MADISON COUNTY FARM. ASS'N v. American Emp. Ins. Co., 14890.

• Decision Date: 26 January 1954
• Docket Number: No. 14890.,14890.
• Citation: 209 F.2d 581
• Parties: MADISON COUNTY FARMERS ASS'N v. AMERICAN EMPLOYERS' INS. CO.
• Court: U.S. Court of Appeals — Eighth Circuit

209 F.2d 581 (1954)

MADISON COUNTY FARMERS ASS'N v. AMERICAN EMPLOYERS' INS. CO.

No. 14890.

United States Court of Appeals, Eighth Circuit.

January 26, 1954.

J. H. Evans, Booneville, Ark. (Robert R. Cress, Huntsville, Ark., on the brief), for appellant.

J. S. Daily, Fort Smith, Ark. (Harry P. Daily and John P. Woods, Fort Smith, Ark., on the brief), for appellee.

Before GARDNER, Chief Judge, and THOMAS and COLLET, Circuit Judges.

GARDNER, Chief Judge.

This was an action brought by appellant against appellee to recover for the alleged breach of a bond. The parties will be referred to as they were designated in the trial court. The basis of the jurisdiction of the federal court is diversity of citizenship, the requisite jurisdictional amount being involved. In addition to alleging the facts requisite to confer jurisdiction on the federal court, plaintiff in substance alleged in its complaint that during the period between and including August 17, 1951 and June 28, 1952, the plaintiff was engaged in the business of selling feed, seed, fertilizer and other farm supplies to persons in Madison County, Arkansas, and in the course of such business necessarily employed a manager whose duty it was, among other things, to collect on plaintiff's account and to safely hold for plaintiff, moneys due plaintiff from the sales made in due course of plaintiff's business as described above; that on the 17th day of August, 1951, plaintiff, having in its employ a certain manager named Kelley Ottis Hill, made application to defendant for its bond of indemnity, and thereupon defendant for the consideration named therein, made and delivered to plaintiff a bond, a copy of which was attached to the complaint, marked Plaintiff's Exhibit "A" for identification and made a part thereof as though set out therein word for word; that between the 18th day of August, 1951, and the 28th day of June, 1952, inclusive, and while said bond was in full force, the said Kelley Ottis Hill, having in his custody and under his control money in excess of $5,000.00, which had been received by him or by other employees under his supervision as such manager of plaintiff's business, to the use of the plaintiff, wrongfully converted the same to his own use and has not accounted for the same to plaintiff though an account therefor has been duly demanded of him, all of which has resulted in damage to the plaintiff in excess of $5,000.00; that said bond was dated August 17, 1951, and was in effect for a period of one year; that plaintiff paid as consideration for said bond the sum of $25.00; that the terms of said bond were such that because of the dishonesty of Kelley Ottis Hill defendant should pay to plaintiff the sum of $5,000.00; that plaintiff has in all ways performed all the conditions of said bond on its part to be performed and has fully demanded payment from defendant of the said sum of $5,000.00, but that same has not been paid, nor any part thereof. Defendant by its answer admitted execution of the bond but denied the allegations with reference to the alleged acts of conversion by plaintiff's employee, Kelley Ottis Hill. By an amended answer it alleged that on April 11, 1953, it served on the plaintiff a notice in writing demanding that plaintiff forthwith commence suit against Kelley Ottis Hill, the principal debtor and other party liable to the plaintiff under bond F-101623 of this defendant, for any defalcations which plaintiff alleged to have occurred under said bond in its complaint filed against the defendant, and pursuant to Ark.Stats.1947, Section 34-333; that plaintiff is a corporation organized under the laws of the State of Arkansas with its principal place of business located in Madison County, Arkansas and that "the said Kelley Ottis Hill is a citizen and resident of Madison County, Arkansas, and has continuously resided in Madison County, Arkansas, from the date of the filing of this action to the present. That plaintiff has failed and refused for more than thirty days following the service of said notice in writing to commence suit against Kelley Ottis Hill in any court, and plaintiff's failure so to do, and to comply with said notice, has exonerated this defendant from liability to the plaintiff under said bond pursuant to the provisions of Ark. Stats.1947, Section 34-334."

The bond contained provision among others that "The American Employers' Insurance Company (hereinafter called Surety), in consideration of an agreed premium, binds itself to pay to Madison County Farm Association, Huntsville, Arkansas, (hereinafter called Employer), the amount of any pecuniary loss which any Employee named in the schedule hereto attached or added thereto as hereinafter provided, may, while in any position and at any location in the service of the Employer, alone or in collusion with others, cause to the Employer, not exceeding however, the amount set opposite the name of such Employee, through any act of fraud, dishonesty, forgery, theft, larceny, embezzlement, misappropriation, wrongful abstraction or wilful misapplication committed during the one year term commencing on the 17th day of August, 1951, at noon * * *." The bond specifically covered Kelley Ottis Hill, manager, in the amount of $5,000.00.

Subsequent to filing its amended answer defendant filed its motion for summary judgment and in support thereof filed an affidavit showing that the notice referred to in its amended answer requiring plaintiff to commence suit against Kelley Ottis Hill for any defalcations which plaintiff alleged to have occurred under said bond, had been duly served more than thirty days prior to the filing of its said motion and that plaintiff had not commenced any such action.

On consideration of defendant's motion and the briefs of counsel for the respective parties in support and in opposition thereto, the court granted the motion and entered judgment dismissing plaintiff's complaint. From the judgment so entered plaintiff prosecutes this appeal seeking reversal on substantially the following ground: That the court erred in holding as a matter of law that defendant was exonerated from liability because of the failure of the plaintiff to comply with the statutes of Arkansas requiring that "Any person bound as security for another in any bond, bill or note, for the payment of money or the delivery of property, may at any time after action hath accrued thereon, by notice in writing, require the person having such right of action, forthwith to commence suit against the principal debtor, and other party liable." Section 34-333, Ark.Stats.1947. "If such suit be not commenced within thirty (30) days after the service of such notice, and proceeded in with due diligence in the ordinary course of law, to judgment and execution, such surety shall be exonerated from liability to the person notified." Section 34-334, Ark.Stats.1947.

Counsel for plaintiff in their brief assert that the only question involved on this appeal is whether the appellee under the contract sued upon by appellant is a surety within the meaning of Ark. Stats.1947, Sections 34-333 and 34-334. It is conceded that if the defendant is a surety then the above quoted statutes are applicable and the court committed no error in entering judgment dismissing plaintiff's action. It is the contention of plaintiff that the bond sued upon is simply a fidelity bond and as such is an insurance contract rather than a suretyship contract. In Restatement of the Law, "Security", Section 82, suretyship is defined as follows:

"Suretyship is the relation which exists where one person has undertaken an obligation and another person is also under an obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound, one rather than the other should perform."

In elucidation of this definition appears the following example:

"A corporation contracts with the promisee to

...