delivered the opinion of the court.
In an action in assumpsit, commenced September-17, 1928, against The Hemmer-Miller Development Company (a South Dakota corporation), John G. Hemmer, its president, and Kirk S. Miller, its treasurer, the company and Hemmer were served with process, but Miller was not served. The company had an office at 35 South Dearborn Street, Chicago, and plaintiff, a resident of Chicago, sought to recover, by virtue of the provisions of section 37 and other sections, of the Illinois Securities Law (Cahill’s St. 1923, ch. 32, ¶ 290, p. 926), certain moneys which he had paid to the company, in accordance with a certain written agreement executed at Chicago, and also attorney’s fees. Plaintiff’s declaration consisted of two special counts and the consolidated common counts, which last mentioned counts subsequently were withdrawn. The company and Hemmer filed a general and special demurrer to the special counts. On July 8, 1929, after arguments, the court sustained the demurrer and, upon plaintiff’s election to stand by the counts, entered judgment against plaintiff for costs and this appeal followed.
The written agreement, set forth in full in each count, is on a printed form with the blanks filled in by writing or typewriting, and it has an attached rider. After stating that the agreement, dated March 25, 1925, is made between the development company, first party, and Frank K. Prohaska, of 2216 South Kirkland Avenue, Chicago, second party, it is provided that, if Prohaska shall first make the payments and perform the covenants on his part, the company “hereby covenants and agrees to convey and assure to him, in fee simple, clear of all incumbrances, by a good and sufficient Warranty Deed, the lot—piece—or parcel—of ground situated in the County of Fall Eiver and State of South Dakota, known and described as the East Half (%) of the Northeast Quarter (%) of Section twenty-nine (29) in Township eleven (11), South of Eange Four (4), East of the Black Hills Meridian.”
It is further provided that Prohaska “hereby covenants and agrees to pay to the Company the sum of $8,000, one third ($2,666.66) in cash, and the balance as hereinafter provided in the rider attached hereto with interest at the rate of 5 per cent per annum, payable annually, on the whole sum remaining from time to time unpaid, and to pay all taxes, assessments or impositions that may legally be levied or imposed upon said land, subsequent to the year 1924.”
It is further provided that, in case of Prohaska’s failure to make “either” of the payments or any part thereof or perform any of his covenants, this contract shall at the option of the company be forfeited and determined, and Prohaska shall forfeit all payments made by him and the same shall be retained by the company in full satisfaction and in liquidation of all damages by it sustained, and it shall have the right to re-enter and take possession of the premises, etc.
It is further provided that, “upon the completion of this agreement, the Company agrees to deliver to the purchasers a good and sufficient warranty deed free and clear from all incumbrances, except the taxes, assessments and impositions which the purchasers have herein agreed to pay”; that the “time of payment shall be the essence of this contract”; and that all covenants and agreements shall extend to and be obligatory upon the heirs, executors, administrators and assigns of the respective parties, etc. The attached rider is as follows :
“It Is Agreed that the Company shall harvest all crops upon said land during the life of this agreement and the net profit therefrom shall be applied to the purchase price of the land and interest.
“The Company agrees during the calendar years 1925 and 1926 to break, seed, cut and thresh and pay for all labor without cost to the purchasers; seeding to be Grimm Certified Alfalfa seed.
“The purchasers agree to pay the expense of all hail insurance during the life of this contract, and in case of loss, the same shall be applied to the purchase price of the property.
“This contract is not transferable without the written consent of the Company.”
The agreement is signed by Prohaska and by the company, by Hemmer, its president and by Miller, its treasurer, and it is duly acknowledged by both parties before a notary public of Cook county, Illinois.
In the first count of plaintiff’s declaration it is alleged that at the time of execution of the agreement “and at divers times thereafter,” in accordance with its terms, plaintiff paid to the company the total sum of $3171.18; that “said agreement was a security in Class G,” under the statute known as the Illinois Securities Law, Cahill’s St. ch. 32, ¶ 254 et seq.; that prior to the execution of the agreement the company had not filed in the office of the Secretary of State of Illinois “the statements, documents or instruments specified in and required by section 7 of said statute” to be there filed; that “said agreement was made in violation of the provisions of said Illinois Securities Law”; that plaintiff, as purchaser under the agreement, “has elected and elects to declare the same null and void and herewith brings into court and tenders to the defendant Company said agreement”; and that by means thereof the defendant company has become liable to pay plaintiff said sum of $3171.18, etc.
In the second count the allegations are substantially the same, except that it is alleged that “said agreement was a security in Class D” under said Securities Law, and that prior to the execution of the agreement the company had not filed in the office of said Secretary of State “the statements, documents or instruments specified in and required by section 9 of said statute” to be there filed.
It appears from a bill of exceptions, certified by the trial judge, that on the hearing on defendants’ demurrer the court held that the contract, as set forth in the counts, “is not an investment contract within the Illinois Securities Law. ’ ’
Counsel for plaintiff here contend that the court erred (1) in holding that said contract is not an investment contract within said Securities Law, (2) in sustaining the demurrer to the counts, and (3) in entering judgment against plaintiff. The main contention of defendants’ counsel is that the trial court properly sustained defendants’ demurrer because the Illinois Securities Law does not apply to a sale, or a contract for sale, of land, such as is here involved.
The title of said Illinois Securities Law, in force when said contract was executed, is “An Act relating to the sale or other disposition of securities and providing penalties for the violation thereof and to repeal Acts in conflict therewith.” In section 2 of the act it is provided (Cahill’s St. 1923, ch. 32, ¶255, p. 916):
“The word ‘securities’ shall mean and include stock, treasury stock, bonds, debentures, investment contracts, notes, evidences of indebtedness, participation certificates, certificates of shares or interest, preorganization certificates and subscriptions, certificates evidencing shares of or interest in trust estates or associations, profit sharing agreements or certificates; or any certificate, contract or instrument whatsoever, representing or constituting evidence of, or secured by, title to or interest in, or any lien or charge upon, the capital or any property or assets of the issuer thereof, and any oil, gas o'r mining lease, and interests, units or shares in any such lease or leases.”
In 37 Corpus Juris p. 275 it is said:
“The term ‘securities,’ as used in these laws (Blue Sky Laws), means written assurances for the return or payment of money, except where special definitions are given by the statutes. ... It means the investment of funds in a designated portion of the assets and capital of a concern, with a view of receiving a profit through the efforts of others than the investor; and in this sense includes what are termed ‘security’ or ‘investment’ contracts or ‘speculative securities’.” (See State v. Whiteaker,118 Ore. 656 , 660.)
As to the term “investment contract,” which appears in said section 2 of the Illinois Act, it is said in State v. Gopher Tire & Rubber Co.,
“No case has been called to our attention defining the term ‘investment contract.’ The placing of capital or laying out of money in a way intended to secure income or profit from its employment is an investment as that word is commonly used and understood.”
In State v. Evans,
“The term ‘securities’ is a more inclusive term than ‘investment contracts.’ It means ‘evidences of debt or of property,’ and includes all evidences of investment calling for a return in the form of income or profit.”
In section 3 of the Illinois Act it is provided:
“For the purposes of this Act securities are divided into four classes, as follows:
“ (1) Securities, the inherent qualities of which assure their sale and disposition without the perpetration of fraud, which shall be known as securities in Class ‘A’;
“(2) Securities, the inherent qualities of which, or in the nature of one or both parties to the sale thereof, assure their sale and disposition without the perpetration of fraud, which shall be known as securities in Class ‘B’;
“ (3) Securities based on established income, which shall be known as securities in Class ‘C’;
“ (4) Securities based on prospective income, which shall be known as securities in Class ‘D’.”
In section 6 of the act it is stated what securities are comprised in class “C”, and in section 8 it is stated that “all securities other than those falling within Class ‘A’, ‘B’, and ‘C’, respectively, shall be known as securities in Class ‘D’.” In section 7 are stated the regulations and requirements under and by which securities of class “C” may be sold or offered for sale, which include the filing of certain statements and instruments in the office of the Secretary of State of Illinois, and in section 9 are stated what statements and documents must be filed in said office before any security of Class “D”- shall be sold, or offered for sale, In section 37 of the act it is provided (Cahill’s St. 1923, ch. 32, ¶ 290, p. 926):
“ (1) Every sale and contract of sale made in violation of any of the provisions of this Act shall be void at the election of the purchaser, and the seller of the securities so sold, the officers and directors of the seller, and each and every solicitor, agent or broker of or for such seller, who shall have knowingly performed any act or in any way furthered such sale, shall be jointly and severally liable, in an action at law or in equity, upon tender to the seller or in court of the securities sold, to the purchaser for the amount paid, the consideration given or the value thereof, together with his reasonable attorney’s fees in any action brought for such recovery.” . . .
We are of the opinion (contrary to the holding of the trial court) that the contract in question should be considered as an “investment contract,” and also as a “security” as defined in section 2 of the Illinois Securities Act. By the terms of the contract the company is to convey the land described to plaintiff on receipt by it of $8,000, one third of which sum ($2,666.66) plaintiff is to pay in cash. He does not promise to pay the balance ($5,333.34) at any time out of his own funds, and, indeed, there is no provision allowing him to pay any part thereof out of his own funds. Said balance can only be paid as provided “in the rider attached hereto,” and from the rider it appears that “the company agrees during the calendar years 1925 and 1926 to break, seed, cut and thresh and pay for all labor without cost to the purchasers,”— using a certain mentioned alfalfa seed, and that “the Company shall harvest all crops upon said land during the life of this agreement and the net profits therefrom shall be applied to the purchase price of the land and interest.” What the life of the agreement may be depends upon the net profit from said crops in the first and succeeding years. In the meantime plaintiff is to be charged interest at 5 per cent per annum on said balance or whatever part thereof remains from time to time unpaid, and is also to pay all taxes, etc., levied upon the land, and also the expense of hail insurance. It was presumably in the minds of both parties that plaintiff was to ultimately get good title to the land, possibly worth $8,000, upon his making the initial payment of one-third of that amount and other payments for interest, taxes, hail insurance, etc.,—the other two-thirds of said amount to be realized from the crops raised upon the land under the sole control of the company. The contract discloses a highly speculative investment, or gamble, on plaintiff’s part. If the crops for the years 1925 and 1926 should be sufficiently large to pay or liquidate said balance of $5,333.34, accrued interest, taxes, etc., plaintiff would presumably make a large profit, but if the crops should be small or unprofitable in the years 1925 and 1926 and in the succeeding years, it is apparent that it would be to plaintiff’s financial advantage to cease planting any crops and to cease paying the taxes, etc., in which event the company could forfeit the contract, and plaintiff would lose said initial payment and all subsequent disbursements.
As to the contention of defendants’ counsel (that defendants’ demurrer was properly sustained because the Illinois Securities Law is not applicable to a contract for the sale of land such as the present one), no case is cited by them in support of the contention. By section 2 of the Illinois Act (above set forth) the word “securities” means and includes not only “investment contracts,” but also “any certificate, contract or instrument whatsoever, representing or constituting evidence of, or secured by, title to or interest in, . . . the capital or any property or assets of.the issuer thereof. ” And we are of the opinion that the language of this section is sufficiently broad so as to include as a “security” the contract in question, and, it being admitted by the demurrer that the company had not complied with the provisions of sections 7 and 9 of the Act relative to the filing of statements and documents in the office of the Secretary of State, we think, in view of the further provision in section 37 (above set forth) of the Act, that the court erred in sustaining the demurrer. In other States there are a few decisions, under similar “Blue Sky Laws,” which may be referred to.
In State v. Evans,
In Kerst v. Nelson,
“In view of the ingenuity of those who seek to induce men and women to put their money into far-off speculative enterprises over which the investor has little or no control, and in view of the paternalistic character of blue sky laws, it should be the policy of the courts to refrain from hampering the State officials in the performance of their duties by placing a narrow construction on such laws. This enterprise is within the spirit of the law as wéll as the letter, and we hold that appellants had no right to injunctive relief.”
In State v. Agey,
“Whether the scheme under which the defendant was acting* offers any probability of realizing the promises made for. the Company, or whether there is any bona fides, the outline which has been given does not give much assurance. But, however this may be, the State has a right to require that when such propositions are offered to our people there shall be an investigation as to the reliability of the company, the character of its promoters and managers, and the nature of its business and the amount of its assets, and that it shall not offer its stock, its investments, its ‘ evidences of property, ’ until the Insurance Commissioner has examined into its reliability and assets and issued license to such company to do business in this State. The company which the defendant purports to represent has not done this, and he has been properly found guilty.”
In the recent case of Dobal v. Guardian Finance Corp.,
In view of the allegations in plaintiff’s special counts, the provisions of the contract between the parties and the holdings and decisions above outlined, our conclusion is that the superior court erred in sustaining defendants ’ demurrer to said counts and in entering the judgment appealed from. Accordingly the judgment is reversed and the cause remanded.
Reversed and remanded.
Barnes, P. J., and Scanlan, J., concur.