Kennedy v. Fidelity & Deposit Co. of Maryland

• Decision Date: 16 June 1936
• Parties: KENNEDY v. FIDELITY & DEPOSIT CO. OF MARYLAND.
• Court: Oregon Supreme Court

58 P.2d 625

153 Or. 646

KENNEDY v. FIDELITY & DEPOSIT CO. OF MARYLAND.

Supreme Court of Oregon

June 16, 1936

En Banc.

Appeal from Circuit Court, Multnomah County; Robert Tucker, Judge.

Action by William Kennedy, receiver of the Paul E. Williams Company of Oregon, a corporation which was a broker in investment securities, against the Fidelity & Deposit Company of Maryland, on a bond on which the defendant was surety, which was delivered to the corporation commissioner when the Williams Company obtained its permit. From a judgment of the circuit court entered after demurrer had been sustained to the third amended complaint and supplemental complaint and plaintiff had declined to plead further, plaintiff appeals.

Affirmed.

Arthur D. Platt and C. E. Wright, both of Portland (Platt & Black, of Portland, on the brief), for appellant.

John Lichty, of Portland, for respondent.

ROSSMAN Justice.

It is necessary to express an opinion upon the following three questions submitted by this appeal: (1) Is the receiver of the Paul E. Williams Company of Oregon, which was a broker licensed under the provisions of section 25-1309, Oregon Code 1930, to sell securities in this state, entitled to maintain an action upon the bond executed by that broker and its surety, pursuant to the section of our laws just mentioned (2) can he, in his official capacity, maintain this action upon the bond just mentioned as assignee of claims held by the holders of interim certificates issued by the broker; and (3) can this action be maintained upon the bond without alleging that the broker employed fraud in the transactions out of which the claims against it arose.

Omitting mention of formal matters, the complaint alleges that the plaintiff is the receiver of the Paul E Williams Company of Oregon; that on January 12, 1931, a Washington corporation, upon receiving a permit to deal in investment securities in this state, and the defendant executed a bond which provided: "If the said principal its officers, agents, employees and trustees, shall conduct and carry on its said business as a Stock and Bond Broker without fraud or fraudulent representation, and shall comply with all the requirements and provisions of said act, and acts amendatory thereof, and shall honestly and faithfully perform every undertaking and agreement entered into by it as a licensed broker under said act, and shall refrain from doing any act or thing, and from any conduct constituting improper, fraudulent or dishonest dealing, within the meaning of said act, then this obligation shall be void; otherwise to remain in full force and effect." Further, the complaint alleges that on January 29, 1931, the aforementioned Oregon corporation purchased the Oregon business of the Washington corporation, assuming in the transaction all of the Oregon liabilities of the vendor; that on February 5, 1931, the Oregon corporation received a broker's permit from the corporation commissioner of this state; that on the same day the bond previously mentioned was amended by the defendant by inserting in it the name of the Oregon corporation; that between February 5, 1931, and April 23, 1931, the Oregon corporation sold to sundry persons securities without making immediate delivery; that the account books of the Oregon corporation indicate that on April 23, 1931, there was due from it to the holders of the interim certificates issued by it and by the Washington corporation to Oregon purchasers, $49,135.51; that the claimants have filed claims with the plaintiff; that the Washington corporation has been declared a bankrupt by the United States District Court; that it is "wholly insolvent and unable to respond in any manner to any of the interim certificate holders"; that the Oregon corporation "is wholly insolvent and will be unable to pay to the holders of said interim certificates issued and assumed by it any part of the said sum of $49,135.51"; that the securities which these corporations contracted to deliver to the interim certificate holders "cannot be delivered in specie in whole or in part"; and that since the institution of this suit a dividend of 30 per cent. has been declared. For a second cause of action, the complaint alleges, in addition to all of the matters already mentioned, that all, except twenty, of the claimants have assigned their claims to the plaintiff "as receiver *** and that this plaintiff, as receiver aforesaid, now owns and holds each and every and all of said claims." The total of the assigned claims, according to the complaint, is the sum of $29,503.61. The prayer seeks judgment for the sum of $34,305.82 and $10,000 attorneys' fees; but, if recovery cannot be had without consideration of the assignments, seeks judgment for the sum of $29,503.61 plus $10,000 attorneys' fees. The complaint does not allege that the brokers, or either of them, employed deceit in any transaction with the interim certificate holders, nor does it anywhere mention fraud. The complaint does not disclose the reason for the inability of the brokers to comply with their duties to the interim certificate holders, unless the reason be the fact that each is insolvent. No charge is made that the brokers violated any provision of our laws. The demurrer was predicated upon contentions that the plaintiff had no capacity to sue and that the complaint failed to disclose a cause of action.

We shall now consider the merits of the defendant's contention which submits that, since the complaint does not allege that the claims described in it had their bases in fraudulent conduct of the brokers, it fails to state a cause of action. In State ex rel. v. Francis (Or.) 54 P.2d 297, 299, we considered a similar contention. After analyzing section 25-1319, Oregon Code 1930, and the available authorities, our decision, written by Mr. Justice Belt, stated: "Having thus declared the purpose and object of the Blue Sky Law, it follows that the faithful performance clause exacted in the bond in question was not authorized and may be rejected as surplusage. With the elimination of such clause it is plain that the bond does not afford a basis for an action for breach of contract. It covers only transactions where fraud is involved." We remain satisfied with that conclusion. The appellant, referring to the decision just mentioned, which was announced after the present complaint had been prepared, states: "The appellant, therefore, concedes that the complaint in this case must be amended to conform to the requirements of that case,-that is, the inclusion of allegations expressly setting forth fraud." It is clear, therefore, that the complaint does not disclose a cause of action.

We have no power to permit an amendment in this court. Clark on Code Pleading, p. 512.

It follows from the above that the judgment of the circuit court dismissing the action must be affirmed. But, since a new complaint may be filed, we deem it advisable to express an opinion concerning the merits of the defendant's two other...