Kneeland v. Emerton

CourtUnited States State Supreme Judicial Court of Massachusetts
Citation280 Mass. 371,183 N.E. 155
PartiesKNEELAND v. EMERTON et al.
Decision Date31 October 1932


Appeal from Municipal Court of Boston, Appellate Division; J. T. Zottoli, Judge.

Action by Herbert A. Kneeland against Albert Emerton and the Kidder Peabody Trust Company, trustee. From a decision of the appellate division in favor of defendant reversing trial court's finding for plaintiff, plaintiff appeals.

Order of appellate division reversed, with directions.S. R. Jones and J. B. Jacobs, both of Boston, for appellant.

B. L. Young, E. J. Owens, and O. W. Haussermann, all of Boston, for appellees.


The plaintiff seeks to recover from the defendant in this action of contract by the first count in his declaration fifteen hundred dollars alleged to have been paid for the purchase of shares of the capital stock of a corporation at a time when neither the defendant nor the directors or authorized officers of the corporation had filed with the commission of the Department of Public Utilities notice of intention to sell shares of the capital stock of the corporation, whereby the sale was void. The second count for the same cause of action is for money had and received by the defendant to the plaintiff's use. The defendant pleaded in his answer general denial and laches. The case was tried upon an agreed statement of facts. Thus it appears that the defendant in February, 1929, was a duly registered broker engaged in the brokerage business in Boston. ‘Some time prior to February 2, 1929,’ the defendant through an agent sold to one Gerard shares in the Shoe Lace Company, Ltd. Subsequently, the plaintiff, as the result of discussion with Gerard, instructed the latter to place his order for 100 shares of stock in the same corporation. This order was sent through his agent to the defendant, who thereupon about February 7, 1929, purchased 100 shares from a brokerage house in Boston and sent statement covering same to the plaintiff. On or about February 11, 1929, the plaintiff sent his check for $1,500, the purchase price of the shares, to the defendant and two days later the defendant sold and delivered the shares to the plaintiff. Neither the defendant nor any of his agents ever had communication with the plaintiff before the receipt of this order. When the order of the plaintiff was received by the defendant, the latter had not filed with the Department of Public Utilities notice of intention to offer for sale any or all of the capital stock of said corporation. A notice of such intention was filed by another registered broker on February 15, 1929, and the stock was qualified on March 7, 1929. The plaintiff had no actual knowledge whether the defendant at the time of the sale to him had filed such notice of intention until January 13, 1931, shortly before the commencement of this action. The plaintiff on January 15, 1931, made tender to the defendant of the 100 shares of stock and demanded return of the money paid therefor. The tender was refused and the plaintiff has the stock in his possession. He has received no dividends from the corporation and has not actively participated in its corporate affairs.

The trial judge denied various requests for rulings presented by the defendant, ruled that the sale was void, being in contravention of the Sale of Securities Act (G. L. [Ter. Ed.] c. 110A, § 1 et seq.) governing sales of securities, and found for the plaintiff. The appellate division reversed this decision and ordered judgment for the defendant. The plaintiff appealed.

The decision of the various questions presented depends upon the construction of controlling parts of St. 1921, c. 499, as amended, whereby chapter 110A was added to the General Laws, now found in G. L. (Ter. Ed.) c. 110A, to which for convenience reference will chiefly be made, and which will be referred to as said chapter 110A.

1. The defendant first contends that, since the contract for the purchase of the shares of stock, was fully executed, the plaintiff has no right to rescind. This contention resolves itself into the question whether the intent of the Legislature as disclosed by the words of the statute was that a sale in violation of the statute should be absolutely void. There is no express provision to that effect in the statute. As throwing light upon this intent it is permissible in this connection to examine the history of the statute. Old South Association v. Boston, 212 Mass. 299, 304-305, 99 N. E. 235;Hood Rubber Co. v. Commissioner of Corporations and Taxation, 268 Mass. 355, 358, 167 N. E. 670, 70 A. L. R. 1, and cases cited.

By Resolves 1920, c. 79, a commission was created to investigate the necessity or expediency of further legislation as to the sale, offering and advertising for sale of stocks and other securities issued by corporations. That commission made a comprehensive report setting forth in considerable detail the great evil existing from lack of regulation of the sale of stock and other corporate securities and the enormous losses sustained annually by the people of the commonwealth through sales to them of such securities of little or no value, and pointed out that in thirty-eight other states of the Union preventive legislation existed to remedy this evil. With that report before it the General Court proceeded to enact a statute. The title of said chapter 110A, as enacted in said chapter 499, is ‘An Act to control the sale of securities, to register persons selling the same, and to prevent the fraudulent promotion and sale of fraudulent securities.’ In general, it provides for filing with the commission a notice of intention to sell securities with a statement of data in considerable detail as to the securities and the corporation issuing the same, and for the periodic filing of statements of condition of such corporations. The commissionis empowered to forbid sale of such securities if of opinion that it is fraudulent or would result in fraud. Certain classes of securities are exempted from the operation of the act. Extended provision is made for the registration of brokers. There are heavy penalties for violation of the terms of the statute.

It is manifest from this legislative background as well as from its provisions that the statute was enacted for 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. The careful preliminary investigation by a commission, and the tenor of its report to the General Court containing a considerable body of information touching existing abuses and remedies tried in other jurisdictions, strongly support that view of the purpose of the legislation enacted. This has been declared to be the design of such legislation in decisions respecting laws of like nature in other jurisdiction. Hall v. Geiger-Jones Co., 242 U. S. 539, 550, 37 S. Ct. 217, 61 L. Ed. 480; L. R. A. 1917F, 514, Ann. Cas. 1917C, 643; Ashley & Rumelin, Bankers, v. Brady, 41 Idaho, 160, 238, P. 314;Goodyear v. Meux, 143 Tenn. 287, 228 S. W. 57. The terms of said chapter 110A must be interpreted and construed so as to effectuate the purpose of the Legislature ascertained from the several parts of the statute and the meaning fairly attributable to all its words considered in connection with the causes leading to its enactment, the subject to which it is applicable, the pre-existing state of the common and statutory law, the mischief to be remedied, and the main object to be accomplished, to the end that it be given an effect in harmony with common sense and sound reason. Duggan v. Bay State Street Railway, 230 Mass. 370, 374, 119 N. E. 757, L. R. A. 1918E, 680, and cases cited; Commonwealth v. S. S. Kresge Co., 267 Mass. 145, 148, 166 N. E. 558, and cases cited. The provisions of said chapter 110A relevant in this connection are in section 5: ‘No security * * * [with exceptions not here material] shall be sold unless and until there shall have been filed with the commission by a person offering the same for sale or’ by certain officers or authorized agents of the corporation issuing the security ‘a notice of intention to offer for sale the security named and specified in the notice; but within seven days, or such further period as in any special case the commission may authorize, after filing said notice, the person or officers, or some one in their behalf, shall file with the commission a statement containing the information and data relative to the security offered and the issuing corporation, association or trust, specified in subdivisions (a), (b), (c) and (d) of section four, and in addition thereto a statement of the purposes to which the proceeds of the proposed issue are to be applied. Upon and after the filing of such notice the said security may be sold and offered for sale by any broker or salesman registered under the provisions of this chapter, subject, however, to the provisions of the following section and subject to the right of the commission in its discretion to forbid its sale until the information required by this and the following section is filed with it and the commission has revoked its action in forbidding its sale.’ Section 6 provides in part that ‘Whenever the commission is of opinion from the information disclosed or in its possession that the sale of any security under section four or five or of any security exempted under any provision of section three, is fraudulent or would result in fraud, it shall make a finding to that effect. Upon the making of such finding, such security shall not be sold or offered for sale until, and except in accordance with, further action by the commission or by the court as provided in this chapter.’ It is enacted in section 10(c); ‘Nothing in this chapter shall limit any statutory or common law right of any person to bring any action in any court for any act involved in the sale of securities, * * *’ and in ...

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