Hemmeon v. Amalgamated Copper Mines Co.

California Court of Appeal Dec 12, 1928 No. Docket No. 5005.Published

Before: Craig

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Holding. The court held that an innocent purchaser of securities issued without a required permit is not in pari delicto with the issuing corporation and may recover money paid for such securities. Furthermore, an amended complaint adding a count for money had and received does not constitute a new cause of action barred by the statute of limitations if it seeks the same relief as the original complaint.

Issues

Whether a purchaser of securities issued without a permit is in pari delicto and barred from recovery.
Whether an amended complaint adding a count for money had and received is barred by the statute of limitations if the original action was timely filed.

Disposition. affirmed

Quotations verified verbatim against the opinion

“Respondent was entitled to assume that the law had been complied with.”

“In such a case the complaining party is protected, the prohibition being for his benefit, and not being in pari delicto he is entitled to relief.”

“Both causes of action had the same and identical purpose; hence the amended complaint cannot be held to have set forth a new cause of action.”

CRAIG, J.

The appellant was incorporated and had its principal place of business in the state of Arizona, and also

[401]

maintained an office and conducted business in Los Angeles County. On January 15, 1920, at Phoenix, Arizona, there were issued by appellant for public sale generally 150,000 worth of its promissory notes of the denomination of $250 each, and on or about July 1, 1920, respondent purchased four of said notes, payable January 15, 1922, with interest at seven per cent per annum. On May 24, 1922, this action was instituted for the collection of all four notes, with interest. Thereafter and on April 17, 1923, an amended complaint was served and filed, containing an additional count or cause of action for money had and received. Judgment was rendered in favor of the plaintiff for the full amount demanded, and the defendant appealed therefrom.

It is first contended that the trial court could not award any judgment to the plaintiff, for the reason that said corporation had not obtained from the commissioner of corporations a permit to issue or sell said securities; and that since they were issued and sold in violation of law, they were void and unindorsable. In support of this proposition appellant cites authorities holding that while one who has received the benefit of an illegal private contract is estopped to plead its invalidity, such rule does not apply to contracts which are void as against public policy; that the plaintiff and defendant herein were

in pari delicto,

and should have been left as the court found them. The trial court found, and it is not denied by appellant, that the respondent had no knowledge of the failure to obtain a permit, but it is argued that she must be presumed to have known the law and that the notes were void; that having failed to demand proof of the existence of a permit, respondent “passively if not actively became a participant in violating the law.”

True, respondent must be presumed to have known the law requiring the possession of a permit as a prerequisite to the issuance and sale of securities, but it does not follow that she should be presumed to have known the

fact

Hemmeon v. Amalgamated Copper Mines Co.

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CRAIG, J.

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