Montana Auto Finance Corp. v. Federal Sur. Co.

• Decision Date: 06 June 1929
• Docket Number: 6444.
• Citation: 278 P. 116,85 Mont. 149
• Parties: MONTANA AUTO FINANCE CORPORATION v. FEDERAL SURETY CO.
• Court: Montana Supreme Court

278 P. 116

85 Mont. 149

MONTANA AUTO FINANCE CORPORATION v. FEDERAL SURETY CO.

No. 6444.

Supreme Court of Montana

June 6, 1929

Appeal from District Court, Cascade County; W. H. Meigs, Judge.

Action by the Montana Auto Finance Corporation against the Federal Surety Company. Judgment for plaintiff, and defendant appeals. Affirmed.

Warren Toole and O. B. Kotz, both of Great Falls, for appellant.

Hurd Hall & McCabe, of Great Falls, for respondent.

FORD J.

Samuel M. Weekes was employed by plaintiff as its secretary and treasurer. Defendant, by its bond duly executed and delivered, on June 12, 1923, undertook to reimburse plaintiff "for such pecuniary loss as the employer [plaintiff] shall sustain of money, * * * belonging to the employer for which the employer is responsible, amounting to any act or acts of larceny or embezzlement on the part of the employé," etc. The bond was effective for one year. On June 10, 1924, in consideration of an additional premium, it was renewed and extended until June 20, 1925.

This action was brought to recover on the bond for loss sustained by plaintiff through the acts of the employé, Weekes, named in the bond. By stipulation of counsel a trial by jury was waived and the cause referred to Loy J. Mollumby, as referee to hear the evidence and report to the court his findings of fact. The referee made and filed findings of fact in favor of plaintiff; judgment was entered thereon, and defendant appeals.

It appears from the pleadings and the evidence that for several years prior to June 12, 1923, Weekes was employed by plaintiff, first as secretary, and later as secretary and treasurer. In his capacity as such officer he had general supervision of its business, collected money due it, and disbursed moneys due others from it, and had general supervision and control of the books and accounts of the company. On June 9, 1921, plaintiff made and entered into a contract with Weekes, under the terms of which the latter was engaged to sell all unsold treasury stock of plaintiff. It was provided: "The said stock shall be sold at the rate of one hundred twenty-five dollars per share, and party of the second part [Weekes] shall be entitled to a commission on the sale of such stock, on the basis of 20% of the par value of such stock, payment to be made only when the cash for any such sales has been actually paid in. The commission to be paid only on the amount of cash paid into the treasury from each single transaction." This agreement remained in force during the period covered by the bond and its extension.

Between June 10, 1923, and March 3, 1925, Weekes sold a large amount of capital stock of plaintiff, taking the purchasers' notes. Entries of such sales were made in the books, and against each sale entries were made showing him entitled to commissions. Weekes then withdrew, on checks of plaintiff the moneys shown by the books to be due as commissions, and converted the same to his own use. The total amount so taken and converted exceeded the sum of $29,000. The evidence tends to show that the sales were fictitious and the notes forgeries. The officers and directors of plaintiff corporation had no knowledge or information that Weekes was charging and collecting commissions on such sales until shortly before his discharge in April, 1925.

It is contended by defendant that the act or acts of Weekes did not amount to larceny or embezzlement.

"The universal rule is that in construing the bond of a surety company, acting for compensation, the contract is construed most strongly against the surety, and in favor of the indemnity which the obligee has reasonable grounds to expect. Such contracts are generally regarded as contracts of insurance, and are construed most strictly against the surety. Note to the case of Royal Indemnity Co. v. Northern Granite & S. Co., 12 A. L. R. 382; 21 R. C. L., p. 1160." State v. American Surety Co., 78 Mont. 504, 255 P. 1063. And it is not necessary, in order for plaintiff to recover on the bond, that it introduce such proof as would convict Weekes of the crime of larceny or embezzlement, as defined in the criminal law. Green v. United States F. & G. Co., 135 Tenn. 117, 185 S.W. 726; Goldman v. Fidelity Co., 125 Wis. 390, 104 N.W. 80; National Surety Co. v. Williams, 74 Fla. 446, 77 So. 212; Delaware State Bank v. Colton, 102 Kan. 365, 170 P. 992; City Trust Co. v. Lee, 204 Ill. 69, 68 N. E. 485; 25 C.J. 1094; 6 Cooley's Briefs on Insurance, 5654. The parties were not contracting on the basis of an enforcement of the criminal laws; if only indemnity for losses suffered by reason of technical larceny or embezzlement had been intended, that purpose could have been expressed clearly and in no uncertain terms. Delaware State Bank v. Colton, supra; Dubiske & Co. v. American Surety Co., 220 A.D. 524, 221 N.Y.S. 619; Dexter-Horton Bank v. United States F. & G. Co. (Wash.) 270 P. 799.

Section 11368, Revised Codes 1921, provides: "Every person who, with the intent to deprive or defraud the true owner of his property, or of the use and benefit thereof, or to appropriate the same to the use of the taker, or of any other person either-1. Takes from the possession of the true owner, or of any other person; or obtains from such possession by color or aid of fraudulent or false representation or pretense, or of any false token or writing, or secretes, withholds, or appropriates to his own use, or that of any other person other than the true owner, any money, * * * or, 2. * * * is guilty of larceny." The scheme devised and used by Weekes was clearly fraudulent, and by means thereof he obtained from plaintiff its money, and appropriated the same to his own use. Under the terms of the bond, defendant undertook to reimburse plaintiff for any pecuniary loss which it might sustain by reason of acts of Weekes, in connection with the duties and obligations of his position, amounting to larceny or embezzlement. In fraudulently obtaining plaintiff's money and appropriating the same to his own use, he violated his duty to plaintiff, which amounted to "larceny or embezzlement" within the meaning of section 11368, supra, and his act or acts constituted a manifest breach of defendant's bond.

But it argued that the books of account disclosed the transactions; that the officers of plaintiff were chargeable with knowledge of the contents of the books of the company; and that the officers and directors will be deemed to have acquiesced in, and approved, the conduct of Weekes. There is not any evidence to justify such a conclusion. While it is true the books of account did show the various transactions, it is also true that Weekes had manipulated the accounts in such a manner that for a long period of time even a certified public accountant was not able to discover the shortage, and the officers testified that they would not have been able to discover the true condition by an examination of the books, and that they had no knowledge of the conditions.

It is next contended that the bond and its renewal constituted separate and distinct contracts for the period covered by each. This question is not necessary to be passed upon. The uncontradicted evidence shows that, during the period covered by each of the instruments, Weekes misappropriated amounts in excess of the penal sum named in the bond.

Counsel for defendant contend that the requisite notice was not given by plaintiff to defendant, and the itemized claim of loss was not filed within the time provided in the bond.

The bond provides that the employer shall at the earliest practicable moment, and not more than five days after becoming aware of any act or omission which may become the basis of a claim, notify the home office, and within three months after such discovery file with the home office an itemized statement of the claim sworn to by the employer. Such a condition in a bond is a condition precedent, and failure to comply therewith will bar recovery under the bond, unless the condition has been waived by the company. La Bonte v. Mutual Fire Ins. Co., 75 Mont. 1, 241 P. 631; Careve v. Ph nix Ins. Co., 67 Mont. 236, 215 P. 235; Tuttle v. Pacific Mut. Life Ins. Co., 58 Mont. 121, 190 P. 993, 16 A. L. R. 601. That the insurer may waive this condition is settled beyond question in this jurisdiction. La Bonte v. Mutual Fire Ins. Co., supra. Counsel concede this to be the rule in this state, but insist that plaintiff failed to plead waiver. With this we cannot agree.

Section 8145, Revised Codes 1921, provides: "Delay in the presentation to an insurer of notice or proof of loss is waived, * * * if he omits to make objection promptly and specifically upon that ground." The complaint alleges that plaintiff notified defendant within five days after discovering Weekes' defalcations, and within three months thereafter filed an itemized statement of claim and proof of loss, sworn to by plaintiff, and "that said defendant has at no time made objection to said claim or the sufficiency thereof, nor demanded further proof, and has at all times, since on or about the said 3rd day of July, 1925 retained said claim without objection or exception thereto." We think these allegations are sufficient. Miglier v. Ph nix Ins. Co., 102 Misc. 461, 169 N.Y.S. 45; Glazer v. Home Ins. Co., 190 N.Y. 6, 82 N.E. 727; Bank v. Home Ins. Co., 14 Cal.App. 208, 111 P. 507. It has been held that a delay in furnishing proofs as well as any other defect may be waived by the failure of the insurer to object. Ames v. Minneapolis Fire & Marine Ins. Co., 69 Mont. 177, 220 P. 747; Ramsey v. General Accident Ins. Co., 160 Mo.App. 236, 142 S.W. 763; St. Paul Fire & Marine Ins. Co. v. Griffin, 33 Okl. 178, 124 P. 300; Breeden v. Ætna Life Ins. Co., 23 S.D. 417, 122 N.W. 348; 7 Cooley's...