Opinion ID: 2599126
Heading Depth: 1
Heading Rank: 5

Heading: Family resemblance test

Text: Alternatively, the State argues that this court should adopt the family resemblance test and, under the test, the notes issued by Friend are securities. Friend also urges this court to adopt the test; however, he argues that the notes are not securities. The family resemblance test was established in Reves to determine when a note is a security. [12] Since both the Act and the federal securities acts similarly define a security as a note [13] or any note, [14] we conclude that it is appropriate for this court to adopt the test. The test begins with the presumption that every note is a security, [15] which may be rebutted under either step of a two-tiered analysis. [16] Under the first step, the notes under review are compared to the following notes that are not securities, which includes those that are delivered in consumer financing; secured by a mortgage on a home; evidencing a character loan to a bank customer; formalizing an open-account debt incurred in the ordinary course of business; evidencing loans by commercial banks for current operations; short-term notes secured by a lien on a small business or some of its assets; or short-term notes secured by an assignment of accounts receivable. [17] Here, the notes under review are referred to by Friend as corporate notes and were payable one year from the date of issuance with a return of the principal amount loaned plus 21 to 25 percent. These notes were issued to the Bells in exchange for $70,000.00. We conclude that the notes under review do not appear to be among the excluded notes in the above list. We must, therefore, move to the next step. The next step of the test is to compare the notes under review to the list of notes above under the following four factors: (1) the motivations prompting a reasonable seller and buyer to enter into the transaction; (2) whether the instruments are used in common trading for speculation or investment; (3) the expectations of a reasonable investing public; and (4) whether another regulatory scheme significantly reduces the risk of the instrument. [18]