Florida Realty, Inc. v. Kirkpatrick

• Decision Date: 11 March 1974
• Docket Number: No. 2,No. 57848,57848,2
• Citation: 509 S.W.2d 114
• Parties: Blue Sky L. Rep. P 71,109 FLORIDA REALTY, INC., Appellant, v. Honorable James C. KIRKPATRICK, Secretary of State, and Honorable Nathaniel B. Rieger, Commissioner of Securities, Respondents
• Court: Missouri Supreme Court

Page 114

509 S.W.2d 114

Blue Sky L. Rep. P 71,109

FLORIDA REALTY, INC., Appellant, v. Honorable James C. KIRKPATRICK, Secretary of State, and Honorable Nathaniel B. Rieger, Commissioner of Securities, Respondents.

No. 57848.

Supreme Court of Missouri, Division No. 2.

March 11, 1974.

Motion for Rehearing or for Transfer to Court en Banc for

Modification of

Court's Opinion Denied May 13, 1974.

Richard W. Miller, George T. O'Laughlin, Miller & O'Laughlin, P.C., Kansas City, for appellant.

John C. Danforth, Atty. Gen., B. J. Jones, Asst. Atty. Gen., Jefferson City, for defendants-respondents.

HOUSER, Commissioner.

Florida Realty, Inc. brought this action against the Commissioner of Securities and the Secretary of State to obtain a judgment

(1) declaring that in engaging in its business of offering for sale and selling homesites in Florida plaintiff is not engaged in the business of selling securities and therefore is not amenable to the provisions of the Missouri Uniform Securities Act, Chapter 409, RSMo 1969, V.A.M.S.; not subject to the jurisdiction of the commissioner; not required to comply with rules, regulations or orders issued by the commissioner; or that plaintiff is exempt from the provisions of the Act; or, in the alternative, that the classifications provided in § 409.401(l) of the Act are arbitrary, unreasonable, discriminatory and for other reasons unconstitutional, invalid and unenforceable, and

(2) granting injunctive relief.

Tried to the court the circuit judge made findings of fact and conclusions of law and entered judgment adverse to plaintiff's contentions both as to the applicability to and enforceability of the Act against plaintiff and as to the constitutionality of the classifications in § 409.401(l). Plaintiff has appealed. We have jurisdiction because this case involves the construction of the Constitutions of the United States and of Missouri.

The owner of the land is General Development Corporation, hereinafter 'General.' Acting as General's agent Florida Realty, Inc., hereinafter 'plaintiff,' advertises, publicizes, offers to sell and sells to Missouri residents homesites located in the State of Florida. When an agreement is reached with a purchaser the latter is required to sign an instrument in writing denominated 'Acceptance & Guarantee Purchase Agreement' (hereinafter 'A & G') by which he agrees to purchase from General a specified lot or lots at a designated place in Florida. Appearing on the face of the instrument is the purchase price, amount of initial payment, balance due, payment plan (annual, semiannual or monthly), the amount of the monthly payment and a guarantee by General to pay the taxes, convey title, and provide a policy of title insurance and complete street paving adjacent to the property, without additional charge as per the conditions of the agreement. Ten conditions of purchase are provided for on the reverse side of the A & G, the principal of which are the following: A warranty deed and a title policy are to be delivered upon payment in full of regular installments, but if the purchaser prepays the entire amount the obligation to deliver the warranty deed is not accelerated. Possession and use of the property is retained in General until the purchase price is paid in full and warranty deed delivered. Upon default in a payment due General may terminate the agreement and retain all payments. General is to pay all taxes on the property during the term of the agreement, or until the recording of the A & G, or until delivery of the deed, whichever occurs first. The agreement is to be effective and binding upon General when it has been signed by the purchaser and by General at its Miami, Florida office.

Some sales of homesites are for cash but usually the A & G provides for the completion of purchase by payments on an installment basis over a period of approximately eight years.

Section 409.401(l), Laws 1967, p. 611, provides as follows: '(l) 'Security' means any note; stock; treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit-sharing agreement; collateral-trust certificate; preorganization certificate or subscription; transferable share; investment contract; voting-trust certificate; certificate of deposit for a security; certificate of interest or participation in an oil, gas, or mining title or lease or in payments out of production under such a title or lease; or any contract or bond for the sale of any interest in real estate on deferred payments or on installment plans when such real estate is not situated in this state or in any state adjoining this state or, in general, any interest or instrument commonly known as a 'security,' or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. 'Security' does not include any insurance or endowment policy or annuity contract under which an insurance company promises to pay money either in a lump sum or periodically for life or for some other specified period.' (Our italics.)

Plaintiff's first point is that the court misconstrued the italicized words of § 409.401(l) by holding that plaintiff is engaged in the business of offering to sell and selling securities within the meaning of the section, without a showing that the transactions had the attributes of 'investment contracts,' or involve any of the instruments listed under the definition of 'Security' in the section, because the italicized language applies to the debt obligation instrument (A & G) arising out of the purchase of real estate, and neither the real estate nor the A & G is at any time negotiated, sold, discounted or otherwise dealt with by plaintiff or by General. In short, the first question is whether plaintiff's modus operandi constitutes offering to sell or selling a security within the italicized language. Plaintiff claims that it is selling land; that the purpose of the italicized language is not to regulate land sales but to regulate the sale of debt securities created by the sale of land on deferred payments outside Missouri and adjoining states; that an A & G is a specialized type of debt security which, only after execution by both parties, is subject to regulation as a security, but which cannot be sold to anyone in the course of a sale of land since a sale within the meaning of § 409.301 ¹ refers to something in existence at the time of the sale and not to something created by or resulting from the sale.

Generally it may be said that the purpose of Blue Sky Laws is to protect the public against the imposition upon the public of unsubstantial schemes and the securities based upon them. Hall v. Geiger-Jones Co., 242 U.S. 539, 550, 37 S.Ct. 217, 61 L.Ed. 480 (1917). We believe that the salutary purpose of including the italicized language in § 409.401(l) was to avoid the evils referred to in Statutes of California 1963, 'Out-of-State Land Promotions Act,' Vol. 2, Chapter 1819, § 2, p. 3755, which, adopted to Missouri, would read as follows:

'The offering of subdivision land to residents of the State of Missouri which is situated in distant and inaccessible areas of the United States and foreign countries where standards of subdivision development have not been established by local authorities, * * *, has created an opportunity for the exploitation of Missouri residents. Our citizens who are denied immediate access to examine the property are placed in the position of an investor in securities where the risks are clearly beyond the control of the individual and dependent upon the managers of the capital investment or the developers of the real estate promotion. The Legislature therefore finds that this type of an investment requires the protection and supervision of laws designed to protect security investors.'

Considering the evidence in this case in the light of the obvious legislative purpose we are of the opinion that plaintiff's operation comes within the ambit of the italicized language of § 409.401(l); that plaintiff is subject to the jurisdiction of the Commissioner of Securities and to the rules, regulations and orders properly issued by that office; that it was the intention of the legislature to regulate the issuance, sale and purchase of written evidences of debt employed in certain specified types of land sales and to recognize the kinship between offerings of contracts such as A & G and offerings of other more conventional securities such as common stocks ²; that such offerings were intended to be brought within the controls of the Act by legislatively declaring that the instruments employed in such transactions are 'securities'; that an A & G is a 'security' within the meaning of the italicized language ³; that the Act, taken as a whole, comprehends not only sales and purchases of such securities to third parties after execution, issuance and delivery (as plaintiff argues), but also embraces offers by sellers' agents to prospective purchasers to sell such a contract (see §§ 409.101 and 409.301 RSMo 1969, V.A.M.S.); that giving the statutory definition of a security the liberal construction to which by the weight of authority it is entitled, Securities and Exchange Commission v. Joiner Leasing Corporation, 320 U.S. 344, 353, 64 S.Ct. 120, 88 L.Ed. 88 (1943), plaintiff's solicitation of a prospective purchaser to sign an A & G is an offer to sell a contract or bond on an installment plan for the sale of an interest in real estate not situate in this state or in any state adjoining this state, within the meaning of the italicized language; that certain specified types of out-of-state land sales to Missouri residents are subject to the abuses (fraud, deception, misrepresentation, high-pressure selling tactics) which the Act was intended to prevent in connection with offerings, sales and purchases of more conventional types...