Court Opinion

ID: 3986616
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:42:45.524976+00
Date Added: 2024-06-11T14:18:19.367595
License: Public Domain

I am unable to concur either in the views expressed in the prevailing opinion or in the results therein reached. Hence this dissent.
As stated in the prevailing opinion, the demurrers of the defendants to the complaint were sustained. The plaintiff having elected to stand on his complaint, the case was dismissed. Plaintiff appeals. The issues on this appeal are therefore determined by the sufficiency of the allegations of the complaint.
It is assumed by the plaintiff, and also by the prevailing opinion that it is alleged in the complaint that the defendants were making gifts of the capital stock of the Rio Tinto Copper Company to such members of the public as would accept the same. In my opinion, the allegation of the complaint does not justify such conclusion. The complaint merely asserts that the copper company
"was desirous of giving some of its shares of stock to such members of the public as would receive it upon the understanding that the Rio Tinto Copper Company, would for the purpose of carrying on development of said property levy one two-cent assessment, and three one-cent assessments, or as many of these as might be necessary to finance the development of its mining property and with the understanding that the persons receiving said stock were not obliged to pay such assessments or any of them."
Nowhere is there any allegation of any intention to make a gift, nor is there any allegation from which such intention *Page 60 
may be inferred; nor is there any allegation from which it may be inferred that any kind of delivery of the stock would be made prior to the payment of the assessments to be levied. It is inconceivable to assume that the stock certificates would be executed and issued promiscuously to any and every person who might be on plaintiff's mailing list, or to whom a certificate could be sent by the simple process of depositing the same in the mails. The fair inference is that, if stock certificates were issued at all, they were only issued to those particular persons who would accept the same, knowing that they would have to pay as much as five cents per share if they were to keep the stock. Even such an arrangement could in no sense be distorted into a gift, granting a sufficient delivery, as there would still be lacking the necessary intention by the copper company to make a gift.
"A clear and unmistakable intention on the part of the donor to make a gift of his property is an essential requisite of a gift inter vivos. And this intention must be inconsistent with any other theory." 28 C.J. 627, § 19.
The only word in the complaint which might characterize the transaction as a gift is the word "giving." This word has no fixed and definite meaning, so that the mere use of it would necessarily make a sufficient allegation of the ultimate fact of a gift. While the primary meaning of the word "give" is to bestow a gratuity, yet it also has a secondary meaning, widely and frequently employed in ordinary business and other transactions. In Smith v. Burnet, 35 N.J. Eq. 314, at page 324, the court says:
"The question arises whether it appears that such possession was delivered with an intention to confer upon him dominion over the stock as the absolute owner thereof. Proof of such an intent is absolutely essential to support the gift. * * * The word `give' is often used with other meaning than as evincing an intent to confer the title in the thing delivered."
In Johnston v. Griest, 85 Ind. 503, the plaintiff sued upon a writing which read: *Page 61 
"This will certify that I do give to Charles E. Johnston $100, the money to be paid as soon as my financial condition will allow; and if I do not live to pay it, I wish it paid out of my estate."
This was held to be a promise to make a gift and not a promise to pay. The court said:
"The word `give' does not always signify a mere gratuitous act; at all events it is not one of those words which have a fixed and unalterable meaning."
Galloway v. Jenkins, 63 N.C. 147; Spencer v. Potter'sEstate, 85 Vt. 1, 80 A. 821. In Revere Oil Co. v. Bank ofChillicothe (Tex.Civ.App.) 255 S.W. 219, and in SouthernExpress Co. v. State, 1 Ga. App. 700, 58 S.E. 67, the words "giving" and "give" were construed to be synonymous with "delivering" and "deliver" respectively.
In Crews v. Crews (Mo. Sup.) 240 S.W. 149, 151, it was contended that the word "give" in a will permitting the executrix to "give such of my children at such time as she may think proper such of my property as she may think just and right," necessarily implies a gratuity. The court said:
"Such, however, is not the case. Even if the word `give' does generally mean a gift or gratuity, it depends entirely upon the circumstances and the context as to whether that meaning should be attached to it. The word is used to mean `deliver,' `supply,' `grant,' `furnish,' `pay,' `convey.' * * * We have been unable to find any case where it is held that the term necessarily implies a gratuity or a gift without consideration. On the other hand, there are cases where it is held that it does not necessarily imply want of consideration. * * * The word must be considered in the light of circumstances."
As a further aid to the proper construction of the complaint, the provisions of our Constitution and statutes relative to the issuance of corporate stock should be considered. Article 12, § 5, of our Constitution provides:
"Corporations shall not issue stock, except to bona fide subscribers thereof or their assignee. * * * All fictitious increase of stock or indebtedness shall be void." *Page 62 
The clear purpose of this provision is to prevent the issuance of "watered stock" and to assure that no corporate stock will be issued without receiving something of value therefor. The import of plaintiff's complaint and his contentions before this court are that the persons receiving the copper company's stock were in no sense subscribers thereto. Indeed, a donee of stock from the corporation could not be a bona fide subscriber therefor. In the case of Frame v. Mahoney, 21 Ariz. 282, 187 P. 584, 586, the Arizona Supreme Court construed a provision of the Arizona Constitution identical with ours. It said:
"A bona fide subscriber is one who actually turns over to the corporation something of value in lieu of the stock issued to him."
In a later case, Overlock v. Jerome-Portland Copper Min.Co., 29 Ariz. 560, 243 P. 400, 401, the same court, after quoting the same constitutional provision, says:
"A proper construction of the language quoted doubtless would be that the stock in the hands of Frame should be annuled, since he paid nothing for it and was not a bona fide subscriber. * * * The evident purpose of the clause, which says, `No corporation shall issue stock, except to bona fide subscribers therefor or their assignees,' was to prevent the issuance of stock except to parties who paid for it at its face value, and was intended more for the protection of creditors of the corporation than otherwise. This same provision is found in the Constitutions of Washington and Utah, and if we rightly understand their courts, that is their view. Gordon v. Cummings, 78 Wash. 515,139 P. 489; Rolapp v. Ogden, etc., R. Co., 37 Utah 540, 110 P. 364."
The Constitution of the state of Washington also contains a provision identical with our provision above quoted. In the case of Gordon v. Cummings, 78 Wn., 515, 139 P. 489, 494, the court of that state held that the
"holders of unpaid stock cannot defeat an action for the balance due by claiming that they hold such stock as a mere gratuity."
The court further says:
"Indeed it seems to us that the framers of the constitution of this state anticipated, and intended to prevent, just such frauds on the law *Page 63 
as was here attempted. `Corporations shall not issue stock, except to bona fide subscribers therefor, or their assignees.' Article 12, § 6. If this means anything, it is that one who takes the stock of a corporation is liable for its value and that a subscription that is not made in good faith is no subscription. * * *
"Within the limit of the authorized capital stock, no person can hold a share of the stock, by whatever name it may be called, without meeting the responsibilities and the liabilities that the law attaches to such holding. To hold otherwise would defeat the very purpose of the law; for it would then be possible, by adopting the very plan that was adopted in this case, to make all but a nominal number of the shares of the capital stock unresponsive to the liability put upon it by law."
This court in the case of Rolapp v. Ogden  N.W.R. Co.,37 Utah 540, 110 P. 364, has indicated a construction of our constitutional provision and the statutes of the state in harmony with the foregoing principles. After quoting said provision and referring to those sections of our statutes which are now sections 18-2-6, 18-2-7, and 18-2-13, Rev. St. Utah 1933, Mr. Justice Frick says:
"If we keep in mind all of our own constitutional and statutory provisions, we think it is manifest that it was the intention both of the people who adopted the Constitution and the Legislature who passed the foregoing sections that the capital stock of corporations excepting those created for mining and irrigation, shall represent full actual value either in money or property, and further, that the subscribers for stock shall pay 100 cents on the dollar, or its equivalent, for the stock subscribed for by them, and until so paid that they are liable to creditors of the corporation in a proper proceeding for any balance remaining unpaid on their subscriptions. No doubt when stock is once `full paid,' whether in money, property, or labor, it may be bought and sold at any price, but commercial or business corporations in this state may not issue stock to their subscribers for less than the face value thereof, which must be paid for, either in money or property."
Fletcher, in Cyclopedia of Corporations, vol. 11, § 5202, says:
"For a corporation to issue its stock as a gratuity violates the rights of existing stockholders who do not consent, and is a fraud upon subsequent subscribers, and upon subsequent creditors who deal with it on the faith of its capital stock." *Page 64 
It is clear that the issuance and delivery of its corporate stock by a corporation gratuitously and without any consideration violates the constitutional and statutory provisions of this state. Under plaintiff's theory, all of the copper company's capital stock could have been given away, development work done, and debts incurred with no one liable or responsible for the obligations thus incurred. Such a proceeding would be, in my opinion, directly contrary to the law of this state. It is not necessary for us to determine, in this case, however, what the legal effect of such violation would be as between the holders of stock and others. It is sufficient to note that plaintiff's theory is based entirely upon such a violation on the part of the copper company, and he is asking us to give his complaint that effect. It is elementary that an agreement will not be construed as involving the performance of something forbidden by law when it is open to a construction that does not involve such violation. As I have already stated, the complaint here in question does not allege a gift by appropriate and sufficient allegations as to either of the essential elements of intention or delivery, and it is not within our province to make any inferences that would lead to a result which the law prohibits. We must assume, therefore, that the defendants were disposing, or attempting to dispose, of the stock of the copper company for value. Consequently, it is my opinion that the word "giving" must be construed, not as indicating a gratuity, but as synonymous with "delivering."
In view of the foregoing conclusions, it becomes necessary to consider the word "assessment" as used in the complaint. The transactions involved in the complaint occurred in 1931 and 1932, before the enactment of the Revised Statutes of 1933. The plaintiff and the prevailing opinion assume that this word, as used in the complaint, necessarily refers to assessments levied on full paid stock. However, that is not the case. The provisions of sections 900, 901, 902, and 905, Comp. Laws Utah 1917, as amended in the 1921 Session *Page 65 
Laws, c. 22 p. 71, and sections 903, 904, and 919, Comp. Laws Utah 1917, were then in effect. The word "assessment" is there used to denote a "call" upon subscribed and unpaid stock as well as an assessment on full paid stock, and the same procedure is provided for the collection of both kinds of "assessments." In either case the stock may be sold to pay the assessment. Stock thus sold passes to the purchaser or the corporation, as the case may be. As to an "assessment" on unpaid stock, at least, under section 919, the company can waive the sale and sue to collect the delinquent "assessment." The corporation has the option to sell the stock or proceed by suit to collect on the promise to pay. Having such option, it could agree with a subscriber that it would look exclusively to the sale, and no express or implied promise to pay the "assessments" need be made. 14 C.J. 537, § 803. A sale and forfeiture of the stock would preclude any action against the subscriber under such conditions. 14 C.J. 650, § 989. Rev. St. 1933, 18-4-1 et seq., makes the distinction between "calls" and "assessments" and uses the words in their respective meanings. It will also be noted that section 919 is omitted entirely, and that on a sale of stock for a "call" the purchaser becomes liable for the subsequent and unpaid "calls."
Since the word "assessment" has a dual meaning, as indicated and since admittedly no consideration for the stock was to be given at the time plaintiff's customers should indicate their willingness to accept it, or even after it was delivered, if delivered before the assessments were levied, and since no gift of title to the stock can be inferred from the allegations of the complaint, it necessarily follows that the "assessments" contemplated were in effect "calls," which the copper company was authorized to make and which the holders of the stock must pay to obtain and keep title thereto. This conclusion is borne out by an analysis of the complaint. The "assessments" are limited to four in number, and each is for a particular amount. As to creditors, at least, the company could not agree in advance that *Page 66 
upon the issue of fully paid but assessable stock it would or could levy only certain specified assessments. Especially would this be true where such agreement was made with only certain persons who acquired the assessable stock. It is not to be inferred from the complaint that the only persons who acquired the assessable stock of the copper company were those who had this understanding concerning these four assessments. There is nothing in the complaint that would warrant the conclusion that the copper company was disposing of its assessable stock only through the method by which plaintiff operated. It is not shown that his assistance or employment was exclusive and that the assessable stock was not to be disposed of by other means. In my opinion, however, it must be inferred that the four stipulated assessments were to be levied only on the stock issued or to be issued according to said understanding under which plaintiff operated. The only legitimate construction that can be placed upon the arrangement thus pleaded, therefore, is that upon the payment of these "assessments" or "calls" the stock would be deemed fully paid for.
From what has been said it is clear that the disposition of the copper company's stock, as alleged, would be a sale for value within the definition of that term as stated in chapter 89, Laws of Utah 1925, as amended by chapter 79, Laws of Utah 1929, commonly called the Blue Sky Law. Certainly such disposition was an attempt to dispose of a security for value. It may be conceded that a gift of stock does not come within the purview of the Blue Sky Law. But, as herein shown, to call the arrangement described in the complaint a bestowing of gratuitous issues of stock, is begging the question and fails to distinguish between form and substance. If this court gives legal sanction to such a plain and palpable attempt to evade the intent and purpose of our constitutional and statutory provisions, then indeed will the doors be wide open to every one who may resort to the specious expedient of making "gifts" of stock. The law would be nullified; the legislative regulations intended to *Page 67 
protect the public would be inoperative; and additional impetus would be given to the ever present tendency to invent means to circumvent such regulations.
It must be conceded that the stock here involved is not exempt from the provisions of the Blue Sky Law. Before it could be sold, as defined by the law, it must have been registered with the State Securities Commission. There are no allegations in the complaint showing that the stock disposed of was so registered.
It does not appear from the complaint that the plaintiff was a dealer as defined by chapter 79, Laws of Utah 1929. But it is alleged that plaintiff was to "assist the said Rio Tinto Copper Company in placing its treasury stock with his clients residing outside of Utah" upon the basis heretofore explained; that, as a result of plaintiff's efforts, approximately 145,000 shares of stock were accepted by his customers. Under such allegations he would come clearly within the definition of "agent"; it being established that the transactions thus involved constituted "sales" within the statutory definition. Under section 10x, c. 79, Laws Utah 1929,
"no person shall engage in business in this State as such agent to sell any securities of an issuer as set forth in this Act unless he has paid a fee of five dollars ($5.00) and has been registered as an agent in the office of the commission pursuant to the provisions of this chapter. Every agent before selling, offering to sell or advertising the sale of any security of an issuer under the provisions of this Act shall file in the office of the commission an application for registration in writing," etc.
Section 27 of chapter 87, Laws of Utah 1925, makes it a felony for an unregistered dealer, salesman, or agent to sell, or offer for sale, or negotiate for the sale of, unregistered securities.
Plaintiff is suing for the compensation he claims he earned in assisting in the disposition of the copper company's stock. He does not allege that he was registered as required by the provisions above quoted. In my opinion, *Page 68 
having failed to allege that the stock which plaintiff assisted in disposing of was not registered, and having failed to allege that he himself was registered, plaintiff has failed to state a cause of action.
The Blue Sky Law was enacted for the protection of the public. It specifically provides that corporate securities must be registered before being sold or offered for sale, and every dealer, salesman, or agent must be registered before selling or offering to sell such securities. Selling unregistered securities by an unregistered person is made a felony. Even though the statute does not expressly so provide, it must follow that any contract which plaintiff may have had with defendants made in violation of such provisions is utterly void. Neil v. UtahWholesale Grocery Co., 61 Utah 22, 210 P. 201; Levinson v.Boas, 150 Cal. 185, 88 P. 825, 12 L.R.A. (N.S.) 575, 11 Ann. Cas. 661; Payne v. De Vaughn, 77 Cal. App. 399, 246 P. 1069;McKinlay v. Javan Mines Co., 42 Idaho 770, 248 P. 473;McManus v. Fulton, 85 Mont. 170, 278 P. 126, 130, 67 A.L.R. 690; Zerr v. Lawlor (Tex.Civ.App.) 300 S.W. 112;Brandenburg v. Miley Petroleum Exploration Co. (D.C.)16 F.2d 933. To permit plaintiff to recover in this case would be to give legal sanction to, and enforce, an illegal contract. This the courts will not do. They will not aid either party to such a contract. Though it may be said that it illy becomes a defendant to take advantage of such illegality, yet such defense is allowed, and the courts, even sua sponte, will take cognizance thereof, not for the benefit of either party, but for the public good and for the maintenance of their own dignity and the laws of the state. As stated by the Supreme Court of the United States in the case of McMullen v. Hoffman, 174 U.S. 639, 19 S. Ct. 839,851, 43 L. Ed. 1117:
"To refuse to grant either party to an illegal contract judicial aid for the enforcement of his alleged rights under it tends strongly towards reducing the number of such transactions to a minimum. The more plainly parties understand that when they entered into contracts of this nature they place themselves outside the protection of *Page 69 
the law, so far as that protection consists in aiding them to enforce such contracts, the less inclined will they be to enter into them. In that way the public secures the benefit of a rigid adherence to the law."
Because section 18, c. 79, p. 140, Laws of Utah 1929, amends the original act and makes a sale in violation of the act voidable at the election of the purchaser, can be of no assistance to plaintiff in this case. His rights do not depend upon whether the purchaser may or may not make such election. As stated in McManus v. Fulton, supra:
"The provisions that the sale shall be void at the election of the purchaser does not in any wise detract from the criminal character of the prohibited act on part of the seller. * * * Under the law a contract between the seller and the purchaser was voidable at the option of the purchaser; but that has no relation whatever to a contract between the issuer and the agent, solicitor, or broker, or between the agents of the issuer; such, in the absence of a compliance with the Act, is wholly void."
Plaintiff seeks to avoid the effect of the foregoing principles by arguing that the sales of stock took place outside the state of Utah and were made in interstate commerce, and therefore were not subject to our Blue Sky Law. As to the first contention, it is utterly impossible to conclude from the allegations of the complaint that the sales were actually made outside the state of Utah. All that appears is that plaintiff's customers resided outside this state and that his correspondence went beyond its boundaries. Plaintiff simply advised his customers and assisted in the sales. The inference is that, after being advised by plaintiff to accept the stock, his correspondents made some kind of communication with the copper company, indicating a desire to accept a certain amount of its stock. The company's office was here. It would here determine whether to accept such application, so that the last act necessary to complete the contract would necessarily occur here. This would make it a Utah contract. United States Bond  FinanceCorporation *Page 70 
v. National Bldg.  Loan Ass'n, 80 Utah 62, 12 P.2d 758,17 P.2d 238.
Such a transaction would not necessarily be one in interstate commerce. Plaintiff's solicitations and advisory letters formed no part of the sale contract. They were simply the procuring cause which induced the making of the contract and the consequent sale. For plaintiff to avoid the effect of the laws of this state under the theory that what he did and what was done between his customers and the copper company involved interstate commerce, it was his duty to allege sufficient facts to bring himself within the principles thus sought to be invoked. There are no such allegations in the complaint now before us, even assuming that corporate stock is an article subject to interstate commerce, a question not herein decided. There are no allegations as to when or where delivery of the stock was made or that the sales necessarily involved the use of interstate commerce to complete the same. It is therefore not necessary to discuss further this phase of the case. It is my opinion that the trial court committed no error in sustaining defendants' demurrer to plaintiff's complaint and in dismissing such complaint upon plaintiff's failure to further plead. The judgment of the trial court, therefore, should be sustained.