Gill v. Hornblower
| Citation | 294 Mass. 26 |
| Court | United States State Supreme Judicial Court of Massachusetts |
| Decision Date | 28 February 1936 |
| Parties | ALICE A. GILL, executrix, v. HENRY HORNBLOWER & others. |
February 6, 7, 24 1936.
Present: RUGG, C.
Stockbroker. Sale What constitutes, Of securities.
Agency, What constitutes. Sale of Securities Act.
A purchase by a stockbroker, on order of a customer and through a stock exchange in another State, of shares of stock for which the customer immediately paid and which the stockbroker immediately caused to be transferred to the customer's name before delivery through him to the customer, was not a "sale" by the broker under the sale of securities act, G. L. (Ter. Ed.) c. 110A, but was a purchase by him as the customer's agent.
BILL IN EQUITY, by amendment from an action of contract, the writ in which was dated January 5, 1935.
In the Superior Court, the suit was heard by Swift, J., who reported his findings and rulings for determination by this court.
L. Withington, for the defendants. H. Traverse, for the plaintiff.
A. J. Santry, by leave of court, submitted a brief as amicus curiae.
On December 7, 1931, the plaintiff's testatrix went to the offices of the defendants, who were stockbrokers in Boston and gave them an order to buy for her five hundred shares of the common stock without par value of Electric Bond and Share Company, at $15 a share, for which she was to pay cash. The purchase was made on the New York Curb Exchange in New York, of which the defendants were members. Afterwards, on December 8, 1931, the defendants sent the plaintiff's testatrix a bill for the price, $7,500 plus a commission of $62.50, which she paid on December 9, 1931. The defendants on the same day ordered their New York office to cause the five hundred shares to be transferred into the name of the plaintiff's testatrix, and this was done. The new certificates in her name were delivered to her in Boston on December 16, 1931. The defendants were in no way interested in promoting the sale of stock. On March 28, 1932, the common stock having been changed by vote of the stockholders into stock having par value, she exchanged her certificates for new ones representing the common stock having par value. She held these certificates until her death on March 25, 1934.
Afterwards the plaintiff, having sold the stock, made what she contends was a tender of other certificates for five hundred shares, together with all dividends received, to the defendants, and demanded a return of the purchase price. Or January 5, 1935, she brought an action of contract to recover the purchase price with interest. She contends, and we assume without deciding, that the shares in question were not exempted from the sale of securities act, G. L. (Ter. Ed.) c. 110A, and had never been the subject of the "notice of intention to offer for sale" provided for by Section 5 of that chapter, or any of the other proceedings required to qualify shares of stock for sale in this Commonwealth under said chapter, which are recited briefly in Kneeland v. Emerton, 280 Mass. 371 , and Bauer v. Bond & Goodwin Inc. 285 Mass. 117 . The action of contract was amended into a bill in equity on January 3, 1936.
One point is decisive of the case. The prohibition of Section 5 of the statute is directed against selling securities falling within the statute and not qualified under it. Kneeland v. Emerton, 280 Mass. 371 ,383. Section 2 (d) defines a "Sale" as including "an attempt to sell, an option of sale, a solicitation of a sale, a subscription or an offer to sell." The form of these enactments has since been changed by St. 1932, c. 290, with respect to Section 2 (d) and Section 5, but not, it is believed, so as to affect the question in this case. That question is, whether the transaction complained of was a "Sale" at all. The purpose of the statute was "the protection of the public from fraud and imposition in the sale to them of securities of little or no value or based upon unsubstantial projects and schemes." Kneeland v. Emerton, 280 Mass. 371 , 376. The "notice of intention to offer for sale" a specified security under Section 5 must be filed "by a person offering the same for sale" or by the representatives of the corporation itself. It is daily practice for a stockbroker to be asked to buy for a customer, often in some stock exchange in another and possibly remote State or country, some security not commonly bought and sold on the market here. Often neither the corporation issuing the security nor any dealer or stockbroker has any substantial interest in qualifying the security under our sale of securities act. If a stockbroker in Massachusetts could not execute such an order without first causing the security to be so qualified, that would tend to make it impossible for a resident of Massachusetts to buy such a security without employing a broker in another State for the purpose.
In ordinary speech the transaction in question would not be described as a "sale" of stock by the defendants to the plaintiff's testatrix. Rather, the defendants were her agents to buy stock. Reported cases tend to show that the law takes the same view of the transaction. Durant v. Burt, 98 Mass. 161. Giddings v. Sears, 103 Mass. 311 . Colt v. Clapp, 127 Mass. 476 . Downer v. Cripps, 170 Mass. 345 . Picard v. Beers, 195 Mass. 419 , 428. Wisbey v. Alan Shepard & Co. Inc. 268 Mass. 21 , 22. Palley v. Worcester County National Bank, 290 Mass. 501 , 508. Campbell v. Willis, 290 F. 271, 53 App. D. C. 296. A case arising under St. 1890, c. 437, Section 2, is especially in point. That section, in the first clause, provided that whoever "contracts to buy or sell upon credit or upon margin any securities or commodities, having at the time of contract no intention to perform the same by the actual receipt or delivery of the securities or commodities, and payment of the price," might recover from the other party, cognizant of such want of intention, the value of anything delivered. In Rice v. Winslow, 180 Mass. 500, affirmed in Post v....
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