Busch v. Stromberg-Carlson Telephone Mfg. Co.

• Decision Date: 12 October 1914
• Citation: 217 F. 328
• Parties: BUSCH et al. v. STROMBERG-CARLSON TELEPHONE MFG. CO.
• Court: U.S. Court of Appeals — Eighth Circuit

217 F. 328

BUSCH et al. v. STROMBERG-CARLSON TELEPHONE MFG. CO.

United States Court of Appeals, Eighth Circuit.

October 12, 1914

Syllabus by the Court.

The decisions of questions of fact upon the weight of conflicting evidence in the trial of an action at law without a jury are not reviewable in the national courts.

An agreement whereby each of 56 subscribers covenants with the others, with a corporation, and with its manager, to sell at par or to take and pay at that rate for the amount of bonds of the corporation maturing 20 years later set opposite his name, in consideration of the covenants in such agreement of the corporation and its manager to sell and deliver to him or to others that amount of bonds at that rate and to pay him 5 per cent. commission in cash and 40 per cent. in full-paid unassessable stock of the corporation for selling or purchasing the subscribed bonds, is an 'underwriting,' a contract to insure the sale of the bonds at par, and, if they are not sold, to buy them at that price, and not a mere contract to make a loan to the corporation. Neither the subsequent insolvency of the corporation nor the subsequent depreciation or worthlessness of the bonds and the stock constitutes any defense to an action against a subscriber for his breach of his agreement.

Where acts are stipulated to be done at specified times by one covenant of a contract, and acts are stipulated to be done without fixing any time for their performance by another covenant thereof, the latter covenant does not condition the former, is independent of it, and a breach of the latter constitutes no defense to an action for a breach of the former.

The same rule generally governs where acts are stipulated by one covenant to be done at different times from those fixed by another covenant for the performance of other acts.

The subscribers agreed to take and pay for the bonds at times specified in the underwriting, if not sold to others before that time. Just before the defendant signed the underwriting the corporation, at the demand of the defendant and other St Louis directors, agreed to build a plant at St. Louis costing about $1,000,000, and the defendant thereupon raised his subscription from $50,000 to $100,000. This agreement fixed no time for the erection of the plant, and was neither embodied nor referred to in the underwriting and the plant was never built.

Held these facts constituted no defense to an action against the defendant for a breach of his contract to sell or take and pay for the bonds at the agreed times.

An underwriting is assignable.

The measure of damages for the breach by a subscriber of his contract of underwriting is the difference between the price at which he agreed to insure the sale or to purchase the securities and their value.

Franklin Ferriss, of St. Louis, Mo. (Allen C. Orrick, of St. Louis, Mo., on the brief), for plaintiffs in error.

Irvin V. Barth, of St. Louis, Mo. (Warwick Hough and Warwick M. Hough, both of St. Louis, Mo., and Hubbell, Taylor, Goodwin & Moser, of Rochester, N.Y., on the brief), for defendant in error.

Before SANBORN and CARLAND, Circuit Judges, and REED, District Judge.

SANBORN Circuit Judge.

The complaint of the plaintiffs in error is that a judgment was rendered against Adolphus Busch, the defendant below, for $27,636.67, because he failed to pay the last installment of $20,000 of his subscription of $100,000 to an underwriting contract for the bonds of the United States Independent Telephone Company, a corporation. A jury was waived, and at the request of both parties the court made a special finding of the facts in this case. Exceptions were taken to some of the findings, and to some failures to find as requested, but an examination of the record has convinced that there was substantial evidence to sustain the findings made, and that the evidence in support of the material findings requested and refused was not conclusive; so these exceptions are here dismissed. The decisions of a court in the trial of an action at law without a jury upon the weight of conflicting evidence are not reviewable in the national courts. Gibson v. Luther, 196 F. 203, 204, 116 C.C.A. 35, 36.

The defendant was one of the directors of the telephone company and the first of about 56 subscribers to sign the underwriting. This contract was made on November 23, 1895. By it Mr. Busch subscribed for $100,000 at par value of the bonds of the telephone company, which were secured by the pledge of personal property under a collateral trust agreement, and agreed to pay the amount of this subscription in five equal installments on February 1, 1906, May 1, 1906, August 1, 1906, November 1, 1906 and February 1, 1907, respectively. He paid the first four installments and took $80,000 of the bonds, which were dated October 2, 1905, and were to mature October 1, 1935, and $32,000 at par full-paid, nonassessable stock of the company; but when the last installment of his subscription fell due, the company, which had been prosperous and promising when he made his subscription, had become insolvent, and he declined to pay it.

The main contention of counsel for the plaintiffs in error is that the underwriting agreement is a mere executory contract to loan money to the telephone company, and not an agreement to insure the sale of or to purchase its bonds, and that there can be no lawful recovery for the breach of such a contract by a subscriber: (1) Because an action for specific performance will not lie; (2) because the breach causes no damage, for the agreement to repay the loan offsets the contract to make it; (3) because no recovery can be had for a refusal to advance money on overdue bonds; and (4) because the insolvency of the company and the worthlessness of the bonds releases from the previous obligation to loan to it.

Conceding, without admitting that this might be the result if the underwriting were a mere contract to loan money, let us see if it was such an agreement. It is entitled 'Underwriting Agreement.' It recites that the telephone company has authorized the issue and the securing of the payment of its bonds, that it has sold or agreed to sell a part of them, that it desires to sell an additional $2,500,000 thereof to finance its future business 'and to secure the underwriting of said $2,500,000 bonds or such portion thereof as it shall not sell,' and that the manager has acquired $1,000,000 of the stock of the telephone company (which the record shows had been previously acquired and donated to him by stockholders), and that the company has requested him to act as its agent to sell the $2,500,000 bonds at par with 40 per cent. of the amount thereof in stock or voting trust certificates representing the same. It contains these covenants: 'Each underwriter agrees * * * with the manager and every other underwriter that he will take up and pay for at par and accrued interest to the date of delivery' the amount of bonds set opposite his signature. The telephone company covenants that the manager, at any time before the $2,500,000 bonds are taken up and paid for by the underwriters, may sell them at par and accrued interest, and that if he so sells them to others than the underwriters they shall be deemed to have been taken up and paid for by the underwriters and shall be credited to them pro rata. The manager covenants that, as each underwriter takes up and pays for all of said bonds underwritten by him, for each $1,000 par value of bonds taken up and paid for or deemed to have been taken up and paid for and credited to such underwriter, he will deliver to such underwriter $400 par value full-paid and nonassessable stock of the telephone company or a voting trust certificate representing such stock, and that he will pay such underwriter a commission of 5 per cent. in cash upon the sale of each of said bonds when all of the bonds underwritten by such underwriter have been taken up or sold.

This contract is in terms and in legal effect far more than an agreement to loan money to the telephone company. It is an agreement by the subscribers to insure the sale of the bonds subscribed at par, and if they are not so sold to others then to purchase and pay for them at par, in consideration of the covenants of the telephone company and the manager to deliver the bonds and to pay the subscribers for selling or purchasing them 5 per cent. commission in cash and 40 per cent. in full-paid nonassessable stock of the telephone company. It is a contract to insure the sale of the bonds subscribed, and, in case they are not sold before the installments fall due, then to purchase and pay for them at par. It is an underwriting, and not an agreement to loan money. Moreover, it is an entire contract, complete in itself, and the covenants of the telephone company and the manager furnish a valuable and sufficient consideration for those of the subscribers. It is, therefore, no defense to an action against one of...