Fidelity & Deposit Co. v. Merchants' & Marine Bank Of Pascagoula
| Decision Date | 04 December 1933 |
| Docket Number | 30884 |
| Citation | 151 So. 373,169 Miss. 755 |
| Parties | Fidelity & Deposit Co. v. Merchants' & Marine Bank Of Pascagoula. |
| Court | Mississippi Supreme Court |
1 INSURANCE.
Failure of bank to notify insurer of loss within ten days after discovery of defalcations by employees, as required by bankers' blanket bond, which neither provided that such failure relieved insurer from liability nor made notice of essence of bond, held not to preclude recovery by bank on bond, absent showing of prejudice to insurer.
2 INSURANCE.
Subsequent approval by board of directors of loan to president did not cure illegality of loan not approved by board when made, as respects insurer's liability on employees' fidelity bond issued to bank (Code 1930, section 3812).
3 INSURANCE.
Employees' fidelity bond, which provided for its termination upon discovery by bank of loss, terminated as to president when he loaned money to himself without approval of board of directors, if misappropriation was then known to cashier and vice president, and, if not, bond terminated when board subsequently approved loan (Code 1930, section 3812).
4 INSURANCE.
Employees' fidelity bond, which provided for its termination upon discovery by bank of loss, terminated as to assistant cashier when executive officer of bank acquired knowledge that cashier obtained loan without approval of board of directors and, if not, bond terminated when board subsequently approved loan (Code 1930, section 3812).
5. INSURANCE.
Bankers' blanket bond, which provided for its termination upon discovery by bank of default under bond by employee, terminated as to president when vice president and cashier acquired knowledge that president withdrew money for his personal use from bank's cash box.
ON SUGGESTION OF ERROR. (Division A. April 23, 1934.) [154 So. 260. No. 30884.]
1. APPEAL AND ERROR. Counsel for either party who desire final judgment in Supreme Court on reversal of judgment appealed from must specifically state in briefs what such judgment should be and reasons therefor. 2. INSURANCE. Knowledge of cashier of bank of its president's defalcations when committed was not constructive notice thereof to bank, as respects liability of surety on employees' fidelity bond which provided for its termination on discovery by bank of loss. 3. INSURANCE. Loans by bank president to his partners for use in fishing partnership, not approved by board of directors of bank and evidenced by notes which were not signed by president as maker, held covered by employees' fidelity bond insuring bank against pecuniary loss through fraud or dishonesty of its employees directly or in connivance with others (Code 1930, section 3812). 4. INSURANCE. Loans by bank president to corporation wherein he was one of its three stockholders who determined to apply therefor, subsequently approved by board of directors of bank, held not covered by employees' fidelity bond insuring bank against pecuniary loss through fraud or dishonesty of its employees directly or in connivance with others (Code 1930, section 3812). 5. INSURANCE. Act of bank president in discounting notes owned by corporation wherein he was one of its three stockholders who determined to sell notes to bank whose board of directors subsequently approved such act held not covered by employees' fidelity bond insuring bank against pecuniary loss through fraud or dishonesty of its employees directly or in connivance with others (Code 1930, section 3812). 6. INSURANCE. Bank had burden of proving that loan by its president to himself without approval of board of directors was made subsequent to time when bankers' blanket bond became effective (Code 1930, section 3812). 7. INSURANCE. Absence evidence as to what hour of day president made loan to himself without approval of board of directors of bank, surety held not liable therefor on bankers' blanket bond which became effective at noon on same day (Code 1930, section 3812). 8. INSURANCE. Loan by bank president to golf course partnership composed of his wife and others but in which he had no interest, though not approved by board of directors of bank, held not covered by bankers' blanket bond (Code 1930, section 3812). 9. APPEAL AND ERROR. Supreme Court must remand cause to lower court for determination of amount of liability of surety on bankers' blanket bond where amount could not be determined from record and counsel could not agree thereon.
HON. D. M. RUSSELL, Chancellor.
Suit by the Merchants' & Marine Bank of Pascagoula against the Fidelity & Deposit Company and others. From a decree in favor of plaintiff, named defendant appeals. Reversed and remanded.
Suggestion of error sustained in part and overruled in part.
H. P. Heidelberg, of Pascagoula, P. M. Milner, of New Orleans, Louisiana, and Arthur G. Powell, of Atlanta, Georgia, for appellant.
The bond is not a bond within the definition given in Code of 1930, section 1365. It falls squarely within the definition of a contract of insurance as found in Code of 1930, section 5131.
Craft v. Standard Ins. Co., 220 Ala. 6, 123 So. 271; Fort Smith & Van Buren District v. Johnson, 25 S.W.2d 417; Union Indemnity Co. v. Covington, 178 Ark. 533, 12 S.W.2d 884; F. & D. Co. v. Crane, 178 Ark. 676, 12 S.W.2d 874.
We contend that as to three of the employees---Lindinger, Watts and Hudson---the bank knew of their default, as evidenced by the cash items, at the time the bond went into effect in February, 1931, and, therefore, the bond never went into effect as to any one of them, but only as to other employees of the bank, not here involved.
It must be kept in mind that section 3812 applies only to the loans made to officers and employees personally and not also, as complainant's theory seems to be, to firms and companies in which such officer or employee may be interested. The words "on his own note or obligation," are used; and the statute is to be strictly construed against liability.
Bramlette v. Joseph, 111 Miss. 379, 71 So. 643.
We contend that the making of a loan excessive under the provisions of section 4151 is not a violation of a fidelity bond, even with all the provisions of section 3827 imported into it; for a violation of section 4151 is not a violation of any provision of the chapter on banking; and section 3827 speaks only of violations of the chapter on banking.
State v. Southern Surety Co., 127 So. 805, 70 A. L. R. 296; Corsicana National Bank v. Johnson, 251 U.S. 68, 83, 64 L.Ed. 141, 152; Gamble v. Brown, 29 F.2d 366, 375; Curtis v. Metcalf, 265 F. 293.
Renewal of a loan is not a borrowing of money within the section.
Anderson v. Galley, 33 F.2d 589; Morenstecher v. Westervelt, 87 F. 157; Curtis v. Metcalf, 265 F. 293, 296.
The bank is conclusively bound by knowledge of any fact entered on its own books. If illegal or excessive loans are entered on the books of the bank, the bank and its stockholders are conclusively charged with knowledge thereof.
Curtis v. Connley, 257 U.S. 260, 263, 66 L.Ed. 222, 226; Boyd v. Applewhite, 121 Miss. 900, 84 So. 16; Martin v. Webb, 110 U.S. 7, 28 L.Ed. 49; Ellis v. Gates Merct. Co., 103 Miss. 560, 60 So. 649.
Of course after the Superintendent of Banks, took charge, knowledge possessed by him or his liquidator in charge is knowledge of the bank, at least so far as complainant, as his assignee, is concerned.
The courts are divided as to whether the statute of limitations runs from the date of the abstraction, in case of illegal loans, or from the date the non-participating directors discover it, in case the facts have been concealed; but all agree that the cause of action arises when the illegal loan is made and is not suspended until after it shall have been determined whether the notes and securities taken in the illegal transaction can be collected or not.
Corsicana National Bank v. Johnson, 251 U.S. 86, 64 L.Ed. 153; Anderson v. Gailey, 33 F.2d 589, 591; Hughes v. Reed, 46 F.2d 435, 441 (3); Payne v. Ostrus, 50 F.2d 1039, 1043 (9).
It is our contention, therefore, that from the moment the bank had knowledge, either from recitals on its minutes, or through the knowledge of its president (except as to the president's own defaults) or of its vicepresident or its cashier (except as to the cashier's own defaults) that such an illegal and tortious abstraction of its funds had occurred, whether through the form of illegal or excessive loans or otherwise, as would constitute a default or loss, it had such knowledge as terminated the bond and put in operation the condition of the bond as to giving notice.
Both bonds contained, as a condition of the company's liability, that within ten days after the discovery of a loss, written notice should be given the company. It is undisputed that such notice was not given as to any of the losses claimed in the suit.
25 C. J. 1100, sec. 12B; U.S. F. & G. v. Citizens Bank, 150 Miss. 386, 116 So. 605; Maryland Casualty Co. case, 125 Miss. 792, 88 So. 407.
Equity refuses aid to those guilty of laches.
21 C. J. 210 and 180; Griffith's Mississippi Chancery Practice, sections 32, 33, 41-43. Ford, White & Morse, of Pascagoula, for appellee.
The testimony of Mr. Jane shows that there is no approval of these loans in the directors' minutes, neither were they authorized by the directors before the loans were made. Liability is based on section 3812, Code of 1930, which is identical with the Laws of 1922, chapter 162, section 44, which was in effect prior to the time the present code was adopted.
Little v. Newhouse, 145 So. 608, 164 Miss. 619; Boyd v. Applewhite, 121 Miss. 879.
Whenever it is shown that an officer of a bank or corporation or other person in a similar fiduciary relation has been dealing with his...
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