State v. Gopher Tire & Rubber Co.

• Decision Date: 28 May 1920
• Docket Number: No. 21772.,21772.
• Citation: 177 N.W. 937,146 Minn. 52
• Court: Minnesota Supreme Court
• Parties: STATE v. GOPHER TIRE & RUBBER CO.

146 Minn. 52

177 N.W. 937

STATE

v.GOPHER TIRE & RUBBER CO.

No. 21772.

Supreme Court of Minnesota.

May 28, 1920.

Appeal from District Court, Washington County; Albert Johnson, Judge.

The Gopher Tire & Rubber Company, a corporation, was indicted for violation of the so-called Blue Sky Law, and its demurrer overruled. On certified questions. Affirmed.

Dibell, J., dissenting.

Syllabus by the Court

A corporation issuing and selling certificates which provide that, in consideration of a sum paid by the purchaser and his assistance in promoting the sale of goods manufactured by the corporation, he shall share in the profits of the business, is engaged in the business of selling securities within the meaning of chapter 429, Gen. Laws 1917, as amended, commonly known as the ‘Blue Sky Law.’

The law is intended to put a stop to the sale of securities that will not pass inspection by the state securities commission, and is a proper exercise of the police power to protect the public against imposition. There is no hard and fast rule for determining whether a security is or is not within the purview of the statute.

The placing of capital or laying out of money in a way intended to secure income or profit from its employment is an investment, and the certificates issued by defendant were investment contracts.

An indictment charging defendant with having sold its certificates to six persons who are named and to others not named, without having a license to do so, is not bad for duplicity.

The rule against duplicity does not apply where the indictment charges an offense consisting of several distinct acts which are in fact to be construed as one continuous act or transaction. The offense of selling securities without a license is not committed where there is only a single or isolated sale; hence the indictment must set forth the making of several sales in the nature of continuous acts or transactions. Chester W. Johnson, of Minneapolis (Thompson, Hessian & Fletcher, of Minneapolis, of counsel), for appellant.

Reuben G. Thoreen, Co. Atty., of Stillwater, and Clifford L. Hilton, Atty. Gen., and Montreville J. Brown, Asst. Atty. Gen., for the State.

LEES, C.

An indictment was returned against the defendant, charging it with the violation of the so-called ‘Blue Sky Law’ of this state. It demurred, the demurrer was overruled, and, at defendant's request, the court certified the following questions for determination by this court:

(1) Is the indictment in this case bad for duplicity?

(2) Does the indictment in this case state facts sufficient to constitute a public offense?

(3) Is the written instrument set out in the indictment to be construed as a stock, bond, investment contract, or other security of the defendant company, within the meaning of chapter 429 of the General Laws of 1917, as amended?

The indictment charged defendant with the crime of--

‘selling securities without a license, committed as follows: That * * * at the city of Stillwater * * * between the 21st day of July, 1919, and the 7th day of August, 1919, both dates inclusive, * * * [defendant] did willfully, unlawfully, and wrongfully sell to E. H. Huhner, J. H. Haines, Julius F. Loeber, O. L. Anderson, John Lustig, Otis T. Johnson, and others certain securities issued by it, without having first obtained a license to sell such securities from the state securities commission, * * * [defendant] being then and there a Minnesota corporation, engaged in the business within the state of Minnesota, of selling securities issued by it.’

It sets out a copy of a certificate alleged to be in form the security so issued and sold. The certificate recites that defendant has appointed the holder as one of its agents to assist by word of mouth and in other ways in the sale of tires and tubes which defendant will manufacture. It provides that, in consideration of the certificate holder's promise to render such assistance and in further consideration of $50 paid by him, defendant will divide pro rata among all the holders of like certificates who reside at a specified place 20 per cent. of the net price of such tires and tubes as may be sold by defendant's representative at such place, such division to be made quarterly for the period of 20 years, that the holder is entitled to a discount of 10 per cent. on all its goods which he may purchase from defendant for his personal use, and that defendant will annually set aside as a bonus to certificate holders all of its excess earnings after paying operating expenses, fixed charges and dividends to stockholders, the same to be distributed at its option in the form of perferred stock. The certificates are transferrable upon notice to defendant, and contain a clause stating that they shall not be construed to be certificates of stock, or security, or investment contracts.

The statute under which the indictment was returned is chapter 429, G. L. 1917, as amended by chapter 105, G. L. 1919. Summarized, it is as follows: All persons, firms, and corporations are prohibited from engaging, within this state, in the business of selling or negotiating for the sale of any stocks, bonds, investment contracts, or other securities issued by him or it, except securities specifically enumerated in section 2 of the act. No investment company or dealer shall sell or offer for sale, or profess the business of selling or offering for sale, securities coming within the scope of the act, unless and until he or it shall have furnished to the state securities commission information touching the honesty, good faith, and character of the business of the company or dealer, and shall have obtained from the commission a license to sell securities. Violation of any of the previsions of the act is made a gross misdemeanor.

[2] 1. The purpose of the statute is to protect the public against imposition. It is a new form of regulatory law which, in the course of a few years, has swept over 33 states. It has been said that its popular name indicates the evil at which it is aimed, that is, speculative schemes having no more basis than so many feet of blue sky (Hall v. Geiger-Jones Co., 242 U. S. 549,37 Sup. Ct. 217, 61 L. Ed. 480, L. R. A. 1917F, 514, Ann. Cas. 1917C, 643;State v. Agey, 171 N. C. 831, 88 S. E. 726), and that it is intended to put a stop to the sale of shares in visionary oil wells, nonexistent gold mines, and other ‘get-rich-quick’ schemes calculated to despoil credulous individuals of their savings. It is a proper and needful exercise of the police power of the state and should not be given a narrow construction; for it was the evident purpose of the Legislature to bring within the statute the sale of all securities not specifically exempted. The commission is better qualified than the average investor to ascertain whether any real values lie behind mere paper evidences of value. It has power, in making its investigation, to compel a full disclosure of the facts upon which to base an intelligent judgment. Schemes devised to get the money of prospective investors are innumerable. Many of them, though not fraudulent, are unsound or visionary. It is a matter of common knowledge that, in issuing stocks and securities, the hope of future profits has been capitalized, and that property and rights of uncertain worth have been treated as having proved values. To lay down a hard and fast rule by which to determine whether that which is offered to a prospective investor is such a security as may not be sold without a license would be to aid the unscrupulous in circumventing the law. It is better to determine in each instance whether a security is in fact of such a character as fairly to fall within the scope of the statute.

[3] No case has been called to our attention defining the term ‘investment contract.’ The placing of capital or laying out...