Woods v. National Surety Co. , 27 Ariz. 479 ( 1925 )

This action was brought by appellant, hereafter called plaintiff, against the defendants, Charles E. Franklin and the National Surety Company, the former as principal in a statutory brokerage bond and the latter as surety thereon.

The complaint in substance alleges a cause of action as follows: That the defendant Franklin was a duly licensed real estate broker in the city of Tucson and practiced such a business as his sole and only vocation and, among other things, borrowed money upon mortgages and other collateral, with which to purchase and improve real property and construct dwellings thereon for sale to others in the usual course of business; that in August, 1922, defendant Franklin procured a loan of $5,000 from plaintiff upon the representation that he was a duly licensed and bonded broker engaged, among other things, in borrowing money upon mortgages and other collateral, with which he built houses for the purpose of sale to others; that such money was desired and was to be used to erect and pay for two houses upon a certain piece of real estate in Tucson, for sale to others who would assume and pay mortgages placed on said property and houses to be built thereon; that the mortgages would be a first lien on property and would, together with surety bond, secure and protect plaintiff; that the plaintiff believed such representations, and believed in the honesty and integrity of Franklin as such licensed real estate broker, and loaned him said $5,000, he and his wife having first executed mortgages on said property to plaintiff; that defendant Franklin did not build the houses, and has failed and refused to repay plaintiff to her damage in the sum of $5,000.

Judgment was asked against Franklin for $5,000 and against the surety company for the sum of $2,500, the full penalty of the surety bond.

To this complaint the surety company interposed a general demurrer, which was sustained, and, the plaintiff standing upon her complaint and not desiring to amend, judgment of dismissal was entered. She appeals.

The sole question is as to whether the complaint stated a cause of action against the defendant surety company. We think the purport and effect of the complaint is that plaintiff loaned defendant Franklin $5,000, taking as security therefor real estate of such defendant, and that such loan was made upon the assurance and representation that said money would be used in building two houses on real estate, which was not done; the money being otherwise used.

Chapter 160, Laws of 1921, was enacted for the purpose of regulating and supervising the real estate business in the state. Section 1 provides that no person, firm, copartnership or corporation may engage in such business as a broker, without first having obtained a license therefor. Section 2 thereof, among other things, defines a real estate broker as follows:

"A real estate broker, within the meaning of this act, is a person, firm, copartnership or corporation, who, for compensation, sells, or offers for sale, buys, or offers to buy, or negotiates the purchase or sale or exchange of real estate, or who, for compensation, negotiates loans on real estate, leases or offers to lease, rents, or leases for rent, or collects rent from real estate, or improvements thereon, for others, as a whole or partial vocation. . . . Provided, however, that this act shall not apply to any person, copartnership or corporation who shall perform any of the acts aforesaid with reference to property owned by such person, copartnership or corporation. . . ."

The bond was conditioned as the statute provides.

While it appears from the complaint the defendant Franklin was a real estate broker at the time of the transaction, it is obvious the transaction itself was not within the definition of his business as such broker. A broker sells or buys, or negotiates loans, leases, or rents, and collects rents forothers for compensation. If he does any of these acts concerning his own property, the statute expressly exempts him from the necessity of securing a license or giving a bond. When dealing with his own property he is not doing so for compensation, and is not a real estate broker, as the statute defines that term. A broker is an intermediary or middleman and, in effecting a sale or exchange of property, or doing any of the acts defined by the statute as brokerage acts, is, in a certain sense, the agent of both parties to the transaction. 9 C.J. 510, § 10.

The bond in this case is conditioned that the principal will "practice the business of real estate brokerage in a truthful and reliable manner," and this, of course, means when he does any of the acts of selling, buying, renting, leasing or negotiating loans on real estate for others for compensation, or offers to do any such acts. The transaction set out in complaint does not come within the terms of the statute, or the surety bond — indeed, it is expressly excepted therefrom — and cannot therefore be made the basis of an action for damages against the surety company on its bond. The bond is just as broad as the law, and the extent of its obligation is measured by the law of its creation. 9 C.J. 34, § 56; Southern Surety Co. v. Cochise County, ante, p. 473,233 P. 897.

The allegation of the complaint that defendant Franklin represented that his surety bond would "secure and protect plaintiff" could in no way enlarge the statutory obligation of the surety company, and it must be presumed plaintiff knew the law fixing the surety's liability.

The ruling of the court sustaining the demurrer and dismissing the complaint is sustained.

McALISTER, C.J., and LOCKWOOD, J., concur.