320 U.S. 344 (1943), 24, Securities and Exchange Commission v. C. M. Joiner Leasing Corporation

Docket Nº:No. 24
Citation:320 U.S. 344, 64 S.Ct. 120, 88 L.Ed. 88
Party Name:Securities and Exchange Commission v. C. M. Joiner Leasing Corporation
Case Date:November 22, 1943
Court:United States Supreme Court

Page 344

320 U.S. 344 (1943)

64 S.Ct. 120, 88 L.Ed. 88

Securities and Exchange Commission


C. M. Joiner Leasing Corporation

No. 24

United States Supreme Court

Nov. 22, 1943

Argued October 18, 1943




1. The transactions involved in this case were not simply sales and assignments of interests in land, but, by the nature of the offers, were within the terms "investment contracts" and "any interest or instrument commonly known as a `security,'" and were therefore sales of "securities" within the meaning of § 2(1) of the Securities Act of 1933. P. 351.

2. The ejusdem generis rule and the maxim expressio unius exclusio alterius are subordinate to the doctrine that courts will construe the details of an Act in conformity with its dominating general purpose, will read text in the light of context, and, so far as the meanings of the words fairly permit, will interpret the text so as to carry out in particular cases the generally expressed legislative policy. P. 350.

Page 345

3. The transactions were not beyond the scope of the Act merely because the offerings were of leases and assignments which, under state law, conveyed interests in real estate. P. 352.

4. In a civil action, a preponderance of the evidence is sufficient to establish that what were being sold were "securities" under the Act. P. 355.

133 F.2d 241 reversed.

Certiorari, 318 U.S. 755, to review the affirmance of a judgment denying an injunction in a suit instituted by the Commission to restrain violations of the Securities Act of 1933.

JACKSON, J., lead opinion

MR. JUSTICE JACKSON delivered the opinion of the Court.

The Securities and Exchange Commission brought this action in District Court to restrain respondents from further violations of §§ 5(a) and 17(a)(2) and (3) of the Securities Act of 1933.1 The District Court denied relief, and the Circuit Court of [64 S.Ct. 121] Appeals affirmed upon a construction of the statute which excludes from its operation all trading in oil and gas leases, 133 F.2d 241. As this presents a question important to the administration of the Act, we granted certiorari.2 Respondents and one Johnson, a defendant against whom a decree was taken by consent, engaged in a campaign to sell assignments of oil leases. The underlying leases, acreage from which was being sold, are not in the record. They required, as appears from the assignments, annual rental in case of delayed drilling of $1 per year.

Page 346

It also seems that these leases were granted by the landowners on an agreement that a test well would be drilled by the lessees. One Anthony blocked up leases on about 4,700 acres of land in McCulloch County, Texas, in consideration of drilling a test well. Defendant Joiner testified that he acquired 3,002 of these acres for "practically nothing except to drill a well." Anthony was a driller, and agreed to do the drilling, which the Joiner Company undertook to finance, expecting to raise most of the funds for this purpose from the resale of small parcels of acreage. The sales campaign was by mail, addressed to upwards of 1,000 prospects in widely scattered parts of the country, and actual purchasers, about fifty in number, were located in at least eighteen states and the District of Columbia. Leasehold subdivisions offered never exceeded twenty acres, and usually covered two and a half to five acres. The prices ranged from $5 to $15 per acre. The largest single purchase shown by the record was $100, and the great majority of purchases amounted to $25 or less. All buyers were given the opportunity to pay these sums in installments, and some did so.

The sales literature nowhere mentioned drilling conditions which the purchaser would meet or costs which he would incur if he attempted to develop his own acreage. On the other hand, it assured the prospect that the Joiner Company was engaged in and would complete the drilling of a test well so located as to test the oil-producing possibilities of the offered leaseholds. The leases were offered on these terms:

You may have ten acres around one or both wells at $5 per acre cash payable by August 1st, 1941, and $5 per acre additional payable November 1st, 1941, or thirty days after both wells are completed.

Other language in the advertising literature emphasized the character of the purchase as an investment, and as a participation in an enterprise.3

Page 347

The trial court made findings of what amounted to fraud, and the Circuit Court of Appeals approved, 133 F.2d 241, 244, [64 S.Ct. 122] saying, "the evidence would justify stronger findings of fraud."4 However, both courts refused injunction because,

Page 348

as the Court of Appeals stated, it could "find simply sales and assignments of legal and legitimate oil and gas leases -- i.e., sales of interests in land." It was thought that these assignments could not be proved to be "securities" or "investment contracts" under § 2(1) of the Act.

Undisputed facts seem to us however to establish the conclusion that defendants were not, as a practical matter, offering naked leasehold rights. Had the offer mailed by defendants omitted the economic inducements of the proposed and promised exploration well, it would have been a quite different proposition. Purchasers then would have been left to their own devices for realizing upon their rights. They would have anticipated waiting an indefinite time, paying delayed drilling rental meanwhile, until some chance exploration proved or disproved the productivity of their acres. Their alternative would have been to test their own leases at a cost of $5,000 or more per well.5

But defendants offered no such dismal prospect. Their proposition was to sell documents which offered the purchaser a chance, without undue delay or additional cost, of sharing in discovery values which might follow a current exploration enterprise. The drilling of this well was not an unconnected or uncontrolled phenomenon to which salesmen pointed merely to show the possibilities of the offered leases. The exploration enterprise was woven into these leaseholds in both an economic and a legal sense; the undertaking to drill a well runs through the whole transaction as the thread on which everybody's beads were strung. An agreement to drill formed the consideration upon which Anthony was able to collect leases on 4,700 acres. It was in return for assumption of this agreement

Page 349

that Joiner got 3,002 of the acres, leaving Anthony about 1,700 acres for his trouble. And it was his undertaking to drill the well which enabled Joiner to finance it by the sale of acreage. By selling from 1,000 to 2,000 acres at from $5 to $15 per acre, he could fulfill his obligation to drill the well, recoup his incidental expenses and those of the selling intermediaries, and have a thousand acres left for the gamble, with no investment of his own, and if he sold more, he would have a present profit. Without the drilling of the well, no one's leases had any value, and, except for that undertaking, they had been obtained at no substantial cost. The well was necessary not only to fulfill the hopes of purchasers, but apparently even to avoid forfeiture of their leases.

Whether, as the dissenting Judge below suggests, the assignee acquired a legal right to compel the drilling of the test well is a question of state law which we find it unnecessary to determine. The terms of the offering as quoted above, either by itself or when read in connection with the agreement to drill as consideration for the original leases, might be taken to embody an implied agreement to complete the wells. But, at any rate, the acceptance of the offer quoted made a contract in which payments were timed and contingent upon completion of the well, and therefore a form of investment contract in which the purchaser was paying both for a lease and for a development project.

It is clear that an economic interest in this well-drilling undertaking was what brought into being the instruments that defendants were selling and gave to the instruments [64 S.Ct. 123] most of their value, and all of their lure. The trading in these documents had all the evils inherent in the securities transactions which it was the aim of the Securities Act to end.

Page 350

It is urged that the definition of "security" which controls the scope of this Act6 falls short of including these transactions. Respondents invoke the "ejusdem generis rule" to constrict the more general terms substantially to the specific terms which they follow. And they invoke the ancient maxim "expressio unius est exclusio alterius" to exclude sales of leasehold subdivisions by the acre because the statute expressly includes sales of leasehold subdivisions by undivided shares.

Some rules of statutory construction come down to us from sources that were hostile toward the legislative process itself, and thought it generally wise to restrict the operation of an act to its narrowest permissible compass.7 However well these rules may serve at times to aid in deciphering legislative intent, they long have been subordinated to the doctrine that courts will construe the details of an act in conformity with its dominating general purpose,

Page 351

will read text in the light of context and will interpret the text so far as the meaning of the words fairly permits so as to carry out in particular cases the generally expressed legislative policy.8

In the Securities Act, the term "security" was defined to include by name or description many documents in which there is common trading for speculation or investment. Some, such as notes, bonds, and stocks, are pretty much standardized, and the name alone carries well settled meaning. Others are of more variable character, and were necessarily designated by more descriptive terms, such as "transferable share," "investment contract," and...

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