Kreutzer v. Westfahl

204 N.W. 595, 187 Wis. 463, 1925 Wisc. LEXIS 60

• Court: Wisconsin Supreme Court
• Decided: June 22, 1925
• Status: Published

Opinion

Jones, J.

The first assignment of error is that the complaints state no offense. It is argued that the defendant was not apprised of the charges brought against him and therefore could not know the nature of the offenses attempted to be stated. It is contended that the statute is long and prolix, containing many exceptions which are not set forth in the complaints, and that the defendant was compelled to speculate as to what classes of securities he was accused of selling without a permit. Under sec. 183.27 he was charged with having sold securities without a permit. Although this section is broad enough in its terms, it contains two exceptions, one permitting sales by the authorized broker before obtaining a permit provided he complies with certain conditions, including giving a bond; the other authorizes such brokers to make sales of securities issued prior to August 1, 1919, and which have been in the hands of the public since that date, on complying with the provisions named in the section. The complaints expressly stated that the securities sold by the defendant did not come within either of these exceptions. The complaints also charged that the defendant had violated sub. (1), sec. 183.29, Stats., in selling securities without being authorized as a broker, and that he violated sub. (4), sec. 183.29, in selling the securities without being authorized as an agent.

It is plain that the defendant was not charged of any offense under sec. 183.26, because by express language the statute was made inapplicable to the numerous classes of securities included in that section. It is argued that the classes called “A” and “B” contain several exceptions or qualifications besides the two already mentioned and that the complaints should have stated that the sales were not within these exceptions; since the two exceptions referred to permit sales without permits and are negative in the complaint, they stand on a different footing from the others. The qualifications embraced in class “A” are in a different section from any of those under which the offenses are charged. The complaint charging the defendant as acting as agent- without a certificate'under sub. (4), sec. 183.29, is found in a separate paragraph or subsection and has no qualification or exception. The charge that the defendant sold securities without being authorized as a broker is under sub. (1) (a), sec. 183.29. In sub. (b) there is a qualification to the effect that the statute does not apply in case there was an agreement that no compensation should be received nor as to sales by one as an agent who at the time of the sale was a duly authorized agent for the sale of such securities. In paragraph (e) it is provided that in any prosecution for violation of the provisions of the statute the fact that any transaction is exempt by reason of the exceptions in (b) shall be matter of defense and the burden of 'proving the exemption is placed upon the defendant. Moreover, there is the general provision already quoted in sub. (5), sec. 183.39, to the effect that the exceptions and provisos in the statute need not be pleaded. It was the common-law rule that where an exception or qualification is in a separate section of the statute or in a proviso which is distinct from the enacting clause, it is a matter of defense which the prosecution need not anticipate in the pleadings. Byrne v. State, 12 Wis. 519; Raynor v. State, 62 Wis. 289, 22 N. W. 430; Splinter v. State, 140 Wis. 567, 123 N. W. 97; Piper v. State, 163 Wis. 604, 158 N. W. 319. In the absence of constitutional restrictions, it is within the legislative power to prescribe the requirements of pleadings in criminal as well as civil cases. It is by legislative authority that complaints and informations in capital offenses, as in homicides, may be stated in a few lines instead of many pages according to the procedure at common law. The fact that sub. (4) and (5), sec. 183.39, were enacted after the offenses are alleged to have been committed does not prevent their application, since they relate only to remedies and procedure. '

The further argument is made that -the offenses charged were not proven by any competent evidence. The principal objection now made is that the state did not prove that the sales were those of securities not exempted or excepted by the statute. We shall not enter'on any elaborate discussion of the large amount of evidence received in the several cases. There was competent testimony in all the cases that the accused had sold the securities named in the complaints and that he had no permit for such sales. There was also evidence bearing on the question whether the sales were within the exempted classes. It is undoubtedly the general rule that the state must prove all the essential facts entering into the description of the offense. But it has been held in many cases that when a negation of a fact lies peculiarly within the knowledge of the defendant it is incumbent on him to establish that fact. In a leading case decided more than one hundred years ago, where the defendant was accused of unlawfully having game in his possession, Lord Ellen-borougi-i said:

“There are, I think, about ten different heads of qualification enumerated in the statute, to which proof may be applied ; and according to the argument of today every person who lays an information of this sort is bound to give satisfactory evidence before the magistrates to negative the defendant’s qualification upon each of those several heads. The argument really comes to this: that there would be a moral impossibility of ever convicting upon such an information. . . . And does not, then, common sense show that the burden of proof ought to be cast upon the person who by establishing any one ;of the qualifications will be well defended? Is not the statute of Anne in effect a prohibition on every person to kill game unless he brings himself within some one of the qualifications allowed by law, the proof of which is easy on the one side, but almost impossible on the other?” The King v. Turner, 5 Maule & S. 206. Also see cases in note 36 L. R. A. n. s. 98.

In this state and in most states there are statutes declaring what shall be prima facie evidence of particular facts in certain classes of criminal offenses and statutes placing on the accused the burden of proof as to some particulars. We have no doubt as to the authority of the legislature to place upon defendants accused of offenses under this statute the burden of proving that sales made by them come within the exemptions on which they rely. Raynor v. State, 62 Wis. 289, 22 N. W. 430; 1 L. R. A. n. s. 626. Doubtless statutes of this character might proceed so far as to invade constitutional rights; for example, if they should operate to deprive the accused of due process of law or undertake to make evidence of certain facts conclusive proof of guilt. But under the statute now under consideration accused persons have the full opportunity to present any facts relevant to the issue.

This proceeding in Imbeas corpus cannot take the place of a writ of error. It is not for us now to determine whether there was sufficient evidence at the preliminary hearing to convict the defendant, if it had been a trial instead of a preliminary examination. There has been much conflict of opinion in other states as to what extent the reviewing court should examine or 'weigh the evidence in a proceeding of this character. 12 Ruling Case Law, 1242. The rule, however, is well settled in this state. In a very elaborate opinion by Mr. Justice Marshall it was said:

“The reviewing court, in the exercise of its function, must necessarily pass upon and reverse or affirm the decision of the committing magistrate, if such matters are properly presented for its consideration, according to its determination thereof, and in doing so it does not go beyond jurisdictional defects. It can examine the evidence only sufficiently to discover whether there was any substantial ground for the exercise of judgment by the committing magistrate. It cannot go beyond that and weigh the evidence. . . . When it has discovered that there was competent evidence for the judicial mind of the examining magistrate to act upon in determining the existence of the essential facts, it has reached the limit of its jurisdiction on that point. If the examining magistrate acts without evidence, he exceeds his jurisdiction; but any act, upon evidence worthy of consideration in any aspect, is as well within his jurisdiction when he decides wrong as when he decides right.” State ex rel. Durner v. Huegin, 110 Wis. 189 (85 N. W. 1046); at p. 237; Arnold v. Schmidt, 155 Wis. 55, 143 N. W. 1055.

Under this rule, after examining the evidence we have come to the conclusion that the decision of the trial court, that there was sufficient evidence of probable cause to believe that the offenses charged had been committed, should be sustained.

Thus far we have followed the order of discussion adopted in the brief of plaintiff’s counsel' treating the statute as a valid enactment. It is ably argued, however, that the statute is unconstitutional and void, that it denies the equal protection of the law, and by interfering with the right to labor and acquire property results in the taking of property without due process of law; that it leaves the traffic in certain securities untrammeled and then provides as to all others that the dealing must -be by the permission of a state tribunal, the railroad commission. It is contended that there is no legal basis for the classifications made by the statute; that they are unreasonable and arbitrary and make unjust and illegal discriminations. It is argued that there is no good reason for setting apart from other securities the classes enumerated in sec. 183.26 to which the provisions of the statute do not apply, and the provisions, in sub. (a) to (q) are criticised in detail. As illustrations of the arguments used it is argued that the experience of recent years has shown that bonds of foreign governments are liable to depreciate until they have but little or no value; that the stocks and bonds of great railroad companies have often so diminished in value as to cause vast losses to investors; that fortunes are often sunk by reason of investments in securities listed on the stock exchanges named in the statute. The frequency of bank failures is pointed out and the losses incurred by those dealing in securities named in sub. (e) are dwelt upon. So long as investors are fallible in their judgments or too credulous, such losses as have been mentioned will be incurred. During rapidly changing conditions in domestic or world-wide affairs, the most conservative and experienced financiers have often found their securities, supposed to be gilt-edged, a drug on the market. It is axiomatic that it is as hard to keep a fortune as to make it. The statute is not to be construed as classifying any of the securities enumerated as safe or any others as unsafe.

It was doubtless, however, the legislative thought that there were differences in degree as to their safety and that as a rule some were, from their nature or the conditions of their issue, more hazardous than others. Almost universally the bonds and treasury notes of the United States government and securities issued by municipalities are regarded as of higher grade than most other obligations. Bonds .of foreign governments are not widely bought by the average man or woman, and their market prices may be found in the public prints. Securities listed on the stock exchanges specified in the statute are distinguished in several respects from others. They are not admitted to be listed until their legitimacy and character have been passed upon and approved by the authorities of the exchange. They are dealt in very extensively by the business world. Their market values are daily printed in the public press throughout the land and are thus open for discovery by any person who may be interested. Banks and trust companies are under the strict' supervision and to a considerable extent the control of the banking commissioners, whose duty it is to carefully examine the nature of the securities in which these corporations deal and to take prompt action in case of probable danger to the public interests. Railroad companies and other public utilities are also subject to regulation and supervision by sworn state officials, who are required to keep informed as to the methods of their business, to fix rates and make valuations of such property and determine the amount of stocks and bonds which may be issued.

• It seems unnecessary to discuss separately other exemptions named in sec. 183.26, such as securities issued for educational and similar purposes, notes for limited amounts secured by mortgages, notes and bonds to be secured by deposits in banks of securities-of the character and amount named, distribution of stock dividends declared out of surplus, sales by the owner on his own account, not in the course of repeated transactions, judicial sales, sales by pledge holders, sales for delinquent assessments, sales by co-operative associations, sales by corporations of their own stock when the number of stockholders is very limited, sales of interests in partnerships, and sales by a company to its creditors or security holders during the process of reorganization. Differences might be pointed out which show an essential distinction between these classes of securities and the great mass of securities included in classes “A” and “B.” Nor can it be questioned that there is a wide distinction between securities in classes “A” and “B.” One class is based on established values or income and the other on prospective income. The statute was enacted to remedy certain evils which the legislature believed existed. Under the broad police power, the question whether practices injurious to the public welfare do exist is one for legislative determination.

Incidental to the legislative power to enact laws to prevent fraud and other abuses is that of making classifications of persons, occupations, or industries and selecting them for special regulation. The classification must be based “on substantial distinctions which make real differences; it must be germane to the purposes of the law; it must not be limited to existing conditions only; and must apply equally to each member of the class.” Borgnis v. Falk Co. 147 Wis. 327, 133 N. W. 209. The classification must not be so unreasonable or arbitrary as to violate fundamental rights of persons or property. But within these limitations the legislative power is very broad indeed. It may be a classification which the business world and economists do not approve as politic or wise. Hence it may be unscientific or illogical. Although it should apply equally to each member of a class, it need not be all-inclusive or extend to all cases' which it might legitimately include. In the language of Mr. Justice Holmes, “it is established by repeated decisions that a statute aimed at what is deemed an evil, and hitting it presumably where experience shows it to be most felt, is not to be upset by thinking up and enumerating other instances to which it might have been applied equally well, so far as the court can see. That is for the legislature to judge unless the case is very clear.” Keokee C. C. Co. v. Taylor, 234 U. S. 224, 34 Sup. Ct. 856. It follows that the classification does not necessarily call for condemnation by the courts although there may be wide differences of opinion as to its wisdom or propriety. It seems very plain that the temptation and the opportunity to commit fraud in dealing in securities in the exempted class and in class “A” are far less than in those included in class “B.” If it were the avowed and only purpose of the statute, in making these classifications, to prevent losses in business affairs, a different question would arise, since men have the same legal right to be foolish in their investments as to be wise. But it is the object of the act to prevent fraud and deception. This is just as plain as if that purpose were many times repeated in the statute in bold-face type. There may well be differences of opinion whether some classes should have been included in the statute and some omitted, but within the limitations already stated this was a question for the legislature and not for the courts. In several of the so-called Blue Sky cases classifications of the same general character, though differing somewhat in detail, have been upheld. Merrick v. N. W. Halsey & Co. 242 U. S. 568, 37 Sup. Ct. 227; Hall v. Geiger-Jones Co. 242 U. S. 539, 37 Sup. Ct. 217; Caldwell v. Sioux Falls S. Y. Co. 242 U. S. 559, 37 Sup. Ct. 224; Stewart v. Brady, 300 Ill. 425, 133 N. E. 310. In numerous decisions in this state the general rules on which such classifications as are made in this statute may be sustained h,ave been declared. State v. Evans, 130 Wis. 381, 110 N. W. 241; Borgnis v. Falk Co. 147 Wis. 327, 133 N. W. 209; Peterson v. Widule, 157 Wis. 641, 147 N. W. 966; Trading Stamp Cases, 166 Wis. 613, 166 N. W. 54; Pinkerton v. Buech, 173 Wis. 433, 181 N. W. 125.

It is argued that in many respects the statute amounts to a prohibition of lawful business. We do not so construe it. On the contrary, it is a statute designed to regulate dealings in intangible”property; to regulate transactions in a kind of business in which there are more opportunities for the perpetration of fraud than in a trade relating to material products. The police power of the legislature to impose reasonable regulations affecting dealings in such products, for the prevention of fraud and in promotion of public health, safety, and the general welfare, is too well settled to call for discussion. Wadhams Oil Co. v. Tracy, 141 Wis. 150, 123 N. W. 785; Milwaukee v. Ruplinger, 155 Wis. 391, 145 N. W. 42; State ex rel. Carnation M. P. Co. v. Emery, 178 Wis. 147, 189 N. W. 564; Hutchinson I. C. Co. v. Iowa, 242 U. S. 153, 37 Sup. Ct. 28. There seems to be equally good reason for the exercise of this power in regulating transactions in intangible properties. Although the word “liberty” as used in the constitution implies the right to make lawful contracts, it does not mean the unrestricted right to. act according to one’s own will, in disregard of the rights of others. It means freedom from all restraints except such as are justly imposed by law. The statutes in this state and other states which impose restraint upon modes of doing 'business and the making of contracts are infinite in number and too numerous to call for any attempt at enumeration. In forty states or more, statutes'have been passed, differing in detail from the one now under consideration, but all designed to regulate the sale of certain classes of securities. This shows a wide recognition of existing evils of the kind which this statute seeks to prevent. The law reports of this country abound in cases where victims have been defrauded by the misrepresentations of unscrupulous agents in sales of mining stocks, oil stocks, rubber stocks, and others not so plainly speculative in their nature. Often the bonds issued, based on such properties, have been found nearly or quite as worthless as the stocks.' By this statute the legislature determined that regulation as to dealings in the classes of securities described was necessary, and that determination is conclusive.

But it is argued that the legislature exceeded its powers in prescribing the modes of such regulation and that the statute attempts to confer upon the commission an unwarranted delegation of legislative and judicial power. For this proposition counsel for the petitioner relies greatly on a former decision of this court. Klein v. Barry, 182 Wis. 255, 196 N. W. 457. In this case there was no decision as to the validity of the statute as a whole, but the ruling was based on sec. 1753 — 57 as amended by ch. 442 of the Laws of 1921, which has since been repealed. By that section sales made in violation of the statute were made voidable at the discretion of the commission; after investigation in certain contingencies the commission was authorized to make an award directing the parties to make- payments- of such amounts and to do such things as might be necessary to place the parties in the same situation they would have been in had the statute been complied with; and the commission was authorized, on' the conditions named, to declare the security voidable at the election of the purchaser or- “make' such other award as may be just and equitable under the premises.” Among other reasons it was held that the section was void because it gave the commission an uncontrollable discretion to determine whether securities were void or voidable and attempted to confer-upon it- powers- of-a court of equity. It is very plain that the present statute undertakes to confer no such -broad or unlimited power upon the commission. The statute itself now prescribes the conditions on which transactions in violation of it shall be voidable and leaves to the courts the determination of the remedies to be applied. The statute prescribes the classifications of securities and the procedure by means of which the commission may determine certain facts, which are also definitely pointed out. In short, the commission is made a fact-finding body on the same theory that has been approved in the numerous decisions of this court and other jurisdictions. Minneapolis, St. P. & S. N. M. R. Co. v. Railroad Comm. 136 Wis. 146, 116 N. W. 905; Borgnis v. Falk Co. 147 Wis. 327, 133 N. W. 209.

Especial and earnest objection is made to those sections of the statute which provide for the granting or denial of permits for the sales of securities, and it is urged that the statute gives unlimited discretion and arbitrary power to the commission and erects no standard for its conduct. If this objection is well founded the statute cannot stand the test. As already stated, the prime object of the statute is to prevent fraud and deception in the negotiation of securities. In determining whether fraud has been or is likely to be committed, the two main subjects for the consideration of the commission are the character of the securities and the character and reputation of the persons dealing in them. The classifications afford some guide and basis for the commission. The elaborate provisions as to the information to be furnished concerning assets, liabilities, inventories, appraise-ments, the plan of organization, advertising, and the like are all well adapted to aid the commission in coming- to a reasonable conclusion as to the character of the securities. In view of the explicit directions given in the statute for ascertaining the quality and safety of securities, it cannot be justly said that there is no guide or standard in this respect.

The statutory directions for ascertaining the qualifications and fitness of the applicants for permits are not so explicit, and thé argument is made that there is no standard for their selection and that in this respect the statute attempted to confer arbitrary power on the commission. The applicant is required to furnish a written statement showing his previous business histoiy and such other facts as may be required. The commission, if it is deemed advisable, may make a detailed examination of his business and conduct, and if satisfied as to his good business reputation and conduct it is required to issue the permit. It cannot be doubted that the legislature has the power to determine the qualifications of persons engaging in a business which from its nature affords opportunities for defrauding the public. In this statute it has declared what these qualifications shall be. The legislature might have added language prescribing in great detail the qualifications of applicants for permits and the mode of ascertaining those qualifications, but it is a question whether such details would not have tended to confuse rather than enlighten.

In a discussion of the same subject it was said in an opinion by Mr. Justice McKenna:

“It is certainly apparent that if the conditions are within the power of the state to impose, they can only be ascertained by an executive officer. Reputation and character are quite tangible attributes, but there can be no legislative definition of them that can automatically attach to or identify individuals possessing them, and necessarily the aid of some executive agency must be invoked. The contention of ap-pellees would take from government one of its most essen-tiahinstrumentalities, of which the various national and state commissions are instances.” Hall v. Geiger-Jones Co. 242 U. S. 539, 37 Sup. Ct. 217.

This court has in several cases sustained statutes which imposed on officials the duty of determining the suitability of persons to engage in specified kinds of business without prescribing any more definite standards than are laid down in the present act. Milwaukee v. Ruplinger, 155 Wis. 391, 145 N. W. 42; Pinkerton v. Buech, 173 Wis. 433, 181 N. W. 125. The legislature itself would have the power to ascertain such facts as under this statute are left to the commission, but from the nature of things such ascertainment would be impracticable if not impossible. Having this power, it may be delegated to administrative tribunals. The authority thus given is not legislative in its nature, but is the exercise of ministerial and executive duties under legislative sanction. Minneapolis, St. P. & S. S. M. R. Co. v. Railroad Comm. 136 Wis. 146, 116 N. W. 905; State ex rel. Buell v. Frear, 146 Wis. 291, 131 N. W. 832; Borgnis v. Falk Co. 147 Wis. 327, 133 N. W. 209; State v. Lange C. Co. 164 Wis. 228, 157 N. W. 777, 160 N. W. 57. This statute is based on the same foundation as the numerous other state and federal statutes creating commissions for various purposes. The legislature lays down certain rules by statute declaring certain rights and duties under the conditions named and leaves it to an administrative tribunal to ascertain the necessary facts and apply the law as directed. As has often been said, such commissions have come to play an important part in our form of government. On occasions the commission system is severely criticised, but the number of commissions does not diminish, partly by reason of the increasing complications in business affairs, and partly because it is impossible for legislative bodies to ascertain the facts necessary for the administration of the laws and to which the laws are applied. Necessarily rather broad powers are conferred on commissions of this kind, but it is not to^ be presumed that persons of high official rank will exercise those powers in a partial or unfair manner, or in such a way as to hamper legitimate business.

In the Blue Sky cases already cited the courts considered the questions of classification, delegation of power, and the question whether the statute prescribed any sufficient standard for the action of the commission. None of the statutes were in all respects the same as our own, but they were all quite similar and depended 'on the same general principles. In some of the decisions the subject of the requisite standards was but little discussed, but the point was raised in the briefs and was involved in the questions to be decided. The constitutionality of the statute was upheld in each case. As suggested in the brief of counsel for the petitioner, in several of-these decisions it is stated that there is provision in the statutes in question for judicial review, and therefore it is claimed that those cases are not authority for the ruling of the trial:court in this case. Sec. 183.33, already quoted, makes the decisions of the commission subject to review by the circuit court for Dane county in the same manner that other decisions and orders of the railroad commission are reviewable, except that in the latter case, under the conditions named, a copy of the evidence taken may be transmitted to-the commission for reconsideration by it. This difference in the two statutes does not seem to affect materially the question whether parties desiring it may have a judicial review. By the terms of the statute which controls, if the orders or decisions of the commission are unlawful or unreasonable they may be set aside. On general principles, if the commission acts without jurisdiction, or without evidence when evidence is required, or upon erroneous views of the law, its decisions are not binding on the courts. The decisions of this court have settled the rule in this state that such a review as is granted by the statute satisfies the constitutional requirements. Minneapolis, St. P. & S. S. M. R. Co. v. Railroad Comm. 136 Wis. 146, 116 N. W. 905; Borgnis v. Falk Co. 147 Wis. 327, 133 N. W. 209. It is proper to add that there are many boards created by the statutes of this state whose decisions honestly made and within their jurisdiction are not subject to review in any proceeding. Borgnis v. Falk Co. 147 Wis. 327, 359, and cases cited (133 N. W. 209). We conchide that this case is not distinguishable-from the Blue Sky cases already cited and that the statute authorizes such judicial review as meets constitutional requirements.

There is much criticism in the brief of counsel for the petitioner of the policy of this statute. Of course this is a legislative and not a judicial question. It is claimed that the,statute goes further in interfering with business transactions than any statute which has hithert.o had the approval of this court. Even if this were true it does not necessarily subject the enactment to judicial condemnation. Every' legislative attempt to remedy social evils or abuses in the business world is liable to be confronted by this argument. If novelty had been the test for determining the validity or invalidity of statutes', many of the state and federal statutes creating commissions which have been upheld by the courts, as well as innumerable other enactments for the betterment of social and business conditions, would have fallen under the ban. With due regard to constitutional limitations, every step taken by the legislature must be judged by its own merits. It is our conclusion that the order of the circuit court should be sustained.

By the Court. — The order of the trial court quashing the writ of habeas corpus and remanding the defendant to the custody of the sheriff is affirmed.