First National Bank hired Longdon as a secretary and obtained a surety bond from Belton covering the bank against losses up to $100,000 resulting from Longdon’s improper conduct in the performance of his duties. Both Longdon and the bank signed the application for the bond. After one year of service, Longdon was promoted to teller, and the original bond remained in effect.

Shortly after Longdon’s promotion, examination showed that Longdon had taken advantage of his new position and stolen $50,000. He was arrested and charged with embezzlement. Longdon had only $5,000 in assets at the time of his arrest.

(a) If the bank demands a payment of $50,000 from Belton, what defense, if any, might Belton raise to deny any obligation to the bank?

(b) If Belton fully reimburses the bank for its loss, under what theory or theories, if any, may Belton attempt to recover from Longdon?

Chapter 32 Nature of the Debtor-Creditor Relationship 733 AppendixLO1