*1 Argued remanded, rehearing petition June reversed and by opinion denied November Respondents, ux,
MARSHALL et Appellant. HARRIS, P2d 756 [447 *2 [ Henderson, Falls, Blair M. argued Klamath and filed brief cause for appellant. Panner, Bend, M.
Owen argued cause for Johnson, Panner, On the brief respondents. were Marceau, Kamopp & and C. Montee Kennedy, Ken- Bend. nedy, Denecke,
Before Justice, McAllister, Chief Howell, Tongue, and Justices.
TONGUE, J.
[ 448-a *4 448-b [ TONGUE, J. an
This is action to money owing recover due and under a contract defendant by which sold to "earnings,” interest two racehorses and in their in return for defendant’s agreement expenses to pay involved in affirma- training racing By the horses. tive and counterclaim, defense contended contract was within the terms of "security” Law, it ch and that had registered, statute, not been required result defendant was entitled to recover the money previously paid by him under that contract.
The court, case was tried a jury. before the without The trial court held Securities Law did not case; the facts of apply that there was no sell, sale or attempt any "security,” plain- and that tiffs were entitled to judgment against defendant for amounts due and owing under the sum the contract $5,167.10. The facts.
Plaintiffs own a ranch they near Bums where raise thoroughbred racehorses. have These horses been sale, raised for for except 1964 and years during which plaintiffs raced some them.
In February 1973 plaintiffs’ attorney suggested them an arrangment under he and three of his which friends pay would expenses one of plaintiffs’ horses in return winnings for one-half its as a (i.e. racehorse a one-eighth interest to each of the four). An agreement oral was then made to that effect.
In May Mrs. Marshall by Beverly was visited Lewis, a longtime hers, friend was who interested horses. talked During they that visit about In plaintiffs’ horses. of that conversa- course tion Mrs. Marshall her told friend about arrange- ment with plaintiffs’ friends. attorney and his three Beverly friend, Lewis then said that had a she
[449 ] *5 defendant, in such an be might who interested this” to "mentioned Beverly Lewis then arrangement. to defendant, Mrs. said he like to talk who would to went frequently At that time defendant Marshall. a buying considering the horse races and was "outright.” racehorse and
Beverly Lewis then called Mrs. Marshall meeting At meeting with defendant. arranged defend- Marshall explained arrangement Mrs. then were "avail- They ant. discussed which horses training keeping able” and the cost of horses and Marshall racing. for The horses were then colts. Mrs. under told defendant could "his choice” he have with the arrangement "of the same as the one type” and his attorney friends. She defendant gave horses, names of three said her husband was but have different ideas. judge” might better "horse and and At a subsequent meeting between Marshall, Lewis, he Beverly also arranged by Mrs. he then said said that was "interested.” Mrs. Marshall which by telephone, that he could talk to her husband of the he did. Mr. Marshall the names suggested then Defendant two he the "best.” thought horses that were enter under which then decided to into an agreement expenses pay training, feeding he would for and other in return for for horses until the end of 1974 those two one-third their one-third interest the horses and It was also "earnings” during racetrack 1973 and 1974. be sent on west understood that horses were to retained tracks Plaintiffs racing. expressly coast for of the to control the "care” and "activities” right 18, 1973, confirm- agreement On June a letter horses. by plaintiffs’ was ing understanding prepared defendant. attorney signed by plaintiffs him that told testified that Mrs. Marshall Defendant in October running horses "would This denied her. November.” was for two sent California July In horses were for two horses Defendant training. paid "bills” [450 until December but not after that date. Both previously injured horses had been and neither raced in 1973. agreement
Meanwhile, and at the time of the between and defendant, the horse that was subject original agreement plaintiffs’ attorney and his friends had been sent to California training. for At some undisclosed time defendant also acquired an "interest” in and, return, that horse payments billings part made on of its *6 expenses. expenses Bills for of all three horses were paid single checking payments by from a account and by plaintiffs’ attorney defendant and to reimburse plaintiffs expenses deposited for such were in that same account. sugges-
Also in meantime, the and at defendant’s tion, Mrs. Marshall talked to a Dr. Viets about the "possibility” entering agreement into a similar by plaintiffs. another horse owned At the suggestion of Viets, Dr. she had a similar conversation Kittridge. with a Pat However, no contract was made with either of them. prior
Plaintiffs testified to the time of the contract with defendant the two horses had been plaintiffs advertised for sale and that would not have them, raced but them, would have sold had not entered into the contract. It is conceded that the registered Oregon Corpora- contract was not with the tion Commissioner under ORS 59.055. negotiations plaintiffs
After unsuccessful between defendant, filed this action for amounts due under the contract and defendant filed an affirma- Oregon tive defense and counterclaim under the Secu- rities Law.
The contract was an
”investment contract” and
’’security.”
transaction was a ’’sale”
aof
59.015(13)(a)
"security”
defines the term
purposes
of the
Securities Law to include
[451]
definition
"investment contract.” The most common
an "investment
adopted by
contract” is
Court of the
&
United States
Securities
Supreme
Co.,
Comm. v. W. J.
328 US
Exchange
Howey
(1945),
298-99
as follows:
*
"* *
purposes
[A]n investment contract for
contract,
Securities Act means a
transaction or scheme
whereby
person
money
a
in a common
invests his
enterprise
solely
and is
from the
expect profits
led to
being
it
imma-
promoter
party,
efforts of
or a third
enterprise
terial whether the shares in the
are evidenced
by
interests
in the
formal certificates or
nominal
**
*.”1
physical
employed
enterprise.
assets
in the
defini-
Although
expressly
Howey
not
adopting
tion,
this court has
under which
held that a contract
one
entrusts
with the
person
money
expec-
to another
tation of
deriving
profit
through
to be created
efforts of other
is an "investment contract” for
persons
Law.2 That test
purposes
is satisfied in this
it
clear from the
case because
money
facts that
the defendant
agreed
pay
deriving
profit
expectation
of other
solely through
persons.
be created
the efforts
whether
Accordingly, we need not consider in this case
tests,
test,
may
other
such as the
"risk-capital”
under
circumstances.3
applied
appropriate
*7
It
is contended
the dissent
the sale of a
by
in a
the sale of a
fractional
interest
racehorse is not
within
of ORS
"security”
meaning
the intended
59.015(13)(a);
of the Blue
"primary purpose
* * *
* * *
Law to
the sale of fraudu-
Sky
prevent
Loss,
1375,
(1973),
Annot.,
Securities
and 1
47 ALR3d
1380
1See also
(2d
1961).
Regulation,
ff.
ed
483
2
(1951).
Blanchard,
274, 290,
P2d 247
v.
and
193 Or
238
State
Simons
416, 423-27, 537
Realty,
P2d 553
Bergquist
272 Or
See also
v. International
19, 28-29, 482
(1975),
System,
App
P2d
and State v. Consumer Business
5 Or
(1971).
453, 458, 149
Ussher,
P2d
Or
Union Land Associates v.
174
549
Cf.
458, 468,
al,
(1944),
Sperry
v.
et
190 Or
and
& Hutchinson Co. Hudson
568
(1951).
[452 stocks corporate quasi-corporate lent and worthless securities,” be a shock to going and and that "it is interest rancher” to learn that the sale of a "fractional to the registered subject in a horse or a bull” is of that law. provisions we with these may sympathize plaintiffs,
While many "shocks” are no means uncommon to by such As previ this laws. day constantly proliferating noted, "security,” the definition of the term ously 59.015(13)(a) only includes not "stocks” "bonds,” and "evidence but also "investment contracts” indebtedness,” must also among things. other We remember, the dissent and as recognized by previ court, ously by held
Law must be “liberally greatest construed to afford possible to the protection public.”4 view, good
Consistent with that
held that
we have
faith and even reliance
of counsel is not
upon advice
defense5 and that
knowledge
of the violation
the sale is not a
element of
person making
necessary
because otherwise
of the statute
liability
evasion
it
easily
would be
thus
accomplished,
depriving
much of its
have
practical
previously
effect.6 We
recognized
cases
of whether
question
various
of transactions
are
to the
types
subject
"* * *
Securities Law that
there is
a certain class of
”
* * * [who] toil not neither do
gentleman
they spin,’
4
(1964).
511, 516,
the same
Lang,
To
[453 ] but who "lie awake nights to endeavoring conceive some devious and shadowy way evading of the law.”7 hold,
Were we dissent, to as urged by Oregon Securities Law was to not intended to apply the sale of a "fractional in a a interest horse or registered bull,” could we of hardly distinguish sales when, fractional interests other personal property case, in this purchasers as to derive a expect profit be created solely through the efforts of other The rule which persons. we this case must adopt one which does not open areas up new for possible evasion of that law and must be one which will apply unsophisticated alike to ranchers in the of sale "fractional interests” in registered bulls and to sophis- ticated promoters of "syndication” so-called Indeed, racehorses. it has been said so-called "syndication of animals” has into celebrity "exploded now famous dollar agreement six-million Crown Triple Winner Secretariat.”8 Loss, 1
According to Regulation 489-90 (2d 1961): ed
"Other schemes which have
held with
been
almost
consistency
monotonous
'investment
con-
involve
tracts’ and similar
purported
'securities’ are
on a
based
sale or lease of some form of
tangible property subject
an arrangement whereby
possession
retains
seller
and control
property
view
earning
with a
profit for
catalogue
the nominal owners or
The
of
lessees.
variegated
these
as
imaginations
schemes is
of
promoters.
animals,
Many
them
preferably
involve
*”
* *
either
fur-bearing
a fecund or a
variety.
added)
(Emphasis
effect,
To the same
it is
in 69 Am Jur 2d
stated
1091,
(1973),
Regulation-State
§
Securites
that:
"* * *
commonly
One
type
transaction
found to be
7 Bergquist
Realty,
416, 424-25,
v. International
272 Or
8 Note 62 LJ 1038
[454 ]
laws,
type
sky
as a
security under the blue
often
*9
contract,
real or
is a
in which
investment
transaction
sold,
is
but where the
property purportedly
personal
of such
possession
control
'seller’ in fact retains
and
right
to receive
'buyer’
and the
the
property
obtains
resulting
management of it. Such an
profits
from the
arrangement
any
number of
might
great
take
of a
* * *
which
as to
Another
possible forms
details.
form
arrangement may
breeding
the
or
such an
take involves
arrangement
ranching
example,
animals. For
the
of
fur-bearing
to
may purport
call for the sale of certain
animals,
respon-
possession
with the
to retain
and
seller
animals,
being
sibility
raising
provision
the
with no
segregation
animals
made for
or identification of the
sold,
to
supposedly
'buyer’
and with the
to be entitled
upon
In such
maturity
certain skins
of the animals.
arrangement,
'buyer,’
investor, depends entirely
or
upon
the efforts of the
return
his
upon
investment,
'seller’ for a
* * *”9
arrangement
security.
and the
is a
added)
(Emphasis
upon
reasons,
For
these
these
and based
authorities, we
a "fractional
hold
the sale of
in a
interest”
within the intended
racehorse is an
contract”
"investment
59.015(13)(a)
meaning
of ORS
purchaser expects
profit
to
when
a
derive
solely through
persons.
created
the efforts of other
Plaintiffs make the further
contentions
properly
trial court
the sale
found that this transaction was not
attempted
"security”
or
sale
a
within
of
9
holding
"investment
For a case
that "cattle care
are
contracts”
purchasers
"passive investors
contracts” when the
of such contracts become
depending
providing
operation
capital”
Oregon,
risk
for the
of a
ranch
marketing
upon
raising
cattle for
the skill
the rancher in the
and
of the
of
investment,”
Witzerman,
any
App
People
3d
on their
v.
29 Cal
return
see
(1972).
284,
Loss,
Rptr
290
See
1
177,
also cases
Cal
cited
169,
105
(2d
Loss,
1961),
Regulation
n.88
4
Securities
Securities
490
ed
and
chinchillas,
cattle, foxes,
1969),
Regulation
(Supp
involving
2502
2d ed
rabbits,
Rowand,
City
From Cattle
and
and
More
Investors Profit
muskrats
28, 1959),
11,
(Sept
1,
4,
J,
p
3
cited
They’ve
Seen,
p
col
Never
Wall St
col
1961).
(2d
Loss,
ed
Regulation,
n.88
in 1
(1951),
Blanchard, 193 Or
[455 ] ch because evidence shows that defendant "induced” transaction and did "with open eyes so with knowledge of the risk because involved” and "[i]n all cases violations alleged Law, Sky Blue there been has some affirmative effort on seller part which does not exist this case.”
In considering these note contentions we extremely broad and all-inclusive definition of the "sale,” 59.015(11)(a) term as set forth in ORS include, other among things, "every disposition” "contract sell” a security.10 We have held that purchaser fact "security” is "possessed business so toas experience” know that he is "acquiring a mere gambler’s chance” *10 no defense and that there is more reason applica tion of the "Blue Sky Law” to business "unorganized concerns than to those a having recognized legal entity.”12
We also believe if that a contract is an "investment contract,” as we hold be, this contract subject to it is to registration the requirements of the Oregon Securities Law, 59.055, regardless of whether transac- tion was "induced” by an experienced and knowledge- able purchaser. Plaintiffs holding have cited no cases that such a transaction is not a subject to such statute if it is by "induced” such a purchaser.
In our best
it
judgment
would be inconsistent with
previously
our
announced
purpose to construe
broad terms of the Oregon Securities Law "liberally,”
so as to "afford the greatest possible
to the
protection
hold,
to
public,”
plaintiffs urge,
this transac-
tion was not the "sale” of a
because there
"security”
was evidence from which the trial
find
court could
10
Blanchard,
State v.
See Simons and
274, 280,
Or
193
238 P2d
(1951).
Coe,
supra note
11 Moe at
438.
Whiteaker,
supra
State v.
661-62,
and State v.
et
Gerritson
note
at
al, 124 Or
(1928).
525, 529,
[456 ] into the trans- "induced” to enter defendant eyes open "with that defendant did so action and knowledge the risk involved.” plaintiffs’ in all As for further contention previous cases violations Law affirmative "there has been some Securities effort on part point seller,” out of the we would defend if transaction were "induced even undisputed ant,” was that both the evidence engaged effort” in at least "some affirmative sign only they did both to close the transaction. Not by plaintiffs’ prepared contract, it the written but was attorney. addition, twice with In Mrs. Marshall met arrangement explained the defendant and made terms of the relating persons previously to with other gave another horse and Mr. Marshall thought two he for the names of the purposes horses to "best” arrangement. such not case This was approached by purchaser with a a seller was in which already prepared by purchaser or with contract leaving propose seller, terms definite seller to only sign accept his name on the contract complete transaction, without such terms "affirmative effort on the
part of the seller.” For these reasons we hold that the court erred trial "find[ing] that the Laws not do "[t]here apply” any attempt in that was no sale nor judg- sell securities this case.” It follows that the ment the trial court unless this must be reversed exemptions pro- transaction comes within one of *11 by by plaintiffs. law, vided that as also contended an trans- The transaction was not as ’’isolated exempt an ”initial action” or as sale.” if were Plaintiffs contend that even this transaction exempt contract,” it nevertheless an "investment was registration Law as under the from Securities 59.035(2) or anas an "isolated transaction” under ORS 59.035(11). under ORS "initial sale” [457 1 only Defendant not denies that either of these exemptions applicable, is but that the trial contends receiving support court erred evidence in of such a objection contention over defendant’s that pleaded exemptions. had not such response, plaintiffs say In that for defend- counsel making objection, ant, after that the trial told court Court, that "if the course, wants hear the [sic] ruling, evidence in fine”; reserve that’s that the although overruling objection, court, trial the later suggested question, that defendant’s brief include that among post-trial others, memoranda, but that they though so; defendant did not do that had even the proof burden of were to offer such entitled general evidence under a denial if defendant was not prejudiced, and that defendant suffered in fact no prejudice in this case. agree
We with defendant’s contention one who upon exemption registration provi relies from the plead sions of the Securities Law must such exemptions as an affirmative ORS 59.275 defense. "* * * specifically provides proof burden any exemption upon claiming party shall be * * exemption, By benefit token, of such *.” same pleading exemption upon the burden of plaintiffs.13 may proper It be that once defendant had made objection plaintiffs’ and sufficient of evidence offer objection, and once the trial court had overruled that objection case, as in this did not waive by saying if the court wanted the evidence to hear ruling, "fine,” reserve that would failure question, suggested by to brief trial court at conclusion trial. We decide that need not question case, however, in this we because have by plaintiffs support examined evidence offered exemption they of their claims of failed find that Loss, Regulation, supra n.1, Alsop, 13 1 at 712. Moe 189 Cf. (1950). P2d Or
[458] *12 either establish their of to proof burden to sustain exemption. "isolated transactions.”
—Exemption for registra- an from provides exemption ORS 59.035 for: tion of securities
"(2) of in course not the An isolated transaction in this state.” and transactions repeated successive this of application Plaintiffs contend that in "transactions” only the court can consider exemption subject of relating to two horses that were to other horses relating that transactions agreement; be if could considered, they and that be even cannot pur- no "general considered had properly vendor.” buyer "here approached because pose” three, and We have held that sales of to stock two, may few individuals perhaps even as as different transactions,” and so as not "repeated be successive exemption.14 within this believe qualify We in applied test such a case is whether proper in made of such period sales are "within a question time as general pur reasonable to indicate that one are not so pose actuates vendor and the sales a single and form no of separated part detached plan.”15 1973 February it
In this case in appears in one horse sold one-half interest friends, with a attorney and three of his plaintiffs’ each the four one-eighth interest in horse to them, substantially agree- the same terms under 14 562, 565-66, Laundry Co., P2d 28 v. 239 399 Tarsia Nick’s Or See Richmond, O’Connell, J.; (1965), dissenting including opinion v. Thorson 432, 442, Saunders, 590, (1974), Day 586, Or 642 270 518 P2d v. 267 Or (1974). 241, Co., Koeneke, 224 Or Hart v. & OLbr. P2d 513 See B 528 243, (1960). P2d 149 356 15 163; Emerton, 371, 155, ALR 1 v. 87 Kneeland 280 Mass 183 NE Co., (1932), Drilling quoted approval 257 Minn v. Mikel Anderson 522, 487, Weldon, 293, (1960); 526 102 NW2d 297-98 v. 282 SW2d Gales (Mo Co., Laundry 1955), dissenting opinion 239 Tarsia v. Nick’s (1965). Richmond, n.1, Or 267 28 v. 399 P2d See also Thorson Or (1974). 432, 442, 528 Saunders, 590, 518 Day P2d P2d 642 270 Or Cf. (1974).
[ 459 subsequent ment as those sale to defendant in June 1973 of interest in two other horses —the sale subject which addition, of this case. In Mrs. Kittridge Marshall discussed with Dr. Viets and Pat at "possibility” agreements least the of similar with them relating to other horses at about the time as the same sale to defendant.
Assuming plaintiffs "attempt made no or offer Kittridge,16 Dr. sell” to Viets and Pat and consider ing only plaintiffs’ attorney the sales to and his three friends and the sale defendant, we hold that these together pur transactions must be considered for the pose determining application exemption, the of this though involving regard even not the same and horses buyers "approached” less of whether the the vendor. We also hold that under the in this case the evidence trier of facts could have found that these transac tions were made within such "reasonable time” as to general purpose indicate that one "actuated” plaintiffs plaintiffs they prove and failed to separated part were "not so detached and as to form no single plan.” judgment, follows, of a It in our that that prove did not sustain their burden exempt the sale to defendant was an "isolated as repeated transaction not in the course of and succes meaning state,” sive transactions this within the 59.035(2). ORS as an Exemption "initial sale.” — 59.035(11) provides exemption a further for "(11) The initial any sale of of a new securities organization by preorganization byor subscription sub- scription organization after but before commence- any activity, ment of business if: "(a) persons The number of this state solicited within purchas- does exceed and persons not the number of ing or the securities within without state does not 10; exceed 59.015(11) "attempt to sell” is a 16Under the terms of ORS to offer purposes
"sale” of the Securities Law.
[460 "(b) No paid commission or other remuneration given directly sale; or indirectly in with the connection and
"(c) The sale is not a part attempt of an to evade the provisions Securities Law.” Plaintiffs offered evidence satisfy sufficient (b) (a), (c), requirements subparagraphs but whether, remains question as contended by plaintiffs, the sale to defendant was "the initial sale” of securi- ties of a "new organization” after by "subscription organization but before the any commencement activity.”17 business
Again, plaintiffs contend that in deciding this question the transaction between involving two of must be plaintiffs’ horses considered from separately transactions previous with plaintiffs’ attorney and his friends believe, however, another horse. We in consider- ing exemption sale,” for an "initial under case, record in this as well considering *14 for exemption transactions,” "isolated the transaction involving the sale to defendant of an interest in two horses cannot properly be from the separated prior transactions involving the sale attorney to plaintiffs’ and his friends of an interest in one other horse. We find, after reviewing record, that failed plaintiffs to sustain their burden prove to that for accounting other business purposes were, in these transactions fact, treated as separate and distinct business "organization[s]” or entities. there contrary, On the was evidence that payment of bills for the expenses incurred all by three horses subject to these transac- tions were paid by plaintiffs checks drawn on a by single checking account. It in checks appears for payment reimbursement of such expenses received from defendant and also plaintiffs’ from attorney for expenses by incurred horse were other by plaintiffs qualifies 17No contention is made that sale in this case 59.035(11). "preorganization subscription” meaning as a within the of ORS
[461 deposited in was this same account and that this all [plaintiffs] operated the ranch account that "the same with.” contend "if all of these
Plaintiffs also that even treated as transactions race horses are single exemption applies business,” the still because by activity race "there had been no business reviewing however, record, find, after horses.” We that although it true three horses that none of the subject actually these raced until to transactions had long by plaintiffs 1973, to after the sale October in defendant June failed sustain prove that made their this sale was "before burden any activity.” of the commencement business On prior contrary, there to June 1973 was evidence subject plaintiffs’ to the with horse transactions attorney and his friends had been to California sent training preparation racing in for for expenses prior purpose had
for
been incurred
June 1973.
holding in
is consistent with our
Day
This result
(1974), in
441,
Saunders, incurring payment of held that which we expenses printing supplies, rent, and adver- for office tising prior to the date of the sale of securities * * * business the "commencement of case constituted organization” purposes by activity” of a "new exemption. judgment the trial reasons, of these For all remanded reversed and this case court must be judgment to enter favor instructions against plaintiffs the sum on his counterclaim representing the amounts $3,358, reimbursement paid terms of him under the *15 registered as was not contract” which "investment required by Oregon Securities Law. and remanded.
Reversed
[462] HOWELL, J., dissenting.
I this court has held that agree protect Securities Law must be construed to liberally However, I the sales do not believe that public. of a fractional three different rancher interest "sales” of ORS horses constitute within purview et seq. 59.015 59.015(13)(a), defining
The statute
security,
"stock,”
securities,
list
sets forth a
of obvious
such as
"debenture,”
and,
"bond,”
"in
interest or
general, any
commonly
'security’.”
instrument
known as a
al.,
&
Or
Sperry
In
Hutchinson Co. v. Hudson et
(1951),