Court Opinion

ID: 7950449
Source: CourtListenerOpinion
Date Created: 2022-09-08 23:25:57.664292+00
Date Added: 2024-06-11T16:34:07.167816
License: Public Domain

Fellows, J.
(after stating the facts). In disposing of the case the following questions will be considered;
(1) Is a foreign corporation required to comply with both the foreign corporation act and the commission act before offering its stock for sale in this State?
(2) Did the sale to plaintiff by the defendant loor of the 27 shares of stock in the Illinois Piano Company offend the commission act?
(3) Did the exchange of the Arizona Piano Company stock for the stock of the other companies constitute a sale within the meaning of the commission act?
(4) If so, may the plaintiff rescind the sale and recover the consideration paid?
(5) Estoppel.
(6) Other questions.
1. Under the provisions of the foreign corporation act (2 Comp. Laws 1915, § 9063 et seq.) a foreign corporation is required to comply with its provisions in order to “carry on its business in this State.” Under the provisions of the commission act (3 Comp. Laws 1915, § 11945 et seq.) a foreign corporation, for the purposes of the act, is known as a “foreign investment company,” and before selling, offering for sale, taking subscriptions for or negotiating for the sale in any manner its stocks or securities in this State, such foreign corporation must secure permission from *622the Michigan securities commission. Compliance with the corporation act permits a foreign corporation to “carry on its business,” the business for which it is organized in the State; compliance with the commission act permits it to sell its stock and other securities. One is not in any way dependent upon the other. One foreign corporation may desire to carry on its business in the State, but may not desire to sell stock; another may desire to sell stock but may not desire to carry on its business in the State. If a foreign corporation desires to carry on its business and also sell its stock in the State it is obvious that it must comply with both acts. It is equally obvious that if it desires to do but one of these things it is required to comply only with the provisions of the appropriate act.
2. The record discloses that defendant loor was the owner of 100 shares of stock of the Illinois Piano Company. He sold 27 of these shares to the plaintiff. He sold no other shares of stock of this company. Section 10 of the commission act (3 Comp. Laws 1915, § 11954) defines the term “dealer,” and, so far as important here, provides:
“The term 'dealer' shall not include an owner, net issuer, of such securities so owned by him when such sale is not made in the course of continued and successive transactions of a similar nature.”
■This provision was thought important by the framers of this act to remove the question of unconstitutional taint, and preserve the constitutional right of the individual to sell his own stock, but by prohibiting “continued and successive transactions of a similar nature” prevented the abuse of that right and its exercise in a manner contrary to the spirit of the act. Mr. loor had the right to sell this stock to plaintiff. He did not by continued and successive transactions of a similar nature become a dealer. He was acting within his constitutional rights and by this sale to *623plaintiff did not violate the act. No liability can be predicated on this transaction.
3. The plan contemplated by these defendants provided for the organization of a corporation under the laws of Arizona to take over and hold the stock in the other companies, giving its own stock in varying proportions in exchange therefor. It was to be largely a holding corporation. Did the exchange of its stock for that of the other companies constitute a sale within the meaning of the commission act? This court has defined a sale as follows:
“A sale is a parting with one’s interest in a thing for a valuable consideration.” Western Massachusetts Ins. Co. v. Riker, 10 Mich. 279.
“But every transfer of property for an equivalent is practically- and essentially a sale, and the deed of bargain and sale is almost universally used to convey land so transferred. Money’s worth is a valuable consideration, as much as money itself.” Huff v. Hall, 56 Mich. 456.
Bouvier defines a sale as:
“An agreement whereby the seller transfers the property in goods to the buyer for a consideration called the price.” 3 Bouvier’s Law Dictionary, p. 2983.
This definition has been adopted by the legislature of this State in the uniform sales act (Act No. 100, Pub. Acts 1913, 3 Comp. Laws 1915, § 11832 etseq.).
We must assume that the legislature had in mind this well understood, meaning of the word “sale” when the commission act was passed. If the act is not so construed, as was suggested upon the argument, one may exchange worthless stock for government bonds and escape with impunity. We are impressed that when the Arizona Piano Company exchanged its stock for that of other companies it was a sale of its stock within the meaning of the commission act.
4. Section 14 of the commission act (3 Comp. Laws 1915, § 11958) provides in part as follows:
*624“It shall be unlawful for any investment company or dealer, or representative thereof, either directly or indirectly, to sell or causé to be sold, offer for sale, take subscriptions for, or negotiate for the sale in any manner whatever in this State, any stocks, bonds or other securities (except as expressly exempted herein), unless and until said commission has approved thereof and issued its certificate in accordance with the provisions of this act.” * * *
Section 23 of the act (3 Comp. Laws 1915, § 11967) provides:
“Any person or persons who shall violate any of the provisions, of this act shall be deemed guilty of a misdemeanor and upon conviction thereof shall be fined not more than one thousand dollars or shall be imprisoned in the county jail for not moire than one year, or both such fine and imprisonment in the discretion of the court.”
It is admitted that the Arizona Piano Company had not at the time of this transaction been authorized by the Michigan securities commission to sell its stock in Michigan. Under the provisions of the commission act it was a foreign investment company. It could not lawfully sell its stock without being authorized so to do by the commission. Under the evidence in the case it was selling its stock not only to plaintiff but also to many others. It was engaged in the business of disposing of its. stock by continued and successive transactions. The sale, and it was a sale as we have seen, of its stock to plaintiff and others was in violation of the act and submitted all connected therewith as vendors to the penalties for its, violation. The sale of stock without approval by a public board or commission was not bad at common law, is not malum in se, but by the terms of the act it is malum prohibitum. The act in question was passed, under the police powers of the State (see Merrick v. Halsey & Co., 242 U. S. 568 [37 Sup. Ct. Rep. 227]), to prevent fraud in the *625sale of stocks, and to safeguard the public from exploitation at the hands of the promoter. It was passed to protect and for the benefit of the purchaser. It laid penalties upon the seller, not upon the buyer. As remarked by Lord Mansfield in Browning v. Morris, 2 Cowp. 790:
“And it is very material that the statute itself, by the distinction it makes, has marked the criminal; for the penalties, are all on one side.”
And as we have shown under (2) the sale by an owner of his own stock, except by continued and successive transactions, does not offend the act. The plaintiff therefore violated no law when he sold and transferred his own stock to the Arizona Piano Company, was not in pari delicto, and, as we shall presently see, he supposed defendants were proceeding in a regular and legal manner, and such acts as were done by him were done at the request of the defendants, or some of them.
This sale to plaintiff of the stock of the Arizona Piano Company was in conflict with the terms of a penal statute, malum prohibitum, and void, although not expressly declared so to be by the statute. Loranger v. Jardine, 56 Mich. 518; Niagara Falls Brewing Co. v. Wall, 98 Mich. 158; In re Reidy’s Estate, 164 Mich. 167; Ferle v. City of Lansing, 189 Mich. 501 (L. R. A. 1917C, 1096); Cashin v. Pliter, 168 Mich. 386 (Ann. Cas. 1913C, 697); Maurer v. Greening Nursery Co., 199 Mich. 522.
Some of these cases are so recent and they so fully consider the authorities and the principles involved that we forego further discussion of the subject. When plaintiff’s stock in the Arizona Piano Company, received on this void contract, was tendered back he was entitled to the stocks he had assigned in payment therefor. The transaction had been rescinded, and upon its rescission he was entitled to be restored to *626what he had parted with. Failure to restore to him what he had parted with entitled him to its value.
5. After this suit was instituted the plaintiff executed a proxy to defendant loor for the annual meeting of the Arizona Piano Company. We discover nothing in this to estop plaintiff from pursuing this remedy. The stock upon the books of the company stood in his name; he through his attorney had tendered it back to Mr. loor. By executing this proxy Mr. loor Was permitted to vote this stock as he desired. A dividend partly in stock and partly in cash was paid after the suit was brought. Plaintiff’s counsel offered that this might be offset against plaintiff’s claim. There is no evidence in the case that any of the acts of plaintiff led defendants to take any steps or do any act in reliance thereon. Mr. Edward lived at Sault Ste. Marie, and the defendants were in Grand Rapids. It is quite doubtful upon this record if plaintiff personally fully understood the workings of these corporations until he came to Grand Rapids for the trial. He testified that he supposed that the transaetions were all legal, that they were legally transacting the business. The letters written him gave no hint otherwise. We discover no estoppel as matter of law.
6. As we have already stated, this case is brought to recover upon the rescission of a contract, made, so far as defendants are concerned, in violation of the terms of a penal statute. It is. in no way analogous to a proceeding instituted by a stockholder for mismanagement of company affairs, which should be in equity. Plaintiff has sought the proper forum.
When the representative of plaintiff’s .counsel tendered back the stock of the Arizona Piano Company he demanded the amount of money invested in the original stocks. This plaintiff was not entitled to. Plaintiff was entitled to what he had paid on the void contract, which payment was made in stock. He was *627therefore entitled to the return of the stocks. But the contract was void and no demand under the circumstances necessary. Defendant loor by the language attributed to him plainly indicated that his refusal to accept the tendered stock was in no way based on the form of the demand. Had defendants returned to plaintiff the stocks he was entitled to, his claim would have been satisfied and extinguished; not having done so he is entitled to their value.
The defendants appeared by separate counsel and upon the argument it was strenuously urged that there was no liability as to some of them. But the record .discloses they were engaged in a common enterprise, in consummating a transaction in face of, and contrary to, the terms of a penal statute. Under such • circumstances we cannot' say as matter of law that any of them should be exonerated from liability.
For the reasons stated the judgment is reversed and a new trial ordered. Plaintiff will recover his costs in this court.
Bird, C. J., and Ostrander, Moore, Steere, Brooke, Stone, and Kuhn, JJ., concurred.