SHOALS NAT. BANK OF FLORENCE v. Home Indemnity Co.

• Decision Date: 19 April 1974
• Docket Number: Civ. A. No. 73-G-613-NW.
• Citation: 384 F. Supp. 49
• Parties: SHOALS NATIONAL BANK OF FLORENCE, a National Banking Corp., Plaintiff, v. The HOME INDEMNITY COMPANY, a Corp., Defendant.
• Court: U.S. District Court — Northern District of Alabama

384 F. Supp. 49

SHOALS NATIONAL BANK OF FLORENCE, a National Banking Corp., Plaintiff, v. The HOME INDEMNITY COMPANY, a Corp., Defendant.

Civ. A. No. 73-G-613-NW.

United States District Court, N. D. Alabama, Northwestern Division.

April 19, 1974.

Jesse A. Keller, Keller & Hill, Florence, Ala., for plaintiff.

James E. Clark, London, Yancey, Clark & Allen, Birmingham, Ala., for defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

GUIN, District Judge.

This suit is brought by the plaintiff, Shoals National Bank of Florence, a national banking corporation, pursuant to a banker's blanket bond issued by the defendant, Home Indemnity Company. Diversity jurisdiction exists under 28 U.S.C. § 1332 by reason of the amounts in controversy and the admitted diversity of citizenship. Personal jurisdiction and venue are not contested.

Findings of Fact

The facts in the case are undisputed.

1. On February 16, 1972, one Jessie Robertson opened an account with the plaintiff, Shoals National Bank, in the name of an unincorporated entity, "Robertson's Auto Sales."

2. Robertson deposited with the plaintiff on February 16, 1972, certain negotiable sight drafts totaling $13,010.00 and a check in the sum of $1,100.00.

3. The aforesaid envelope drafts stated on their faces that they were "void unless document(s) listed below are enclosed herein at the time the drawer deposits this check for payment." Beneath this language were the words "Title for Vehicle." These words were followed by a description of a particular vehicle and that vehicle's purported motor serial number. Enclosed in each of these envelope drafts was a document entitled "Car Invoice" which described the respective automobile noted on the face of the draft.

4. The aforesaid check was made payable to Robertson Auto Sales and contained in large red print at the top thereof the words "ATTACH TITLE." Attached to the check was a document entitled "Car Invoice."

5. On February 22, 1972, Jessie Robertson made a second deposit with the plaintiff, Shoals National Bank. The total amount of this deposit was $3,530.00. Among the items deposited on this date was a negotiable sight envelope draft dated February 17, 1972, in the amount of $1,580.00. The envelope draft deposited on February 22, 1972, was identical in form to those drafts deposited on February 16, 1972.

6. Subsequently, on February 22, 1972, Robertson requested that the bank issue certain cashier's checks against the account of Robertson Auto Sales. The total amount of the requested checks was $16,800.00.

7. A teller of Shoals National Bank determined from the bookkeeping department that there was a balance in the "Robertson's Auto Sales" account that equaled or exceeded the requested checks. Therefore, the requested checks were prepared and signed by officers or agents of the plaintiff bank and issued to Jessie Robertson.

8. At the time of Robertson's deposits in Shoals National Bank on February 16, 1972, and February 22, 1972, Robertson did not, in fact, have title to the automobiles described on the faces of the aforesaid envelope drafts and also described in the documents entitled "Car Invoice" which were enclosed in the envelope drafts.

9. Moreover, Robertson did not have title to the automobile described on the document entitled "Car Invoice" which was attached to the deposited check of February 16, 1972.

10. Thereafter, on or about February 26, 1972, a number of the instruments were returned by the payee banks to Shoals National Bank with instructions to the effect that the documents entitled "Car Invoice," which were enclosed with the instruments, had to be notarized. Within three or four days after February 26, 1972, the remaining instruments were also returned with the same or similar instructions. Upon receipt of this information, the instruments were notarized and again sent through for collection.

11. Again the instruments were refused and returned to Shoals National Bank because the purported bills of sale enclosed with the instruments were fictitious, and because Robertson did not have title to the respective automobiles.

12. Robertson, as of the date of trial, had not produced any other title documents and none of the instruments had been collected.

13. Prior to the occurrence of the above described events, the defendant, The Home Indemnity Company, had issued to the plaintiff bank for valuable consideration its "banker's blanket bond." The same was in full force and effect at the time of the occurrence of these transactions.

14. Plaintiff bank made demand on the defendant insurance company pursuant to its "banker's blanket bond," in the amount of $15,800.00, the amount of the loss less $1,000.00 deductible as provided for in the bond. Plaintiff contends that the actions of Robertson, as set out above, constituted an actual fraud and false pretense as enunciated under the terms of the bond.

15. Defendant denied the claim and contended that plaintiff's loss was not covered under the insuring agreement of the bond and that the coverage was excluded pursuant to the specific exclusions enumerated in the bond.

Conclusions of Law

Paragraph B of the "Insuring Agreement" in question covers loss of property on the premises of the insured, occurring with or without negligence or violence, through "false pretenses." The initial question, therefore, for the court's consideration is whether or not Jessie Robertson's actions in falsifying the bills of sale, enclosing the bills of sale in deposit envelopes and then establishing an account with plaintiff bank based on those fraudulent and fictitious bills of sale, constitute false pretenses within the purview of the insuring agreement.

The "Insuring Agreement" (i. e., banker's blanket bond) in the instant case does not specifically define "false pretenses." This phrase, however, has been the subject of many and varied judicial interpretations when presented to the courts in connection with a so-called "banker's blanket bond." A thorough search and examination of those interpretations, however, has revealed no case directly in point with the facts and circumstances of the instant case. Consequently, this court considers this case to be one of first impression on the facts presented. Inasmuch as the case is a diversity case, the court will look to the appropriate Alabama law for guidance.

As a general rule, the "banker's blanket bond" has been given a broad and liberal construction. See generally Couch on Insurance 2d § 15.76 (1959). Moreover, when the undefined language within such bonds has been subject to judicial interpretations, the courts have uniformly held that this language is to be given a broad meaning and construed most strongly against the surety company. See Citizens State Bank v. Transamerica Ins. Co., 452 F.2d 199 (7th Cir. 1971); Fed. Deposit Ins. Corp. v. Aetna Casualty and Surety Co., 426 F.2d 729 (5th Cir. 1970); Brandon v. Holman, 41 F.2d 586 (4th Cir. 1930); Citizens Trust & Guaranty Co. of W. Va. v. Globe & Rutgers Fire Ins. Co., 229 F. 326, 330 (4th Cir. 1915).

In National Bank of Commerce v. Fidelity and Casualty Co., 312 F.Supp. 71, 75 (E.D.La.), aff'd, 437 F.2d 96 (5th Cir. 1970), the court was confronted with defining "false pretenses" as used in a "banker's blanket bond" similar to the one in the present case. There, as in the present case, the policy provisions provided no construction or definition of the words "false pretenses." The Fifth Circuit concluded that the term "false pretenses" was at least as broad as the commonly used criminal definition of the term. 312 F.Supp. at 75, citing United States v. Western Contracting Corp., 341 F.2d 383 (8th Cir. 1965). Moreover, the loss sustained by the bank when a depositor presented a check representing that it was drawn against an account with sufficient funds, when in fact the depositor knew the account did not have sufficient funds, was found to have resulted from a "false pretense" as described within the banker's blanket bond. 312 F.Supp. at 74.

In Alabama the offense of false pretense has been held to consist of (1) the pretense, (2) its falsity, (3) obtaining property by reason of the pretense, (4) knowledge on the part of the accused of the falsity of the pretense, and (5) an intent to defraud. Taylor v. State, 46 Ala.App. 105, 109, 238 So.2d 902, 907 (1970); Holloway v. State, 37 Ala.App. 96, 64 So.2d 115 (1952). Likewise, in Young v. State, 155 Ala. 145, 46 So. 580, 581 (1908), the court defined "false pretense" as a "fraudulent representation of an existing or past fact, by one who knows it not to be true, as is adapted to induce the person to whom it is made to part with something of value."

In the case of Eaton v. State, 16 Ala. App. 405, 78 So. 321 (1918), the Alabama Court of Appeals was construing the criminal offense of "false pretenses." In circumstances similar to those in the present case, the court held that the giving of a check by an individual was itself a representation that there existed sufficient money in the bank on which the check was drawn and, furthermore, if the check was given with the intent to deceive one into parting with property, or title thereto, the individual was guilty of obtaining money by false pretenses.

The court is of the opinion that in the instant case the meaning of the term "false pretenses" as used in the "banker's blanket bond" is at least as broad as the criminal definition given the term. Moreover, in light of the law as expressed by the Alabama courts, it seems clear to the court that under the facts and circumstances of the instant case Robertson's actions constituted a "false pretense" which resulted in plaintiff's loss.

Here, Robertson falsified the required bills of sale and, based on these bills of sale, established an account with the plaintiff. At the time he made deposits in this account, Robertson knew that the required bills of sale were false. The bank, in reliance on these fraudulent bills of...