State Bank v. American Surety Co.
| Decision Date | 27 October 1939 |
| Docket Number | No. 32087.,32087. |
| Citation | 206 Minn. 137,288 N.W. 7 |
| Parties | STATE BANK OF NEW PRAGUE v. AMERICAN SURETY CO. OF NEW YORK. |
| Court | Minnesota Supreme Court |
Appeal from District Court, Scott County; Fred W. Senn, Judge.
Action by the State Bank of New Prague against the American Surety Company of New York on a fidelity bond. From an adverse judgment, defendant appeals.
Affirmed.
Orr, Stark & Kidder, of St. Paul, for appellant.
Moonan & Moonan, of Waseca, for respondent.
Plaintiff sues to recover indemnity for pecuniary loss sustained through the defalcation of its former cashier covered by a fidelity bond issued by defendant. The bond was dated February 24, 1933, and continued in effect from that date for one year. It provided for indemnity not to exceed $10,000 for pecuniary loss sustained by plaintiff as the employer of the cashier through the latter's fraud, dishonesty, forgery, theft, embezzlement, wrongful abstraction, misapplication, misappropriation or any other criminal act or omission, while the employe held any position in plaintiff's service commencing from the date of coverage of the employe and continuing until the termination of the insurance.
The bond contained a provision to the effect that upon discovery by the employer of any loss insured thereunder the employer should within ten days thereafter give the defendant written notice thereof and within three months after such discovery file with defendant a written claim giving the particulars of such loss.
The complaint set forth two causes of action for losses which plaintiff paid to one Connors. The one alleged that in 1930 Connors deposited $1,700 and the other that on April 1, 1933, he deposited $800, for which plaintiff's former cashier was to issue certificates of deposit to Connors, and that he appropriated the money and gave Connors, who was illiterate and did not understand what was done, his personal promissory notes. It alleged that Connors recovered a judgment against plaintiff upon both causes of action, which plaintiff discharged on May 23, 1936, by payment of $2,000 in cash, of which $900.36 was in full for that part of the judgment based on the $800 item. The cause of action for the $1,700 item, being for a loss by an act which occurred prior to the issuance of the bond, was abandoned at the trial.
The bond showed without dispute that on April 1, 1933, defendant stood in relation of indemnitor to plaintiff for the alleged loss of $800. There was evidence to show that on March 8, 1935, Connors through his attorney made written claim on plaintiff for $2,500 and interest for the $1,700 and $800 items; that plaintiff immediately notified defendant of Connors' claim and discussed the matter with defendant's representatives; that it made diligent search of its records and found no evidence to substantiate a claim in favor of Connors; that it denied liability; that Connors commenced suit on the two causes of action and recovered a judgment for both of them with interest as claimed.
Plaintiff over defendant's objection showed the loss as to the $800 item by the judgment roll and relevant portions of the court's charge in the action in which Connors recovered judgment against it. The evidence in the Connors case, offered by plaintiff, was excluded on defendant's objection. In the Connors case plaintiff asserted the same defenses to this claim, which defendant relies on here.
It claimed that the transaction of April 1, 1933, relative to the $800 item was personal between Connors and the cashier, that the bank was not a party to nor concerned therein, that the promissory note evidenced the personal nature of the transaction and that Connors, with knowledge of the fact that the note was given for the cashier's personal obligation, accepted payment of interest from him, waived the fraud, if any, and ratified the transaction. Both Connors and the cashier testified at the Connors trial. The court in its charge to the jury in the Connors case stated that Connors based his right to recover upon the claim that he deposited $800 with the bank on April 1, 1933; that defendant's defense was as outlined and that "so, in this case, if you find that the claims of the plaintiff have been established by the evidence and is true, then you would be warranted in finding a verdict in favor of the plaintiff", otherwise not, and that if the verdict was in favor of plaintiff he was to be allowed interest from April 1, 1933.
The evidence showed beyond dispute that there was a transaction involving $800 on April 1, 1933, between Connors and the former cashier. The question was what was that transaction. Immediately upon commencement of the Connors action, plaintiff notified defendant and requested it as such indemnitor to assume the defense, which it declined. The parties stipulated that plaintiff promptly notified defendant of the pendency of the Connors action, tendered it the defense, which it declined, and that defendant had a fair opportunity to defend, if it had elected to do so. It was further admitted that plaintiff defended the Connors action as ably as could be. No claim or suggestion of fraud or collusion with respect thereto was made. The court below was of the opinion that the judgment in the Connors action was conclusive against defendant as to the fact of defalcation and the amount thereof and so held.
Then, subject to objection, it received the former cashier's testimony explaining the transaction to the effect that on April 1 1933, he gave Connors the $800 note in question not for the receipt of cash, but in renewal of a balance due to Connors on account of transactions which had their inception in the receipt by the cashier of $1,700 in cash from Connors' brother in 1930. This was the same testimony which he gave for plaintiff in defense of the Connors suit. Connors' death occurred before this case came to trial.
Findings were made as to the defalcation and amount thereof, based upon the Connors judgment; that plaintiff sustained loss by the payment of the Connors judgment in the amount of $900.36; that the policy covered the loss; and that plaintiff was entitled to recover the amount thereof with interest and costs.
Defendant assigns as error here on points raised below: (1) that the judgment in the Connors action was not admissible to prove the defalcation or the amount thereof, upon the grounds that defendant was not a party to that action; (2) that holding that the Connors judgment is binding on defendant denies to it due process of law; (3) that the defalcation was not within the coverage because, while it resulted from an act within the coverage period, it was not discovered until afterwards; (4) that notice of the discovery of loss and proof of claim were not given within the time limited by the policy; and (5) that it was not permissible to show that the parties agreed that $900.36 of the $2,000 paid in satisfaction of the Connors judgment was allocated as payment of the $800 cause of action.
1. A judgment recovered against an indemnitee upon an obligation covered by a contract of indemnity is conclusive against the indemnitor in an action by the indemnitee to recover indemnity, if the indemnitee gave the indemnitor notice of the pendency of the action in which the judgment was recovered and requested him to assume the defense. Milavetz v. Oberg, 138 Minn. 215, 164 N.W. 910; Trustees of First Presbyterian Church v. U. S. F. & G. Co., 133 Minn. 429, 158 N.W. 709; Great Northern R. Co. v. Akeley, 88 Minn. 237, 92 N.W. 959; Note, 132 Am.St.Rep. 759; 1 Freeman, Judgments, 5th ed., § 447; 34 C.J., p. 1031, § 1463. There must be identity of issues in the case in which the judgment was recovered and the one in which the judgment is used as evidence. B. Roth Tool Co. v. New Amsterdam Casualty Co., 8 Cir., 161 F. 709. The issues in the Connors and the instant case were identical as to the $800 item involved here. In both cases the transaction was admitted to have occurred on April 1, 1933, and the claim was that the transaction involved a deposit of money by Connors, which plaintiff's former cashier received and the defense was that the transaction was only a renewal of a promissory note in a personal affair between the cashier and Connors to evidence the balance due on account of a precedent liability having its origin in the $1,700 transaction referred to in the first cause of action. The judgment in the Connors case definitely determined that the transaction of April 1, 1933, was a deposit of $800 which the cashier embezzled. Defendant seeks to escape the effect of the Connors judgment by the claim that loss occurred prior to the coverage, that the element of time was not a material issue in the Connors case and hence that it could show that the loss occurred prior to the coverage period. It may be conceded that time was not material, but the particular transaction was. The issue was whether the particular transaction was a deposit of cash by Connors with the bank or a renewal of the cashier's personal note. It was the determination of this issue that fixed the liability of the bank on the theory of receipt of money. The judgment is conclusive on defendant and was properly admissible to show its liability and the extent thereof to Connors. Of course the judgment did not prove that the defendant had indemnified plaintiff against the liability or other facts requisite to the insurer's liability. But those facts were established by other evidence.
2. Holding the judgment recovered by a claimant against the indemnitee in an action, the pendency of which he gave due notice to the indemnitor and which he requested him to defend, conclusive against the indemnitor in an action by the indemnitee to recover indemnity is not a denial of due process of law. Defendant's contention is that it was a stranger to, and not bound to try its defense, in the Connors action, citing and relying on Brinkerhoff-Faris Trust Co. v. Hill, ...
To continue reading
Request your trial