United States Fidelity & Guaranty Co. v. Heller

• Citation: 259 F. 885
• Decision Date: 12 July 1919
• Docket Number: 1413.
• Parties: UNITED STATES FIDELITY & GUARANTY CO. v. HELLER et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

259 F. 885

UNITED STATES FIDELITY & GUARANTY CO. v. HELLER et al.

No. 1413.

United States District Court, E.D. Pennsylvania.

July 12, 1919

Thomas Stokes and Bayard Henry, both of Philadelphia, Pa., for plaintiff.

Charles Sinkler, J. W. Bayard, and Owen J. Roberts, all of Philadelphia, Pa., for defendants.

DICKINSON District Judge.

The plaintiff presents a strong appeal for relief from the hard situation in which it finds itself.

A short outline statement of the facts develops the point presented in this case to be ruled: Willis D. Hogue brought an action against the Washington Oregon Company in the state courts of Oregon. Judgment was recovered against the defendant in this action. The defendant desired to take an appeal to the Supreme Court of the state. To do this it was necessary for it to enter bond in the sum of $30,000 with surety. The defendant in that judgment applied to the plaintiff in the present action to become such surety. The application was declined unless the surety was protected by the deposit of collateral. The appellant had no acceptable collateral. The late Mr. Horace Brock was asked to furnish it. This he was willing to do, and in order to carry out his purpose he delivered certificates for shares of stock in another corporation, which he owned, to Clyde A. Heller, one of the defendants, in whose name the stock stood. Heller then being the nominal owner of the stock, with the full authority of the real owner to so do, procured a certificate for 7,500 of the shares to be made out in his name, executed in blank the ordinary stock power, which would give to the holder of the stock certificate the full power and authority to dispose of it, and delivered the certificate to the surety. At the same time Heller and the surety entered into the usual form of agreement in cases of deposit of security for such a purpose. It recited the purpose of the deposit of the stock with them gave them full authority and power to dispose of the stock, freed of the equities of all parties, and to apply the proceeds to reimburse them for any payments which the surety company might be called upon to make by reason of having executed the surety bond. It contained a further provision by which the surety company agreed to hand back the stock when its liability as such surety had terminated and evidence had been presented to the surety company of the ending of such liability. A bond in the appellate proceedings referred to was then executed and the cause proceeded to a determination.

After the cause had been ruled by the Supreme Court of Oregon a judgment was entered by that court which reversed the judgment from which the appeal had been taken, and remanded the cause to the trial court for further proceedings. If matters had remained as they then were the present action would not have been instituted, because all responsibility and liability of the surety company had ended. The defendant in that case was notified by its counsel that the appeal had been successful and the judgment of the lower court reversed. Application was then made by the appellant to the surety company for the return of the collateral deposited with it as indemnity. The surety company was given the information which the appellant had received, and was asked what they would require as evidence that their liability had ceased. The surety company replied that they would require a certified copy of the decree of the Supreme Court, together with a copy of the opinion accompanying the decree. This was to be under the seal of that court, certified by the clerk. This evidence was promptly supplied, and the surety company, in the belief and acting upon this belief that its liability had ceased surrendered its collateral.

It appears that under the laws of the state of Oregon that the mandate to the lower court, following appeals to the Supreme Court, is withheld for 20 days, within which time the party against whom the appellate court has ruled may apply for a reargument, and in case the reargument is allowed this ipso facto suspends the operation of any judgment or decree of the appellate court until the reargument has been heard and the case disposed of. Whether the plaintiff in the present cause had knowledge in fact of this rule does not clearly appear but in point of fact it waited until after the expiration of the 20 days before it returned the collateral. It did in fact, however, as already stated, return it, together with the unearned part of the premium which had been paid in advance for the current year.

The present controversy has arisen because of the fact that within the 20 days the appellee had filed in the case before the Supreme Court of Oregon a petition for a reargument. Of this fact all parties to the present cause were ignorant until some time after the return of the collateral.

As soon as the true state of the facts came to the knowledge of the present plaintiff it at once notified the defendant in the other action, and Mr. Heller, to whom the collateral had been surrendered, and demanded of him that the collateral be restored. Mr. Heller in the meantime had handed over the collateral to Mr. Brock, and so notified the surety company. The same information was at once given to Mr. Brock, and the same demand made upon him. With this demand he refused to comply, asserting that he was under no obligation to give up his stock. Following this refusal the present bill was filed. Mr. Brock has since died, and the representatives of his estate have been substituted upon the record. In the meanwhile the proceedings in the state court went on under the petition for a reargument. The argument was held, and the Oregon court recalled its former ruling and entered another affirming the judgment from which the appeal was taken. This judgment became final, and the surety company was called upon to pay, and has been required to pay, and has paid, a sum approximately $14,000 in discharge of its obligation under the appeal bond.

Its substantial prayer is that the stock referred to be returned to the plaintiff.

There is no controversy over the above evidentiary facts. The real question in controversy is that of the right of the plaintiff to have, and the duty of the defendants to restore to it, the collateral which the plaintiff gave up. The plaintiff bases its claim of right upon the proposition that it surrendered its property under a mistake of fact, which was the mutual mistake both of the plaintiff in surrendering and of the defendants in accepting the surrender of the stock.

It may be helpful to have clearly in our minds just what the mistake was. There was no mistake either in the facts, or in the law arising out of the facts, upon the basis of which the parties acted. The appeal to the Oregon court had been argued and decided in favor of appellant. The law was that, if the case had been successfully prosecuted, the liability of the surety had ended. The mistake was in overlooking the other fact that the appellee had filed a petition for a reargument. The present controversy has arisen because all the parties were in ignorance of the fact last mentioned. The specific provisions of the collateral agreement are not such as to vary what would be the rights of the parties had this formal agreement not been made. It gave to the surety the right to hold this stock for the purpose indicated. It imposed upon the surety the obligation to return the stock when the purpose of its deposit had been accomplished, and there was no reason for the surety to longer hold it. The terms of the written obligation to surrender the stock were that plaintiff was bound to surrender as soon as its liability upon the appeal bond was at an end, and (we underscore the 'and' for emphasis) when evidence was produced to the surety that its liability was ended. It is clear that the surety company was under no real obligation to surrender the stock, because, although evidence which seemed at the time to be convincing that all liability had terminated was furnished, the fact is that the liability still existed. The real mistake was with respect to the ending of this liability. The mistake made was in supposing that no petition for a reargument had been filed when in fact one had been filed.

The statement of the real question involved, as we have given it, is so broad as to be of little aid in the search for the right answer.

It is difficult to formulate a condensed statement which will present the features which are controlling in determining the proper answer to be made. The real question can perhaps be best presented by contrasting the views of the respective parties. The strongest and clearest light in which the cause of action asserted by the plaintiff can be viewed is afforded by the statement that this stock belonged to it for the purpose of indemnification against loss. If the loss came, the stock remained the property of the plaintiff; if there was no loss, the stock was the property of Brock, and should be returned to him. The loss did occur, and it was the clear right of the plaintiff to keep the stock, and it would beyond all question have so kept it except for the mistake which was made. There is no room here for the application of the distinction, which is sometimes important, between a mistake in law and a mistake of fact. The mistake here was essentially the latter.

It is asserted to be unjust and inequitable in Brock to take advantage of the slip which was made and to keep property to which, except for this slip, he would have no shadow of claim. The position of Brock, most strongly stated, is that the stock belonged to him, and he was not under the slightest obligation, of which the law can take cognizance, to part with his property. From motives of...