Bronaugh v. R. & E. Dredging Co., 68-67

• Decision Date: 04 December 1968
• Docket Number: No. 68-67,68-67
• Citation: 16 Ohio St.2d 35,45 O.O.2d 321,242 N.E.2d 572
• Court: Ohio Supreme Court
• Parties: , Blue Sky L. Rep. P 70,806, 45 O.O.2d 321 BRONAUGH, Appellee, v. R. & E. DREDGING CO., Inc., et al., Appellants.

Page 35

16 Ohio St.2d 35

242 N.E.2d 572, Blue Sky L. Rep. P 70,806, 45 O.O.2d 321

BRONAUGH, Appellee, v. R. & E. DREDGING CO., Inc., et al., Appellants.

No. 68-67.

Supreme Court of Ohio.

Dec. 4, 1968.

Syllabus by the Court

1. Undr Section 1707.43, Revised Code, the purchaser of a security sold in violation of any provision in Chapter 1707, Revised Code (Ohio Securities Act), is entitled to restitution of his purchase price unless the violation is of such a trivial nature as not to materially afffect the protection contemplated by the violated provision.

2. Section 1707.03(B), Revised Code, which exempts certain sales of securities from the registration provisions of Chapter 1707, Revised Code, does not operate to defeat recovery of his purchase price by a plaintiff under Section 1707.43, Revised Code, where the evidence shows that one or more conditions of obtaining the exemption were not met.

3. Where the evidence shows that an Ohio sale of securities was not made 'on behalf of a bona fide owner, neither the issuer nor a dealer,' and that such sale of securities was one of a number of 'repeated and successive transactions of a similar character,' the conditions of qualifications for a Section 1707.03(B), Revised Code, exemption have not been met.

This action was brought by plaintiff, Wayne Bronaugh, to recover the purchase price of ten unregistered shares of stock sold to plaintiff by defendant, George R. Ball. There is no significant factual dispute in this controversy and the circumstances which resulted in the transaction which is the subject of this lawsuit can be ascertained quite clearly from the record we have before us.

On March 24, 1965, Robert J. Stephan and Earl R. Clemens obtained a contract in Florida with the Marco Island Developing Corporation to perform dredging work in the reclamation of land for a housing development. The defendant George R. Ball was approached by Clemens and Stephans and the defendant Ball advanced monies to be used for a down payment on certain dredging equipment (acquired under a lease-purchase agreement), plus initial operating expenses of that equipment.

Subsequently, a Florida corporation, known as the R. & E. Dredging Company, Inc., was formed, with Stephans as president and Ball and Clemens as directors thereof. On April 29, 1965, the first meeting of incorporators and subscribers of shares of stock of the R. & E. Dredging Company was held in Naples, Florida, and at that meeting it was agreed that all 120 shares of voting stock authorized by the articles of incorporation would be issued, with Ball to receive 40 shares for his initial contribution of $30,000 and Clemens and Stephans each to receive 40 shares for services already rendered in forming the corporation.

Dredging operations began, but it was only a short period of time before the contract with Marco Island Developing Corporation proved to be unfavorable to the R. & E. Dredging Company. Consequently, on December 2, 1965, a new contract was negotiated between R. & E. Dredging Company and Marco Island Developing Corporation, the terms of which were more favorable to R. & E. Dredging Company.

However, even with the new contract, it became obvious that operations were not going well enough to meet the payments on the dredging equipment and current operating expenses. It became necessary to find a way to fund operations.

Clemens and Stephans both executed stock options on all their shares to Ball in January of 1966, which options contained provision for complete withdrawal by Clemens and Stephans from the R. & E. Dredging Company upon exercise of the options by Ball. The stock options were dated January 31, 1966, and gave Ball 60 days in which to exercise his right to purchase.

On February 26, 1966, Stephans assigned his 40 shares, 30 to George R. Ball and 10 to Herbert A. Lamb. At the same time, Clemens assigned his 40 shares, 25 to George R. Ball and 15 to James C. Funk.

The reason all the shares were not assigned to Ball appears from the record to be that Florida law requires that there be at least three shareholders at all times.

At different times in February or March of 1966, plaintiff and several other persons were approached by defendant and asked to subscribe to outstanding shares of the R. & E. Dredging Company at a cost of $666.67 per share. Plaintiff, upon being solicited by Ball at plaintiff's home in Belpre, Ohio, agreed to accept ten shares of the stock and signed a paper which constituted an offer to purchase.

This offer to purchase reads as follows:

'OFFER TO PURCHASE

'The undersigned hereby severally offer to purchase from R. & E. Dredging Company, Inc., of Naples, Florida, the number of shares of the capital stock of said corporation, held as treasury shares by said corporation, that is shown opposite our respective names below. We hereby tender to said corporation the sum of six hundred sixty-six dollars and sixty-seven cents ($667.67) per share for said shares.

'The undersigned hereby agree that each of us will not withdraw this offer and if same is accepted by the officers of said corporation, it is our understanding and agreement that the money offered and received may and shall be used by said corporation in the following manner, to-wit:

'1. To pay outstanding debts and obligations of the corporation in an amount approximating twenty-six thousand ($26,000) dollars.

'2. To purchase needed spare parts, tools and equipment necessary to continue dredging operations as per contract in an amount approximating ten thousand ($10,000) dollars.

'3. To pay for the repurchase by the corporation from existing stockholders of eighty shares of the issued and outstanding shares of stock as per the existing stock options owned by the corporation.

'WITNESS the following signatures.

"NAME NO. OF SHARES TOTAL SUM

"_____ ______________ ________

"_____ ______________ ________

"_____ ______________ ________"

At the time, or near the time plaintiff signed this offer, he advanced $2,000 in cash to the defendant R. & E. Dredging Company. Subsequently, plaintiff executed two checks payable to the R. & E. Dredging Company. One check was for $2,000 and dated April 7, 1966. This check was honored by the payee bank on April 14, 1966. A subsequent check, in the amount of $2,666.66 dated May 11, 1966, was honored by the payee bank on May 12, 1966. A receipt for the sum of $6,666.66, as payment in full for ten shares of the R. & E. Dredging Company stock was given to plaintiff by defendant Ball at the time of receipt of the second check.

On May 13, 1966, a meeting of shareholders was held, and plaintiff and other subscribers were present. At that meeting the financial condition of the R. & E. Dredging Company was reviwed and the shareholders voted to discontinue operations. Plaintiff then demanded the return of his money from defendant Ball, and was refused.

Later, plaintiff instituted this action in the Common Pleas Court of Washington County. Trial was to the court, without a jury, and upon the close of all the evidence, judgment was rendered in favor of the defendants.

Upon appeal, that judgment was reversed and the cause was remanded to the Common Pleas Court, with instructions to enter final judgment for the plaintiff.

The cause is here pursuant to the allowance of a motion to certify the record.

James R. Addison, Marietta, for appellee.

Metcalf, Thomas &...