Nat'l Sur. Co. v. State ex rel. Rathbun , 12830.

• Decision Date: 29 March 1928
• Docket Number: No. 12830.,12830.
• Citation: 90 Ind.App. 205,161 N.E. 573
• Parties: NATIONAL SURETY CO. v. STATE ex rel. RATHBUN.
• Court: Indiana Appellate Court

90 Ind.App. 205

161 N.E. 573

NATIONAL SURETY CO.

v.STATE ex rel. RATHBUN.

No. 12830.

Appellate Court of Indiana, in Banc.

March 29, 1928.

Appeal from Circuit Court, Newton County; George A. Williams, Judge.

Action by the State of Indiana, on the relation of James D. Rathbun, receiver of the Discount & Deposit State Bank of Kentland, Ind., against the National Surety Company. Judgment for plaintiff, and defendant appeals. Affirmed.

Moses B. Lairy, Frederick Van Nuys, Edward E. Gates, George M. Barnard, Julian C. Ralston, and Raymond L. Walker, all of Indianapolis, for appellant.

Donald Fraser, Wm. H. Isham, and Wm. S. Isham, all of Fowler, Chas. H. Stuart, Allison E. Stuart, and Dan W. Simms, all of Lafayette, for appellee.

THOMPSON, J.

This was an action by appellee to recover from appellant on a surety bond executed by Warren T. McCray, as principal, and the National Surety Company, as surety, conditioned that said McCray faithfully discharge his duties as president of the Discount & Deposit State Bank of Kentland, Ind.

The amended complaint alleged, in substance, that Warren T. McCray, while president of said bank, discounted at said bank three notes, one in the name of the Warren T. McCray Realty Company for $15,000, another in the name of the Orchard Lake Stock Farm for $15,000, and another in the name of the McCray Grain Company for $10,000, each note being payable to Warren T. McCray; that said companies had no existence in fact, and that said notes were in reality notes of said Warren T. McCray and were of no value; that said McCray, at the time the notes were discounted, was wholly insolvent, and that said notes were known by McCray to be of no value; that in violation of the rules of said bank said notes were discounted without first submitting them to and securing the approval in writing of three other directors of the bank; that said sums of money, totaling $40,000, were abstracted from the funds of said bank by said McCray while he was acting as president thereof, and that none of said money had been repaid. A copy of the bond, marked Exhibit A, was attached to and made a part of the complaint.

Appellant answered the amended complaint by a general denial and by affirmative second, third, and fourth paragraphs. The second paragraph, in answer to that part of the amended complaint which alleged liability for the loss on the two $15,000 notes discounted on or about July 6, 1922, admitted the execution of the bond sued on, conditioned on the honest and faithful performance by Warren T. McCray of his duties as president of said bank, but alleged that the bond was executed as surety for Warren T. McCray and not otherwise; that said bond contained the following condition: “The employer shall give written notice to the surety by registered mail directed to the home office of the surety in the city of New York, state of New York, of any loss within 20 days after discovery of the same by the employer, caused by the acts of the employee, and after the discovery of actual loss, the liability of the surety shall terminate as to any further acts of the employee;” that the $10,000 note of the McCray Grain Company was discounted by said bank on October 27, 1919, approved by the directors at their next meeting, and thereafter renewed at various intervals until the bank closed on October 13, 1923; that the directors of said bank knew, long before the two $15,000 notes were discounted, that the $10,000 note of the McCray Grain Company was worthless, and that had appellant been given the 20 days' notice provided for in the bond, they would have canceled said bond and thus escaped liability on the two $15,000 notes.

The third paragraph of answer averred:

That said bond sued on contained the following condition:

“That if there is a violation of the conditions of this bond upon the part of the employee and a loss occurs to the employer, such loss must be discovered and suit filed to recover the same against this surety within 6 months after the expiration of this bond and within 6 months after death, dismissal, or retirement of the employee herein from the service of the employer, provided such death, dismissal, or retirement occur within the term of this bond, and provided that the employer shall upon request of the surety, made within 10 days after the notice of loss has been given, furnish to the surety within 60 days, a full itemized statement of the loss discovered, such statement to be verified under oath of the employer or an officer or agent of the employer showing:

(a) Detailed statement in gross of money, securities, or property lost, with description and value thereof.

(b) Specific items and amounts of loss with dates thereof if known, claimed under this bond.

(c) The date of discovery of such losses.

(d) The amount and description of any other suretyship or security, if any, against loss by said employee, with names, residences and places of business of any other indemnitors or sureties.

(e) The sums and credits due said employee from the employer for salary or otherwise, and the amount, if any, recovered, received, claimed, or to be claimed from others by reason of such loss.

(f) The date when the employee retires or was dismissed from the employer's service, or, if the employee is dead, the date of his death; and the surety shall have 90 days after receiving such itemized statements in which to investigate and pay said loss before suit.”

That Warren T. McCray retired from the office of president of said bank on August 21, 1923, and was not employed by said bank thereafter; that said retirement occurred within the last continuance of the bond, and that no notice was given appellant of said loss, nor was suit brought to recover against the surety within six months after McCray's retirement from the presidency of said bank; that a receiver was appointed for said bank on October 13, 1923, and this suit was not commenced by him until October 13, 1924; that because of the failure of the officers of the bank to give notice of said losses within 20 days after each of them occurred, appellant was prevented from requesting of and receiving from said bank an itemized statement as to said losses as contemplated by the provisions of condition number three of said bond above set out, and appellant was thereby deprived of its right and opportunity to verify said alleged losses and to obtain from the principal obligor on said bond such payment or security as it might otherwise have obtained to indemnify it against the several losses specified in the amended complaint; that the time limit in the contract, in which suit may be brought thereunder against the surety, expired before the action was brought, and appellee should not be permitted to recover as to any of the claims alleged in the amended complaint.

The fourth paragraph of answer alleged:

That the bond sued on contained the following further condition:

“That the surety shall not be liable for any error of judgment or injudicious exercise of discretion on the part of the employee or for any loss which may be sustained by the employer by reason of any act done or left undone by following the customary course of business or usage of the employer, or in obedience to the direction, instruction, or authorization of the president, vice president, or other officer, or board of directors.”

That all of the notes described in the amended complaint were discounted by said bank and approved by the directors of said bank in the customary course of the bank's business.

Appellee filed a reply specifically denying the allegations of the second, third, and fourth paragraphs of answer, and also alleging that the provisions and limitations of the bond sued on were contrary to and in violation of the statute providing for the execution of said bond.

After the conclusion of the evidence, both appellant and appellee tendered instructions and filed interrogatories. There was a verdict in favor of appellee for $5,387.50, with interest and costs. Appellant's motion for a new trial was overruled, to which ruling of the court appellant excepted, and judgment was rendered on said verdict.

The error assigned is the action of the court in overruling appellant's motion for a new trial.

Appellant, in its...