dissenting.
I dissent. In reversing appellants’ convictions, the majority holds that A.R.S. § 44-1801(22), which defines a security as “any note,” is unconstitutionally vague, and I disagree.
“[A]ny note” means what it says: any note. A.R.S. § 47-3104 defines a note as follows:
A. Any writing to be a negotiable instrument within this chapter must:
1. Be signed by the maker or drawer; and
2. Contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this chapter; and
3. Be payable on demand or at a definite time; and
4. Be payable to order or to bearer.
B. A writing which complies with the requirements of this section is:
1. A “draft” (“bill of exchange”) if it is an order.
2. A “check” if it is a draft drawn on a bank and payable on demand.
3. A “certificate of deposit” if it is an acknowledgment by bank of receipt of money with an engagement to repay it.
4. A “note” if it is a promise other than a certificate of deposit.
C. As used in other chapters of this title, and as the context may require, the terms “draft”, “check”, “certificate of deposit” and “note” may refer to instruments which are not negotiable within this chapter as well as to instruments which are so negotiable.
(Emphasis added.)
A.R.S. § 47-3102(A)(3) defines a promise as “an undertaking to pay and must be more than an acknowledgment of an obligation.” If any aspect of negotiability in A.R.S. § 47-3104(A) is not met or the parties intended nonnegotiability, the note is nonnegotiable and interpreted as a simple contract to pay money. Bickart v. Greater Arizona Savings & Loan Ass’n, 103 Ariz. 166, 168, 438 P.2d 403, 405 (1968). Thus, the securities definition includes “any note” whether it is negotiable or nonnegotiable. However, the security statutes expressly exempt “any note” from being a security if it meets the criteria of A.R.S. §§ 44-1843, -1843.01, -1844, -1845, -1846 or -1847, but the burden of proving the existence of an exemption is upon the party claiming it. A.R.S. § 44-2033; State v. Baumann, 125 Ariz. 404, 412, 610 P.2d 38, 46 (1980). The promissory note in this case illustrates the reason that the legislature broadly defined a security as “any note.” A representative note and option in evidence (Exhibit 27) reads as follows:
*580PROMISSORY NOTE
Glendale, Arizona
December 1, 1984
FOR VALUE RECEIVED, Spearex International promises to pay to Beverly A. Beyer or order thereof, the sum of Ten Thousand and no/100 ($10,000.00) Dollars with interest thereon from the date hereof until paid at the rate of twelve (12%) percent per annum. Principal and interest shall be payable in lawful money of the United States in one installment on December 31, 1985.
This Promissory note is non-negotiable and neither it nor the interest represented by it shall be assigned or transferred by the holder hereof. If default be made in the payment of this note requiring the holder hereof to place this note in the hands of an attorney for collection, then the maker and endorser hereof agree to pay, in addition to the principal and interest due hereon, reasonable attorney’s fees.
SPEAREX INTERNATIONAL
Garth S. Black
Garth S. Black, President
OPTION AGREEMENT
THE PARTIES HERETO, as evidenced by their signatures below, have agreed as follows:
Spearex International is the holder of a twenty-five (25%) percent income Limited Partnership Interest in a certain Arizona Limited Partnership known as Diamond B Bar Investment Partnership. This Partnership owns approximately eighty (80) acres of undeveloped property in St. George, Utah more particularly described as:
The South lk of the Southeast % of Section 11, Township 42 South, Range 16 West, Salt Lake Base and Meridian.
The above described Limited Partnership Interest owned by Spearex has been assigned to an account known as the Spearex Capital Account of which Spearex International is the Administrator.
Pursuant to the execution of the promissory note dated December 1, 1984, Spearex International has granted to Beverly A. Beyer the option of exchanging the above promissory note for an assignment of 4 Unit(s) at $2,500 per unit in the Spearex Capital Account in lieu of payment of the above promissory note.
The above referenced option shall remain open during the full term of the promissory note or as long as the obligation under the note remains unsatisfied. In the event the option is exercised, the promissory note shall be canceled, and all rights to principal and interest thereon are waived.
This option is not subject to assignment or other inter-vivos transfer.
SPEAREX INTERNATIONAL
Garth S. Black
Garth S. Black, President
AGREED TO AND
APPROVED BY:
Beverly A. Beyer 12-1-84
Date
This promissory note is specifically restricted by its terms to be a “nonnegotiable” note that payee cannot assign or transfer. It is, therefore, a simple contract by Spearex International to pay money at 12% interest per annum to Beverly A. Beyer. As a part of this contract, Beyer receives an option to exchange the note, at any time before maturity, for an assignment of 4 units in the Spearex Capital account at $2,500 per unit. The capital account consists of 80 acres of undeveloped real property in St. George, Utah. An option agreement is defined as a promise that meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer. RESTATEMENT (SECOND) OF CONTRACTS § 25 (1981). As noted above, the note and the option agreement are printed on a single page with the agreements interlocked by terms and conditions. For example, if the option is exercised, all rights to principal and interest due under the note are waived. Thus, it is clear from reading this note and option together that this contract is more than a nonnegotiable note, it is a device to obtain investors in the Spearex Capital acr count either by loan of funds, participation *581in the development of the Spearex project or both.
In State v. Goodman, 21 Ariz.App. 252, 253, 517 P.2d 1299, 1300 (1974) we said:
There is no dispute in the evidence that a security of some type was sold to Mrs. Steinel by the appellant. The complaining witness stated that it was a bond, while the appellant maintained it was really an exempt corporate promissory note. In either case, the item sold was a security within the definition of A.R.S. § 44-1801, subsec. 13.
(Footnote omitted.) The supreme court vacated our opinion on other grounds in State v. Goodman, 110 Ariz. 524, 526, 521 P.2d 611, 613 (1974), stating:
The appellant contended that one cannot sell a nonexistent security and be in violation of A.R.S. § 44-1841 and § 44-1842. At the trial the State established that the company in question had no bonds registered with the Securities Division of the Arizona Corporation Commission. The Court of Appeals disagreed with this contention and so do we. We concur with the Court of Appeals’ holding as to this point — that a seller who purports to sell “nonexistent” securities and never delivers them is subject to prosecution under our state securities laws, particularly since the applicable statutes include offers to sell a security within the criminal prohibition. See Towne v. Friedrich, 207 Cal.App.2d 205, 24 Cal.Rptr. 400 (1962).
Thus, although the supreme court agreed with our analysis of the bond or corporate security note issue as being a statutory security, they disagreed that the conviction had to be reversed and a new trial granted the defendant.
It is true that the vagueness issue was not raised in Goodman. However, it is also clear that the court held that even a “nonexistent” note or bond is sufficient under § 44-1841 and § 44-1841 to support a criminal prosecution. The reason for this holding is the public purpose behind the securities act. In State v. Baumann, in which corporate promissory notes were redeemable in nine months at 10% and 12% interest, our supreme court, in affirming the Baumann’s conviction for securities fraud, stated:
Regulation of transactions in securities, commonly known as “blue sky laws,” are designed to protect the public from fraud and deceit arising in those transactions. [Because] much of the public lacks the knowledge and sophistication of those who trade regularly in the securities marketplace, blue sky laws act as a buffer between purveyors of worthless securities and that segment of the public which can ill afford to fall victim to fraudulent investment schemes.
In Jackson v. Robertson, 90 Ariz. 405, 409-10, 368 P.2d 645, 648 (1962), we said:
It is the capacity for harm and danger to the public as well as accomplished fraudulent transactions to which the Securities Act is directed. The Act is designed to be prophylactic if possible, remedial only if necessary.
Not only is fraud in the sale of a security a violation of A.R.S. § 44-1991, but the statutes requiring registration of securities and dealers are designed to make the possibility of fraud even more remote. See A.R.S. §§ 44-1841 and 44-1842. Unless a particular security or transaction falls within one of a few limited exemptions, all securities must be registered before they can be offered for sale and all dealers in securities must register with the Corporation Commission. Because of the vital public policy underlying the registration requirement, there must be strict compliance with all the requirements of the exemption statute. State v. Goodman, 110 Ariz. 524, 521 P.2d 611 (1974). The exemptions exist where the nature of the transaction or security exempted is either sufficiently protected from the possibility of fraud or where the need to trade freely in the exempted security outweighs the risk of fraud in the security or transaction.
125 Ariz. at 411-12, 610 P.2d at 45-46.
The California Corporation Code § 25019 defines a security in almost identical language to our A.R.S. § 44-1801, “any note.” In People v. Walberg, 263 Cal.App.2d 286, *58269 Cal.Rptr. 457, the court said, “The notes were securities because they were offered to the public to raise capital for the corporation’s enterprise.” Id. at 295, 69 Cal.Rptr. at 464; see also People v. Schock, 152 Cal.App.3d 379, 199 Cal.Rptr. 327 (1984); United States v. Farris, 614 F.2d 634 (9th Cir.1979), cert. denied, 447 U.S. 926, 100 S.Ct. 3022, 65 L.Ed.2d 1120. In Schock, the court concluded that the promissory notes were securities based on the Supreme Court’s test in SEC v. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946). Schock, 152 Cal.App.3d at 388, 199 Cal.Rptr. at 332. The court noted that California had taken its securities definition, “any note,” from 15 U.S.C. § 77b and found the federal test useful in determining whether the notes were securities. The court quoted the test as
“whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.” [Howey ], 328 U.S. at 301, 66 S.Ct. at 1104. “The touchstone is the presence of an investment in a common venture premised on a reasonable expectations of profits to be derived from the entrepreneurial or managerial efforts of others.” United Housing Foundation, Inc. [v. Forman], 421 U.S. 837, 852, 95 S.Ct. 2051, 2060, 44 L.Ed.2d 621 (1975).
152 Cal.App.3d at 387, 199 Cal.Rptr. at 331 (footnote omitted). It then analyzed a number of federal cases finding that the notes would be a security under federal and California law. It appears clear that under California law the note and options involved here would be a security subject to the California Act.
Our legislature also borrowed the statutory definition of a security as “any note” from the federal statutory definition of a security located at 15 U.S.C. § 77b. We, therefore, look to federal interpretations of securities law for guidance. Daggett v. Jackie Fine Arts, Inc., 152 Ariz. 559, 565, 733 P.2d 1142, 1148 (App.1986).
The U.S. Supreme Court recently addressed this “any note” issue in Reves v. Ernst & Young, 494 U.S. 56, 110 S.Ct. 945, 108 L.Ed.2d 47 (1990). In Reves, an agricultural cooperative, to raise money to support its operations, sold demand promissory notes with a variable interest rates that adjusted monthly to keep the rate higher than the rate paid by local financial institutions. These notes were sold to both members and nonmembers. The main issue addressed by the court was whether the cooperative promissory note was a security defined by 15 U.S.C. § 78c(a)(10) to include “any note.” The supreme court held that it was a security. In reaching its decision, the court reviewed the security definition, the purpose of the Securities Act, the congressional intent and the necessity for the broad language in combating the creation of “countless and variable schemes devised by those who seek to use the money of others on the promise of profit.” Id. at 61, 110 S.Ct. at 949 (quoting SEC v. W.J. Howey Co., 328 U.S. 293, 299, 66 S.Ct. 1100, 1103, 90 L.Ed. 1244 (1946)). The Court acknowledged that “any note should not be interpreted to mean literally any note but must be understood against the backdrop of what Congress was attempting to accomplish in enacting the Securities Acts.” Id., 493 U.S. at 63, 110 S.Ct. at 950 (footnote omitted). The Court discussed the various tests applied by the several courts of appeal and adopted the “family resemblance” test developed by the Second Circuit Court of Appeals. The Court said:
The test begins with the language of the statute; because the Securities Acts define “security” to include “any note,” we begin with a presumption that every note is a security. We nonetheless recognize that this presumption cannot be irrebutable. As we have said ..., Congress was concerned with regulating the investment market, not with creating a general federal cause of action for fraud.
... First, we examine the transaction to assess the motivations that would prompt a reasonable seller and buyer to enter into it. If the seller’s purpose is to raise money for the general use of a business enterprise or to finance substantial investments and the buyer is interested primarily in the profit the note *583is expected to generate, the instrument is likely to be a “security.” If the note is exchanged to facilitate the purchase and sale of a minor asset or consumer good, to correct for the seller’s cash-flow difficulties, or to advance some other commercial or consumer purpose, on the other hand, the note is less sensibly described as a “security.”
... Second, we examine the “plan of distribution” of the instrument, SEC v. C.M. Joiner Leasing Corp., 320 U.S. 344, 353, 64 S.Ct. 120 [124], 88 L.Ed. 88 (1943), to determine whether it is an instrument in which there is “common trading for speculation or investment,” id. at 351, 64 S.Ct. at 123. Third, we examine the reasonable expectations of the investing public: The Court will consider instruments to be “securities” on the basis of such public expectations, even where an economic analysis of the circumstances of the particular transaction might suggest that the instruments are not “securities” as used in that transaction. Compare Landreth Timber [Co. v. Landreth], 471 U.S. [681] at 687, 693, 105 S.Ct. [2297] at 2302, 2305 [85 L.Ed.2d 692 (1985)] (relying on public expectations in holding that common stock is always a security) with id. at 697-700, 105 S.Ct. at 2307-08 (Stevens, J., dissenting) (arguing that sale of business to single informed purchaser through stock is not within the purview of the Acts under the economic reality test). See also Forman, 421 U.S. at 851, 95 S.Ct. at 2060, Finally, we examine whether some factor such as the existence of another regulatory scheme significantly reduces the risk of the instrument, thereby rendering application of the Securities Acts unnecessary. See, e.g., Marine Bank [v. Weaver] 455 U.S. [551] at 557-559, and n. 7, 102 S.Ct. [1220] at 1224-25, and n. 7, [71 L.Ed.2d 409 (1982)]
We conclude, then, that in determining whether an instrument denominated a “note” is a “security,” courts are to apply the version of the “family resemblance” test that we have articulated here: a note is presumed to be a “security,” and that presumption may be rebutted only by a showing that the note bears a strong resemblance (in terms of the four factors we have identified) to one of the enumerated categories of instrument. If an instrument is not sufficiently similar to an item on the list, the decision whether another category should be added is to be made by examining the same factors.
Reves, 494 U.S. 66-67, 110 S.Ct. at 951-52 (footnote omitted). Applying the test, the supreme court found that the co-op promissory note was “any note” and a security under the act. Id. at 67-68, 110 S.Ct. at 952-53.
Applying the Reves test to the facts sub judice, I come to the same conclusion. First, the corporation was attempting to raise money for its real estate development project and the payee was interested primarily in the 12% interest on the note; second, the issue was public; third, the reasonable perception of the payee was an investment; and finally, there were no real risk reducing factors to secure the investment. Indeed, the exercise of the option would cost the payee all of her principal and interest.
Finally, if the majority is correct, then logically the rest of the security definition in A.R.S. § 44-1801(22) is also unconstitutionally vague, such as, “any ... stock,” “treasury stock” and “bond.” However, I disagree and point out that our statutory definition has been retained in the newest Uniform Security Act § 16 (1985).
I would affirm appellants’ convictions. The definition of a security as “any note” is not unconstitutionally vague.