Opinion
Rehearing Denied May 11, 1931
Hearing Granted by Supreme Court June 8, 1931
Appeal from Superior Court, City and County of San Francisco; Walter Perry Johnson, Judge.
Action by Roberts Thomas & Co. against Dean Allen and another, copartners, doing business under the firm name and style of Allen–Bachelder Company and another. From adverse judgment, the plaintiff appeals.
Reversed, with directions.
COUNSEL
Thomas, Beedy, Presley & Paramore, of San Francisco, for appellant.
Redman, Alexander & Bacon, of San Francisco, for respondent.
OPINION
SPENCE, J.
This is an appeal by plaintiff from a judgment entered in favor of defendant Columbia Casualty Company after said defendant’s general demurrer to plaintiff’s first amended complaint had been sustained by the trial court and plaintiff, after notice, had refused to further amend.
Plaintiff’s assignors and defendant Allen-Bachelder Company were licensed as brokers under the Corporate Securities Act. Stats.1917, p. 673, and acts amendatory thereto. From the allegations of the amended complaint it appears that plaintiff’s assignors organized a "selling group," of which they were designated as managers, for the purpose of disposing of 15,000 shares of stock of a corporation known as Western Sulphur Industries, Inc., by offering said shares to the public through the various members of the selling group. They proposed their plan to defendants Allen-Bachelder Company by letter dated March 11, 1929, and said defendants subscribed for 500 shares of the issue and agreed to be bound by the terms and provisions stated in the letter. In substance, these terms provided for a price to the subscriber of $29 per share payable on delivery with a contingent rebate at $2 per share on dissolution of the selling group, provided that in the meantime the shares taken by the said subscriber had not found their way back upon the market and been repurchased by the managers at or below $33 per share. In case of such repurchase the managers had the option to require the subscriber to take up the shares at the repurchase price. Defendant Allen-Bachelder Company took only 400 shares of the 500 subscribed for and refused to take the remaining shares. These 400 shares were sold and were subsequently offered on the market and repurchased by the managers at $30 per share. The managers thereafter repeatedly notified said defendants that they elected to require said defendants to take up said 400 shares at the repurchase price and made demand therefor, but said defendants refused to do so. Shortly thereafter the managers sold said shares for $19 per share which was the market value at the time of the sale.
The complaint was drawn in four counts, two of which were based upon the alleged breaches of contract by said defendants Allen-Bachelder Company and the other two were based upon alleged fraudulent representations by said defendants relating to their financial responsibility. We deem it unnecessary to set forth in detail the remaining terms of the agreement or the remaining allegations of the complaint except to refer to the allegations concerning the defendant Columbia Casualty Company. It was alleged that said company as surety, together with defendants Allen-Bachelder Company as principals, had executed a statutory bond as required by said act as amended in 1925. The provisions of this bond were fully set forth in the amended complaint.
Appellant contends that the amended complaint stated a cause of action against respondent Columbia Casualty Company, and that the trial court erred in sustaining the general demurrer. We believe that appellant is correct in this contention. It is conceded that the amended complaint stated a cause of action against defendants Allen-Bachelder Company, and the only question involved upon this appeal is whether liability may be imposed upon respondent under the terms of its obligation as surety on the statutory bond.
Prior to 1925 the liability of a surety upon the statutory bond required by the act was limited in its scope as was pointed out in Mitchell v. Smith, 204 Cal. 197, 267 P. 540, and Blumenthal v. Larson, 79 Cal.App. 726, 251 P. 241. In 1925 subdivision 3 of section 5 of the act was amended (Stats.1925, p. 967, § 3) and the liability of the surety was extended. The amended section reads in part as follows: "Said bond shall be conditioned upon the strict compliance with the provisions of this act, and the honest and faithful application of all funds received and the faithful and honest performance of all obligations and undertakings in the purchase or sale of securities, by said broker." The change made by the amendment of 1925 was commented upon in the above-mentioned cases and also in Bridges v. Price, 95 Cal.App. 394, 273 P. 72. In the last-named case the bond was executed subsequent to the amendment. The court there said, at page 398 of 95 Cal.App., 273 P. 72, 74: "The purpose and effect of this amendment was obviously to extend the liability upon such bonds beyond that which was imposed by the statute before the amendment. Whatever may be meant by the word ‘honest,’ the ‘faithful performance of all obligations and undertakings’ means no more than performance of those obligations and undertakings according to their terms." It was under the amended section that the bond in the present case was executed as alleged in the amended complaint. It was an express condition of the bond that the principals (Allen-Bachelder Company) "shall faithfully and honestly perform all obligations and undertakings in the purchase or sale of securities." The further allegations of the amended complaint showed that the Allen-Bachelder Company had failed to faithfully perform their obligations and undertakings in the purchase of the securities referred to. In our opinion a cause of action was stated against respondent.
The trial court apparently adopted respondent’s contention that the transaction here involved was not a "brokerage transaction" and therefore was not covered by the bond. It is true that defendants Allen-Bachelder Company were not acting as "brokers" in a strict and limited sense of that term as they were not acting as agents for any principal. But in this connection the term "brokerage transaction" must be given a meaning coextensive with the word "broker" as defined in section 2 of the act (St.1917, p. 673, § 2, as amended by St.1925, p. 962, § 1). That definition is sufficiently broad to include the transaction here involved. However, assuming that the word broker was defined in its more limited and restricted sense and further assuming that the purpose of the act was solely that expressed in a portion of its title, to wit, the regulation of brokers, it would still be proper for the Legislature to provide, as in our opinion it has provided, that in order to qualify as a broker the applicant must furnish a bond to insure the faithful performance of "all obligations and undertakings in the purchase or sale of securities." Under either view we are of the opinion that the broad language employed leaves no room for construction, and that the respondent was liable upon the bond for the failure of their codefendants Allen-Bachelder Company to perform their obligations and undertakings in the purchase of these securities.
The judgment is reversed, with directions to overrule the demurrer.
We concur: NOURSE, P.J.; STURTEVANT, J.