Court Opinion

ID: 9762237
Source: CourtListenerOpinion
Date Created: 2023-08-29 02:17:24.086385+00
Date Added: 2024-06-11T07:29:32.118148
License: Public Domain

SMITH, Justice.
I respectfully dissent. In my opinion, Huffman committed acts of “fraud and dishonesty” within the meaning of those terms as used in Article 14.08, Texas Insurance Code, and the surety company is accordingly liable on its fidelity bond.
I fully recognize that the bond in question does not “guarantee a faithful performance of duties.” Furthermore, as the majority opinion notes, it is elementary that the bond “indemnifies only for crimes or wrongs listed * * Among the listed wrongs, for which protection is provided, are acts of fraud and dishonesty.
The surety company has contended throughout the trial of this cause that the terms “fraud and dishonesty” are limited to include only conduct involving moral turpitude or want of integrity on the part of the bonded employee committed by him with a sense of consciousness and willful wrong. In the alternative, the surety company has *76contended these terms cover only conduct committed with such reckless, willful and wanton disregard for the interests of his employer that such conduct was manifestly unfair to the employer and clearly subjected it to the likelihood of loss.
On the other hand, respondents contend that the terms “fraud” and “dishonesty” as applied to coverage under a bond of fidelity insurance given by the bonding company pursuant to the provisions of Article 14.08, include not only those elements contended for by the surety company, but include acts and conduct the nature of which shows a want of integrity or a breach of trust.
This court has held that to constitute fraudulent and dishonest conduct, within the meaning of the bond, Huffman must have had “some degree of intent to perform the wrongful action. There must be the physical act plus the mental state for there to be fraud.” The majority opinion further states that “ * * * an intent to do a wrongful act, or knowledge that others were acting wrongfully” is necessary. The majority then concludes that the jury findings in favor of the surety company must be upheld since “ * * * the evidence of Huffman’s conduct does not conclusively show that he either participated in the wrongdoing or that he had knowledge of the wrongdoing.”
First, assuming that this court has applied the correct test as to what constitutes “fraudulent and dishonest” acts within the meaning of the bond, Huffman’s conduct falls within the majority’s definition. The evidence clearly shows that Huffman posted the very checks declared on which showed their diversion to the private account of W. L. Bridges, Jr.
There is a more basic reason, however, why I cannot agree with the majority. Pri- or to this cause, the terms “fraud” and “dishonesty,” as used in conjunction with the extent of coverage of a fidelity bond, had not been definitively interpreted. This being-so, this court should liberally com strue the terms in order to effectuate the purpose for which the Legislature has required that such a bond be posted; e. g., the protection of the public interest. In my opinion, the narrow definition adopted by the majority does not carry out this purpose but, to the contrary, renders Article 14.08 meaningless and makes inoperative the bond in question.
Under the provisions of Article 14.08, the Legislature has directed that some officer “shall be responsible in the handling of the funds of the corporation.” In the present case, Huffman was appointed to, and accepted, this responsibility placed upon him by the Statute. At this point, any attempt to comply with the legislative mandate ceased. By his own testimony, Huffman admitted that he voluntarily and completely surrendered all control of handling the corporation’s funds :
“Q Now, having taken over as secretary-treasurer and bonded officer of Southern Industrial Life Insurance Company, did you have occasion to write some checks from time to time in that company?
“A Yes, sir.
“Q Did you write all or most of the checks in that company?
“A No, sir. I signed most of the checks.
“Q How did you sign them?
“A I signed checks in blank in most instances. Possibly some bills I had before me; I paid them with the bill in front of me.
******
“Q Did you ever look to see the source of these ■ expenditures resulting from the blank checks that you signed—
“A No, sir, other than—
“Q —to. see where the money was going?
*77“A No, sir, other than casually looking at a check, while I was signing it, maybe, sometime.
“Q And did you ever bother to see whether any papers were executed to support these disbursements, the blank checks that you were signing?
“A No, sir; Mr. Bridges handled all the paper work, the legal documents, the processing of all investments.
“Q You never did bother to check on that?
“A No, sir.
* * * * * *
“Q Did you see any of the mortgage loan papers in the office there, supporting those purported mortgage loans, for the year 1959 for Southern Industrial?
"A No, sir. As I said, Mr. Bridges handled the investments and all the necessary legal documents.
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“Q Did you attempt to make an investigation whatever of the financial affairs or bookeeping of Southern Industrial Life Insurance Company while you were the secretary-treasurer and principal bonded officer of the company?
“A No, sir.
“Q Did you exercise any care whatever in seeing that the money that was disbursed went for authorized investment purposes under the Insurance Code?
“A I only made disbursements when I was instructed to by Mr. Bridges. As far as checking on any of those disbursements, I did not.
“Q Well, did you exercise any degree of care or responsibility with reference to determining whether the disbursements were for authorized purposes and were proper ?
“A No, sir; since Mr. Bridges handled that, he took care of it.
“Q Did you ever make any attempt to recapture any of the money that went out of the company on these blank checks which you said you signed, where it went for purposes other than the insurance company, Southern Industrial?
“A Did I personally make any attempt to recover?
“Q Yes.
“A No.
“Q Did you ask anybody in the company or any of the officers or directors to make any attempt?
“A No, sir.
“Q Did you ever call to the attention of any of the officers or directors of Southern Industrial Life Insurance Company any irregularities, or the fact that you were signing all the checks in blank ?
“A No, sir, I was not aware of any irregularities, either in signing checks in blank, or in anything else.”
It is clear that as a direct result of this haphazard, loose manner of handling the funds, the corporation “expended” $277,500.00 for which it received nothing in return. Yet, the majority says that the surety company is not liable on its bond because the conduct of Huffman was not fraudulent and dishonest.
By directing that some officer be responsible for handling corporate funds, I do not believe the Legislature intended to permit a person in Huffman’s position to handle the funds in any manner, so long as he acted with a pure heart. As stated in McFar*78land v. George, Mo.App., (1958) 316 S.W.2d 662, 671:
“ * * * The primary meaning of 'responsibility’ as found in the dictionaries is the state of being answerable for an obligation. * * * The term 'responsibility’ includes judgment, skill, ability and capacity. Ohio Power Co. v. N. L. R. B., 6 Cir., 176 F.2d 385, 387 [11 A.L.R.2d 243]. Legal responsibility is the state of one who is bound or obliged in law and justice to do something. Behnke v. New Jersey Highway Authority, 13 N.J. 14, 97 A.2d 647, 654. In Crockett v. Village of Barre, 66 Vt. 269, 29 A. 147, the court said: ‘One’s duty is what one is bound or under obligation to do. One’s responsibility is its liability, obligation, bounden duty.’ The word ‘responsibility’ as used in the rule means the doing of something. Any other meaning would render the rule meaningless.3’ (Emphasis added.)
In my opinion, the Legislature clearly intended for a person in Huffman’s position to at least be responsible for seeing that corporate funds were actually being spent for those things shown on the company books: without such a minimum requirement, Article 14.08 is meaningless.
In his work on Contracts and Sales, Judge Simkins has defined “fraud” as follows:
“Fraud is an act or concealment involving a breach of legal duty, trust or confidence justly reposed, and from which injury results to another. * * * ”
This court has quoted the above definition with approval. See Russell v. Industrial Transportation Co., 113 Tex. 441, 251 S.W. 1034, aff. 258 S.W. 462, 51 A.L.R. 1 (1924).
The following general rule is set forth in 9 Appleman, Ins. Law and Practice, Sec. 5668, p. 513:
“Liability on a fidelity bond covering fraud or dishonesty is not limited to such losses as result from the criminal acts of the employee, but such words have been construed to have a broader meaning and to include any acts which show a want of integrity or a breach of trust.”
I am in full accord with the Court of Civil Appeals’ holding that, under the provisions of Article 14.08, Huffman was a trustee of the corporate funds. Furthermore, under my construction of the statute, his conduct amounted to a breach of trust as a matter of law. Therefore, he committed acts of fraud and dishonesty within the meaning of those terms as used in the statute; and, accordingly, the surety company is liable on its fidelity bond.
Even assuming that the majority is correct that “the Court of Civil Appeals was in error in holding that as a matter of law the surety company was liable on the bond,” I cannot agree with the judgment entered by this court. In my opinion, there were proper points presented in the Court of Civil Appeals raising the question of “insufficiency” and “weight and preponderance.” Thus, this cause should be remanded to the trial court for a new trial.
On June 17, 1963, prior to oral argument in the Court of Civil Appeals, appellant Langdeau filed a motion to amend his brief, together with an amended brief, in that court. This amended brief contained points on “insufficiency” and “weight and preponderance.” On the same day, a copy of the motion and the amended brief was delivered to counsel for the appellee surety company. Prior to filing his motion, appellant’s counsel was informed by one of the Court of Civil Appeals’ justices that it was not necessary that the Court enter any formal order granting the motion to amend, and that the Court considered such briefs as were before it on the date of oral submission.
During oral argument of the case, appellant’s counsel made reference to the amended brief stating that he assumed such brief would be considered by the Court and that *79such points as were raised in such brief were properly before the Court for consideration.
Although duly notified of the filing of said amended brief, counsel for appellee did not contest same by written motion nor did he contest the filing of such brief for consideration thereof by the Court during oral argument before the Court.
Notwithstanding the above, this court now holds that appellant failed to present proper points in his briefs in the Court of Civil Appeals raising the questions of “insufficiency” and “weight and preponderance.”
Rules of procedure should be interpreted liberally in order to promote justice, rather than to be utilized as a trap for the unwary to thwart justice. Since the Court of Civil Appeals sustained appellant’s no evidence points, it was not necessary for that court to formally determine appellant’s motion to amend or amended brief, wherein the jury answers to each special issue were properly attacked by points raising weight and preponderance of evidence questions.
It was not the fault of appellant that the ■Court of Civil Appeals did not formally grant his motion to amend, and appellant •should not, in justice, be penalized for such lack of action by the court.
It is necessary to discuss one other holding in order to understand the judgment I believe should be entered in this cause. In the trial court and the Court of Civil Appeals, the surety company contended that Huffman was a necessary party to the suit. The Court of Civil Appeals sustained this ■contention and therefore reversed and remanded with instructions to abate the cause “until Mr. Huffman is made a party or legal excuse for not doing so is established.” I do not agree that Huffman was a necessary party, and therefore the Court of Civil Appeals should have rendered judgment on the 'bond against the surety company.
The judgment of the Court of Civil Appeals should be affirmed in part and reversed m part. In the alternative, the judgment of the Court of Civil Appeals should be reversed and the cause remanded to the trial court for a new trial.
GRIFFIN, J., joins in this dissent.