Kiley, Pell and Stevens, Circuit Judges.
Plaintiff, Charm Promotions, Ltd. (Charm) appeals from a summary judgment for Travelers Indemnity Company (Travelers) in this diversity action to recover under a fidelity bond written by Travelers.*fn1 We reverse and remand for trial.
In January, 1966, Charm was incorporated in Illinois pursuant to an agreement between Automatic Accounting Corporation (Automatic),*fn2 an Illinois corporation owned equally by Goldman, Brown, and Albert Heisler (the "Chicago Group"), and Weingeroff and Glick Enterprises, Inc. (Enterprises), a Rhode Island corporation owned by Frederick and Louis Weingeroff, George Glick, and Harry and Joslyn Oken (the "Providence Group"). Automatic and Enterprises each loaned $75,000 to Charm, and each owned one-half of Charm's stock. Automatic and Enterprises each named three Charm directors.*fn3 The directors "designated," as Charm's officers, Goldman president, Brown secretary, and Frederick Weingeroff vice -president.
Charm's corporate purpose, according to the agreement, was a promotional merchandising program, using novelty charms and bracelets, in aid of supermarkets and other retailers. The Providence Group, in Rhode Island, manufactured, packaged and shipped the novelties directly to Charm's customers. Marketing was the function of the Chicago Group which received payment for the novelties from the retailers and kept the Charm books and records. Bylaws required all Charm checks to be signed by an officer in Chicago and an officer in Providence.
Shortly after Charm was incorporated it purchased from Travelers a $400,000 fidelity bond for protection against "any fraudulent or dishonest act or acts committed by any of the Employees." In February, 1967, Heisler, Charm's accountant, informed the Providence Group that he suspected Goldman and Brown of improperly diverting approximately $235,000 of Charm's funds. Representatives of the Providence Group determined the moneys had been diverted and secured resignations of Goldman and Brown as Charm officers. Charm thereafter filed its claim under the terms of the fidelity bond, but Travelers refused to pay. Charm's suit followed, with Travelers filing a third party complaint against Goldman, Brown and Schulman.
In the district court both Charm and Travelers filed motions, and Travelers an amended motion, for summary judgment. The sole issue presented by the motions was whether Goldman and Brown were covered by the bond.*fn4 The district court decided in favor of Travelers that there was no genuine issue of material fact as to whether Goldman and Brown were employees as defined in the bond, and entered judgment for Travelers. This appeal followed.
So far as pertinent, the bond protected Charm against loss due to any fraud or dishonesty "committed by any of the Employees, acting alone or in collusion with others." The vital bond definition of "employee" is:
Any natural person (except a director or trustee of the Insured, if a corporation, who is not also an officer or employee thereof in some other capacity) while in the regular service of the Insured in the ordinary course of the Insured's business during the Policy Period and whom the Insured compensates by salary, wages or commissions and has the right to govern and direct in the performance of such service, but does not mean any broker, factor, commission merchant, consignee, contractor or other agent or representative of the same general character.
We think the summary judgment was improper because various affidavits and depositions of the parties raise genuine issues of material fact with respect to whether Brown and Goldman received "salaries, wages or commissions" for services rendered in the ordinary course of Charm's business; and whether they were subject to control of the Charm board of directors. Travelers' original summary judgment motion asserted a right to summary judgment on the first issue, and its amended motion asserted a similar right as to the second issue. Since the elements in the issues are both required under the bond definition of "employee," if Travelers is sustained as to either asserted right the district court judgment must be affirmed. Because Travelers has presented its arguments as to the elements of the bond definition separately, we shall treat them separately here.
In support of its original motion, Travelers attached the affidavits of Brown and Goldman. Brown, an attorney, stated he was never in Charm's "regular service," never "performed any services" for or had an employment contract with Charm, was never "paid any wages [or] * * * had a commission agreement with" Charm, and that the Providence and Chicago Groups considered themselves partners owning the business of Charm. Goldman's affidavit was substantially the same. Both Brown and Goldman stated that they received checks for $7,500 and $8,076.96, respectively, from Charm on May 11, 1966; that these checks represented a distribution of accumulated cash in Charm's bank account, but were labeled as salary in order to avoid double taxation, pursuant to an agreement between the directors at an April meeting; and that these checks were the only payments they had received from Charm.
Thereafter, Charm deposed Goldman and Brown and moved for partial summary judgment with supporting affidavits of, among others, Frederick Weingeroff, Heisler, Harvey Pestine*fn5 and James C. Mills.*fn6 These affidavits were to the effect that when Charm was formed, it was agreed that all officers would receive compensation from Charm when funds became available from sales receipts; and that the checks received by Goldman and the other officers in May 1966 were payments of salaries for services rendered in the ordinary course of Charm's business.
Charm relied also upon the depositions of Goldman and Brown taken after their affidavits supporting their previous motion to dismiss. Brown stated he was paid a salary, depending on the "availability of funds," and that he performed administrative and legal services for Charm. Both Goldman and Brown reaffirmed the conference decision about the tax stratagem in issuance of the checks. In support of its theory that the checks were payments of salaries, Charm filed copies of the checks, which showed deductions for withholding ...