People v. Shafer

California Court of Appeal Feb 27, 1933 No. Docket No. 2283.Published

Before: Houser

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Holding. The court held that the defendant's sale of fractional interests in a patent-right, coupled with an agreement granting the purchaser participation in future profit-sharing enterprises, constituted the issuance of a security without a permit in violation of the Corporate Securities Act.

Issues

Whether the sale of an interest in a patent-right combined with a profit-sharing agreement constitutes the issuance of a security under the Corporate Securities Act.
Whether the statute requires the present existence of a profit-sharing enterprise at the time of the sale.
Whether the admission of parol evidence to determine the defendant's intent constituted prejudicial error.

Disposition. affirmed

Quotations verified verbatim against the opinion

“the sale of an interest in the patent-right constituted a violation of that portion of the act which in substance forbids the issuance of a “certificate of interest in any profit-sharing agreement”.”

“the right to participate in “any future enterprises of any nature whatever which may grow out of or arise from” the patent-right, a part of which was assigned by defendant, was included within and was a part of the sale made by him.”

HOUSER, J.

On each of five counts contained in an information filed against him, defendant was convicted of the offense of “violation of the Corporate Securities Act” (Stats. 1917, p. 673, as variously amended). From the ensuing judgment, as well as from an order by which his motion for a new trial was denied, defendant has appealed to this court.

It appears that defendant was the owner of a certain patent-right which related to an amusement device, and that, without first having procured a permit from the commissioner of corporations so to do—as evidenced by an instrument in writing—defendant sold to each of several persons a 1/100 interest in said patent-right, and that one of the provisions of said instrument of sale was the following:

“It being understood for the purpose of this agreement that 1/100 shall be of the value of Five Hundred and No/100 ($500.00) Dollars. And it being further understood that this agreement shall entitle the party of the second part to participate to the amount of his or her interests in any future enterprises of any nature whatever which may grow out of or arise from said invention or any letters patent which may be issued thereon in the United States of America only.”

The prosecution of defendant was based upon the contention that, without first having obtained the required permit

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so to do, under the condition expressed in said instrument the sale of an interest in the patent-right constituted a violation of that portion of the act which in substance forbids the issuance of a “certificate of interest in any profit-sharing agreement”.

Appellant first contends that the evidence was insufficient to support the judgment for the reason that the prosecution failed to show that at the time the assignment was made any profit-sharing enterprise based upon the patent-right was in existence. But in terms, the statute contains no such requirement. On the other hand, the lack of necessity of a present existence of an enterprise from which profits are or may be expected is indicated in the provision in the statute (sec. 2) that “words used in this act in the present tense include the future as well as the present”. (See, also,

People v. Shafer

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HOUSER, J.

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