Court Opinion

ID: 9597693
Source: CourtListenerOpinion
Date Created: 2023-08-22 01:02:13.265141+00
Date Added: 2024-06-11T12:28:25.453126
License: Public Domain

Birdsong, Judge,
dissenting.
In reversing the grant of summary judgment by the trial court, this court has ruled that an interest-free "loan” (so-characterized by the agreement itself) from the parents of a child attending a private school to the trustees of that school, for the duration of the child’s enrollment, constitutes a "security” within the meaning of the Georgia Securities Act of 1973 (Code Ann. § 97-101, et seq. (Ga. L. 1973, pp. 1202-1260)). In reaching this result, the majority reasoned that the above-described agreement was a "note” or "evidence of indebtedness,” and, for that reason alone, within the ambit of the Act.
The definitional section of the Act provides, in pertinent part, that, for purposes of the Act, the term '"Security”’ means any note... evidence of indebtedness, certificate of indebtedness. . .” Code Ann. § 97-102(16). That the Act is to be read flexibly to effectuate its remedial purposes is undisputed. However, despite the "any note” language, the case law is clear that not every note is a security. United Housing Foundation v. Forman, 421 U. S. 837 (95 SC 2051, 44 LE2d 621) (1975); McClure v. First National Bank, 497 F2d 490 (5th Cir. 1974), cert. den., 420 U. S. 930 (95 SC 1132, 43 LE2d 402) (1975). The United States Supreme Court has held that the name given to an instrument is not, alone, dispositive of its character, stating, in United Housing, supra, p. 848:
"We reject at the outset any suggestion that the present transaction, evidenced by the sale of shares called 'stock,’ must be considered a security transaction simply *906because the statutory definition of a security includes the words 'any . . . stock.’ Rather we adhere to the basic principle that has guided all of the Court’s decisions in this area:
" '[I]n searching for the meaning and scope of the word 'security’ in the Act[s], form should be disregarded for substance and the emphasis should be on economic reality.’ Tcherepnin v. Knight, 389 U. S. 332, 336 (1967).”
See also SEC v. W. J. Howey Co., 328 U. S. 293 (66 SC 1100, 90 LE 1244).
Certainly, there is ample authority for the proposition that some "notes” are securities within the meaning of the Act. This court has emphasized the fact that the. Act"... by its definitions designates 'note’ as the very first security.” Peoples Bank v. North Carolina Nat. Bank, 139 Ga. App. 405, 411 (228 SE2d 334) (1976). Nevertheless, "economic reality” and common sense dictate that not every note or evidence of indebtedness is a security. To so hold would render the courts (state and federal) the guardians of a vast number of makers and payees. Would every simple' promissory note from the local bank be subject to the Securities Act? A one-year lease of an apartment is certainly an "evidence of indebtedness”; must the landlord file, a registration statement?
The court must determine whether the activity in the case sub judice was the type of behavior intended to be regulated by the securities acts, "remembering that business transactions are not all reducible to a purchase or sale of a security.” Woodward v. Metro Bank of Dallas, 522 F2d 84, 91 (5th Cir. 1975). Herpich v. Wallace, 430 F2d 792 (5th Cir. 1970). The court should bear in mind that the primary purpose of the. securities acts was to eliminate serious abuses in a largely unregulated securities market, focusing on the "economic reality” that securities are sold to raise capital for profit-making purposes. "Thus, in construing these [securities] Acts against the background of their purpose, we are guided by a traditional canon of statutory construction: '[A] thing may be within the letter of the statute and yet not within the statute, because not within its spirit, nor within the intention of its makers.’ ” United Housing, supra, p. 849.
*907The United States Supreme Court, and virtually all of the United States Courts of Appeals, have rejected the literal approach taken by the majority today. United Housing, supra, fn. 14, p. 849. Instead, the courts have adhered to the commercial/investment dichotomy test which distinguishes a commercial transaction from "an instrument commonly known as a'security’” by asking". .. whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.” Howey, supra, p. 301. "The touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial .or managerial efforts of others.” United Housing, supra, p. 852. For a lucid exposition of the various tests utilized in defining a "security,” see Jaciewicki v. Gordarl Associates, 132 Ga. App. 888 (209 SE2d 693) (1974).
None of the above-described elements was present in the instant case. The agreement stipulated that the funds were "loaned” on an interest-free basis; the appellants do not contend, nor could they, that they expected anything more than the return of the original "loan.” As to the contention that the appellants anticipated a "profit” in the form of an education for their child, such a "profit” is no more than the average taxpayer receives from the public schools. Such a "benefit” cannot be liquidated into cash; nor does it result from the entrepreneurial utilization of appellants’ "loan.” In any analysis, the commercial aspects of the transaction plainly outweigh the attenuated "profit” alleged by appellants. In this context, the appellants could not reasonably contend that they believed that their agreement to provide an education for their child was protected by the securities laws.
A careful examination of the facts of this case reveals that appellants were not "investing” in any sense of the word. The "loan” possessed none of the characteristics traditionally associated with a. security: negotiability; transferability; voting rights; and it could not appreciate in value. In sum, the agreement to "loan” money in exchange for an education did not represent any of the "countless and variable schemes devised by those who *908seek the use of the money of others on the promise of profits.” Howey, supra, p. 299, and therefore does not fall within the "ordinary concept of a security.”
The literal approach taken by the majority is a drastic extension of the already-broad protections afforded by the Act.
I respectfully dissent.
I am authorized to state that Judge Smith joins in this dissent.