cause the title company, the holder of the legal title to an undivided 1890/4000, to convey to the eight parties of the first part, just as soon as it should be free to do so, an undivided 390/4000 of the property, free and clear of all encumbraces, except taxes, and subject to certain reservations. If the petitioner's deeds to Beatty and Frank may not be deemed to have been executed pursuant to exhibit B, then petitioner was but conveying his own equitable title to an undivided 150/4000 and an undivided 75/4000, respectively, to each of two grantees, as he had the right to do without securing the permission of anyone. If, on the other hand, the deeds to Beatty and Frank may be deemed to have been executed pursuant to the terms exhibit B, and if the eight persons designated therein as the parties of the first part did constitute an 'association,' then, by his deeds to Beatty and Frank, petitioners simply conveyed certain interests to two members of that association, either for their own exclusive use and benefit or for the benefit of themselves and the six other members of the association. But in either case the deeds were conveyances, not by, but to, members of the association. There was therefore no conveyance of any interests owned by the association or by its members. The language of the act is: 'No company shall sell

. or offer for sale . . . any security of its own issue until it shall have first applied for and secured from the commissioner a permit authorizing it so to do.' § 3. Nor did petitioner, by either of his deeds to Beatty or Frank, issue an instrument evidencing an interest in property owned by the association or by its members. On the contrary, each deed was, as we have shown, an instrument evidencing an interest thereby conveyed to, not by, members of the association. Nor was either deed an instrument issued or offered to the public' by the association."

An association known as the "Quarto Syndicate," shares in which were sold at their par value of $100, the syndicate to engage in the general oil

business, all right of control and management being vested in a board of trustees, was within the meaning of the Missouri Blue Sky Law (article 7, chap. 108, Rev. Stat. 1919, §§ 11,919 et seq.). Landwehr v. Lingenfelder (1923) Mo. App., 249 S. W. 723.

The Massachusetts court has de clared that foreign corporations are not included within the provisions of a Connecticut statute providing that no investment company should transact business in that state until licensed by the bank commissioner (§§ 3460, 3462, 4023, of the General Statutes of the Connecticut Revisal of 1918). Somers v. Commercial Finance Corp. (1923) Mass., 139 N. E 837.

IV. What constitutes "property," "se. curities," "stock," or "investment contract."

A so-called "member's certificate of interest" in a company which terms itself a "common-law company" or a "common-law trust" has been held to be within a Blue Sky Act (Supplemental Supplement to the Iowa Code, chap. 13B, title 9), providing as follows: "Every person, firm, association, company, or corporation that shall either directly or through representatives or agents, sell, offer or negotiate for sale, within this state any stocks, bonds or other securities, shall, before doing or offering to do any such business in this state, be required to secure a permit of the secretary of state." See Wagner v. Kelso (1923) Iowa,, 193 N. W. 1, wherein the court said: "In the instant case the so-called agreement of trust is so framed that, if valid, it vests

the trustees with all and more than all the powers usually conferred upon corporations. They have absolute control of all the company's property and assets. The shareholders are expressly excluded from any voice whatever in its management or business, and the only enforceable obligation laid upon the trustees is to distribute the remnant, if any there be, of such assets as shall remain, when the trust is finally dissolved and all its debts and obligations discharged. Its capital is a share capital, evidenced by

certificates, which may pass from hand to hand by sale or gift. They expressly provide that the holder has authority, power, or right whatsoever to do or transact any business for or on behalf of or binding on the company, and the so-called agreement expressly provides that the shareholders shall have no legal right to the property of the trust and no right to call for a partition of the property or dissolution of the trust. That such shareholders in the nebulous and shadowy substance of the so-called trust are stockholders, we cannot doubt. The so-called agreement of trust is evidently drawn with meticulous care to avoid the use of the words 'stock' and 'stockholders,' and thereby, if possible, to avoid the bringing the sale of the shares within the scope of the statute; yet even then the pen of its author at times slipped and betrayed him into the use of the natural and approved word, as, for example, where it makes the parties 'covenant and agree to and with each other. . . for the use and benefit of the present and all future subscribers and stockholders;' and again, in enumerating the multitudinous powers of the trustees, it provides authority to hold and reissue the interest of its capitalization, 'its stock, and other securities.' It follows, without need of further discussion at this point as to this objection, that the shares of capital in the so-called trust are stock within the meaning of the law."

And in the reported case (STATE v. EVANS, ante, 1165), set out also in 24 A.L.R. on page 531, the court holds a certain option contract to be an investment contract within the meaning of the Blue Sky Law of Minnesota.

And following the decision in the reported case (STATE V. EVANS), it was held in State v. Ogden (1923) — Minn. -, 191 N. W. 916, that the sale of certain units or fractional interests in a leasehold in 80 acres of oil land, evidenced by an instrument styled "statement and purchase," constituted the sale of investment contracts within the Blue Sky Law. The court said: "The purpose was not to convey undivided interests in the land. The

purchasers did not intend to become freeholders or landowners. The intent was that the five-eighths interest in the leasehold was to go to a corporation thereafter to be organized. The defendant agreed to do certain things proper to be done to effect this result. Finally, the unit holders were to participate in profits in proportion to their holdings, and were to be interested in the same proportion in the corporation holding the title. and operating. The arrangement was legitimate, so far as appears, and convenient enough. The paternalistic purpose of the statute is to prevent offering to the public, not land contracts, but investment contracts, evidencing a right to participate in the proceeds of a venture, without the commission first ascertaining whether there is behind the venture something so tangible that a sound policy of regulation permits exposing the investing public to them. This is an investment contract within the statute. It is one to which the requirement of a license applies."

or

Where a Blue Sky Law prohibits the sale of "speculative securities," except under certain conditions and after permits are granted, such securities, as defined by the act, including "securities for promoting the sale of which commission of more than 7 per centum is offered or paid. either in money, stock, property, or otherwise, either directly indirectly; also the securities of any enterprise, association, partnership, or corporation which has included or purposes to include in its assets, as a material part thereof, promotion or intangible assets," the capital stock of a corporation, one third of which was to be retained by the organizers for their services, has been held to be within the provisions of the act. Watters & Martin v. Homes Corp. (1923) — Va. —, 116 S. E. 366, it was said: "One third of the total amount of the capital stock of the corporation certainly formed a material part of its securities (far in excess of 7 per cent commission), which was to be issued to the promoters for their services. The act specifically makes it

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unlawful to issue such stock for promotion services, without the permit from the commission, if such stock is a material part of the assets of the corporation. It follows that the sale of the stock of this corporation, without complying with the requirements of the act, was a violation of the Blue Sky Law of Virginia." See to the same effect, Consolvo v. Homes Corp. (1923) Va., 116 S. E. 371. In Lewis v. Creasey Corp. (1923) Ky., 248 S. W. 1046, it appeared that the Creasey Corporation, whose business was the operation of wholesale grocery houses, sometimes procured customers by selling to retail dealers a so-called "service contract" for the sum of $300, under which it agreed with each retail dealer to furnish him with groceries for his store for a period of twenty years at only 5 per cent increase on the cost thereof to the corporation, plus the expense of conducting the corporation's business, the customer to be entitled to credit for the $300 paid. The question arose whether such a method of doing business was within the provisions of the Kentucky Blue Sky Law (chap. 125, Acts of 1920, pp. 582 and 883e1, to 883e26, Kentucky Statutes). The court said: "Section 2 of the act, which is now § 883e2 of Kentucky Statutes, says: 'Every person, corporation, copartnership, company or association (except those whose securities are exempt under the provisions of this act), organized or which shall hereafter be organized in this commonwealth, whether incorporated or unincorporated, which shall either himself, themselves, or itself, or by or through others, sell or negotiate for the sale of any contract, stock, bonds or other securities issued by him, them or it, within the commonwealth of Kentucky, shall be known for the purposes of this act as a domestic investment company. Every such person, corporation, copartnership, or association a resident of or organized in any other state, territory or government shall be known for the purpose of this act as a foreign investment company.' It will be noticed that the character of transactions at which the

statute is aimed is therein set forth, and the persons negotiating or dealing in them are denominated investment companies, either domestic or foreign; but both, if engaged in the business covered by the act, are amenable to its terms. The transactions to which the statute is made applicable are the selling or negotiating for the sale of any contract, stock, bonds, or other securities issued by him, them, or it [the investment company].'" Continuing, the court said: "After enumerating by name some of the character of investments, the statute says, 'or other securities issued by him.' In the sections following the one quoted, the transactions covered by the statute are referred to as 'securities' or as 'other securities,' and it is made perfectly plain to our minds, from a consideration of the whole statute, that the character of transactions that the legislature had in mind, and to which it made its terms applicable, is what is ordinarily understood by the term 'security contract' or 'securities,' and that it never contemplated lodging the power of jurisdiction in the hands of the administrator of the statute to supervise or in any wise regulate all, or any, ordinary commercial contracts between members of society. No such universal guardianship was ever intended (if, indeed, such a sweeping regulation would be constitutional), howsoever much it might be beneficial in some instances." In conclusion it was said: "We therefore conclude, as the cases referred to hold, that the primary purpose of Blue Sky Laws is to protect investors from investments in securities whereby a pront is promised and expected without any active efforts on the part of the investor, and which scheme contemplates that the company or individual who receives the investment will employ it himself or itself in such a manner as to reap a profit to the holder of the sold security; and that it was not intended to apply to contracts containing mutual obligations, such as are daily entered into in commercial 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 be 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 violation 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 §§ 4127 et seq., Hemingway's Code. There was no violation shown of any of the sections of this law. Under this testimony the zinc company was not attempting to increase its capital stock, nor was 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, together 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 employees 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 sales were made in the course of continued and successive acts. It was further said: "It was suggested upon the argument that the company was not responsible for the illegality of Baker's acts in soliciting sales. He received his authority from the managing director, and it is contended that it would not be within the scope of the managing director's power to appoint an agent to break the law. I do not think this argument is valid. Carried to its extreme it would make the act a nullity, and the public would not have the protection which the legislature plainly intended to provide. It is hardly conceivable that the board of directors would solemnly pass and place upon record a resolution authorizing its officers or agents to violate the law. Even if such an extraordinary course was pursued,― and it is suggested that nothing short of this would bind the company,--the further contention would then be advanced that such a proceeding would be ultra vires on the part of the directors, and not binding upon the company. We are not called upon here to decide whether the company itself is guilty of a violation of the statute and liable to the fine which it imposes. All we are asked to dede in this case is whether the company can enforce a contract brought about by the illegal acts of its agents, and I think it is clear that it cannot."

VI. Sale by owner.

No later decisions herein. For earlier cases, see annotation in 24 A.L.R. 533.

VII. Violation of terms of permit.

No later decisions herein. For earlier cases, see annotation in 24 A.L.R. 534. See also infra, XVII. VIII. Validity of sale in violation of act.

A sale of shares in an association which has failed to comply with the provisions of the Blue Sky Law of Missouri, and obtain a permit for the sale of such shares, is unlawful and unauthorized, and has been held to be null and void, and a purchaser of shares under such circumstances has

In Knechtel Motor Co. v. Worden [1923] 2 West. Week. Rep. (Can.) 154, it was held that where a company has sold shares in violation of the Sales of Shares Act (chap. 15 of Statutes of Saskatchewan 1916, and amendments. now R. S. S. 1920, chap. 199), it cannot recover in an action against the subscriber thereto for his subscription. In Watters & Martin v. Homes Corp. (1923) - Va. 116 S. E. 366, the court had before it, for construction, a statute with a special provision, on which the court's opinion turned. That case was an action by the Homes Corporation on a subscription to its capital stock, wherein it was held that the stock had been sold without complying with the provisions of the Blue Sky Law of Virginia. It was held, however, that the violation of the law did not render contracts of subscribers unenforceable. While contracts made in violation of law are generally void, it was pointed out that there are exceptions to the rule. It was said: "The intent of the legislature, as disclosed by the act, must govern. When tested by this rule, we are driven to the conclusion that the Virginia Blue Sky Law shows legislative intent not to make void and unenforceable contracts entered into in violation of the provisions thereof. The act, as ap pears from its title, was enacted to prevent unfairness, imposition, and fraud in the sale or disposition of cer'tain securities, by requiring an inspection and regulation of the business of those engaged in, or intending to engage in, the sale of such securities. In § 9, subsection (f), the legislature. excepts certain classes of securities from the operation of the act. Sections 18 and 19 of the act read as follows: '18. This act shall not be con strued to prevent the sale of purely speculative securities, but to give to the commission power to require that the promoters of such securities shall honestly apply the proceeds of the sale thereof to the purpose for which such