Bellerue v. Business Files Institute, Inc.

McCOMB, J.

Plaintiff appeals from a judgment for defendants in an action to recover money on the ground that the transaction was a violation of the Corporate Securities Law and on the additional ground that it had been induced by misrepresentations.

Fads:

Defendants Hedden and Hilliard organized defendant Creative Management Corporation (hereinafter referred to as “C.M.C.”), each taking 49 per cent of the stock and each actively participating in its operation. Shortly thereafter, defendant Business Files Institute, Inc. (hereinafter referred to as “B.F.I.”) was formed, with all 100 shares of B.F.I. ’s authorized stock being issued to C.M.C. for $10 per share, pursuant to a permit from the Corporation Commissioner. The permit did not restrict the resale of the B.F.I. stock, nor did it require the stock to be placed in escrow.

Plaintiff and C.M.C. entered into an agreement whereby plaintiff was to lend $10,000 to B.F.I. and to pay C.M.C. $10 each for 7% shares of the B.F.I. stock held by C.M.C. Pursuant to this agreement, plaintiff paid defendants $7,565, receiving promissory notes from B.F.I. for $7,500. No permit was obtained with regard to this transaction, and plaintiff brought suit for the return of his money on the theory that the transaction was in violation of the Corporate Securities Law.

Questions:

First.

Was the transaction void because a permit was not first obtained from the Corporation .Commissioner?

Yes.

Section 25152 of the Corporations Code exempts from the Corporate Securities Law “ . . . the sale of securities when (a) made by or on behalf of a vendor not the issuer or underwriter thereof who, being a bona fide owner of the securities, disposes of his own property for his own account, and (b) the sale is not made, directly or indirectly, for the benefit of the issuer or an underwriter of the security. ...” A permit for the sale of stock by a vendor who was not the issuer is therefore required when the sale is made for the benefit of the issuer.

In

People

v.

Mason,

86 Cal.App.2d 445, 454 [10] [195 P.2d 60], it is stated with regard to the predecessor code section to

[490]