East Gadsden Bank v. United States Fidelity & Guar. Co.
| Decision Date | 19 August 1969 |
| Docket Number | No. 27218. Summary Calendar.,27218. Summary Calendar. |
| Parties | EAST GADSDEN BANK, a Corporation, Plaintiff-Appellant, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, a Corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
George C. Hawkins, Gadsden, Ala., T. J. Carnes, Albertville, Ala., for plaintiff-appellant.
Ralph B. Tate, Ollie L. Blan Jr., Birmingham, Ala., for defendant-appellee.
Before JOHN R. BROWN, Chief Judge, and THORNBERRY and MORGAN, Circuit Judges.
The Bank, East Gadsden Bank, brought suit against the Insurer, United States Fidelity & Guaranty Co., on a "banker's blanket bond," claiming that Bank had suffered a loss within the coverage of Insurer's bond.1 Insurer, on the other hand, contended that the loss sustained was not within the coverage of the provision relied upon and, further, that, in any event, the loss was specifically excluded by the loan-exclusion provision in the bond.2
All the evidence presented on motion for summary judgment came from Bank's employees, and the facts were not disputed. The Trial Judge granted Insurer's motion for summary judgment, holding not only that the loss was not covered by the insuring agreement but also that it was specifically excluded by the loan exclusion. Since we agree3 with the District Judge that the loan exclusion is applicable and controlling, we affirm the judgment for the Insurer.4
This litigation arose out of the Bank's dealings with Thomas L. Smith, Sr., a subcontractor who did business under the name Three "S" Plumbing & Heating Company. Smith maintained a checking account with the Bank in the name of the business. For some time prior to the incidents involved here, Smith had periodically borrowed money from the Bank, assigning work orders or contracts as collateral for the loans. Under these arrangements the prime contractor would then make the payments due Smith by a check payable to Smith and the Bank jointly. The Bank and Smith had agreed that he would bring these checks to the Bank, endorse them, and the proceeds would be applied to Smith's indebtedness to the Bank.
In late 1965 and early 1966 Smith entered into certain subcontracting agreements. Following the usual course of his dealings with the Bank, Smith borrowed substantial sums of money, assigning the subcontracts as collateral. At this point, however, the economic machinery went awry, for at some time during the performance of the contracts Smith ceased bringing the checks to the loan department to be applied to his loan. Rather, during the period from November 1965 to February 1967, over twenty contract payments were deposited by Smith in his regular checking account. Smith also made periodic withdrawals from this account, and by the time the Bank realized what had happened, the account was depleted and the Bank had lost a substantial sum of money.5
The Bank contends that Smith's unauthorized deposit of the contract monies to his own account coupled with his withdrawals of those funds caused the loss to fall within the "larceny" provision of the Bond. (See note 1, supra). Even assuming, however, that the loss falls within the coverage of the "larceny" provision (see note 4, supra), we cannot under these circumstances, agree with the Bank's contention that the loan exclusion is not controlling.
It is plain that the Insurer here did not purport to provide a policy of credit insurance. And, like the District Court, we think that the real cause of the loss here was Smith's failure to repay the loans. The case of Community Fed. Sav. & Loan Ass'n v. General Cas. Co., 8 Cir., 1960, 274 F.2d 620, is instructive. In that case the plaintiff association made certain mortgage loans, relying upon the false representations of the borrower. The deal soured, and the loan association then sued the insurer, claiming that the loss was in the provision of their contract covering losses sustained by fraud or dishonesty of any person. That contract also contained a loan exclusion virtually identical to the one involved here, and the Eighth Circuit held the exclusion to be controlling:
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