298 Mass. 285 | Mass. | 1937
These two actions of contract, brought by writs dated August 13, 1934, were tried together by a judge of the Superior Court sitting without a jury. The plaintiff in the, first case is the commissioner of banks in possession of the Lowell Trust Company (herein referred to as the trust company). The plaintiff in the other case is Mary B. Brandegee. The defendant in each case is the Chase Securities Corporation, a corporation organized under the laws of the State of New York (herein referred to as the corporation). Each action is brought to recover the purchase price of stock in the defendant corporation (together with stock of the Chase National Bank) purchased from said corporation by the trust company in the. first action and the plaintiff in the second action and is based on the ground that the sale of such stock was in violation of the sale of securities act. Each declaration is in two counts: the first, a count alleging the sale of such stock in violation of the statute; the second, a count for money had and received. In each case the defendant pleaded a general denial and ratification. The trial judge filed “Findings” in which he found generally for the plaintiffs, made rulings of law and specific findings of fact, and granted and denied requests for rulings made by the plaintiffs and by the defendant. The cases come before us on the defendant’s exceptions to the exclusion of evidence, to the granting of the plaintiffs’ requests for rulings, to the refusal to grant requests for rulings made by it, “to the rulings of law made in . . . [the] decision and to the findings of fact therein contained so far as they are not supported by the testimony and exhibits in the cases,” and to the denial of the defendant’s motions to reopen the cases for the introduction of further evidence; and on the plaintiffs’ exceptions to the exclusion of evidence and the denial of their requests for rulings. The plaintiffs’ exceptions are waived if the exceptions of the defendant are overruled.
The defendant’s bill of exceptions contains the “Findings” of the judge and all the evidence material to the exceptions. Most of the evidence is in effect summarized in the subsidiary findings of the judge and need not be
. The transactions relied on by the plaintiffs as sales of securities took place in 1929 and 1930. In 1929 the trust company paid to the defendant, at its office in Boston, the sum of $23,350 and thereafter-received four receipts of the Bankers Trust Company issued in its name, each representing twenty-five shares of the stock of the Chase National Bank (herein referred to as the bank) and twenty-five shares of the stock of. the defendant. In 1930 the plaintiff Brandegee paid to the defendant at its office in Boston the sum of $30,175 and thereafter received three “‘duplex’ certificates,” each for one hundred shares of the bank and one hundred shares of the defendant. The documents and transactions are hereinafter more fully described. The statute in force at the time of the transactions was St. 1921, c. 499, § 1, which added to the General Laws a new chapter — c. 110A — and became effective August 26, 1921, with amendments thereto made prior to the time of these transactions. The statute as so amended is embodied in G. L. (Ter. Ed.) c. 110A, and is referred to herein as the sale of securities act. By St. 1932, c. 290, the General Laws were amended by striking out c. 110A and inserting a new chapter in place thereof. It is not contended in these cases that the liabilities of the defendant are affected by this amendment. See, however, McGray v. Hornblower, post, 334. G. L. (Ter. Ed.) c. 110A prohibits the sale of certain securities unless statements, as therein described, have been filed with the commission of public utilities. Significant portions of this chapter are set out in a footnote.
The general and special findings in each case are to stand if warranted upon any possible view of the evidence and not vitiated by error of law. And the general finding imports findings of fact, so far as warranted by the evidence, not inconsistent with the special findings. Moss v. Old Colony Trust Co. 246 Mass. 139, 143. Assessors of Boston v. Garland School of Home Making, 296 Mass. 378, 384.
It is settled by our decisions that — subject to limita
First. The finding in each case — express or implied — that there was a violation of the sale of securities act was not vitiated by error of law.
There was evidence that on March 21, 1917, the bank was capitalized at $10,000,000, consisting of one hundred thousand shares of the par value of $100 each. Findings of the judge bearing on the original transactions and the subject matter thereof — as to which there is no controversy
“Prior to the organization of the Corporation, an agreement . . . [herein referred to as the deposit agreement] dated March 21, 1917, had been entered into between all the stockholders of the Bank, a Committee of such stockholders and the Bankers Trust Company of New York. . . . Pursuant to the terms of this agreement, all of the certificates of the outstanding stock of the Bank had been deposited with the Committee. The Bank paid a special dividend of $25 a share to the stockholders of the Bank, which was received by the Committee. With the $2,500,000 so received, the Committee paid the Corporation for the 100,000 shares of its stock then to be issued. The Committee, under authority from the depositing stockholders, caused certificates of the Corporation to be issued in the respective names and in the respective numbers of shares owned by the depositing stockholders of the Bank and caused said certificates to be deposited with the Bankers Trust Company along with said shares of the Bank which had been deposited with the Committee and were held by said [Bankers] Trust Company as depositary for the Committee. As occasion called for the transfer of such shares from the names in which they stood when so deposited, new certificates were issued. These new certificates are printed on the same sheet, on one half a certificate for shares of the stock of the Bank and on the other half a certificate for shares of the stock of the Corporation. . . . On the reverse side of the sheet, opposite the respective certificates, are the usual printed forms for the transfer thereof. The Bankers Trust [Company] issued to the depositing stockholders of the Bank receipts for stock of the Bank and of the Corporation, pursuant to the terms of the agreement of March 21, 1917. . . . Such receipts provide expressly— ‘Neither said shares of the Bank nor said shares of the Securities Corporation are transferable separately, but this receipt and all rights and interests
“Bankers Trust [Company] receipts were . . . delivered to the stockholders of the Bank according to the number of shares owned and deposited by each. Thereafter as the capital stock of the Bank was increased from time to time, a like number of shares was authorized and issued by the Corporation. Certificates for the new shares of the Bank and Corporation respectively were deposited with the Bankers Trust [Company], and receipts therefor issued to the persons entitled thereto. . . .
“Between 1917 and January 1930 certificates of shares of the Bank and of the Corporation issued in the names of the persons designated in the outstanding Bankers Trust [Company] receipts were at all times in the custody of the Bankers Trust [Company] in New York. When such an outstanding receipt was transferred and surrendered by the transferee to the Bankers Trust [Company], the certifi
"By an agreement dated January 15, 1930, between the Bankers Trust Company and the holders of its said receipts . . . for the purpose of eliminating the expense incident to the use of such receipts, provision was made for the withdrawal of said receipts and the substitution therefor of new ‘unit’ or ‘duplex’ certificates issued respectively by the Bank and by the Corporation to their stockholders. On the face of each such document there is printed a certificate for shares of the Bank, and on the reverse side a certificate for shares of the Corporation, with one printed transfer form covering the shares of both, each bearing a legend restricting the holder from selling, pledging or otherwise disposing or transferring, ‘any share or interest therein in either corporation without at the same time transferring to or vesting in the same party an equal number of shares, or the same interest therein, in the other.’ . . . Thereafter the Bankers Trust [Company] receipts were retired, and in place thereof each stockholder received a new ‘unit’ or ‘duplex’ certificate for the shares of the Bank and of the Corporation respectively owned by him.”
A. We consider first the case of the trust company.
The findings of the trial judge applicable specifically to this case include the following: “It is uncontroverted that the Lowell Trust Company purchased of the Corporation through its Boston office, on September 10, 1929, 100 shares
The sale of securities act clearly does not apply to a sale of stock of the bank considered independently. G. L. (Ter. Ed.) c. 110A, § 3 (g). The statute was violated, if at all, by the sale of Bankers Trust Company receipts or of stock of the defendant corporation. The defendant contends, on the following grounds, that there was no violation of the statute: (a) No sale of either Bankers Trust Company receipts or stock of the corporation took place in the Commonwealth, (b) A sale of Bankers Trust Company receipts was exempt by § 3 (g) from the application of the statute, (c) A sale either of Bankers Trust Company receipts or of stock of the corporation, in the circumstances shown, was so related to a sale of stock of the bank that the statute
1. At the threshold of the case lie the questions whether a sale of securities took place in this Commonwealth and, if such a sale took place, what securities were sold. It could be found that a sale of Bankers Trust Company receipts took place here. And the judge ruled correctly that a "sale of Bankers Trust [Company] receipts was . . . a sale of the shares of the Bank, and of the Corporation represented thereby.”
It is not disputed that the original negotiations between the trust company and the defendant, including payment by the trust company to the defendant, took place in this Commonwealth and related solely to stock of the bank but not to any particular shares thereof. There was evidence ■— and apparently it is not disputed — that, notwithstanding the form of the "confirmation,” the relation between the trust company and the defendant was that of buyer and seller (or dealer) rather than that of principal and agent. Compare Gill v. Hornblower, 294 Mass. 26. Clearly the defendant by the transaction came under some liability to the trust company. It is immaterial for present purposes whether the defendant became liable as a debtor to repay the purchase price if the stock was not delivered, or became bound by contract to deliver stock so as to be liable to pay damages for nondelivery or even to be compelled to perform specifically. See Coolidge v. Old Colony
Furthermore, it is not disputed that Bankers Trust Company receipts representing the number of shares of bank stock covered by the previous transaction and a corresponding number of shares of stock of the corporation were delivered to the trust company and accepted by it in this Commonwealth. The defendant argues, however, that if any sale of securities resulted it was made in New York where receipts of a former owner were surrendered to the Bankers Trust Company for transfer, stock of the bank and stock of the corporation were transferred into the name of the trust company and the certificates representing such stock were deposited with the Bankers Trust Company. This contention cannot be sustained.
The original transaction — as could have been found —■ did not contemplate a purchase of Bankers Trust Company receipts, of stock of the bank limited as to transferability as provided in such receipts and the deposit agreement, or of stock of the corporation. Delivery — and, a fortiori, appropriation to the use of the trust company other than by delivery — of any or all of these things would not be performance of the previous agreement and would not discharge the defendant from its liability thereunder (Gardner v. Lane, 12 Allen, 39, Folsom v. Ballou Banking Co. 160 Mass. 561, Newhall v. Enterprise Mining Co. 205 Mass. 585, Shea v. Manhattan Life Ins. Co. 224 Mass. 112, Am. Law Inst. Restatement: Contracts, § 386), though such liability might be discharged by acceptance by the plaintiff of any such things. It could have been found, however, that there was no such acceptance by the trust company until it received the receipts in this Commonwealth. But a finding was warranted that the trust company accepted such receipts in discharge of the defendant’s liability arising out of the previous transaction — that is, that the delivery of the receipts constituted an offer by the defendant to exchange the receipts, and the rights represented thereby, for the discharge of the defendant’s preexisting liability, and that this offer was accepted by the
The acts in the State of New York relied on by the defendant, including the transfer of stock into the name of the trust company and the deposit of the certificates representing such stock with the Bankers Trust Company, when done, were not authorized by the plaintiff. The Bankers Trust Company had not then become, by reason of the trust company’s acceptance of its receipts, the agent of the trust company. Doubtless legal title to stock of the corporation and to stock of the bank would pass in the State of New York by delivery to the trust company in that State of certificates representing such stock issued in the name of the trust company. The corporation was incorporated in the State of New York and by the law of that State title to a certificate and the shares represented thereby would pass by “delivery of the certificate indorsed either in blank or to a specified person.” N. Y. Consol. Laws (1930) c. 42, art. 6, § 162. Disconto-Gesellschafl v. United, States Steel Corp. 267 U. S. 22, 28-29. Hutchison v. Ross, 262 N. Y. 381, 390-391. Am. Law Inst. Restatement: Conflict of Laws, § 53. See also G. L. (Ter. Ed.) c. 155, § 27; Stuart v. Sargent, 283 Mass. 536, 540-541. A similar principle applies to stock of a national bank. Johnston v. Laflin, 103 U. S. 800, 804. In this case, moreover, the transfers apparently were registered on the books of the bank and of the corporation. Prior, however, to delivery of the Bankers Trust Company receipts in this Commonwealth there was no delivery to the trust company or its agent of certificates of stock of the bank or of the corporation. And it could have been found that prior to the delivery of the receipts the trust company acquired no legal or equitable
The Bankers Trust Company receipts were not negotiable instruments. Nor were they certificates of stock subject to the uniform stock transfer act. See G. L. (Ter. Ed.) c. 155, § 26. N. Y. Consol. Laws (1930) c. 42, art. 6, § 183. By the terms of the deposit agreement such receipts were transferable on the books of the Bankers Trust Company. But since the receipts had already been placed in the name of the trust company they were assignable to it by delivery. The transaction here, therefore, was in the nature of an assignment by the defendant to the trust company of the receipts and of the rights represented thereby, and the effect of the assignment as between the trust company and the defendant depended on the law of this Commonwealth. Am. Law Inst. Restatement: Conflict of Laws, §§ 350-352. See Wilde v. Wilde, 209 Mass. 205, 207. The receipts represented interests in the stock of the bank and of the corporation. See Coolidge v. Old Colony Trust Co. 259 Mass. 515, 521. By the assignment of these receipts there was an equitable assignment here of the stock of the bank and of the corporation from the defendant to the trust company (see Mutual Life Ins. Co. v. Allen, 138 Mass. 24, 28; Stuart v. Sargent, 283 Mass. 536, 542; Leyson v. Davis, 170 U. S. 36, 40), whatever the nature of the trust company’s title thereto after the assignment by reason of the fact that the certificates of such
2. The defendant contends that the Bankers Trust Company receipts were securities of a trust company excluded from the application of the sale of securities act by G. L. (Ter. Ed.) c. 110A, § 3 (g), which excludes from such application “Securities issued by, and representing an interest in, or direct contract right against, any national bank or corporation created or existing by virtue of the acts of the congress of the United States; or- by any . . . trust company ... of this commonwealth, or of any other state where the same is fully organized, doing business and is under the supervision of the public official controlling banking in such state.” It is not disputed that the Bankers Trust Company was a “trust company of the State of New York, fully organized, doing business, and under the supervision of the public official controlling banking in said State.” The judge, by granting requests made by the defendant, ruled, in substance, that the receipts were “securities” “issued” by the Bankers Trust Company. The deposit agreement and receipts issued thereunder were in evidence and there was testimony of a member of the New York bar “setting out specifically certain contractual rights of holders of said receipts against the Bankers Trust [Company] arising out of the [deposit] agreement . . . under the laws of New York where that agreement was made.” The judge ruled, however, that “such contractual rights arise merely by implication of law out of the Bankers . . .
The defendant attacks this ruling on the ground that the phrase of G. L. (Ter. Ed.) c. 110A, § 3 (g), “representing an interest in, or direct Contract right against,” does not apply to securities issued by a trust company organized under the law of another State. The clause of the section dealing with trust companies of other States contains no description of the securities to which it applies. Such a description must be read into the clause by implication from the other language of the section. Perhaps a strictly grammatical construction would permit the insertion in the clause, by implication, only of the words “securities issued” between the words “or” and “by.” The language of the section as a whole, however, indicates that the securities of trust companies and other corporations of other States to which the clause was intended to apply are securities of the same nature as the securities of corporations of the United States described in the preceding clause. No reason for a broader exemption of securities of corporations of other States is apparent. We think such a broader exemption cannot rightly be based upon a technicality of grammatical construction (see Greenough v. Phoenix Ins. Co. 206 Mass. 247, 251; Central Trust Co. v. Howard, 275 Mass. 153, 158), and that the receipts issued by the Bankers Trust Company were not exempt from the application of the statute unless they represented “an interest in, or direct contract right against” that trust company.
The defendant contends further that the ruling of the trial judge was wrong for the reason that these receipts represented a “direct contract right against” the Bankers Trust Company. (It is not contended that the receipts represented “an interest in” that trust company.) The Bankers Trust Company is named in the deposit agreement as a party thereto, and the deposit agreement is executed by that trust company, but the express agreements therein contained are all agreements of the stockholders of the bank
This ruling was correct. The general purpose of the statute was to protect purchasers of corporate securities against fraud. Kneeland v. Emerton, 280 Mass. 371, 376, 387-388. Certain securities were excluded from the application of the statute on the assumption that such protection was furnished through methods of supervision other than those prescribed by the statute. See G. L. (Ter. Ed.) c. 110A, § 3 (d), (e), (f), (g). Report of special commission to investigate the sale of corporate securities and related matters. House Document 1921, No. 1175, pages 38, 46. The Legislature, however, was unwilling to make this assumption with reference to all securities, as defined in the statute (G. L. [Ter. Ed.] c. 110A, § 2 [c]), issued by a trust company or similar corporation and limited the exemption to securities so issued “representing an interest in, or direct contract right against” such a corporation. G. L. (Ter. Ed.) c. 110A, § 3 (g). This language must be read in connection with the statutory definition of “security” (G. L. [Ter. Ed.] c. 110A, § 2 [c]) and in the light of the reason for the exemption. Though the fact that an instrument “issued” by a trust company represented “an interest in the capital” of another corporation would bring it within the statutory definition of “security,” this fact would not be sufficient to bring it within the statutory exemption. Such a security very likely might represent incidental contract rights against the trust company issuing it. But some meaning must be attributed to the word “direct” as limiting the words “contract right.” With its context the word “direct” naturally imports that, as a condition of exemption, the security — if it does not represent “an interest in” the trust company — • must represent a “contract right” to enforce against the trust company the primary obligation of the security and not merely incidental contract rights with respect to the management of property represented by the security. We need not determine the
3. Neither the sale of Bankers Trust Company receipts nor that of stock of the corporation, in the circumstances shown — apart from the matter of impairment of obligations of contracts hereinafter considered — was so related to the sale of stock of the bank that the sale of securities act could not apply to the sale of Bankers Trust Company receipts or of stock of the corporation without restricting the transferability of stock of the bank in violation of Federal law.
The general principle defining the respective powers of the United States and of the several States over national banks is stated in First National Bank in St. Louis v. Missouri, 263 U. S. 640, 656, as follows: “National banks are brought into existence under federal legislation, are instrumentalities of the Federal Government and are necessarily subject to the paramount authority of the United States. Nevertheless, national banks are subject to the laws of a State in respect of their affairs' unless such laws interfere with the purposes of their creation, tend to impair or destroy their efficiency as federal agencies or conflict with the paramount law of the United States.” See also McClellan v. Chipman, 164 U. S. 347, 357; Lewis v. Fidelity & Deposit Co. 292 U. S. 559, 566; Jennings v. United States Fidelity & Guaranty Co. 294 U. S. 216, 219. According to the statutes of the United States shares of stock of a national bank are “deemed personal property, and transferable on the books of the association in such manner as may be prescribed in the by-laws or articles of association.” U. S. Rev. Sts. § 5139, as amended; see U. S. C. Title 12, § 52. This provision was “intended to afford facilities for the transfer of stock in national banks, and thereby to encourage investment in such stock.” Third National Bank of Buffalo v. Buffalo German Ins. Co. 193
The sale in this case, however, involved not only stock of the bank but also stock of the corporation which, if sold separately, would be subject to the provisions of the sale of securities act. See Hall v. Geiger-Jones Co. 242 U. S. 539; Caldwell v. Sioux Falls Stock Yards Co. 242 U. S. 559; Merrick v. N. W. Halsey & Co. 242 U. S. 568. The bank and the corporation are distinct legal organizations. Corsicana National Bank v. Johnson, 251 U. S. 68, 88-89. The corporation is not a Federal instrumentality. It was not incorporated under Federal law. On the contrary, it was organized under the law of the State of New York. And the corporation does not perform the functions of the bank. Indeed, many of its purposes are beyond the scope of the corporate purposes of the bank. U. S. Rev. Sts. § 5136, Seventh. U. S. C. Title 12, § 24. See First National Bank of Concord v. Hawkins, 174 U. S. 364, 366-367; Awotin v. Atlas Exchange National Bank of Chicago, 295 U. S. 209. Doubtless it was incorporated in order to do business which the bank could not do. By reason of identity of stock ownership the corporation was a so called “affiliate” of the bank. Though in considering the effect of intercorporate dealings the identity of stock ownership is not to be overlooked (Corsicana National Bank v. Johnson, 251 U. S. 68, 89), the corporation for the purpose of State regulation stands on the footing of a State corporation. The Federal banking act of 1933 so recognizes. Its provisions for examination and reports of condition of affiliates of national banks are enforced through the banks with which they are affiliated,
The question presented is whether the sale of securities act applies to a sale of stock of the corporation in combination with stock of the bank. Such a sale is not within any express exemption contained in the act itself. See G. L. (Ter. Ed.) c. 110A, § 3 (g). And no Federal statute purports specifically to exempt from the application of such a State statute securities sold in combination with stock of a national bank. The exemption — if any exists — must be implied on the ground that the sale of securities act cannot be applied to such a sale without unduly restricting the transferability of the stock of the bank.
The sale of securities act is applicable to the sale "in so far as it is consistent with the policy or provisions, express or reasonably implied, of the National Bank Act or of other federal acts of paramount authority.” Jennings v. United States Fidelity & Guaranty Co. 294 U. S. 216, 219. The purpose of the sale of securities act is "to protect people from fraud in the purchase of corporate securities.” Kneeland v. Emerton, 280 Mass. 371, 387-388. And securities do not fall outside this purpose because sold in combination with national bank stock. Exclusion from the application of the act of a sale of securities otherwise subject to its provisions merely because they are sold in combination with stock of a national bank would supply a ready means of evading the provisions of the act. We do not think that the Federal policy of encouraging investment in national bank stock and, to that end, of providing for free transferability of such stock, goes so far as to render sales of securities in combination with such stock immune from reasonable State regulation, at least in the absence of unusual circumstances. Even if the Federal government has the power to grant such immunity as an incident of its power over national banks the exercise of such power is not to be implied. See McClellan v. Chipman, 164 U. S. 347; First National Bank in St. Louis v. Missouri, 263
The fact that the stock of the bank not only was actually sold in combination with stock of the corporation, but, by reason of the provisions of the deposit agreement and of the corporation’s charter, could have been sold only in such combination does not take the case out of the general rule. This limitation upon the separate sale of stock of the bank was not imposed by Federal law or even by contract of the bank. The application of the sale of securities act to the sale of stock of the bank and stock of the corporation in combination, therefore, would not interfere with the performance of any contract to which the bank was a party. The limitation was imposed by the stockholders of the bank — obviously for the purpose of making the corporation an affiliate of the bank — and could have been removed by them. We assume that prior to the effective date of. the prohibition by the (Federal) banking act of 1933 (Act of June 16, 1933, c. 89, § 18; 48 U. S. Sts. at Large, 186; U. S. C. Title 12, § 52; see also banking act of 1935, Act of August 23, 1935, c. 614, § 310 [a]; 49 U. S. Sts. at Large, 710), such a limitation would not be in violation of Federal law. But, even if a Federal policy, prior to that date, of permitting affiliation of national banks with State corporations in this manner is to be implied, it is also to be implied that, notwithstanding the affiliation, a corporation so affiliated with a national bank shall remain subject to the reasonable State regulations ordinarily applicable to such a corporation. Such restriction of transferability of national bank stock as results from the application of the sale of securities act to stock of a State corporation affiliated with a national bank is a natural incident of the limitation imposed by the stockholders upon separate transfer of the bank stock for the purpose of effecting the affiliation. We think that this incidental restriction does not require exemp
The principles stated in their application to the transaction considered as a sale of stock of the corporation in combination with stock of the bank apply equally to the transaction considered as a sale of Bankers Trust Company receipts representing stock of the corporation and of the bank.
4. The defendant’s contention that the transaction in question was excluded from the application of the sale of securities act by St. 1921, c. 499, § 2, cannot prevail. This section is as follows: “This act shall not apply to sales, contracts, or agreements made prior to its effective date, or be construed to prohibit the performance of any such contracts or agreements, either by the issuance of stock or otherwise, provided such contracts or agreements were valid and binding upon the parties thereto by the law as it existed at the time such contracts or agreements were made.”
This section — which was not embodied in G. L. (Ter. Ed.) c. 110A — must be interpreted in the light of the entire statute of which it was a part. See St. 1921, c. 499. The statute prohibited certain sales of securities unless the requirements thereof were met. The prohibition extended, however, not only to completed sales, but, by force of the broad definition of the word “sale,” to “the issuance of securities” and “an agreement whereby a person transfers or agrees to transfer an interest in securities,” as well as to other acts some of which fall short of being “valid and binding” “contracts or agreements.” See G. L. (Ter. Ed.) c. 110A, § 2 (d), added to General Laws by St. 1921, c. 499, § 1. According to the natural interpretation of the statute as a whole the “sales, contracts, or agreements” referred to in the first clause of St. 1921, c. 499, § 2, are those which, except for the time when made, are within the general scope of the statutory prohibition. The exception from this prohibition is not to be construed more broadly than the prohibition. See Commonwealth v. Welosky, 276 Mass. 398,
A single transaction might include two (or even more) prohibited elements, as, for example, both a contract or agreement of sale and a completed sale. Even apart from the provisions of § 2 the statute could not rightly be interpreted as prohibiting a transaction completed before its effective date. See Haverhill v. Marlborough, 187 Mass. 150, 155; Wynn v. Assessors of Boston, 281 Mass. 245, 249. But a more difficult question would arise as to the application of the statute where one prohibited element of a transaction occurred prior to its effective date, and another after that date. The apparent purpose of § 2 was to deal with this situation by excluding from the application of the statute transactions within the general scope of the statutory prohibition which, having reached the point of valid and binding contracts or agreements before the effective date of the statute, were completed by performance after that date. The fact that a section similar to § 2 relating to “sales, contracts or agreements made prior to August twenty-sixth, nineteen hundred and twenty-one,” and to “the performance of any such contracts or agreements” was incorporated in St. 1932, c. 290 (see § 3) does not militate against the construction here given to St. 1921, c. 499, § 2. It was not unlikely that “contracts or agreements,” as the words are here construed — particularly contracts for the “issuance of stock” — made before August 26, 1921, might remain unperformed after St. 1932, c. 290, became effective.
The sale here in question was not a sale, contract or agreement made prior to the effective date of St. 1921, c. 499, nor was it performance of any contract or agreement
Doubtless a reason for the express exceptions from the statutory prohibition was to preclude an application of the statute which would impair any obligation of contract in violation of the Constitution of the United States, art. 1, § 10. The Legislature, however, did not see fit to leave the exceptions specifically described in § 2 to be determined on the basis of constitutional right, but laid down a rule presumably easier of administration. Indeed it may be that the express exceptions are broader than the scope of the constitutional protection. On the other hand the statute cannot be applied so as to impair the obligation of a contract not within the express exceptions properly construed. In the case of such a contract the statute is inapplicable, not by reason of the express exceptions, but rather by reason of an exception implied from the constitutional limitation. Woods v. Woburn, 220 Mass. 416, 421. See Magee v. Commissioner of Corporations & Taxation, 256 Mass. 512, 518. By express statutory provision an implied exception of this nature does not invalidate the statute as applied to other "persons or circumstances.” G. L. (Ter. Ed.) c. 110A, § 16. Whether such an exception from the application of the statute is to be implied in this case to avoid danger of con
5. The application of the sale of securities act to the sale in question would not impair the obligation of any contract contained in the charter of the corporation or in the deposit agreement, in violation of the Constitution of the United States, art. 1, § 10.
The obligations of these contracts which the defendant contends would be impaired by the application of the act to the sale in question are the obligations to sell stock of the bank or of the corporation only in combination with a like number of shares of the other stock. The stock of the corporation, which was a New York corporation, was issued in that State and these contracts were made there, before the effective date of the sale of securities act. The sale in question was made in this Commonwealth after that date. Though the stock of the corporation was issued in another State, sales thereof within the Commonwealth were subject to reasonable regulation by this State for the protection of the public against fraud. Hall v. Geiger-Jones Co. 242 U. S. 539. Merrick v. N. W. Halsey & Co. 242 U. S. 568. The application of the act to a separate sale of stock of the corporation within the Commonwealth, if such a separate sale could have been made, would have been a proper exercise of this power of regulation. The act does not apply to a sale of stock of the bank. However, as already pointed out, the incidental effect upon the stock of the bank of an application of the act to a sale of stock of the corporation in combination with stock of the bank would not exempt the stock of the corporation included in such sale from the provisions of the act.
The contention of the defendant on this branch of the case rests on the ground that the contracts requiring that stock of the corporation and of the bank be sold together were made before the passage of the sale of securities act. No contract for the sale of such stock entered into prior to that date is involved. The application of the act to a sale of stock of the corporation would not prevent the performance of the
6. The evidence warranted a finding that the provisions of the sale of securities act — those contained in G. L. (Ter. Ed.) c. 110A, § 4, requiring the filing of a statement before securities to which the section is applicable can be sold in the Commonwealth — were not complied with before the sale here in question, and that neither the Bankers Trust Company receipts nor the stock of the corporation was qualified for sale in this Commonwealth prior to that timé.
G. L. (Ter. Ed.) c. 110A, § 4, required the filing of a statement “by a person offering the same for sale or by the directors or trustees of the corporation, association, trust or other body issuing the security or other officers ... on such forms as the commission may prescribe, duly dated and sworn to by the person or officers subscribing and filing the same, containing . . . information and data relative to the security” as therein described in considerable detail.
The trial judge in his findings states: “It is uncontroverted that neither the Corporation, nor any person offering the stock of the Corporation for sale, prior to the transactions here in issue, had filed with the Commission a ' statement ’ such as is described in Section 4 of the Act . . . unless the circumstances about to be related constitute such a 'statement'. . . . The Corporation offered and I received in evidence . . . what purported to be a market letter of the First National Corporation, dated January 8, 1929, and bearing the Department's filing stamp of January 12, 1929. [A copy is annexed to the bill of exceptions.] It was found in the Security Division’s files at the time of the hearing. It concerns the Chase National Bank and contains certain information respecting the Corporation and its relations to the Bank. It contains such information as presumably the Commission might wish to have available for the proper discharge of its duties under the Act. . . . The letter does not in terms or in effect amount to a ' statement' such as is prescribed by Section 4 .... No evidence was offered of what use, if any, the Commission made of the letter. In
This treatment of the so called market letter was not error. This letter does not purport to be such a statement as is required by § 4. It was not signed or sworn to. It refers primarily to stock of the bank and only incidentally to stock of the corporation as being transferred with it —• though no mention is made of the Bankers Trust Company receipts representing the stock in combination. The “information and data” contained in the letter fall far short of the requirements of § 4. Nothing in the letter tends to show that it was filed, or that the statements therein were made, by the corporation issuing the security. It can have no standing unless as a statement of the First National Corporation as a “person offering the . . . [security] for sale.” Even apart from possible infirmities of proof that the letter was filed with the commission by the First National Corporation it contains nothing to show that it was filed for the purpose of qualifying the stock of the corporation for sale within the Commonwealth. Though the “statement” referred to in § 4 is not described as a “notice,” the section clearly contemplates that it shall be such a statement as informs the commission that qualification of stock therein referred to is sought, and furnishes a basis for further action by the commission if deemed necessary. See § 6. The principle underlying Grueby v. Chase Harris Forbes Corp. 292 Mass. 15G, 158, is controlling. The letter considered as a whole does not meet these requirements. The presence of this letter in the files of the commission in the circumstances shown was not evidence of compliance with the statute. See Crean v. Boston Elevated Railway, 292 Mass. 226, 228. Nor could a finding have been made that the commission, even if it had authority to do so, accepted the letter as such compliance or as an excuse for noncompliance. Consequently, as the case is presented, a finding of noncompliance with the statute was warranted.
The defendant now relies, however, on other papers in the files of the commission. These include an "Application
A further contention of the defendant rests on the concluding sentence of § 4 which reads: “The commission may, to such extent as it deems reasonable, accept in lieu of such statement, a reference to recognized sources of information selected by the commission, containing such information and particulars as it deems sufficient.” This sentence follows, as a separate and distinct provision, the provision of the section requiring that a statement be filed.
The judge stated that the defendant urged “that the
The record supports this description of the course of the trial. The ruling as to burden of proof was right (see Ansell v. Boston, 254 Mass. 208, 211) and the evidence, therefore, was properly excluded. It could not rightly have been inferred from the failure of the commission to take action to obtain further information about the stock of the corporation or to prevent the sale thereof that it had accepted a reference to the sources of information in question in lieu of the statement required by § 4.
B. The case of Mary B. Brandegee.
With reference to this case the judge states “It is uncontroverted that the plaintiff purchased of the Corporation through one of its salesmen in Boston 300 shares ‘Chase National Bank stock’ in three lots — November 28, 1930, 100 shares — $10,075. November 28, 1930, 100 shares — 10,125. December 5, 1930, 100 shares — 9,975,”
Second. The judge found that each sale of stock of the bank and of the corporation in combination — whether represented by Bankers Trust Company receipts or “duplex55 certificates — was an indivisible transaction and ruled that the violation of the sale of securities act by the sale of stock of the corporation vitiated the entire transaction and entitled the plaintiff to rescind.
The finding that such a combined sale was an indivisible transaction was warranted either apart from or under the provision in the definition of the word “Sale” in G. L. (Ter. Ed.) c. 110A, § 2 (d), that “Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other thing, shall be conclusively presumed to constitute a part of the subject of such purchase and to have been sold for value.55 The judge ruled that
Third. The finding of the trial judge in each case in substance that the conditions prerequisite to maintaining an action to recover the consideration paid were met was not vitiated by error of law.
A purchaser of stock through the medium of a sale in violation of the sale of securities act “must take active steps to put himself in a position to treat his contract of purchase as void, before he can maintain his action against the seller.” Cummings v. Hotchkin Co. 292 Mass. 78, 82. The purchaser may be precluded by his conduct from repudiating the transaction and for that reason cannot maintain an action. But, if not so precluded, in order to maintain an action at law “he must make a proper tender which, if accepted, would restore to the seller the securities themselves and all dividends or interest which the purchaser has received therefrom.” Grueby v. Chase Harris Forbes Corp. 292 Mass. 156, 159.
The defendant contends that the plaintiffs cannot maintain their actions since (as it contends) (a) the plaintiffs have “ratified and confirmed their purchases so they cannot
The judge found the following facts bearing on these contentions — and there is no contention that the findings were not warranted by the evidence. In 1934 the liquidating agent of the commissioner of banks in behalf of the commissioner tendered to the corporation at its offices in New York “the Lowell Trust’s ‘duplex’ certificates ... for 100 shares each of the Bank and of the Corporation, duly indorsed in blank, the sum of $1,367 in legal tender and sufficient Federal and State stamps to cover the transfer taxes.” The tender was refused. An attorney for Mary B. Brandegee, on or about August 1, 1934, in like manner “tendered the plaintiff’s certificates with transfers duly indorsed in blank of the shares respectively of the Bank and of the Corporation, the sum of $2,886 in legal tender and sufficient Federal and State stamps to cover the transfer taxes.” This tender was refused. The amounts so tendered were sufficient to cover all dividends declared and paid by the bank and by the corporation during the period that the respective plaintiffs held the shares. There are other findings relating to certain rights.
In the trust company case the certificate tendered was a “duplex” certificate which had been accepted by the trust company in October, 1930, upon surrender of the Bankers Trust Company receipts originally received by it representing the same number of shares of stock of the bank and of the corporation. In the case of Mary B. Brandegee the “duplex” certificates tendered were those originally received by her.
The findings relating to changes in the securities between the times of the sales thereof and the times of the tenders are these: “Prior to the transactions in issue the capital stocks respectively of the Bank and the Corporation had been increased from time to time until there were outstanding 5,250,000 shares each of the Bank and of the Corporation. The Bank’s shares were of a par value of $20 each. Subsequent to the transactions here in issue at a meeting on
The plaintiffs participated in these changes to this extent: The trust company voted by proxy at the annual meetings of the bank and the corporation in January, 1930. This proxy “contained also a power of attorney and consent authorizing persons therein named to act for the . . [trust company] in approving and consenting to amendments of the 1917 agreement. This power of attorney and consent was exercised by the persons named therein in the name and on behalf of the . . . [trust company] in connection with the amendment of January, 1930, to the said 1917 agreement.” The trust company also voted by proxy at special meetings held in April, 1930, “relative to the
The judge also found expressly in the case of Mary B. Brandegee that “the plaintiff acted with reasonable diligence after learning of the illegality of the transaction” and by reference incorporated such a finding in the findings in the case of the trust company. The defendant makes no contention with reference to this finding apart from the contentions already stated.
1. The defendant’s contention that the plaintiffs cannot maintain these actions for the reason that they have “ratified and confirmed their purchases so they cannot now rescind them” cannot be sustained.
The principle was laid down in Cummings v. Hotchkin Co. 292 Mass. 78, 81, in the case of a sale in violation of the sale of securities act, that if “after acquiring full information” of facts showing a violation of the statute the purchaser “had chosen to continue to hold the stock and to participate as a shareholder in the affairs of the corporation, he would have obtained a sufficient title.” This result follows from the fact that in such circumstances the court “refuses its aid to undo what the parties have already done.” Myers v. Meinrath, 101 Mass. 366, 368. Accordingly, a purchaser may be precluded by his conduct from repudiating an illegal transaction and maintaining an action to recover the consideration paid.
Whether or not, in view of the illegal nature of the trans
The defendant relies on the appropriation by the plaintiffs of dividends of the bank of August 1, 1934, February 1, 1935, and August 1, 1935. The dividend of August 1, 1934, must have been received, if at all, at about the time of the tender. There is nothing in the record to show that the amount of such dividend in the case of the trust company was not included in the tender. The record, with reference to this dividend in the case of Mary B. Brandegee, is somewhat confused. The judge found "the $2,886 tendered to
In the case of Mary B. Brandegee there was no evidence of any such circumstance known to the plaintiff before the
In this state of the evidence the rulings given by the judge, as above set forth, were not prejudicial to the defendant and there was no error in ruling, as the judge did in each case at the request of the plaintiff, that “As matter of law there is no evidence in this case to warrant a finding of ratification of the sale[s3 in question.”
2. The defendant's contention that the plaintiffs cannot maintain their actions for the reason that the defendant “cannot be restored to status quo” because of changes in the securities cannot be sustained.
This contention is based on the principles applicable generally to the maintenance of actions at law based upon rescission. In O’Shea v. Vaughn, 201 Mass. 412, 422-426 — a case based on rescission for fraud — the court said: “Two general cardinal rules are laid down as to the exercise of the right to rescind, of which the first is that the plaintiff must return all that he received under the void contract, and the second is that both parties must be put in statu quo, or, as it is frequently phrased, must be restored to their former position,” and pointed out that these rules were subject to qualifications and exceptions. The court said further that
Nothing which appears in the present cases required the plaintiffs to do anything to restore the defendant to status quo other than to make full return of that which they had received, including the profits derived therefrom. Compare O’Shea v. Vaughn, 201 Mass. 412, 423; McGrath v. C. T. Sherer Co. 291 Mass. 35, 41.
The evidence in the present cases — apart, at least, from the matter of rights later considered — warranted findings that the plaintiffs, if the tenders were accepted, would retain no benefits derived from the transactions. However, the rules applied in an action at law based upon a previous rescission of a sale of property — as, for example, for fraud or breach of warranty or other breach of contract •— ordinarily require a return or tender of the identical property received, though in the case of corporate stock a return or tender of equivalent shares is sufficient. Birch v. Arnold & Sears, Inc. 288 Mass. 125, 133. And they ordinarily require that the property sold be returned or tendered to the seller in the same, or substantially the same, condition as when received by the purchaser, unless changes therein have resulted from the wrong or default of the seller. See O’Shea v. Vaughn, 201 Mass. 412, 422-424; G. L. (Ter. Ed.) c. 106, § 58, (1) (d), (3); Am. Law Inst. Restatement: Contracts, §§ 349, 400, 480. But, even where this principle is applied strictly, mere depreciation in market value will not prevent rescission. See Snow v. Alley, 144 Mass. 546, 551, 555; Rackemann v. Riverbank Improvement Co. 167 Mass. 1, 5; Am. Law Inst. Restatement: Contracts, § 349, Comment b.
The findings of the judge mean that there is no such change in the shares as vitiated the tender. This conclusion was not erroneous as matter of law. Clearly it could have been found not only that the certificates tendered by this plaintiff were the identical certificates received by her, but also that when tendered they represented stock of the same corporations as when received by the plaintiff. Western Bank of Scotland v. Addie, L. R. 1 H. L. (Sc.) 145, relied on by the defendant, is distinguishable in this respect. See also White v. New Bedford Cotton Waste Corp. 178 Mass. 20; Beverly v. Richards, 255 Mich. 508; Mertz v. Guaranty Trust Co. of New York, 247 N. Y. 137, 141. Compare Ginn v. Almy, 212 Mass. 486, 507. It could be found that the changes which occurred between the time of the sale and the time of the tender did not affect the identity of the shares — that the shares tendered were the shares
In passing upon the sufficiency of the tender the nature of the action must be taken into account. The plaintiff’s sole' remedy is to recover the consideration paid on the basis of a repudiation of the sale. In an ordinary case of rescission there is an alternative remedy by an action for damages based on affirmation of the contract. See Roche v. Gryzmish, 277 Mass. 575, 579. The existence of this alternative remedy is one ground, at least, for a strict application of the rules governing tender. See Snow v. Alley, 144 Mass. 546, 558. An innocent purchaser of securities sold in violation of the sale of securities act has no such alternative remedy. Such a purchaser is permitted to recover the consideration paid by him, notwithstanding the fact that the transaction is fully executed, for the reason that, if such relief were denied, the statute, as stated in Kneeland v. Emerton, 280 Mass. 371, 379, “would signally fail of its beneficent object,” or, as expressed in Goodwin v. Simpson, 292 Mass. 148, 155, “the full and complete protection which the statute was intended to afford buyers” would not be given. On the other hand, as was said in Cummings v. Hotchkin Co. 292 Mass. 78, 81, “Every consideration of equity and fair dealing requires the plaintiff to return the stock and the profits realized on it to the defendant before seeking to recover from the defendant the price paid for the stock. The technical differences between void and voidable contracts do not prevent the result required by conscience and justice.” The tender, therefore, must be such as will satisfy the requirements of “equity and fair dealing” without denying to the purchaser the protection which the statute was intended to afford. The rules ordinarily governing tender are to be applied in the light of these considerations. We think that, in the light of these considerations, it could be found that the tender was sufficient.
These changes do not relate merely to the individual shares bought by the plaintiff; they relate to all such shares.
A tender of the shares, after the changes occurred, with the profits derived therefrom would return to the defendant all the benefits received by the plaintiff including the identical shares purchased. And it would put the defendant in substantially the same position as if it had not sold the shares but had retained them until the time of the tender. In these circumstances it could have been found that the tender was sufficient to meet the requirements of “equity and fair dealing.” The plaintiff has done all that she could toward restoring the original conditions. See Sim v. Eden-born, 242 U. S. 131, 136. The tender is not to be held insufficient on the ground that changes which were incidents of the shares did not result from any independent wrong or default on the part of the defendant. To apply a stricter rule would deny to purchasers the protection which the sale of securities act was intended to afford them.
The defendant relies particularly on Huglin v. H. M. Byllesby & Co. 72 Fed. (2d) 341, and Vogler v. Gustin, 257 Mich. 475. There are material differences between the former case and the case at bar. So far as these cases are inconsistent with our conclusion we cannot follow them. Moreover, it may be, as the defendant contends, that a con
In the case of the trust company the finding was warranted that the “duplex” certificate tendered was received by the trust company in substitution for Bankers Trust Company receipts received by it from the defendant, and that this certificate, when received, represented the same number of shares of stock of the bank and of the corporation as the Bankers Trust Company receipts for which it was substituted, subject to the same restrictions upon separate transfer of either stock. It could have been found that this substitution was an ordinary incident of the security and made no such material alteration therein, so far as its form is concerned, as to destroy its identity and thereby vitiate the tender. Indeed, the defendant apparently now makes no contention to the contrary. The defendant, however, in this case, as in the case of Mary B. Brandegee, relies on changes in substance. These changes include the changes relied on in the other case, and the defendant’s contention with respect thereto fails for the reasons stated. But the defendant relies also on changes made before the sale to Mary B. Brandegee in the capitalization of the bank and of the corporation in connection with the consolidation of the bank with certain trust companies. The principles already stated apply to these changes. Necessarily the consolidation was “under the charter” of the bank. Act of February 25, 1927, c. 191, § 1, 44 U. S. Sts. at Large, Part 2, 1224, 1225. See U. S. C. Title 12, § 34a. The corporate identity of the bank continued unaffected by anything in connection with the consolidation. Worcester County National Bank, petitioner, 263 Mass. 394, 399, 8. C. 279 U. S. 347, 360. The stockholders of the bank continued to be stockholders
3. The defendant’s contention that the plaintiffs cannot prevail for the reason that the tenders were insufficient cannot be sustained.
The trial judge found that the tenders were sufficient. The sole contention of the defendant to the contrary — apart from the contention relating to changes in the securities— is based on the ground that the tenders “did not include benefits flowing from rights issued to the plaintiffs as stockholders of the defendant corporation to purchase stock of the First Boston Corporation.” The judge found in the trust company case that the amount tendered included the “sum of $5 realized from the sale of certain rights to subscribe that had accrued to it,” and in the case of Mary B. Brandegee that while she held the shares “she had received a . . . sum of $12 realized from the sale of certain rights that had accrued to her as such shareholder,” and that the tender “did not include the $12 received by her from sale of rights.” The judge found further in each case that the defendant’s treasurer “did not verify the dividends paid or rights accrued . . . before refusing the tender.” The evidence which supports these findings relates to rights to subscribe for stock of the First Boston Corporation issued to stockholders of the defendant corporation in May, 1934, in the course of a transaction by which assets of the latter corporation were transferred to the former.
There was no error of law.
These rights, being rights to subscribe for shares of stock of a corporation other than the defendant corporation, were received by the plaintiffs as dividends. Such dividends, like cash dividends, were separate from the shares of stock of the corporation paying them and did not affect the character of the shares on which they were paid so as to preclude the return or tender of such shares as “the securities themselves” (see Grueby v. Chase Harris Forbes Corp. 292 Mass. 156,
The present question relates, therefore, not to the requirement of tender of “the securities themselves,” but rather to the requirement of tender of benefits derived therefrom after the original transaction, the “dividends or interest which the purchaser has received” from the shares. See Grueby v. Chase Harris Forbes Corp. 292 Mass. 156, 159. The plaintiffs could have availed themselves of the benefits of the rights either by using them in subscribing for stock of the corporation to which they related, or, since they were transferable, by selling them. The plaintiffs, however, were not required, as contended by the defendant, to exercise these rights by subscribing for stock and to tender to the defendant the shares so acquired or a like number of shares of such stock acquired in some other way. See Neblett v. Macfarland, 92 U. S. 101, 104. It could have been found that a sale of these rights was a natural incident of the possession and use of the shares of stock of the defendant corporation, and that the proceeds of such a sale fairly represented the benefits derived from the shares by reason of the distribution of the rights. In the circumstances here shown a return of such proceeds would be sufficient on a bill in equity for rescission. See Putnam v. Bolster, 216 Mass. 367, 372. And even in an action at law the requirement of a return or tender in specie is not to be applied with the same strictness to benefits received as incidental to the ordinary and proper use of the property as to the property itself. See Am. Law Inst. Restatement: Contracts, § 349, Comment b. The finding, therefore, was warranted that the tender in the Lowell
Fourth. We have considered the questions of law presented by the defendant’s exceptions and argued by the defendant. The requests for rulings granted and refused need not be discussed in further detail. No error is disclosed. Since the defendant’s exceptions must be overruled the plaintiffs’ exceptions are waived. The entry in each case must be
Defendant’s exceptions overruled.
Plaintiff’s exceptions waived.
G. L. (Ter. Ed.) c. 110A, § 2 (c): “ ‘Security’ shall include any bond, stock, certificate under a voting trust agreement, treasury stock, note, debenture, certificate in or under a profit sharing or participation agreement, subscription or reorganization certificate, oil, gas or mining lease or certificate of any interest in or under the same, evidence of indebtedness, any form of commercial paper, currency of any government other than the United States, or any certificate or instrument representing or secured by an interest in the capital, assets or property of any corporation, unincorporated organ