Citizens Banking & Sav. Co. v. Spitzer, Rorick & Co.

Decision Date15 July 1938
Citation65 Ohio App. 309,29 N.E.2d 892
CourtOhio Court of Appeals
PartiesCITIZENS BANKING & SAVINGS CO. v. SPITZER, RORICK & CO. et al.

65 Ohio App. 309
29 N.E.2d 892

CITIZENS BANKING & SAVINGS CO.
v.
SPITZER, RORICK & CO. et al.

Court of Appeals of Ohio, Second District, Franklin County.

July 15, 1938.


[29 N.E.2d 893]

Syllabus by the Court.

1. An action under Section 6373-3, General Code (110 Ohio Laws, 276), against a dealer in securities and the surety on his bond for fraud in the sale of securities is an action on a bond given pursuant to statute and barred in ten years under Section 11226, General Code.

2. To constitute fraud the following elements must appear: That a false representation was made; that such misrepresentation related to a material existing fact and was not a mere statement of opinion or future promise; that the person making the misrepresentation could have ascertained its falsity; that the misrepresentation was intended to be relied on; that the misrepresentation was relied on; and that the party relying on the misrepresentation was damaged as a direct result thereof.

3. A purchaser of securities must show actual fraud in order to recover in an action against a dealer in securities and the surety on his bond commenced by serving process by registered mail under Section 6373-3(d), General Code (110 Ohio Laws, 276), which required that the dealer consent that any action brought against him for the fraudulent disposal of securities might be brought in Franklin county in such manner.

4. The measure of damages for fraud inducing the purchase of securities is not the difference between the purchase price and the market value at the date of maturity but the difference between the property as it was represented to be and its actual value at the time of purchase.

5. The failure of a dealer in securities to file with the securities commission the prospectus and information required by Section 6373-1 et seq., General Code (repealed 113 Ohio Laws, 216), does not in itself work a fraud upon a purchaser of such securities and allow recovery in an action against the dealer, unless the purchaser can show that it relied on this required filing.

6. Section 6373-3, General Code (110 Ohio Laws, 276), is not in pari materia with Section 6373-18, General Code (103 Ohio Laws, 752).


HORNBECK, J., dissenting.

Action by the Citizens Banking & Savings Company against Spitzer, Rorick & Co. and the Standard Accident Insurance Company, as surety on the dealer's bond of Spitzer, Rorick & Co., to recover damages on ground that Spitzer, Rorick & Co. fraudulently disposed of certain securities to the plaintiff by certain misrepresentations, which were false and untrue, and which were or should have been known to Spitzer, Rorick & Co. to be false and untrue. From a judgment in favor of the plaintiff, the defendants appeal.-[Editorial Statement.]

Judgment for defendants.

Ernest Cornell, of Cleveland, and Tou-Velle & Glander, of Columbus, for appellee.

Fraser, Effler, Shumaker & Winn and Dannis W. Drennan, all of Toledo, for appellants.


BARNES, Presiding Judge.

The above-entitled cause is now being determined on defendants' appeal on questions of law from a judgment of the Court of Common Pleas of Franklin county, Ohio.

The plaintiff's cause of action is predicated upon a charge that the defendant Spitzer, Rorick & Company, a dealer in securities under a license issued by the state of Ohio, fraudulently disposed of certain securities to plaintiff and by certain misrepresentations, which were false and untrue, and which were known or should have been known to such defendant to be false and untrue, induced the plaintiff

[29 N.E.2d 894]

to purchase bonds of the Everglades Drainage District, state of Florida, maturing January 1, 1932, in the amount of $10,000.

It is averred that the other defendant, the Standard Accident Insurance, Company, as surety, signed the dealer's bond which the dealer filed with the commissioner of securities of the state of Ohio.

Plaintiff avers that on and prior to May 18, 1925, the defendant dealer furnished certain information concerning Everglades Drainage District bonds, consisting of data, information, prospectuses, circulars, etc., and that part of the information thus furnished was in the following language:

‘The state of Florida now owns approximately one-quarter of the lands within this district upon which drainage taxes are expressly levied under the statute authorizing these bonds. The law also provides that in case the drainage taxes on any other lands in the district are not paid the title thereto automatically becomes vested in the state of Florida in the absence of other bidders at delinquent tax sale and the state is thereafter obligated to pay the drainage taxes on these lands, the same as on all other lands owned by the state within said district. Owners of lands are given two years after tax sale within which to redeem their lands, after the expiration of which period the state has promptly paid all delinquent drainage taxes and can be depended upon to do so in the future as provided by law. In practical effect therefore, the state guarantees the payment of all Everglades drainage taxes and bonds payable therefrom. The state incurs no loss by doing this as in all cases the lands are worth much more than the amount of drainage taxes levied thereon, which annual levy is unusually small and unburdensome, ranging from 5 cents to 92 cents per acre.’

The matter quoted above is the statement which contains the claimed fraudulent misrepresentation upon which, it is averred, plaintiff relied.

It is further alleged that the bonds purchased by plaintiff were securities of a taxing subdivision payable out of the proceeds of special taxes, and not out of the proceeds of a general tax and that before marketing these bonds the dealer should have filed certain information and the prospectus with the securities commission and that the sale of these securities to plaintiff was contrary to the provisions of Sections 6373-1 to 6373-24, General Code (repealed 113 Ohio Laws, 216).

The prayer of the petition was for damages in the sum of $9,200 with interest from May 18, 1925, to December 4, 1933. The petition was filed in October 1934.

Defendants demurred to the petition on two grounds: (1) That the cause of action was barred by the statute of limitations; and (2) that the petition failed to state a cause of action.

The demurrer was overruled and exceptions noted.

Defendants then answered, setting up the statute of limitations, but the averments relative thereto, upon motion, were stricken. Defendant dealer then filed an amended answer which, insofar as is material to the questions here presented, admitted the statements quoted in plaintiff's petition; denied that they were false and untrue; and alleged that they were made in good faith after a thorough investigation and upon information which was deemed to be trustworthy and true.

It was further averred that between the time of the acquisition of the securities by plaintiff and the time of default, there had been a collapse of property values in the state of Florida and an unprecedented depression throughout the United States. It is further alleged that on the date of the purchase of the bonds and for several years thereafter these bonds were worth par, plus accrued interest, on the market.

Defendant dealer specifically denied that under the laws of Ohio it was required to file any information or prospectus with the commission of securities before the bonds could be lawfully marketed. Defendant further alleged that by the consent filed with the commission of securities it could be sued in Franklin county in any action founded upon a fraudulent disposal by it of securities and that the trial court obtained only special jurisdiction over it, and if plaintiff failed to show that the dealer was guilty of fraud in the sale of the bonds, the court was without jurisdiction to render judgment against the defendant dealer.

The defendant surety company, after admitting certain formal averments of the petition, generally denied all other material averments.

The reply was a denial of the affirmative averments of the answer of defendant dealer, and set forth part of the Constitution of the state of Florida which prohibited

[29 N.E.2d 895]

the issuance of bonds by the state, except for the purpose of repelling invasion or suppressing insurrection, and prohibited the pledging of the credit of the state to any individual company, corporation or association.

The trial court, after making separate findings of law and fact, found for the plaintiff and against the defendants in a written decision with which we have been favored. The court held against the plaintiff on the claim that the defendant dealer was required, before marketing the bonds in question, to file certain information as well as the prospectus with the securities commission. The court also held that if the defendant dealer was required to file this information with the commission, a failure to do so would not work a fraud in itself upon the plaintiff, because it did not appear that the plaintiff had any knowledge whatsoever respecting the failure of defendant dealer to file the information with the securities commission and cause the securities to be certified.

The court found that, under all the evidence, the statements made by defendant dealer, upon which plaintiff relied, were fraudulent misrepresentations of fact, designed for the purpose of leading purchasers of bonds to believe that the Everglades Drainage District bonds were guaranteed by the state of Florida. The court further held that it had jurisdiction of the subject matter under Section 6373-3, General Code (110 Ohio Laws, 276), as in effect at the date of the sale of the securities, and that the statute of limitations urged by defendant dealer as a bar to the action, would not have application.

The court further determined that the measure of plaintiff's damages was the difference between the price paid for the bonds and their market value at the time of their maturity,...

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