Ersted v. Howry Co.

• Decision Date: 30 June 1941
• Docket Number: 8418
• Citation: 68 S.D. 111,299 N.W. 66
• Parties: C.T. ERSTED, Appellant, v. HOBART HOWRY CO., et. al., Respondents.
• Court: South Dakota Supreme Court

68 SD 111, 299 NW 66 (1941)

C.T. ERSTED,

Appellant,

v. HOBART HOWRY CO., et. al.,

Respondents.

South Dakota Supreme Court

Appeal from Circuit Court, Minnehaha County, SD

Hon. John T. Medin, Judge

#8418—Affirmed.

Olaf Eidem, Brookings, SD

M. E. Culhane, Minneapolis, MN

Attorneys for Appellant.

Bielski, Elliot & McQuillen, Sioux Falls, SD

Attorneys for Respondents.

Opinion filed Jun 30, 1941, Rehearing Denied Sep 27, 1941

ROBERTS, J.

This is an action against the Hobart Howry Co., a corporation, M. J. Morin, Maurice Frye and William Wilson, to recover judgment for $1,000, being the amount paid for corporate stock. The stock was issued by the Hobart Howry Co. and was sold in this state to plaintiff. The grounds upon which recovery is sought are that the shares of the capital stock of this corporation were sold in violation of the statute commonly known as the Blue Sky Law and that plaintiff was induced by fraudulent representations to make the purchase. Trial of the action resulted in findings and judgment in favor of the defendants. Plaintiff appeals.

Findings of fact material to a determination of issues presented are as follows:

“(3) That the defendant corporation was a closed corporation and all of its stockholders were men engaged in other business; that the corporation and none of the defendants were ever engaged in the business of selling the stock of the defendant corporation; that the defendant William Wilson had the privilege of taking $5000 in par value of the stock of the defendant corporation and that he, at plaintiff’s request sold $1000 in par value of his said stock to plaintiff; that this was the only sale of stock in defendant company made by the defendant William Wilson; that said sale was made in South Dakota and was an isolated sale.”

“(4) That no inducements were made by the said William Wilson to the plaintiff to purchase said stock; that no misrepresentations of any kind were made by the said William Wilson or any of the defendants to the plaintiff; that all of plaintiff’s dealings in regard to the purchase of said stock were with the defendant William Wilson only; that the plaintiff had full knowledge of all of the facts in reference to the defendant corporation and its products and had greater knowledge of the same than the defendant William Wilson.”

The purpose of Chapter 206, Laws 1927, in effect at the time of the transaction involved in this action as indicated by its title, was “to Prevent Fraud in the Sale of Securities Within the State of South Dakota by Regulating the Offer for Sale and Sale Thereof, by Requiring Registration of Such Securities and Licensing Persons Selling or Offering Securities for Sale.” Section 2 defined the term “person” for the purpose of the act as follows: “Person’ shall mean and include a natural person, firm, copartnership, association, syndicate, joint stock company, unincorporated company or organization or association, trust, trustee of a trust, a corporation organized under the laws of any state or of the United States or of any territory or possession thereof or of the District of Cofumbia or of any foreign government. ... “

This same section defined “issuer” as follows: “‘Issuer’ shall mean and include every person who proposes to issue, has issued, or shall hereafter issue any securities.”

Section 3 enumerated certain securities to which the provisions of the act were not applicable. Section 4, so far as here pertinent, reads as follows:

“The provisions of this act, except as herein expressly provided shall not apply to sales of the following character:

“(1) Any isolated sale of any security by the issuer or owner thereof, or by a representative for the account of such issuer or owner, such sale not being made in the course of repeated and successive sales of securities of the same issue by such issuer or owner or by such representative for the account of such issuer or owner.”

Section 5 provided: “No securities, not exempted by Section 3 hereof, shall be sold within the State of South Dakota, except in a manner exempted by Section 4 hereof, unless or until such securities have been registered as herein provided.

“Registration may be secured by application for registration as provided in Section 6 hereof, or by notification as provided in Section 7 hereof. Such applications or notifications may be made by the issuer or any licensed broker and may pray that the registration be made for the applicant only, or for the applicant and any designated licensed brokers.”

Section 6 authorized the commission to deny an application for registration if in the opinion of the commission the proposed sale of securities would result in fraud or if it appeared to the commission that the business of the issuer was not based upon sound business principles.

Defendants insist that the transaction involved in this action came within the exception of isolated sales. Plaintiff contends...