United States Fidelity & Guaranty Co. v. Citizens' State Bank of Moorhead

• Citation: 116 So. 605,150 Miss. 386
• Decision Date: 16 April 1928
• Docket Number: 26824
• Parties: UNITED STATES FIDELITY & GUARANTY CO. et al. v. CITIZENS' STATE BANK OF MOORHEAD. [*]
• Court: United States State Supreme Court of Mississippi

116 So. 605

150 Miss. 386

UNITED STATES FIDELITY & GUARANTY CO. et al. v. CITIZENS' STATE BANK OF MOORHEAD. ^[*]

No. 26824

Supreme Court of Mississippi

April 16, 1928

Division B

1. INSURANCE. In action on bank cashier's bond, in which defendants pleaded payment of two items and plaintiff joined issue thereon, evidence that, when his acts were under investigation, cashier borrowed money and paid such items held competent.

In action on fidelity bond of bank cashier, in which defendants pleaded payment of two items sued for and plaintiff joined issue thereon, evidence that cashier received items for deposit and made no record entry thereof, but when his acts were under investigation he borrowed from S. and paid this money to bank, held competent, since any testimony pertinent to the issue was competent.

2. -INSURANCE. In action on bank cashier's bond based on cashier's fraud, evidence of acts of irregularity and alleged fraudulent dealings held competent.

In action on bank cashier's fidelity bond, in which plaintiff claimed its loss was due to fraudulent manipulation of its funds by cashier, evidence that cashier drew two drafts on another bank and that cash in plaintiff bank was reduced contemporaneously with drawing of drafts, although plaintiff bank sustained no loss by transaction, and that cashier instructed employee to add $1,500 to her cash at close of day's business in order to force balance and evidence of other acts of irregularity and alleged fraudulent dealings, held competent, since fraud was gist of inquiry.

3 INSURANCE. Bank, by seeking to pursue funds paid out by cashier on draft of another bank without authority, did not ratify cashier's acts barring recovery on cashier's bond.

Where cashier of plaintiff bank paid draft for $3,679.80 drawn by B. bank, to which plaintiff bank was under no obligation after directors had instructed cashier not to deposit any money in B. bank and not to make loans exceeding $300, and plaintiff bank, believing its money had wrongfully come into B. bank, then being liquidated, sought to pursue funds, plaintiff did not by such acts ratify cashier's unauthorized acts so as to bar recovery on cashier's fidelity bond, since, if bank's effort to pursue funds had been successful and all or part of lost money recovered, it would have inured to benefit of bond company.

4. BANKS AND BANKING. Bank's ratification of cashier's acts of tortious nature, committed contrary to express order must be made with full knowledge of facts.

Bank's ratification of acts of cashier of tortious nature, committed contrary to express order of bank, must be explicit and made with full knowledge of facts.

5. INSURANCE. Where bank sought to pursue funds paid out by cashier on draft without authority, without knowledge of all facts, there was no ratification barring recovery on cashier's bond.

Where cashier of plaintiff bank paid draft for $3,679.80 drawn by B. bank, to which it was under no obligation, after directors had instructed cashier not to deposit any money in B. bank and not to make loans exceeding $300, and plaintiff bank, believing its money had wrongfully come into B. bank, then being liquidated, made application for guaranty certificates, and, on refusal of state banking department to issue same, instituted suit in chancery court to compel issuance of certificates, before bank had knowledge of all facts, there was no ratification of cashier's unauthorized acts barring recovery on cashier's fidelity bond.

6. INSURANCE. Fidelity bonds must be construed by same principles of law applicable to insurance contracts.

Bank cashier's fidelity bonds must be construed by same principles of law applicable to contracts of insurance.

7. INSURANCE. Where language of cashier's fidelity bond is ambiguous, it must be construed most strongly in favor of bank.

Where language of bank cashier's fidelity bond is ambiguous, it must be construed most strongly in favor of bank.

8. INSURANCE. To establish liability on bank cashier's bond, proof need not be sufficient to convict of embezzlement.

To establish liability on bank cashier's fidelity bond indemnifying bank against such "loss as may be sustained by employer by reason of fraud or dishonesty of said employee in connection with the duties of his... position amounting to embezzlement or larceny," and providing that bond company should be responsible for moneys, securities, or property diverted from employer, proof need not be sufficient to convict of crime of embezzlement.

9. INSURANCE. To create liability on cashier's bond, cashier need not have appropriated money to his own use.

In order to establish liability on bank cashier's fidelity bond indemnifying bank against such "loss as may be sustained by employer by reason of fraud or dishonesty of said employee in connection with the duties of his... position amounting to embezzlement or larency," and providing that bond company should be responsible for moneys, securities, or property diverted from employer, it was not necessary for bank to show that cashier had appropriated money to his own use.

HON. S. F. DAVIS, Judge.

APPEAL from circuit court of Sunflower county, HON. S. F. DAVIS, Judge.

Suit by the Citizens' State Bank of Moorhead against the United States Fidelity & Guaranty Company and another. From a judgment for plaintiff, defendants appeal. Affirmed.

Judgment affirmed.

Elbert Johnson, for appellant.

I. We shall argue three propositions, namely (1) that the court over the objections of the defendants in the court below admitted evidence that was incompetent and materially prejudiced their case. (2) That the appellee ratified the acts of its cashier and agent in cashing the draft for three thousand six hundred seventy-nine dollars and eighty cents and accepting therefor the two cashier's checks of the Bank of Commerce; (3) and that the items sued for in the first and second counts having been paid, there is no liability under the bond, because the appellee has not sustained a pecuniary loss by reason of the fraud or dishonesty of its cashier, Foster, amounting to embezzlement or larceny. On either the question of ratification (2) or of liability on the bond (3), a peremptory instruction should have been granted to this appellant; and hence as to it the case should be reversed, and judgment entered here for it. The issue on the first and second counts of the declaration was whether or not the items sued for in those counts had been paid; the only plea filed to the first two counts was a plea of payment, on which the plaintiff joined issue. The testimony that Foster, as the cashier of the appellee bank, received a deposit of one thousand five hundred dollars and a deposit of three hundred dollars made by a representative of the First National Bank, of Corinth, and personally issued deposit slips therefor and did not give the First National Bank credit for the amounts deposited was, on the issue, irrelevant and incompetent, and highly prejudicial to the defendants in the determination of the issues raised by the allegations in the third count. Again, testimony was offered with reference to certain drafts for three thousand six hundred dollars and for two thousand and thirty-five dollars drawn in April, 1926, by the Citizens' State Bank on the Bank of Commerce.

It seems that in May, 1925, the Citizens' State Bank deposited five thousand two hundred dollars with the Bank of Commerce at Boyle. This money was duly repaid yet testimony was admitted with reference thereto, although the matter had nothing to do with the items sued for. Testimony was admitted that in May, 1925, more than a year before the claims sued on arose, some changes were made by Mr. Foster in the bank's books. An employee of the Citizens' State Bank, was introduced as a witness to prove that three or four months before the Bank of Commerce failed, Mr. Foster told her at one time that when she balanced the books the cash would be short and that she would have to add a certain amount to make the cash balance, that she did so and it balanced; what caused the shortage and what connection it had with the claim here sued on does not appear. All this testimony was of no probative value, since no connection whatsoever was shown between the matters testified about and the matters involved in the suit; appellee made effort to impeach his good faith in handling the draft, the proceeds of which were sued for in the third count, by showing or attempting to show, intimating and insinuating that there had been some frauds, theretofore committed by him in other and wholly distinct transactions; the issue on the third count of the declaration so far as this appellant is concerned was whether or not the Citizens' State Bank had sustained the pecuniary loss complained of by reason of the fraud or dishonesty of Foster, its cashier, in connection with the duties of his office or position, amounting to embezzlement or larceny. The testimony should have been confined to this issue. Evidence of other and distinct transactions was incompetent to prove fraud or dishonesty amounting to embezzlement or larceny, on the part of the bank's cashier, and should have been excluded. Cocke et al. v. Carrington Shoe Co., 18 So. 683.

II. Ratification. Foster, the cashier of the Citizens' State Bank paid the draft of three thousand six hundred seventy-nine dollars and eighty cents drawn on it by the Bank of Commerce at Boyle, and accepted in payment thereof the cashier's checks issued and delivered to the Citizens' State Bank by the Bank of Commerce. On January 13, 1927, just three days after the declaration in this suit was filed, the Citizens' State Bank made proof to the State Banking Department of its claim, swearing that it was the...