United States Fidelity & Guaranty Co. v. Crais

127 So. 414, 13 La. App. 691, 1930 La. App. LEXIS 155
CourtLouisiana Court of Appeal
DecidedApril 7, 1930
DocketNo. 11,794
StatusPublished
Cited by3 cases

This text of 127 So. 414 (United States Fidelity & Guaranty Co. v. Crais) is published on Counsel Stack Legal Research, covering Louisiana Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States Fidelity & Guaranty Co. v. Crais, 127 So. 414, 13 La. App. 691, 1930 La. App. LEXIS 155 (La. Ct. App. 1930).

Opinions

HIGGINS, J.

Plaintiff sues defendant for $500 on a contract alleged to have been entered into between the parties on May 13, 1925. Defendant admitted his signature, but denied liability for want of valid or legal consideration. There was judgment in favor of the plaintiff as prayed for, and defendant has appealed.

The pertinent part of the contract reads as follows:

“May 13, 1925.
“In consideration of the discharge by the United States Fidelity & Guaranty Co. of its liability to the Canal Commercial Trust & Savings Bank of New Orleans, as surety for and on account of J. E. Johnson, Manager of the LeBreton Market Branch of the Canal Commercial Trust & Savings Bank of New Orleans, the undersigned bind and obligate themselves to pay to the United States Fidelity & Guaranty Co. the amount set opposite their respective names, or so much thereof as may be necessary to refund and reimburse the said company for any loss, damage or expense resulting from, and growing out of the bond herein above referred to, subject however, to the following conditions and provisions, to-wit:
“1st. ‘The amount of liability of the United States Fidelity & Guaranty Company shall be ascertained by an audit of the books of said bank for a period not extending beyond the term of employment of said Johnson, which audit is to be made in the presence of said Johnson.’ ”

[692]*692The agreement also contains other provisions providing for the surrender by Johnson of certain movable and immovable assets to the plaintiff to make restitution for the loss. All of the conditions of the contract have been fulfilled, except the payment by defendant of the sum of $500, which he agreed to pay to the plaintiff under the terms and provisions of the contract.

The sole question before the court is whether or not the contract is supported by a valid consideration.

The record shows that Johnson was employed by the Canal Commercial Trust & Savings Bank as manager of one of its branches. It was discovered that he was short in his accounts in a sum estimated to be over $30,000, due to overdrafts and acts of embezzlement by him.

The plaintiff, in consideration of a certain premium, had issued a blanket bond, or insurance policy, covering all of the employees of the Canal Commercial Trust & Savings Bank in favor of the bank protecting it against loss from dishonesty, embezzlement, etc., by its employees. When Johnson’s misappropriation of the bank’s funds was discovered, he desired to avoid criminal prosecution and adverse publicity, and therefore called for a meeting between his friends and the officers of the plaintiff company to see what could be done. At the meeting there were the officers and attorneys of plaintiff, Johnson and his attorney, and a number of Johnson’s friends. Johnson’s idea was that, if he could make restitution, there should be no criminal prosecution or publicity of his dishonesty. He proposed a surrender of all of his property and assets to be applied against his shortage,' which the plaintiff was required to pay the Canal-Commercial Trust & Savings Bank under the blanket bond, or insurance policy whereby the bank was guaranteed or insured against any loss as a result of embezzlement, or dishonesty, etc., of its employees, and the remaining amount, if any, shown by an audit, would be paid by his friends. Johnson insisted that a provision be placed in the contract that, in consideration of complete restitution, the plaintiff would agree that there would be no criminal prosecution and adverse publicity. The attorneys for the plaintiff pointed out that the matter of criminal prosecution was entirely with the' district attorney representing the state of Louisiana, and refused to agree to such a proposition. After several drafts of the proposed agreement between plaintiff and the friends of Johnson, the agreement sued upon was finally confected and signed by plaintiff and the friends of Johnson for the amount set opposite their names.

Johnson surrendered all of his assets, which the plaintiff used to liquidate its loss, amounting to $39,589.01. However, the assets of Johnson were not sufficient to cover the loss in full, and plaintiff then called upon the respective signer of the contract to pay the amounts for which they had bound themselves in the agreement. It appears that some of the parties paid, but some did not, and three separate suits were entered against these parties in the civil district court. The eases were separately tried by different divisions of the civil district court, and are now on appeal in this court, but they have not been consolidated. This is the first case argued and submitted.

Plaintiff concedes that a contract for restitution, supported only by the consideration not to criminally prosecute for embezzlement, is against public policy and is illeg'al, null, and void, but contends that the contract between itself and the Canal-[693]*693Commercial Trust & Savings Bank was one of suretyship and that, upon payment of the loss to the bank, the surety was subrogated by law to the rights of the bank against the embezzler, and therefore had the right to enter into any agreement for the settlement of its civil loss with Johnson and his friends, and hence the agreement was supported by a valid consideration.

Defendant contends that the contract between the plaintiff and the bank was one of insurance, because Johnson was never a party to it and that, before there could have been a contract of suretyship, Johnson would have had to be a principal; that, since Johnson was not a party to the contract, the contract could only be one of insurance, and hence the plaintiff did not have any right of subrogation against the defaulter Johnson, and that, as the plaintiff was legally bound to pay the bank under its blanket policy of insurance, in paying the bank the loss it was only doing what it was already legally obligated to do; that therefore the ‘contract between the plaintiff and the defendant was without any valid consideration, as Johnson and the defendant did not receive any benefit from the contract and plaintiff neither suffered any detriment nor gave up any right whatsoever.

If the contract between the bank and the plaintiff be one of suretyship, then the plaintiff was subrogated to the rights of the bank against Johnson. R. C. C. arts. 3052, 3053, 2160, 2161. In the case of Curtis vs. Kitchen, 8 Mart. (O. S.) 706, it was held that the surety who pays the debt is subrogated ipso facto.

If the contract between the bank and the plaintiff was one of insurance, then It appears that the plaintiff would not be subrogated to the bank’s rights against Johnson. In the case of Carroll & Co. vs. N. O., J. & G. N. R. Co. et al., 26 La. Ann. 447, the plaintiff insurance company insured a shipment of cotton against loss by fire. The cotton was destroyed by fire during transit. The insurance company paid the loss and sought reimbursement from the railroad. The court said:

“The question here is, whether the insurance company can recover its loss from the railroad company? We think not. There was no contract between the two companies; consequently there was no obligation from the one to the other. There was no conventional subrogation from the assured to the assurers, and there was certainly no legal subrogation by which payment by the one entitled them to payment from the other.

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Related

Rabon v. State Finance Corporation
26 S.E.2d 501 (Supreme Court of South Carolina, 1943)
United States Fidelity & Guaranty Co. v. Thomas
129 So. 556 (Louisiana Court of Appeal, 1930)

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Bluebook (online)
127 So. 414, 13 La. App. 691, 1930 La. App. LEXIS 155, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-fidelity-guaranty-co-v-crais-lactapp-1930.