Court Opinion

ID: 3500222
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:07:19.427114+00
Date Added: 2024-06-11T14:05:18.701409
License: Public Domain

Plaintiff sued defendants G.H. Rutt, Andrew A. Scott, C.E. Rutt, and C. Sophus Johnson, in assumpsit on three promissory notes of $2,500 each, dated September 1, 1928, due in 90 days after date, with interest at 7% per annum. Two of such notes were payable to plaintiff; one was payable to K.L. Ashbacker; all of them were signed *Page 390 
by G.H. Rutt as maker. One of the notes given to plaintiff as payee was indorsed on the back by Andrew A. Scott, C.E. Rutt, and C. Sophus Johnson. The other was indorsed by K.L. Ashbacker in addition to the other indorsers. The note payable to Ashbacker was indorsed by Scott, C.E. Rutt, and Johnson and without recourse by Ashbacker and H.M. Hallett. The notes were not paid when due, and, upon suit being instituted thereon, defendants Scott and Johnson appeared, pleaded the general issue, and gave notice that, as to them, the notes were void because they were accommodation indorsers without consideration, and known to be such by plaintiff, who was estopped from claiming otherwise; that the indorsements, as to them, were procured by fraud and conspiracy, without consideration, in violation of the so-called blue sky law of Michigan (2 Comp. Laws 1929, § 9769 et seq.). There was judgment for plaintiff and defendants bring error. They claim that even though plaintiff's claim be taken as true, the notes were given in payment of stock purchased by defendants from Rutt who was a broker for plaintiff, the transaction was void under the blue sky law, the stock for which the notes were given not having been approved by the Michigan securities commission. It is conceded there was no approval of the stock for which plaintiff claims the notes were given by the Michigan securities commission. When the corporation, the sale of whose stock is involved, was organized, 375 shares of its stock were taken in the name of Mr. G.H. Rutt, with the understanding that when the stock was sold the proceeds derived from the sale thereof were to go into the corporate treasury to finance the corporation. In Barth v. Klicpera, 248 Mich. 460, it is said: *Page 391 
"There was no approval of the stock by the securities commission, and there were repeated sales of stock made by defendant Klicpera for the purpose of financing the corporation. It is manifest that the stock was in the name of Mr. Klicpera to enable him to dispose thereof as he found opportunity, and employ the avails in financing the corporation. The sale to plaintiff was in violation of the statute. Sales made in violation of the statute are voidable at the election of the purchaser, and, if voided and tender back is made, the amount paid for the stock may be recovered. The statute penalizes violations of its provisions, and awards a specific civil remedy for recovering the money paid, and such remedy is exclusive. At the election of the purchaser the statute makes it the duty of the seller to repay what he has received and grants an action for the recovery of the money or other consideration had and received. It is optional with the purchaser to retain the stock, or tender it back and be entitled to recover what has been paid. The right to rescind the purchase is statutory, and involves no issue of fraud, actual or constructive."
Under the undisputed facts, the stock, not having been approved by the Michigan securities commission, was illegally issued, its delivery to defendants constituted no consideration for the indorsement of the notes in question, and appellants have a right to a discharge of liability on their indorsements, having tendered back to plaintiff the stock which was turned over to them for that purpose by defendant G.H. Rutt. As this disposes of the case, it is unnecessary to consider the other assignments of error. Judgment reversed, and judgment of no cause of action entered under Rule No. 79 for appellants, with costs.
BUTZEL, C.J., and WIEST, CLARK, McDONALD, SHARPE, NORTH, and FEAD, JJ., concurred. *Page 392