Marshall v. Harris

Ansel and Marina Marshall (plaintiffs) raised thoroughbred racehorses. In June 1973, the Marshalls entered into a contract with Robert Harris (defendant), pursuant to which Harris agreed to pay expenses for two horses through 1974 in exchange for an ownership interest in the horses and a portion of the horses’ racing winnings through 1974. The Marshalls entered into a substantially similar agreement in February with a four-person group led by their attorney (collectively, the attorney investors). The Marshalls treated the Harris and attorney-investors transactions as part of the same business by, for example, paying the three horses’ expenses from a single bank account and depositing money they received from Harris and the attorney investors in a single account. The Marshalls also discussed similar agreements with at least two other potential investors during this time. None of the three horses raced until October 1973 though the Marshalls sent the attorney investors’ horse to California for training before the Harris transaction. Harris stopped paying the horses’ expenses, leading the Marshalls to sue for breach of contract. In his defense, Harris argued that the sale was an investment contract and thus was the invalid sale of an unregistered security under the Oregon Securities Law. Harris sought rescission of the contract and the return of his money. The Marshalls responded that the Harris contract was not a security and, even if it were, it was exempt from registration because it (1) reflected an isolated transaction pursuant to § 59.035(2) of the act or (2) was an initial sale of the securities of a new organization pursuant to § 59.035(11) of the act. The trial court found for the Marshalls, ruling that the act did not apply. Harris appealed.