CASSELL, Special Judge.
The original bill in this cause was filed April 28, 1930, by the Iten Biscuit Company for the use of the American Surety Company for $1,688.61 for complainant, or a total of $4,699.61, which amount at a later date was increased by amendment to approximately $5,000. The ground for recovery was predicated upon alleged misappropriations by one J. L. McLaughlin, the manager of the company at Chattanooga, and it is alleged that he conspired with defendant J. S. Allen, who at that time was one of the tellers for the defendant Hamilton National Bank, and both Allen and the bank are made parties defendant to the suit and recovery is sought against both of them.
Demurrers were filed by both defendants and overruled and the grounds relied on were later incorporated in the answers of each. The substance of the answers to the bill and the amendment hereto is that there was no conspiracy between McLaughlin and defendant Allen, who, it was alleged, was agent of the Hamilton National Bank, and, furthermore, that neither the bank nor Allen knew anything about any misappropriation of funds on the part of McLaughlin, and that, in absence of such information, it was denied that there was any responsibility on part of either of the defendants. In short, the answers deny that anything was done by either one of defendants which caused any loss on the part of the complainants. No evidence was introduced in the case to show that the American Surety Company lost anything so we will not consider it in this suit. The chancellor filed a written statement of the facts and we have very carefully gone over the record, in addition to reading the briefs in the case, and have come to the conclusion that we can do no better than to adopt in the main the findings of the chancellor on the facts as our findings in this case, especially since counsel for complainant in their statement of the case refer to and practically adopt a large portion of these findings in their brief. This opinion shows much research and later on we shall refer to the very intelligent discussion of the law given therein. The chancellor held in favor of the defendants and an appeal to this court has been made and errors have been assigned.
We now quote liberally from the findings of the chancellor below and make them our findings of the facts in the case:
"The Iten Biscuit Company, now a subsidiary of the National Biscuit Company, is a Delaware corporation engaged in the bakery business and maintains branches in various cities throughout the country for the sale of its products. In 1929, and for several years prior thereto, it had a branch in Chattanooga which its agent J. M. McLaughlin was in charge of as manager. This branch did its banking business with the defendant Hamilton National Bank, where it kept its account. The defendant J. S. Allen was one of the tellers of the said bank. It was the custom of complainant to have its traveling auditors, at intervals, to check up and audit the accounts of its branch managers, and, on June 19, 1929, its auditors came to Chattanooga and made an audit of McLaughlin's accounts.
"By its original bill and its amended bill, the complainant charges that on the date just mentioned McLaughlin was short in his account with complainant in the sum of $2,688.61 and that McLaughlin and the defendant Allen, one of the bank's tellers, entered into a conspiracy to conceal said shortage from complainant's auditors, which they succeeded in doing by a fraudulent manipulation of the complainant's account at the defendant bank. The result was, complainant alleges, that McLaughlin's account with it was passed by the auditors as correct, with the further result that McLaughlin was retained as manager of its Chattanooga branch and was thereby enabled to steal or embezzle and did steal or embezzle other moneys of complainant before his default was discovered. Complainant alleges that the total amount of
McLaughlin's peculations, including the shortage of $2,688.61 that existed on June 19, 1929, was $4,996.86, for which it sues both Allen and the bank. McLaughlin was under bond to complainant for the faithful performance of his duties and the American Surety Company was surety upon said bond. Complainant alleges, but does not prove, that the American Surety Company paid it the sum of $3,000 on account of McLaughlin's shortage, and to the extent of this sum it filed its bill for the use of the American Surety Company. The latter company has not sued, and the complainant has showed no right to sue for its use. This, however, in the view of the case which I take, is not material and will not be further noticed. The bill will be taken as the bill of the Iten Biscuit Company.
"The defendants demurred separately to the original bill and again to the bill as amended. These demurrers were overruled with leave to rely upon them in the answers. They were relied upon in the answers and were duly brought up before the trial. Because I prefer to decide the case upon the facts proven, I overrule the demurrers pro forma without discussing their merits. As to the answers, it is sufficient to say that they make an issue as to the liability of the defendants or either of them.
"The following facts, in addition to those already stated, are undisputed:
"The Iten Biscuit Company established its branch in Chattanooga some time in October, 1923. It carried its account from the beginning in the Hamilton National Bank. McLaughlin began to act as complainant's manager of its Chattanooga branch on or about June 4, 1926. The witness F. G. Frey, auditor for and called by complainant, describes McLaughlin's duties and authority as follows:
"`Q. 45. Who had charge of the funds, deposits of the Iten Biscuit Company for the Chattanooga Branch?
"`A. J. M. McLaughlin.
"`Q. 46. What did Mr. McLaughlin's duties consist of?
"`A. He was the manager of the local branch of the Iten Biscuit Company at Chattanooga, and signed all disbursements, that is, all checks. He collected all funds and deposited them to our account and conducted the business in general out of the Chattanooga Branch.
"`Q. 47. You say that he disbursed the funds, what do you mean by disbursing the funds?
"`A. Any disbursements in the way of salaries or any expense incurred at the Chattanooga Branch, he was the man who paid them.
"`Q. 48. What was his duties with reference to customer's checks which he received?
"`A. He accepted them, credited the account of the customer at the Agency, and deposited them in the Bank to our account.
"`Q. 49. By our accounts, what account do you mean?
"`A. The Iten Biscuit Company.'"
"The defendant Allen was one of several tellers of the defendant bank. He was 26 years of age at the time of the transactions in question. He came to the defendant bank in 1927. Before that, he had had some experience in banking as an employee of a small bank in Smithville, Tenn. When he came to the Hamilton National Bank, he was first placed in what is called its clearing house. He was subsequently promoted to the position of teller. In that position he was put in charge of the cage lettered A to K. This means that any depositor of the bank whose name began with A to K, inclusive, was expected to go to the cage lettered A to K, inclusive, to make his deposit or cash his check. McLaughlin was the man who uniformily made the deposits for complainant. Since complainant's name began with the letter "I" he went ordinarily to Allen's cage, but not always; if Allen appeared to be busy, he went to another cage.
"On June 19, 1929, McLaughlin appeared at Allen's cage and offered for deposit to the credit of the Iten Biscuit Company a check drawn on itself for $2,668.61 and requested that this check should be held until the next day, when he would take it up. To this Allen agreed and laid the check aside in his drawer, but entered up a credit upon the account of the Iten Biscuit Company of $2,668.61, the amount of the check.
"McLaughlin did not take up the check on the following day nor until June 25, 1929. On this date he took up the check for $2,688.61 by depositing to the credit of the Iten Biscuit Company the following checks of its customers:
Date No. Amount
6 — 22 — 29 McCamey-Stone-Deakins Co. 5 $246.37
6 — 21 — 29 Lay Hall Gro. Co. 6 203.00
6 — 12 — 29 D. C. Renner & Son 8 34.72
6 — 21 — 29 U. S. Wholesale Corp. 23 41.98
6 — 21 — 29 Roanoke Whol. Gro. Co. 24 21.42
6 — 20 — 29 Brenner Grocery Co. 25 51.39
6 — 21 — 29 Chas. J. Vance 26 187.41
"— and in addition the check of the Iten Biscuit Company to itself for the sum of $1,901.82. This check, together with the aforesaid customers' checks, aggregated exactly the amount of the original check of $2,688.61.
"The original check for $2,688.61 was thus satisfied, but it left the check of the Iten Biscuit Company on itself for $1,906.82 yet to be satisfied. This check was renewed on
July 2d, and was not finally paid until July 13th or 14th. In the meantime, McLaughlin deposited in the bank the following checks of its customers, to wit:
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