Sherman v. Harbin

• Decision Date: 13 July 1904
• Citation: 125 Iowa 174,100 N.W. 629
• Parties: SHERMAN v. HARBIN ET AL.
• Court: Iowa Supreme Court

125 Iowa 174

100 N.W. 629

SHERMAN

v.HARBIN ET AL.

Supreme Court of Iowa.

July 13, 1904.

Appeal from District Court, Blackhawk County; Franklin C. Platt, Judge.

Action on two bonds executed by Geo. W. Harbin, as president of the Equitable Mutual Association, with the United States Fidelity & Guaranty Company as surety. Trial without jury resulted in a judgment as prayed. The defendants appeal. Affirmed.Mullan & Pickett, for appellants.

Edwards & Longley and Courtright & Arbuckle, for appellee.

LADD, J.

George W. Harbin was president of the Equitable Mutual Life Association of Waterloo, Iowa, from March 2, 1898, to March 2, 1899. As required by the articles of incorporation and section 1787 of the Code, he executed a bond, with defendant as surety, for the first year, conditioned he should “render a true account of his office and of his doings therein to the proper authority when required thereby or by law, and shall promptly pay over to the persons or officers entitled thereto all moneys which may come into his hands at the termination of his office, and shall promptly account for all balances of money remaining in his hands at the termination of his office, and shall exercise all reasonable diligence and care in the preservation and lawful disposal of all money, books, papers and securities, or other property, pertaining to his said office, and deliver them to his successor, or to any person authorized to receive the same; and if he shall faithfully and impartially discharge all other duties now and hereafter required by virtue of his said office then this bond to be void, otherwise in full force.” The association was organized in 1881, but reorganized under chapter 65 under the Acts of the Twenty-First General Assembly (now chapters 7 and 8, tit. 9, of the Code) in 1886. The duties of the president, as defined in article 1 of the by-laws, was “to preside at all meetings of the association and board of directors, sign all certificates of membership or policies of insurance issued by the association, and all orders upon the treasurer, and have general management of the business and conduct of the correspondence of the association subject to the control of the board of directors.” Upon the board of directors was conferred “the power to make by-laws for the regulation of the association and the management of its affairs and business, if consistent with the articles of incorporation.” While the business of the association was under the management of the board of directors, and the president subject to its control, both were governed by the articles of incorporation and statutes of the state defining and limiting their respective duties and powers. Any act of the president contrary to these, even though directed or acquiesced in by the board, constituted a breach of duty, for the board itself was without authority to override or ignore the laws of the state or the articles of incorporation by the members of the association.

2. It is not pretended that Harbin failed to account for moneys, if any, which came into his hands as president, and it may be, as contended, that the diligence referred to in the bond should be held to relate to valuables confided to him in his capacity as president. But the condition that he “faithfully discharge all other duties now or hereafter required of him by virtue of his office” ought not to be construed as relating only to what precedes. It has reference to matters not previously enumerated, and is broad enough to include all the delinquencies complained of.

3. At the end of the year covered by the above bond Harbin was re-elected president of the association, and in qualifying presented the following obligation, duly executed by the defendant: “In consideration of the sum of seventeen 50/100 dollars, the United States Fidelity and Guaranty company hereby guarantees the fidelity of George W. Harbin in the sum of five thousand dollars, in favor of Equitable Mutual Life Association, from the 2nd day of March, 1899, to the 2nd day of March, 1900, subject to all the covenants and conditions set forth and expressed in the bond of this Company No. 7,559 heretofore issued on the 2nd day of March, 1898.” Though incorporating the covenants and conditions of the previous bond, this is in no sense a renewal or continuance of it, but, as its language plainly indicates, a new and independent undertaking in compliance with the statute. The bond is not like that considered in First Nat. Bank v. U. S. Fidelity & Guaranty Co. (Tenn.) 75 S. W. 1076. There the original bond stipulated for indemnity for delinquencies during its continuance or any renewal thereof, and the word “renewal” was inscribed on the new contract. Here the matter of renewal is not mentioned directly or inferentially in either instrument.

4. The association issued a policy covering a period of 10 years and the by-laws provided that: “The surplus of assessments on certificates of the ten-year surrender value plan, after paying full beneficiary claims, the surplus of annual dues paid on said certificates after paying the balance of necessary expense, if any, of the association, which membership fees have not been paid, shall constitute a surrender value fund.” At the end of 10 years the certificate holder was entitled “to receive within 90 days of maturity his equitable and just portion of the surrender value fund as thus created.” The fund had been invested in first mortgages on real estate and in an office building occupied in part by the officers of the association and in part rented to others. During the period of the first bond the net amount of rent and interest, after paying taxes, was $623.35, and during the period of the second bond $380.45. These items were entered as a part of the general or expense fund, and made use of for that purpose, whereas it is said they belonged to the surrender value fund. Without deciding whether the moneys so collected were properly expended, it is enough to say that the president was not responsible for the mistake, if any, made. His statement that he had no knowledge of the error, if it was such, is uncontradicted. As pointed out in Sherman v. Harbin, 100 N. W. 622, submitted with this case, the duty of determining to which fund the moneys belonged devolved upon the cashier, and, though Harbin may have occasionally glanced over the books of account, accurately indicating the source of every item and its disposition, it does not appear that his attention was directed to any of these. Auditing the books was no part of his duty, and it cannot be said in not discovering errors overlooked by the auditing committee of the board of directors year after year he was derelict in the performance of his duties as managing officer. See Batchelor v. Planters' Nat. Bank, 78 Ky. 435. The fault, if any, was that of the cashier, from whom a bond was exacted in the same amount as that of the president.

5. The evidence tends to show that certain losses were paid in excess of the portion of assessments and stipulated premiums to which they were entitled, and that such overpayments were taken from the moneys which should have been applied to the satisfaction of other losses. This subject was fully considered in Sherman v. Harbin et al., supra, and the conclusion there reached is controlling. It is difficult to determine from the record before us the extent of the liability on each bond because of these excessive payments to certain beneficiaries from funds justly belonging to others, but enough appears to show that such payments, during the life of each bond, together with the funds diverted for the expenses of litigation, equal the indemnity stipulated in each bond.

6. During the period of the first bond the sum of $7,013.15 was paid out of the beneficiary fund to meet the expenses of resisting the payment of claims, and $2,658.02 during the period covered by the second. The moneys of this fund, as was held in Sherman v. Harbin et al., had been collected for the payment of specific death losses. The articles provided for the collection of membership fees and $4 per average $1,000 insurance per annum for expenses. Other provision for the expenses incident to the protection of the association against unjust claims might have been provided, as the articles conferred the authority. That this was not done furnished the officers no excuse for taking the moneys collected in to meet death losses for any other purpose. If assessments were made to meet the losses contested, it may be that other beneficiaries could not complain of the expenditure of such amounts. But we do not understand this was done. The stated premiums were collected to pay losses allowed, and not for the purpose of preventing and defeating their allowance. All that was taken from the beneficiary fund and paid as expenses in resisting claims belonged to beneficiaries in whose behalf the assessments and stated premiums had been collected, and in directing that this be done and signing the orders for that purpose the president broke the condition of his bonds for the faithful discharge of his duties. This is the interpretation Harbin must have put on the articles of incorporation, for in December, 1898, he wrote to a member of the association: “There has been no other use made of the assessments paid by policy holders than to pay death claims and for the surrender value fund. Not one dollar of same being used for expense or any other purpose, and therefore you and all other matured policy holders will receive your share of the surplus, together with accumulated interest.” And in October, 1897, to another: “No part of the funds for death claims can be used for any purpose than the payment of such claims.”

7. The appellant pleaded that the bonds were invalid because of fraudulent concealment and misrepresentation by the association when they were accepted. Some difficulty has been experienced in determining under what circumstances...