

(j) That, at the time of making payment of the amount of its bond to Dantzler Lumber & Export Company, it notified said Dantzler Lumber & Export Company and said Ernst & Ernst that it made claim against said Ernst & Ernst for reimbursement to it of the loss so sustained by it, and that it would claim to be subrogated to the rights of Dantzler Lumber & Export Company to the extent of the payment so made by it against said Ernst & Ernst, and warned said Dantzler Lumber & Export Company and said Ernst & Ernst against making any settlement between themselves without taking into consideration and providing for reimbursement to said Columbia Casualty Company for its said loss.

(k) The bill further alleges that, disregarding the notices so given, said Dantzler Lumber & Export Company and Ernst & Ernst settled and adjusted the claim which Dantzler Lumber & Export Company made against Ernst & Ernst for a sum of money unknown to Columbia Casualty Company, but that said settlement was made by way of compromise for less than the total claim, and that Dantzler Lumber & Export Company and Ernst & Ernst have refused to disclose to Columbia Casualty Company the nature and terms of said settlement and the amount of money paid in settlement of said claim.

The bill prays that Dantzler Lumber & Export Company and L. N. Dantzler, Jr., be required to make answer to certain interrogatories propounded by the bill, and disclose whether or not settlement of the claim of Dantzler Lumber & Export Company against Ernst & Ernst was made, and, if so, the amount of the settlement. Certain other interrogatories are propounded by the bill which are not of material importance on this appeal.

The bill prayed that Columbia Casualty Company be decreed to be subrogated to the rights and claims of Dantzler Lumber &amp Export Company against Ernst & Ernst as to all liability of Ernst & Ernst to Dantzler Lumber & Export Company on account of the loss sustained by reason of the alleged neglect of Ernst & Ernst as set forth in the bill to the extent of the loss sustained by Columbia Casualty Company and that the persons constituting the copartnership of Ernst & Ernst be decreed...