Farley v. Am. Sur. Co. Of N.Y., No. 14389.

• Court: United States State Supreme Court of South Carolina
• Writing for the Court: STABLER, Chief Justice
• Citation: 188 S.E. 776
• Docket Number: No. 14389.
• Decision Date: 01 December 1936
• Parties: FARLEY v. AMERICAN SURETY CO. OF NEW YORK et al.

188 S.E. 776

FARLEY
v.
AMERICAN SURETY CO. OF NEW YORK et al.

No. 14389.

Supreme Court of South Carolina.

Dec. 1, 1936.

[188 S.E. 776]

Appeal from Common Pleas Circuit Court of Saluda County; T. S. Sease, Judge.

Suit by W. Scott Farley, as receiver of the Planters National Bank of Saluda, against the American Surety Company of New York and others. From an order overruling a demurrer to the complaint, the named defendant appeals.

Affirmed.

The decree of Judge Sease is as follows: This matter comes before me on a demurrer to the complaint by the defendant American Surety Company. The sole ground of the demurrer is that the facts alleged in the complaint failed to state a cause of action against the defendant American Surety Company. In passing on the demurrer, therefore, it is assumed that all of the allegations of the complaint are admitted.

The complaint alleges that the Comptroller of the Currency appointed W. Scott Farley, the plaintiff herein, as receiver of the Planters National Bank of Saluda on the 22d day of June, 1931, and that immediately after his appointment as receiver the plaintiff took charge of the Bank, and since that time has been engaged in the liquidation of the Bank. It appears that at the time of the closing of the Bank R. C. Pitts was the acting president of the Bank, having succeeded his father, Milledge T. Pitts, who died on December 10, 1936. When the plaintiff took charge of the Bank, he inquired immediately of R. C. Pitts about the bonds of the former officers of the Bank, and was informed by R. C. Pitts that he, the said R. C. Pitts, was not under bond and that his predecessor in office, his father, Milledge T. Pitts, had not been under bond. It appears that the plaintiff nevertheless made a diligent search of the records of the Bank-to see if there were bonds covering the former officers of the Bank and made inquiry of the directors of the Bank about the existence of such bonds. This inquiry and search did not reveal any bond covering Milledge T. Pitts for any period during the many years that he was connected with the Bank, and the directors could not give any definite information as to whether Milledge T. Pitts had been under bond during these years. The plaintiff did find bonds in the Bank covering the other officers of the Bank and along with said bonds found continuous renewal certificates thereon for a great many years.

It appears from the complaint that during the fall of 1931 attorneys representing one Dudley Shcppard of Elberton, Ga., made demand on the plaintiff for certain papers and funds held by the Bank, which they claimed as the property of Dudley Sheppard, and that the plaintiff upon investigating the matter found that the Dudley Sheppard account had run for a number of years in the Bank and the investigation of this claim required several months. However, after several months' investigation and after numerous conferences with the attorneys representing Dudley Sheppard, the plaintiff's investigation disclosed the fact that Milledge T. Pitts, as president of the Planters National Bank of Saluda, S. C, had misappropriated funds and securities of Dudley Sheppard which had been deposited in trust with the Bank, and that Milledge T. Pitts, in connection with the account of Dudley Sheppard, had fraudulently abstracted certain funds from the Bank. It is further alleged that the plaintiff ascertained that interest items aggregating some $30,000 or more, which were credited on sundry notes, had not been credited on the books of the Bank, and had in fact either not been received by the Bank, or, if collected, had been fraudulently misappropriated or misapplied by the said Milledge T. Pitts.

It appears that, when the plaintiff discovered the losses which came about through the fraudulent acts of Milledge T. Pitts, he had no knowledge or information that Milledge T. Pitts had been under bond for any period during his connection with the Bank. However, on March 17, 1932, when the plaintiff was going through some old files of the Bank on another

[188 S.E. 777]

matter, he ran across a check drawn by Edwards & Edwards, agent, dated January

9, 1928, payable to the order of American Surety Company, the said check having written thereon "Bond M. T. Pitts." The plaintiff, thinking that perhaps this check might cover the bond of Milledge T. Pitts, as president of the Planters National Bank, at once conferred with his attorneys in Greenwood, and the same day they ascertained the address of the general agent of the American Surety Company in Atlanta, Ga., and sent him a telegram as follows: "Will Call You Phone Friday Morning Nine Thirty Your Time And Would Thank You To Tell Me At That Time Whether Your Company Carried Bond On M. T. Pitts President Planters National Bank of Saluda S C Year Nineteen Thirty If So Please Have Copy of Bond Before You"; and on the following day, March 18, 1932, the plaintiff called the Atlanta office of the American Surety Company on the telephone and was advised that the American Surety Company had been carrying a bond on Milledge T. Pitts up to December 10, 1930, on which date he died; that plaintiff thereupon advised the American Surety Company in the same telephone conversation as to the loss and claim under the bond and requested that a copy of the bond be mailed to him, and the Atlanta office of the American Surety Company promised to mail to the plaintiff that day a copy of the bond. It appears, however, that the plaintiff received a letter from the Atlanta office of the Surety Company, dated March 18, 1932, advising that it had been found that there was no copy of the bond in the Atlanta office, and that the home office of the Company in New York City was being asked to give plaintiff whatever information was wanted. The plaintiff thereupon telegraphed the claim department of the American Surety Company at its home office in New York City on March 19, 1932, asking for a copy of the bond, and on the same date wrote the claim department of the American Surety Company a letter, quoting the telegram and advising of loss under the terms of the bond; that thereafter, under date of March 21, 1932 the American Surety Company forwarded a photostatic copy of the original bond issued by the Company, but stated that the original bond had been canceled and surrendered, and that all rights thereunder had terminated. Thereafter the plaintiff wrote the American Surety Company asking that he be ad vised at what time and by whom said bond was surrendered and canceled and asked for regular forms for making detailed proof of loss under the bond. The American Surety Company replied that it could not consistently comply with plaintiff's request to furnish claim blanks because all rights had terminated under the bond and further stated that the Company's file did not inform of the exact time and by whom the bond was surrendered and canceled. It appears that after considerable correspondence the plaintiff was finally advised by the American Surety Company under date of April 23, 1932, that the bond of Milledge T. Pitts had been surrendered and canceled by R. C. Pitts under date of February 9, 1931. Thereupon plaintiff through his attorneys forwarded by registered letter to the home office of the American Surety Company a detailed proof of loss under the bond of Milledge T. Pitts. A copy of this proof of loss is attached to and made a part of the complaint.

A copy of the bond is also attached to the complaint, and it seems to me that the defendant Surety Company's demurrer really raises but one issue, and that is whether there was coverage under the bond. For the sake of argument on the demurrer, it is admitted that there was a loss under the terms of the bond. The main issue in the case is whether there was coverage under the bond, that is, whether the bond was in force at the time notice of loss was given to the defendant Surety Company. This question turns largely upon the following provision of the policy: "Provided, however, that loss be discovered during the continuance of this suretyship or within fifteen months next after its termination and notice thereof delivered to the surety at its Home Office in the City of New York within ten days after such discovery."

The position of the plaintiff is that he has complied with the provisions of the policy as to notice because this provision provides definitely for a period of fifteen months and ten days after the termination of the bond for the loss to be discovered and notice thereof given to the Surety Company.

The Surety Company takes the position that the bond of Milledge T. Pitts was canceled automatically by his death on December 10, 1936. However, the allegations of the complaint are that the bond was

[188 S.E. 778]

actually canceled in February 1931. This apparently is borne out by the letters of the defendant Surety Company with reference to this matter as alleged in the complaint. However, assuming that the Surety Company's position is correct and that the bond terminated with the death of Milledge T. Pitts on December 10, 1930, the plaintiff still takes the position that the notice was given to the defendant Surety Company within the period of fifteen months and ten days, provided under the section of the bond above noted. It definitely appears that notice of the loss under the bond was given to the Surety Company on March 18, 1932. The period of fifteen months after December 10, 1930, would have run up to and including March 10, 1932. The additional period of ten days would have brought the time up to and including March 20, 1932. The demurrer concedes that notice of the loss was given to the Atlanta office of the American Surety Company on March 18, 1932, and that notice was given to the New York Office, which is the home office, both by telegram and by letter on March 19, 1932.

The defendant Surety Company does not contend that the loss was not discovered and notice given within the period of fifteen months...