Fidelity & Deposit Co. of Maryland v. Cunningham

• Decision Date: 26 May 1930
• Docket Number: 14
• Parties: FIDELITY & DEPOSIT COMPANY OF MARYLAND v. CUNNINGHAM
• Court: Arkansas Supreme Court

28 S.W.2d 715

181 Ark. 954

FIDELITY & DEPOSIT COMPANY OF MARYLAND v. CUNNINGHAM

No. 14

Supreme Court of Arkansas

May 26, 1930

Appeal from Lawrence Chancery Court, Eastern District; A. S. Irby Chancellor; judgment modified.

Decree affirmed.

John A Luhn, Chas. H. McComas, W. E. Beloate and Horace Chamberlin for appellant.

W. A Cunningham and G. M. Gibson, for appellees.

BUTLER J. KIRBY, J., MCHANEY J. and Mr. Justice HUMPHREYS dissent.

OPINION

BUTLER, J.

For a history this case reference is made to the opinion in the case of Fidelity & Deposit Company of Maryland v. Cunningham, 177 Ark. 638, 7 S.W.2d 332, when the case was first here on appeal. There are 1,862 pages of typewritten matter in the transcript now before us, and the abstract and briefs of counsel contain 933 pages. With a record of this magnitude it is impracticable to do more than briefly review the most salient features of the testimony and only such as are necessary for an understanding of the points raised in this appeal, and this will be done as we proceed with the discussion of the questions involved.

On the first appeal this court held that the case should have been transferred to the chancery court. On remand, this was done, and a special master was appointed to take the testimony and make certain findings. The appellant challenges this appointment on the ground that the term of court had lapsed on the date of the appointment. It is unnecessary for us to determine whether or not the court was legally in session on July 23d, for to render the appointment of the master valid it is not necessary that the same be made on a day of the court. Crawford & Moses' Digest, § 1364 (Act of April 16, 1873, at which time the circuit court sat in chancery) provides that the clerk of the circuit court shall be ex-officio master or commissioner, and § 1365 provides that the "judge may appoint any other person master or commissioner in special causes in said court." Therefore, the appointment of a master by the judge in vacation would be a valid appointment.

It is contended also that the appointment was premature and too extensive. The objection interposed at the time of the appointment was not that it was premature, but for the reason that the court was not in session and that the order was coram non judice. We do not think that the appellant was shown any prejudice by reason of the premature appointment, if it was such, or the powers with which the master was clothed.

During the taking of the testimony the chancellor was called by the appellant to testify as to a certain matter, and for that reason his disqualification was suggested, which was overruled. This was a matter within the discretion of the chancellor. Section 4193, Crawford & Moses' Digest. We cannot see anything in the record which would warrant us in concluding that there was any abuse of discretion in the refusal of the judge to disqualify. The testimony given by him was entirely favorable to the appellant on the matter about which he was called, and the fact testified to by him might well have been proved without calling him as a witness.

There are two main questions in this case. The first is presented by the appellant's exceptions numbered 22, 31, 41, 45 and 46. By these the position is taken that the evidence demonstrated that the liability of the appellant on its bond was canceled by the conduct of the appellees. The second question is raised by exceptions 19, 20 and 23, where the contention is made that there was no embezzlement by Neil Cole of the funds coming into his hands as collector of revenue during the year 1926 for the taxes of 1925.

1. Neil Cole, as collector of revenue for Lawrence County, made the bond required by statute with the appellees as his sureties on the bond. The bond sued on was executed by the appellant to indemnify the appellees against any liability on their part as sureties for the larceny or embezzlement by Cole of any of the revenue collected by him. This bond imposed upon the assured, or any of them, the duty, on becoming aware of any act which might be made the basis of any claim thereunder, to immediately give the insurer notice; and, further, that there should be no liability under the bond for any act of embezzlement or larceny committed by the principal after the assured, or either of them, should become aware of any act of Cole which might be made the basis of a claim. The execution of the bond avoided liability under the bond previously made. It is insisted that the appellees were well aware of these conditions which were identical with those of the previous bond executed by the appellant for their protection against the larceny or embezzlement by Cole for the collection of taxes for the year 1924 in the year 1925, and that at the time of the execution of the bond sued on the appellees knew that Cole had embezzled funds collected by him for the taxes of the year 1924; that after the execution of the bond the appellees knew that Cole was embezzling tax moneys collected for 1925 and applying the same to a private obligation of his own; that, knowing these facts, the appellees, or any of them, failed to give any notice to the appellant company of such larceny and embezzlement within the time stipulated in the bond or at any other time, and that therefore the bond became void and unenforceable. If the evidence established the facts contended, the position of the appellant would be well taken and there would be no liability.

There is but little conflict in the evidence. The dispute is not so much as to what the witnesses testify, but rather what are the proper inferences reasonably deducible therefrom. The appellant contends that the correct inference establishes its contention while the appellees insist that the true inference to be drawn is that the acts of Cole and the appellees are consistent with honesty of purpose and conduct.

Briefly stated, the facts are as follows: H. L. Ponder was the local agent for the appellant company in the city of Walnut Ridge. The bonds, and the one in suit, were all written on the application of Neil Cole and the favorable recommendation of Ponder, who was not only the local agent of the appellant, but also a stockholder and officer in the Planters' National Bank, a banking corporation doing business in said city. On a Sunday in August, 1924, the day before Mr. Cole's settlement with the State for the taxes collected for the year 1924, he approached Mr. Ponder and informed him that he (Cole) lacked approximately $ 8,000 of having enough money with which to make his settlement, and stated as a reason that certain taxpayers, whose tax receipts had been issued and held by him on their promise to pay same in time for him to make his settlement, had failed to pay as promised. He requested Mr. Ponder to help him secure the money needed, and told Ponder at the time that he had certain collateral consisting of amounts due on the tax receipts before mentioned, notes due for automobiles sold, and county scrip. Ponder undertook to secure, if possible, the money needed, and on that afternoon interviewed the officials of the Planters' National Bank, at which the understanding was reached that the bank would advance the money required. At that time Cole was in the automobile business, and had borrowed from the bank his limit under the rules governing the credit to be extended to any one of Cole's business rating. Cole, on this account, procured three of his friends who undertook to, and did, execute to the bank three notes aggregating the sum required, which notes were indorsed by Clarence Whitlow, whose name made the risk acceptable to the bank. To secure Whitlow for the indorsement, Cole surrendered to him the unpaid tax receipts, the automobile notes and the county scrip, with the agreement that Whitlow should collect these and apply the proceeds to the payment of the three notes. This transaction was had early on the morning of the day on which Cole was to make his settlement, and the money or its equivalent was paid to him in time for him to catch the train to Little Rock. From these facts the conclusion is drawn that Cole was an embezzler of the 1924 revenue, and that Ponder and those of the appellees who were officers of the Planters' National Bank were made aware of the same and aided him in concealing it; and further that subsequent facts demonstrated that Cole embezzled a part of the 1925 revenue with the knowledge and approbation of the officers of the Planters' National Bank, and that the sums so embezzled were applied to the payment of the money procured by Cole to cover up his defalcation for the preceding year.

The evidence relied on to establish this last proposition may be thus stated: Clarence Whitlow was one of Cole's deputies and he, with W. F. Rowsey, another deputy, were the ones designated to, and who did, carry the tax books through the county to make collections at the various voting precincts after which the books were returned to the collector's office, from which the taxes were collected for the balance of the time in which taxes were payable during the year 1926. On the flyleaf of one of the books carried around by the said deputies were various notations, among which was a series headed "Planters' Bank," showing deposits made in said bank beginning January 9, 1926, continuing through that month and until February 11, 1926. These deposits aggregated approximately $ 4,318.88. Opposite each sum was the notation "on note." The records of the Planters' Bank disclosed that on or about the dates noted on the flyleaf there had been deposited by Clarence Whitlow like amounts which were applied as credits on the three notes executed the preceding August for the benefit of Neil Cole. The appellant draws...