Bankers' Mortgage Co. v. McMullan

• Decision Date: 02 May 1932
• Docket Number: 29847
• Citation: 165 Miss. 382,141 So. 331
• Parties: BANKERS' MORTGAGE CO. et al. v. MCMULLAN
• Court: Mississippi Supreme Court

141 So. 331

165 Miss. 382

BANKERS' MORTGAGE CO. et al. v. MCMULLAN

No. 29847

Supreme Court of Mississippi, Division A

May 2, 1932

Suggestion Of Error Overruled June 13, 1932.

(Division A.)

1 LICENSES.

One induced to purchase investment securities by misrepresentations of material facts may rescind contract and recover amount paid and attorney's fees (Code 1930 section 4186).

2 LICENSES.

Investment companies cannot contract to limit authority of agents in sale of investment securities and thus defeat purpose of statute permitting rescission of contract for misrepresentations (Code 1930, section 4186).

3. EVIDENCE.

Statute respecting misrepresentations in sale of investment securities abrogates parol evidence rule to extent of permitting proof of misrepresentation (Code 1930, section 4186).

HON. A. B. AMIS, SR., Chancellor.

APPEAL from chancery court of Scott county, HON. A. B. AMIS, SR., Chancellor.

Suit by W. P. McMullen against the Bankers' Mortgage Company and another. From a decree for complainant against defendant named, defendant named appeals. Affirmed.

Affirmed.

O. B. Triplett, Jr., and R. L. Nichols, both of Forest, and Earle N. Floyd, of Jackson, for appellant.

Where the preliminary negotiations leading up to the purchase and sale of a bond were integrated into a written contract, and where the written contract, recites that the applicant or offeror does not rely upon any representations made by the soliciting agent, he cannot later avoid his contract by alleged oral misrepresentations of the agent not embraced in the contract.

J. B. Colt Co. v. Odom, 101 So. 853, 136 Miss. 651; J. B. Colt Co. v. McCullough, 105 So. 744, 142 Miss. 146; Stanley v. Stevens, 121 So. 815, 153 Miss. 185; Tropical Paint Co. v. Mangum, 125 So. 248, 155 Miss. 876; Isment Hincke Mill Co. v. Natchez Banking Co., 86 So. 588, 124 Miss. 205; Fresno Home Packing Co. v. A. J. Lyon & Co., 53 So. 585, 98 Miss. 228; Cheeck-Neal Coffee Co. v. Morrison Co., 51 So. 1, 96 Miss. 835; Orgill Bros. & Co. v. Polk, 124 So. 649, 155 Miss. 492; Perrault v. White Sewing Machine Co., 127 So. 271, 157 Miss. 167; Brenard Mfg. Co. v. Sumrall, 104 So. 160, 139 Miss. 167; 22 C. J. 217.

Clearly, when an agent fraudulently assumes to act for the company in adding stipulations to a contract, which the company says shall be the limit of its obligations, he is acting outside the scope of his ostensible authority, and the company will not be responsible for his fraud.

Schuster v. North American Hotel Co., 186 N.W. 87.

The application, if the plaintiff had exercised the ordinary business precaution to read it before signing it, would have shown that the statement of the agent in no way bound the company.

Prestwood v. Carlton, 162 Ala. 327, 50 So. 254.

The principal is not bound by an agent's representations which are so manifestly absurd that it would be scarcely possible that anyone would be deceived by or rely upon them.

Cook v. Whitfield, President, etc., 41 Miss. 541.

In order for a false representation to constitute fraud, it must have been made under such circumstances and be of such nature that a reasonably prudent person would act thereon.

Pilot Life Ins. Co. v. Wade, 121 So. 845, 153 Miss. 157.

Earle N. Floyd, of Jackson, for appellant.

The Blue Sky Law places no restriction upon the control under which the agent works. It has no application to the representations of any agent when every indicia of his authority as an agent carries with it express limitations.

Elliot Annotated Blue Sky Law of United States.

The main purpose of the Blue Sky Law is to require the scrutiny of some designated public official as to the class of the securities to be offered to the public. After this has been done the state does not undertake to guarantee to the public that the agents of a company will not transcend their authority.

The main and perhaps chief safe-guard of the Blue Sky Law is to place a presumption of fraud upon the sale of every security, regardless of its merits, in the event the company selling such has not complied with the said law.

Our Blue Sky Law as contained in Article 2, Chapter 100, Code of Mississippi 1930, is but a rescript of slight variance from those enacted in almost every State of the Union. The effect of it in common with those of other states, as construed by the courts of various jurisdictions, may be briefly stated as "creating no new cause of action but only affording additional safe-guards against the results of fraud, for which there was already a remedy, by requiring a bond of indemnity.

The bond required under Section 4185, Code of 1930, is predicated and solely conditioned upon the truthfulness of the documents and data contained in the application for the certificate or permit.

Section 4186 provides that any person who shall be induced to purchase any of the designated securities "by reason of any misrepresentations of any material fact shall have the right to bring suit upon the bond provided for, " but the phrase "misrepresentations of any material fact must refer to and have as its antecedents those referred to in the bond and required under Section 4180, and the word "any" is not to be given a latitudinous interpretation.

Agents may make representations as to value but mere representations as to value by persons occupying no fiduciary relation cannot avail to, rescind a contract.

Deshatreaux v. Batson, 131 So. 346.

The legal intent and effect of the Blue Sky Law is clearly shown in the character of the securities exempted from its operation.

Section 4195, Code of 1930.

The Blue Sky Act does not abrogate the parol evidence rule and the constitutional rights of the principal to limit the authority of its agents.

J. B. Colt v. Odom, 101 So. 853, 136 Miss. 651.

The Blue Sky Law creates no new cause of action, but only safeguards the public against the results of fraud, for which there was already a remedy, by requiring a bond of indemnity.

National Surety Co. v. Coleman, 104 So. 821.

No where has it been held that the bond provided under such Act is anything but a surety bond to insure the truthfulness of the statements filed with the securities commission--in this case the Secretary of State.

It has never been construed as a fidelity bond insuring the faithful conduct of the company's agent in matters not enumerated.

Alabama & N. O. Transp. Co. v. Doyle, 210 F. 173; People v. Berrier, 124 Mich. 664, 667, 83 N.W. 594, 50 L.R.A. 493, 83 A. S. R. 352.

J. Knox Huff, of Forest, for appellee.

The clearly indicated purpose of the Legislature in enacting a blue sky law is to protect the public from deceit and prevent fraud in the sale and disposition of stock, bonds and other securities within the state.

Reilly v. Clyne, 27 Ariz. 432, 234 P. 35, 48 A.L.R. 1005; Felton v. Highlands Hotel Co., 165 Ga. 598, 141 S.E. 793, 57 A.L.R. 987 and note; McMannus v. Fulton, 85 Mont. 170, 287 P. 126, 67 A.L.R. 690.

By Article 2, Chapter 100, Code of 1930, the common law has been superseded.

Misrepresentation of the value of the security sold is ground for recovery for fraud under the common law, 12 R. C. L. 297, section 61; 21 R. C. L., pages 905-6, sec. 82.

OPINION

Cook, J.

The appellee, W. P. McMullan, filed a bill of complaint in the chancery court of Scott county against the appellant, the Bankers' Mortgage Company, and the Fidelity & Deposit Company of Maryland, its surety, seeking to recover the sum of six hundred fifteen dollars, alleged to be due the appellee on account of false representations of fact embodied in statements of appellant's salesman and agent in a transaction involving the sale of installment investment bonds. The Fidelity & Deposit Company interposed a demurrer to the bill of complaint, and thereafter the appellee dismissed his bill as to it. The appellant, the Bankers' Mortgage Company, filed its answer to the bill of complaint, and, on the trial of the cause on the pleadings and proof, the chancellor granted a decree awarding the appellee a recovery of the amount sued for, with attorney's fees and costs; and from that decree this appeal was prosecuted.

The bill of complaint alleged that the appellant is a corporation organized and chartered under the laws of Kansas and domiciled in the city of Topeka, in that state, and authorized to do business in this state as a foreign corporation engaged in the sale of installment investment bonds; that it had qualified under the statutes of this state, known as the "Blue Sky Law, " to engage in the sale of stocks, bonds, and other securities of said corporation; and that it entered into a bond in the sum of five thousand dollars with the Fidelity & Deposit Company of Maryland, as its surety, to qualify under the statutes for the sale of its bonds and securities.

It was further alleged that in the month of December, 1930, a duly accredited agent and bond salesman of the appellant company opened negotiations with the appellee for the sale of a four thousand dollar investment bond of said company; that the said salesman offered to sell him a four thousand dollar investment bond dated July 15, 1927, fully paid up to January 15, 1931, with a cash surrender value of six hundred eighty-eight dollars, and to accept, in exchange or payment therefor, two investment bonds issued by other companies, and then owned by the appellee, on which he had paid the aggregate sum of six hundred fifteen dollars; and that, relying on these overtures and representations of the said agent and salesman, he (the appellee) surrendered his two bonds to the said agent in exchange for a four thousand dollar bond of the appellant to be of the description, date, and value aforesaid.

The bill of complaint further charged...