Waite v. Standard Acc. Ins. Co.

• Citation: 315 P.2d 989,132 Mont. 220
• Decision Date: 30 September 1957
• Docket Number: No. 9444,9444
• Parties: L. S. WAITE, d/b/a The Waite Oil Company, Plaintiff and Appellant, v. STANDARD ACCIDENT INSURANCE CO., Defendant and Respondent.
• Court: United States State Supreme Court of Montana

Page 989

315 P.2d 989

132 Mont. 220

L. S. WAITE, d/b/a The Waite Oil Company, Plaintiff and Appellant, v. STANDARD ACCIDENT INSURANCE CO., Defendant and Respondent.

No. 9444.

Supreme Court of Montana.

Sept. 30, 1957.

Floyd O. Small and Clayton R. Herron, Helena, for appellant.

Clayton R. Herron, Helena, argued orally for appellant.

Newell Gough, Jr., Enor K. Matson and A. W. Scribner, Helena, for respondent.

A. W. Scribner, Helena, argued orally for respondent.

ANGSTMAN, Justice.

This is an appeal by plaintiff from a judgment entered in favor of defendant after its general demurrer to the complint was sustained, and plaintiff elected not to amend the complaint.

Hence the sole question is whether the complaint states facts sufficient to constitute a cause of action. It contains two causes of action. It is based upon an indemnity bond issued by defendant calculated to indemnify plaintiff against loss as a result of fraud or dishonesty of plaintiff's employees and 'commission station agents'.

The provision of the bond relied on by plaintiff here reads:

'In consideration of an agreed premium, the Standard Accident Insurance Company * * * hereinafter called Underwriter, hereby agrees to indemnify L. S. Waite Doing Business As Waite Oil Company of Butte, Montana, hereinafter called Insured, against any loss of money or other property, real or personal (including that part of any inventory shortage which the Insured shall conclusively prove has been caused by the fraud or dishonesty of any Employee or Employees) belonging to the Insured, or in which the Insured has a pecuniary interest, or for which the Insured is legally liable, or held by the Insured in any capacity whether the Insured is legally liable therefor or not, which the Insured shall sustain and discover as provided in Section 2, the amount of indemnity on each of such Employees being Two Thousand Five Hundred and no/100 . . . Dollars ($2,500.00) through any fraudulent or dishonest act or acts committed by any one or more of the Employees as defined in Section 3, acting alone or in collusion with others, during the term of this bond as defined in Section 1.'

Each cause of action alleges that on or about June 1, 1951, plaintiff employed Orlo T. Jatzeck as commission station agent to sell petroleum products and automobile accessory products at Lincoln, Montana; that it was understood that the products would be located by plaintiff on or near the property of Jatzeck at Lincoln, and that the products were to remain the property of plaintiff until sold by Jatzeck, who should then account to plaintiff for such products sold. Paragraph VI of each cause of action reads as follows:

'That at all times mentioned herein and during the period specified above, the said Orlo T. Jatzeck was acting on behalf of the plaintiff as the Agent of the Plaintiff in the capacity of Commission Station Agent, while in the possession of money and property belonging to the plaintiff.'

In the first cause of action it is alleged that beginning about June 1, 1951, until about November 4, 1952, Jatzeck accounted for a portion of the products sold but as to the remainder he 'wrongfully and dishonestly failed, and does still wrongfully and dishonestly fail, to account for the cash money he received or should have received, in return for the products sold to others on behalf of the plaintiff as aforesaid. That the said Commission Station Agent, Orlo T. Jatzeck, thereby wrongfully and dishonestly appropriated said cash money to his own use and does still wrongfully and dishonestly retain the same for his own use. That the cash money so appropriated amounted to the sum of $2,240.56. That the plaintiff herein has thereby sustained a loss of $2,240.56 as a result of the wrongful and dishonest acts of his aforesaid Commission Station Agent, Orlo T. Jatzeck.'

The second cause of action alleges that between June 1, 1951, and November 4, 1952, plaintiff located petroleum products and automobile accessory products on the property of Jatzeck and that he as commission station agent 'removed or caused to be removed' such products; that Jatzeck accounted in cash for a portion thereof, but as to the remainder he 'wrongfully and dishonestly failed to account * * * either in cash or otherwise for the products so removed'; that he 'wrongfully and dishonestly appropriated the remainder of the products so removed to his own use'; and that the value of the products so appropriated was $2,240.56, for which judgment was sought.

'The terms 'fraud' and 'dishonesty' include any acts which show a want of integrity or a breach of trust.' 45 C.J.S. Insurance Sec. 802, pp. 850, 852; Exeter Banking Co. v. Taylor, 85 N.H. 458, 160 A. 733.

It is generally held that mere failure to account would not imply fraud or dishonesty within the meaning of a bond covering fraudulent and dishonest acts. There is however a difference of opinion on that question. The Supreme Court of New Jersey in Ex parte Clark, 20 N.J.L. 648, 650, 45 Am.Dec. 394, 396, discussed the meaning of fraud and dishonesty as follows:

'The argument upon this point went upon the ground, that there was nothing fraudulent, in a man's having money or property in his own possession, or in the possession of another for his use and subject to his control, and yet refusing to appropriate it to the payment of his honest debt. I am not prepared however to concede what is assumed in this argument. I think it one of the most dishonest things a man can be guilty of, to refuse to pay his honest debts, when he has the means to do so. Whatever is dishonest is fraudulent in foro conscientiae and is so treated in a court of equity. Fraud and dishonesty are synonymous terms. * * *

'* * * if he acts unjustly and unlawfully, he acts fraudulently; an unjust man is a fraudulent one.'

Here the allegations go beyond a mere failure to account. It is alleged that the money and property converted by Jatzeck belonged to plaintiff. In addition to the duty to account there is alleged the wrongful conduct of Jatzeck in appropriating plaintiff's money and property to his own use. It is not alone a case of mere failure to account pursuant to an agreement or understanding between the parties.

A case very similar to this is that of National Surety Co. v. McCutcheon, Tex.Civ.App.1925, 270 S.W. 1062, 1063. There a surety assumed liability for dishonesty or fraud on the part of an insurance agent as to premiums collected by the agent. The facts were not in dispute; they were agreed to. In substance the agent collected premiums which he did not transmit to the company. The court in holding that there was liability under the bond said:

'The contention of appellant, in substance, is that inasmuch as it was the custom of Jack Price to charge on the books kept by him premiums due his principal and credit himself with commissions earned, making remittances at stated intervals, the relation between Price and his principal was that of debtor and creditor, and that his mere failure to account to his principal for the said sum of $1,648.74 due it did not constitute dishonesty or fraud, but, on the contrary, amounts to no more than mistake, negligence, error of judgment, or breach of contract, and that therefore the appellant was not liable under the terms of its bond.

'The rule of law that a surety is not to be held beyond the terms of his contract is too well settled to require the citation of authority. But in the agreed statement of facts before us we find no explanation of Price's failure to account to his principal for the premiums due it. If in fact he became insolvent or because of some calamity was unable to make remittances between the time he collected the premiums and the time when, in accordance with his custom, he was required to make remittances, it is not shown by the agreed statement of facts. In other words, his failure to remit is wholly unexplained and the question is: Does that unexplained failure to remit amount to 'fraud or dishonesty,' within the meaning of the terms of appellant's bond? In the absence of an explanation, the inference seems plain that he converted the premiums to his own use or to the use of some other person. * * *

'So here we think it must be held that the premiums collected by Price and due his principal, the Banker's & Shippers' Insurance Company, undoubtedly constituted a trust fund and good faith on his part required him to remit such fund to his principal, and an unexplained failure to so do certainly amounted to wrongdoing. * * *

'We conclude from the agreed statement of facts before us that the trial court properly held that the unexplained failure of Price to remit to his principal, the Bankers' &...