Maryland Casualty Co. v. Hall

88 So. 407 | Miss. | 1921

William H. Cooil, J.,

delivered tbe opinion of tbe court.

This is an appeal from tbe chancery court of tbe Second district of Jones county. K. C. Hall, tbe appellee, was complainant in tbe court below, and tbe Maryland Casualty Company and Tbeo. McDonald were defendants. From a decree in favor of complainant, tbe Maryland Casualty Company prosecuted tbis appeal.

In June, 1918, K. C. Hall, appellee, was appointed as trustee to collect tbe outstanding notes and accounts due the stockholders of tbe Laurel Oil & Fertilizer Company, a corporation, then in voluntary liquidation. Appellee employed one Tbeo. McDonald to assist him in tbe collection of these notes and accounts, and tbe Maryland Casualty Company, appellant, executed a bond indemnifying tbe trustee against loss by reason of any acts on tbe part of McDonald amounting to larceny or embezzlement. McDonald entered upon tbe discharge of his duties on or about July 1, 1918, and tbe books, notes, and accounts of tbe Laurel Oil & Fertilizer Company were turned over to him. He continued in tbe employ of appellee until about January 1,1919, and during tbe term of bis employment be collected about one hundred and twenty-six thousand dollars. Shortly before tbe termination of McDonald’s employment on January 1st a competent bookkeeper was employed to check tbe books and accounts that had been kept by McDonald, and in this checking there was discovered what was termed by the several witnesses a discrepancy or irregularity in tbe books and accounts, amounting to about eighty dollars, and, since McDonald failed to explain tbis discrepancy to the satisfaction of appellee, be declined to pay bis December salary. McDonald at once entered suit in tbe justice court for this salary, but before the return day of this suit, appellee and McDonald reached a settlement of their differences and appellee paid McDonald bis December salary and delivered to him tbe original bond, and McDonald dismissed tbe suit in the justice court.

About February 1, 1919', appellee employed accountants to make a complete audit of the books, notes, statements, and accounts which had been turned back to him by McDonald. These auditors continued their work on the books until about the middle of February, when, without completing the audit, they returned to their Memphis office. They did not return to Laurel to complete this audit until about the 1st of April, but before leaving in February they discovered certain unexplained irregularities in the books and reported these facts to' appellee. On February 24th appellant wrote appellee the following letter:

“119792 — Fidelity. K. C. Hall, Theo. McDonald.

“February 24th, 1919.

Mr. K. C. Hall, Laurel, Miss. — Dtear Sir: We have been advised by our Ellisville agent of possible trouble under the above bond and are accordingly attaching blank proof of loss for statement of claim.

“If McDonald had been guilty of any offenses within the terms of our obligation, kindly fill out this proof with full details as to dates, origin, and nature of the various items, and have warrant issued for his arrest, in accordance with the sixth clause of our bond.

“Yours very truly,

“Emil L. Hoein, Manager,

“Per Euwakd J. Coolahan.”

On February 28th appellee replied to this as follows:

“Laurel, Miss., Feb. 28, 1919.

“Maryland Casualty Company, Emil L. Hoen, Manager, Baltimore, Maryland — Dear Sir: I acknowledge receipt of your favor of the 24th inst. The matter you wrote me about is being investigated, and therefore I am not in position at this writing to make any statement.” ■

On April 15th the auditors filed a partial report with appellee showing a shortage of about one thousand and fifty dollars, and on April 16th appellee wrote appellant as follows:

“Laurel, Miss., April 16, 1919'.

“Maryland Casualty Company, Baltimore, Maryland— G'entlemen: In refer, to bond No. 119792, $2,000, Theo. McDonald, in favor of myself. y

“I beg to advise that upon a recent audit by O. P. Cobb & Co., certified public accountants, Bank of Commerce & Trust Building, Memphis, Tennessee, it develops that this party is short about one- thousand and fifty dollars. The results of this audit cáme to my address about the 15th inst., but, being absent then, I was unable to make the report until to-day. This I am doing in compliance with the third clause or provision of the bond. Within the next few days I will either send you myself or have the auditors send you proof and affidavit of the loss in further compliance with the fourth clause or provision of the bond.

“If you desire that the proof should comply with any certain form that you have I will ask that you mail it to the above auditors, as I think now that I will have them to make the proof from their office. Yours very truly.”

On April 25th appellant replied to this letter as follows :

“119792 — Fidelity. K. C. Hall, Theo. McDonald.

“Mr. K. C. Hall, Box 393, Laurel, Mississippi — Dear Sir: Yours of the 18th came duly to hand and we are accordingly attaching blank proof of loss.

“As suggested in our letter of February 24th, if McDonald has been guilty of any offenses within the terms of our obligation, kindly fill out this proof with full details as to dates, origin and nature of the various items and have warrant issued for his arrest in accordance with the sixth clause of. our bond.

“Yours very truly,

“Emil L. Hoen, Manager,

“Per Edward J. Coolahan.”

On May 3d, after appellee had received a complete and final report from the auditors, he mailed to appellant proof of loss duly executed on blanks previously furnished by appellant. On May 9, 1919', appellant returned tbe proof of loss with the following letter:

“119792 — Fidelity K. O. Hall, Theo. McDonald.

“Mr. K. C. Hall, Laurel, Miss. — Dear Sir: Your favor of the 3d inclosing proof of loss came duly to hand, but we are not informed by Mr. McDonald that he not only disputes this claim in toto, but says that some time in January it was necessary for him to file suit against you due to the fact that you were withholding his salary to apply against alleged discrepancies in his accounts, and that pror to the trial you settled the matter, releasing the bond, and returning same to the principal.

“In view of Mr. McDonald’s statement, therefore, it would appear that there is no liability upon our bond, and we are accordingly returning your proof. Our request for arrest is, of course, hereby withdraAvn.

Very truly yours,

“Emil L. Hoen, Manager,

“Per Edavard J. C.oolahan.”

Appellant earnestly insists that this cause should be reversed for the reason that appellee did not comply with the third clause of the bond sued upon, which required ap-pellee, as soon as he became aware of, or received notice of, any loss which might be the basis of a claim thereunder, to immediately notify appellant by registered letter; these sections of the bond being as follows:

“This bond is executed by the company upon the fol-loAving express conditions, which shall be deemed conditions precedent to any right of the employer to recover hereunder: . . .

“Third. That the employer on becoming aware of, or upon receiving notice of, any loss, which may be made the basis of any claim hereunder, shall immediately notify the company.by registered letter addressed to the company at its principal offices in Baltimore, Maryland. . '. .

“Fourth. That the claim, if any, for loss sustained shall be delivered to the company by letter addressed to the company at its principal offices in Baltimore, Maryland, within ninety days after the employer shall have become aware of, or received notice of, any loss which may be made the basis of any claim hereunder, which claim shall be accompanied by a statement of such loss, verified by affidavit. The company shall not be liable for loss caused by the employee after the employer shall have first learned of any act which may be made the basis of claim hereunder; nor shall the company be liable for loss caused by the employee after his resignation or removal.”

This assignment of error calls for a construction of the meaning of the words “to become aware of any loss sustained by reason of acts of the insured constituting larceny or embezzlement.” Does this provision require that, upon the discovery of any unexplained irregularity or discrepancy in the books or accounts of the employee which may create a suspicion of wrongdoing, the employer shall immediately report his suspicions to the insurer? We think not. When there are hundreds of accounts involved, where the services of trained accountants are required to check and trace the separate items of extended accounts, an immdiate charge of fraud or dishonesty against an employee upon the discovery of unexplained discrepancies or irregularities in the books or accounts, or upon a suspicion of wrongdoing, would be wholly unjustified and unwarranted. To be aware of a loss sustained by reason of acts constituting larceny, or embezzlement, there must necessarily be knowledge of facts which would constitute-the crime, and the charge of so serious a crime cannot safely be based upon mere inferences or suspicions arising from unexplained irregularities or discrepancies in the books or accounts of the employee, and to be aware of such loss with sufficient certainty to justify the charge of larceny or embezzlement may and probably will require considerable time for investigation after a well-founded suspicion of wrongdoing has been aroused. American Surety Co. v. Pauly, 170 U. S. 133, 18 Sup. Ct. 552, 42 L. Ed. 977; First National Bank v. U. S. Fidelity & Guaranty Co., 150 Wis. 601, 137 N. W. 742; Rankin v. U. S. Fidelity & Guaranty Co., 86 Ohio St. 267, 99 N. E. 314; Bank of Tarboro v. Fidelity & Deposit Co., 128 N. C. 366, 38 S. E. 908, 83 Am. St. Rep. 682; Fidelity & Guaranty Co., V. Western Bank (Ky.), 94 S. W. 3.

In determining whether the notice given complies with the requirements of the bond, the facts of each case must control. In the instant case the testimony for appellee is positive that the alleged eighty dollars discrepancy, which was discovered in December, was believed to be a mere error, and that it did not create even a suspicion in the mind of the appellee that the employee had been guilty of any intentional wrong. Under these circumstances his failure to notify appellant of this discovery did not constitute a breach of the condition of the bond.

After the employment of accountants to audit these boolcs and accounts, and it appears from the evidence that they were employed at the suggestion of appellant’s local agent, appellee was notified by these auditors that there were discrepancies in the books which they were then unable to satisfactorily explain. It appears from the correspondence hereinbefore set out that this information was also communicated to appellant’s local agent, and that this local agent notified appellant that there was a probable defalcation and loss under the bond. Appellant at once wrote to appellee in reference to the matter and requested a statement of the amount of the loss or claim. Appellee immediately replied by letter stating that the matter was then under investigation, and that he was not then in a position to make them any statement. This correspondence of itself was at least notice to appellant that the affairs of this employee were under suspicion, and that an investigation to determine the facts was then in progress. Immediately upon receipt of the final report of the auditors, appellee communicated the result to appellant, and we think, finder the facts in evidence in this case, that appellee has fully complied with tbe conditions of tbe bond as to notice of loss thereunder.

Appellant next contends that tbe settlement in January, 1919, between appellee and McDonald, tbe payment of bis December salary, and tbe delivery to him of tbe original bond, constituted a full settlement and release of all further liability on the bond. McDonald was not a party to tbe contract of insurance, and was not entitled to receive the bond, and tbe fact that appellee paid him the final installment of bis salary and by mistake delivered to him the bond does not affect tbe rights of appellee against tbe surety for any defalcations that were afterwards discovered and of which appellee bad no knowledge at tbe time of the settlement with McDonald.

Finally it appears that at the date of tbe execution of the bond the employee was indebted to appellee in tbe sum of sixty-four dollars, and that this item was reported by McDonald as having been paid when in fact it bad not been paid and properly accounted for. The provisions of the tenth clause of the bond are as follows:

“Tenth. That the company shall not be liable under this bond for any sum or amount owing to the employer by the employee at the commencement of the term of this bond, or for funds, moneys, or personal property thereafter used directly or indirectly by the employee to reimburse the employer for any such sum, amount or deficiency, or to discharge in whole or in part any debt or obligation contracted or incurred by the employee with' the employer before or during the term of this bond.”

Under this provision the insurer is not liable for this item of sixty-four dollars which was owing to the employer at the commencement of the term of the bond, and which the employee attempted to discharge by the improper use of other funds of the employer, and appellee was not entitled to recover this item. If appellee will enter a 're-mittitur of sixty-four dollars, the decree of the lower court •will be affirmed; otherwise it is reversed and remanded.

Affirmed conditionally.