21 N.Y.2d 518 (1968)

In an action by an employer to recover on a fidelity bond, an extrajudicial declaration made by his employee is admissible as affirmative evidence against the surety, provided the declaration is in writing and the declarant is available for cross-examination.

Summary

Letendre sued Hartford to recover on a fidelity bond for losses caused by his employee, Tremblay. The key issue was the admissibility of Tremblay’s written confession to embezzling funds, made after the alleged defalcation. The New York Court of Appeals held the statements were admissible, overturning the long-standing rule in Hatch v. Elkins, which had excluded such statements as hearsay. The Court reasoned that the availability of the declarant for cross-examination and the reduced risk of collusion justified admitting the statements as affirmative evidence, thereby furthering the truth-finding function of the courts. The dissent argued for upholding Hatch and excluding the hearsay statements.

Facts

Victor Letendre owned a gas station and motel. He secured a fidelity bond on his employee, James Tremblay, before leaving Tremblay in charge while Letendre operated a restaurant in Florida. Upon returning, Letendre discovered discrepancies in business records and bank accounts. Tremblay initially denied any wrongdoing but later confessed to defalcations in a written statement to the insurer’s agent. Subsequently, Tremblay retracted the confession, claiming he only stole a small amount. At trial, Tremblay denied embezzling any funds.

Procedural History

Letendre sued Hartford to recover on the fidelity bond. The trial court admitted Tremblay’s inculpatory statements into evidence and returned a verdict for Letendre. The Appellate Division affirmed, finding the statements admissible due to Tremblay’s continued employment at the time they were made. The Court of Appeals granted leave to appeal to determine the admissibility of the statements.

Issue(s)

Whether an extrajudicial declaration made by an employee after the acts to which they relate is competent evidence against the surety in an action by an employer to recover on a fidelity bond.

Holding

Yes, because the statements were in writing, and the declarant was available for cross-examination, mitigating the dangers of hearsay and furthering the truth-finding function.

Court’s Reasoning

The Court of Appeals rejected the rule in Hatch v. Elkins, which had held that extrajudicial statements of a principal made after the fact are inadmissible against the surety. The Court reasoned that the primary justification for the Hatch rule—the fear of collusion between the employer and employee against the surety—did not outweigh the probative value of the evidence, especially where the employee is available for cross-examination. The Court stated, “In an action by an employer to recover on a fidelity bond, an extrajudicial declaration made by his employee should be admissible as affirmative evidence against the surety, where the declaration is in writing and the declarant is available for purposes of cross-examination.” The Court also highlighted that the risk of admitting such statements is no greater than in other types of cases where collusion is possible, and that an employee risks criminal charges by admitting embezzlement, making collusion unlikely. The Court emphasized the injustice of depriving employers of potentially crucial evidence. Judge Breitel’s dissent argued for upholding the Hatch rule, citing its long-standing precedent and alignment with general hearsay principles, as well as the increased risk of collusion when the employee remains employed. He further noted the importance of cautionary instructions to the jury regarding the weight of extrajudicial statements.