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cause the title company, the holder business, all right of control and of the legal title to an undivided management being vested in a board 1890/4000, to convey to the eight of trustees, was within the meaning parties of the first part, just as soon of the Missouri Blue Sky Law (artice as it should be free to do so, an un- 7, chap. 108, Rev. Stat. 1919, SS 11,919 divided 390/4000 of the property, free et seq.). Landwehr v. Lingenfelder and clear of all encumbraces, ex- (1923) Mo, App. — 249 S. W. 723. cept taxes, and subject to certain The Massachusetts court has de reservations. If the petitioner's deeds clared that foreign corporations are to Beatty and Frank may not be not included within the provisions of deemed to have been executed pur- a Connecticut statute providing that suant to exhibit B, then petitioner was no investment company should transbut conveying his own equitable title act business in that state until lito an undivided 150/4000 and an un- censed by the bank commissioner divided 75/4000, respectively, to each (S$ 3460, 3462, 4023, of the General of two grantees, as he had the right Statutes of the Connecticut Revisal of to do without securing the permission 1918). Somers v. Commercial Finance of anyone.

If, on the other hand, Corp. (1923) Mass. —, 139 N. E the deeds to Beatty and Frank may 837. be deemed to have been executed pur

IV. What constitutes "property," "se. suant to the terms exhibit B, and if the

curities," "stock," or "investment eight persons designated therein as contract." the parties of the first part did con

A so-called “member's certificate of stitute an 'association,' then, by his

interest” in a company which terms deeds to Beatty and Frank, petitioners itself a “common-law company” or å simply conveyed certain interests to

“common-law trust” has been held to two members of that association, be within a Blue Sky Act (Supplemeneither for their own exclusive use

tal Supplement to the Iowa Code, chap. and benefit or for the benefit of them

13B, title 9), providing as follows: selves and the six other members of

"Every person, firm, association, comthe association. But in either case the

pany, or corporation that shall either deeds were conveyances, not by, but directly or through representatives to, members of the association. There

or agents, sell, offer or negotiate for was therefore no conveyance of any sale, within this state any stocks, interests owned by the association or

bonds or other securities, by its members. The language of

shall, before doing or offering to do the act is: 'No company shall sell

any such business in this state, be or offer for sale

. . . any

required to secure a permit of the security of its own issue until it shall

secretary of state." See Wagner v. have first applied for and secured

Kelso (1923) — Iowa, —, 193 N. W. 1, from the commissioner a permit au

wherein the court said: "In the inthorizing it so to do.' § 3. Nor did

stant case the so-called agreement of petitioner, by either of his deeds to trust is so framed that, if valid, it vests Beatty or Frank, issue an instrument

the trustees with all and more than all evidencing an interest in property

the powers usually conferred upon corowned by the association or by its

porations. They have absolute control members. On the contrary, each deed

of all the company's property and aswas, as we have shown, an instru

sets. The shareholders are expressly ment evidencing an interest thereby

excluded from any voice whatever in conveyed to, not by, members of the

its management or business, and the association. Nor was either deed an

only enforceable obligation laid upon instrument 'issued or offered to the

the trustees is to distribute the public' by the association."

remnant, if any there be, of such An association known as the “Quarto assets as shall remain, when the trust Syndicate,” shares in which

is finally dissolved and all its debts sold at their par value of $100, the and obligations discharged. Its capi. syndicate to engage in the general oil tal is a share capital, evidenced by


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certincates, which may pass from hand purchasers did not intend to become to hand by sale or gift. They express- freeholders or landowners. The inly provide that the holder has au- tent was that the five-eighths interest thority, power, or right whatsoever to in the leasehold was to go to a cor. do or transact any business for or on poration thereafter to be organized. behalf of or binding on the company, The defendant agreed to do certain and the so-called agreement expressly things proper to be done to effect provides that the shareholders shall this result. Finally, the unit holders have no legal right to the property of were to participate in profits in prothe trust and no right to call for a portion to their holdings, and were to partition of the property or dissolu- be interested in the same proportion tion of the trust. That such share- in the corporation holding the title holders in the nebulous and shadowy and operating. The arrangement was substance of the so-called trust are legitimate, so far as appears, and constockholders, we cannot doubt. The venient enough. The paternalistic 80-called agreement of trust is evi- purpose of the statute is to prevent ofdently drawn with meticulous care to fering to the public, not land conavoid the use of the words 'stock' tracts, but investment contracts, eviand 'stockholders,' and thereby, if pos- dencing a right to participate in the sible, to avoid the bringing the sale proceeds of a venture, without the comof the shares within the scope of the mission first ascertaining whether statute; yet even then the pen of its there is behind the venture something author at times slipped and betrayed so tangible that a sound policy of him into the use of the natural and regulation permits exposing the inapproved word, as, for example, where vesting public to them. This is an it makes the parties 'covenant and investment contract within the statute. agree to and with each other. . . It is one to which the requirement of for the use and benefit of the present a license applies." and all future subscribers and stock- Where a Blue Sky Law prohibits the holders;' and again, in enumerating sale of "speculative securities,” exthe multitudinous powers of the cept under certain conditions and afttrustees, it provides authority to hold er permits are granted, such securi. and reissue the interest of its capi- ties, as defined by the act, including talization, 'its stock, and other securi- "securities for promoting the sale ties.' It follows, without need of fur- of which commission of more than ther discussion at this point as to this 7 per centum is offered or paid, objection, that the shares of capital either in money, stock, property, in the so-called trust are stock within otherwise, either directly or the meaning of the law."

indirectly; also the securities of And in the reported case (STATE v. any enterprise, association, partEVANS, ante, 1165), set out also in 24 nership, or corporation which has A.L.R. on page 531, the court holds a included or purposes to include in its certain option contract to be an in- assets, as a material part thereof, provestment contract within the meaning motion or intangible assets,"—the capof the Blue Sky Law of Minnesota. ital stock of a corporation, one third

And following the decision in the of which was to be retained by the reported case (STATE v. EVANS), it was organizers for their services, has been held in State v. Ogden (1923) --- Minn. held to be within the provisions of the -, 191 N. W. 916, that the sale of cer- act. Watters & Martin v. Homes Corp. tain units or fractional interests in a (1923) — Va.

116 S. E. 366, it was leasehold in 80 acres of oil land, evi- said: “One third of the total amount denced by instrument styled of the capital stock of the corporation "statement and purchase," constituted certainly formed a material part of its the sale of investment contracts within securities (far in excess of 7% per the Blue Sky Law. The court said: cent commission), which was to be “The purpose was not to convey un- issued to the promoters for their servdivided interests in the land. The ices. The act specifically makes it



unlawful to issue such stock for statute is aimed is therein set forth, promotion services, without the permit and the persons negotiating or dealing from the commission, if such stock is in them are denominated investment a material part of the assets of the companies, either domestic or foreign; corporation. It follows that the sale but both, if engaged in the business of the stock of this corporation, with- covered by the act, are amenable to out complying with the requirements its terms. The transactions to which of the act, was a violation of the Blue the statute is made applicable are the Sky Law of Virginia." See to the selling or negotiating for the sale of same effect, Consolvo v. Homes Corp. any contract, stock, bonds, or other (1923) Va. 116 S. E. 371.

securities issued by him, them, or it In Lewis v. Creasey Corp. (1923) [the investment company].'” ContinuKy, -, 248 S. W. 1046, it appeared ing, the court said: “After enumeratthat the Creasey Corporation, whose ing by name some of the character of business was the operation of whole- investments, the statute says, 'or other sale grocery houses, sometimes pro- securities issued by him.' In the seccured customers by selling to retail tions following the one quoted, the dealers a so-called “service contract” transactions covered by the statute are for the sum of $300, under which it referred to as 'securities' or as 'other agreed with each retail dealer to fur- securities,' and it is made perfectly nish him with groceries for his store plain to our minds, from a considerafor a period of twenty years at only tion of the whole statute, that the 5 per cent increase on the cost thereof character of transactions that the legisto the corporation, plus the expense lature had in mind, and to which it of conducting the corporation's busi- made its terms applicable, is what is ness, the customer to be entitled to ordinarily understood by the term 'secredit for the $300 paid. The question curity contract' or 'securities,' and arose whether such a method of do- that it never contemplated lodging ing business was within the provisions the power of jurisdiction in the hands of the Kentucky Blue Sky Law (chap. of the administrator of the statute 125, Acts of 1920, pp. 582 and 883el, to supervise or in any wise regulate to 883e26, Kentucky Statutes). The all, or any, ordinary commercial concourt said: “Section 2 of the act, tracts between members of society. which is now § 883e2 of Kentucky No such universal guardianship was Statutes, says: “Every person, cor- ever intended (if, indeed, such a poration, copartnership, company or sweeping regulation would be conassociation (except those whose se- stitutional), howsoever much it might curities are exempt under the provi- be beneficial in some instances.” sions of this act), organized or which In conclusion it was said: “We shall hereafter be organized in this therefore conclude, the cases commonwealth, whether incorporated

referred to hold, that the primary or unincorporated, which shall either

purpose of Blue Sky Laws is to himself, themselves, or itself, or by

protect investors from investments or through others, sell or negotiate for

in securities whereby a profit the sale of any contract, stock, bonds or other securities issued by him, them

is promised and expected without or it, within the commonwealth of Ken

any active efforts the part of tucky, shall be known for the pur

the investor, and which scheme conposes of this act as a domestic invest

templates that the company or individment company. Every such person, ual who receives the investment will corporation, copartnership, or asso

employ it himself or itself in such a ciation a resident of or organized in manner as to reap a profit to the holder any other state, territory or govern- of the sold security; and that it was ment shall be known for the pur- not intended to apply to contracts pose of this act as a foreign investment containing mutual obligations, such company. It will be noticed that the as are daily entered into in commercharacter of transactions at which the cial life, and from which a profit



can only be reaped by the uses which the investor alone makes of them."


V. What constitutes sale, In Raynard v. State (1923) Ala. App. — 96 So. 723, wherein the defendant was charged with violation of the Blue Sky Law, it was said: “The indictment was sufficient; for, in order to constitute a violation of the statute in question, the selling or offering for sale of any speculative securities defined in § 2 of said act, such selling or offering for sale must bę by means of an advertisement, circular, or prospectus, or by any other form of public offering, without having obtained a permit so to do from the public service commission, as the law requires. It is clear from the provisions of said act, supra, that unless the selling or offering for sale is accomplished by one or all of the means designated, that is, by advertising said speculative securities, or by circulars or prospectus or some other form of public offering, then said act does not apply, and if the speculative securities are sold or offered for sale without the employment of any of the inhibited means, supra, the act in question is not violated and no permit from the public service commission is required or necessary. In other words, if the selling or offering for sale of a speculative security is done by private sale or by privately offering for sale, the Blue Sky Law of this state has no application to such private sales or private offer to sell, for the statute is directed only to the sale or offer to sell speculative securities by means of any advertisement, circulars, or prospectus, or by any other form of public offering." And see Ex parte Lamb (1923) - Cal. App. - , 215 Pac. 109, set out in full, supra, subd. III. V. (a) (New) What constitutes viola.

tion of act. In First Nat. Bank v. C. W. Leeton & Bros. (1923) 131 Miss. 324, 95 So. 445, one of the appellees testified that he gave the note in suit in payment for certain shares of stock at their par value, which one Thompson agreed to procure for him from a zinc com

pany. There was testimony, too, that Thompson said he would have to pay the company that amount for the stock, and also that he and his partner divided the money from notes collected by them on the sale of the stock. The court said: “According to the testimony of the defendant, there was no violation whatever of the alleged Blue Sky Law of the state. This law is contained in 88 4127 et seq., Hemingway's Code. There was no yiolation shown of any of the sections of this law. Under this testimony the zinc company was not attempting to increase its capital stock, nor Thompson its agent."

In Kuebker v. Success Heater & Mfg. Co. (1923) Iowa, —, 192 N. W. 435, an action to recover commissions on the sale of stock, it was contended by the defendant that the plaintiff had failed to prove full compliance on the part of the defendant with the Blue Sky Law (Acts 35th Gen. Assem. chap. 137). The plaintiff's license, however, recited that the defendant had been authorized to sell its stock in Iowa, and on this the plaintiff relied. The evidence offered, togeiher with the allegations of the defendant's answer, was held sufficient to overcome the objection of noncompliance with the statute.

In Knechtel Motor Co. v. Worden (1923] 2 West. Week. Rep. (Can.) 154, it was held that the sale of shares in a company without the authorization of the local government board, as required by the Sales of Shares Act (chap. 15 of Statutes of Saskatchewan 1916, now chap. 199 of R. S. S. 1920), was illegal. And it was held that a company could not come within the exception to the act permitting a sale where not made in the course of continued or successive acts, where it had an agent on the road offering its shares for sale, and this because of the statutory provision to the effect that "solicitation by agents or emjloyees shall be evidence of an attempt to sell in the course of continued and successive acts and in violation of this act." And although the company's salesman made only one sale, though soliciting several, it was considered

that the one sale and the attempted a cause of action for money had and sales were made in the course of con- received, unless precluded by some tinued and successive acts.

It was

act of his own. Landwehr v. Lingenfurther said: “It was suggested upon felder (1923) - Mo. App. 249 S the argument that the company was W. 723. not responsible for the illegality of In Knechtel Motor Co. v. Worded Baker's acts in soliciting sales. He [1923] 2 West. Week. Rep. (Can.) 154, received his authority from the manag- it was held that where a company has ing director, and it is contended that sold shares in violation of the Sales it would not be within the scope of of Shares Act (chap. 15 of Statutes of the managing director's power to ap- Saskatchewan 1916, and amendments, point an agent to break the law. I now R. S. S. 1920, chap. 199), it cannot do not think this argument is valid. recover in an action against the subCarried to its extreme it would make scriber thereto for his subscription. the act a nullity, and the public would In Watters & Martin v. Homes Corp. not have the protection which the (1923) Va, —, 116 S. E. 366, the legislature plainly intended to pro- court had before it, for construction, vide. It is hardly conceivable that the a statute with a special provision, op board of directors would solemnly which the court's opinion turned. pass and place upon record a resolu- That case was an action by the Homes tion authorizing its officers or agents Corporation on a subscription to its to violate the law. Even if such an capital stock, wherein it was held that extraordinary course was pursued,- the stock had been sold without comand it is suggested that nothing short plying with the provisions of the Blue of this would bind the company,----the Sky Law of Virginia. It was held, further contention would then be ad- however, that the violation of the law vanced that such a proceeding would did not render contracts of subscribbe ultra vires on the part of the di- ers unenforceable. While contracts rectors, and not binding upon the made in violation of law are generally company. We are not called upon here void, it was pointed out that there are to decide whether the company itself exceptions to the rule. It was said: is guilty of a violation of the statute “The intent of the legislature, as disand liable to the fine which it imposes. closed by the act, must govern.

When All we

are asked to dea de in this tested by this rule, we are driven to case is whether the company can the conclusion that the Virginia Blue force a contract brought about by the Sky Law shows legislative intent noi illegal acts of its agents, and I think to make void and unenforceable conit is clear that it cannot.”

tracts entered into in violation of the

provisions thereof. The act, as ap VI. Sale by owner.

pears from its title, was enacted to No later decisions herein. For

prevent unfairness, imposition, and earlier cases, see annotation in 24

fraud in the sale or disposition of cerA.L.R. 533.

tain securities, by requiring an inspecVII. Violation of terms of permit. tion and regulation of the business of No later decisions herein. For

those engaged in, or intending to edearlier cases, see annotation in 24

gage in, the sale of such securities. A.L.R. 534. See also infra, XVII.

In § 9, subsection (f), the legislature

excepts certain classes of securities VIII. Validity of sale in violation of act.

from the operation of the act. SecA sale of shares in an association tions 18 and 19 of the act read as fol. which has failed to comply with the lows: '18. This act shall not be conprovisions of the Blue Sky Law of strued to prevent the sale of purely Missouri, and obtain a permit for the speculative securities, but to give to sale of such shares, is unlawful and the commission power to require that unauthorized, and has been held to be the promoters of such securities shall null and void, and a purchaser of honestly apply the proceeds of the sale shares under such circumstances has thereof to the purpose for which suco

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