The opinion of the court was delivered by: John E. Miller, District Judge.
The defendant has filed a motion for summary judgment pursuant
to Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A.
The motion is based upon:
(3) The amendment to the answer,
(4) Affidavit of J.S. Daily attached to the motion and exhibits
(5) The certificate of the Clerk of the Circuit Court of
Madison County, Arkansas, and
(6) The certificate of the Clerk of the Chancery Court of
Madison County, Arkansas.
The facts on which the motion is based are not in dispute and
the question before the court is one of law.
The facts as shown by the record are as follows:
The plaintiff is a corporation organized under the laws of
Arkansas with its principal place of business in Madison County.
The defendant is a corporation organized and existing under the
laws of the Commonwealth of Massachusetts with its principal
place of business in the City of Boston and is licensed to
transact business in the State of Arkansas.
The plaintiff, between August 17, 1951, and June 28, 1952, was
engaged in the business of selling feed, seed, fertilizer and
other farm supplies in Madison County, Arkansas, and in the
course of such business employed Kelley Ottis Hill as its
manager, whose duty it was to collect on plaintiff's account and
to safely hold for plaintiff moneys due from the sales made in
the due course of plaintiff's business.
On August 17, 1951, the defendant, for the consideration of $25
paid by plaintiff, executed and delivered to plaintiff a bond, a
copy of which is attached to plaintiff's complaint as Exhibit
"The American Employers' Insurance Company
(hereinafter called Surety), in consideration of an
agreed premium, binds itself to pay to Madison County
Farm Association, Huntsville, Arkansas, (hereinafter
called Employer), the amount of any pecuniary loss
which any Employee named in the schedule hereto
attached or added thereto as hereinafter provided,
may, while in any position and at any location in the
service of the Employer, alone or in collusion with
others, cause to the Employer, not exceeding,
however, the amount set opposite the name
of such Employee, through any act of fraud,
dishonesty, forgery, theft, larceny, embezzlement,
misappropriation, wrongful abstraction or wilful
misapplication committed during the one year term
commencing on the 17th day of August, 1951, at noon,
The bond further provides that the total liability shall not
exceed the largest single amount effective as to any position
held by such employee.
Other provisions in the bond prescribe the procedure to be
followed by the obligee in the event of a loss on account of the
acts of the employees. The bond specifically applies to Kelley
Ottis Hill, Manager, in the amount of $5,000, and the
consideration paid by the obligee to the defendant was $25.
The complaint further alleges that the said Kelley Ottis Hill
had in his custody and under his control as Manager for plaintiff
money in excess of $5,000 which he had received as such Manager
for the use and benefit of the plaintiff and that he, the said
Hill, wrongfully converted the same to his own use and has not
accounted to the plaintiff for such amount.
The plaintiff prays judgment against the defendant for the face
amount of the bond of $5,000 because of the alleged dishonesty of
the said Kelley Ottis Hill.
In due time the cause was removed to this court on the ground
of diversity of citizenship of the parties.
After removal, the defendant filed its answer in which it
admitted all of the allegations of the complaint except that it
denied that Kelley Ottis Hill was guilty of dishonesty as Manager
for plaintiff and denied that it was indebted to the plaintiff in
the sum of $5,000 or any other sum.
On May 12, 1953, the defendant was granted permission to file
an amendment to its answer in which it realleged the allegations
in its original answer and alleged:
"Further answering the defendant states that on
April 11, 1953, it served on the plaintiff a notice
in writing demanding the plaintiff to forthwith
commence suit against Kelley Ottis Hill, the
principal debtor and other party liable to the
plaintiff under bond F-101623 of this defendant, for
any defalcation which plaintiff alleges to have
occurred under said bond in its complaint filed
against the defendant, and pursuant to Ark.Stats.
1947, Section 34-333. That plaintiff is a corporation
organized under the laws of the State of Arkansas
with its principal place of business located in
Madison County, Arkansas. That the said Kelley Ottis
Hill is a citizen and resident of Madison County,
Arkansas, and has continuously resided in Madison
County, Arkansas, from the date of the filing of this
action to the present. The plaintiff has failed and
refused for more than 30 days following the service
of said notice in writing to commence suit against