State v. Davis
| Decision Date | 17 December 1964 |
| Docket Number | Cr. N |
| Citation | 131 N.W.2d 730 |
| Parties | Blue Sky L. Rep. P 70,660, Blue Sky L. Rep. P 70,661 STATE of North Dakota, Plaintiff and Respondent, v. Larry F. DAVIS, Defendant and Appellant. o. 322. |
| Court | North Dakota Supreme Court |
Syllabus by the Court
1. The promissory notes of a corporation offered to shareholders of another corporation in exchange for their stock in the other corporation, as a part of a plan to acquire 51% of the outstanding stock of such other corporation, are securities required to be registered under the Securities Act. Chapter 10-04, N.D.C.C., as amended.
2. In prosecution for violating the Securities Act, Chapter 10-04, N.D.C.C., as amended, soliciting and securing from stockholders of another corporation assignments of their stock on the promise that if certain conditions are met, the purchasing corporation will issue and deliver to such stockholders its promissory notes in exchange therefor constitutes an 'offer to sell' notes under the terms of the Act.
3. It is no defense to the crime of offering to sell unregistered securities in violation of the Securities Act, Chapter 10-04, N.D.C.C., as amended, that the resulting contracts were null and void for lack of consideration or lack of mutuality.
Walter O. Burk, Williston, for appellant.
Helgi Johanneson, Atty. Gen., and Albert A. Wolf, State's Atty., Bismarck, for respondent.
The defendant has appealed from a final judgment of conviction of the crime of offering for sale or selling unregistered securities. A jury was waived and the case was tried to the court on stipulated facts. The defendant specifies three errors: (1) that the promissory notes in this case are not in fact securities; (2) that there was no offer for sale or sale; and (3) that the purported assignment of stock was null and void in that there was no consideration therefor.
It is stipulated that the defendant solicited from shareholders of Stockmen's Insurance Agency, Inc., a conditional assignment of the stock, power of attorney, and proxy, by making an offer to deliver to them at a future date promissory notes of Ranchers' Insurance Agency, Inc., payable in six years with interest at 6% per annum. The conditional assignment, power of attorney, and proxy were contained in one instrument and, among other things, provided that the instrument would be void and of no effect in the event of the happening of any one or more of the following events:
'(1) The failure or refusal of the stockholders of Stockmen's Insurance Agency, Inc., to approve a proposed merger with Guarantee Reserve Life Insurance Company of Hammond, Indiana, at a special or adjourned meeting at which such question shall arise;
'(2) The failure or refusal of the owners of fifty-one percent of the stock of Stockmen's Insurance Agency, Inc., to make an execute assignment in substantially identical form to this one on or before September 20, 1963.'
It then provided that if neither of the above contingencies should occur, the consideration for the assignment of the stock described in the instrument was to be a note of Ranchers' Insurance Agency, Inc., in a sum equal to the original purchase price of the shares of stock conveyed by the assignment with interest from August 26, 1963, at the rate of 6% per annum and payable on or before August 26, 1969.
It is stipulated that assignments were not obtained of 51% of the stock of Stockmen's Insurance Agency, Inc., but that the defendant personally, or at his direction, obtained assignments of approximately 46,365 shares from approximately 147 stockholders and that the total outstanding shares of Stockmen's Insurance Agency, Inc., at the time was approximately 115,496 shares. It is also stipulated that the records of the commissioner of securities establishes that Ranchers' Insurance Agency, Inc., had not qualified or registered any promissory notes under the security laws of the State of North Dakota. The attorney for the defendant in his brief states that the proposed merger of Stockmen's with Guarantee Reserve Life Insurance Company was approved. It does not appear any notes were issued or delivered.
The statute provides:
'Registration of securities.--It shall be unlawful to sell, or offer for sale, any securities in this state, except those exempt under section 10-04-05 or those sold in transactions exempt under section 10-04-06, or those registered by description under section 10-04-07 or by announcement under section 10-04-07.1, unless such securities shall have been registered by qualifications as hereinafter provided in section 10- 04-08.' Section 10-04-04, N.D.C.C. (1963 Pocket Supplement).
It is clear the exemptions provided under Sections 10-04-05, 10-04-06, 10-04-07, and 10-04-07.1 are not applicable. Section 10-04-18 provides the penalty for the willful violation of any of the provisions of the chapter.
Section 10-04-08 provides how securities shall be registered.
The sole question is: Did the defendant offer for sale or sell unregistered securities within the definition of our Securities Act (Chapter 10-04, N.D.C.C.) by soliciting and securing conditional assignments of stock, power of attorney, and proxy in consideration for a promise to deliver a promissory note of his employer corporation which had not been registered with the commissioner of securities of the State of North Dakota?
Testimony was not adduced but it was stipulated that the complainant would testify that the defendant solicited the conditional assignment, power of attorney, and proxy by making an offer to deliver to the complainant at a future date the promissory note of Ranchers' Insurance Agency, Inc., described in the conditional assignment, power of attorney, and proxy.
The appellant argues that the promissory notes described in the instrument entitled 'Conditional Assignment and Power of Attorney and Proxy' are not securities within the prohibition of the Securities Act for the reason that they would merely be written evidence of the unpaid purchase price of capital stock that Ranchers' Insurance Agency hoped to purchase. In other words, it was merely agreeing to give promissory notes in exchange for stock which the corporation wished to purchase. In essence, he argues, the promissory notes agreed to be exchanged for the stock are not securities within the meaning of the Act.
Section 10-04-02(12), N.D.C.C., defines 'security' as follows:
"Security' shall mean any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or...
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