Kinney v. Lisman

147 Misc. 431, 263 N.Y.S. 828, 1933 N.Y. Misc. LEXIS 1095
CourtNew York Supreme Court
DecidedApril 25, 1933
StatusPublished

This text of 147 Misc. 431 (Kinney v. Lisman) is published on Counsel Stack Legal Research, covering New York Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Kinney v. Lisman, 147 Misc. 431, 263 N.Y.S. 828, 1933 N.Y. Misc. LEXIS 1095 (N.Y. Super. Ct. 1933).

Opinion

Harris, J.

This is an action brought in equity by the plaintiff, who claims to be a purchaser of stock, against the defendants who he claims sold him the stock, and is one to rescind his executed contract of purchase on the ground that the agent of the plaintiff, a firm known as Glenny, Monro & Moll, through bribery, had been secretly employed in such purchase by the defendants. The transactions complained of are two in number and involve the dealing in stock of the Consolidated Automatic Merchandising Corporation, commonly known in the market, and hereinafter designated, as Cameo.

In June, 1928, occurred the inception of Cameo and subsequently thereafter its stock was placed on the market. The first public offering of securities was made through the defendants on August 7, 1928, and was in units of one share of preferred stock and one share of common stock at a price of fifty-five dollars a unit. The defendants comprised an investment banking concern known as F. J. Lisman & Co., and at the time of the transactions in question Glenny, Monro & Moll were a copartnership having their office in the city of Buffalo and doing business both as dealers in investments and stockbrokers. In conjunction with the original marketing of Cameo, Glenny, Monro & Moll, by agreement dated August 1, 1928, became one of a number of firms who assumed the marketing of the stock as a selling group in conjunction with F. J. Lisman & Co., and by such agreement Glenny, Monro & Moll became entitled to purchase for resale on its own account units of 1,000 each.

The first transaction complained of by the plaintiff in so far as this action is concerned was the selling of 100 units, and this occurred while Glenny, Monro & Moll were working with the defendants under such selling group agreement. The plaintiff, a well-known lawyer having his offices in Buffalo, like many others, was engaged in ventures in the stock market and for a number of years prior to September, 1928, had carried an account with Glenny, Monro & Moll. His contact with that firm was through a representative thereof named Balkin, evidently a friend of the plaintiff, and the person with whom he conducted most of his transactions with Glenny, Monro & Moll.

In September, 1928, apparently through his contacts with Balkin, the plaintiff became interested in Cameo. Balkin furnished the plaintiff with data concerning Cameo and such data included a circular (Plaintiff’s Exhibit 6 herein), which particularly stated that the stock of Cameo was offered in units as above described. As a result of these dealings with Balkin, the plaintiff bought 100 units of the stock. He states that he directed Balkin to purchase such units on the Curb Market (although Balkin disputes this) and [433]*433claims now to be entitled to rescind such sale of 100 units on the ground that Glenny, Monro & Moll were being paid a secret profit of two dollars and a half per share on each unit and that he was not advised of such secret profit. In reference to such 100-unit transaction, the evidence is strongly in favor of the contention of the defendants that the plaintiff purchased such 100 units from Glenny, Monro & Moll as dealers and not as brokers. This being so, he should have known that a dealer must get his compensation somewhere and logically that such compensation must come from a profit. This being so, the court cannot permit him to rescind the purchase of the 100 units.

Following the transaction of the 100 units, the plaintiff had another deal in Cameo with Glenny, Monro & Moll which deal took place in January, 1929, at which time he purchased 200 shares of preferred stock. Within a few days thereafter he sold such 200 shares. He does not complain of this second transaction in Cameo and it is only referred to because it may throw some light upon the other transactions and upon the likelihood that the plaintiff relied as much as he says he did on the judgment of Glenny, Monro & Moll. He does say that in reference to the initial transaction of 100 units in Cameo and the one hereinafter described, he relied implicitly on the judgment and advice of Glenny, Monro & Moll, and that he was practically controlled in his decisions to market the 100 units and the 500 shares of preferred stock hereinafter referred to by such advice of Glenny, Monro & Moll.

In February, 1929, the plaintiff had a third transaction in Cameo with Glenny, Monro & Moll and the rescission of this third transaction is the burden of his cause of action alleged in the complaint other than the cause of action in reference to the 100 units. This transaction of 500 shares has been the subject of previous litigation in which the present plaintiff was the plaintiff and in which Glenny, Monro & Moll were the defendants. In such previous litigation, the plaintiff brought an action against Glenny, Monro & Moll to rescind his purchase of the 500 shares on the ground that he had ordered them as his brokers to purchase the 500 shares on the Curb Market for him and that instead of that, they had sold him 500 shares of Cameo owned by themselves. In such action the plaintiff had judgment at Equity Trial Term (Kinney v. Glenny, 136 Misc. 301). In the decision on which such judgment was based the learned trial court held that the defendants therein were owners of the 500 shares; that the plaintiff had ordered from them as his brokers the purchase of 500 shares and that the then defendants, in violation of their duty to the plaintiff, sold their own stock to the plaintiff. If these [434]*434were the facts, there could be no quarrel with such decision at Trial Term. But on appeal it was held by the learned appellate courts that the facts did not warrant the conclusion that Glenny, Monro & Moll were the owners of such 500 shares at the time they furnished the same to the plaintiff (231 App. Div. 311; affd., 257 N. Y. 560). The case of Kinney v. Glenny is the subject of a long discussion in an article entitled Secondary Distribution of Securities — Problems suggested by Kinney v. Glenny ” (Vol. XLI, Yale Law Journal, 949, No. 7, May, 1932). This article is most informative on the subject involved, both as to methods of marketing and authorities on the law of agency quoted. The writers of this article do not agree with the conclusion of the learned appellate courts to the effect that ownership of the 500 shares was not in Glenny, Monro & Moll, but in so disagreeing they apparently overlook the fact that a purchase by Glenny, Monro & Moll, if made by them as brokers for a customer, was a purchase to put title in such customer and not in the brokers.

The facts concerning such 500 shares and their purchase, although disputed in .some respects, were practically as follows: The original marketing of Cameo in the summer and fall of 1928 was what is referred to ordinarily as a primary distribution of the stock. Such original distribution did not result in a condition of the market that was beneficial to the bankers and others interested in the stock, in that persons purchasing the units broke the same up and putting the shares on the market, brought about a surplus of the stock on the market.

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Goodrich v. . Houghton
31 N.E. 516 (New York Court of Appeals, 1892)
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Kinney v. Glenny
231 A.D. 311 (Appellate Division of the Supreme Court of New York, 1931)
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Bluebook (online)
147 Misc. 431, 263 N.Y.S. 828, 1933 N.Y. Misc. LEXIS 1095, Counsel Stack Legal Research, https://law.counselstack.com/opinion/kinney-v-lisman-nysupct-1933.