State v. Gopher Tire & Rubber Company

Supreme Court of Minnesota · 1920 · Corporations

146 Minn. 52 (1920)

Updated August 22, 2026

CorporationsBlue Sky LawSecuritiesCriminal Procedureinvestment contractsecuritylicense to sell securitiesduplicity

Facts

The indictment alleged that the defendant corporation, between July 21 and August 7, 1919, sold to several named persons and others certain securities issued by it without first obtaining a license from the State Securities Commission. The instrument sold was a certificate appointing the holder as an agent to assist in selling the company's tires and tubes and, in consideration of both that promise and a $50 payment, promised the holder a pro rata share of ten percent of local sales, a ten percent discount on personal purchases, and a possible distribution of excess earnings in preferred stock. The certificates were transferable and stated that they were not to be construed as stock, securities, or investment contracts. The defendant argued the indictment was duplicitous and that the certificates were merely service contracts rather than securities covered by the statute.

Issue

Whether the certificate described in the indictment was a stock, bond, investment contract, or other security within the meaning of the Blue Sky Law, such that selling it without a license stated a public offense. Also, whether an indictment alleging multiple sales to different persons during a short period was bad for duplicity.

Rule

The Blue Sky Law should not be given a narrow construction, because the legislature intended to include within it the sale of all securities not specifically exempted. An instrument is within the statute as an investment contract or security when purchasers pay money expecting income or profit from the enterprise, and its formal disclaimer that it is not a security is not controlling. An indictment is not duplicitous when the several acts alleged are connected with or are incidents of one continuous transaction constituting a single offense, especially where the acts are of the same grade and subject to the same punishment.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Duluth, North Shore Farm Tools Company sells transferable "community promoter certificates" for $75 each. Each purchaser agrees to recommend the company's equipment to neighbors, and the company promises quarterly payments equal to a pro rata share of 8% of local sales revenue plus a possible year-end distribution from excess earnings; the certificate also states that it is "not a stock, bond, security, or investment contract."

If the company is prosecuted for selling these certificates without first obtaining a securities license, which is the strongest argument that the certificates fall within the statute?

Explanation. The majority held the statute should be construed broadly and that substance controls over labels. An instrument falls within the act when purchasers place money expecting income or profit from the enterprise. A clause declaring the instrument is not a security does not control, and the absence of an interest in tangible assets does not prevent coverage.