T. M. Sinclair & Co. v. Nat'l Sur. Co.

• Decision Date: 09 May 1906
• Citation: 107 N.W. 184,132 Iowa 549
• Parties: T. M. SINCLAIR & CO., LIMITED, v. NATIONAL SURETY CO.
• Court: Iowa Supreme Court

132 Iowa 549

107 N.W. 184

T. M. SINCLAIR & CO., LIMITED,

v.NATIONAL SURETY CO.

Supreme Court of Iowa.

May 9, 1906.

Appeal from District Court, Linn County; William G. Thompson, Judge.

Action at law upon surety bonds guarantying the fidelity of a firm of brokers, who were doing business for plaintiff in Alaska. Trial to a jury, verdict and judgment for plaintiff, and defendant appeals. Reversed.Charles D. Harrison, for appellant.

Charles A. Clarke & Son and William G. Clarke, for appellee.

DEEMER, J.

Prior to August 30, 1901, the firm of Higgins & Ogilvie was appointed by plaintiff as its broker or commission merchant for Dawson, in the Yukon district of Alaska, to handle its meat products in that district. The firm was to receive the goods, pay freight thereon when not prepaid, care for and dispose of the product for cash or gold dust, and deposit from day to day the proceeds from sales in a named bank at Dawson for and on account of plaintiff, and to make at least weekly remittances to plaintiff's representative at Portland, Ore. Plaintiff was to pay freight, duty, and insurance on the goods, drayage, rent of warehouse, furnish watchman for the goods, and to bill them to the firm f. o. b. Portland, at its jobbing prices, freight and other charges added. The firm of Higgins & Ogilvie was to sell the goods at a named price and to guaranty payment of all goods sold. When goods were sold, they were to be billed to the purchaser in triplicate, one of which was to be mailed to plaintiff at Portland, Ore., on the day of sale or delivery of the goods, and when the whole of any shipment should be sold the brokers were required to render plaintiff an “account sales,” showing gross amount realized, deducting commissions, expenses, etc., addressed to plaintiff at Portland, Ore.; and no claims were to be allowed for damaged goods, short weights, or otherwise, without a statement of the facts, and allowances made thereof either by plaintiff or the bank at Dawson. At the end of each month the broker was to send to plaintiff at Portland an account current, showing transactions for the month, and a weekly statement was also required from the broker, showing the amount of unsold goods and of cash on hand. It was also required to furnish monthly statements of commissions earned or claimed by it. As compensation, the broker was to receive one-half the net profits on the goods. The first shipment under this contract was made by plaintiff on May 28, 1901. For an agreed premium, defendant, a surety company, on August 31, 1901, undertook to make good any losses which plaintiff might sustain on account of the personal dishonesty of Higgins & Ogilvie in the conduct of plaintiff's business from July 14, 1901, to July 15, 1902; liability being limited to the sum of $2,000. On the 16th day of November, 1901, defendant, in consideration of an increased premium, credit being given for the unearned premium on the original bond, increased the liability on the bond to the sum of $10,000. It is claimed that plaintiff suffered loss on account of the personal dishonesty of the firm or of its members, and it asked judgment on each bond--on the first to the full amount thereof, and on the second to the amount of nearly $8,500. The case went to trial upon issue joined, resulting in a verdict for plaintiff in sum of $6,656.20.

Defendant admitted the execution of the bonds, but pleaded fraud in the procurement thereof. It also pleaded immunity from liability growing out of a breach of the brokerage contract by plaintiff. It further pleaded plaintiff's failure to make frequent audits and examinations of its brokers' accounts, and neglect to use reasonable steps and precautions to prevent any act on the part of its brokers which would render defendant liable, as it promised it would do by the terms of its engagement with the defendant. It also averred that whatever losses plaintiff suffered were due to its own fault, and not to the personal dishonesty of its brokers. Failure to furnish proper and timely proofs of loss as provided by the terms of the bonds was also relied upon as a defense. A reply was filed, pleading an estoppel upon defendant to deny its liability on the second bond, and averring that plaintiff had fully complied with all the conditions of the bonds in suit. After the case had been partially tried defendant filed an amendment to its answer, setting up some other defenses; but on plaintiff's motion this was stricken, and the case was finally tried upon the issues heretofore stated.

It appears that plaintiff made five shipments of meats to its Dawson broker. The first left Seattle June 6, 1901, and amounted, with freight added, to $7,926.26; the second was made August 5, 1901, and amounted to $468.80; the third, August 27, 1901, amounting to $1,456.51; the fourth in September, 1901, amounting to $4,293.02, and the fifth September 26, 1901, amounting to $2,916.13. Higgins & Ogilvie made no acknowledgment of the receipt of any of the shipments after the first, and it seems that plaintiff never made any inquiries with reference thereto at any time. The brokers did not comply with the terms of their contract with plaintiff requiring them to make daily deposits and weekly remittances; nor did they make the required triplicate invoices, or account sales, nor weekly or monthly reports. Plaintiff did not make any audit or examination of Higgins & Ogilvie's accounts, statements, or books, and no settlement has ever been made between them. It is claimed, however, that plaintiff suffered on account of their personal dishonesty to an amount exceeding the verdict returned by the jury. The last reported sale by Higgins & Ogilvie was under date of September, 1901; and the last deposit made by them in the Canadian Bank, save one for a gross sale, was of date September 10, 1901. The accounts of sales did not correspond with the deposit slips down to the time the bond was increased; there being a shortage of about $200. The first bond covered defalcations between July 14, 1901, and July 15, 1902, and the second was an increase of the first, and by its terms covered the same period. This new bond or increase was made on November 16, 1901, although the premium was not paid until January 8, 1902, some 23 days after it was due. Higgins & Ogilvie abandoned the business at Dawson on December 4, 1901, and turned the property then in their possession over to one Driscoll, and he, in turn, on or about March 1st of the next year, surrendered the same to the Canadian Bank, in which the brokers were to make deposits, so that Higgins & Ogilvie were not in possession of any of the goods after December 4, 1901, and, of course, defendant is not responsible for the goods or their proceeds after that date. Nor is it liable for any defalcations occurring before the time covered by the first bond.

The alleged errors chiefly relied upon relate to the ruling of the court denying to defendant the right to amend its answer during the trial, to the instructions given and refused, and to the insufficiency of the evidence to support the verdict. In view of the disposition made of the case, it is unimportant that we consider the ruling on the amendment to the answer.

The first point to which we shall refer has relation to the capacity in which Higgins & Ogilvie were acting when the claimed defalcations occurred. The bond insures plaintiff against the personal dishonesty of Higgins & Ogilvie in the performance of their duties as plaintiff's brokers at Dawson, Y. D.; and the petition alleges that the firm of Higgins & Ogilvie, as such brokers, obtained the money for which this action is brought through personal dishonesty. This is denied by defendant in its answer; and it is further alleged that plaintiff misrepresented the capacity in which Higgins & Ogilvie were acting, well knowing that they were not acting as brokers, but that in truth they were commission merchants, and not brokers. There is no testimony to support the plea of fraud, save that the original contract of employment and the bonds are in evidence; and these show that the conduct of Higgins & Ogilvie as brokers is guarantied, and that they were, in fact, entitled to and had possession of the goods under their contract with plaintiff appointing them as its “brokers or commission merchants.” This is not enough to establish the allegation of fraud. But it is said that only while acting as brokers was their conduct guarantied, and that the testimony shows they were not so acting when the defalcations occurred. It is doubtless true that Higgins & Ogilvie were, strictly speaking, commission merchants, and not brokers, for they had possession of and absolute control of the merchandise shipped them, and had power to collect the purchase price of goods sold. Edwards v. Hoeffinghoff (C. C.) 38 Fed. 641;Slack v. Tucker, 23 Wall. (U. S.) 330, 23 L. Ed. 143;Braun v. City, 110 Ill. 194. A broker has as a general rule neither the possession of the goods nor authority to collectthe purchase price of those which he sells. But, aside from this technical distinction arising from the use of names without more, a broker is in practice often intrusted with possession of the property and given authority to collect; thus combining his character as broker with that of a factor or commission man. Mechem on Agency, § 980; citing Barry v. Boninger, 46 Md. 59.

Moreover, it appears in this case, that defendant knew how Higgins & Ogilvie were acting, and with this knowledge it described them as brokers in the bond which it wrote for itself. This being true, it is in no position to say that they were not acting as brokers when the default occurred. There was no change in their duties and responsibilities at any time, and, as defendant chose its own language in which to describe them, it cannot be heard to say that it did not insure them in the position in which they were acting.

2. The seventeenth provision of the bond...