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National Surety Company v. Dorsey

Supreme Court of Arizona

June 20, 1933

NATIONAL SURETY COMPANY, a Corporation, Appellant,
JAMES A. DORSEY, Doing Business Under the Firm Name and Style of ARIZONA INVESTEMENT COMPANY, Appellee

APPEAL from a judgment of the Superior Court of the County of Maricopa. Howard C. Speakman, Judge. Judgment affirmed.

Mr. Henderson Stockton and Mr. Emmet M. Barry, for Appellant.

Mr. G. W. Shute, for Appellee.


[42 Ariz. 181] McALLISTER, J.

This is an appeal from a judgment in favor of the plaintiff who sought to recover a deposit he had made with the defendant to indemnify it against any loss it might sustain as surety on his bond as a broker.

Under the firm name and style of the Arizona Investment Company, James A. Dorsey, plaintiff herein, was carrying on a brokerage business and on June 1, 1926, executed a bond in the sum of $5,000 in favor of the state of Arizona with the National Surety Company as surety. The bond was given to comply with the provisions of chapter 30, Session Laws of 1917, which require those doing business as a broker to procure a license therefor from the Secretary of State and at the same time to

"Deliver to the Secretary of State a good and sufficient bond for five thousand dollars, payable to the State of Arizona, to be executed by said applicant together with a surety company or two good and sufficient [42 Ariz. 182] sureties, and to be approved both as to form and sureties by the Secretary of State. Said bond shall be conditioned upon the faithful compliance with the provisions of law by said applicant, and provide that upon failure to so comply, the applicant shall be liable to any and all persons who may suffer loss by reason thereof." Section 3, subsec. 2.

The act required that a new license be issued each year and by complying with this provision the bond of plaintiff was kept in force until June 1, 1929, when other companies assumed the liabilities it had been carrying up to that time.

On February 3, 1927, the plaintiff, in order to indemnify the defendant against loss that might result to it under the terms of this bond, delivered to the defendant $5,000 in cash and in his complaint alleges that he has faithfully complied with the provisions of chapter 30, that no one has suffered loss by reason of his failure in that respect, and that in consequence thereof he is entitled to a return of the $5,000 with two per cent. interest from February 3, 1927, which the defendant agreed to pay, but that it still neglects and refuses to return to him the deposit, though demand therefor was made on June 1, 1932.

To this complaint a general demurrer was interposed and overruled, whereupon judgment for the plaintiff for the amount sought was rendered, the defendant having announced that it wuld not answer further but rely on its demurrer.

The only errors assigned are that the court erred in overruling the demurrer and in entering judgment for appellee. The correctness of these rulings depend upon the answer to the query, what period of limitations applies to actions on bonds given under the provisions of chapter 30, Session Laws of 1917? The one-year period provided for in section 2058, Revised Code, 1928, applies, if the liability on such bonds is limited to "a liability created by statute, other than a penalty of forfeiture," but the six-year [42 Ariz. 183] period appearing in section 2062, Revised Code, 1928, governs if such liability is a debt "evidenced by or founded upon a contract in writing, executed within this state." Appellant could avail itself of the defense of the one-year limitation in any action brought against it on the bond but could not take advantage of the six-year period prior to June 1, 1935. The trial court rendered judgment for appellee upon the theory

Page 112

that appellant's only liability under the bond is one "created by statute," and properly so if this be the correct view as to its responsibility, because the one-year period had long since passed and with it all danger of loss upon the bond.

Whether the surety's liability is one "created by statute" or a debt "evidenced by or founded upon a contract in writing" can only be determined by properly construing the phrase, "provisions of law," as used in section 3, subsection 2, of chapter 30, quoted above. That chapter requires of each person engaged in business as a broker a bond conditioned upon his faithful compliance with the "provisions of law" and providing that upon his failure to so comply he shall be liable to any who may suffer loss by reason of such failure. That reference is here had to the failure to comply with the provisions of the law enacted to regulate and control the business in which the bond is required, that is, the buying and selling of securities and commodities by brokers, etc., seems clear. The legislature evidently intended that the bond would serve as a guarantee by the broker that he would comply with the terms of the law regulating the business in which he was engaged, and not that he would observe other laws, whether they had any connection therewith or not. There is, it occurs to us, no way of looking at the matter that would justify the conclusion that a broker's failure to comply with some provision, rule or principle of law not contained in chapter 30, even though it result in loss to a person [42 Ariz. 184] with whom he deals, would render the surety on such bond liable for the loss. The recitals in the bond itself show that the parties to it acted upon the theory that the surety could be made to respond only for loss resulting from a failure to live up to the provisions of the act itself, for it states that whereas the principal, the plaintiff herein, is about to obtain a license to engage and practice the business of a stockbroker in accordance with the provisions of chapter 30, Session ...

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