Appeal from the District Court of the United States for the District of New Jersey; Phillip Forman, Judge.
Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.
This case requires the construction of a bankers' blanket bond, so-called, which indemnified the Peoples Bank & Trust Company, the plaintiff, against loss resulting from larceny and other causes. The case was tried to the District court and a jury. After the plaintiff had put in its evidence, the defendants, the United States Fidelity & Guaranty Company and the National Surety Company and its receiver, made a motion to nonsuit the plaintiff. The motion was denied. The defendants then made a motion for a directed verdict against the plaintiff. This motion was likewise denied and the District court submitted the case to the jury on the plaintiff's evidence. The jury found its verdict in favor of the plaintiff and, after denying a rule to show cause why the verdict should not be set aside, the court entered judgment thereon in favor of the plaintiff. The defendants appealed.
The clause of the bond in question provides that:
"(B) Any loss of Property through robbery, larceny, burglary, theft, holdup, misplacement, or destruction, whether effected with or without violence or with or without negligence on the part of any of the Employees, while the Property is within any of the Insured's offices covered hereunder, or within any recognized places of safe deposit within the United States of America or Dominion of Canada, or within the premises of any of the Insured's bankers or correspondent banks, or lodged or deposited by the Insured in the ordinary course of business for exchange, conversion or registration of the issuers thereof or with any agents of such issuers, or with any persons employed to procure or manage the exchange, conversion or registration thereof."
The bond was in effect during the year 1932.
On January 9, 1932, McDougall, an employee of the plaintiff, gave to Arthur Atkins, who conducted an investment business in New York City, an order to purchase 40 shares of the stock of the American Telephone & Telegraph Company at $100. This order was reduced on March 31 to 35 shares.
The plaintiff's sole office was located in Westfield, N.J., and Atkins, who lived in Westfield, frequently stopped on his way to New York City at the office of the plaintiff to negotiate whatever business he might have with it.
On April 20, Atkins stopped at the office of the plaintiff and notified it that he had executed its order for 35 shares of American Telephone stock as directed, presented a bill, and asked for instructions for registering the stock. The plaintiff gave him the necessary information and delivered its check to him for $3,509.75 in payment for the stock.
On May 3, the plaintiff gave Atkins as order for 25 shares of American Telephone stock at 96 1/2. On May 6, Atkins came to the office of the plaintiff and, presenting a confirmation of the purchase of the stock, notified it that the order for 25 shares had been executed and asked for instructions. The plaintiff thereupon delivered its check to him for $2,417.50 in payment of the stock. Atkins had received the check for each order from the plaintiff on the day following the purchases and forthwith deposited the checks in the bank account for his investment business.
Atkins did not have a membership in the New York Stock Exchange and it was his practice to make purchases of stock sold on the Exchange through a member firm. Prior to 1932, he had had both cash and margin accounts with such a firm with which he regularly dealt. He had closed out his cash account and in 1932 executed all of his orders through his margin account.
The orders for 35 shares and 25 shares of the stock of the American Telephone Company which the plaintiff had placed with Atkins were purchased through his margin account on April 19 and May 5, respectively. The entries in Atkins' books tend to show that the stocks were purchased for the plaintiff and that payment was received for them from the plaintiff.
Atkins withdrew from the checking account $3,000 on April 20, and $3,050 on May 6. He paid those accounts to his broker to "pick up" or pay for certain stocks which Atkins had bought on his margin account for customers other than the plaintiff. Since the payment of the checks, Atkins had not had sufficient funds in his bank ...