Klatt v. Guaranteed Bond Co.

• Decision Date: 07 November 1933
• Citation: 250 N.W. 825,213 Wis. 12
• Parties: KLATT v. GUARANTEED BOND CO. ET AL.
• Court: Wisconsin Supreme Court

213 Wis. 12

250 N.W. 825

KLATT

v.GUARANTEED BOND CO. ET AL.

Supreme Court of Wisconsin.

Nov. 7, 1933.

Appeal from a judgment of the Circuit Court for Dodge County; C. M. Davison, Circuit Judge. Affirmed in part; reversed in part.

Action by Otto Klatt, plaintiff, against the Guaranteed Bond Company, a corporation, Columbia Casualty Company, a corporation, and Maryland Casualty Company, a corporation, defendants, commenced on the 12th day of June, 1931. From a judgment entered in favor of the plaintiff and against the defendants, on the 13th day of September, 1932, the defendants Columbia Casualty Company and Maryland Casualty Company appeal.Lamfrom, Tighe, Engelhard & Peck, of Milwaukee, for appellant Columbia Casualty Co.

James E. Coleman, of Milwaukee (John S. Barry, of Milwaukee, of counsel), for appellant Maryland Casualty Co.

C. A. Markham, of Beaver Dam, for respondent.

OWEN, Justice.

This action is brought by the plaintiff against the several defendants to recover amounts paid by the plaintiff to the Guaranteed Bond Company as the purchase price of bonds sold by the Guaranteed Bond Company to the plaintiff in advance of their classification as Class A securities. The defendant Guaranteed Bond Company, during all the times herein material, was a duly licensed securities broker doing business in the city of Milwaukee. Our securities (sometimes termed “blue sky”) law requires securities offered for sale to be classified as Class A or Class B, and prohibits the sale of securities until so classified, and a permit for their sale issued, by the Public Service Commission, except as provided by section 189.08, Stats. That section reads: “Any person authorized by the commission to act as a broker, who desires to sell any Class A security before securing a permit, may do so after complying with the following conditions: (1) Such broker shall notify the commission in writing of the name or description of such security, and shall, within thirty days or within such further time as the commission may fix, apply for a permit for the sale thereof as Class A security. (2) He shall also file with the commission a bond executed by a licensed surety company, in the sum of twenty thousand dollars conditioned to repay to any purchaser of such securities on demand any money or the value, in money, of any other consideration received of him therefor if said application shall not be made as above provided, or the commission shall determine that the securities so offered are not Class A securities, either by refusal to issue a permit for the sale thereof or by issuance of a permit authorizing the sale thereof as Class B securities, or otherwise, and to pay to the commission the fees required by section 189.26.”

There is some reason for believing that this section requires the filing of a bond with the Public Service Commission for each security which is proposed to be sold as a Class A security before it is so classified and a permit to sell the same issued. However, the statute seems to have been construed by the commission from the beginning as to require only the filing of a blanket bond in the sum of $20,000 and, under such blanket bond, the broker may proceed with the sale of any number of securities upon merely notifying the commission of an intention to do so. In view of this practical construction of the law on the part of the administrative agency charged with its enforcement for such a long length of time, apparently acquiesced in by brokers and all others affected by the law, we are not disposed to challenge that construction at this time, as it cannot be foreseen what disturbance would result in the event of a departure therefrom to the rights of those who have acted in reliance upon such construction.

[1] Pursuant to such construction, the Guaranteed Bond Company filed its bond, Columbia Casualty Company, surety, with the Public Service Commission on February 4, 1925, as required by section 189.08, but at that time known as section 183.27 (4). On August 17, 1925, the Guaranteed Bond Company filed with the commission a notice of its intention to offer for sale as Class A securities, subject to such surety bond, Kankakee Hotel 6 1/2 per cent. first mortgage bonds, insured by London & Lancashire Indemnity Company, and in said notice it advised the commission that the application for the permit would be filed by Bristol & Co., underwriters of the bonds, on its behalf. On August 27, 1925, the then Railroad Commission suspended the right of the Guaranteed Bond Company to sell securities in advance of the issuance of the permit under the surety bond which the Guaranteed Bond Company then had on file with the commission. The reason for this appears to have been that the Guaranteed Bond Company had sold Class A securities to the amount of $55,000 in advance of their qualification and permitted sale. On September 16, 1925, the Guaranteed Bond Company filed a new bond executed by the defendant Maryland Casualty Company under the provisions of section 189.08, Stats., together with a collateral agreement executed by Bristol & Co., underwriters of the Kankakee Hotel bonds, which collateral agreement undertook to repay to any purchaser of any securities underwritten by it and sold in Wisconsin by Guaranteed Bond Company as Class A securities, before permit for the sale thereof was issued, any moneys paid for said securities if the permit was not obtained. The Maryland Casualty Company bond was approved by the commission on September 17th, and the Guaranteed Bond Company was so advised by letter dated September 18, 1925. The Guaranteed Bond Company was further advised that it was “at liberty to proceed in offering Class A securities prior to the issuance of the permit under conditions prescribed by statute.” Thereafter, and on the 22d day of September, 1925, the Guaranteed Bond Company filed a second notice with the commission that it intended to sell as Class A securities, before the issuance of a permit, “Kankakee Hotel 6 1/2 first mortgage bonds,” and that “application has been filed by the undersigned or by Bristol & Company, Chicago, on its behalf.”

On October 21, 1925, the commission advised Bristol & Co. that, pursuant to its request, the time for filing the application for permit was extended to November 20, 1925. On November 19, 1925, Bristol & Co. duly filed the application for the permit with the commission. On February 17, 1926, the commission denied said application for the permit, whereupon Bristol & Co. appealed from said order to the circuit court for Dane county, Wis. On July 19, 1926, the circuit court for Dane county vacated and set aside said order of the commission and ordered that the permit be issued, unless it be denied for reasons other than those forming the basis of the order of the commission of February 17, 1926. Subsequently the commission filed a notice of appeal from said order of the circuit court to this court, but the record was never transmitted to this court, nor was it remanded to the commission. The matter was never heard by this court nor did the commission ever take further action.

As the effect of this decision of the circuit court upon the order of the then railroad commission is a point involved and discussed in the briefs, we may as well dispose of it here. The contention on the part of the appellants is that the order of the circuit court was tantamount to a judicial determination that the Kankakee Hotel bonds were in fact Class A securities. It appears that the reason given for denying the permit was that the Kankakee Hotel bonds were insured by “United Lloyds of America,” an insurance company not authorized to transact business in this state. The circuit court held in effect that the contract of guaranty of the bonds was not a Wisconsin contract, and that it was not necessary that the company be authorized to do business in this state in order to make its guaranty a valid one. We are unable to find in the record the order of the Railroad Commission denying the permit nor any copy thereof. Although the complaint in the circuit court action, which is in the record, states that a copy of the order is attached to the complaint as “Exhibit A,” we do not find it anywhere in the record. Our statement of the reasons given by the commission for denying the permit is gathered from desultory statements gleaned from other documents relating to that circuit court action which were introduced in evidence. However, we do not think it makes such difference. The fact remains that the commission never classified the Hotel Kankakee bonds as Class A securities, neither did the circuit court order the commission so to do. The adjudication of the circuit court was only to the effect that the reason given by the commission for failure to so classify them was not a valid reason, and ordered the commission to classify them as Class A securities unless such classification be denied on some other ground. It must be held, notwithstanding the adjudication of the circuit court, or what effect the unperfected appeal had on such adjudication, that the Hotel Kankakee bonds have never been classified as Class A securities and that no permit has ever been issued for their sale in this state as Class A securities. After such lapse of time, they must be treated as securities which failed to qualify as Class A securities.

The complaint in this action alleges that on the 17th day of September, 1925, the plaintiff purchased from the Guaranteed Bond Company Hotel Kankakee bonds to the amount of $4,000. At the conclusion of the trial plaintiff moved to amend his complaint so as to allege that the...