State v. Heath

• Decision Date: 02 July 1930
• Docket Number: 276.
• Citation: 153 S.E. 855
• Parties: 199 N.C. 135, 87 A.L.R. 37 v. HEATH et al. STATE
• Court: North Carolina Supreme Court

153 S.E. 855

199 N.C. 135, 87 A.L.R. 37

STATE v. HEATH et al.

No. 276.

Supreme Court of North Carolina

July 2, 1930

Appeal from Superior Court, Robeson County; Lyons, Special Judge.

John L Heath and another were indicted for unlawfully, willfully and feloniously offering for sale, selling, and causing to be sold a certain certificate of interest in a profit-sharing agreement or investment contract, without first registering the same in accordance with the provisions of law. From judgment of acquittal, the state appeals.

No error.

Penal statute will not ordinarily be enlarged by construction to include offenses not clearly described, and any doubt will be resolved in favor of defendant.

Separate bills of indictment were found against the defendants, and at the trial the two actions were consolidated and tried together. The indictments charged the defendants with unlawfully, willfully, and feloniously offering for sale selling, and causing to be sold to Ed. B. Freeman a certain certificate of interest in a profit-sharing agreement or investment contract, without first registering the same in accordance with the provisions of law.

The jury returned the following special verdict:

1. On the 20th day of January, 1928, the defendants entered into a written contract with Ed. B. Freeman, of the county of Robeson, which is attached as Exhibit A.

2. A copy of the copyright mentioned in the contract (Exhibit A) is hereto attached, marked Exhibit B.

3. Ed. B. Freeman complied with the contract on his part.

4. No application was made by the defendants or either of them, pursuant to the "Capital Issues Law," Consolidated Statutes, chapter 71A, for the registration of the securities sold by the defendants to Ed. B. Freeman, and the defendants made no application for license as dealers or salesmen under the said Capital Issues Law, and no order of registration for the security was issued by the securities department, and no license was issued to either of the defendants as a salesman or as a dealer.

If, upon these facts, the court be of the opinion that the defendants, or either of them, are guilty, the jury so finds; otherwise, not guilty.

The court expressed the opinion that upon the facts thus found the defendants should be acquitted, and the jury returned a verdict of not guilty.

Exhibit A is a contract between John L. Heath, J. Cecil Heath, J. Talton Heath, and Howard A. Heath, partners doing business under the name of Heath Brothers Realty Transfer System, of Guilford county, and Ed. B. Freeman, of Robeson county.

The partners have a copyright on their system for the first term of 28 years from May 8, 1924, and contracted that Freeman should have the exclusive use of their system in the counties of Robeson, Columbus, Bladen, Hoke, and Scotland, in consideration of $3,500, to be paid in installments.

The remainder of the contract follows, the partners being the parties of the first part and Ed B. Freeman, the party of the second part:

"It is further agreed that the party of the second part shall work or cause to be worked in the counties mentioned above the Heath Brothers Realty Transfer System and to receive 80% of the gross receipts charged for this service whether collected through listing fees or one per cent. commission, and Heath Brothers Realty Transfer System to receive the remaining 20% to be paid to the parties of the first part monthly.

"It is further agreed that the party of the second part will pay all expenses incurred by the operation of the above system, except 20% of advertising incurred for advertising said system, which will be paid by the party of the first part.

"It is further agreed that Heath Brothers Realty Transfer System will assist the party of the second part in getting the above named business organized and put in working condition.

"It is further agreed that the party of the second part will mail to all real estate dealers a copy of descriptions of all lands listed in the counties mentioned above by the party of the second part, together with a copy of same to the home office of the parties of the first part at Greensboro, N. C.

"It is further agreed that the duration of this contract shall be for the remaining period of the copyright under which the parties of the first part are operating and that the party of the second part or his heirs or assigns shall have the privilege of renewing said contract under the same conditions as this contract is made.

"It is further agreed that the party of the second part or his assigns shall have the right to sell or dispose of this contract or any part thereof subject to the approval of the parties of the first part.

"Parties of the first part agree to pay the party of the second part 50% of all net profits that may be obtained from auction sales conducted or contracts written or caused to be written by either of the parties above mentioned in the above mentioned counties."

Dennis G. Brummitt, Atty. Gen., Frank Nash, Asst. Atty. Gen., and I. M. Bailey, of Raleigh, for the State.

Norma Janet Winburn, of Greensboro, for appellees.

ADAMS J.

The defendants were indicted for selling to Ed. B. Freeman "a certain certificate of interest in a profit-sharing agreement, or investment contract, without first having registered the same in accord with the provisions of law." The law regulating the sale of securities is contained in chapter 149 of the Public Laws of 1927, and in chapter 71A of the North Carolina Code of 1927.

One of the penal subsections is as follows: "Whoever shall sell or cause to be sold, or offer to sell or cause to be offered for sale, any security in this State, which is not exempt under any of the provisions of section 3 of this act [Michie's Code, § 3924(l)], unless sold in any transaction exempt under any of the provisions of section 4 of this act [Michie's Code, § 3924(m)], and which such securities so sold, or caused to be sold or so offered for sale or caused to be offered for sale, shall not have been registered as provided in this act, shall be guilty of a violation of this act, and upon conviction thereof shall be imprisoned in the State prison for a period of not less than one, nor more than five years, or fined in any sum not more than one thousand dollars ($1,000), or both." Laws 1927, c. 149, § 23(b); Michie's Code, § 3924(ff) subsec. (b).

"Security" is defined in section 2 (Michie's Code, § 3924(k), subsec. (c): ""The term 'securities' or 'security' shall include any note, stock certificate, stock, treasury stock, bond, debenture, evidence of indebtedness, transferable certificate of interest or participation, certificate of interest in a profit-sharing agreement, certificate of interest in an oil, gas or mining lease, collateral trust certificate, any transferable share, investment contract, or beneficial interest in or title to property or profits or any other instrument commonly known as security."

In section 9 (Michie's Code, § 3924(r) it is provided that "all securities required by this act to be registered before being sold in this State, and not entitled to registration by notification, shall be registered only by qualification in the manner provided by this section."

The term "sale" includes any agreement whereby a person transfers or agrees to transfer either the ownership of or an interest in a security. ""'Sale,' or 'sell' shall also include an attempt to sell, an option of a purchase or sale *** a subscription, or an offer to sell, either directly or by agent, or by a circular letter, advertisement, or otherwise." Section 2(d); Michie's Code, § 3924(k), subsec. (d).

It is to be noted, that, although the statute gives the word "security" a comprehensive definition, the indictment directs our inquiry to the question whether the paper executed by the parties is an "investment contract," or a ""certificate of interest in a profit-sharing agreement." There is no contention that the paper referred to was registered, or that it is within any of the exempted classes.

If a person shall sell any security "embraced and referred to" in the act without having it registered as therein provided, he shall be deemed guilty of a felony. The statute containing this provision is penal. That penal statutes must be construed strictly is a fundamental rule. The forbidden act must come clearly within the prohibition of the statute for the scope of a penal st...