Peoples Bank v. Aetna Cas. & Sur. Co.

• Decision Date: 26 January 1931
• Docket Number: No. 16756.,16756.
• Citation: 40 S.W.2d 535
• Court: Missouri Court of Appeals
• Parties: PEOPLES BANK OF QUEEN CITY, RESPONDENT, v. THE AETNA CASUALTY & SURETY COMPANY, APPELLANT; HARRY R. KLEIN ET AL., DEFENDANTS.

40 S.W.2d 535

PEOPLES BANK OF QUEEN CITY, RESPONDENT, v. THE AETNA CASUALTY & SURETY COMPANY, APPELLANT; HARRY R. KLEIN ET AL., DEFENDANTS.

No. 16756.

Kansas City Court of Appeals. Missouri.

January 26, 1931.

Certiorari Denied April 6, 1931.

Appeal from the Circuit Court of Schuyler County. — Hon. Walter A. Higbee, Judge.

AFFIRMED IN PART AND REVERSED IN PART.

Walter C. Goodson and H.H. Bristol for appellant.

Allen Royston, John C. Miller and John M. Campbell for respondent.

CAMPBELL, C.

In an action upon a surety bond of $10,000, plaintiff seeks to recover the sum of $6964, on account of numerous defalcations of the principal, Peter L. Klein, while acting in the capacity of cashier and employee of plaintiff bank.

The petition, inter alia, states that the bond was executed May 24, 1922; that at that time Peter L. Klein was the cashier and an officer of the bank, active in the management of its affairs and continued as such until about October 1, 1926, that he died in May, 1927; that the personal defendants are the administrators of his estate; that the condition of the bond was that said Klein would well and faithfully perform all the duties of cashier of said bank or of any other office to which he may be appointed, elected or temporarily assigned; and that the bank was to be indemnified against any loss by reason of any acts of larceny, embezzlement, fraud, dishonesty, forgery, theft, wrongful abstraction or wilful misapplication of the funds or property of the bank committed by said Klein while he was employed in any position or in any location in the service of said bank. The petition also alleges that the bond was to be continued in force until cancelled or terminated; that it has never been cancelled or terminated, and is filed with the petition.

It is further recited "that there has been a breach in the terms of said obligation in this, that the said Peter Louis Klein did not well and faithfully perform the duties of his office as cashier of said bank, but did commit acts of larceny, embezzlement, fraud, dishonesty, forgery, theft, wrongful abstraction, and misapplication of the property and funds of said bank, while acting as cashier thereof, by reason of which loss was sustained by said bank as follows:"

The petition then sets forth in separate paragraphs, numbered 1 to 8 inclusive, alleged defalcations resulting in loss and each is designated as a separate breach of the bond. The losses alleged to have occurred are: Breach 1. $1249.37; breach 2. $3290.40; breach 3. $574.16; breach 4. $330; breach 5. $500; breach 6. $209.07; breach 7. $525; breach 8. $286. The transaction resulting in loss under each breach is set forth and described and then the allegation.

"That all of the aforesaid acts in this petition mentioned were done and performed by the said Klein with a fraudulent design to embezzle and misappropriate the funds of said bank, and all of said acts were done and performed by him while he was in charge of the business and affairs of said bank as cashier and an officer thereof."

It is further stated that upon discovery of the wrongful acts set forth plaintiff complied with the terms and conditions of the bond and gave notice thereof to defendant company; that defendant thereupon investigated said breaches and wrongful acts, examined the books and records of plaintiff bank, and denied liability.

The administrators filed a general denial, and the surety company made separate answer in which it admits the corporate capacity of plaintiff and defendant surety company; that the bond was executed at the time stated; that it was to continue in force until cancelled or terminated. Reference is made to the condition of the bond and to the acts against which indemnity is to be afforded, followed by a general denial of other allegations. The answer further states that defendant surety company has no knowledge or information with reference to the various alleged breaches named in the petition sufficient to form a belief and therefor denies the same. The answer further pleads certain provisions of the bond; a failure to give notice of claim as required by the bond; failure of the bank to comply with certain statutory provisions; that on June 3, 1925, the resignation of Klein as cashier was accepted by the board of plaintiff bank and that he was not thereafter elected or re-elected as cashier and that another was elected in his stead, and that defendant pleads the foregoing as a bar to recovery.

Breach 4 was dismissed by plaintiff, and upon submission to the jury under instructions directing it to state separately the finding and decision as to each of the seven remaining breaches the jury's verdict was for the plaintiff upon breaches 1, 2, 3, 5, and 8, stating the amount for which it found under each breach and in the total amount of $6212. The jury found for defendants on breaches 6 and 7. The surety company is the sole appellant.

There are numerous assignments and we will indicate part of the evidence deemed appropriate to understand the case and to a consideration of the points raised on appeal. The bond recites:

"The above obligation is conditioned that the said employee shall well and faithfully perform all the duties of the office of cashier of said bank during the term for which he has been elected, re-elected, appointed or reappointed, or of any other office to which he may be appointed or reappointed, elected, re-elected or temporarily assigned, and the Surety hereby agrees to hold the said bank harmless for any loss occasioned by any act or acts of larceny, embezzlement, fraud, dishonesty, forgery, theft, wrongful abstraction or willful misapplication committed by the employee, directly or through connivance with others, until his accounts with the bank shall have been fully settled and satisfied."

By its terms the bond was issued subject to certain provisions. These provisions contain the following:

"The bank, on becoming aware of any act which may be made the basis of any claim hereunder, shall, within ten days after such discovery, deliver written notice thereof to the Surety at its home office in the city of Hartford, Connecticut, and shall, within ninety days after the discovery of such loss, file with the Surety particulars and proofs of the correctness of said claim, and such proofs, if required by Surety shall be verified by affidavit." Another provision contains this declaration: "It being the true intent and meaning of this bond that the Surety shall be responsible as aforesaid for moneys, securities or property diverted from the bank within the period this bond is in force."

The evidence shows that Klein was one of the directors of plaintiff bank and acted in the capacity of cashier from the year 1918, until about November 1, 1926. The minutes of the board of directors show his election on January 4, 1922, to the position of cashier and fixed his salary. He was the general manager of the business of the bank as indicated by the record which details his activities about as follows: He was at the window of the bank receiving deposits; attended to correspondence, cashed checks; made loans; prepared chattels and deeds of trust; entered the notes upon the bank records, wrote the records and cashier's checks; kept the journal and note register; attended to remittances; handled the cash and other assets; sent notice of notes due and made collections thereon; attended to insurance; paying of bond premiums out of the funds of the bank; attended to repairs of the building and real estate; bought supplies; rented real estate; collected rents; was secretary of the board of directors and wrote the minutes; prepared various reports for the bank; paid the taxes; rented the lock boxes, and selected city banks for clearing. He performed all of the foregoing acts continuously until about the first of November, 1926. He was sometimes aided by an assistant.

On June 3, 1925, the minutes of the board show that the resignation of P.L. Klein was accepted; that one Starbuck was elected as cashier; that the resignation of Murfin as vice-president was accepted and Klein was elected as vice-president. After this meeting Klein did not act as vice-president, nor did Starbuck act as cashier. Klein continued in the performance of the duties of cashier as he had previously done and Starbuck, after assisting for a month or two, did not qualify as cashier, gave no bond, and decided not to act as such; he drew no salary, but Klein continued to draw the salary of cashier as theretofore. Murfin who had resigned as vice-president, continued to act as such. Defendant surety company collected the annual premium on the bond for 1926. On October 28, 1926, the directors elected a successor to Klein as cashier of the bank, and about that time or a few days thereafter the connection of Klein with the bank as cashier and employee was severed and he died the following May.

The evidence on behalf of plaintiff shows that about June 10, 1927, discovery was first made of the various defalcations set up in the petition, and on that day the president of the bank wrote the surety company that within ten days prior thereto the bank had become aware of an act "which might be the basis of a claim under the bond." Shortly thereafter an attorney and adjuster for the surety company called upon the president of the bank for the purpose of investigation. He was given full information and complete access to all the records, minutes, and files of the bank and spent two or three days in their examination and in investigation. It was admitted that he represented defendant surety company and investigated in its behalf. In reply to the letter of the president of the bank, notifying the company, an attorney for the company acknowledged the same and stated that the subject-matter had been referred to the St. Louis claim department for immediate investigation; that a representative would be on hand at an early date, and at that...