Fourth & First Bank & Trust Co. v. Fidelity & Deposit Co.

• Decision Date: 13 March 1926
• Citation: 281 S.W. 785
• Parties: FOURTH & FIRST BANK & TRUST CO v. FIDELITY & DEPOSIT CO. OF MARYLAND.
• Court: Tennessee Supreme Court

281 S.W. 785

FOURTH & FIRST BANK & TRUST CO v. FIDELITY & DEPOSIT CO. OF MARYLAND.

Supreme Court of Tennessee.

March 13, 1926.

Appeal from Chancery Court, Davidson County; John R. Aust, Chancellor.

Bill by the Fourth & First Savings Bank & Trust Company against the Fidelity & Deposit Company of Maryland. From a decree dismissing its bill, the bank appeals. Affirmed.

John J. Vertrees, W. L. Granbery, and Wm. O. Vertrees, all of Nashville, for appellant.

Bass, Berry & Sims, of Nashville, for appellee.

GREEN, C. J.

The Fourth & First National Bank and the First Savings Bank & Trust Company were allied institutions in Nashville. The name of the latter was changed to Fourth & First Savings Bank & Trust Company prior to the institution of this suit.

In addition to its principal place of business the Fourth & First Bank & Trust Company maintained several branches in the city and suburbs. Drew Rowen was manager of the branch bank at the Powder Plant. During the period from January, 1920, to June, 1924, Rowen embezzled $151,943.65 of the bank's funds. Subsequently $1,426.40 was recovered out of the assets of Rowen, making the net loss of the bank on his account during these years $150,517.25.

On December 31, 1919, the defendant issued to the Fourth & First National Bank and to the First Savings Bank & Trust Company (the predecessor of complainant) a blanket bond by way of protection against dishonesty of all the employees of the two banks. The material provisions of this bond are as follows:

"In consideration of the premium of twenty-six hundred nine and 50/100 dollars ($2,609.50) paid by Fourth & First National Bank and First Savings Bank & Trust Company, as their interests may appear, Nashville, hereinafter referred to as the insured to the Fidelity & Deposit Company of Maryland, hereinafter referred to as the underwriter, for a period of one year from the date hereof, and of subsequent annual premiums, each premium being based upon the total number of the insured's officers, clerks and other employees, employed at the insured's offices covered hereunder at the beginning of the year for which such premium is paid (all the officers, clerks, and other employees employed at the offices covered hereunder during the currency of this bond being hereinafter referred to as employees), the underwriter hereby undertakes and agrees to indemnify the insured and hold it harmless from and against any loss, to any amount not exceeding fifty thousand dollars ($50,000.00), of money, currency, bullion, bonds, debentures, scrip, certificates, warrants, transfers, coupons, bills of exchange, promissory notes, checks, or other similar securities, hereinafter referred to as property, in which the insured has a pecuniary interest or for which it is legally liable, sustained by the insured subsequent to noon of the date hereof and while this bond is in force and discovered by the insured subsequent to noon of the date hereof and prior to the expiration of twelve months after the termination of this bond as provided in condition 11."

"11. This bond shall terminate — (a) thirty days after the receipt by the insured of a written notice from the underwriter of its desire to terminate this bond, or (b) upon the receipt by the underwriter of a written request from the insured to terminate this bond. This bond shall terminate as to any employee — (a) as soon as the insured shall learn of any default hereunder committed by such employee, or (b) fifteen days after the receipt by the insured of a written notice from the underwriter of its desire to terminate this bond as such employee."

Rowen so manipulated the books of the complainant bank that he was able to conceal his defalcations until June, 1924. Upon the discovery of his misappropriations at that time, notice was promptly given to the defendant company.

Investigation disclosed that Rowen's abstractions were distributed as below:

                1920 ......................  $15,290 04
                1921 ......................   25,154 61
                1922 ......................   35,265 22
                1923 ......................   34,119 69
                1924 ......................   34,250 53
                Not placed ................    7,863 56
                

The bond issued December 31, 1919, was continued in force until December 31, 1923. Annual premiums were paid upon this bond. It thus covered the years 1920, 1921, 1922, and 1923. On December 31, 1923, the existing bond was superseded by a new bond in a like sum — $50,000. In addition to these two bonds, defendant company issued to the banks excess bonds which ran contemporaneously with the primary bonds. There is no controversy with respect to the obligations of these excess bonds, and they need not be further noticed.

Defendant company takes the position that the primary bond issued December 31, 1919, was a continuous bond in the sum of $50,000, covering the whole period of its currency, and that the obligor's maximum liability for the period December 31, 1919-December 31, 1923, was $50,000. Defendant conceded liability under the new primary bond dated December 31, 1923, for the loss occurring in 1924. It also conceded liability for the unplaced loss of $7,863.56, and for a further sum of $5,628.77 under the excess bonds. Defendant therefore admitted liability for $97,742.86. It paid to the bank the sum of $100,000, upon stipulation that such payment should not affect the rights of either party.

The contention of the bank is that the original bond issued December 31, 1919, was intended to cover losses sustained during the year 1920; that said bond was renewed for the year 1921, for the year 1922, and for the year 1923; that the original bond and each renewal thereof was a separate contract, each contract covering a year, and that defendant is liable as upon four distinct obligations. The bank was able, as appears from the statement above set out, to fix the amount of each year's loss. This is true except as to the item of $7,863.56, about which there is no dispute; it apparently being an admitted charge against one of the excess bonds.

The bank accordingly filed its bill to recover the sum of $50,517.25, the amount of Rowen's shortage, less $100,000 paid by defendant company. The chancellor dismissed the bill, and the bank has appealed.

Counsel for the bank submitted the case with the following observation:

"If there was but one bond for $50,000 in force for one term, beginning December 31, 1919, and ending December 31, 1923, the decree of the chancellor should be affirmed; but if, in legal effect, there were four bonds for $50,000 each, in force for one year each, the primary bond, and the three renewals for the years, respectively, for which the renewal premiums were paid, the complainant is entitled to a decree for $50,317.25, the balance in controversy, with interest from the day the bill was filed."

The substance of the first paragraph of the bond under consideration, above quoted, is that, in consideration of the premium of $2,609.50 for a period of one year from date and of subsequent annual premiums (based on the number of employés at the beginning of the year for which premium is paid), obligor undertakes to indemnify the obligee against loss to an amount not exceeding $50,000, sustained by the obligee subsequent to the date of the bond, and while the bond is in force and discovered by the obligee subsequent to the date of the bond, and prior to 12 months after termination of the bond as provided in condition 11. Condition 11 provides that the obligee may terminate the bond upon notice and the obligor may terminate the bond upon 30 days' notice.

The consideration of the bond is the first annual premium of $2,609.50, and subsequent annual premiums, based on the number of employees. The obligation of the bond is to indemnify against loss of money, etc., up to $50,000. The life of the bond, the period it covers, is not fixed. It is to run until terminated as provided in condition 11.

The bond before us in some aspects resembles a life insurance policy. A life insurance policy is not an assurance for a single year, with the privilege of renewal from year to year by paying the annual premium, but it is an entire contract of assurance for life. Each premium is part consideration of the entire insurance for life. Ins. Co. v. Heidel, 8 Lea (76 Tenn.) 488; New York Life Ins. Co. v. Statham, 93 U. S. 24, 23 L. Ed. 789.

So this bond is written to cover an indefinite period at the pleasure of the parties. Each premium, the first premium and subsequent premiums, is part consideration of the entire risk.

Neither First National Bank v....