312 U.S. 38 (1941), 78, A. C. Frost & Co. v. Coeur D'Alene Mines Corp.

Docket NºNo. 78
Citation312 U.S. 38, 61 S.Ct. 414, 85 L.Ed. 500
Party NameA. C. Frost & Co. v. Coeur D'Alene Mines Corp.
Case DateJanuary 20, 1941
CourtUnited States Supreme Court

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312 U.S. 38 (1941)

61 S.Ct. 414, 85 L.Ed. 500

A. C. Frost & Co.

v.

Coeur D'Alene Mines Corp.

No. 78

United States Supreme Court

Jan. 20, 1941

Argued December 18, 1940

CERTIORARI OF THE SUPREME COURT OF IDAHO

Syllabus

1. The judgment of the state supreme court in this case was based wholly upon an interpretation of the Securities Act of 1933, and is reviewable here. P. 40.

2. A contract of a corporation granting an option to purchase at a stipulated price a specified number of shares of its treasury stock, held, assuming that a "public offering" was involved, not unenforceable although the optioned shares were not registered under the Securities Act of 1933 as amended. P. 42.

61 Idaho 21, 98 P.2d 965, reversed.

Certiorari, 311 U.S. 624, to review a judgment denying recovery upon a contract on the ground of invalidity under the Securities Act of 1933.

MCREYNOLDS, J., lead opinion

MR. JUSTICE McREYNOLDS delivered the opinion of the Court.

September 10, 1934, respondent, by a written contract, gave to one Boland "the sole and exclusive right and option to purchase [61 S.Ct. 415] the whole or any part" of 1,300,000

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shares of its treasury stock at 10 cents per share, payments to be made in installments. He immediately assigned the contract to petitioner, Frost & Company. April 26, 1935, this was modified as to time and amount of payments. May 15, 1935, another modification authorized respondent to sell optioned stock and credit petitioner with the proceeds above 10 cents per share.

Petitioner obtained 165,000 shares, and paid therefor $16,500. Respondent sold many at prices above 10 cents, and gave petitioner credits amounting to $16,306. None of the corporation's shares was registered under the Securities Act of 1933, as amended, c. 38, 48 Stat. 74, c. 404, 48 Stat. 881, 905. And, upon that alleged ground, in June, 1935, respondent refused delivery of the remaining optioned ones -- 855,150.

By complaint filed in an Idaho state court, March 26, 1937, petitioner charged that respondent had repudiated the option, and asked judgment for $16,306, also damages consequent upon breach of the agreement.

The answer denied liability upon the ground, among others, that the contract

was entered into in violation of law, and particularly in violation of . . . the Security Act of 1933, approved May 27, 1933, and Acts of Congress amendatory thereof and supplemental thereto, and particularly in this, that the 1,300,000 shares of stock attempted to be sold by the defendant to the said W. J. Boland under said instrument was the treasury stock of the defendant corporation, and had never been registered for sale under said National Securities Act, or Acts amendatory thereof or supplemental thereto, with the Securities and Exchange Commission, and that the said W. J. Boland knew these facts and knew that the defendant could not legally sell to him the said stock or any part thereof, and defendant alleges that said contract was void ab initio.

The cause was tried without a jury. Some evidence tended to show that both parties purposed that petitioner

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would sell acquired shares to sundry parties through use of the mails and instrumentalities of interstate commerce.

The trial court held the option unenforceable so far as not executed because contrary to law; that petitioner could recover the $16,306 credit; also that there could be no recovery for respondent's failure to deliver.

Upon appeal, the supreme court ruled that, as intended, petitioner sold acquired shares to sundry purchasers, directed deliveries to brokers for resale, and

that all stock offered for sale amounted to public offerings, and that interstate means of communication and transportation were used in connection therewith.

98 P.2d 965, 967. Consequently, it declared the agreement void ab initio. Further, that the parties must be left in the situation where found. It ordered final judgment for respondent. This action was based wholly on interpretation and application of the Securities Act. Thus, a federal question arose which demands determination. Awotin v. Atlas Exchange Bank, 295 U.S. 209, 213.

The essential purpose of the statute is to protect investors by requiring publication of certain information concerning securities before offered for sale.

Some of its relevant provisions are in the margin.1

[61 S.Ct. 416] Petitioner maintains that the record shows there was no public offering of optioned stock within the meaning of the statute, and Section 4(1) is controlling. Considering the interpretation which we adopt, it is unnecessary now

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to pass upon the point. The Supreme Court of Idaho thought the evidence sufficient to show a public offering and, for present purposes only, we may accept that view.

No provision of the Act declares that, in the absence of registration, contracts in contemplation of or having relation to a public offering shall be void. If there has

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been no registration, it penalizes the doing of certain designated things -- use of the mails, instrumentalities of interstate commerce, etc. It also declares that those who participate in proscribed action shall become liable to purchasers of the securities,

who may sue either at law or in equity in any court of competent jurisdiction to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security.

These are the sanctions which Congress has definitely provided in order to insure obedience to the statute. When invoked, they must be given effect.

[61 S.Ct. 417] Although the challenged contract bears no evidence of criminality, and is fair upon its face, we are asked to apply a sanction beyond that specified by declaring it

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null and void because of relationship to a public offering. The basis for this demand is a supposed federal public policy which requires such annulment in order to secure observance, effectuate the legislative purpose, and prevent noxious consequences.

Courts have often added a sanction to those prescribed for an offense created by statute where the circumstances fairly indicated this would further the essential purpose of the enactment, but we think, where the contrary...

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