Madison County Farmers Ass'n v. American Emp. Ins. Co.

• Decision Date: 28 May 1953
• Docket Number: Civ. No. 1077.
• Citation: Madison County Farmers Ass'n v. American Emp. Ins. Co., 112 F. Supp. 753 (W.D. Ark. 1953)
• Parties: MADISON COUNTY FARMERS ASS'N v. AMERICAN EMPLOYERS' INS. CO.
• Court: U.S. District Court — Western District of Arkansas

112 F. Supp. 753

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

Civ. No. 1077.

United States District Court W. D. Arkansas, Fort Smith Division.

May 28, 1953.

Robert R. Cress, Huntsville, Ark., for plaintiff.

Daily & Woods, Fort Smith, Ark., for defendant.

JOHN E. MILLER, District Judge.

The defendant has filed a motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A. The motion is based upon:

(1) The complaint,

(2) The answer,

(3) The amendment to the answer,

(4) Affidavit of J. S. Daily attached to the motion and exhibits thereto,

(5) The certificate of the Clerk of the Circuit Court of Madison County, Arkansas, and

(6) The certificate of the Clerk of the Chancery Court of Madison County, Arkansas.

The facts on which the motion is based are not in dispute and the question before the court is one of law.

The facts as shown by the record are as follows:

The plaintiff is a corporation organized under the laws of Arkansas with its principal place of business in Madison County. The defendant is a corporation organized and existing under the laws of the Commonwealth of Massachusetts with its principal place of business in the City of Boston and is licensed to transact business in the State of Arkansas.

The plaintiff, between August 17, 1951, and June 28, 1952, was engaged in the business of selling feed, seed, fertilizer and other farm supplies in Madison County, Arkansas, and in the course of such business employed Kelley Ottis Hill as its manager, whose duty it was to collect on plaintiff's account and to safely hold for plaintiff moneys due from the sales made in the due course of plaintiff's business.

On August 17, 1951, the defendant, for the consideration of $25 paid by plaintiff, executed and delivered to plaintiff a bond, a copy of which is attached to plaintiff's complaint as Exhibit "A".

The bond provides:

"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 further provides that the total liability shall not exceed the largest single amount effective as to any position held by such employee.

Other provisions in the bond prescribe the procedure to be followed by the obligee in the event of a loss on account of the acts of the employees. The bond specifically applies to Kelley Ottis Hill, Manager, in the amount of $5,000, and the consideration paid by the obligee to the defendant was $25.

The complaint further alleges that the said Kelley Ottis Hill had in his custody and under his control as Manager for plaintiff money in excess of $5,000 which he had received as such Manager for the use and benefit of the plaintiff and that he, the said Hill, wrongfully converted the same to his own use and has not accounted to the plaintiff for such amount.

The plaintiff prays judgment against the defendant for the face amount of the bond of $5,000 because of the alleged dishonesty of the said Kelley Ottis Hill.

In due time the cause was removed to this court on the ground of diversity of citizenship of the parties.

After removal, the defendant filed its answer in which it admitted all of the allegations of the complaint except that it denied that Kelley Ottis Hill was guilty of dishonesty as Manager for plaintiff and denied that it was indebted to the plaintiff in the sum of $5,000 or any other sum.

On May 12, 1953, the defendant was granted permission to file an amendment to its answer in which it realleged the allegations in its original answer and alleged:

"Further answering the defendant states that on April 11, 1953, it served on the plaintiff a notice in writing demanding the plaintiff to 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 defalcation which plaintiff alleges 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. 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. The plaintiff has failed and refused for more than 30 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 motion for summary judgment hereinbefore referred to was filed by defendant on May 13, 1953. Attached to the motion is the Affidavit of J. S. Daily, one of the attorneys for defendant, in which he states that the notice referred to in the amendment to the answer was sent by registered mail to Mr. Virgil Hatfield, President, and Mr. E. R. Jones, Secretary of Madison County Farmers Association, Huntsville, Arkansas, and that a similar notice was sent by registered mail to Mr. Robert R. Cress, Attorney of Record for plaintiff. Attached to the Affidavit as Exhibit "A" is a copy of the notice and registry return receipts showing receipt of the notice by the President and Secretary of plaintiff and by the attorney on April 11, 1953. Also attached to the Affidavit as Exhibit "B" is a letter written by the said Robert R. Cress, attorney, and addressed to the attorneys for defendant. The letter is dated April 11, 1953, and acknowledges receipt of the notice demanding that suit be commenced against the said Kelley Ottis Hill.

Also attached to the Affidavit is the certificate of the Circuit Court Clerk of Madison County and the certificate of the Chancery Court Clerk of Madison County, Arkansas, certifying that no complaint or action of any kind had been filed on May 12, 1953, in either of the courts by the plaintiff herein against Kelley Ottis Hill.

Notice of the filing of the motion for summary judgment was served on the date of its filing, May 13, 1953, and the plaintiff and its attorney were notified that the motion would be presented to the court at 9 a. m. on May 25, 1953, or as soon thereafter as the parties might be heard. However, the court directed that hearing on the motion be had in accordance with Local Rule No. 8, and the defendant filed its memorandum of authorities in support of the motion on the same date, May 13, 1953. On May 23, 1953, the plaintiff responded to the motion by filing its memorandum brief and statement of reasons and citation of authorities in opposition to the motion. On May 26 the defendant filed its reply to plaintiff's brief, and the motion is now before the court on the record and the briefs submitted by the attorneys for the respective parties.

Section 34-333, Ark.Stats.1947, provides:

"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 34-334, supra, provides:

"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."

The notice as provided by the statute was given by the defendant to the plaintiff and the plaintiff refused for more than thirty days to commence a suit against Kelley Ottis Hill and, therefore, the defendant contends that it is exonerated from all liability on the bond. In its original brief in support of the motion, the defendant cites the statutes above set forth and the cases of Arkadelphia Milling Co. v. Goddard, 176 Ark. 958, 4 S.W.2d 923, and Donahue v. Arkadelphia Milling Co., 179 Ark. 409, 16 S.W.2d 569.

The plaintiff contends:

"(1) The bond executed by defendant herein and breach of which is the basis of this action is a bond given to secure the performance of a trust or the duties of an office and thus is excepted from the provisions of Ark. Stat.1947, Sections 34-333 and 34-334, by the provisions of Ark.Stat.1947, Section 34-335;

"(2) Ark.Stat.1947, Sections 34-333 and 34-334, are not applicable to the bond in issue here because those sections of our code pertain to suretyship only and the bond in issue here is a contract of insurance and not of suretyship;

"(3) The bond in issue here being a contract of insurance, it should be strictly interpreted so as not to allow a forfeiture if a reasonable interpretation could possibly have that effect;

"(4) A reasonable interpretation of the bond in issue is that said bond is an insurance policy given to secure the performance of a trust or the duties of an office, thus, even if the Statutes of Arkansas cited herein were applicable to insurance contracts, the defendant should not be exonerated and a forfeiture should not be allowed because Section 34-335 of our code excepts the obligors of this

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