Morris F. Fox & Co. v. Lisman

• Decision Date: 22 June 1931
• Citation: 237 N.W. 267,208 Wis. 1
• Court: Wisconsin Supreme Court
• Parties: MORRIS F. FOX & CO. v. LISMAN ET AL.

208 Wis. 1

237 N.W. 267

MORRIS F. FOX & CO.

v.LISMAN ET AL.

Supreme Court of Wisconsin.

June 22, 1931.

Appeal from a judgment of the Circuit Court for Milwaukee County; John J. Gregory, Circuit Judge.

Action by Morris F. Fox & Company against Frederick J. Lisman and others, copartners under the firm name and style of F. J. Lisman & Company, and another. From a judgment for plaintiff, defendants named appeal.--[By Editorial Staff.]

Reversed, and remanded with directions.

This action was commenced May 8, 1929, and set out four causes of action. The first cause of action was based upon a breach of contract. The court granted a nonsuit as to the second, third, and fourth causes of action, and there is no appeal from this determination. At the close of plaintiff's testimony the court granted a nonsuit so far as the defendant Dahinden-Schmitz Company was concerned, and there is no appeal from this determination. The action was tried before the court without a jury. Findings of fact and conclusions of law were filed and judgment was ordered in favor of the plaintiff, in the sum of $24,790.91 damages and costs. The facts are sufficiently set forth in the opinion.Bender, Trump, McIntyre & Freeman, of Milwaukee (Ronold A. Drechsler, of Milwaukee, of counsel), for appellants.

Miller, Mack & Fairchild and J. Gilbert Hardgrove, all of Milwaukee, for respondent.

WICKHEM, J.

During the months of July and August, 1927, the defendant F. J. Lisman & Company and B. J. Van Ingen Company, investment bankers, contemplated the purchase of an issue of $4,500,000 of General Vending Corporation bonds. This corporation owned or was about to acquire all of the outstanding capital stock of a number of weighing machine companies, and the purpose of the issue was to furnish the means to purchase such stock, retire certain obligations, finance improvements of penny scales, purchase gum vending machines, and furnish working capital. Before this issue assumed definite form, the defendant F. J. Lisman & Company and its associate undertook to interest four or five bond houses in the United States in taking “banking group participations” for the disposition of the bonds referred to. In accordance with this plan they sent one Monger, a wholesale salesman, to Milwaukee. Monger first offered this participation to Morris F. Fox & Company, but was refused. He thereupon presented the proposition to the defendant Dahinden-Schmitz Company, and this company accepted the participation. The “banking group participation” imposes a liability upon each participant for the ultimate sale or disposition of a stipulated portion of the bonds. The effect of this agreement is that each member takes the responsibility for a portion of the bonds, guaranteeing their sale and accepting the risk of their nonsale. The division into four or five or more of such participating groups results in reducing the liability of the promotors, who in this case are the defendant F. J. Lisman & Company, and its associate, B. J. Van Ingen Company. In return for this form of participation, a higher commission is paid to the banking group participants than is paid to those who belong merely to the selling group. The “banking group participation,” unless accompanied by participation in the selling group, does not involve the purchase of bonds. The obligations involved are customarily discharged by securing a sufficient selling group participation to take care of the liability, and if such selling group is acceptable to the promoter or underwriter, and pays for the bonds subscribed for, the liability ceases. “Banking group participation” can and may be the only participation that a particular company has, but customarily it is required that it be combined with participation in the selling group. The selling group does involve purchase of bonds by members to the amount of the subscription. It is the claim of defendant that the arrangement with Dahinden-Schmitz Company involved their participation in the selling group, although it is conceded that this company never executed the selling group contract. Whether the Dahinden-Schmitz Company was in the banking group only, or also in the selling group, the amount of their subscription was $250,000 originally and $460,000 ultimately. The telegramasking for participation, as well as the letter of confirmation by the defendant F. J. Lisman & Company, are dated September 15, 1927.

Between September 15 and September 30, 1927, a representative of Dahinden-Schmitz Company approached Grossman-Lewis Company and disposed of $75,000 of these bonds, and also disposed of $76,000 to Morris F. Fox & Company, and various amounts to several other customers. After finding that they had placed practically the entire $250,000, Dahinden-Schmitz Company increased their commitment to $350,000. This transaction was completed on September 30, 1927. On October 1st, at 1:49 p. m., Morris F. Fox & Company telegraphed Lisman & Company for $25,000 additional General Vending Corporation bonds in banking or selling group, and at 2:33 the same afternoon one Fleming, acting on that afternoon in place of one Traugott, who had charge of the matter, wired: “O. K. twenty-five thousand Vending will protect you twenty-five thousand additional will phone you Monday morning.” The same afternoon Dahinden-Schmitz Company wired Lisman & Company as follows: “Have order from Morris Fox & Company for Vending bonds. Understand they wired for additional bonds. Do not confirm without consulting us before all our bonds are applied for.” Defendant claims that on October 3d, Traugott telegraphed Morris F. Fox & Company as follows: “We have arranged Dahinden-Schmitz take care of your wants Vending. This includes twenty-five bonds confirmed you Saturday together with your request twenty-five additional.” An office copy of this wire was offered for identification, but it was not received in evidence and there is a question both as to its having been sent and as to its admissibility.

On October 3d, Morris F. Fox & Company filled out a blank selling group circular and mailed it with a letter dictated by its vice president. The following statement in his letter is of importance: “This purchase is, of course, predicated upon the understanding that an application will be filed with the Railroad Commission of Wisconsin for these bonds and that they will receive a Class A rating.”

This letter was not acknowledged by defendant F. J. Lisman & Company, but was filed with a pencil memorandum which reads as follows: “Mr. Lyon advises Boston listing takes care this--if not we make application direct as reg. dealers this state.”

Mr. Lyon was the office expert of Lisman & Company on Blue Sky matters. On October 3d, Dahinden-Schmitz Company, as heretofore stated, by letter to Morris F. Fox & Company confirmed the sale of $125,000 of bonds, subject to the terms of the selling group and with no reference to the proviso in plaintiff's letter. On October 6th, Dahinden-Schmitz Company wrote Morris F. Fox & Company a letter to the effect that there would be due October 10th a total of $123,649.86 against delivery of $125,000 par value interim receipts of Lisman & Company, countersigned by the Central Union Trust Company. The same letter was sent by Dahinden-Schmitz Company to all of its selling group participants. Thereafter the interim certificates were forwarded directly to Morris F. Fox & Company. The bonds sold readily and Morris F. Fox & Company were unable to get additional bonds without paying a premium. On October 21st, Monger, the wholesale man, came to Milwaukee for the purpose of checking up on the sales, and upon receiving Morris F. Fox & Company's complaint about the difficulty in getting additional bonds, said that he would make arrangements to get them all the bonds they wanted, but that they would have to come through Dahinden-Schmitz Company. Morris F. Fox & Company thereafter purchased $85,000 worth of additional bonds over a period beginning October 21st and ending December 1st. All of these were purchased through Dahinden-Schmitz Company. After October 3 and until November 12, 1927, no letters or telegrams passed between Lisman & Company and Morris F. Fox & Company. During the month of September, 1927, arrangements were made by Lisman & Company and their attorneys to secure a listing with the various exchanges, which listing would qualify the sale of bonds in many states without going through the formality of securing Blue Sky permits. Subdivision (4), § 189.03, of the Wisconsin Statutes, provides that its provisions shall not be applicable to securities officially listed upon the New York, Boston, or Chicago Stock Exchange. On November 14th, application was filed with the Wisconsin Railroad Commission for permission to sell securities under the Wisconsin Law, and on December 1, 1927, the Railroad Commission declined to give the bonds a Class A rating. Thereafter numerous conferences were had between representatives of the defendants and the officials of the Railroad Commission. On January 4, 1928, in accordance with the selling group letter, the syndicate distribution was extended for a period of sixty days. On April 2, 1928, Lisman & Company forwarded to Dahinden-Schmitz Company a check for $16,935 on account of their concession on commitment in the banking group up to December 20, 1927. Thereafter Dahinden-Schmitz Company inclosed their check for $6,500.10 in full and final settlement on the Morris F. Fox & Company commitment. On May 15, 1928, the Railroad Commission gave the securities a Class B rating. This compelled Morris F. Fox & Company to offer to all purchasers of bonds through it a repurchase of their bonds at the price sold. It is the loss involved in this repurchase and the subsequent resale in a depreciated market that constitutes the damages claimed by Morris F. Fox & Company in this case.

Since this complaint is one for breach of contract against Lisman & Company,...