Wilson v. Guaranteed Securities Co.
| Decision Date | 08 December 1928 |
| Docket Number | 4695 |
| Citation | 73 Utah 157,272 P. 946 |
| Court | Utah Supreme Court |
| Parties | WILSON et al v. GUARANTEED SECURITIES CO. et al |
Appeal from District Court, Third District, Salt Lake County; Chris Mathison, Judge.
Action by Andrew Wilson and another against the Guaranteed Securities Company and another. From a judgment for plaintiffs, defendants appeal.
REMANDED; with directions.
Frazer & Wallis, of Salt Lake City, for appellants.
C. R Hollingsworth, of Ogden, for respondents.
This is an action in equity to rescind a contract for the purchase of certain shares of the capital stock of the defendant corporation. It is alleged in the complaint that on February 20, 1923, the plaintiffs loaned to one Ferrin and wife the sum of $ 2,000, taking therefor their promissory note payable to plaintiffs or order 3 years after date, bearing interest at the rate of 10 per cent per annum; that, to secure payment of said note, the makers thereof executed their mortgage upon certain real estate of which they were the owners; that said mortgage was duly filed for record and recorded in the office of the county recorder of Weber county, Utah. It is further alleged in the complaint that prior to November 6, 1924, the defendant Guaranteed Securities Company had an authorized capital stock of $ 250,000, divided into shares of $ 100 each, and during said period of time, on November 6 and 7, 1924, said company was engaged in offering for sale and in selling its unissued capital stock to the public generally, and to the plaintiffs; that on October 15, 1924, and between that date and November 7th of the same year, said defendant corporation, at Ogden, Utah, solicited plaintiffs to purchase 20 shares of said capital stock at the par value of $ 100 per share, and as a result of said solicitation plaintiffs agreed to purchase said number of shares of said stock for the total sum of $ 2,000 and in payment therefor to transfer by indorsement and assignment the aforesaid promissory note and mortgage; that the same was agreed to by said defendant corporation, and the transfer of said note and mortgage, in the manner above stated, was accordingly made to said defendant in full payment of 20 shares of its said capital stock; that the assignment of said mortgage was thereafter filed for record and recorded in the office of the county recorder aforesaid; that said defendant then and there delivered to plaintiffs a certificate for 20 shares of the capital stock of said corporation. It is then alleged that said defendant Guaranteed Securities Company, between April 20, 1923, and December 1, 1924, was an investment company and engaged, among other things, in the business of selling and offering for sale investment securities issued by it and did not between said dates have permission or any license from the State Securities Commission of the state of Utah to sell, or negotiate for sale, the shares of stock represented by the certificate issued to the plaintiffs. It is further alleged that the said promissory note and mortgage are now in the custody of the defendant George H. Blood, as receiver for the defendant Guaranteed Securities Company, and that said company is insolvent and its capital stock utterly worthless and of no value; that plaintiffs at the commencement of this action indorsed said certificate of stock in blank and delivered it to the clerk of the court in which this action was commenced. Plaintiffs pray that the aforesaid agreement between them and said defendant Guaranteed Securities Company for the purchase of said stock be declared null and void; that said defendants be required to return to plaintiffs the said note and mortgage, and that the assignment of said mortgage be declared void and canceled of record; that the said certificate of shares of the capital stock of said defendant company be delivered to the defendants or be declared null and void; and that plaintiffs be awarded general relief and costs of suit.
It is alleged in the complaint that the defendant George H. Blood, on December 2, 1925, in a proceeding then pending in the district court of Salt Lake county, was appointed receiver of the defendant Guaranteed Securities Company; that he qualified as such, and has ever since been and now is the duly appointed, qualified, and acting receiver for said corporation. There is no allegation in the complaint that plaintiffs had permission from said court to institute this action against said receiver.
There are other allegations in the complaint as to false and fraudulent representations made by defendant to induce plaintiffs to purchase said stock, but, in view of the finding made by the trial court, such allegations are immaterial on this appeal.
Thereafter, on January 19, 1927, the defendant George H. Blood filed a petition with the court representing that he was the duly appointed, qualified, and acting receiver for the Guaranteed Securities Company, in a certain case therein mentioned, which was pending in the district court of Salt Lake county, and that the interests of the petitioner were identical with that of the defendant Guaranteed Securities Company, and that it would be for the best interests of the receivership estate in his hands as receiver if he, as such receiver, be substituted as the sole defendant in such action. On the same date said defendant, as receiver aforesaid, filed a general demurrer to plaintiffs' complaint.
On motion of said defendant, as receiver, application was made for a change of venue from Weber county, where the action was commenced, to Salt Lake county, which county was the place of residence of the defendant company and the county in which he, as receiver, had his office and administered the estate of such receivership, and it was ordered that the cause be transferred to the district court of Salt Lake county. The cause was so transferred, and thereafter all further proceedings were had in the district court of Salt Lake county.
Thereafter in said court the demurrer of defendant George H. Blood was overruled, and his petition to be substituted as sole defendant was denied. He thereupon filed his answer, as receiver, and the only allegations thereof material to be considered, in view of the findings, are the pleas in bar. It is alleged that the action is barred by the provisions of Compiled Laws of Utah 1917, § 6468, subd. 1, section 6470, subd. 1, and section 18, c. 87, Session Laws of Utah 1925.
No answer or other pleading was filed by the defendant Guaranteed Securities Company.
Thereafter the defendant George H. Blood applied for leave to file an amendment to his answer to the effect that certain bonds had been issued and sold by the defendant Guaranteed Securities Company, which bonds were secured by the said mortgage, and that said bondholders had no notice of any defect in the title thereto, and that said mortgage was the only security therefor; that said receiver holds said mortgage for the benefit of said bondholders to secure the payment of said bonds. The application for leave to amend was denied.
There is no dispute as to the facts. The trial court found the transaction between plaintiffs and defendants was substantially as alleged in the complaint. It made no findings as to the fraudulent misrepresentations made by defendants to plaintiffs, as alleged in the complaint, and no findings were made as to other allegations of minor importance, apparently for the reason that the court regarded the same as immaterial and not essential to a decision of the case. It found, however, that the defendant Guaranteed Securities Company was an investment company during all the times mentioned and had no license or permission from the State Securities Commission to sell the stock in question. As conclusions therefrom it found the sale of the stock was void, and by decree directed that defendants return the note and mortgage to the plaintiffs, and that the clerk of the court surrender to plaintiffs the certificate of stock issued by defendants to the plaintiffs.
The trial court rested its decision entirely upon the fact that the transaction between plaintiffs and defendant Guaranteed Securities Company was void, and plaintiffs were entitled to recover the note and mortgage by virtue of chapter 17, § 24, Special Session Laws 1919, commonly known as the Blue Sky Law. Section 24 reads as follows:
"Any contract of sale made in violation of the terms of this chapter or without first applying for and receiving the license as herein required shall be unlawful and void and every person, firm, domestic or foreign corporation participating directly or indirectly in the sale of any security in violation of the terms of this act and every officer, director, and agent of any corporation where acting as an investment company or dealer, or agent, shall be liable to the purchaser in a civil action instituted in any court of competent jurisdiction for the amount of the purchase price paid and all damages the purchaser may sustain, without proof of actual or constructive fraud."
The section quoted was in force at the time the plaintiffs purchased the stock, and gave as consideration therefor the note and mortgage in question.
The Blue Sky Law of 1919 was amended by legislative enactment in 1921 in certain particulars, but the section above quoted was not amended or in any manner referred to in the act. See chapter 131, Laws 1921.
In Session Laws 1925, c. 87, § 18, the section above quoted was amended to read as follows:
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