Lesher v. Bonner, 106.

• Decision Date: 23 October 1934
• Docket Number: No. 106.,106.
• Parties: LESHER v. BONNER et al. WOLFOLK v. SAME.
• Court: Michigan Supreme Court

269 Mich. 124

256 N.W. 827

LESHER

v.BONNER et al.

WOLFOLK

v.SAME.

No. 106.

Supreme Court of Michigan.

Oct. 23, 1934.

Appeal from Circuit Court, Wayne County; Lester S. Moll, Judge.

Suits by Ralph Lesher and by Guy Wolfolk against David T. Bonner and others, individually and doing business as Bonner, Brooks & Co., a copartnership, and the Massachusetts Bonding & Insurance Company and another. From a judgment for plaintiffs, David T. Bonner and others individually and doing business as Bonner, Brooks & Co., a copartnership, appeal, and from judgments for the Massachusetts Bonding & Insurance Company, the plaintiffs cross-appeal.

Affirmed.

Argued before the Entire Bench.

Monaghan, Crowley Reilley & Kellogg, of Detroit, for appellants.

Pear, Beattie & Langs, of Detroit, for appellees and cross-appellants.

BUTZEL, Justice.

Ralph Lesher, a resident of Detroit, brought suit against David T. Bonner, Francis A. Bonner, and William L. Nolan, individually and doing business as Bonner, Brooks & Co., a copartnership engaged in the stock brokerage business in New York City. The Massachusetts Bonding & Insurance Company was also joined as defendant. A companion suit also was brought by Guy Wolfolk of Ann Arbor, against the same defendants and arising out of substantially the same transaction. The cases were tried together and will be discussed as if consolidated into one. Inasmuch as the claims of error refer principally to questions of fact, it becomes necessary to briefly state the very complicated set of facts. In the year 1929, Bonner, Brooks & Co. were heavily interested in the stock of the General Laundry Machinery Corporation, a Delaware corporation that had been organized through the merger of a number of other companies engaged in the manufacture of laundry machinery. Bonner, Brooks & Co. were interested both in the sale and distribution of the stock of the new company. Pursuant to an application filed with the Michigan Securities Commission, an order had been issued by the commission permitting the sale of 35,000 shares of the corporation's nonpart value stock at the price of $20 per share. The total original capitalization of the corporation was 100,000 shares. Bonner, Brooks & Co. also obtained a dealer's license from the Michigan Securities Commission and, as required by law, filed a $10,000 bond with defendant Massachusetts Bonding & Insurance Company, as surety.

Bonner, Brooks & Co. had some relationship with one Gene Weiner. It is plaintiff's claim that Weiner was simply a contact man whose function was to interest distributors or purchasers in the stock. Lesher, who had had previous experience in the stock brokerage business, became acquainted with Weiner in 1927, or the early part of 1928. In the early part of September, 1929, Weiner was in Detroit and told Lesher of a certain stock with fine possibilities. Some time later, on the 16th of September, Weiner from his suite in the Book-Cadillac Hotel in Detroit called Lesher and invited him to come over and meet a member of a New York banking house. Upon his arrival, Lesher was introduced to David T. Bonner, of the defendant firm. Lesher testified that Bonner then and there induced him by false representations to purchase stock in the General Laundry Machine Corporation. He claims that Bonner, who was at the time a director of the corporation, informed him that the company was doing a very large and successful business; that it had earned $3.75 per share for the first nine months of the year, and would earn between $5 and $6 per share for the entire year; that the stock should sell at at least ten times its earnings, and that some of the men on Wall Street believed that eighteen times earnings was a correct price for stock; that it would sell at between $50 and $60 per share very shortly; that a pool was being organized which would include the Harriman interests of New York, Bonner, Brooks & Co., and others; that Weiner was running the market, while Bonner, Brooks & Co. were furnishing the money; that the latter were purchasing the stock and were going to put it up higher; and that he, Bonner, had just purchased some of the stock at about $20 per share on the New York curb exchange. Many of these false representations are merely statements of opinion, and would therefore not support an action based upon fraud. However, Bonner's positive statement as to the earnings of the company, upon which Lesher relief, is not a mere opinion, and if it was made, and was false, as the trial judge found, Lesher was entitled to rescind on the ground of fraud any purchase of stock made from Bonner's firm in reliance upon such statement. Bonner testified that the actual earnings of the corporation were $1.04 per share for the first six months of 1929, and approximately 16 cents per share for the entire year of 1929; that there was a definite decrease in earnings during the last six months of 1929, but that he had no knowledge as to what the earnings of the corporation were for the period constituting the first eight months of 1929.

On the strength of the representations above described, Lesher became eager to purchase a large block of the stock and inquired from Bonner how the purchase could be handled. Bonner told him to make the purchase through his own broker. The following day Lesher placed an order for 1,900 shares with Merrill-Lynch & Co., a New York and Detroit brokerage house. Merrill-Lynch & Co. employed brokers to purchase the stock on the New York curb exchange, and the latter in turn purchased the stock from brokers representing Bonner, Brooks & Co. The stock was purchased at prices varying from $22 to $22.50 per share, the total sum paid being $42,662.50 for the 1,900 shares. Lesher testified that he did not have the money to make the purchase, but that Martha Lesher, his mother, had agreed to assist him, and accordingly the stock was ordered through Merrill-Lynch & Co., with which firm Mrs. Lesher had a brokerage account, the purchase money being advanced by the Detroit Trust Company as a loan to Mrs. Lesher. Lesher positively testified that the stock belonged to him, and not to his mother. Although the stock was purchased in her name, it was understood, as stated by an officer of the trust company, that it belonged to plaintiff, Ralph Lesher, who subsequently ‘collaterated’ with the trust company 400 shares of other valuable stock standing in his own name, and belonging to him, when the Laundry Machinery Corporation stock had receded in value and the trust company demanded more collateral. The trust company official testified that Mrs. Lesher had refused to put up any more collateral, and stated at the time that the transaction was her son's matter and that he would have to protect it.

In January, 1930, Lesher became manager of the Detroit office of Bonner, Brooks & Co., in which capacity he continued until the last of April, 1930. The market price of the stock began to recede almost immediately after the purchase by Lesher, and continued to fall until the stock was deemed worthless. Lesher testified that he was not aware of the falsity of Bonner's representations for a considerable period, but that as soon as he learned of the fraud which had been practiced upon him, he took immediate action. He wrote to Bonner, Brooks & Co., through his attorneys, under date of August 18, 1931, making a tender of the shares and demanding a return of the purchase price, plus interest, and threatened suit unless an adjustment was made. He did not make a physical tender of the stock, but stated that he was ready to deliver it through the trust company or any other channel Bonner, Brooks & Co. might suggest. In addition, a tender of the stock was made in open court at the trial of the case. The market price of the stock at the end of 1930 had already gone down to approximately $1 per share, and on January 8, 1931, the company went into the hands of receivers. Bonner testified that the creditors would not be paid in full. The stock had become worthless. Upon the failure of...