De Swarte v. First Nat. Bank of Wauwatosa

• Citation: 206 N.W. 887,188 Wis. 455
• Parties: DE SWARTE v. FIRST NAT. BANK OF WAUWATOSA ET AL.
• Decision Date: 02 January 1926
• Court: United States State Supreme Court of Wisconsin

188 Wis. 455

206 N.W. 887

DE SWARTE

v.FIRST NAT. BANK OF WAUWATOSA ET AL.

Supreme Court of Wisconsin.

Jan. 2, 1926.

Appeal from Circuit Court, Milwaukee County; John J. Gregory, Judge.

Action by John B. De Swarte against the First National Bank of Wauwatosa and Perez D. Gates. From a judgment of nonsuit, plaintiff appeals. Affirmed in part, and in part reversed and remanded, with directions to grant a new trial as to defendant Gates.Wolfe & Kolinski and A. J. Schmitz, all of Milwaukee, for appellant.

Edgar L. Wood, Carl F. Geilfuss, and Rix, Barney & Kuelthau, all of Milwaukee, for respondents.

JONES, J.

This is an action for damages, brought against the defendant bank and its cashier for losses incurred by the plaintiff in investments made by him with the advice and counsel of the cashier. The plaintiff, who had been connected with the Bradford Piano Company for many years as employee, stockholder, and, at the time he sold his interest in 1917, as vice president, had been a depositor in the defendant bank for five years, and had sometimes consulted the cashier, Perez D. Gates, with respect to investmentsand purchases of bonds. In the course of these years the plaintiff had come to place confidence in the judgment of this official, and the bank official had become acquainted with the financial standing and business affairs of the plaintiff.

On October 8, 1919, one Bruce Osborne, a stranger to the plaintiff, requested him to come down to the offices of the defendant bank in order that a business proposition might be placed before him. Upon appearing at the bank, the plaintiff was shown into a directors' room of the bank by Osborne and another man by the name of Cochran, and these two gentlemen then stated that they were desirous of obtaining a loan of $10,000 for Osborne & Cochran, Inc., a foreign corporation; that said corporation was financing the Clarke's Fork Land & Cattle Company, which, they said owned some 5,000 acres of land in Western Montana worth about $1,000,000, with a purchase-money mortgage for $150,000 on the land held by Peabody, Houghteling & Co., of Chicago; that a new bond issue was being floated which would become a first mortgage upon the land of the company upon the payment of the purchase-money mortgage of $150,000; that the purpose of the loan was to complete certain irrigation projects and for the purchase of cattle. It was proposed that the note of Osborne & Cochran, Inc., be given to the defendant for six months with collateral security in the form of new bonds of the Clarke's Fork Land & Cattle Company, together with an agreement for a bonus of the Land & Cattle Company bonds.

Upon receiving this proposition the plaintiff stepped over to the cashier's desk, where the defendant Gates was seated, and told him of the proposal. The plaintiff testified that Gates said he knew about the proposition; that he had investigated and written to a Chicago bank about Osborne and Cochran, and that they were “nice boys,” and that he knew the president of the Land & Cattle Company also, a Mr. Donlan, who was much like the president of the Wauwatosa bank; that he knew about the value of the land, explaining that the land was of three different classes, irrigated, semi-irrigated, and grazing land. The plaintiff further testified that he informed Gates that he wanted the bank's “O. K.” upon the proposition of the loan, and that he did not want to go into any speculative investment; that if he, Gates, would indorse the loan--if the bank would “O. K.” it--that he would be willing to loan the money. Gates, according to the plaintiff, then said, “I don't see how you can lose with that security,” and said the whole affair would be cleaned up in three or four months; that Osborne and Cochran were floating the loan instead of Peabody, Houteling & Co., because Donlan had taken a liking to them; that the bank would sell most of this new issue of bonds, and that some would be sold in Minneapolis and Chicago, and that if the loan were made the bank would sell the bonds put up as collateral first and apply the proceeds to the note; that the bank would arrange to obtain the money necessary for the plaintiff to make the loan if the plaintiff did not have the cash on hand to make it. Gates showed the plaintiff certain maps and letters with reference to the Land & Cattle Company and Osborne & Cochran, Inc., but the plaintiff was ignorant of the identity of the authors of the letters and of the situation, and testified that he paid little attention to the papers, relying entirely upon the statements of Gates. The plaintiff then left the bank, after telling Gates that he would make the loan, and upon returning to the bank in the afternoon Gates had made the necessary arrangements, having obtained a loan of $7,500 from the First National Bank of Wauwatosa and $2,500 from the First Wisconsin Bank of Milwaukee. The plaintiff signed the notes already prepared for his signature by Gates, and received from Gates a note of Osborne & Cochran, Inc., for $10,000, for six months without interest, and with interest at 7 per cent. thereafter, and collateral security in the form of $13,000 par value of Clarke's Fork Land & Cattle Company bonds.

Two days later, upon request, the plaintiff again met Osborne and Cochran at the bank and returned in the afternoon, accompanied by his brother, where they met Osborne and Cochran and again retired to the directors' room. After about a half hour's talk, the plaintiff and his brother went to Gates, and the plaintiff told Gates that Osborne and Cochran wanted to borrow $35,000 more with security of two to one in the same bonds. The plaintiff testified that Gates then said that the bonds thus given as security would be sold in the bank first and be credited on the notes; that the bank would sell them; that he could not see how the plaintiff would lose with the security offered and only a $150,000 incumbrance upon the land; that by selling the bonds there practically all risk was removed; that he, Gates, would arrange to raise the money for the plaintiff to use in making the loan. The plaintiff then signed notes and turned them over along with securities with which Gates was to raise the money. The plaintiff later received from Gates the notes of Osborne & Cochran, Inc., for the sum of $38,000, $3,000 being a bonus, together with $70,000 par value of the bonds of the Clarke's Fork Land & Cattle Company. All of this transaction with respect to the exchange of notes and securities and obtaining the cash was with Gates alone, Osborne and Cochran not being present.

In November, 1919, the plaintiff, according to the testimony, met Gates after Gates had taken a trip to Montana, and he testified that Gates told him that, though he had known that it was a good thing, that it went far beyond his expectations; that Osborne and Cochran had started in business three years previously with $17,000 and now had $350,000. On January 8, 1920, Osborne came to the plaintiff with regard to a further loan of $5,000 or $6,000 for the purpose of purchasing some cattle at a very favorable figure, but the plaintiff demanded the privilege of clipping the coupons upon the bonds in his possession as collateral and applying the proceeds to his loan. The plaintiff informed Gates of this proposal and of his demand, and testifies that when he asked Gates if the coupons would be honored that the cashier replied, “Surely,” after having been informed that the plaintiff would let Osborne and Cochran have the money only if the coupons were good. After this assurance by Gates, the plaintiff signed a note for $6,000 which Osborne wrote out, and notified Gates. About two days later the plaintiff went to the defendant bank, where he received the bonds of the Clarke's Fork Land & Cattle Company deposited for collateral security for the loan of $6,000, and the plaintiff at the same time signed a note for $6,000 to the Wauwatosa bank.

During the month of January the plaintiff testified that he made inquiries of Gates as to why the bonds were not being sold more rapidly, and that Gates stated that two bonds had been sold, and $2,000 had been credited to his notes, but that there was some adjustment to be made with the Railroad Commission before the sale could proceed, though the securities had already been approved. When the plaintiff clipped the coupons in accordance with the agreement made at the time of the third loan they were dishonored, and Gates required him to sign a note to the bank covering the amount, saying at the time that the reason they were not paid was that a sale of the property in question was being negotiated, and as soon as this was consummated there would be funds available for paying the entire indebtedness. However, nothing has been paid upon the loans nor upon the coupons, and this action was brought to recover $51,000 and interest from the defendant bank and Gates, upon the ground that the fraudulent misrepresentations of Gates acting for the bank caused the plaintiff to make the loans and was the direct cause of the losses incurred by him.

At the trial there was the testimony of Mr. Dineen, secretary of the Railroad Commission, to the effect that the records of the Railroad Commission show that the bonds were permitted to be sold by the Railroad Commission in February, 1919, but that there was no evidence that they had been passed upon by the Securities Division, which was inaugurated on August 1, 1919, under the law as changed, nor that the license granted in February, 1919, had been revoked. Mr. Dineen, however, testified that certain checks beside the listing of the bonds of the Clarke's Fork Land & Cattle Company indicated to him that they were required, under the law as changed, to be passed upon by the Securities Division before they could be sold in the state.

Thomas De Swarte, the brother of the plaintiff testified that Gates told him, in the presence of his brother, that the...