Stewart v. Indemnity Insurance

NOURSE, P. J. In an action upon two separate contracts for the sale of securities plaintiff had judgment against the brokers and the indemnity company as surety for the brokers upon a bond given under the Corporate Securities Act as amended by Statutes of 1925, page 962. The indemnity company has appealed from the portion of the judgment adverse to that company, and the plaintiff has appealed from the portion of the judgment which denied recovery of funds paid to the brokers upon a separate account not pleaded in the complaint. By stipulation both appeals are presented on the same record.

The trial court found that, during the year 1926 the plaintiff’s assignors paid to S. E. Whiting Company, licensed brokers, acting as brokers for a South San Francisco finance corporation, $1360 upon the sale of stock of the loan company; that the brokers failed to deliver the stock or anything of value to the purchasers and refused to give any accounting of the moneys received. It was further found that when the brokers accepted these payments they had no intention of delivering the stock to the purchasers. Upon these findings the court gave judgment against the surety for the sums paid during 1926, the year of its bond.

The indemnity company states the only question involved in its appeal as follows: “Whether, in an action upon a broker’s bond given under the Corporate Securities Act, a plaintiff should be allowed to recover moneys from the surety which had been paid to the broker principal on two contracts to purchase stock from the broker principal based entirely upon a finding of the court that the broker principal at the time of making the contracts had no intention [387]of fulfilling his part of such contracts, where there is no evidence to support such a finding nor from which such an inference could be drawn?”

The question stated does not require comment because the judgment does not depend “entirely” upon the finding of the broker’s intention and also because there is some evidence to support that finding.

The liability of the surety rests upon the provisions of section 5, subdivision 3, of the Corporate Securities Act (Deering’s Gen. Laws, Act No. 3814, as amended, Stats. 1925, p. 967) under which the bond was given. This section reads in part: “Said bond shall be conditioned upon the strict compliance with the provisions of this act, and the honest and faithful application of all funds received and the faithful and honest performance of all obligations and undertakings in the purchase or sale of securities, by said broker, his agents and employees. Said bond shall be further conditioned upon the payment of all damages suffered by any person damaged or defrauded by reason of the violation of any of the provisions of this act, or by reason of any fraud connected with or growing out of any transaction contemplated by the provisions of this act.” The bond executed by the appellant contained similar language.