Weisendanger v. Lind

• Citation: 114 Kan. 523,220 P. 263
• Decision Date: 10 November 1923
• Docket Number: 24,264
• Parties: J. J. WEISENDANGER, Appellant, v. WILLIAM LIND, Appellee
• Court: United States State Supreme Court of Kansas

220 P. 263

114 Kan. 523

J. J. WEISENDANGER, Appellant, v. WILLIAM LIND, Appellee

No. 24,264

Supreme Court of Kansas

November 10, 1923

Decided July, 1923.

Appeal from Riley district court; FRED R. SMITH, judge.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. PROMISSORY NOTE--Negotiated in Violation of the "Blue Sky" Law--Instructions. An instruction that if the promotion and sale of units of a certain oil-lease royalty was a sale of speculative securities within the meaning of the "blue sky" statute the consideration for a note given in payment therefor was illegal, is held not to have been misleading, because the elements of lack of a permit and of the sale being made in the course of a scheme of promotion were supplied elsewhere in the charge, and under the evidence it was clear that no permit for the sale had been granted and that the sale was part of a promotion scheme.

2. SAME--Note Given in Violation of "Blue Sky" Law--Innocent Holder--Burden of Proof. In an action on a note given for securities sold in violation of the "blue sky" law, the consideration being for that reason illegal, the burden is on the plaintiff to prove that he, or some person under whom he claims, acquired the title as an owner in due course.

3. SAME--Instruction. In giving an instruction that a plaintiff who derives title to a note, the consideration for which was illegal, from one who was himself a holder in due course can derive no benefit from that fact if he was himself "a party to the illegality," it is not error to omit a definition of the quoted phrase when none is requested.

4. SAME--Violation of "Blue Sky" Law--Party to the Illegality. One who assists another in making a sale of securities requiring a permit under the "blue sky" law, which has not been granted, is not saved from being "a party to the illegality" by the fact that he does not know whether or not a permit had been obtained.

5. SAME--Finding as to Plaintiff's Knowledge. Where to a question whether the plaintiff knew when he purchased a note that the "blue sky" law had been violated in making the sale for which it had been given, the jury say: "No not from the evidence," the answer under the facts presented may be interpreted as meaning that he did not know of the provision of the statute or that he did not know that no permit for such sale had been obtained.

6. SAME--Findings of the Jury Interpreted. Findings that the jury did not know whether a note was endorsed to a holder before maturity, but that he received it after maturity, may be reconciled by interpreting them to mean that the words of the indorsement were written on the note before it was due but the negotiation was not completed by delivery until after that time.

7. SAME--Finding that Plaintiff Assisted in Making Illegal Sale of Securities in Violation of Law. The evidence is held to sustain findings that the plaintiff assisted in making the sale of securities in payment for which the note sued on was given, and that he did so as a matter of business and not gratuitously.

R. P. Evans, George Clammer, both of Manhattan, and David Ritchie, of Salina, for the appellant.

Hal E. Harlan, and A. M. Johnston, both of Manhattan, for the appellee.

Mason J. Johnston, C. J., not sitting.

OPINION

MASON, J.:

J. J. Weisendanger sued William Lind upon a promissory note for $ 4,100. Judgment was rendered in favor of the defendant, and the plaintiff appeals.

The following is a summary of the transactions out of which the note grew: On June 7, 1919, Lind bought of Krouse and Thompson an interest (of which they were the equitable owners, the legal title being in S. F. Stewart) in the royalty provided for in an oil and gas lease, giving them for it a note for $ 4,000, due in 90 days. This note was assigned by the payees to Stewart, the assignment being made as security for an existing debt. Lind executed to Stewart a renewal note dated November 25, 1919, due in six months. Through negotiations with Thompson Weisendanger purchased this note. On May 20, 1920, by agreement of Weisendanger and Lind the time of payment was extended for a year, a new note (that here sued upon) being executed, $ 100 being added to the principal as accrued interest.

1. The defense to the note was that the plaintiff was not a holder in due course and that the original note on which it was based was given for an illegal consideration in that the royalty interest referred to was of a character forbidden to be sold without a permit under the "blue sky" law, which was not obtained. The judgment involves a decision against the plaintiff on both propositions. With respect to the second the only ruling complained of was the giving of this instruction, after a full statement of the pertinent parts of the statute (Laws 1915, ch. 164; Laws 1919, ch. 153):

"You are therefore instructed in this case that if you shall find and believe from the evidence by a preponderance thereof, that the promotion and sale of the units of Fawley Royalty was a sale of speculative securities, within the meaning of said act, then and in that event I instruct you that the consideration for a promissory note given in payment for said units of Fawley Royalty would be illegal, and that illegality of consideration is a complete defense as against the original payee of said note, or as against any person not a holder in due course."

The objection made to the instruction is its omission to specify as elements necessary to render the note invalid the nonexistence of a permit to sell and the making of the sale by one who was not within the excepted class of whom no permit was required. Technical accuracy of expression required some such change in the language as the insertion of the word "forbidden" before the phrase "sale of securities," but obviously the intended meaning was the same as though that change had been made and the jury in all probability understood it in that way. The specific purpose of the instruction was not to tell the jury what made a sale of securities illegal (for that had already been covered), but what effect its illegality would have upon the validity of the note. The use of the word "therefore" shows that no modification of the statutory requirements was intended, and the immediately preceding instructions quoted this provision of the act (Laws 1919, ch. 153, § 5):

"This act shall not apply to the owner of any speculative security who is not the maker or issuer thereof, who shall acquire and sell the same for his own account in the usual and ordinary course of business, and not for the direct or indirect promotion of any enterprise or scheme within the purview of this act: Providing, That such ownership is in good faith. Repeated or successive sales of any such speculative security or securities shall be prima facie evidence that the claim of ownership is not bona fide, or is a mere shift or device to evade the provisions of this act."

Moreover there is no suggestion that in fact a permit for the sale of interests in the royalty had been granted, and under the evidence there is hardly room for a serious doubt that the sale was a part of a promotion scheme.

2. The plaintiff contends that a demurrer to the defendant's evidence should have been sustained, saying in his brief:

"Certainly the burden being upon the defendant, it was incumbent upon him in this regard to show 'actual knowledge or factual knowledge' concerning the facts constituting illegality. These facts would be: first, that the securities were such as could not be sold without procuring of a permit; second, that no permit had been procured. Of course all the parties realized the nature of these securities, but there is not one syllable of testimony even tending to indicate that any party to this transaction, as shown by the testimony of the defense, at which this demurrer was directed, had any intimation whatever with regard to whether a permit to sell had or had not been obtained."

The fact having been established that the note was given for securities requiring a permit for their sale, which had not been obtained, the title of the payee was defective (Merriam v. West, 114 Kan. 131, 216 P. 1102) and the burden was on the plaintiff to show that he, or some person through whom he claimed, had acquired title as a holder in due course. (Gen. Stat. 1915, § 6586.) In that situation it could not be error to overrule a demurrer based on lack of evidence on the part of the defendant with respect to whether the plaintiff was a holder in due course.

3. The plaintiff claimed the rights of an innocent purchaser not only because he bought the note without notice of any defect, but also because he acquired title through Stewart, who was himself a holder in due course. The defendant, while denying that Stewart was such a holder, contended that even if that were the case it would not avail the plaintiff because he was "himself a party to . . . illegality affecting the instrument." (Gen. Stat. 1915, § 6585.) In this connection complaint is made that although the jury were instructed as to the effect of the statute just cited, and given a definition of "illegality of consideration" as applied to the facts of the case, the court omitted to define the phrase "party to the illegality." We think the meaning of the phrase is clear enough to prevent the omission to define it from constituting error, in the absence of a request for a definition.

4. The only request of the plaintiff for an instruction in any way bearing upon the matter reads as follows:

"You are instructed that if you find from the evidence and believe that at the time the units of Fawley royalty were sold to the defendant that the act of sale was in violation of the law, yet you are instructed that that fact...