Zapf v. Ridenour

• Decision Date: 11 November 1924
• Docket Number: No. 35736.,35736.
• Citation: 198 Iowa 1006,200 N.W. 618
• Parties: ZAPF v. RIDENOUR ET AL.
• Court: Iowa Supreme Court

198 Iowa 1006

200 N.W. 618

ZAPF

v.RIDENOUR ET AL.

No. 35736.

Supreme Court of Iowa.

Nov. 11, 1924.

Appeal from District Court, Polk County; Jos. E. Meyer, Judge.

Suit on broker's bond, given to the State under the provisions of the statute. The trial court directed a verdict in behalf of the defendant, and the plaintiff appeals. Reversed.Stipp, Perry, Bannister & Starzinger, of Des Moines, for appellant.

E. D. Samson and Don Evans, both of Des Moines, for appellee American Surety Co.

FAVILLE, J.

Chapter 13B, title 9, Supplemental Supplement, Code 1915, contains what is commonly known as the “Blue Sky Act.” This statute has since been amended, and is now a part of chapter 393, Code 1924. The statute requires that before a stock broker may engage in business as such, in this state, he must secure from the secretary of state a permit. The original act under which this suit arose provided as follows:

“Before being granted such permit by the secretary of state the stock broker or dealer shall give a bond in the penal sum of five thousand dollars to the state of Iowa, conditioned upon a strict compliance with this act which bond shall be approved by the executive council and filed with the secretary of state.” Section 1920u16.

Section 1920u21 of said original act is as follows:

“Any person, firm, association, company or corporation, or any agent or representative thereof, whether subject to the provisions of this act or otherwise, that sells, offers for sale or negotiates for the sale of any stocks, bonds, or other securities within this state, and knowingly makes any false representations or statement as to the nature, character or value of such security, or the amount of the earning power of such security whether in the nature of interest, dividends or otherwise, or knowingly makes any false or fraudulent representation concerning the financial condition, the assets or the property of the company, firm or corporation issuing said security, or knowingly makes any other false or fraudulent representation to any person for the purpose of inducing said person to purchase said security, or conceals any material fact in the advertisement or prospectus of such security for the purpose of misleading or defrauding the purchaser, shall be guilty of a misdemeanor and upon conviction be punished by a fine of not more than two thousand dollars or by imprisonment of not to exceed six months in the county jail, or by both such fine and imprisonment.”

In pursuance of the terms of said act appellee Ridenour was granted a permit to operate as a stockbroker in this state, and he executed and delivered to the secretary of state a bond which was duly approved by the executive council, the conditions of which were as follows:

“Now, therefore, if the said Perry J. Ridenour shall as such broker comply strictly with such provisions of said chapter 13B, title 9, Supplemental Supplement to the Code 1915, of the state of Iowa, and shall pay any and all fines assessed against them for the wrongful sale of stocks, bonds, or other securities, and shall pay any and all damages sustained by any person or corporation growing out of any transaction appertaining to the business of brokers or dealers in securities as defined in such state, then this obligation to be void, otherwise to be and remain in full force and effect in law.”

The said bond was signed by appellee the American Surety Company of New York as surety.

In March, 1920, appellant entered into negotiations with Ridenour for the purpose of having the said Ridenour purchase for appellant a 100,000 mark bond of the state of Hamburg, Germany, and paid Ridenour the sum of $2,500 therefor. It was agreed that the bond should be delivered within six weeks from the date of said order. A so-called “interim certificate” was sent appellant by Ridenour. No bond was ever delivered, and thereafter Ridenour absconded. This action is brought to recover the said sum of $2,500, on the bond so given by appellees and filed with the secretary of state.

I. The first question for our consideration is whether or not the terms and conditions of the bond are broader than the requirements of the statute at the time the bond was given. The bond is a statutory bond. By its terms and provisions it is broad enough to entitle appellant to recover the damages sought. It is contended, however, that the bond is broader and more comprehensive than is required by the statute.

[1] We are committed to the doctrine that, where a strictly statutory bond is given, there can be no liability on such bond beyond the terms and provisions of the statute, even though the bond may have incorporated therein terms and provisions in excess of and in addition to the legislative requirements. See U. S. Fidelity & Guaranty Co. v. Iowa Telephone Co., 174 Iowa, 476, 156 N. W. 727;Schisel v. Marvill (Iowa) 197 N. W. 662;Neb. Culbert & Mfg. Co. v. Freeman et al. (Iowa) 198 N. W. 7.

It is the contention of appellee that under the provisions of the statute as they formerly existed the bond was only required to be conditioned for the benefit of the state for such an amount as might be due the state from the broker in the way of filing fees, fines, etc., and that under the original statute there was no requirement that the bond should be for the benefit of any individual who might suffer injury by reason of false representations on the part of the broker.

Under the rule announced in the authorities above cited, if the terms and provisions of the bond are in excess of the requirements of the statute, it being a statutory bond, there could be no liability on the bond as to such extra provisions. In other words, a statutory bond cannot be broadened by its terms to include matters not provided for in the statute, and liability be predicated thereon as a statutory bond.

[2] It must be conceded that the bond in suit, by its terms, is sufficiently broad to permit recovery by appellant for damages he suffered by reason of the fraudulent acts of the broker, so that the sole question at this point is whether or not the statute, by its terms, as it was originally, provided for a bond that is broad enough to permit recovery in behalf of an injured individual who has been defrauded by the act of the broker furnishing the bond.

The original statute required that a bond should be given “conditioned upon a strict compliance with this act.” Now, what does a strict compliance with the act require? It requires that a stockbroker granted a permit in this state shall not do the things which the statute prohibits.

Under the act a permit is granted to engage in a certain line of business, to wit, that of a stockbroker or dealer. Section 1920u21, while penal in its character, clearly defines the duties of a stockbroker. It is rather negative than affirmative in its recitals, and provides for punishment of any broker, subject to the provisions of the act, who sells, offers for sale, or negotiates for the sale of any stock, bonds, or other securities, and knowingly makes any false representations or statement as to the nature, character, or value of such securities, or the amount of the earning power of such securities, whether in the nature of interest, dividends, or otherwise, or knowingly makes any false or fraudulent representations concerning other matters specified in the statute, or conceals any material facts in the advertisement or prospectus of such security for the purpose of misleading or defrauding the purchaser, or who knowingly violates any provision of the chapter with intent to defraud.

The clear purport and intent of the statute and, in fact, its express terms are to prohibit the doing of certain things by the stockbroker in the way of making representations and so on. The bond is conditioned upon a strict compliance with this act. In other words, the statute requires that a bond shall be conditioned in accordance with the provisions of the act; that is to say, it shall be conditioned that the broker granted the permit to operate...