Superior Piston Ring Co. v. Brown, Anthony & Co.

• Decision Date: 06 September 1940
• Docket Number: No. 102.,102.
• Citation: 293 N.W. 679,294 Mich. 358
• Court: Michigan Supreme Court
• Parties: SUPERIOR PISTON RING CO. et al. v. BROWN, ANTHONY & CO., Inc., et al.

294 Mich. 358

293 N.W. 679

SUPERIOR PISTON RING CO. et al.

v.BROWN, ANTHONY & CO., Inc., et al.

No. 102.

Supreme Court of Michigan.

Sept. 6, 1940.

Action by Superior Piston Ring Company, a Michigan corporation, assignee of Edward Dean Gavney, and others, against Brown, Anthony & Company, Incorporated, and another, to recover sums of money expended by plaintiff. From a judgment against both defendants, defendant Maryland Casualty Company appeals.

Affirmed.

CHANDLER, Judge, dissenting.Appeal from Circuit Court, Wayne County; Robert M. Toms, judge.

Argued before the Entire Bench.

Mason, Davidson & Mansfield, of Detroit, for defendant and appellant.

Charles H. Burnham and R. G. Leitch, both of Battle Creek, for plaintiff and appellee.

NORTH, Justice.

I am unable to agree with Mr. Justice CHANDLER'S conclusion that in the instant case the transaction which resulted in the alleged liability on the bond did not occur during the life of the bond and therefore the surety cannot be held liable. Instead, I think it must be held, under the particular facts in this case, that the transaction which gave rise to the fraudulent conduct for which plaintiff seeks to hold the surety liable was fully consummated and the status and rights of the respective parties fixed prior to the expiration date of the dealer's license or the expiration of its bond.

Admittedly during that portion of 1937 up to and including June 30th the principal on the bond was a duly licensed broker. The broker's license expired June 30, 1937, and was not renewed; but prior to June 30, 1937, the broker had fully completed transactions with various purchasers of stock in plaintiff company whereby they had agreed to buy and the company had agreed to sell at an agreed price an agreed number of shares of stock in plaintiff company. In so far as there being any negotiations for the sale of this stock they were fully completed and the rights of the vendor and the vendees were finally fixed prior to June 30, 1937, the date on which the broker's license expired. A few days later and incident to legal requirements and in compliance with these consummated transactions, the purchasers of the stock remitted to the broker through its agent the respective sums due from them to the vendor company. The broker, who unknown to the parties concerned was then insolvent, embezzled these remittances. The purchased stock was never delivered. There is no express provision in the bond as to the date of its expiration nor is there such a provision in the statute or in the license issued to the broker.

Under the above facts it seems clear that the purchasers of the stock had a right of action under the provisions of the Blue Sky law, as hereinafter noted, in consequence of a clear breach of the broker's bond given in compliance with the provisions of that law. The rights of action of the respective purchasers were assigned to the plaintiff in this suit; and so plaintiff stands in the shoes of the purchasers so far as its legal rights are concerned.

In compliance with the Blue Sky law, Act No. 220, § 22, Pub.Acts of 1923, as amended by Act No. 37, § 22, Pub.Acts 1935, the bond here in suit was conditioned ‘upon the faithful compliance with the provisions of this act by said dealer and all salesmen registered by him. * * *’

Section 31 of Act No. 37, Pub.Acts 1935 in part reads: ‘It shall be unlawful for any person engaged in business as a dealer and/or broker within the meaning of this act and who is insolvent, to accept or receive from a customer, ignorant of such broker's insolvency, any money or securities belonging to such customer otherwise than in liquidation of or as security for an existing indebtedness and to thereby cause the customer to lose in whole or in part any money or securities.’

That is exactly what was done in the instant case; and its legal aspect is not altered by the fact that plaintiff subsequently voluntarily reimbursed the purchasers for the moneys paid to the broker. The purchasers were indebted for and made remittances to the broker for their respective purchases which previously, and prior to any claimed expiration of the bond in suit, had been fully consummated. Exceptfor such antecedent consummated transactions the acts which gave rise to this suit would not have transpired. Under such a state of facts the surety on the bond should be held liable to indemnify plaintiff as the assignee of the stock purchasers for the amount of the loss; and it should be so held on the theory that the loss arose out of a transaction which was fully consummated in its legal aspects prior to the expiration of the broker's license or his bond. The foregoing holding is not in conflict with the decisions cited in my brother's opinion; but instead the cited decisions are clearly distinguishable.

The Timmerman case, 243 Mich. 338, 220 N.W. 752, is wholly unlike the instant case in that a license never was issued to any person as a broker or dealer and therefore the bond issued in contemplation of an application for and the issuance of a dealer's license never became operative. No application for a license was made and none issued. Under such conditions it is too plain for argument that the surety on the bond could not be held liable.

In United States v. Smith, 8 Wall., U.S., 587, 19 L.Ed. 506, the bond was given to secure payment to the federal government of duties by one licensed to engage in distilling ‘coal oil’. Licenses granted to those so engaged expired on May 1st of each calendar year. After the expiration of his license the principal on the bond failed to pay duties which accrued to the government in the months of June and July, 1866. The right of payment which the government sought to enforce against the surety on the bond was in no way connected with any transaction of the licensee which had its inception or was consummated prior to the expiration date of the license. It was under such circumstances that the court held the surety was not liable. But in the instant case plaintiff is asserting liability against the surety by reason of the dealer's defalcation in a transaction which so far as the contractual rights and the legal status of the respective parties are concerned was fully consummated prior to the date on which the dealer's license expired.

Likewise in Spiegler v. Chicago, 216 Ill. 114, 74 N.E. 718, the factual situation is clearly distinguishable from the instant suit in that the Illinois case did not involve a transaction which was consummated prior to the expiration date of the license. On this same ground the remaining four cases cited by my brother are distinguishable from the instant case.

The judgment entered in the circuit court in favor of plaintiff in the instant case should be affirmed with costs.

Nor am I in accord with Mr. Justice CHANDLER'S opinion wherein he intimates it is impossible to distinguish from the instant case our decision in Detroit v. Blue Ribbon Auto Drivers' Ass'n, 254 Mich. 263. Both in the instant case and in the Blue Ribbon case the bond in suit was one required by law; and if justifiable within its express terms the bond in each case should be so construed that it will accomplish the purpose for which it was required. Such construction is an obvious essential of sound public policy in the administration of law.

In the instant case resort to the bond arose from a transaction which was purely contractual, not tortious. Both before and at the time plaintiff's assignors purchased the stock and made the payment therefor they had full opportunity to ascertain whether the broker was operating under bond, and to ascertain the terms of the bond, including the date of its expiration. Under such circumstances it was only a matter of justice to the surety and no...