Maryland Casualty Co. v. Norville

• Decision Date: 09 December 1935
• Docket Number: No. 1256.,1256.
• Citation: Maryland Casualty Co. v. Norville, 80 F.2d 438 (10th Cir. 1935)
• Parties: MARYLAND CASUALTY CO. v. NORVILLE.
• Court: U.S. Court of Appeals — Tenth Circuit

80 F.2d 438 (1935)

MARYLAND CASUALTY CO. v. NORVILLE.

No. 1256.

Circuit Court of Appeals, Tenth Circuit.

December 9, 1935.

Charles M. Morris and Louis H. Callister, both of Salt Lake City, Utah (Edward R. Callister, of Salt Lake City, Utah, on the brief), for appellant.

Ralph T. Stewart, of Salt Lake City, Utah (C. W. Wilkins, Samuel J. Carter, and Emerson B. Thatcher, all of Salt Lake City, Utah, on the brief), for appellee.

Before PHILLIPS, McDERMOTT, and BRATTON, Circuit Judges.

BRATTON, Circuit Judge.

This is an action to recover on a fidelity bond. Plaintiff resided in Salt Lake City, Utah, at the times which are material here and was engaged in the automobile business there. In April, 1933, he and J. R. Steele, also a resident of that city, entered into a written contract in which Steele was employed to purchase automobiles for plaintiff in eastern centers and providing that plaintiff would advance the money necessary to that end; that Steele would take title to the purchased automobiles in the name of plaintiff, immediately forward the original invoices and title papers to plaintiff by air mail, and transport the automobiles to Salt Lake City; that plaintiff would then have the option to accept or reject them; that upon acceptance he would pay Steele a commission of $50 on each car; that upon rejection Steele would sell the car outside of Salt Lake City and reimburse plaintiff for the money advanced with which to purchase it; and that Steele would furnish a fidelity bond in the sum of $7,500 to indemnify plaintiff against fraud, dishonesty, forgery, embezzlement, wrongful abstraction, or willful misapplication of the money and property intrusted to him under the terms of the agreement.

Application was made to defendant to issue the bond. Defendant submitted a questionnaire to plaintiff respecting the proposed employment and it was duly answered, signed, and returned. The answers described the nature of the employment, the manner of compensating the agent, and reference was made to the contract. It was further stated that at times the agent would probably have as much as $7,500 in cash in his custody and might retain control of it indefinitely; that he would be authorized to disburse it; that he would be permitted to retain balances left on hand and would not be required to deposit them in a bank; that he would be authorized to handle bills of lading covering the automobiles; that he would not be authorized to sign or indorse checks on behalf of plaintiff; that plaintiff would inspect, audit, and verify his books, accounts, stock, and securities at least once in each period of fifteen days; and that he was not then indebted to plaintiff. It was expressly provided therein that the answers made were warranties and that they constituted the basis and formed a part of the consideration for the bond. Upon return of the signed application and after an agent of defendant had examined a copy of the contract, the bond in suit was executed.

Steele went to Detroit, purchased automobiles with the money advanced under the terms of the contract, transported them to Salt Lake City in caravans from time to time, and delivered them to plaintiff. He sometimes accompanied them and he sometimes sent them by others. Plaintiff made several advancements of money. At first he sent it directly to Steele at Detroit by telegraphic transmission. Steele originally kept it in his possession, but he later opened an account in his name in the Detroit Savings Bank. Plaintiff and Steele subsequently directed the bank to change the account to that of Norville Motor Company and authorized payment of checks signed by Steele; and after July 7th plaintiff forwarded the advancements to the bank for deposit in that account. In September Steele withdrew $4,783.50 from the account and absconded with it together with a truck valued at $600 which he purchased and delivered to plaintiff under the contract and which plaintiff subsequently lent to him to be driven to Detroit and return.

Plaintiff alleged the defalcations, due submission of claim, demand for payment, and its refusal. The defense was nonfulfillment of conditions of the bond. The case was tried to a jury and a verdict was returned for plaintiff. Judgment was entered upon it and this appeal followed.

The question of compliance with the covenants contained in the application was submitted to the jury, the court instructing that there could be no recovery unless plaintiff had fulfilled the statements made therein. The manner in which that issue was submitted is not challenged, but reversal of the judgment is sought on the ground that a verdict for defendant should have been directed because the undisputed testimony shows that plaintiff failed to audit the accounts, books, and records of the agent once in each period of fifteen days. The application furnished stated that plaintiff would make such audits, and all answers were expressly made warranties. A warranty made in connection with an application for fidelity insurance is either affirmative or promissory. An affirmative warranty vouches that a fact exists at the time the policy becomes effective, while a promissory warrant provides that some act will be done or withheld after the effective date of the policy. Sentinel Life Ins. Co. v. Blackmer (C.C. A.) 77 F.(2d) 347. Performance of a promissory warranty is a condition precedent to the right of recovery and its absence exonerates the insurer from liability regardless of whether it is prejudicial....