Donaldson v. Chase Securities Corporation

• Decision Date: 31 December 1943
• Docket Number: No. 33458.,33458.
• Citation: 13 N.W.2d 1,216 Minn. 269
• Court: Minnesota Supreme Court
• Parties: DONALDSON et al. v. CHASE SECURITIES CORPORATION.

13 N.W.2d 1

216 Minn. 269

DONALDSON et al. v. CHASE SECURITIES CORPORATION.

No. 33458.

Supreme Court of Minnesota.

December 31, 1943.

Rehearing Denied February 23, 1944.

Appeal from District Court, Hennepin County; W. W. Bardwell, Judge.

Action by Ruth Chase Donaldson against Chase Securities Corporation, now known as Amerex Holding Company, to recover as damages the purchase price of unregistered securities sold to plaintiff by defendant, a New York corporation, in alleged violation of the state securities law. Pending appeal, plaintiff died, and Frank A. Donaldson and Frank A. Donaldson, Jr., as executors, were substituted as plaintiffs. From a judgment for plaintiff, defendant appeals.

Affirmed.

F. H. Stinchfield, Floyd E. Nelson, Stinchfield, Mackall, Crounse & Moore, and John M. Palmer, all of Minneapolis, for appellant.

Streissguth & Gislason, of New Ulm, Leonard, Street & Deinard and Hyman Edelman, all of Minneapolis, for respondents.

O'Brien, Horn, Stringer & Seymour, of St. Paul, amici curiae.

HENRY M. GALLAGHER, Chief Justice.

This case comes here on appeal from a judgment for the plaintiffs as executors of the estate of Ruth Chase Donaldson, deceased. She originally brought the action but died after this appeal, and the executors were substituted in this court. She will hereinafter be referred to as the plaintiff. The action was brought in tort to recover as damages the purchase price of unregistered securities sold in Minnesota to plaintiff by defendant, a New York corporation, in August 1929, in alleged violation of the securities law of this state (Mason St.1927, § 3996-4) which required their registration. It also sought recovery on the ground of deceit based on misrepresentation, but in view of our disposition of the case we need not consider that phase of the case.

On the trial below the court found in favor of plaintiff on the basis of a violation of the statute, holding as against the defendant's plea of the statute of limitations that the statute had been tolled by defendant's withdrawal from the state on June 30, 1931. It therefore did not make findings on the deceit issue. On appeal, this court held that the general six-year statute had run against plaintiff because, notwithstanding the withdrawal of defendant from this state, service of summons could at all times have been made either on the secretary of state or the commissioner of securities as defendant's agents to receive service. The case then went back for findings on the deceit issue, which were in favor of plaintiff. Pomeroy v. National City Co., 209 Minn. 155, 296 N.W. 513, 133 A.L.R. 766; Donaldson v. Chase Securities Corp., 209 Minn. 165, 296 N.W. 518.

The securities sold to plaintiff were eight shares of the combined or consolidated stock of the Chase National Bank and of the defendant, which, by contract, could not be sold or disposed of separately. They are sometimes referred to as "Chase units." These shares had been combined in 1917 and were at one time listed on the New York Stock Exchange but in January 1928 were delisted so that stock of the defendant securities corporation was not exempted by the terms of our securities act from registration here. Shortly after the delisting, defendant opened an office in Minneapolis and commenced the sale of the combined stocks. The sale to plaintiff was made by a duly authorized agent of defendant. The defendant was licensed as a corporation to do business in this state and had irrevocably appointed the commissioner of securities as its agent to receive service. After the crash of 1929 it withdrew from the state, at the same time appointing the secretary of state its agent to receive service in any action arising out of transactions which took place in this state while it was licensed to do business here.

The opinions of this court were filed on January 10, 1941, while the Legislature was in session. In April of that year, by L. 1941, c. 547, § 18, the Legislature for the first time enacted a specific limitation upon actions based upon unlawful sales of securities, or deceit in connection therewith, and fixed six years from the date of delivery of the securities as the time within which action for violation of the statute or deceit must be brought. This section of the statute reads as follows: "No action shall be maintained for relief upon a sale of securities made in violation of any of the provisions of this act, or upon a sale of securities made in violation of any of the provisions of a registration thereof under this act, or for failure to disclose that the sale thereof was made in violation of any of the provisions of this act or in violation of any of the provisions of a registration thereof under this act, or upon any representation with respect to the registration or nonregistration of the security claimed to be implied from any such sale, unless commenced within six years after the date on which said securities were delivered to the purchaser pursuant to such sale, provided that if, prior to the effective date of this section, more than five years shall have elapsed from the date of such delivery, then such action may be brought within a period of one year following such effective date."

It is the proviso which presents what we regard as the controlling questions in this case. (1) Did the Legislature intend by this proviso to lift the bar of the statute where the general six-year limitation had already run? (2) If it intended to lift the bar, did it have the constitutional power to do so? (3) If these two questions be answered in the affirmative, was it the intent to include actions already pending?

1. It is quite obvious that at the time the securities were sold they were required by our law to be registered. The fact that a share of bank stock immune from registration was inseparably joined with stock which was nonimmune from registration for sale and transfer purposes would not immunize the corporate stock required to be registered. No authority or logic is necessary to sustain that holding. But see Com'r of Banks v. Chase Securities Corp., 298 Mass. 285, 10 N.E.2d 472.

2. Since the stock was not registered the plaintiff is entitled to recover the purchase price unless barred by the statute of limitations. Vercellini v. United States I. Realty Co., 158 Minn. 72, 196 N.W. 672. The action is in tort. Drees v. Minnesota Petroleum Co., 189 Minn. 608, 611, 250 N.W. 563, 565.

3. The plain language of the proviso authorizes the bringing of all causes where the delivery of the stock had been made more than five years before the effective date of the limitation, if brought within one year from the effective date of the section, whether more than six years had elapsed since delivery or not; but it is the contention of the defendant that it should be interpreted as if it read "more than five years and less than six years shall have elapsed," etc.

The Legislature acted promptly after our first opinion was filed. The inference is plain that it was dissatisfied with the law as laid down in that opinion and regarded it as unjust to the numerous plaintiffs who had bought this stock and had cases pending or had causes of action which would not be outlawed if the time subsequent to withdrawal from the state should be regarded as tolling the statute, as had been held in the federal court. City Co. of New York v. Stern, 8 Cir., 110 F.2d 601.

That it had all the cases similar to that at bar in mind can hardly be questioned, since in the general tenor of the section every aspect of them was covered. It was well known that a multitude of sales of this and other unregistered stock had been made in this state shortly before the 1929 crash. The evidence in this case shows about 500 sales of Chase units in Minnesota by this defendant in 1929. The Legislature must have known that the great bulk of the violations of the statute had occurred prior to the crash and that few, if any, had occurred afterwards. As heretofore stated, defendant effected its withdrawal from the state in 1931. In the National City case (Pomeroy v. National City Co., 209 Minn. 155, 296 N.W. 513, 133 A.L.R. 766), the withdrawal was effected in 1934. If the clause in the proviso relating to causes arising more than five years previously were to be interpreted as defendant contends, it would apply to few, if any, cases. Causes of action for such violations were not distinguished from those in deceit which under the prior law may or may not have accrued more than six years prior to the effective date of the act. It is a rule of construction that provisos are limitations rather than extensions of legislative provisions (Minn.St.1941, § 645.19), but all rules must yield to obvious legislative purpose; and where, as here, that purpose is expressed in clear language without qualification and the circumstances under which the law was enacted support the indicated purpose, we look to the intent expressed even if it is in a proviso when it should have been expressed without the use of the word "provided." Legislatures have habitually ignored the appropriate limitations of provisos (even those which they have themselves prescribed) and have used them to extend the scope of acts. When their purpose is clear, we are bound to give effect to it. State ex rel. Town of Marine v. Browne, 56 Minn. 269, 273, 57 N.W. 659. We regard the proviso here under consideration as lifting the bar of the general six year limitation.

4. It is the contention of defendant that the lifting of the bar of the statute in this case is a violation of the due process clauses of the State and Federal Constitutions. Const.Minn. art. 1, § 7; Const. U.S.Amend. 14. The leading case cited by plaintiff in support of the Legislature's constitutional power to lift the bar is Campbell v. Holt, 115 U.S....