Court Opinion

ID: 8302359
Source: CourtListenerOpinion
Date Created: 2022-10-17 11:14:25.770826+00
Date Added: 2024-06-11T10:04:34.127189
License: Public Domain

ON Petition to Reheae.
A petition to rehear is presented which challenges the *111correctness of the conclusions announced in the opinion of this court, handed down on the 5th day of July, with respect to both of the determinative issues involved largely upon the theory (1) that Goodyear v. Meux, 143 Tenn., 287, 228 S. W., 57 and Dixie Rubber Co. v. McBee, 148 Tenn., 168, 253 S. W., 353, are controlling and have not been followed: and (2) that the disposition of the cause was too speedy to admit of full consideration of the record. The failure of the court to deal specifically with the various formal assignments is also made the subject of comment.
Counsel are in error in assuming that prompt disposition of a case, or failure to treat specifically in our written memorandum the assignments as stated and grouped by counsel, properly understood, indicates lack of attention by the court to the briefs and arguments of counsel, or to the record as a whole. Varying circumstances control the order and time of disposition, unnecessary to detail; and it is the constant effort of the court to find and focus the determinative issues and to condense our discussion into the briefest space consistent with reasonable clearness. However, it is apparent that in the instant case further comment is necessary in order to convey to counsel the views of the court, and particularly to make clear, if possible, the scope and applicability of chapter 31, Acts of 1913, known as the Blue Sky Law.
It is insisted for petitioner: First, that the defendant banks and Lafferty bought these notes from a noncomplying corporation; and this proposition of fact is conceded. Second, that these defendants bought with knowledge that these notes had been acquired by the corporation in exchange for its stock while noncomplying (with *112tie Bine Sky Law) and therefore unlawfully. We have not been able to agree that the record sustains this insistence as to the defendant hanks, or satisfactorily as to Lafferty, but we have given in our original opinion reasons which seem to us to be controlling wljy the complainant may nevertheless not recover against Lafferty. Third, that as a matter of law all transactions of a noncomplying corporation are unlawful. And, fourth, that its transactions are therefore so fatally tainted as to render negotiable paper issued, or transferred by its indorsement, noncollectible in the hands even of holders in due course.
The latter two legal propositions are esteemed by us to be determinative of the case for petitioner, and were so treated and were attempted to be clearly disposed of heretofore. They appear to be so recognized in the petition to rehear.
Neither Goodyear v. Meux nor Dixie Rubber Co. v. McBee, which it is insisted were disregarded in our opinion, are in conflict with the conclusions heretofore announced in this case. Both were suits between the original parties to stock purchases from noncomplying corporations, which were doing the business defined by the act as constituting them investment companies, and no question of bona-fide holding of negotiable paper was involved. Holding that the stock sale in Dixie Rubber Company, supra, was in violation of this law,'Mr. Justice Smith said, “And no action could be predicated by the investment company on the note executed for stock thus sold;” that “the complainant cannot recover on the note.” Italics are used by us to emphasize the distinction. It is true that in the course of this opinion it is *113said that a noncomplying corporation “cannot transact business in the State”;'and again, in responding to a petition to rehear in the same case (262 S. W., 32), the court uses a like expression, but an examination of the context clearly shows that it was the transaction of the character of business defined and prohibited by the act of 1913 which was referred to, and not the general business of the corporation, or its transactions wholly unrelated to the selling of stocks and other securities described in section 1 of the act.
So, in Goodyear v. Meux, supra, it was found that the transaction was a sale of stock by a. corporation engaged in this business, prohibited unless compliance had been had with this statute, and therein properly held that no recovery could be had by the corporation on obligations growing out of a transaction under these conditions. While in the course of the opinion by Mr. Justice G-keen it is said that “it is provided that this statute shall be complied with before any attempt to sell stock, or do any other business in the State is made,” this expression must be construed in its connection and limited in its application to the nature of business under discussion. This is made clear by a following express declaration, evidently intended to avoid the very misapprehension into which counsel for petitioner have fallen, when the court says, “It was not intended to regulate the ordinary business of corporations,’domestic or foreign, within the State.” This distinction has been since emphasized in our unpublished opinion in S. S. McConnell, Receiver v. Cy H. Lyle et al., 263 S. W., —, decided at the present term, to which counsel for petitioner refer. Therein it was said that a failure to comply with this statute did not make *114the corporation an “outlaw,” and render it incapable of doing business generally, or make unlawful its ordinary business transactions. And to the same effect is Reed v. Appleby (Tenn.), 262 S. W., 36.
In our original opinion reference was made to section 6 of. the act, which is the section declaring a violation of the act unlawful, wherein it appears that this provision is expressly limited to transactions in form or character similar to those set forth in section 1 of the act; and by reference to this section it is to be seen that these transactions are of certain classes only. Omitting nonpertinent recitals, and bracketing exceptions made, section 1 reads as follows:
“That every corporation . . . which shall sell or negotiate for the sale of any stocks, bonds, or other securities of any kind or character or any lands or town lots in any quantity situated outside of this State [other than bonds of the United States, the State of Tennessee, or of some municipality of the State of Tennessee, and notes secured by mortgages on real estate located in the State of Tennessee] to any person,” etc.
It may be observed parenthetically that the particular form of notes which are the subject of the instant litigation, being real estate vendor lien notes, are perhaps embraced within the exception described above as “notes secured by mortgage on real estate located in the State of Tennessee,” looking to the evident intent of this exception rather than the technical language employed. Anderson’s Law Dictionary defines “Equitable Mortgage” as “the lien of a vendor of realty for unpaid purchase money.” But the disposition of the instant case does not require a decision of this question.
*115It is true, as stated by petitioner, that in Goodyear v. Meux, supra, it was held that tlie statute was passed for “the protection of investors.” And so it was — for the protection of investors in the securities issued by a corporation engaged in the business of marketing its securities. This was the purpose and the whole purpose of the legislation, and we hold it to he so limited. It has no application to transactions or business of the corporation independent of and unrelated to the sale to investors of its securities.
It follows that petitioner is in error in his insistence, very earnestly made, that these defendants “dealt directly with a corporation that under the laws of the State of Tennessee had no right to transact any character of business in the State of Tennessee, except that of filing their charter and other papers required to be filed under the Blue Sky Law.
So it is that, in the instant case, while its stock-selling transactions were unlawful, the corporate existence, general powers, and ordinary business of the company were not affected by the failure to comply. Now the particular pertinency of this distinction in the instant casé consists in this: A buyer of paper, executed or indorsed by the corporation, without notice on its face or otherwise that it grew out of the character of business defined in the act, is not legally charged with notice of this illegality in its inception. The corporation being authorized, generally to do business, no presumption arises that the transaction is one growing out of unlawful business, or that the corporation is engaged in that business defined and prohibited if done without having complied with the act. The buyer may therefore became a holder in due *116course and be protected as such under the provisions of our negotiable instrument act, and of the authorities cited in our original opinion. As above indicated, we have found the defendant banks to occupy this position.
Petitioner further insists that the rule announced in Snoddy v. Bank, 88 Tenn., 573, 13 S. W., 127, 7 L. R. A., 705, 17 Am. St. Rep., 918, should apply. We have distinguished this case, decided before the passage of our Negotiable Instruments Act of 1899, in our original opinion, and have cited and quoted from authorities which we approve and apply. As said therein, the principle approved in Edwards v. Fruit Products Co., 133 Tenn,, 142, 180 S. W., 163, governs here. While that was a case of a noncomplying foreign corporation, in the matter of filing its charter in Tennessee, the reason of the rule adopted applies with at least equal force to a case of a corporation not complying' with the Blue Sky Law. In neither case does the statute expressly, or by necessary implication, declare the obligation of the corporation void, as was true of the statute passed upon in Snoddy v. Bank, supra. This is the essential distinction.
It results that the petition must be dismissed.