Centrifugal National Concentrator Co. v. Eccleston

ANDERSON, J.,

pro

tem.

This is a case where the defendant is the owner of more than 300,000 shares of stock held in the plaintiff corporation, being a majority of the stock. An order was made by the corporation commissioner denying the defendant the right to vote other than a very limited number of shares of said stock.

We think the order of the commissioner was and is unauthorized and void, under section 4 of the Corporate Securities Act (Act 3814, Deering’s Gen. Laws, 1923, p. 1411), as the act read at the time the order herein was issued: “If he finds that the proposed plan of business of the applicant is not unfair, unjust or inequitable, that it intends to fairly and honestly transact its business, and that the securities that it proposes to issue and the methods used by it in issuing or disposing of them are not such as, in his opinion, will work a fraud upon the purchaser thereof, the commissioner shall issue to the applicant a permit authorizing it to issue and dispose of securities. . . . The commissioner may impose such conditions as he may deem necessary to the issue of such securities.” The permit or order of the corporation commissioner is found in the transcript.

The underlying reason for the passage of the statute was to protect the public against the perpetration against it of acts of fraud in the issuance and sale of stock; its sole purpose was to disclose and uncover the hidden acts of the fraudulent—not to prohibit legitimate business or suppress the exercise by an individual of valid and constitutional rights which could not under any circumstances constitute a fraud upon the public. The object of the statute is to confer power upon the corporation commissioner to make regulations to prevent the perpetration of fraud; but “the power to pass reasonable regulations in such a case bears no relationship to the power to prohibit or suppress”.

(In re Dart,

172 Cal. 54 [Ann. Cas. 1917D, 1127, L. R. A. 1916D, 905, 155 Pac. 63, 65].) So in this case, the power of the

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state corporation commissioner to impose reasonable regulations to safeguard the public against fraud and oppression in stock sales does not for a moment vest him with the power to override the state Constitution. (See. 12, art. XII, Const.)