Source: https://law.justia.com/cases/federal/appellate-courts/F2/349/885/104384/
Timestamp: 2020-01-24 01:42:15
Document Index: 553249620

Matched Legal Cases: ['§ 501', '§ 1', '§ 202', '§ 202', '§ 1', '§ 1', '§ 101', '§ 101', '§ 101', '§ 102', '§ 101', '§ 101', '§ 102']

Mid-continent Casualty Company, Honnold and Company, Inc., and Philip C. Honnold, Appellants, v. Mcalester Aircraft, Inc., a Debtor Corporation, in Possession Under Chapter X of the Bankruptcy Act, Appellee, 349 F.2d 885 (10th Cir. 1965) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Tenth Circuit › 1965 › Mid-continent Casualty Company, Honnold and Company, Inc., and Philip C. Honnold, Appellants, v. Mca...
Mid-continent Casualty Company, Honnold and Company, Inc., and Philip C. Honnold, Appellants, v. Mcalester Aircraft, Inc., a Debtor Corporation, in Possession Under Chapter X of the Bankruptcy Act, Appellee, 349 F.2d 885 (10th Cir. 1965)
McAlester Aircraft, Inc., the debtor corporation in a reorganization proceeding under Chapter X of the Bankruptcy Act (11 U.S.C.A. §§ 501-676, inclusive), brought this action against Honnold and Company, Inc., an Oklahoma corporation, hereinafter called H & C, and Philip C. Honnold, hereinafter called Honnold, to recover commissions and expense allowances alleged to have been unlawfully charged and received on the sales of stock of the debtor by H & C, under an under writing agreement entered into between the debtor and H & C. It also sought judgment against Mid-Continent Casualty Company, as surety, on a broker-dealers' bond of H & C in the penal sum of $10,000, and, as surety, on an investment agent's bond of Honnold in the penal sum of $2,000. Each bond was given under the Oklahoma Securities Act (71 Okl.St.Ann. §§ 1-504, inclusive).
"* * * if said Principal shall comply with the provisions of the said Oklahoma Securities Act and with all rules, regulations and order made pursuant thereto and all amendments thereto hereinafter enacted, and satisfy and discharge any judgment or decree that may be rendered against said Principal in a court of competent jurisdiction in a suit brought by any aggrieved person against the Principal in which it shall be found or adjudged that the said Principal, in any way, violated a provision of or any rule, regulation or order under the said Act, which violation caused or resulted in damage or injury to the party suing, then this obligation to be null and void, otherwise to be and remain in full force and effect."
On February 28, 1961, the debtor entered into an underwriting agreement with H & C by which the debtor agreed to sell to the public, through the underwriter as its exclusive agent, 50,000 shares of its Class A common capital stock at $10 per share, and H & C agreed to sell the entire offering of such stock within a stipulated period, or with an extension of such period provided for in the contract; and by which the debtor agreed to pay H & C as compensation for its services "a commission of fifteen (15%) percent and five (5%) percent for advertising and selling expense on each share * * * so sold by the Underwriter" and H & C agreed to remit to the debtor the offering price, less such commission and expenses per share on the securities sold by it.
In his affidavit Honnold further averred that the transactions referred to above were carried out with the knowledge and approval of the officers of the debtor, who were also members of the executive committee of the debtor, in order to improve the financial statement of the debtor, to show an increase in stock sales, which had been lagging for several months, and to "close out a current stock issue authorization."
Section 202(e) of the Oklahoma Securities Act (71 Okl.St.Ann. § 202) provides that the bond shall be "conditioned that the registrant will comply with the provisions of this act." It seems clear to us that under § 202(e) and the condition of the bonds, itself, the principal and surety are liable thereunder, only if the principal has violated a provision of the Oklahoma Securities Act2 and such violation has caused damage or injury to a person for whose benefit the bond was given.
Counsel for the debtor say that the stock sales report made by H & C constituted a false statement under 18 Okl.St.Ann. § 1.176 and a violation of such section, but § 1.176 is a part of the Oklahoma Business Corporation Act and is not a provision of the Oklahoma Securities Act. Clearly, a violation thereof would not be a violation of the Oklahoma Securities Act within the meaning of the condition of the bonds.
Counsel for the debtor contend that under the facts shown by the record, H & C and Honnold violated the provisions of §§ 101 and 102 of the Oklahoma Securities Act (71 Okl.St.Ann. §§ 101, 102).
We think the purpose of § 101, supra, the text of which is set out in marginal note 3,3 was to protect the buyer of securities from fraud practiced upon him by the seller, and the seller of securities from fraud practiced upon him by the buyer, by force of sanctions which may be imposed under the administrative provisions of the Act, or by injunction or criminal prosecution.4 We do not think it was intended to provide a private civil remedy for the collecting or withholding of commissions on sales in fact not made and therefore not earned under an underwriting contract by the underwriter, even though such collecting or withholding operated as a fraud on the seller.
Section 102, supra, in part here material, is set out in marginal note 5.5 It will be observed that § 102 is limited to fraud practiced by an investment adviser upon another person, in advising such other person as to the value of securities or their purchase or sale, when the adviser had received consideration for such advice from such other person, and clearly has no application to the alleged fraud of H & C and Honnold in the instant case.
"In consideration of a $75,000 loan to Tool & Equipment Co. of which we will receive $60,000, we agree to maintain in our account at least $50,000 and upon the maturity of said loan to purchase not more than 5,000 shares or the balance of said shares of the Class A Common Stock of McAlester Aircraft, Inc. whichever is the largest. This stock which is the collateral on said note will be the last or remaining stock of the balance of the entire note, and our agreement is that there will be a balance of cash maintained in our account in your bank equivalent to the number of shares collateral remaining on said note at $10.00 per share. In other words for every $10.00 applied on the principal of said note, 1 share of the collateral will be released, and after the note is paid down to $50,000 with 5,000 shares collateral, then for every $10.00 paid on the principal of said note, the required balance in the account of McAlester Aircraft, Inc. will be reduced $10.00. * * *"
"§ 101 Sales and purchases. —
"It is unlawful for any person, in connection with the offer, sale, or purchase of any security, directly or indirectly
"(2) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading,
"(3) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person. Laws 1959, p. 329, § 101."
"§ 102 Advisory activities. —
"(a) It is unlawful for any person who receives any consideration from another person primarily for advising the other person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise,
"(1) to employ any device, scheme, or artifice to defraud the other person, or
"(2) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the other person."