Witter v. Mass. Bonding & Ins. Co.

• Decision Date: 04 April 1933
• Docket Number: No. 41670.,41670.
• Court: Iowa Supreme Court
• Parties: WITTER ET AL. v. MASSACHUSETTS BONDING & INSURANCE CO. ET AL.

215 Iowa 1322

247 N.W. 831

WITTER ET AL.

v.MASSACHUSETTS BONDING & INSURANCE CO. ET AL.

No. 41670.

Supreme Court of Iowa.

April 4, 1933.

Appeal from District Court, Polk County; John J. Halloran, Judge.

Action to enjoin certain purchasers of stock from Victor J. Silliman Company, Inc., from proceeding with actions at law against the Massachusetts Bonding & Insurance Company and the receiver of Victor J. Silliman Company, Inc., and asking that dealers' bond given by the said Victor J. Silliman Company, Inc., as principal, and Massachusetts Bonding & Insurance Company, as surety, be declared a trust fund for the benefit of plaintiffs and other claimants and that judgment be entered against said bonding company for the amount of the penalty of the bond. Cross-petitioner asked that his claim be allowed in full rather than prorated. The court entered judgment against the bonding company for the amount of the penalty of the bond, but declared that cross-petitioner's claim be allowed on a pro rata basis with other claimants against said Silliman Company, Inc. Cross-petitioner appeals.

Affirmed.

James F. Page, of Des Moines, for appellant.

Frank G. Ryan, Royal & Royal, and Comfort & Comfort, all of Des Moines, for appellees.

MITCHELL, Justice.

Victor J. Silliman Company, Inc., is a corporation with its principal place of business at Des Moines, Iowa, and was registered as a dealer under the provisions of chapter 10 of the Acts of the Forty-Third General Assembly. In compliance with the provisions of chapter 10 of the Acts of the Forty-Third General Assembly, Victor J. Silliman Company, Inc., delivered to the secretary of state a bond executed by it as principal, and the Massachusetts Bonding & Insurance Company as surety, in the penal sum of $5,000. The said bond was given in compliance with the statute, section 8581-c14, 1931 Code of Iowa.

This action was commenced to enjoin the defendants, except the Massachusetts Bonding & Insurance Company and C. P. M. Allen, as receiver for Victor J. Silliman Company, Inc., from proceeding with actions at law commenced in the district court of Iowa in and for Polk county and in the municipal court of the city of Des Moines, Polk county, Iowa, against the Massachusetts Bonding & Insurance Company, Victor J. Silliman Company, Inc., and C. P. M. Allen, receiver for Victor J. Silliman Company, Inc., and also praying that the dealers' bond given by Victor J. Silliman Company, Inc., principal, and Massachusetts Bonding & Insurance Company, surety, in the amount of $5,000, be declared to be a trust fund for the benefit of plaintiffs and all other claimants against Victor J. Silliman Company, Inc., who would join in the action, and also asking that judgment be entered against the Massachusetts Bonding & Insurance Company in the amount of the penalty of the bond.

The plaintiffs and part of the defendants in this action were purchasers of Cities Service stock and other securities from Victor J. Silliman Company, Inc., a dealer whose office was located at Des Moines, Iowa. The said Victor J. Silliman Company, Inc., failed to account for moneys received by it from several investors in securities, and suits were brought against said company and the Massachusetts Bonding & Insurance Company, the surety on the bond. On June 6, 1931, Victor J. Silliman Company, Inc., went into receivership, and C. P. M. Allen was appointed receiver. The Massachusetts Bonding & Insurance Company filed its answer to the petition of plaintiffs, claiming that, if liable on the bond, its limit of liability was $5,000, and joined in the prayer for an injunction. At a hearing before the court the injunction was denied. The Massachusetts Bonding & Insurance Company then filed its interpleader, paid the $5,000, the penalty of the bond, into court, and asked the court for an order directing all claimants against Victor J. Silliman Company, Inc., to come into court, prove their claims, and share pro rata in the proceeds of the $5,000 bond. The court made its order as requested and appointed Frank J. Walrath referee to take proof of the claims.

Edward McClelland, one of the defendants in the lower court, and appellant here, filed his answer and cross-petition to the interpleader of the Massachusetts Bonding & Insurance Company, denying that the Massachusetts Bonding & Insurance Company was liable only to the extent of $5,000 on all claims, and contending that his claim of $2,004.88 should be allowed in full as against the Massachusetts Bonding & Insurance Company, rather than participate on a pro rata basis with the other claimants. The referee took proof of the claims and made his report, and at a subsequent hearing the trial court found that all claimants, consisting of some fifty in number, were entitled to have their claims allowed in a total sum in excess of $37,000. The court further ordered the clerk to distribute the proceeds of the $5,000 which had been turned over to him under bill of interpleader, after paying the court costs and referee's fees in full, among all claimants, amounting to in excess of $37,000, in proportion to the amount of their respective claims.

Edward McClelland, one of the defendants, feeling aggrieved by the ruling of the court in its decree, appealed from the decision of the lower court to this court.

So this court is confronted with the question of whether or not the appellant is entitled to have his claim established in the sum of $2,004.88 in full as against the surety bond in question, or whether he should be required, under the provisions of the statute and the provisions of the bond, to share pro rata with the other creditors as against the penal sum of the bond, namely, $5,000. In other words, should section 8581-c14 of the 1931 Code be interpreted to mean that a surety company executing a bond, under the provisions of said section, shall be held liable in excess of the penal sum of $5,000, as provided in the second paragraph of said section for all claims that may be filed, or should said statute be interpreted to mean that the surety company is liable for each claim up to $5,000, thereby extending the liability of the surety company in excess of $5,000 where the total claims aggregate a sum in excess of $5,000? In the case at bar it would extend the liability of the bonding company to an amount in excess of $37,000, that being the amount of the claims which were filed in this cause and allowed.

Section 8581-c14 of the 1931 Code is as follows:

“Any bond required by section 8581-c11 shall be conditioned that the dealer shall properly account for any moneys or securities received from or belonging to another and shall pay, satisfy and discharge any judgment or decree that may be rendered against such dealer in a court of competent jurisdiction in a suit or action brought by a purchaser of securities against such dealer in which it shall be found or adjudged that such securities were sold by the dealer in violation of this chapter or that such purchaser was defrauded in the sale of such securities. Such bond may be drawn to cover the original license and any renewals thereof.

Every such bond shall run in favor of the state of Iowa for the use and benefit of any purchaser of securities sustaining damages as a result of any breach of the conditions thereof, in the sum of five thousand dollars and shall be in such form consistent with the provisions hereof as the secretary of state may prescribe, and shall be executed with surety by a surety company authorized to do business in this state. In suits against the surety upon such bond it shall not be necessary to join such dealer as a party.

Banks or trust companies under the supervision of this state or of the United States which would otherwise be required under the provisions of this chapter to execute as dealers the bond required herein may execute said bond without surety.

One or more recoveries upon any such bond shall not vitiate the same but it shall remain in full force and effect, but no recoveries from the surety upon any such bond shall ever exceed the full amount of the same, and upon suits being commenced in excess of the amount of same the secretary of state may require additional bond, and if the same is not given within ten days the secretary of state may revoke the registration of such dealer.

Any person injured by any breach of the bond given by any dealer may sue on the bond of such dealer in any proper court of the state of Iowa of competent jurisdiction for the recovery of damages, not exceeding the amount of the bond, sustained in consequence of such...