The opinion of the court was delivered by: YOUNGDAHL
Plaintiffs, a resident partnership engaged in the stock brokerage business under the name Sade & Co., commenced this action against defendant National Surety Corporation, a registered foreign corporation doing business in the District of Columbia, to recover from defendant the sum of $ 18,476.69, claimed due under a surety bond underwritten by defendant to secure plaintiffs against certain losses.
On April 1, 1959, National issued to to Sade & Co. a standard 'Brokers Blanket Bond,' effective at the time of the transaction involved in this suit, providing protection to Sade & Co. up to the maximum amount of $ 30,000. The annual premium for this bond was between four and five hundred dollars. It is plaintiffs' contention that they are entitled to recover from defendant their sustained losses under either of two indemnifying clauses contained in the bond. Defendant, on the other hand, contends that plaintiffs are not entitled to recover under either of said clauses, since the transaction resulting in the loss is one specifically excluded from coverage under its bond.
The relevant provisions of the bond are as follows:
'(A) Any loss through any dishonest, fraudulent or criminal act of any of the Employees, committed anywhere and whether committed alone or in collusion with others, including loss of Property
through any such act of any of the Employees.
'(b) Any loss of Property through robbery, burglary, common-law or statutory larceny, theft, hold-up, or other fraudulent means, misplacement, mysterious unexplainable disappearance, damage or destruction, abstraction or removal from the possession, custody or control of the Insured (whether effected with or without violence or with or without negligence on the part of any Employee) * * * while the Property is (or is supposed to be) lodged or deposited within any offices or premises located anywhere, except while in the mail or in any of the Insured's offices specifically excluded from the coverage of this bond * * *
'This Bond Does Not Cover
'(g) Any loss resulting directly or indirectly from trading, with or without the knowledge of the Insured, in the name of the Insured or otherwise, whether or not represented by any indebtedness or balance shown to be due the Insured on any customer's account, actual or fictitious, except when covered under Insuring Clause (A), (D) or (E).'
The present claim arose out of the following sequence of events: Sometime early in August, 1959, S. Thomas Gueren, a registered securities representative and employee of Sade & Co., engaged in discussions with Stanley Sekular, a friend of long standing, relative to the purchase by Sekular through Gueren and Sade & Co. of certain securities. Sekular ultimately determined to purchase a substantial amount of stock in Television Shares Management Company, a large mutual fund management organization controlling assets in the neighborhood of four hundred million dollars. This was a new issue and would be traded on the over-the-counter market. On the day that Television Shares Management Company's stock was first traded, August 10, 1959, Gueren received an open order from Sekular for the purchase of up to $ 100,000 of said stock. At that time Gueren informed Sekular that he could not accept such an order unless he had a check in his hands. Sekular thereupon came to the Sade & Co. office and gave Gueren a check, blank except for Sekular's signature as maker and the word 'August' with no specified date thereafter. Sekular instructed Gueren that the check was to be completed and delivered only upon receipt by Sekular of confirmation by Sade & Co. to Sekular of the consummation of the transaction.
On several occassions prior to August 10th Gueren had spoken to Sekular with regard to the latter's financial ability to effect a substantial securities purchase. Some ten days before the date of issue, Sekular informed Gueren that $ 100,000 was to be deposited in Sekular's checking account for this purpose. Gueren was further informed that the money was being supplied by certain executives in Philadelphia. On August 9th, Gueren again asked Sekular how he intended to pay for the stock; Sekular replied, 'The money is as good as in the bank.' On the day of the purchase, Sekular told Gueren, 'The money is in the bank. Go ahead and buy it.' Leo Sade, a partner in the plaintiff firm, admitted at the trial that he was aware of the receipt of this order prior to its execution.
On August 10th, Sade & Co. placed two orders for Television Shares Management stock for the Sekular account through the New York brokerage house, Gregory & Sons. 1,300 shares were purchased at 26 1/2 and 1,000 shares at 26 1/4. The total cost of this stock to Mr. Sekular, including commissions, was $ 61,440.55. Confirmation of the purchase was mailed to Sekular on that date. Due to illness, Gueren was unable to come to his office on the settlement date, August 14th, or the next two business days, August 17th and 18th. After having received a phone call from Miss Mahon, the office manager of Sade & Co., on August 19th, the seventh business day after purchase, Gueren did come to the Sade & Co. office to turn in the Sekular check. The check was then completed as to amount and date and deposited for collection. On August 21st, Miss Mahon received a call from Sekular's bank informing her that there were not enough funds to clear the check. Gueren was not aware of this until Monday, the 24th, for the reason that he had spent the week end with his family out of town. Upon receiving this information, Gueren contacted Sekular who stated that there was some sort of 'mix-up' and that the check should be redeposited. This was never done, as Sade & Co. then called Sekular's bank and learned that Sekular had only a $ 200 balance in his account. On August 25th, Sekular's 'NSF' check was returned to Sade & Co.
A series of phone calls, conversations, meetings and accusations then ensued between Sade & Co., Sekular, Gueren, and members of the families of the two individuals. On August 26th, Sade & Co. received $ 1,900 in cash from Sekular. On that same date a telegram was sent to Sekular reserving the right to sell out his account in full after 3:00 P.M., August 28th, 'or as soon thereafter as practicable predicated upon prevailing market conditions.' No further payments were forthcoming and sale of the stock was eventually effected in three separate transactions on September 1st and 3rd, and December 24, 1959. Due to a rapidly falling market in this stock, not only was it difficult to locate purchasers, but is was also ...