328 U.S. 293 (1946), 843, Securities and Exchange Commission v. Howey Co.
|Docket Nº:||No. 843|
|Citation:||328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244|
|Party Name:||Securities and Exchange Commission v. Howey Co.|
|Case Date:||May 27, 1946|
|Court:||United States Supreme Court|
Argued May 2, 1946
CERTIORARI TO THE CIRCUIT COURT OF APPEALS
FOR THE FIFTH CIRCUIT
1. Upon the facts of this case, an offering of units of a citrus grove development, coupled with a contract for cultivating, marketing, and remitting the net proceeds to the investor, was an offering of an "investment contract" within the meaning of that term as used in the provision of § 2(1) of the Securities Act of 1933 defining "security" as including any "investment contract," and was therefore subject to the registration requirements of the Act. Pp. 294-297, 299.
2. For purposes of the Securities Act, an investment contract (undefined by the Act) means a contract, transaction, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise. Pp. 298-299.
3. The fact that some purchasers, by declining to enter into the service contract, chose not to accept the offer of the investment contract in its entirety does not require a different result, since the Securities Act prohibits the offer, as well as the sale, of unregistered nonexempt securities. P. 300.
4. The test of whether there is an "investment contract" under the Securities Act is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others; and, if that test be satisfied, it is immaterial whether the enterprise is speculative or nonspeculative, or whether there is a sale of property with or without intrinsic value. P. 301.
5. The policy of the Securities Act of affording broad protection to investors is not to be thwarted by unrealistic and irrelevant formulae. P. 301.
151 F.2d 714 reversed.
The Securities & Exchange Commission sued in the District Court to enjoin respondents from using the mails and instrumentalities of interstate commerce in the offer
and sale of unregistered and nonexempt securities in violation of the Securities Act of 1933. The District Court denied the injunction. 60 F.Supp. 440. The Circuit Court of Appeals affirmed. 151 F.2d 714. This Court granted certiorari. 327 U.S. 773. Reversed, p. 301.
MURPHY, J., lead opinion
MR. JUSTICE MURPHY delivered the opinion of the Court.
This case involves the application of § 2(1) of the Securities Act of 19331 to an offering of units of a citrus grove development, coupled with a contract for cultivating, marketing and remitting the net proceeds to the investor.
The Securities and Exchange Commission instituted this action to restrain the respondents from using the mails and instrumentalities of interstate commerce in the offer and sale of unregistered and nonexempt securities in violation of § 5(a) of the Act. The District Court denied the injunction, 60 F.Supp. 440, and the Fifth Circuit Court of Appeals affirmed the judgment, 151 F.2d 714. We granted certiorari, 327 U.S. 773, on a petition alleging that the ruling of the Circuit Court of Appeals conflicted with other federal and state decisions, and that it introduced a novel and unwarranted test under the statute which the Commission regarded as administratively impractical.
Most of the facts are stipulated. The respondents, W. J. Howey Company and Howey-in-the-Hills Service,
Inc., are Florida corporations under direct common control and management. The Howey Company owns large tracts of citrus acreage in Lake County, Florida. During the past several years, it has planted about 500 acres annually, keeping half of the groves itself and offering the other half to the public "to help us finance additional development." Howey-in-the-Hills Service, Inc., is a service company engaged in cultivating and developing many of these groves, including the harvesting and marketing of the crops.
Each prospective customer is offered both a land sales contract and a service contract, after having been told that it is not feasible to invest in a grove unless service arrangements are made. While the purchaser is free to make arrangements with other service companies, the superiority of Howey-in-the-Hills Service, Inc., is stressed. Indeed, 85% of the acreage sold during the 3-year period ending May 31, 1943, was covered by service contracts with Howey-in-the-Hills Service, Inc.
The land sales contract with the Howey Company provides for a uniform purchase price per acre or fraction thereof, varying in amount only in accordance with the number of years the particular plot has been planted with citrus trees. Upon full payment of the purchase price, the land is conveyed to the purchaser by warranty deed. Purchases are usually made in narrow strips of land arranged so that an acre consists of a row of 48 trees...
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