Fuller v. Dilbert

In March 1961, Abraham Dilbert agreed to buy shares in a supermarket corporation from his cousins Arthur and Samuel Dilbert (sellers) (defendants). Abraham paid for an initial distribution of 35,000 shares upon execution of the purchase agreement. The sellers did not yet own the remaining shares, which they would acquire over the next several years. Abraham agreed to pay for these remaining shares in annual installments beginning in March 1962. S. D. Fuller & Co. (Fuller) (plaintiff) was Abraham’s guarantor. None of the shares were registered with the Securities and Exchange Commission (SEC), but the parties sought to utilize an exemption from the registration requirement pursuant to § 4(a)(2) of the Securities Act of 1933 for shares purchased for investment. The purchase agreement stated that Abraham and his designees—Fuller and North River Securities Company (North River)—were buying the shares for investment and that Abraham or the designees would provide any documentation required to comply with the exemption. Abraham sold almost half of the 35,000 shares to Fuller and North River, and Fuller agreed to buy most of Abraham’s future shares. Separately, Abraham sold 3,500 of his initial shares to Sol Davis, who sold most on a public stock exchange and the remainder to others. Abraham concealed the Davis sale from the sellers, Fuller, and North River. When Abraham did not pay for the first share installment, the sellers declared a default and Fuller sought a declaratory judgment that the purchase agreement was void and unenforceable under § 12(a)(1) of the act because the sale was not for investment and thus violated the prohibition in § 5 against the public distribution of unregistered stock. The SEC filed an amicus curiae brief, arguing that the public interest did not require depriving the sellers of their contract rights because it was Abraham who allegedly caused any § 5 violation and that permitting the sellers to enforce the purchase agreement would further the public interest in allowing the enforcement of contractual promises to hold stock for investment.