People v. Main

The defendant and appellant was charged by indictment in the county of Los Angeles with having violated the Corporate Securities Act. It was alleged in four counts thereof that on the respective dates therein mentioned he sold and issued shares of the capital stock of a corporation which had not obtained a permit to issue or sell its stock; and in a fifth count that without first having obtained a permit or license so to do, from the commissioner of corporations, he engaged in the business of selling shares of the stock of the same corporation on the dates specified in the first four counts. General and special demurrers were interposed, which were overruled, and the defendant was convicted by a jury upon each of said counts. Motion for a new trial was thereafter presented and overruled, and this is an appeal from the judgment and the ruling upon said motion.

[1] The charging part of the first four counts of the indictment to which exception was taken by demurrer and which constitutes the basis of attack here, alleged that "the said F.L. Main did then and there wilfully, unlawfully, knowingly and feloniously, and for a valuable consideration, sell and issue, and aid and abet some person or persons to complainant unknown in selling and issuing to one Carrie Bowman" certain shares of the capital stock of the Southern Oregon Oil and Gas Company, a corporation. It is said that inasmuch as none of the counts alleged that the stock was not the privately owned property of the defendant, each count failed to charge a public offense; that he might lawfully sell his own stock, and that in this respect the alleged sales would fall within an exception to the penal provisions of the act. It is doubtless true that the statute in question does not attempt to prohibit one from selling his privately owned corporate securities without a permit or license, provided his transactions do not bring him within the classification of "dealer," or "broker." (In re Lamb, 61 Cal.App. 321 [215 P. 109].) However, the indictment need not negative such exception, for it formed no part of the definition of the offense. (People v. Jevne, 179 Cal. 621 [178 P. 517]; People v. Cencevich, 64 Cal.App. 39, 44 [220 P. 448].) Another ground of demurrer, that the indictment failed to state by whom the stock was owned, or that it was not owned by the defendant, was directed at the fifth count; and in connection with both grounds it is insisted that there was no evidence tending to show the facts as to which the indictment is said to be silent. The principles above stated apply to these criticisms, and we think that further discussion of the matter is not necessary.

The most serious point raised is that there is an entire lack of proof to support the allegation that the Southern Oregon Oil and Gas Company was a corporation having a capital stock. The indictment alleged in that behalf that "the Southern Oregon Oil and Gas Company was then and there a corporation having a capital stock"; that it had no permit to issue, nor did the defendant have a permit to sell, such stock; that said stock was a "security," and that "the crime of violation of the corporate securities act, a felony, was committed by the said F.L. Main," in that he did wilfully, unlawfully, knowingly, and feloniously, for a valuable consideration, sell and issue shares of the capital stock of said corporation.

"The securities which may not be issued or sold without the permission of the corporation commissioner are the ``shares, or other interests or rights, into which the . . . property of companies . . . or rights of . . . members thereof are divided, . . . and all certificates and other instruments issued by them or their authority, evidencing or representing such shares, interests or rights'; also ``any instrument issued or offered to the public by any company' evidencing any right to participate in the profits or earnings or the distribution of assets of any business carried on for profit by the company." (In re Lamb,61 Cal.App. 321, 331 [215 P. 109].)

The evidence offered by the People to prove the existence of the corporation was the testimony of witnesses that the defendant represented it to have been incorporated, and exhibited prospectuses, printed subscription contracts, and purported stock certificates, which were introduced at the trial, and that he had in his possession a book of printed stock certificates, all of which bore the name of the purported corporation. It is urged by the prosecution that, in view of the evidence referred to above, had this been a civil action the defendant would have been estopped to deny that the Southern Oregon Oil and Gas Company was a corporation, and further proof of that allegation would have been unnecessary.

Comparatively few criminal cases are to be found in the books where the facts create a situation permitting the application of the doctrine of estoppel. However, we are referred to several embezzlement cases where estoppel has been invoked against a defendant. In both People v. Hedley, 31 Cal. 108, andPeople v. Treadwell, 69 Cal. 226 [10 P. 502], the defendants were held estopped to deny that the relationship of principal and agent existed between them and the persons whose principals they had respectively held themselves out to represent, and thus secured the money in question. In People v.Leonard, 106 Cal. 302 [39 P. 617], the defendant was not allowed to deny that the corporation whose agent he had admittedly been was such corporation. Other cases to the same or similar import might be mentioned. In People v. Royce,106 Cal. 173 [37 P. 630, 39 P. 524], language is contained in the opinion to the effect that the defendant, having received a draft, a part of the proceeds of which he was charged with having embezzled, could not be permitted to say that he was not authorized to receive the money as treasurer of a certain association, or that the association was not entitled to it, or that the draft was not a valid one. While these and a few other examples are to be found in which the rule of estoppel has been invoked against a defendant in a criminal action, the extreme infrequency of such instances suggests caution in extending its application. We are accustomed, in criminal cases, to regard the presumption of innocence as universally placing the burden of proof upon the People to establish every essential element of the offense charged, beyond a reasonable doubt. In none of the opinions which we have examined upholding the application of the rule of estoppel is any reference made to the presumption of innocence or the fact that a plea of not guilty is in itself a denial of every element involved in the charge to which that plea is entered. In fact, in none of these decisions is there to be found more than the statement of a conclusion that under the circumstances considered the defendant could not be heard to deny the fact as to which he was held estopped, with the further intimation, in certain instances, that to hold otherwise would be inequitable and place a premium on dishonesty.

It is true that the rules of evidence are generally the same in criminal and civil cases. (Pen. Code, sec. 1102.) [2] Undoubtedly wherever the doctrine of estoppel is applicable in a criminal case it does not differ in principle from the same rule when used in a civil action. Also, whether the estoppel rests in judgment, deed, contract, or in pais, the rule and the reason for it are the same. (Allen v. Hance, 161 Cal. 189 [118 P. 527].) If the defendant is to be held estopped in the instant case to deny the corporate existence of the Southern Oregon Oil and Gas Company, the type of the estoppel would necessarily be by misrepresentation. [3] It is elementary that among the essentials of this class of estoppel (as well as of all others for that matter) are: The estoppel asserter must be a person to whom, mediately or immediately, the representation was made; also the estoppel asserter must, on the faith of the misrepresentation, have changed his position prejudicially. (Ewart on Estoppel, p. 10.) In none of these decisions in the embezzlement cases above referred to or others of a similar nature which we have examined is any attempt made to explain upon what theory the state is held to be authorized to assert an estoppel against a defendant when these essentials are taken into account. Hence, in reviewing these authorities, it is impossible to do more than speculate as to the reasoning which may have been applied therein. Of course, in a criminal case the prosecuting witness is only a witness and not a party to the proceeding. The action is one in which the People of the state are plaintiff, and no one else. If instead of being a criminal prosecution the same transaction were before the court in a suit by the complaining witness to recover damages for conversion, the plaintiff, having been the one to whom the representations had been made, and who had changed his position prejudicially on the faith of them, would clearly have the right to assert the estoppel. It would seem that if the state is to be allowed the same right in an embezzlement case it must be on the theory that in that behalf and for that limited purpose it is, so to speak, subrogated to the rights of the person who would be the estoppel asserter in a civil action involving the same alleged wrong. It is plain that the state could not qualify as an estoppel asserter, based upon any claim of its own against the defendant; the representations were not made to it, nor has it parted with anything or in any way changed its position prejudicially by reason of the deceit which was practiced. Some individual, usually the complaining witness, would be damaged if the estoppel were not maintained, and if it were a civil action in which his rights were involved. The state having taken up his cause, and in a sense having assumed to vindicate the wrong done him, may reasonably say to the defendant in the language of Lord Mansfield, "No, it shall be as you represented it to be. No man shall set up his own iniquity as a defense, any more than as a cause of action." And it is true that while in a criminal action the People constitute the plaintiff, punishment for the offense through a criminal prosecution is one form of redress granted to the individual for the vindication of a wrong. Hence, a person injured, though not strictly a party to the action, is so far interested in it as that the state in punishing the wrongdoer may assert an estoppel in his behalf where it is necessary or proper to provide that form of vindication.

[4] But while these considerations might uphold the use of an estoppel as against the defendant in a prosecution for embezzlement, obtaining money under false pretenses, or similar offenses, they furnish no support for the same procedure in the instant case. Here, the person to whom the representations were made is entirely disinterested in the outcome. She did change her position by reason of them, but, so far as the evidence discloses, not to her prejudice. Indeed, evidence to show that she was damaged, if such were the case, would be irrelevant and immaterial. No wrong done to her is the subject of vindication in this action. Whether the defendant is permitted to deny the corporate existence of the Southern Oil and Gas Company, or is estopped to do so, is a matter of complete unconcern to her. Her interest is as casual as that of a bystander who witnesses a robbery. It follows that the embezzlement and other cases to which we have referred furnish no support for the contention that the state is in a position to assert an estoppel against this defendant.

Unlike these cases, the instant prosecution is one which in no way involves the redress of a wrong done to any individual. The offense committed by the defendant, if any there be, is strictlymalum prohibitum, and wrong only because it violates a statute intended to regulate the sale of securities; it is a wrong primarily and exclusively against the state. The outstanding facts in the offense are (1) that the Southern Oregon Oil and Gas Company was a corporation; (2) that the defendant sold securities of the Southern Oregon Oil and Gas Company, a corporation; (3) that at the time of making such sale he had secured no license so to do as required by law; and (4), that at the time of making such sale the corporation had not obtained a permit from the commissioner of corporations of this state to issue or sell its capital stock. Each of these is an integral part of the corpus delicti, without proof of which the state would necessarily have failed to make out a case. If invoked here as urged by the respondent, estoppel would deny the defendant the right to prove that what he sold were not securities. It would prevent him from disproving the existence of an essential element of the offense in question, to wit, the corporate existence of the Southern Oregon Oil and Gas Company, and thus bar him from showing that he had not violated the act under which he was charged. Indeed, it would result not only in convicting him upon his extrajudicial statements alone, but in denying him the right to show, though able to do so to the point of demonstration, his complete innocence of any offense charged against him. Obviously, unless the Southern Oregon Oil and Gas Company was a corporation, proof of the other facts would fall. The other evidence even remotely bearing upon the subject was that of a witness who testified that he was told by Main that O'Connor was field manager, and that he "supposed" some other men whom he saw at the well were working for the company. It is apparent that this adds nothing to the People's case in this behalf. We think that, having alleged it, the People were obliged to prove the corporate existence of the company, and could not rely for that purpose upon any asserted estoppel.

[5] We have considered all of the evidence produced by the People having a tendency to prove that the Southern Oregon Oil and Gas Company was a corporation. Reference is now made to certain exhibits introduced by the defendant in connection with the cross-examination of the People's witnesses. These exhibits purport to be purchase contracts. They are identical, except for the figures referring to the number of shares purchased. Defendant's exhibit "A" is as follows:

"Purchase Contract To F.L. Main of New York City, N Y

Dated April 19th 1920 at El Monte, Calif.

I hereby contract for and agree to purchase from you 300 ____ shares of the issued capital stock of the Southern Oregon Oil and Gas Co. at $1 00/100 per share and pay for same as follows:

Cash. Name Carrie Bowman Accepted Address El Monte Cal. F.L. MAIN Banking Reference ____

By ____"

This evidence cannot aid the People. The use of the name "Southern Oregon Oil and Gas Company" is insufficient to prove that it is a corporation. (Briggs v. McCullough, 36 Cal. 542;People v. Cherniak, 216 Ill. App. 423.) Nor do the words contained in these exhibits, "shares of the issued capital stock," amount to an admission that the company is a corporation. While the term "capital stock" is often used in the sense of the amount derived from the issuance of shares in a corporation, still its signification is by no means limited to that definition. On the contrary, it has been defined to be "money invested in business operations, whether that business is conducted by a single individual, partnership, corporation, or a government." (9 C.J., p. 1280.) It has been said to be "the amount fixed by partners or their associates as their stake in the concern." (Hightower v. Thornton, 8 Ga. 486 [52 Am. Dec. 412]); also as the fund or property belonging to a firm or corporation and used to carry on its business. (Sanger v.Upton, 91 U.S. 56 [23 L.Ed. 220].) Section 2 of the act known as the Corporate Securities Act provides that: "The word ``company' includes all domestic and foreign private corporations, associations, joint stock companies, and partnerships, of every kind, and also trustees, . . ." and adds thereto certain exceptions. This law clearly recognizes that any of the various entities just enumerated may issue securities and gives the corporation commissioner jurisdiction over the sale thereof in this state — and this concerning foreign as well as domestic organizations. In In re Girard, 186 Cal. 718 [200 P. 593], the defendants were prosecuted for a violation of the Corporate Securities Act because they were alleged to have sold unit shares in a common-law trust company, organized in pursuance of a declaration of trust without having secured a permit from the corporation commissioner. The complaint in that action alleged that the defendants "did . . . execute and sell, shares, interests and rights into which the capital stock and the property of said company and the rights of members and holders thereof were divided." Again, the same complaint charged that neither the defendants nor the company in question had obtained a permit from the corporation commissioner to issue or sell any securities of the company or "any shares, interests, or rights into which the capital stock or property of said company and the rights of stockholders and members thereof were divided." Here we have a practical construction of the term "capital stock" in a prosecution under the same act as that in the instant case, using it in the sense of the fund or property belonging to a common-law trust company. If joint-stock companies and similar concerns have capital stock, of course they may issue certificates to purchasers of interests or shares therein. Therefore, as we have said, the fact that the words "company" and "shares of the issued capital stock" are employed in the exhibits introduced by the defendant does not constitute an admission that the legal entity, shares in whose capital stock were contracted to be sold, is a corporation.

[6] But it may be said that if estoppel is not applicable, at least the fact of the corporate character of the Southern Oregon Oil and Gas Company may be presumed, even though the presumption be a rebuttable one, and that although the defendant might overcome it by proof to the contrary, if he does not do so the fact is sufficiently established. The specific charge laid against him was that he sold and issued shares of the capital stock of a company that was "then and there a corporation." The defendant introduced no evidence upon the trial, except three exhibits of the nature mentioned herein, and no presumption arose against him from his failure to do so. (People v. Streuber,121 Cal. 431 [53 P. 918]; People v. Emmons, 13 Cal.App. 487 [110 P. 151].) The burden rested with the People to prove every fact essential to a conviction, beyond a reasonable doubt. (People v. Ribolsi, 89 Cal. 492, 500 [26 P. 1082]; People v. Gordon, 88 Cal. 422 [26 P. 502].) Hence we must decide what character of proof is requisite to sustain this burden, and whether or not that which was offered measures up to the required standard. In proof of the existence of a domestic corporation, a copy of its articles of incorporation, filed as required by the statutes, and certified by the Secretary of State, or by the county clerk of the county wherein the original articles shall have been filed, must be received as prima facie evidence of the facts therein stated. (Civ. Code, sec. 297) It has been held in criminal cases that parol proof of a de facto corporation is competent and sufficient, but that it must be proved, like character, by reputation, and not by the direct statement of a witness. (People v. Dole, 122 Cal. 486, 497 [68 Am. St. Rep. 50, 55 P. 581].) In People v. Ah Sam,41 Cal. 645, the defendant was charged with having possessed, with felonious intent, certain blank and unfinished bank bills of a foreign banking corporation, which were false, forged, and counterfeit. It was there held that the undoubted rule in civil cases, where the fact of the legal existence of the corporation was in issue, is that proof of a foreign corporation can only be made in the same manner as any foreign law or statute is proven, but that in a criminal case, involving crimes such as forgery of bank paper, since the existence and character of a bank is generally well known where its bills are current, proof by reputation in such matters is not liable to lead to error. In the absence of proof that this company was a corporation having a capital stock, the People's case was incomplete, for each count contained the allegation that it was such a corporation. Therefore, the motion for new trial should have been granted.

The remaining grounds assigned for reversal involve the giving and the refusal of instructions. One requested instruction which was refused contained matters expressly appearing in a given instruction to which appellant objects, and the other instructions complained of followed the allegations of the information. We find no error committed in the giving or refusing of instructions, and in view of the opinion above expressed, it is unnecessary to consider other points raised.

The judgment and order denying the motion for new trial are reversed.