State ex rel. Elberta Peach & Land Company v. Chicago Bonding & Surety Company

• Decision Date: 10 October 1919
• Parties: THE STATE at the Relation and To the Use of ELBERTA PEACH & LAND COMPANY, Appellant, v. CHICAGO BONDING & SURETY COMPANY, Appellant
• Court: Missouri Supreme Court

215 S.W. 20

279 Mo. 535

THE STATE at the Relation and To the Use of ELBERTA PEACH & LAND COMPANY, Appellant, v. CHICAGO BONDING & SURETY COMPANY, Appellant

Supreme Court of Missouri, First Division

October 10, 1919

Appeal from St. Louis City Circuit Court. -- Hon. William T. Jones Judge.

Reversed and remanded (with directions) as to plaintiff. Affirmed as to defendant.

Luther Ely Smith for plaintiff.

1. Defendant is an insurance company engaged in writing insurance contracts. 2 Bouvier's Law Dictionary (3 Ed.) p. 1613; Laws 1885, p. 41; Sec. 6013, R. S. 1879; Sec. 7042 R. S. 1909; 2 R. S. 1879, secs. 5987-6010. (a) Defendant was organized as an insurance company under the laws of Illinois. The act under which it is formed subjects it to the constant supervision of the Insurance Commissioner of Illinois. No agent of defendant may write a single policy for defendant without incurring a penalty, unless he has gained authority to act from the Superintendent of Insurance of Illinois. Laws Illinois 1899, pp. 260-265; 2 Ill. Ann. Stat., secs 2544-2558, pp. 1610-1614. (b) Defendant is admitted to do business in Missouri as an insurance company. It may do "fidelity and surety insurance" in Missouri and nothing else. (c) Defendant's agent for service of process in Missouri is the Insurance Commission of Missouri. Ill. Laws 1899, p. 263, sec. 10; 2 Ill. Ann. Stat., p. 1613, sec. 2552; 2 Bouvier's Law Dict. (3 Ed.) p. 1614; Sec. 7068, R. S. 1909. (d) Defendant, as a condition of its admission to do business in Missouri, comes in subject to all the insurance provisions of the State affecting companies other than life. (2) The use of the term "bond" instead of the term "policy" is not conclusive. The law looks to the substance, not to the form. Laws 1911, p. 274; Secs. 6997, 7100, 7099, 7068, R. S. 1909; Frost on Guaranty Insurance (2 Ed.), pp. 18, 64 and 621-694; Industrial & General Trust Co. v. Tod, 67 N.Y.S. 363; People v. Rose, 174 Ill. 310; People v. Feitner, 166 N.Y. 129; Nye Schneider Fowler Co. v. Bridge Hoye Co., 98 Nebr. 863, 155 N.W. 235; People v. Potts, 264 Ill. 522; U. S. Fid. & Guar. Co. v. Natl. Bk., 233 Ill. 475; Hormel & Co. v. American Bonding Co., 112 Minn. 288, 33 L.R.A. (N. S.) 513; State v. Hogan, 8 N.D. 301, 73 Am. St. 759; American Surety Co. v. Folk, 124 Tenn. 139, 25 Am. & Eng. Ann. (1912D) 1024; First Natl. Bk. v. Fidelity Co., 110 Tenn. 10, 100 Am. St. 765; Roach v. Trust Co., 130 Mo.App. 401; State ex rel. v. Ogden, 172 S.W. 1172. (3) The contract in suit is a contract or policy of insurance within the meaning of the statute. Sec. 7068, R. S. 1909; U. S. Fid. Co. v. Natl. Bk., 233 Ill. 475; Amer. Bonding Co. v. Morrow, 80 Ark. 49; Remington v. Fidelity Co., 27 Wash. 429; Granite Bldg. Co. v. Saville, 101 Va. 217; Ice Mfg. Co. & C. Co. v. American Bonding & Trust Co., 115 Ky. 863; Willoughby v. Fidelity Co., 16 Okla. 546; Guarantee Co. v. Mechanics Savgs. & Trust Co., 80 F. 766; American Credit Indemnity Co. v. Athens Woolen Mills, 92 F. 581; American Trust Co. v. Burke, 36 Colo. 49; Frost on Guaranty Insurance (2 Ed.), sec. 243, p. 622. (4) Defendant is estopped to deny its liability to pay the penalties it has deliberately incurred. Sec. 7068, R. S. 1909; Fidelity Mut. Life Assn. v. Mettler, 185 U.S. 308, 326. (5) Vexatious refusal to pay was amply shown. Defendant, without the shadow of excuse, refused to pay one penny upon a $ 20,000 fidelity policy covering defalcation and embezzlement, when defalcations and embezzlement to the extent of $ 8036.87 was promptly shown to defendant. On the contrary, defendant relies for its defense upon the fact that the defalcations occurred through checks drawn on a bank that, as defendant contends, ought to have known that the Receiver was in the act of embezzlement when he drew and presented the checks. To describe such conduct on defendant's part as "vexatious refusal to pay" might well be termed flattery. It is the hyperbole of euphemism. R. S. 1909, sec. 7068; Cascarella v. Life Ins. Co., 175 Mo.App. 130; Brown v. Ry. Assurance Co., 45 Mo. 221; Williams v. Ins. Co., 189 Mo. 70; Keller v. Ins. Co., 198 Mo. 440; Fay v. Ins. Co., 268 Mo. 373; Barber v. Ins. Co., 269 Mo. 21; Stix v. Indemnity Co., 175 Mo.App. 180. (6) Ten per cent statutory penalty and attorney's fees should be added to the judgment for vexatious refusal to pay. R. S. 1909, sec. 7068; Laws 1911, p. 282; Cascarella v. Life Ins. Co., 175 Mo.App. 130. (7) Defendant's obligation was direct and primary. It was not discharged, and could not be discharged, except upon the principal's "truly accounting for all moneys, assets, property and effects which should come into his hands and possession, and should in all respects faithfully perform all the official duties of said receivership." If Haydel did those things, then "this obligation shall be void, otherwise it shall remain in full force and effect." Haydel did not do those things; he did not account for all moneys that came into his hands or possession. On the contrary he appropriated to his own use the sum of $ 8036.87. Alderson on Receivers, sec. 165; Baltimore Assn. v. Alderson, 99 F. 489; Black on Receivers (2 Ed.), sec. 200; Heralson v. Mason, 53 Mo. 211; Lyon v. U. S. Co., 48 Mont. 591; Weems v. Lathrop, 42 Tex. 207; Westerfelt v. Mohrenstecker, 76 F. 118; Baylies on Sureties (1881), p. 3; Ice Mfg. Co. v. American Bonding Co., 115 Ky. 863; Otis Elevator Co. v. First Nat. Bank, 124 P. 704; Pingrey on Suretyship (2 Ed.), sec. 4; Stearns on Suretyship (2 Ed.), sec. 6; Kerr on Receivers (1872), p. 254; Van Slyke v. Bush, 123 N.Y. 47; Rankin v. Tygard, 198 F. 795; Commonwealth v. Gould, 118 Mass. 300; White v. Smith, 33 Pa. 186; Phillips v. Ross, 36 Ohio St. 458; High on Receivers (4 Ed.), sec. 130; American Surety Co. v. Lawrenceville Cement Co., 96 F. 25; Aultman & Taylor v. Smith, 52 Mo.App. 351; Frost on Guaranty Insurance (2 Ed.), secs 281, 283. (b) Even if defendant's position were sound, that the bank was put upon notice, it is no compliance with the terms of the bond to show that we could recover our money by suing the bank. We are not obliged to exhaust our remedies before proceeding against the surety. Heralson v. Mason, 53 Mo. 211, and authorities, supra. (8) Defendant is entitled to subrogation to any rights that the obligee and beneficiaries in the bond might have against the bank. If defendant's position is sound, it has furnished additional reasons why it, as surety, should have made prompt payment, for it has, according to its own showing, a complete case against the bank in subrogation to the rights of the obligee and beneficiaries under the bond. Clark v. First Nat. Bank, 57 Mo.App. 277; Berthold v. Sarpy, 46 Mo. 557; Furnold v. Bank, 44 Mo. 336; Fidelity Co. v. Jordan, 134 N.C. 236; National Surety Co. v. State Sav. Bank, 156 F. 21; American Bonding Co v. Mechanics Bank, 97 Md. 598; Saussenthaler v. Surety Co., 197 Mo.App. 112. (9) When the receiver drew out money from the bank he did not draw out the bank's money, but money to which he had a legal right as trustee. Natl. Bk. v. Ins. Co., 104 U.S. 54. (10) The suit is properly brought in the name of the State at the relation and to the use of the corporation in receivership. State ex rel. Fichtenkamm v. Gambs, 68 Mo. 289. But if even defendant's contention as to the proper relator were in point of fact meritorious, it was not properly raised. It could not properly be raised by objection to the introduction of evidence. It should have been raised directly by plea or answer Having failed to do so, the objection is waived. No motion in arrest of judgment was filed. In any event, the proper plaintiff is the obligee of the bond, namely, the State of Missouri, and it is in the name of this plaintiff that the suit is filed. Furthermore, even though the court should find that the successor receiver should have been named as relator, the defect is one susceptible of amendment in this court before final judgment in this court. R. S. 1909, sec. 2120; Scott-Force Hat Co. v. Houts, 127 Mo. 392; Mechanics Bank to use. v. Gilpin, 105 Mo. 17; Hunter v. Kansas City Sav. Bank 158 Mo. 262; Weil v. Simmons, 66 Mo. 617; Cruchon v. Brown, 57 Mo. 38.

Holland, Rutledge & Lashly for defendant.

(1) Where a trustee has a bank account in his name as such trustee and executes and presents checks payable to himself such checks are void; and if the bank pays same it does not by so doing in any way lessen the indebtedness of the bank to the cestui que trust. Miller & Co. v. Hobdy, 159 S.W. (Tex.), 96; Duncan v. Jaudon (U. S. S.Ct.), 21 L.Ed. 142; Mechanics Mfg. Nat. Bank v. Furniture Co., 70 L.R.A. 311; Lee v. Smith, 84 Mo. 304; Bank v. Edwards, 243 Mo. 564; Kitchens v. Teasdale Co., 105 Mo.App. 463; Johnson v. Knight, 56 Mo.App. 257; Bank v. Orthwein Co., 160 Mo.App. 369; Gerard v. McCormick, 14 L.R.A. 234; Dickett v. National Mechanic's Bank, 86 Md. 400. (2) Where a trustee carries an account in a bank in his name as such trustee and presents a check to the bank payable to his own order, the bank is placed upon its notice. In such case the bank is dealing with an agent, with knowledge that the latter is recreant to his trust, and if it honors such a check by paying the amount specified therein to the trustee in his individual capacity, it honors a check that is void. And the bank does not thereby lessen its indebtedness to the cestui que trust or to a successor trustee. Authorities supra. (3) The referee erred in overruling appellant's objection to the introduction of any testimony in this case. Where a receiver is appointed and qualified and is guilty of a breach of his bond, if any loss results, suit should be brought in the name of the successor receiver and not in the name of the corporation that has been thrown into the hands...