Vercellini v. U. S. I. Realty Co.

• Decision Date: 18 January 1924
• Docket Number: No. 23771.,23771.
• Citation: 196 N.W. 672,158 Minn. 72
• Court: Minnesota Supreme Court
• Parties: VERCELLINI v. U. S. I. REALTY CO.

158 Minn. 72

196 N.W. 672

VERCELLINI

v.U. S. I. REALTY CO.

No. 23771.

Supreme Court of Minnesota.

Jan. 18, 1924.

Appeal from Municipal Court of Minneapolis; Gunnar H. Nordby, Judge.

Action by Dr. C. E. Vercellini against the U. S. I. Realty Company. From an order sustaining a motion for judgment on the pleadings, defendant appeals. Affirmed.

Syllabus by the Court

When a statute imposes a penalty and is intended to protect citizens against fraud and imposition, it is regarded as such a prohibition of the act penalized as to make it unlawful to enter into a contract in violation of the statute.

Following State v. Evans (Minn.) 191 N. W. 425, it is held, that a transaction similar to the one there considered was in contravention of the Blue Sky Law and could not be made the foundation of a valid contract.

The purchaser of an investment contract issued and sold in violation of the Blue Sky Law is not in pari delicto with the seller and may recover from him all the money he paid under the contract.

The purchaser of such a contract got nothing of value when he parted with his money, and has nothing to restore as a condition precedent to a recovery. Nathan H. Chase, of Minneapolis, for appellant.

Thompson, Hessian & Fletcher, of Minneapolis, for respondent.

LEES, C.

This is an action to recover money paid on a contract for the purchase of Texas lands, prosecuted on the theory that defendant embarked in the business of selling investment contracts without complying with the so-called ‘Blue Sky Law,’ chapter 429, L. 1917, as amended by chapter 105 L. 1919; that in form the contracts purported to be contracts for the sale of land, but in fact they were investment contracts framed in terms to enable defendant to evade the statute; and that it sold such a contract to plaintiff, upon which he had paid the sum he sought to recover. A copy of the contract was made part of the complaint and is identical in form with the contract involved in State v. Evans (Minn.) 191 N. W. 425. Defendant answered, admitting the contract and the payments and that it had failed to procure a license from the State Securities Commission. Plaintiff then moved for judgment on the pleadings. The motion was granted, and defendant appealed from the judgment.

1. The court was of the opinion that the case was controlled by the rule that when a statute imposes a penalty, not for the protection of the revenue but for the protection of citizens against fraud or imposition, it amounts to a prohibition of the act penalized, and a contract in violation of the statute is illegal. Dun. Dig. 1873; 13 C. J. p. 421; 6 R. C. L. p. 702. Appellant's counsel frankly admits that he thinks the court was right, but adds that the realty company is now in the hands of a receiver, that there are hundreds of outstanding contracts identical in character with this one, upon which purchasers have paid and are yet to pay large sums of money, and that for the protection of all parties in interest it is desirable to obtain a final determination of the legal question brought here by this appeal.

[2] 2. In State v. Evans, supra, we held that the contracts which the realty company sold to the public were investment contracts and came within the purview of the Blue Sky Law. Respondent got a contract made in contravention of positive law. No transaction in violation of law can be made the foundation of a valid contract. Buckley v. Humason, 50 Minn. 195, 52 N. W. 385,16 L. R. A. 423, 36 Am. St. Rep. 637;Swedish A. Bank v. First Nat. Bank,...