National Surety Co. v. McCutcheon

• Decision Date: 31 January 1925
• Docket Number: (No. 10932.)<SMALL><SUP>*</SUP></SMALL&gt
• Parties: NATIONAL SURETY CO. v. McCUTCHEON et al.
• Court: Texas Court of Appeals

270 S.W. 1062

NATIONAL SURETY CO. v. McCUTCHEON et al.

(No. 10932.)^*

Court of Civil Appeals of Texas. Fort Worth.

January 31, 1925.

Rehearing Denied March 7, 1925.

Appeal from District Court, Wichita County; P. A. Martin, Judge.

Action by C. E. McCutcheon and another against the National Surety Company and another. Judgment for plaintiffs, and named defendant appeals. Affirmed.

Beall, Worsham, Rollins, Ryburn & Ryburn, of Dallas, for appellant.

Carrigan, Montgomery, Britain, Morgan & King, of Wichita Falls, for appellees.

CONNER, C. J.

In 1921, one Jack Price was acting as agent for a number of insurance companies doing business in the city of Wichita Falls, Tex., among which was the Bankers' & Shippers' Insurance Company of New York. Price, as principal, and the appellees herein, McCutcheon & McGregor, executed a bond payable to said insurance company securing performance on the part of Price of all his duties as agent and the faithful and full payment of all premiums collected by him for his principal. Concurrently with the execution of this bond, Price and the appellant in this case, the National Surety Company, entered into a bond payable to McCutcheon & McGregor, indemnifying them against loss by reason of having executed the agency bond of Price to the Bankers' & Shippers' Insurance Company.

This suit was instituted by McCutcheon & McGregor against the National Surety Company, setting out the foregoing facts and alleging that Price, as agent, had collected the sum of $1,648.74 as premiums due his principal, the Bankers' & Shippers' Insurance Company, for which he had failed to account, and which he had wrongfully appropriated to his own use, and that by reason of such default and wrongful conversion McCutcheon & McGregor had been compelled in fulfillment of the terms of the indemnifying bond executed by Price and McCutcheon & McGregor to said insurance company, to pay and had paid to said insurance company the amount of said Price's shortage and defalcation. For which amount the plaintiff sought recovery.

The defendant, appellant here, appeared and answered, pleading certain limitations of the bond upon which plaintiffs had declared. The bond was executed by Jack Price as principal and the National Surety Company, a corporation, as surety in the sum of $31,000, payable to the appellees McCutcheon & McGregor. It recited the execution of the indemnity bond that had been given by Jack Price and McCutcheon & McGregor, and further contained the following terms important in the determination of this case, to wit:

"Whereas, said obligees executed said bond upon the agreement then and there had and understood that the principal would, subject to the terms, conditions, and limitations herein contained, indemnify the obligees, and each of them, against any and all liability of whatsoever kind or nature under the bond of said principal as agent, and reimburse, make good and pay over to them and each of them any and all sums and amounts of money which they or either of them may pay or become liable to pay by reason of having signed such bond, then this obligation to be void, otherwise of full force and virtue.

"This bond is executed by the company upon the following express conditions and limitations:

"First. The liability of the Company hereunder shall include only loss sustained by the obligees, herein by reason of fraud, or dishonesty of the principal in connection with the duties pertaining to the office or position of agent and occurring during the term beginning on the 1st day of July, A. D. 1921, and before the termination of this bond."

The execution of the several bonds mentioned is not disputed, nor is there any controversy as to their terms. Nor is it disputed that Jack Price, as agent of the Bankers' & Shippers' Insurance Company, collected for that company premiums justly due it in the sum of $1,648.74, which appellees had been required to pay. Appellant's sole defense was and is that Price's failure to account for said premiums did not constitute "fraud or dishonesty" within the meaning of the limitation above set out. A trial before the court without a jury failed, however, to sustain this defense, and resulted in a judgment for appellees against Jack Price and the appellant surety company in the sum of $1,648.74, with legal interest thereon from the 1st day of October, 1922, amounting to $112.10, aggregating $1,760.84, together with interest thereon at the rate of 6 per cent. from this date until paid.

The case was tried below and is presented here upon an agreed statement of facts. They are such as without doubt entitled appellees to the judgment, unless it must be said, as appellant insists, that the facts "do not establish fraudulent or dishonest conduct on the part of Jack Price." The agreed statement shows, in addition to what we have said, that Jack Price was required under his agency contract to collect and remit to the Bankers' & Shippers' Insurance Company the latter's portion of all premiums on policies issued by him on behalf of said company; that during said time it was the custom of Jack Price, as well as the custom of local fire insurance agents generally in the vicinity of Wichita Falls, to charge himself with the amount of premiums due on policies delivered and credit himself with the amount of commissions allowed under his agency contract, and, within a period of from 60 to 90 days after the issuance of such policies, he was required under his agency contract to remit to the Bankers' & Shippers' Insurance Company the amount shown to be owing by him to it; that in all he collected for said company premiums due in the amount of $5,848.53, of which, from time to time, he remitted the sum of $4,199.29, leaving a balance of $1,648.74, which he has collected but has not remitted; and that for this deficiency McCutcheon & McGregor had been called upon to pay and did pay the Bankers' & Shippers' Insurance Company in settlement of the claims made by said insurance company against them under the bond executed by them to such insurance company.

The contention of appellant, in substance, is that inasmuch as it was the custom of Jack Price to charge on the books kept by him premiums due his principal and credit himself with commissions earned, making remittances at stated intervals, the relation between Price and his principal was that of debtor and creditor, and that his mere failure to account to his principal for the said sum of $1,648.74 due it did not constitute dishonesty or fraud, but, on the contrary, amounts to no more than mistake, negligence, error of judgment, or breach of contract, and that therefore the appellant was not liable under the terms of its bond.

The rule of law that a surety is not to be held beyond the terms of his contract is too well settled to require the citation of authority. But in the agreed statement of facts before us we find no explanation of Price's failure to account to his principal for the premiums due it. If in fact he became insolvent or because of some calamity was unable to make remittances between the time he collected the premiums and the time when, in accordance with his custom, he was required to make remittances, it is not shown by the agreed statement of facts. In other words, his failure to remit is wholly unexplained, and the question is: Does that unexplained failure to remit amount to "fraud or dishonesty," within the meaning of the terms of appellant's bond? In the absence of an explanation, the inference seems plain that he converted the premiums to his own use or to the use of some other person.

The recognized rule is that:

"The relation of principal and agent is fiduciary, requiring the most perfect loyalty and the utmost good faith, the strictest integrity, and the fairest dealing on the part of the agent to his principal." Hahl v. Kellogg, 42 Tex. Civ. App. 636, 94 S. W. 389; Rand v. Davis (Tex. Civ. App.) 27 S. W. 939; Perry on Trusts, § 206.

The case of Steere v. Stockyards National Bank (Tex. Com. App.) 256 S. W. 586, was one in which a cattle commission broker, Herbert Graves, was engaged, among other things, in selling cattle and other live stock for others upon the market at Fort Worth. His habit of doing business was when sales were made to deposit in the Stockyards National Bank the amounts paid for cattle sold by him. Such deposits were made in his own name, and he would later remit to his...