Kendrick-Roan Grain & Elevator Co. v. Weaver
| Decision Date | 08 December 1913 |
| Citation | 163 S.W. 814,128 Tenn. 609 |
| Parties | KENDRICK-ROAN GRAIN & ELEVATOR CO. et al. v. WEAVER et al. |
| Court | Tennessee Supreme Court |
Appeal from Chancery Court, Davidson County; Jno. Allison Chancellor.
Action by the Kendrick-Roan Grain & Elevator Company and others against J. H. Weaver and others. Judgment for plaintiffs, and defendant National Surety Company appeals. Reversed in part and modified.
Stokes & Stokes, P. D. Maddin, and C. T. Boyd, all of Nashville, for appellant.
T. M Steger and Cherry & Steger, all of Nashville, for appellees.
The responsible defendant in this case is the National Surety Company; Weaver being financially unable to respond to the liability charged. The real complainant is the Fourth National Bank.
The bill was filed for the purpose of holding J. H. Weaver and the National Surety Company for a loss of $40,000, alleged to have been sustained by the Fourth National Bank of Nashville, Tenn., by reason of certain alleged fraudulent conduct of Weaver.
Weaver was bonded as superintendent of the Kendrick-Roan Grain & Elevator Company's warehouse. The bond is in the usual form; the contracting parties on the face of it being Joseph H. Weaver, as principal, and the National Surety Company as surety, and Kendrick-Roan Grain & Elevator Company as obligee.
It designated Kendrick-Roan Grain & Elevator Company as the employer, and Joseph H. Weaver as the employé; recited that the employer had appointed the employé to the office or position of superintendent of its warehouse at Nashville, Tenn., that the employer required security as indemnity against loss on account of the personal dishonesty amounting to larceny or embezzlement of the employé in the performance of his duties in the position referred to; engaged that the surety company, "subject to the conditions and provisions herein contained, which shall be conditions precedent to the right of the employer to recover under this bond," would, on the furnishing of satisfactory proof of loss, make good to the employer any loss sustained by it "by or through the personal dishonesty amounting to larceny or embezzlement of the employé, and for which the employé shall be legally liable to the employer," occurring between January 22, 1909, and January 22, 1910.
The bond provided under paragraph second that it should be the duty of the employer to communicate to the surety company "any act, fact, or information tending to indicate that the employé is or may be unreliable, deceitful, dishonest, or unworthy of confidence, or intemperate, or gambling, or indulging in other vices"; that, in case the employer should fail in this regard, the surety company would not be liable for any act of the employé thereafter committed.
The fifth paragraph contained the provision that, if the employé should cease to act in the position to which he had been appointed in the service of the employer, the surety company should not thereafter be liable; the eighth, that all written statements and declarations concerning the employé or his duties or accounts made to the surety company by the employer were to be treated as being the basis of the bond, also that the bond was entered into on condition that the business of the employer should continue to be conducted, and the duties of the employé should remain, in accordance with the written statements made by the employer to the company relative thereto, and that, if during the continuance of the bond any circumstances should occur or change should be made which would have the effect of making the actual facts differ from such statements without immediate written notice thereof to the surety company, and the procurement of its consent, the latter should not thereafter be liable; tenth, that the employé should be liable to the surety company for any loss which it had been required to pay to the employer; fifteenth, that the receipt and retention of the bond, or the making claim for any loss thereunder by the employer, should be taken and held as a covenant on its part, "consenting and agreeing to all the terms, provisions, and conditions herein contained," and that the employer would make frequent audits and examinations. The eighteenth was also upon the subject of audits, but referred only to a case where the employé was acting for more than one principal.
The amount of the bond was fixed at $40,000.
There was a rider attached in the following language:
"There shall be no liability on this bond in respect of any loss except such as may grow out of the issuing of fraudulent warehouse receipts, and it is specifically conditioned by the surety that the only warehouse receipts referred to are such as may be signed by the employé as warehouseman in conjunction with an officer of the employer; that there shall not be outstanding at any one time more than forty thousand dollars ($40,000.00), face value, of such receipts, and only those of such receipts are referred to and covered hereby as shall be pledged with the Fourth National Bank of Nashville, Tenn., as collateral in the regular course of business of said bank."
The bond was signed by Joseph H. Weaver and the National Surety Company. The rider was signed by the National Surety Company only.
The other provisions of the bond have no bearing on the present litigation.
In order to a proper understanding of the controversy, it is necessary to state that Kendrick-Roan Grain & Elevator Company (hereinafter called the Kendrick Company) had obtained a line of credit covering $20,000 with the Fourth National Bank, on a bond executed on the 1st of February, 1909. This bond had a rider expressed in the same language, except only as to the amount involved. The origin of that bond was this: The Kendrick Company was engaged in buying and selling grain, and had borrowed, from time to time, large sums of money from the bank on in-coming grain, covered by bills of lading, on the difference between the value at which the grain had been purchased and its value in the Nashville market; the bank holding the bills of lading as security for such value, in addition to the sums paid to the consignors. The Kendrick Company, desiring to use as a basis of credit the grains which they had purchased, and desiring to change their former method of business from dealing through the ordinary public bonded warehouses, conceived the thought of building a warehouse of their own, and installing therein a bonded superintendent for the purpose of enabling them to use, through the medium of warehouse receipts as a basis of credit, the grain which they might hold in store. The bank agreed to handle these warehouse receipts on condition that it should be secured by a rider in the form appearing at the foot of the foregoing bond. In its letter to the agent of the surety company the bank explained its purpose, and what was meant by the word "fraudulent," in the following language: "In explanation of the situation, I would state that it is not the desire or purpose of the grain dealers referred to do a general warehouse business, and issue negotiable receipts to such parties as may wish to store grain with them, and the object desired to be accomplished is that they may be in a position to handle their own receipts with this bank, to be pledged against money borrowed." The letter then sketches the substance of the rider with expressions of opinion as to the smallness of the risk which the surety company would thereby assume, and continues:
The $20,000 bond with its rider was executed; the language of that bond being, as already stated, the same as the present bond, save the difference in the amounts.
Subsequently the Kendrick Company desired to increase its line of credit available by warehouse receipts to the extent of $40,000, and the bond sued on was accordingly executed, and, as perceived from our summary of the bond, it was made to cover the period from 22d of January, 1909, to 22d of January, 1910, antedating the prior bond.
While the $20,000 bond was in force, and before the execution of the bond sued on, $30,000 was borrowed on the warehouse receipts, the remaining $10,000 of the whole $40,000 having been borrowed after the execution of the present bond; but this bond reached back, as shown in the last paragraph, so as to embrace the period of both bonds, and to cover the whole sum. It is insisted that the defendant surety company was deceived as to the existence of this $10,000 in excess of the $20,000 bond; but there is nothing in the record to show such fact. The sums borrowed were as follows:
"February 1, 1909, $4,000, with warehouse receipt as collateral calling for 10,000 bushels No. 3 white oats; February 2, 1909, $4,000, with warehouse receipt as collateral calling for 10,000 bushels No. 2 white oats; February 2, 1909, $6,000, with warehouse receipt as collateral calling for 10,000 bushels No. 2 mixed corn; February 2, 1909, $5,000, with warehouse receipt as collateral calling for 8,500...
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