On Application for Rehearing. A petition for rehearing has been filed herein, accompanied by vigorous argument which, while largely a repetition of the former argument, contains some new points.
Our attention is called to an issue raised in the trial court and also on appeal about which nothing is said in the opinion. Counsel say:
"By express language of subdivision (d), the act (referring to the Blue Sky Law) is not applicable to commercial paper or negotiable promissory notes due not more than three years from their date. The note herein was due thirteen months from the date of issue."
The act says that its provisions shall not apply to certain securities, and shall not apply to commercial paper or negotiable promissory notes due not more than three years from their date. Obviously this language does not and cannot apply to notes in favor of a corporation taken for stock. Plainly it means notes issued and sold and negotiated by a corporation. It is what the company sells, not what it buys or acquires, or receives, that is referred to in the provision above quoted. A corporation requires no license or permit from the Securities Commission to acquire or purchase promissory notes. Here the sugar company was given the right by the Commission to sell its stock for cash or for notes; notes were not sold nor issued by it. They 14 were taken in payment of stock, and were not of the class referred to in the act.
It is contended and again argued that the Pioneer Sugar Company was not an investment company within the meaning of the act, and, if it was, its agents and dealers were not such agents as required a license or permit from the Securities Commission to do what was done by them. Counsel insist that the effect of the decision is too broad; that the Legislature, when it says those "engaged in the business of selling stock," had reference to the habitual or regular occupation of a person, or that which occupies the time or labor of one as his principal concern. In the opinion the distinctions *Page 84 between investment company and dealer, as found in the statute, are set forth. The dealer sells stock of an investment company, while an investment company making sales must act through licensed or authorized agents. When the various provisions of the act are considered, it is obvious that it was the intention of the Legislature to have one class of corporations, selling their own stock and another class, or dealers, selling the stock at other corporations. In referring to an "investment company," the statute says it is a person, firm, or corporation that shall engage in the business of selling stock, etc. If the act is to be given a strictly technical construction, it can be held to mean that no permit or license was required by the Pioneer Sugar Company, unless it appears that the sole occupation of the company was stock selling, not sugar making. With this strict construction, the conclusion follows that the Pioneer Sugar Company was not an investment company, and that such a corporation may, without any permit or supervision from the Securities Commission, sell its own stock for promotion or other purposes. The effect of that construction would be to practically nullify the law, and the old system of "wild-catting" would be restored with all its evils. But, if possible, the law must be given a construction that will keep in view its beneficent purposes. Some light is thrown upon what is meant by "engaging in business of selling stocks" when section 18 is read in connection with section 3, defining an investment company. In section 18, requiring annual reports by investment companies, it provides what the reports shall show. See page 316, Sess. Laws Utah 1919. Why show the amount of the work done, the cost of the acquisition of property, its assessed value, and other information, if the only business of an investment company shall relate to the sale and negotiation of stocks? If an investment company is to be simply a stock dealer buying and selling stock, the language of section 18 would be without any purpose. We therefore conclude that, when the law is read as a whole, the act can be upheld, and that when the law speaks of being engaged in the business of selling stock it means engaged in the work of selling its own stock for the purpose *Page 85 of financing a corporation's own requirements, and during such time as may be necessary to sell the desired amount. Any other interpretation would mean the removal of all supervision by the state of corporations selling their own stock unless they did that as their principal business and not for raising capital with which to engage in some business or enterprise. If we are to accept the construction insisted upon by respondent, we must not only say that "engaged in the business of selling" means that such business is the principal occupation of the corporation, but that it devotes its entire time to stock selling. Does that follow? Would it not be reading into the statute something inconsistent with the legislative intent?
It has also been urged that no license was required by the sugar company or its agents because only subscriptions for stock were taken. As we understand it, the defendant received no stock; he only subscribed for it and gave his notes for the stock. But that sort of a deal comes under the 15 supervision of the Securities Commission, where the subscription is after the incorporation of the company, and is a purchase of stock, not merely a subscription. Guaranty MortgageCo. v. Wilcox, 62 Utah, 184, 218 P. 133, 30 A.L.R. 1324.
Counsel criticizes what we said about the right of a national bank to trade in and exchange negotiable paper. The authorities agree that a national bank has a wide latitude in taking proper measures to prevent the loss of a debt. If the trading were wholly for the purpose of preventing loss to the bank it would have been easy to show that fact. As we understand it, it was a trade or exchange of notes, and that was all. As respondent well says, the maker could not defend on that ground; the government alone could complain. But in this instance 16 it does establish the unusuality of the transaction. The circumstances of the transaction a jury would have a right to consider in passing upon the alleged bad faith of the respondent. Assuming that a national bank has the right and power to exchange and trade in promissory notes, it would still be an occurrence that *Page 86 was not usual. If trading for $100,000 worth of negotiable paper of uncertain value was common with the plaintiff, or the national banks of Salt Lake City, it could easily have been shown, in which event the circumstances would probably be entitled to no weight whatever.
That the full amount of $300,000 worth of stock subscriptions were not taken and notes to that amount obtained in Salt Lake, Davis, Tooele, and Utah counties by January 26, 1921, seems to be fairly well established, when contracts and notes obtained by unauthorized or unlicensed agents are deducted.
So far we have considered only the date of January 26, 1921, or January 27, 1921; the latter being the date of the transfer of the notes to Woolley. As to this date, one witness testified that the subscriptions at most amounted to 3,068 acres. Another witness says 3,075 acres had been obtained; another 3,130 acres. The secretary of the company says there were more than 3,000 acres — how many more he would not attempt to say. As to the amount of subscriptions on February 9, 1921, when plaintiff and Woolley traded notes, the witnesses also differ. One places the subscriptions in the four counties at $320,000 on that date, with $326,000 on February 15, 1921. Another says that the contracts to grow beets amounted to 3,169 acres on February 15, 1921. As stated, we have considered only the subscriptions to January 26, 1921, the day before the trade with Woolley was consummated. Certainly those after February 9, 1921, should not be considered in view of the objection made by respondent's counsel, as shown by the abstracted record, that contracts obtained after that date were incompetent, irrelevant, and immaterial; the objection being sustained by the trial court. Repeatedly, questions were propounded to witnesses as to whether certain agents had been licensed. Objections to these questions were invariably sustained. It is thus impossible to say haw many contracts and what amount in notes were obtained by unlicensed agents, except that it appears, that less than the required number of acres had been obtained on January 26, 1921, by licensed agents. In any event, as stated in the opinion, *Page 87 the defendant should have been permitted to prove which of plaintiff's sales agents were not licensed to make sales and had obtained no permission from the Securities Commission to act as sales agents for the Pioneer Sugar Company. The sustaining by the trial court of objections to these questions was prejudicial error and alone sufficient to entitle defendants to a new trial.
As to the question of good or bad faith of plaintiff in purchasing or trading for defendant's notes, with others, counsel for respondent say:
"The things pointed out to this honorable court are less cogent and persuasive than those pointed to by appellant and which were answered by us in our original brief."
The things pointed out by appellant are of importance. They are:
"It (plaintiff) took defendant's pretended note without the indorsement of either Ernest R. Woolley or the Pioneer Sugar Company. (2) It took defendant's pretended note with actual knowledge of the infirmities and defenses attached thereto, or with actual knowledge of such facts and circumstances that in taking defendant's pretended note it acted in bad faith commercially. (a) It knew the pretended note was given in pursuance of a stock subscription agreement. In July, 1920, C.G. Patterson asked the plaintiff to act as trustee for the Pioneer Sugar Company, and to hold stock subscription agreements and notes given in pursuance of said agreement, and on a later visit in August of 1920 to plaintiff for the purpose of opening an account for the Pioneer Sugar Company, Mr. Patterson told Mr. Culbertson, president of plaintiff bank, `that the bulk of the Pioneer Sugar Company's assets would consist of notes taken from farmers for stock subscriptions. Plaintiff's own witness, Douglas A. Swan, who knew from the first that the Pioneer Sugar Company had obtained the notes from farmers, discussed with Mr. Culbertson the transaction so far as what they were for, told him Woolley had sold a factory to them, gave Mr. Culbertson a bunch of notes, who investigated the makers and returned $5,000 that he refused to accept. Mr. Culbertson, president of plaintiff bank, testified that Mr. Woolley told him the notes were farmers' notes, and that he had sold the Hooper Sugar Factory for them, that he, Culbertson, talked with several of the farmers, satisfied himself of the financial standing of the farmers, spent three or four days investigating notes. The day before the bank bought the notes Mr. Culbertson saw a letter of H.R. Macmillan's, till January 1, 1921, attorney for the bank, to the Knox *Page 88 Bros., stating in his opinion the `notes were negotiable.' Are we to infer from this that Mr. Culbertson concluded defenses were cut off? (b) Plaintiff had knowledge of the following circumstances surrounding the transaction involving the notes, and all pointing to the worthlessness and infirmities of the notes: (1) The notes had written on the back of them the guaranty of the Pioneer Sugar Company and in the fore part of February, 1921, prior to the 8th (the notes were purchased on the 9th), the bank knew sufficient of the value of the Pioneer Sugar Company's guaranty not to honor a $5,000 draft on the company. (2) The bank gave $128,750 of Chesney notes to Woolley for $95,000, consisting of 1,500 farmers' notes, and knew Chesney was on the verge of bankruptcy. (3) The notes, including defendant's note, were not indorsed, which charged plaintiff with knowledge of infirmities and defenses. (4) When asked to indorse the notes, including defendant's note, Woolley refused, and they both laughed. Mr. Culbertson said he had investigated the makers and found they were financially good, so he must have known it was not because of the financial standing of the farmers that Mr. Woolley refused to indorse the notes; that being so, the alternative is that it was because of some infirmity in the note itself; this circumstance and the notes being unindorsed charged the bank with knowledge of the infirmities in the notes that caused Woolley to refuse to indorse them."
Counsel for respondent complain that in the opinion Iowa cases are extensively quoted from, and they ask in effect whether we intend to adopt the extreme rule announced by Iowa, Massachusetts, and North Carolina. As an answer to this question, what was said by Mr. Justice Straup in Leavitt v. Thurston,38 Utah, 351, 113 P. 77, referring to the North Carolina and Massachusetts rule, may well be repeated: "The facts of the case in hand do not require us to go to that extent. * * *"
Our attention has been called to First Nat. Bank v. Hall,31 Idaho, 167, 169 P. 936. Referring to other Idaho cases, the court says that the rule apparently followed in that state is to "the effect that the question of whether or not a transferee of a promissory note is a bona fide purchaser in due course is one for the jury, save in those instances where the testimony is not only consistent with the good faith of such purchaser, but is such that no fair-minded person could draw any other inference therefrom, is subject, in that class of cases to which this one belongs, to the following modification: *Page 89 Where the good faith of a party who claims to be the holder in due course of a negotiable instrument is an issue upon which he has the burden of proof, the credibility of his testimony in support of that issue, though uncontradicted, is for the jury."
In Auld v. Walker, 107 Neb. 676, 682, 186 N.W. 1008, 1010, the doctrine announced by the court is:
"Although lack of knowledge, suspicious circumstances, failure to make inquiry, and negligence will not in themselves establish bad faith in the plaintiff, such facts, where the burden is upon him to establish the innocent character of his purchase, and the only evidence offered was his own testimony, constitute evidence of bad faith sufficient to take the question to the jury," citing Ostenberg v. Kavka, 95 Neb. 314.
In Shawnee St. Bank v. Lydick, 109 Neb. at page 84, 189 N.W. 606, the court says:
"A purchaser in good faith should be one who has purchased with due regard for the rights of the maker, and not one who, relying wholly upon paying value for the note and purchasing before maturity without knowledge of any defense, is indifferent as to whether or not the same was honestly obtained from the maker. Where the evidence tends to show such indifference the question of good faith is for the jury."
The doctrine announced by the Supreme Court of Nebraska is sustained not only by reason but by the weight of authority. In the instant case the question for the court was, Might men of ordinary intelligence draw different conclusions from the facts? If they might, it was a question for the 17 jury; otherwise not. Lentz v. Landers, 21 Ariz. 117,185 P. 821; First Nat. Bank v. Wilson, 57 Mont. 384, 188 P. 372;Jenkins v. Helms, 89 Okla. 77, 213 P. 323; Arnett v. Sanderson,25 Ariz. 433, 218 P. 986. Applying this test, we are of the opinion that the court erred in instructing the jury to return a verdict in plaintiff's favor.
Petition for rehearing is denied.
GIDEON, THURMAN, and CHERRY, JJ., concur.