Thomas v. Fidelity & Cas. Co. of New York
| Decision Date | 12 March 1935 |
| Citation | 258 Ky. 360,80 S.W.2d 8 |
| Parties | THOMAS v. FIDELITY & CASUALTY CO. OF NEW YORK. |
| Court | Kentucky Court of Appeals |
Appeal from Circuit Court, Jefferson County, Common Pleas Branch Third Division.
Action by J. B. Thomas against the Fidelity & Casualty Company of New York. From an adverse judgment, plaintiff appeals.
Affirmed.
Booth & Conner and J. Verser Conner, all of Louisville, for appellant.
L. R Curtis, of Louisville, for appellee.
In November, 1929, the Stone Securities Company filed in the office of the commissioner of the Kentucky Securities Law an application for registration as a dealer in securities pursuant to the requirements of the Act of March 23, 1926 Acts of 1926, c. 76, section 883e-1 et seq., of the Kentucky Statutes, commonly known as the "Blue Sky Law." The Stone Securities Company also filed with its application a bond in the sum of $5,000 running to the commonwealth of Kentucky, conditioned upon the faithful compliance with the provisions of the "Blue Sky Law" by the company and its agents. The Fidelity & Casualty Company of NewYork signed the bond as surety.
On November 23, 1929, the appellant, J. B. Thomas, purchased from the Stone Securities Company 20 shares of the capital stock of H. O. Stone & Co. for which he paid the Stone Securities Company $635, and on March 3, 1930, he purchased 80 additional shares of the same stock for which he paid it $2,320.
On August 29, 1933, he brought this action against the Fidelity & Casualty Company of New York, the surety on the bond executed by the Stone Securities Company when it was registered by the securities department of the state of Kentucky as a dealer in securities, to recover the sum of $635, with interest thereon from November 23, 1929, and the additional sum of $2,320, with interest thereon from March 13, 1930. The bond was set out in full in the petition, and it was alleged that the stock purchased by the plaintiff was worthless at the time he purchased it, and that he was induced to purchase it by the fraud, deceit, and imposition of the Stone Securities Company, and facts constituting fraud and misrepresentation on the part of the Stone Securities Company in the sale of the stock were alleged. The defendant filed an answer the first paragraph of which was a traverse and in the second paragraph it pleaded limitations. The plaintiff in his reply to the second paragraph of the answer alleged that he was seeking to recover the amount paid by him for securities which he had been induced to purchase by false and fraudulent representations, and the defendant, by the bond, specifically agreed "to save harmless any purchaser of such securities who suffers loss by reason of fraud, deceit or imposition in the sale of such securities by the Stone Securities Company." It was further alleged that section 883e-18 of the Kentucky Statutes, which creates a 2-year period of limitations for an action by a purchaser against the seller to rescind the contract of purchase because of failure of the seller to comply with the terms of the "Blue Sky Law," does not apply where the cause of action is based upon fraud and misrepresentation and not upon the noncompliance of the seller with the provisions of the law. It was also alleged that the plaintiff did not know at the time the fraud was practiced upon him, and had no means of knowing, that the representations made to him were false, or that the financial condition of H. O. Stone & Co. was other than it was represented to be, and that he did not discover the fraud that had been practiced upon him, and could not have discovered same, until the year 1933. A demurrer to the reply was carried back to the petition and sustained, and, the plaintiff having declined to plead further, his petition was dismissed.
Section 18 of the Securities Act (Ky. St. § 883e-18) provides that every sale made in violation of any of the provisions of the act shall be voidable at the election of the purchaser and the person making such sale, and every director, officer, or agent of such seller who shall have participated or aided in any way in making such sale shall be jointly and severally liable to such purchaser in an action at law for the full amount paid by him upon tender to the seller of the securities sold or of the contract made. The section then reads: "Provided, that no action shall be brought for the recovery of the purchase price, after two years from the date of such sale or contract for sale."
Appellant contends that the two-year limitation period of the act has no application to an action in which recovery is sought on the ground of fraud, but bars only those new and extraordinary remedies created by the act. It is his contention that sections 2515 and 2519 of the Statutes apply. Section 2515 provides that an action for relief on the ground of fraud shall be commenced within five years next after the cause of action accrued, and section 2519 reads: "In actions for relief for fraud or mistake, or damages for either, the cause of action shall not be deemed to have accrued until the discovery of the fraud or mistake; but no such action shall be brought ten years after the time of making the contract or the perpetration of the fraud."
It is further contended that even if the two-year statute of limitations applies to fraud cases, the time does not begin to run until the fraud is discovered, or, by the exercise of ordinary care, ought to have been discovered.
The solution of the problem depends, of course, upon the proper construction of the Securities Act. The period within which the purchaser of securities must bring an action for damages resulting from a violation of any provision of the act by the seller was fixed by the Legislature, and that was a matter entirely within its discretion. It saw fit to limit the period to two years, and there is no saving clause creating any exception. It is said that the two-year limitation period has no application to fraud cases, but was intended to apply only to those new and extraordinary remedies created by the act. It is true the act does create new remedies, since it permits the purchaser of securities to rescind the contract of sale for the violation by the seller of any of its provisions, such as failure to register...
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