Jones v. Fireman's Fund Ins. Co.

• Decision Date: 20 March 1969
• Citation: 270 Cal.App.2d 779,76 Cal.Rptr. 97
• Parties: , 38 A.L.R.3d 1430 Merle R. JONES, Plaintiff and Appellant, v. FIREMAN'S FUND INSURANCE COMPANY, a corporation, Defendant and Respondent. Civ. 25007.
• Court: California Court of Appeals Court of Appeals

Page 97

76 Cal.Rptr. 97

270 Cal.App.2d 779, 38 A.L.R.3d 1430

Merle R. JONES, Plaintiff and Appellant, v. FIREMAN'S FUND INSURANCE COMPANY, a corporation, Defendant and Respondent.

Civ. 25007.

Court of Appeal, First District, Division 2, California.

March 20, 1969.

Boccardo, Blum, Lull, Niland, Teerlink & Bell, by John W. McDonald, San Jose, for appellant.

Pillsbury, Madison & Sutro, Noble K. Gregory, Harlan M. Richter, Walter R. Allan, San Francisco, for respondent.

TAYLOR, Associate Justice.

This appeal involves the construction of a Bankers Blanket Bond issued by defendant, Fireman's Fund Insurance Company to plaintiff's ¹ assignor, the Community Bank of San Jose. For convenience, the parties will hereafter be referred to as the Bank and the insurer. The Bank appeals from an adverse judgment after a court trial, in an action to recover losses sustained due to a forgery under the bond, contending that, as a matter of law, the loss was covered under Clause E, and that the trial court erred in refusing to admit evidence concerning the meaning of the term 'customer' in Clause D.

Although the facts are not in dispute, a chronology of events is necessary for an understanding of the issues presented. The insurer issued to the Bank a Bankers Blanket Bond, Standard Form No. 24. The pertinent provisions of the insuring clauses (D) and (E) here in issue will be set forth presently. Since 1963, the Bank had been extending credit to a Mr. A. McCall Smith, doing business as Elderberry Farm of California, including unpaid advances of $6,000 on March 6, 1964 (evidenced by two notes, one for $1,000 and another for $5,000). On April 20, 1964, and again on May 11, 1964, Elderberry Farm, through its employee, Mr. Briggs, contacted the Bank about further extensions of credit. At this time, Elderberry Farm had not paid the interest on the two notes mentioned above. The Bank had learned that Mrs. Briggs was a member of the Yorba and Ervine families, and on May 20, indicated that it would require the execution of a continuing guarantee by Mr. and Mrs. Briggs as a condition precedent to advancing any additional amounts to Elderberry Farm. Accordingly, Mr. Briggs obtained a continuing guarantee form and took it home for his wife's signature. He then returned the continuing guarantee dated May 21, 1964, apparently signed by him and his wife, to the Bank, along with a financial statement of their financial condition as of that date. At this time, Mrs. Briggs had no accounts or other relations with the Bank.

As indicated above, the Bank had dealings with Mr. Briggs prior to May 21, 1964, in relation to Elderberry Farm, but none with Mrs. Briggs until May 26, 1964. At that time, the Bank extended credit to Mrs. Briggs, who had signed a car purchase order for Lawrence George Metzger, her son by a prior marriage. Like the continuing guarantee form, this document was not signed by Mrs. Briggs at the Bank but was taken home to her by her husband after the application for credit had been signed by Mr. Briggs and Mr. Metzger. As the Bank was the legal owner of the automobile, it had numerous contacts with Mrs. Briggs concerning the details of the Metzger collection. Thus, when the loan to Mrs. Metzger was paid off, Mrs. Briggs signed and delivered to the Bank the necessary authorization.

On June 9, 1964, the Bank advanced to Elderberry Farm $16,099.20, secured by another note. This was subsequently paid down to about $13,000. Thereafter, Elderberry Farm went into bankruptcy and all of its obligations became uncollectible. When the Bank made demand on Mr. and Mrs. Briggs, it discovered that Mr. Briggs had no assets, was in a mental institution, and that the financial statement submitted with the guarantee was false. Mrs. Briggs, who had some assets, maintained that her signature to the continuing guarantee had been forged without her knowledge or consent.

Thereafter, the Bank filed an action (No. 172010) against Mr. and Mrs. Briggs on the continuing guarantee and this action (No. 180499) against the insurer on the bond for breach of contract. The two matters were consolidated for trial.

The Bank's complaint alleged that the loss caused by the forgery of Mrs. Briggs was covered under Clause D of the bond. The pretrial conference order and the insurer's pretrial statement indicated that the issues were (1) whether Mrs. Briggs' signature was a forgery; (2) whether the Bank extended credit in reliance on the execution of the continuing guarantee by Mrs. Briggs; (3) whether the Bank suffered a loss because Mrs. Briggs' signature was a forgery and the extent of the loss; and (4) whether any such loss was covered by the bond.

However, the trial proceeded on the narrower issue as outlined by the addendum to the pretrial conference order based on the insurer's pretrial statement, namely, whether or not Mrs. Briggs was in fact a 'customer' of the Bank under Clause D. When the Bank attempted to introduce evidence concerning the meaning of the word 'customer' in Clause D, the trial court first sustained the insurer's objection that the matter called for a legal conclusion and then stated that it was a factual matter, but did not permit the introduction of any evidence.

The trial court found that Mrs. Briggs' purported signature on the continuing guarantee was a forgery and rendered judgment in her favor in action No. 172010. No appeal is taken from that judgment. In the instant matter, the trial court found that Mrs. Briggs was not a 'customer' of the Bank within the meaning of Clause D and entered its judgment in favor of the insurer. The Bank's motion for a new trial was based on the court's rejection of its proffered testimony relating to the usage and meaning of the term 'customer' and the coverage of the loss under Clause E of the bond, as a matter of law. The record indicates that the motion for a new trial was denied as the trial court considered Clause E an entirely new matter.

As noted above, this action resulted from the distinct difference between the Bank and the insurer over exactly what coverages under the bond in question apply to the particular loss. The parties, however, apparently agree that the coverages provided by Clauses D and E are mutually exclusive.

The pertinent provisions of the two clauses here in dispute are as follows: 'THE LOSSES COVERED BY THIS BOND ARE AS FOLLOWS:

'* * *

'(D) Any loss * * * (1) through transferring, buying or delivering any funds or Property or establishing any credit or giving any value on the faith of any written instructions or advices directed to the Insured * * * which instructions or advices purport to have been signed or endorsed by any customer of the Insured * * * but which instructions or advices either bear the forged signature or endorsement or have been altered without the knowledge and consent of such customer * * *'

'(E) Any loss through the Insured's having, in good faith and in the course of business, whether for its own account or for the account of others, in any representative, fiduciary, agency or any other capacity * * * given any value, extended any credit * * * on the faith of, or otherwise acted upon any securities, documents or other written instruments which prove to have been counterfeited or forged as to the signature of any maker, drawer, issuer,...