Petition — Grand Bahama Development Co. v. Anderson
Supreme Court brief1979
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79-325
No.
oS er JR, CLERK
In the
Supreme Court of the Anited States
Octoser TERM, 1979
THE GRAND BAHAMA DEVELOPMENT COMPANY,
LIMITED, a Bahamian corporation, et al.,
Petitioners,
v.
CLARENCE A. ANDERSON, et al.,
Respondents.
PETITION FOR, A WRIT OF CERTIORARI TO THE
APPELLATE COURT OF ILLINOIS,
FIRST DISTRICT, FIFTH DIVISION
Francis D. Morrissey
Tuomas F.. BringMan
Peter J. Mone
Baker & McKenzie
130 E. Randolph Drive
Chicago, Illinois 60601
312/861-2819
Rocer C. MrnaHan
MinaHan & PETERSON, S.C.
815 E. Mason Street
Milwaukee, Wisconsin 53202
414/276-1400
Attorneys for the Petitioners,
The Grand Bahama Development Company,
Ltd., a Bahamian corporation; America
Deveo, Inc., a Delaware _ corporation;
American International Realty Corpora-
tion, an Illinois corporation; Intercon-
tinental Diversified Corp., a Panamanian
corporation; and Bahama Realty Corpora-
tion
The Scheffer Press, Inc.—(312) 263-6850
TABLE OF CONTENTS
PAGE
INTRODUCTORY STATEMENT. ...........cccssssssssssessseees 1
RNID MII Naddcchsdiedesciafetucssscchsdbubsctsncsenosoccsssosensees 1
SITET | caisisctanaetcsnnstysanessenctenesesesssovosnsnecensncessescnssees 2
CR OEe EC UMNIMU ADD occcscscccesccnscecescssccecescnsossszensnees 2
EE Be TOT MEE exeucsnessceyssensernsovecoversececvcetoneneetnnse 2
SI SP RM CBISE avesiserncorsceccrsssrccsszorncccvese 3
REASONS FOR GRANTING THE WRIT ................. 7
I. The Appellate Court of [Illinois Has Decided a
Federal Question of Substance Contrary to Ap-
plicable Decisions of the United States Supreme
Court and Federal Courts of Appeals and
SEE IEE, MUNIN. ouch ldvcuiscinsctdenevendsbueseoneesnotecns 7
II. The Decision of the Appellate Court of Llinois
Will Place a Serious Burden on Real Estate De-
velopment Which Was Never Intended by Con-
SININE iiaiaiscsaneeadsanvestaaunesahnanunsevavessosersstonnesorcevesetensaneneseecs 18
Ne acta cancateananyseamnninises 26
aia cas stnsminindihensanensensnans la
Opinion of the Appellate Court of Illinois ........ la
Order of the Supreme Court of Illinois .................. 10a
Decision on Motion to Dismiss, Bubula v. The
Grand Bahama Development Co., No. 73 C 3131
(N.D. Il. June 27, 1974) (unreported decision)
ST TTI iit cid adeeb thicaatibndnndosontecssnesaseniterssenesne lla
Decision on Motion to Dismiss First Amended
Complaint, Bubula v. The Grand Bahama De-
velopment Co., No. 73 C 3131 (N.D. Ill. De-
cember 18, 1974) (unreported decision) (Ex. B) 15a
li
Acceptance and Guarantee (EX. C) wscscssssseserenes 17a
Public Property Report of The Grand Bahama
Development Company, State of Illinois, [linois
Installment Land Sales Section (Ex. D) ............ 24a,
TABLE OF CITATIONS
CASES
Bubula v. The Grand Bahama Development Co., No.
73 C 3131 (N.D. Ill. June 27, 1974) (unreported de-
GRID: cassinsvinnscsseiavinstipneiniviiiaihaiaapttaepiabalbe st esineies 12, 13, 16
Contract Buyers League v. F & F Investment, 300
F.Supp. 210 (N.D. Ill. 1969), af’d 420 F.2d 1191
UTE: SI NEUEN siciesscibabsbcahaieno sncunseiahaneebnnscessnbiokiouibantinisonshcovead 9, 10
Davis v. Rio Rancho Estates, Inc., 401 F.Supp. 1045
Ss: TED pcstceieiniatthncintasnignsstahitindeileinuseciiedlaien 11, 15, 16
Enterprise Irrig. District v. Farmers’ Mut. Canal
Cig Se Ms SE UID ® ccsless enka secheaancacdiibsidscoubbcecetanss 18
Flournoy v. Wiener, 321 U.S. 253 (1948) wo. ceseeseeseees 18
Fogel v. Sellamerica, Ltd., 445 F.Supp. 1269 (S.D.N-Y.
SD, chclatsainieadlidalaeiasenindhiajceaitaidiesesseinaldiaiinstaeledaiugneddasepiiaiibe 14, 15
Happy Investment Group v. Lakeworld Properties,
Inc., 396 F.Supp. 175 (N.D. Cal. 1975) «00... 10, 11, 16
McCown v. Heidler, 527 F.2d 204 (10th Cir. 1975) ....14, 15
Polikoff v. Levy, 55 Ill. App.2d 229, 204 N.B.2d 807
(1st Dist.), cert. denied, 382 U.S. 903 (1965)... 17
SEC v. W. J. Howey Co., 328 U.S. 293 (1946) ..7,8, 9,15
Sire Plan Portfolios, Inc. v. Carpentier, 8 Tll. App.
2d 354, 132 N.E.2d 78 (1st Dist. 1956) oc. 17
Teamsters v. Daniel, ........ Bea asians , 98 L.Ed.2d 808
Pgptere BORER LIP Sea tec c SAE AO OS OT 23
Timmreck v, Munn, 433 F.Supp. 396 (N.D. Tl. 1977) .. 14
iii
PAGE
United Air Lines v. Mahin, 410 U.S. 623 (1972) ........ 18
United Housing Foundation, Inc. v. Forman, 421
Ble IE ~ CIEN < scesgunnlatinannicrovencneascenunteninanannenns 7, 9, 16, 21
Woodward v. Terracor, 574 F.2d 1023 (10th Cir.
NE tasasirsicisitieisaeslinecatitiaenisad ceca cooiebiesanaensadndalennign sisi 14, 15, 16
STATUTES
I er I eo eteastiennicinai 2
Be es FUEL, siren sinvatanhabicermeantstiinnssnsindeseiiiineaiiniien 2
ee: Se ee Oe ON ish cicsiieicieesiten 21
ee I saiiieiitinsa blac iatsinnccnnicenviesintmoininannes 2
Tl. Rev. Stat. ch. 12134, § 187.1 et S€q. ...ccccccccccersseee 5
eS Sf ner 2,5
Til. Rev. Stat. ch. 30, $§ 371 eb seq. ..cccccccccrssscssccsecesssessseees 24
MISCELLANEOUS
Hearings on 8.275 Before the Subecomm. on Securities
of the Senate Comm. on Banking and Currency,
SY nn Re SHUN: SE RUPUIED cscacaccthsersnccvacceveomnssssenseinetennss 22
“Offers and Sales of Condominiums or Units in a
Real Estate Development,” SEC Release No. 33-5347,
38 Fed. Reg. 1735 (Jan. 18, 1973) on. eeeeeeee 20, 24, 25
IN THE
SUPREME COURT OF THE UNITED STATES
OctosErk Term, 1979
No.
THE GRAND BAHAMA DEVELOPMENT COMPANY,
LIMITED, a Bahamian corporation, et al.,
Petitioners,
v.
CLARENCE A. ANDERSON, et al.,
Respondents.
PETITION FOR A WRIT OF CERTIORARI TO THE
APPELLATE COURT OF ILLINOIS,
FIRST DISTRICT, FIFTH DIVISION
INTRODUCTORY STATEMENT
The Grand Bahama Development Company, Limited;
America Deveo, Ine.; American International Realty Cor-
poration; Intercontinental Diversified Corp.; and Bahama
Realty Corporation petition this Court for a writ of
certiorari to review the judgment and opinion of the Ap-
pellate Court of Illinois, First District, Fifth Division.
OPINIONS BELOW
The opinion of the Appellate Court of Illinois, First
District, Fifth Division, is reported at 67 Ill. App. 3d
687, and at 384 N.E. 2d 981 (1979), and is appended
_ os
hereto (App. la). The order of the Supreme Court of
Illinois denying petitioners’ Petition for Leave to Appeal
is also appended hereto (App. 10a).
JURISDICTION
The opinion of the Appellate Court of Illinois, First
District, Fifth Division, was entered on December 22,
1978, and a timely Petition for Rehearing was denied
on January 25, 1979. Petitioners’ timely Petition for Leave
to Appeal was denied by the Supreme Court of Illinois
on May 31, 1979, and this petition for a writ of certiorari
was filed within 90 days of that date. This Court’s juris-
diction is invoked under 28 U.S.C. § 1257(3).
QUESTION PRESENTED
Whether the contracts for the purchase of fee simple
interests in lots in a real estate development executed
by respondents constitute securities in the form of invest-
ment contracts within the meaning of the Federal Securi-
ties Act of 1933, 15 U.S.C. § 77b(1), and the Llinois Secu-
rities Law of 1953, Ill. Rev. Stat. ch. 121%, § 137.2-1.
STATUTES INVOLVED
15 U.S.C. § 77b(1)
**(1) The term ‘security’ means any note, stock,
treasury stock, bond, debenture, evidence of indebtedness,
certificate of interest or participation in any profit-sharing
agreement, collateral-trust certificate, preorganization cer-
tificate or subscription, transferable share, investment
contract, voting-trust certificate, certificate of deposit for a
security, fractional undivided interest in oil, gas, or other
mineral rights, or, in general, any interest or instrument
commonly known as a ‘security,’ or any certificate of
San eo
interest or participation in, temporary or interim cer-
tificate for, receipt for, guarantee of, or warrant or right
to subscribe to or purchase, any of the foregoing.’’
ILL. REV. STAT. CH. 121%, § 137.2-1
‘* ‘Security’ means any note, stock, treasury stock,
bond, debenture, evidence of indebtedness, certificate of
interest or participation in any profit-sharing agreement,
collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, in-
vestment fund share, face-amount certificate, voting-trust
certificate, fractional undivided interest in oil, gas, or
other mineral lease, right, or royalty, option, put, call,
privilege, indemnity or any other right to purchase or sell
a contract for the future delivery of any commodity
offered or sold to the public and not on a registered con-
tract market, or, in general, any interest or instrument
commonly known as a security, or any certificate of
deposit for, certificate of interest or participation in,
temporary or interim certificate for, receipt for, guaran-
tee of, or warrant or right to subscribe to or purchase,
any of the foregoing.’’
STATEMENT OF THE CASE
Respondents, all residents of Illinois, include the named
plaintiffs and other members of a purported class cf
individuals who purchased platted, unimproved real prop-
erty in a development in Lucaya, Grand Bahama Island,
Bahamas, from petitioners. Respondents allege that peti-
tioners herein include: (1) The Grand Bahama Develop-
ment Company, Limited [Development Company], the
owner and developer of the real property; (2) America
Deveo, Ine. [Deveo], the holding company for the United
States operations of Development Company; (3) Bahama
Realty Corporation [Bahama], the holder of the exclu-
—~
-
sive sales rights in the United States for property in
the development; (4) American International Realty Cor-
poration, the exclusive franchisee or agent of Bahama
for the sale in Illinois of development property; and
(5) Intercontinental Diversified Corp., the parent or re-
lated corporation of Development Company, Bahama,
and Deveo.
Respondents executed land contracts, which provided
that the purchasers would be given deeds conveying
fee simple title to the residential lots purchased upon
payment in full of the purchase price (R. 57, R. 255,
App. Ex. C, D). Petitioners had no interest in the prop-
erty after it was sold other than retention of title to
secure the unpaid balance of the purchase price.
The land contracts specifically stated that petitioners
would not negotiate resales of land or of any purchaser’s
interest in land contracts (R. 259, App. Ex. D). The
land contracts contained no promises, representations, or
agreements that petitioners would develop, manage, or
control any property they sold for the benefit or profit
of the purchasers (R. 57, App. Ex. C).
Petitioners did agree to make improvements in the
development in which respondents purchased property
(R. 57, App. Ex. C). These improvements were to in-
clude roads, walkways, waterways, utilities, parks, and
other community facilities (R. 257, App. Ex. D). They
were to be financed initially out of petitioners’ general
revenues and maintained subsequently with service fees
assessed to property owners in the development (R. 57,
257, App. Ex. C, D). All fees paid by property owners
above and beyond the initial purchase price of their
property were expressly limited to being used for the
pee ee
care and maintenance of these community facilities (R.
57, App. Ex. C).
Petitioners also planned to construct other amenities
such as a golf course, marina, and casino on the island
on which respondents purchased property. Petitioners had
no contractual obligation to respondents to construct
these improvements, and respondents had no legal, equi-
table or financial interest in or involvement with any of
the developments beyond their lot lines (PI. Br. pp. 7, 13).
Respondents were provided with public property re-
ports prior to the sales (R. 57, App. Ex. D). The sales
efforts of petitioners were, as respondents have admitted,
‘directed at buyers for residential or resort purposes,’’
although respondents have alleged that they purchased
property in the development for investment purposes (PI.
Br. p. 12).
Respondents brought this action against petitioners in
the Cireuit Court of Cook County, Illinois, seeking
rescission of their land sales contracts because, inter alia,
petitioners were alleged to have violated the provisions
of the Federal Securities Act of 1933, 15 U.S.C. §§ 77a
et seq, and the Illinois Securities Law of 1953, Ill. Rev.
Stat. ch. 121%, §§ 137.1 et seg. Respondents contend
that the land contracts involved herein are “securities”
and, more specifically, “investment contracts” as those
terms are used in 15 U.S.C. § 77b(1) and Til. Rev.
Stat. ch. 12114, § 187.2-1, so that the provisions of the
Federal Securities Act of 1933 and the Illinois Securities
Law of 1953 are applicable to this transaction. Respon-
dents also allege that petitioners violated the Interstate
Land Sales Full Disclosure Act, 15 U.S.C. §§ 1701 et seq.
That cause of action is not involved in the instant peti-
tion,
—_
How the Federal Questions Were Presented
Petitioners filed a motion to dismiss respondents’ claim
under the Federal Securities Act and the Illinois Securities
Law on the ground that it failed to state a cause of
action. The Circuit Court of Cook County granted this
motion, holding that the land contracts entered into by
respondents did not constitute securities within the mean-
ing of the Federal Securities Act or the Illinois Securi-
ties Law.
Respondents appealed this decision to the Appellate
Court of Illinois, First District, Fifth Division, which
held that respondents had stated a cause of action under
the Federal Securities Act and the Illinois Securities
Law because they had alleged sufficient facts to establish
that the land sales contracts involved herein were in-
vestment contracts under the test established by this Court
in SEC v. W.J. Howey Co., 328 U.S. 293 (1946). The
Appellate Court of Illincis reversed the decision of the
Circuit Court and remanded the case for further proceed-
ings not inconsistent with its opinion. A timely Petition
for Rehearing to the Appellate Court of Illinois was
denied on January 25, 1979.
Petitioners filed a Petition for Leave to Appeal to the
Supreme Court of Illinois, asking that court to review
and reverse the holdings of the Appellate Court of Illinois.
That petition was denied on May 31, 1979.
aan.
REASONS FOR GRANTING THE WRIT
I. THE APPELLATE COURT OF ILLINOIS HAS DE-
CIDED A FEDERAL QUESTION OF SUBSTANCE
CONTRARY TO APPLICABLE DECISIONS OF THE
UNITED STATES SUPREME COURT AND FED-
ERAL COURTS OF APPEALS AND FEDERAL DIS-
TRICT COURTS.
The Appellate Court of Illinois, First District, Fifth
Division, has decided that land contracts for residential
lots in a land development project constitute securities
under the Federal Securities Act and the Illinois Securi-
ties Law when such a project includes plans for roads,
utilities and other community faciilties that directly
serve the lots being sold and plans for amenities such as
golf courses and marinas that indirectly serve the lots
involved, although the purchasers of the lots have no
direct interest in the profits of the project and although
the project owners have no involvement with or control
over the lots that have been sold. The decision of the
Appellate Court of Illinois on this federal question is not
in accord with the decisions of this Court in SEC v. W.J.
Howey Co., 328 U.S. 293 (1946) and United Housing
“oundation, Inc. v. Forman, 421 U.S. 837 (1975), nor is it
in accord with the decisions of the lower federal courts
that have considered this issue.
In SEC v. W.J. Howey Co., 328 U.S. 293, this Court held
that land contracts constituted “investment contracts”
which were “securities” under the terms of the Federal
Securities Act of 1933 when those land contracts were for
strips of land that were not separately fenced, that carried
a uniform price per acre based on the number of trees on
the parcel, and that were accompanied by service con-
tracts under which the landowner paid for cultivation
of the trees on his land and in return received a share of
pay en
the net profits from the cultivation and marketing of the
crops. This Court stated as follows:
“[Ajn investment contract for purposes of the Securi-
ties Act means a contract, transaction or scheme
whereby a person invests his money in a common
enterprise and is led to expect profits solely from the
efforts of the promoter or a third party, it being im-
material whether the shares in the enterprise are
evidenced by formal certificates or by nominal in-
terests in the physical assets employed in the enter-
prise.” 328 U.S. at 299.
The defendant companies in Howey, this Court held,
offered “something more than fee simple interests in
land” Id.; what they offered was “an opportunity to con-
tribute money and to share in the profits of a large... .
enterprise.” Jd. This opportunity was offered to parties
who had neither the ability nor the desire to occupy the
land or develop it themselves and who were attracted
“solely by the prospects of a return on their investment.”
328 U.S. at 300. In Howey the transfer of rights in land
was “purely incidental,” with the land contracts and war-
ranty deeds serving only as “a convenient method of de-
termining the investors’ allocable shares of the profits.” Jd.
This Court concluded that the sales arrangements in
Howey constituted investment contracts because investors
provided the capital and shared proportionately in the
earnings and profits, while the promoters managed, con-
trolled, and operated the enterprise. The test of whether
a land contract or any other contract constitutes an invest-
ment contract, stated this Court, is “whether the scheme
involves an investment of money in a common enterprise
with profits to come solely from the efforts of others.”
328. U.S.. at 301.
nitive
The reasoning in Howey was applied to a case involving
the purchase of residential apartment units in a coopera-
tive housing project in United Housing Foundation, Inc.
v. Forman, 421 U.S. 837. Therein the purchasers con-
tended that their apartment purchases constituted “in-
vestment contracts” because, mter alia, as individual
members of the cooperative they stood to benefit from
profits made by the cooperative as a whole from the
operation of its commercial facilities, including offices and
parking spaces. This Court held that such an indirect
benefit was too speculative and insubstantial to bring the
entire transaction within the Securities Act. This Court
noted in United Housing that when it referred to profits
derived from the efforts of others in the Howey test, it
meant either “capital appreciation resulting from the de-
velopment of the initial investment” by the promoters, or
“a participation in earnings resulting from the use of
investors’ funds” by the promoters. 421 U.S. at 852. This
Court found that neither of these types of profits result-
ing from the efforts of promoters had accrued to the pur-
chasers of apartment units in United Housing Foundation,
Inc. v. Forman, 421 U.S. 837.
This Court has not considered the issue of whether a
contract for the sale of a fee simple interest in real
estate in a development project constitutes an “invest-
ment contract” under the Federal Securities Act of 1933.
A number of federal circuit and district courts have
considered this issue. They have concluded that under
the applicable decisions of this Court such contracts
are not investment contracts.
In Contract Buyers League v. F & F Investment, 300
F. Supp. 210 (N.D. Ill. 1969), aff’d 420 F.2d 1191 (7th
Cir. 1970), a class of black plaintiffs brought an action
oe
seeking relief for sales of used residential property to
them at allegedly higher prices and more burdensome
terms than white purchasers would have been charged. One
count of plaintiffs’ complaint alleged violations of the
Securities Exchange Act of 1934. In dismissing that cause
of action, the district court quoted from 1 Loss, Securities
Regulation, 491-2 (2d ed., 1961) as follows:
*©¢The line is drawn, however, where neither the
element of a common enterprise nor the element of
reliance on the efforts of another is present. For
example, no “investment contract” is involved when
a person invests in real estate, with the hope perhaps
of earning a profit as the result of a general increase
in values concurrent with the development of the
neighborhood, as long as he does not do so as part
of an enterprise whereby it is expressly or impliedly
understood that the property will be developed or
operated by others.’’’ 300 F.Supp. 210, 224.
The district court recognized that many real estate
purchasers hope that the land they buy will appreciate in
value, but went on to point out, ‘*To conclude that
the natural desire of any purchaser that his purchase
should appreciate in value makes a ‘security’ of what has
been purchased, is obviously to so muddle the term as to
make it meaningless.’’ 300 F.Supp. 210, 224.
The district court concluded, “[I]t would be a gross
and unsupported enlargement of the presently exercised
jurisdiction and responsibility of the Securities and Ex-
change Commission to hold that the common sale of
residential real estate by installment contract is subject
to the federal securities laws.” 300 F.Supp. 210, 225.
The rules set down in Howey and Contract Buyers
League-were applied in Happy Investment Group v. Lake-
world Properties, Inc., 396 F. Supp. 175 (N.D. Cal. 1975),
= pm
in which case plaintiffs bought lots in a recreational sub-
division owned and developed by defendants. Plaintiffs
asserted a claim under the Securities Exchange Act of
1934. :
In Happy Investment Group, 396 F. Supp. 175, defen-
dants not only sold lots to plaintiffs but also undertook
the installation of roads and utilities in the subdivision
and ran a program to help the purchasers resell their
lots if they so desired. Sales information made available
by defendants emphasized that they were creating an en-
tire resort community and that anyone who purchased in
the community would be making an excellent investment.
However, defendants entered into no service or managerial
contracts with land purchasers.
Under these facts in Happy Investment Group, the dis-
trict court rejected plaintiffs’ contention that the con-
tracts for the purchase of lots constituted securities. The
district court noted that although the value of plaintiffs’
land might increase, that alone would not be sufficient
to make a land contract a security where the land owned
by plaintiffs was not itself developed or operated by
others. In addition, the district court noted that for
the community to fully develop, plaintiffs would have to
build homes on their lots, which would negate the Howey
requirement that under an investment contract, profits
must result solely from the efforts of others.
In Davis v. Rio Rancho Estates, Inc., 401 F. Supp.
1045 (S.D.N.Y. 1975), the facts were similar to those in
Happy Investment Group v. Lakeworld Properties, Inc.,
396 F. Supp. 175. In Davis, the district court hele that
the sale of land did not constitute an investment con-
tract for purposes of the Securities Exchange Act. After
reading defendant’s promotional materials, the district
=
court held that it was not possible to say that the develop-
ment involved was being promoted as a pure investment
rather than as a residential community, which might in-
cidentally be a good investment. The district court ex-
pressly stated that the construction of roads and other im-
provements by the developer was not the type of mana-
gerial service that would turn land sales into investment
contracts and that plaintiffs’ expectation of a profit on
resale was insufficient to transform a sale of real prop-
erty into an investment contract.
The decision in Howey has been applied in a case
arising out of the same set of facts involved in the instant
case in Bubula v. The Grand Bahama Development Com-
pany, Ltd., No. 73 C 3131 (N.D. Ill. June 27, 1974) (un-
reported decision) (R. 247-51, App. Ex. A):
“The complaint alleges that plaintiffs entered into
written contracts with defendants to purchase un-
developed land on the Grand Bahama Island. The
contracts attached to the complaint are more or less
standard forms of purchase agreements applicable
to many different kinds of real estate transactions.
The principal clause allegedly making this a common
enterprise is Note 7 which provides:
“*All annual sums received as a part of the
purchase consideration of this Acceptance and
Guarantee will be used solely to repair, main-
tain, improve, construct, and operate facilities
for the general welfare of land owners in sub-
divisions developed or to be developed in the fu-
ture by the Grand Bahama Development Com-
pany Limited.’
“The term ‘annual sums’ in the foregoing clause
refers not to the purchase price of the land but to a
relatively small annual ‘service’ charge payable for
99 years for making and maintaining common utilities
and other improvements.
— —
“Tt will be noted, also, that this clause does not give,
the purchasers any interest in property other than
their own lots and does not provide them with the
chance of future profits ‘solely from the efforts -of
the promoter or a third party,’ as required by SEC
v. Howey & Co. et al., supra; Cf. Contract Buyers
League v. F & F Investment, 300 F.Supp. 210 223-4
(N.D. Ill. 1969), aff’d 420 F.2d 1191 (7th Cir. 1970).
“Plaintiffs allege that defendants made certain oral
and written representations about the nature and
value of the land. These are not part of the ‘security’
represented by the purchase agreement, and are
specifically excluded from it by Note 2... . Defendants
assumed no written obligation to sell or transfer
plaintiffs’ property.”
The district court in Bubula further held that plain-
tiffs had not stated a cause of action for the violation
of the Federal Securities Act or the Illinois Securities
Law because the land sales contracts between plaintiffs
and defendants were not securities:
“Plaintiffs’ effort to shoehorn their land _ specu-
lations into the definition of the Securities Acts in
our opinion fails. They have alleged only a saper-
ficial similarity with the leading cases on this point
and have not distinguished their transactions from
any other agreement to purchase real estate in un-
developed land. We do not doubt that they were led
to expect that their investment could appreciate in
value and that much of this would be due to the
efforts of the developers (using plaintiffs’ money to
some extent). However, this is a far cry from a
common enterprise in the sense of Securities and
Exchange Commission v. Glen W. Turner Enter-
prises, Inc., 474 F.2d 476 (9th Cir. 1973); see
also Lino v. City Investing Co., 487 F.2d 689 (3rd
Cir. 1973); Roe v. United States, 287 F. 2d 435 (5th
Cir. 1961), cert. denied, 368 U.S. 824 (1961).”
=—
Moreover, Woodward v. Terracor, 574 F.2d 1023 (10th
Cir. 1978), held that a purchase by plaintiffs of subdivi-
sion lots in a residential development did not constitute
an investment contract subject to the Federal Secu-
rities Act in the absence of any common enterprise be-
tween plaintiffs and the developer. The plans for the
subdivision included a shopping center, health and cul-
tural facilities, transportation facilities, and a golf course
and lake.
The district court in Woodward held that the mere fact
that plaintiffs had bought lots from defendants did not
mean that they were engaged in a common enterprise and
noted that defendant had no collateral management con-
tract with the purchasers of the land.
The Appellate Court of Illinois relied heavily upon the
trial court decision of Timmreck v. Munn, 433 F. Supp.
396 (N.D.Ill. 1977), and upon a decision of the Court of
Appeals for the Tenth Cireuit in McCown v. Heidler, 527
F.2d 204 (10th Cir. 1975). Additionally, the Appellate
Court of Illinois cited the district court decision of Fogel
v. Sellamerica, Ltd., 445 F. Supp. 1269 (S.D.N.Y. 1978),
a case decided subsequent to oral argument before the
Appellate Court of Illinois.
In Timmreck v. Munn, 433 F.Supp. 396 (N.D. Ill. 1977),
plaintiffs purchased lots im a residential subdivision.
The district court held the sales contracts to be invest-
ment contracts because a substantial part of the purchase
price for each lot was placed directly into a common
fund to be used for major improvements. The district
court expressly distinguished the case from Bubula, which
rested on the same facts as the instant case, on the ground
that plaintiffs in Bubula paid only a small charge for
minor improvements, which was insufficient to create a
common enterprise.
ees
In McCown v. Heidler, 527 F.2d 204 (10th Cir. 1975),
and Fogel v. Sellamerica, Ltd., 445 F. Supp. 1269 (8.D:
N.Y. 1978), district courts held that sales contracts for
land in development projects might possibly constitute
investment contracts if it could be proved that the lots
in question were assets to be controlled or managed
solely by the developers rather than by the purchasers.
In Fogel the district court expressly affirmed its prior
holding in Davis v. Rio Rancho Estates, 401 F.Supp. 1045,
that where defendants did not promise to run the develop-
ment and distribute profits to plaintiff there was no in-
vestment contract. The effect of McCown was limited in
Woodward v. Terracor, 574 F.2d 1023, in which the Court
of Appeals for the Tenth Circuit stated that the sellers
in McCown had contractually promised the buyers that
they would make substantial improvements on the prop-
erty, so that McCown did not apply to cases where the
sellers simply contracted to deliver title to the buyers.
Significantly, the oral argument before the Appellate
Court of Illinois in the instant case was heard before
the decision in Woodward vy. Terracor, 574 F.2d 1023,
which limited the effect of McCown.
Under the applicable decisions of this Court and the
lower federal courts, the land contracts involved in the
instant case do not constitute investment contracts. Re-
spondents purchased residential land, designated by lots,
which was intended for private residential or recreational
uses, not fractional undivided interests in commercial
property like the interests in Howey. Herein improve-
ments on the lots respondents purchased were the sole
responsibility of respondents, again in contrast to Howey
where the seller of the interests was responsible for
managing the land. The land prices herein were not
uniform, and the buyers acquired no right to a proportional
—_—
share of the profits of an enterprise run by the sellers as
they had in Howey.
The parties herein entered into no agreement that would
obligate petitioners to manage, operate or control res-
pondents’ property; in fact, the property report that
respondents received prior to purchase expressly stated
that petitioners had no obligation to resell land sold to
respondents or to assist respondents in obtaining profits
from the land in any other way. Moverover, Paragraph
2 of the contracts between petitioners and respondents
states that petitioners made no promises or undertakings
to respondents other than those expressly contained in
the land sales contracts. (R. 57, App. Ex. C).
Thus, there was no common enterprise whatsoever be-
tween petitioners and respondents in the instant case.
In direct contrast to Howey, herein only a fee simple in-
terest in land was offered for sale. Unlike Howey, the
transfers of land herein were the sole reason for the
transaction between petitioners and respondents. United
Housing Foundation, Inc. v. Forman, 421 U.S. 837, estab-
lished that where the principal reason for a transaction
is to acquire ownership of property, an incidental interest
in or benefit from profits or gains made by others that
accrues to the property owner does not render the trans-
action an investment contract.
While the transfers of fee simple interests in land were
accompanied by incidental maintenance services herein,
federal courts have held in Happy Investment Group v.
Lakeworld Properties, Inc., 396 F.Supp. 175 (N.D. Cal.
1975); Davis v. Rio Rancho Estates, Inc., 401 F.Supp.
1045 (S.D.N.Y. 1975); Bubula v. The Grand Bahama De-
velopment Co., No. 73 C 3131 (N.D. Ill. June 27, 1974)
(unreported decision), and Woodward v. Terracor, 574
oun £F ‘one
F.2d 1023 (10th Cir. 1978), that the provision of main-
tenance services and community facilities such as utilities,
roads, and waterways by the sellers of real property does
not involve them in a common investment enterprise with
the buyers of the property.
While petitioners herein constructed other amenities be-
sides utilities and community facilities on the island on
which respondents’ land was located, they had no obliga-
tion to respondents to do so. Their only obligation to
construct these amenities was to the Bahamian govern-
ment. These amenities were constructed on land in which
none of the respondents had any interest, nor did res-
pondents have any interest in the profits derived there-
from.
Therefore, under the applicable decisions of this Court
and other federal courts, the land contracts in the instant
case cannot be considered securities or investment con-
tracts under the Federal Securities Act. Respondents’
cause of action based on that Act should have been dis-
missed by the Appellate Court of Illinois.
The statutory definitions of the term ‘‘security’’ are
virtually identical under the federal and state statutes
involved herein, and the purposes of the statutes are
identical. Given this parallelism, the Illinois courts have
consistently looked to Howey and other decisions of this
Court and other federal courts construing the federal
laws when deciding whether a particular instrument is
a security or investment contract under Illinois law. See
Sire Plan Portfolios, Inc. v. Carpentier, 8 Tl. App. 2d
354, 132 N.E. 2d 78 (1st Dist. 1956); Polikoff v. Levy, 55
Til. App. 2d 229, 204 N.E. 2d 807 (1st Dist.), cert. denied
382 U.S. 903 (1965).
=
_ In examining state court decisions based on both federal
and state grounds, this Court has stated, “[WJhere the
non-Federal ground is so interwoven with the other as
not to be an independent matter, or is not of sufficient
breadth to sustain the judgment without any decision of
the other, our jurisdiction is plain.” Enterprise Irrig.
District v. Farmers’ Mut. Canal Co., 248 U.S. 157, 164
(1916). This Court has also held, “[WJhere a decision
under state law necessarily involves the construction or
validity of federal law the determination of such federal
law in the application of state law gives rise to a federal
question for review here.” Flournoy v. Wiener, 321 US.
253, 272 (1943). Thus, when a state court has not decided
a question purely as a matter of state law, there does not
exist an adequate and independent state ground that
eliminates the necessity of this Court’s considering the
federal question. United Air Lines v. Mahin, 410 U.S. 623,
630-31 (1972).
In the instant case, the decision of the Appellate Court
of Illinois on respondents’ state claim followed from its
interpretation of the federal statute and federal cases.
Therefore, review of that decision by this Court is war-
ranted. A dismissal of the instant case on the basis of the
Federal Securities Act also requires dismissal on the
basis of the Illinois Securities Law.
Il. THE DECISION OF THE APPELLATE COURT OF
ILLINOIS WILL PLACE A SERIOUS BURDEN ON
REAL ESTATE DEVELOPMENT WHICH WAS
NEVER INTENDED BY CONGRESS.
The decision of the Appellate Court of Illinois will
have a drastically adverse effect upon real estate develop-
ment projects in Illinois. Under that decision any
developer, promoter or seller of real estate who directly
—
or indirectly promises to furnish customary facilities
such as roadways, recreational facilities or parks will
be required to prepare and file a prospectus under the
Federal and Illinois Securities Acts. If the opinion of the
Appellate Court of Illinois is allowed to stand, developers
of real estate tracts will be forced to resort to the cau-
tious expedient of selling unimproved property without
any amenities, or alternatively they will be required to
increase the price of lots significantly to cover their in-
creased costs of doing business due to compliance with
the Federal and Illinois Securities Acts. These increased
costs will not add to the value of the lots purchased. Nor
will such required compliance enhance the protection of
purchasers of real estate, particularly in light of other
federal and state disclosure acts applicable to such develop-
ments.
The burdens imposed on land development by the deci-
sion of the Appellate Court of Illinois exceed the direct
costs of complying with the registration and disclosure re-
quirements of the Federal and Illinois Securities Acts.
Land sales will also be subjected to the entire regulatory
structure of the Securities Exchange Act of 1934. Firms
and individuals selling real estate covered by the decision
of the Appellate Court of Illinois will be required to regis-
ter with the Securities and Exchange Commission as
securities broker-dealers, with the necessity of passing a
general securities examination and complying with the
Commission’s net capital, reporting, and recordkeeping
rules and other regulatory provisions, all of which serve
little or no purpose in the land sales context. Those
selling real estate will be required to comply with these
regulations in addition to complying with state laws
governing the licensing of real estate brokers and sales-
men,
oe s .
Sa ee eee ce = =
— 29 —
Not only those who initially sell lots in land develop-.
ments on behalf of developers will be required to register.
as broker-dealers, but also if lot owners wish to resell
their land, they must do so through registered securities
brokers, rather than local real estate brokers. Owners of
land in developments similar to that herein thus will be
extremely restricted in the resale of their land.
The burden of complying with the provision of the
Securities Exchange Act covering brokers and dealers
along with the provisions of state laws covering real
estate brokers and salesmen has already been placed
upon those who sell certain types of condominiums. The
Securities and Exchange Commission has taken the posi-
tion that sales of condominium units are offerings of
securities in the form of investment contracts when they
are offered in conjunction with agreements by the seller
to perform or arrange rental services for the purchaser
or in conjunction with participation in a rental pool ar-
rangement by the purchaser. In such cases, the Commis-
sion has stated as follows:
‘‘Persons engaged in the business of buying or
selling investment contracts or participations in profit-
sharing agreements of this type as agents for others,
or as principals for their own account, may be
brokers or dealers within the meaning of the Securi-
ties Exchange Act, and therefore may be required to
be registered as such with the Commission under the
provisions of Section 15 of that Act.’’ ‘‘Offers and
Sales of Condominiums or Units in a Real Estate
Development,’’ SEC Release No. 33-5347, 38 Fed. Reg.
1735 (Jan. 18, 1973).
The same burden will be imposed upon salesmen of lots
in real estate developments under the decision of the
Appellate Court of Illinois.
= =
In addition to curtailing condominium and coopera-
tive developments, the impact of the decision of the
Appellate Court of Illinois will be detrimental when, as
in the instant case, real estate developments are under-
taken in areas in which there are no local property taxes.
In such instances, the service charges assessed to lot
purchasers are necessary to pay for the basic services
that would otherwise be provided by local government
and paid for through the tax system.
If allowed to stand the decision of the Appellate Court
of Illinois not only will affect future real estate develop-
ments but also will invite a large volume of litigation
in trial courts throughout the country by those who have
purchased property from land developers and who now
would seize the opportunity to rescind their purchases
whether or not legitimate cause therefor exists. In re-
liance on prior court decisions, many land developers
have undertaken real estate developments and have sold
property without complying with the provisions of federal
or state securities laws. Further, Congress did not intend
the Federal Securities Act of 1933 or the Securities Ex-
change Act of 1934 to apply to instruments such as the
land contracts involved here. “The primary purpose of
the Acts of 1933 and 1934 was to eliminate serious abuses
in a largely unregulated securities market. The focus of
the Acts is on the capital market of the enterprise system
. «. . - United Housing Foundation, Inc. v. Forman,
421 U.S. 837, 849.
Sales of land in real estate developments are specifically
covered by another federal statute, the Interstate Land
Sales Full Disclosure Act, 15 U.S.C. $§ 1701 et seq. That
Act requires the recording and disclosure of information
regarding the sale of lots in land development projects.
oe
ee Se ere ees ——S
ae
hee
Any developer who sells such lots must file a detailed
statement of record with the Secretary of Housing and
Urban Development containing, inter alia, a legal descrip-
tion of the land being sold, a detailed description of the
development’s physical features, and a statement regard-
ing improvements to be made in the development. The
developer must also furnish prospective purchasers of
lots in a development with a_ printed property report
containing substantially the same information as the
statement of record. If a land developer does not com-
ply with these provisions, civil remedies are available
to those who purchase land from the developer.
The Interstate Land Sales Full Disclosure Act provides
protection to land purchasers similar to the protection
afforded to securities purchasers by the Federal Secur-
ities Acts. Its legislative history indicates that it was en-
acted in 1968 precisely because existing laws, including
the securities laws, did not cover land sales. Manuel
F, Cohen, then Chairman of the Securities and Exchange
Commission, stated at Congressional hearings on propo-
sals for a Land Sales Act that “[m]ost land promotions
do not come to the attention of the Commission since they
are beyond its jurisdiction under present law... .’’ Hear-
ings on 8S. 275 Before the Subcomm. on Securities of the
Senate Comm. on Banking and Currency, 90th Cong., 1st
Sess. (1967), at 51.
The original proposal for a Land Sales Act was to
include land transactions within the existing framework
of the Federal Securities Acts. The Land Sales Act was
to have been administered by the SEC and land sales
were to have been accompanied by a “registration state-
ment” and “prospectus” under that original proposal. As
finally enacted, the Land Sales Act is administered by
the Department of Housing and Urban Development,
= os
Land sales of the type involved herein must be accom-
panied by a statement of record and property report con-
taining specified disclosure information. The disclosure
philosophy of the Land Sales Act follows the disclosure
philosophy of the Federal Securities Acts despite dif-
ferences between the specific provisions of the two acts
based upon the differences in the subjects involved.
Land sales and securities sales differ substantially. Un-
like securities, real estate lots have inherent value and
individual characteristics that may be especially important
to a particular buyer. The uniform description of a fun-
gible securities issue is inappropriate for land offerings.
As long as a developer who sells lots meets its obliga-
tions to a land purchaser, that purchaser has no vested
interest in the developer’s profits, unlike a securities pur-
chaser.
For these reasons, the Land Sales Act was tailored to
promote disclosure of the type of information pertaining
to individual parcels of land that a land purchaser should
know. No purpose would be served by subjecting sales
of land to the additional requirements of the Federal
Securities Acts. The U.S. Congress decided that it would
not be appropriate or desirable to impose those require-
ments on land sales.
In Teamsters v. Daniel, ........ US. ....... 58 L.Bd.2d
808 (1979), this Court held that the Federal Securities
Acts did not apply to pension plans. One of the reasons
for that decision was the coverage of such plans by the
Employee Retirement Income Security Act. This Court
reasoned as follows at 822:
“The existence of this comprehensive legislation
governing the use and terms of employee pension
= rs
plans séverely undercuts all arguments for extend-
ing the Securities Acts to non-contributory, compul-
sory pension plans. Congress believed that it was
filling a regulatory void when it enacted ERISA....
Whatever benefits employees might derive from the
effect of the Securities Acts are now provided in
more definite form through ERISA.”
The Interstate Land Sales Full Disclosure Act was
intended to apply to purchases of land. The Federal
Securities Acts were not intended to cover such pur-
chases.
The Illinois Land Sales Act of 1969, Ill. Rev. Stat.
ch. 30, $§ 371 et seq, was enacted in direct response to the
federal land sales act. It contains regulatory procedures
for intrastate land sales that parallel the procedures of
the federal statute. The passage of the Illinois Land Sales
Act indicates that the Illinois legislature decided that land
contracts were not covered by the Illinois Securities Law.
The Securities and Exchange Commission has main-
tained the position that contracts for the purchase of
land in a real estate development do not constitute se-
curities if the purchaser has no share in the profits of the
seller. “The offer and sale of real estate as such, with-
out any collateral arrangements with the seller or others,
does not involve the offer of a security.” SEC Release
No. 33-5347, swpra. The critical consideration according
to the Commission is whether the purchaser of property
buys a right to share in profits made by the seller.
The SEC has also specifically stated as follows:
“In situations where commercial facilities are a part
of the common elements of a residential project, no
registration would be required under the investment
contract theory where (2) the income from such
facilities is used only to offset common area expenses
and (b) the operation of such facilities is incidental
— wn
to the project as a whole and is not established as a
primary income source for the individual owners of a
condominum or cooperative unit.” SEC Release No.
33-5347, supra.
The Commission’s interpretation exempts the land con-
tracts in the instant case from coverage under the Federal
Securities Acts.
Virtually every purchaser of real estate, improved or
unimproved, hopes that the property will appreciate in
value and wants to make a profit on a subsequent sale of
the property. Such subjective intent does not, however,
render a land contract a security or investment contract.
If such were the rule, any purchase wherein the buyer
hoped to realize a profit would subject the transaction to
coverage under the Federal Securities Acts.
The Federal Securities Acts were never intended to
cover land contracts. Therefore, the decision of the Ap-
pellate Court of Illinois imposing such coverage should be
reversed.
—
CONCLUSION
Wherefore, for the foregoing reasons Petitioners pray
that this Petition for a Writ of Certiorari be granted.
Respectfully submitted,
Francis D. Morrissey
Tuomas F. BripcMan
Peter J. Mone
Baker & McKenzie
130 E. Randolph Drive
Chicago, Illinois 60601
312/861-2819
Roger C. MinaHan
MinaHan & PETERSON, S.C.
815 E. Mason Street
Milwaukee, Wisconsin 53202
414/276-1400
Attorneys for the Petitioners,
The Grand Bahama Development Company,
Ltd., a Bahamian corporation; America
Devco, Inc., a Delaware corporation;
American International Realty Corpora-
tion, an Illinois corporation; Intercon-
tinental Diversified Corp., a Panamanian
rn and Bahama Realty Corpora-
ion.
—
APPENDICES
Opinion of The Illinois Appellate Court
77-657
CLARENCE A. ANDERSON, et al.,
Plaintiff s-Appellants,
vs.
THE GRAND BAHAMA DEVELOPMENT COMPANY,
LTD., a Bahamian corporation, et al.,
Defendants-A ppellees.
Appeal From The Circuit Court of Cook County.
Honorable Raymonp K. Bere, Judge Presiding.
Mr. Justice Wison delivered the opinion of the court:
Plaintiffs, purchasers of unimproved real property in
Lucaya, Grand Bahama Island, appeal the trial court’s
dismissal of three counts of their four count complaint
for failure to state a cause of action under either the
Tilinois Securities Law of 1953 (Ill. Rev. Stat. 1975, ch.
121 1%, pars. 137.1 et seq.) or under the Securities Act
of 1933. (15 U.S.C. §§77a et seq. (1976).) The fourth
count of the complaint involved a violation of the Inter-
state Sales Act. (15 U.S.C. $1709 (1976).) That count is
not involved in this appeal. The sole issue raised is
whether plaintiffs’ complaint states a violation of either
the Illinois or Federal Securities Laws. We reverse and
remand.
The dismissal in this case was granted in response to
defendants’ motion to dismiss for failure to state a cause
of action.t Under the rules of pleading in Illinois, the
Defendants also moved the trial court to dismiss this
cause of action pursuant to section 48 of the Illinois Civ-
il Practice Act. (Ill. Rev. Stat. 1975, ch. 110, par. 48.)
The court did not rule on that motion.
pea ae
=~ ee
motion to cismiss for failure to state a cause of action
is a section 45 motion. (Ill. Rev. Stat. 1975, ch. 110, par.
45.) A section 45 motion attacks the legal sufficiency of
the complaint. In considering a section 45 motion, a
court considers only the allegations made in the complaint
and exhibits attached thereto. A section 45 motion should
be granted only if ‘‘it appears that no set of facts could
be proven under the pleadings which would entitle plain-
tiff(s) to relief.’’ (Huebner v. Hunter Packing Co. (1978),
56 Ill. App. 3d 563, 565, 375 N.E.2d 873, 875.) Therefore,
it is our task to look to plaintiffs’ pleadings and deter-
mine whether any set of facts could be proven under the
pleadings which would entitle them to relief.
The plaintiffs, all residents of Illinois, include named
plaintiffs and other members of a class of individuals
who were sold interests in unimproved property in Lu-
eaya, Frand Bahama Island [Lucaya Development] by
the defendants. The interests were evidenced by land in-
stallment contracts. Defendants include: (1) The Grand
Bahama Development Company, Limited [Development
Company], the owner and developer of the real property,
(2) American Deveo., Incorporated [Devco], the holding
company for the United States operations of Develop-
ment Company, (3) Bahama Realty Corporation [Baha-
ma], the holder of the exclusive sales rights in the
United States for property in the development, (4) Amer-
ican International Realty Corporation, the exclusive fran-
chisee or agent of Bahama for the sale in Illinois of de-
velopment property, and (5) Intercontinental Diversified
Corporation, the parent or related corporation of De-
velopment Company, Bahama, and Deveo. Plaintiffs allege
that the sales of the interests, as represented by the to-
tal promotional and selling efforts of defendants, repre-
sent more than sales of unimproved real estate. They
contend that each sate constituted the sale of an invest-
ment contract, which is a security under both Illinois
and Federal Securities Laws, and as such required com-
pliance with the appropriate securities law.
—
Count I states a violation of the registration require-
ments of the Illinois Securities Law of 1953. (Ill. Rev.
Stat. 1975, ch. 12114, par. 137.5.) In this count, plain-
tiffs set forth the basic allegations of their complaint in
a section entitled, The Investment Scheme. They allege
that defendant, Development Company, by or through
itself, its parent, subsidiary or affiliate corporations, ac-
quired substantially all of the land in the Lucaya area
on Grand Bahama Island and developed it in accordance
with a Master Plan [Plan]. This Plan called for the
construction of facilities desirable for a complete com-
munity, including roads, utilities, schools, recreational
facilities, parks, greenways, churches, waterways, water
reserves, beaches, marinas, golf courses, shopping com-
plexes, and resort hotels, in or near the Lucaya Develop-
ment. Plaintiffs contend that this Plan has been followed
from the time of its preparation to the time of this com-
plaint.
They next allege that in mid-1960, defendants insti-
tuted an extensive advertising and promotional cam-
paign aimed ‘‘at any prospective market, and particu-
larly at purchasers, of such land for investment purposes
only.’’ Paragraph 16 of plaintiffs’ complaint contains
extensive samplings of the investment-orientation of the
promotional and advertising materials. Also, plaintiffs
attached copies of a number of the purchase forms used
in the sales. Some of these forms contained boxes for an
indication of whether the interest in the property was
being purchased for investment or residential purposes.
The last paragraph of the allegations setting forth
The Investment Scheme makes it clear that plaintiffs
could not, nor were they expected to do anything to in-
crease the value of their investment. It alleged that:
“land purchased by investors ‘to hold for the future’
would become invaluable and salable for tourists,
persons who were in the business of constructing
housing, particularly multi-family and high-rise types
of housing, and businesses on Grand Bahama Island,
—
Solely by virtue of the development, advertising and
promotion of the Island and of the Lucaya Develop-
ment Company, its parent, subsidiary or affiliate
corporations, adherence to the Master Plan, and con-
sequent increase in tourism, permanent residents
and businesses.’’ (Emphasis added.)
Count II repeats the basic allegations made in Court
I and states a violation of the registration requirements
of the Securities Act of 1933. (15 U.S.C. §77f (1976).)
Count III states a violation of the anti-fraud provisions
of the Federal Securities Act (15 U.S.C. §§77g and T7w
(1976).) In addition to the basic allegations made in
Count I, Count III alleges that defendants made, partic-
ipated in making, or approved of certain representations,
including:
‘‘(b) The property in the Lucaya Development would
increase in value;
(c) Investors would be able to sell their investment
- contracts at a profit or ‘trade-up’ to more valu-
able property ;
(d) Other people had made substantial profits on
their investments in the Lucaya Development;
(e) Development Company’s efforts, by or through
itself, its parent, subsidiary or affiliate corpora-
tions, would result in the Lucaya Development
increasing in value without any effort on the
part of investors.
Also, plaintiffs alleged that defendants failed to disclose
or participated in or approved the failure to disclose that
the sales price of the purchased land bore no reasonable
relation to the fair market value of the land and that
the investor who was interested in reselling his interest
would be in direct competition with the Development
Company. The basic relief sought by plaintiffs, in all
counts, was rescission of their contracts,
—
OPINION
The crucial factor in our determination of whether
plaintiffs have made out a cause of action in Counts I,
II, and III, is the characterization which we give to the
interests which plaintiffs purchased from defendants.
Defendants contend that plaintiffs purchased ‘‘interests
in real estate, with the hope that they could realize gain
by such ownership, or by their own sales of the land.’’
Plaintiffs contend that they purchased investment con-
tracts with the hope of obtaining profits solely from the
efforts of defendants.
In Securities & Exchange Commission v. Howey (1946),
328 U.S. 293, 90 L. Ed. 1244, 66 S. Ct. 1100, the United
States Supreme Court defined investment contract as:
‘‘A contract, transaction or scheme whereby a per-
son (1) invests his money (2) in a common enter-
prise (3) and is led to expect profits (4) solely from
the efforts of the promoter or a third party * * *.”
(328 U.S. at 298-99, 90 L.Ed. 1244, 66 S. Ct. 1100.)
In explaining the definition, the Court indicated that the
definition embodied a ‘‘flexible rather than a static prin-
ciple * * * capable of adoption to meet the countless and
valuable schemes devised by those who seek the use of
the money of others on the promise of profits.’’ (328 U.S.
at 299, 90 L. Ed. 1244, 66 S. Ct. 1100.) This definition
and broad construction has been adopted in Illinois. (Poli-
koff v. Levy (1965), 55 Ill. App. 2d 229, 204 N.E. 2d 807.)
Therefore, paintiffs must allege sufficient facts to meet
the broad test of Howey if their interests are to be char-
acterized as investment contracts under either the Ilinois
or Federal Securities Laws.
Several recent cases have extended the Howey test to
situations involving the purchase of land in a subdivision
or development. (Fogel v. Sellamerica, Ltd. (1978),
Supp. 396; McCown v. Heidler (1975), 527 F.2d 204.) In
Fogel, the court denied defendants’ motion for a summary
judgment, with leave to renew, when it found that it was
=
not clear whether there was a common enterprise between
the parties. In Timmerack, the court denied defendants’
motion to dismiss when it could not determine whether
plaintiffs had pleaded a claim cognizable under the se-
curities laws from the materials presented by plaintiffs.
In McCown, the court found that the trial court had ruled
incorrectly when it denied plaintiffs’ attempt to amend
their complaint to include allegations of security law’s
violations. Each of these cases emphasized the importance
of viewing all the facts to determine the nature of the
involved transaction. Fogel at 1277; Timmerack at 401-
403; McGown at 208.
Defendants contend that the relevant facts of this tran-
saction are only the terms of the contract between the
parties and the terms of a property report referred to
in the contract. As support, they cite to language in
Bubula v. The Grand Bahama Development Co., No. 73 C
3131 (N.D. Ill. 6/27/74), an earlier case involving a suit
arising out of the same facts as the present suit. How-
ever, this language has been specifically criticized by 7'um-
merack v. Munn (1977), 433 F. Supp. 396. In Timmerack,
the United States District Court for the Northern Dis-
trict of Illinois made it clear that the facts of a transac-
tion include not only the terms of the contract but also
the specific oral and written representations made by
defendants in their promotional and advertising compaign
which was aimed at inducing plaintiffs to purchase land.
In that case it was alleged that defendants had stated
that they would provide specific improvements and ame-
nities which would substantially increase the value of the
land which plaintiffs had purchased. We think that the
Timmerack rule is the better rule.
Looking at the terms of the contract and the represen-
tations allegedly made by defendants in this case, we
find that plaintiffs have made the proper allegations in
support of a finding that an investment contract existed
so as to withstand defendants’ section 45 motion. Plain-
tiffs have alleged that they purchased the interest in
the land as ‘‘investments.’’ Although the motivation of
Se
— Pe
the purchaser is not controlling, it is one factor which
courts have considered in determining a purchaser’s in-
terest. (Fogel v. Sellamerica, Ltd. (1978), 445 F. Supp.
1269.) Another factor which courts have considered is
the emphasis of defendants’ promotional materials. (Tim-
merack v. Munn (1977), 433 F. Supp. 396; Davis v. Rio
Rancho Estates, Inc. (1975), 401 F. Supp. 1045.) Plain-
tiff’s paragraph 16 of their complaint specifically in-
dicates the investment orientation of defendants’ promo-
tional materials. Reference is made to language in the
materials which advises plaintiffs to purchase land in
the Lucaya Development in order to ‘‘diversify their ‘In-
vestment Portfolio.’ ’’ One of the advertising and promo-
tional materials contained a returnable coupon which
asked plaintiffs if they were interested in purchasing
land for ‘‘investment’’ or other purposes. Other materials
referred to the rewards which other ‘‘investors’’ had al-
ready reaped. Finally, some of the purchase forms used
by defendants specifically requested information on whether
plaintiffs intended to purchase the land for residential or
investment purposes. This has been considered to have
been a significant factor in finding that an investment con-
tract might exist in at least one other case. (McCown v.
Heidler (1975), 527 F.2d 204, 210.) We find it particularly
significant here when considered in the context of defen-
dant’s alleged representations.
Next, plaintiffs have alleged that their investment would
become valuable ‘‘by virtue of the development, advertis-
ing and promotion of the Island and of the Lucaya Devel-
opment by (defendants) * * *, adherence to the Master
Plan, and consequent increase in tourism, permanent resi-
dents and businesses.’’ This allegation meets the require-
ment that plaintiffs invest their money in a common enter-
prise. ‘‘A common enterprise is one in which the fortunes
of the investor are interwoven with the dependent upon
the efforts and success of those seeking the investment of
of third parties.’’ (Securities d Exchange Commission v.
Glenn W. Turner Enterprises, Inc. (1973), 474 F.2d 476,
482 n.7.) Plaintiffs’ allegation clearly indicates that their
fortunes are interwoven with and dependent upon the ef-
forts of the defendant.
—
Defendants argue that there was no common enterprise
because: (1) defendants were not contractually obligated
to make any improvements, other than those for which
plaintiffs were assessed a small annual service fee; and
(2) all promised improvements had been performed by de-
fendants. We refuse to accept defendants’ first argument
for the same reason that we refused to accept the argu-
ment that the terms of the contract contain the sole repre-
sentations made between the parties. Promised improve-
ments may also be found in defendants’ promotional
materials and utterances. (Fogel v. Sellamerica, Ltd.
(1978), 445 F.Supp. 1269; Timmerack v. Munn (1977),
433 F.Supp. 396.) As to defendants’ second argument, we
do not read plaintiffs’ allegation as referring to improve-
ments which already have been performed. Plaintiffs’ al-
legation refers to an ongoing scheme which will make their
land more valuable. The scheme includes not only develop-
ment, but also continued advertising and promotion of the
land by defendants. Also, plaintiffs have stated that de-
fendants promised that the land would become valuable
by adherence to the Master Plan. Although plaintiffs fail
to list the continuing construction projects included in the
Plan, we think that the improvements which already have
been made in accordance with this Plan and which are
listed in plaintiffs’ complaint are sufficiently suggestive
of the types of improvements which can be expected. To
resist a motion to dismiss, plaintiffs need allege no more
than this.
Lastly, plaintiffs allege that the land will become
‘‘valuable and salable to tourists’’ and others solely by
virtue of defendants’ efforts. They also allege that pur-
chasers of the land could not, nor were they expected to,
do anything to increase the value of their investments.
These allegations fulfill the final two requirements for
an investment contract as stated in Howey. First, they
fulfill the requirement that plaintiffs’ investment was for
the purpose of receiving profits. Capital appreciation in
property is a recognized form of profit for purposes of
meeting this requirement. (United Housing Foundation,
Inc. v. Forman (1975), 421 U.S. 837, 852, 44 L. Ed. 2d 621,
ne ee ee eee
—
95 S. Ct. 2051; Tiummerack v. Munn (1977), 433 F. Supp.
396, 402 n.3.) Second, they fulfill the requirement that
the profits be obtained solely through the efforts of de-
fendants. In fact, plaintiffs’ allegations stress the fact
that they could do nothing to increase the value of
investments.
For the foregoing reasons, we hold that plaintiffs have
made out a proper cause of action under both Federal
and Illinois Securities Laws. Therefore, we reverse and
remand with instructions that the trial court conduct fur-
ther proceedings not inconsistent with this opinion.
Reversed and remanded.
Lorenz ann Megpa, J.J., concur.
ILLINOIS SUPREME COURT
Clell L. Woods, Clerk
Supreme Court Building
Springfield, Tl. 62706
(217) 782-2035
May 31, 1979
Mr. Francis D. Morrissey
Attorney at Law
Baker & McKenzie
130 East Randolph Dr.
Chicago, IL 60601
The Grand Bahama Development Company,
Ltd., a Bahamian corporation; et al., ete., et
al., petitioners. Leave to appeal, Appellate
Court, First District.
No. 51734- Clarence A. Anderson, et al., respondents, vs.
The Supreme Court today denied the petition for leave
to appeal in the above entitled cause.
Very truly yours,,
/s/ Clell L. Woods
Clerk of the Supreme Court
—_—
UNITED STATES OF AMERICA
State of Illinois )
) ss.
Supreme Court )
At a Term of the Supreme Court, begun and held in
Springiield, on Monday, the fourteenth day of May in the
year of our Lord, one thousand nine hundred and seventy-
nine, within and for the State of Illinois.
Present: Joseph H. Goldenhersh, Chief Justice
Justice Robert C. Underwood
Justice Howard C. Ryan
Justice Thomas J. Moran
Justice Daniel P. Ward
Justice William G. Clark
Justice Thomas E. Kluczyn-
ski
William J. Scott, Attorney General
Louie F. Dean, Marshal
Attest: Clell L. Woods Clerk
Received Jul 12 1979
Be It Remembered, that, to-wit: on the 31st day of
May 1979 the same being one of the days of the term
of Court aforesaid, the following proceedings were, by
said Court, had and entered of record, to-wit:
Clarence A. Anderson, et al.,
Respondents,
vs.
No. 51734
The Grand Bahama Development Company, Ltd., a Ba-
hamian corporation; America Deveco, Inc., a Delaware cor-
poration; American International Realty Corporation, an
Tilincis corporation; Inter-Continental Diversified Corp.,
a Panamanian corporation; and Bahama Realty Corpora-
tion,
Petitioners.
Petition for Leave to Appeal from Appellate Court First
77-657
eee Se ere Ee ie Oe ener
ewe Ss 8
—lla—
And now on this day the Court having duly considered
the Petition for Leave to Appeal herein and being now
fully advised of and concerning the premises, doth over-
rule the prayer of the petition and denies Leave to Ap-
peal herein.
And it is further considered by the Court that the
said Respondents recover of and from the said Petitioners
costs by them in this behalf expended, to be taxed, and
that they have execution therefor.
I, Clell L. Woods, Clerk of the Supreme Court of the
State of Illinois and keeper of the records, files and
Seal thereof, do hereby certify that the foregoing is a
true copy of the final order of the said Supreme Court in
the above entitled cause of record in my office.
In Witness Whereof, I have here-
unto subscribed my name and affixed
the Seal of said Court this 25th day
of June, 1979.
/s/ Clell L. Woods
Clerk,
(Seal)
Supreme Court of the State of Illinois
EXHIBIT A
UNITED STATES DISTRICT COURT
Northern District of Tlinois
Eastern Division
JOHN S. BUBULA and FRANK V. PANTALEO, on
their behalf and on behalf of all persons similarly
situated,
Plaintiffs,
vs.
THE GRAND BAHAMA DEVELOPMENT COMPANY,
LIMITED, a company incorporated under the laws of
the Bahama Islands; AMERICAN DEVCO, INC., a
Phillipine corporation; and AMERICAN REALTY COR-
PORATION, an Illinois corporation,
Defendants,
No. 73 C 3131
—_
DECISION ON MOTION TO DISMISS
This cause comes on to be heard on the motion of all
defendants to dismiss the complaint for failure to state
a claim upon which relief can be granted and alternatively
for the additional reason that the claims are barred by
the applicable statute of limitations. The complaint is
filed as a purported class action to enforce claims arising
under Sec. 12(1) of the Securities Act of 1933 and See.
10(b) and Rule 10b-5 of the Securities Exchange Act of
1934. We find and conclude that the complaint should
be dismissed because defendants did not sell a ‘‘security”’
as defined in Sec. 2(1) of the Securities Act or Sec. 3(a)
(10) of the Exchange Act. We alternatively find and
conclude that the cause of action under See. 12(1) of the
Securities Act is barred by the one-year limitation of
Sec. 13 of that Act (15 U.S.C. §77m) but that the cause
of action under Sec. 10(b) may have been concealed by
the defendants and thus not barred if it was not discover-
able by plaintiffs during the applicable three year stat-
utory period. Parrent v. Midwest Rug Mills, Inc., 455
F.2d 123 (7th Cir. 1972).
The plaintiffs have attempted to fit their purchase
agreement for undeveloped land into the mold of a
‘‘security’’ as defined in Sec. 2(1) of the Securities Act
(15 U.S.C. §77b(1)). This statutory definition is as fol-
lows:
The term ‘‘security’’ means any note, stock, treas-
ury stock, bond, debenture, evidence of indebtedness,
certificate of interest or participation in any profit-
sharing agreement, collateral-trust certificate, pre-
organization certificate or subscription, transferable
share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional un-
divided interest in oil, gas, or other mineral rights,
or, in general, any interest or instrument commonly
known as a ‘‘security’’, or any certificate of interest
or participation in, temporary or interim certificate
for, receipt for, guarantee of, or warrant or right
to subscribe to or purchase, any of the foregoing.
bn A Re ON i tl Pe
at Se oS SBOE ne Ae
nL Os it naa Nien to oa sant nin A
— 13a —
The foregoing definition has been construed by the courts
to require some kind of ‘‘common enterprise’’ between
the purchasers and sellers. ef. S.E.C. v. Howey & Co.,
et al., 328 U.S. 293 (1946). A common enterprise is fur-
ther defined to be an investment by which the buyer is led
to expect participation in profits generated by the seller.
The complaint alleges that plaintiffs entered into writ-
ten contracts with defendants to purchase undeveloped
land on the Grand Bahama Island. The contracts attached
to the complaint are more or less standard forms of
purvhase agreements applicable to many different kinds
of real estate transactions. The principal clause allegedly
a this a common enterprise is Note 7 which pro-
vides :
All annual sums received as a part of the purchase
consideration of this Acceptance and Guarantee will
be used solely to repair, maintain, improve, construct
and operate facilities for the general welfare of land
owners in subdivisions developed or to be developed
in the future by the Grand Bahama Development
Company Limited.
The term ‘‘annual sums’’ in the foregoing clause refers
not to the purchase price of the land but to a relatively
small annual ‘‘service’’ charge payable for 99 years for
making and maintaining common ultilities and other im-
provements.
It will be noted, also, that this clause does not give the
purchasers any interest in property other than their
own lots and does not provide them with the chance of
future profits ‘“‘solely from the efforts of the promoter
or a third party’’, as required by S.E.C. v. Howey &
Co., et al., supra; cf. Contract Buyers League v. F. & F
300 F. Supp. 210, 223-4 (N.D. Tll. 1969), aff’d 420 F.2d 1191
(7th Cir. 1970).
Plaintiffs allege that defendants made certain oral and
written representations about the nature and value of
the land. These are not part of the ‘‘security’’ repre-
="
sented by the purchase agreement, and are specifically ex-
cluded from it by Note 2. Also, some two years after
the original agreements were signed, defendants allegedly
induced plaintiffs to ‘‘trade up’’ to a more valuable
piece of property but with substantially the same kind
of contract. Still later, when plaintiffs wished to sell, they
were induced to transfer their holdings into ten new con-
tracts for less valuable pieces which they subsequently
learned could not easily be sold. These trades were based
on oral representations and were not provided for in the
‘‘security’’. Defendants assumed no written obligation to
sell or transfer plaintiffs’ property.
Alleged oral misrepresentations cannot transform a
document into a security to bring it within the jurisdic-
tion of this court if the document itself does not satisfy
the definition of the statute and the case law. Plaintiffs’
effort to shoe-horn their land speculations into the defini-
tion of the Securities Acts in our opinion fails, They
have alleged only a superficial similarity with the leading
cases on this point and have not distinguished their trans-
actions from any other agreement to purchase real estate
in undeveloped land. We do not doubt that they were
led to expect that their investment could appreciate in
value and that much of this would be due to the efforts
of the developers (using plaintiffs’ money to some extent).
However, this is a far cry from a common enterprise in
the sense of Securities & Exchange Commission v. Glen
W. Turner Enterprises, Inc., 474 F.2d 476 (9th Cir. 1973) ;
see also Lino v. City Investing Co., 487 F.2d 689 (3rd
Cir. 1973); Roe v. United States, 287 F.2d 435 (5th Cir.
1961), cert. den., 368 U.S. 824 (1961).
The parties have attached documents to their brie*s
and made several unsupported statements therein, but the
motion to dismiss is directed solely to the complaint, its
allegations and the documents attached thereto. We there-
fore decide the motion solely upon that pleading and its
attachments.
nh) ciate ALY Ante > owe etlaeee
— 15a —
It Is Therefore Ordered, Adjudged And Decreed that
the defendants’ motion to dismiss the complaint for failure
to state a claim is granted.
Enter:
/s/ Thomas R. McMillen
Judge, U. S. District Court
Date: June 27, 1974
EXHIBIT B
UNITED STATES DISTRICT COURT
Northern District of Illinois
Eastern Division
JOHN S. BUBULA and FRANK V. PANTALEO,
Plaintiffs,
v.
THE GRAND BAHAMA DEVELOPMENT COMPANY
LIMITED, et al.,
Defendants.
No. 73 C 3131
DECISION ON MOTION TO DISMISS
FIRST AMENDED COMPLAINT
Defendants have filed a motion to dismiss the First
Amended Complaint filed in this case on July 10, 1974.
Counts I and ITI of this pleading appear to be substan-
tially the same as the original complaint which we dis-
missed by an order and decision entered June 27, 1974.
No new facts or arguments are advanced by plaintiffs to
change this result, and we will stand on that decision.
Count III relies on the Interstate Land Sales Act, 15
U.S.C. §1701 et seq., to sustain a cause of action on the
same facts as are alleged in Counts I and II. Defendants
do not seriously contest the applicability of the statute
but contend that its statute of limitations ran before the
amendment was filed. Section 1711 of the Act requires
that an action be brought on $1709(a) or (b)(2) within
one year after discovery of the wrong and on §1709(b) (1)
within two years of the violation.
— 16a —
The first contract complained of in this case was signed
by plaintiffs on July 23, 1969. A second contract was
signed in May 1971. A third set of contracts were signed
in March and April 1972. Four months after that plain-
tiffs learned of the alleged misrepresentations. The orig-
inal complaint was filed on December 11, 1973.
F.R.C.P. 15(c) allows amendments to relate back to the
original filing date. Aluminum Company of America V.
Admiral Merchants Motor Freight, Inc., 337 F.Supp. 674,
684 (N.D. Ill. 1972), aff’d 486 F.2d 717 (7th Cir. 1973),
cert. den. 414 U.S. 1113 (1973). Hence the one-year limita-
tion bars transactions prior to December 11, 1972, which
eliminates claims under §1709(a) or (b)(2) of the Act.
This leaves §1709(b)(1) available to plaintiffs, which pro-
vides a cause of action for violation of §1703. Plaintiffs
apparently have sued under this section, and therefore
their claims are not barred:
However, we have some doubt that Interstate Land
Sales Act applies to the sales in this case, particularly
in view of the location of the property on the Grand
Bahama Island. This aspect of defendants’ motion has
not been briefed.
It Is Therefore Ordered, Adjudged And Decreed that
the defendants’ motion to dismiss Count III of the First
Amended Complaint on the ground that, it is barred by
the applicable statute of limitation is denied, and the par-
ties are ordered to brief the merits of Count III pur-
suant to Local Rule 13.
Enter:
/s/ Thomas R. MeMillen
Judge, U. S. District Court
Dated: December 18, 1974
naa
hee IN comes Yiee oe See ae *
no Stee
—17a—
EXHIBIT “C”
PURCHASERS COPY (PERMANENT)
A. ACCEPTANCE AND GUARANTEE OF YOUR
LAND RIGHTS AND PURCHASE PRICE
issued by
The Grand Bahama Development Company Limited with
offices at the International Bazaar
Post Office Box F-2666, Freeport, Grand Bahama Tsland,
Bahamas.
(hereinafter called ‘‘Development Company’’)
(Al)
Agreement Number* 32059. Date August 25, 1971
Purchaser(s) Thomas Gatto (A Married Man)
Address 10644 Fairfield Phone 562-7779
City Westchester County Cook State Illinois
Zip Code or 60153
Country U.S.A.
This document, 1 applicable rider(s), and form of deed
— your agreement to purchase the following prop-
erty:
Lot 29, Block 21, Swuhdivision Lincoln Green #3
Lucaya, Grand Bahama Island. Plat or Plan Recorded in
the Registry of Records of the Bahama Islands. Nassau.
in Book 1440 at pages 195 to 199 inclusive, designated for
Four-Plex use.
B. PURCHASE PRICE AND TERMS. All amounts
quoted in U.S. Currency (See Note reverse side)
1. Purchase Price (Cash Price) $14980.00
2. Cash Down Payment
ST Se ee eee Rae 19....)$ N/A
Month Date Month Date
3. Option Equity $ N/A
4. Trade in Equitv $2032.99
5. Total Down Payment $2032.99
— 18a —
6. Balance Due (Amount Financed &
Unpaid Balance of Cash Price) $12947.01
Cash O (Balance Due Payable in ......... days)
Term O (Balance Due Plus Interest Payable in In-
stallments)
The Balance Due on a Term sale plus interest at the rate
of 7% per annum on the unpaid balance shall be paid in
120 monthly payments, 119 of $150.12 plus a final pay-
ment of $174.13.
The first payment is due and payable on the 10th day of
November 1971 and all subsequent payments on the
10th day of each consecutive month thereafter until paid
in full.
For U.S. Federal Truth in Lending purposes, the Finance
Charge (interest) is $5091.40, the Annual Percentage Rate
7%, the Total of Payments $18038.41, and Deferred Pay-
ment Price $20071.40. No extra charge, except interest, is
made for a late payment. The Development Company re-
tains the security interest set forth in Note 12 hereto
in the above lot until all payments are paid in full.
As a further part of the purchase consideration there
shall be paid to the Development Company for Ninety-nine
(99) years from date on line Al above an annual sum at
the rate of $150.00 payable annually in advance, and
the deed referred to below will convey the property to
you subject to uses imposing the payment of such sum
on the property as a service charge which will, if unpaid,
constitute an encumbrance on the property. (See note on
reverse side)
*To be filled in by the Development Company.
C. THIS DOCUMENT IS YOUR GUARANTEE THAT:
(Also see Notes on reverse side) |
e Your Purchase Price, Interest Rate, and Annual serv-
ice Charge cannot be increased.
e You do not pay Closing Costs for preparation of your
Deed, Opinion of Title, Bahamian Stamp Duty, or
Recording Fees.
— 19a —
e You can prepay the Balance Due at any time without
penalty, save interest and receive your deed.
® i have an Exchange Privilege as set forth in Note
e Your property will be improved in accordan i
the attached Improvement Rider. ironed
D. Agreed and acknowledged as set forth in Note 12 on
reverse side hereto on this 25th day of August 1971 at
11 P.M. /s/Thomas Gatoo
eeeee
COOP OO OREO EOD TES E OOOO EE OES EEE OE EEE ESE SEES ESE ESOS SESE EEOEES
Purch
/s/ Jay Lemon ais
Receipted and Witnessed as to Purchaser(s)
Accepted for the Development Com i
of September 1971. eee
The Grand Bahama Development Company Limited.
TAY. --cuvee.. cuiciiniasiien : seieteeadiaiaaiaaae
Authorized Signature
PLEASE BE SURE TO READ REVERSE SIDE:
VERY IMPORTANT
1. This agreement is governed b
y the laws of the Baha-
ma islands. It is not transferable by you without the saa
ten consent of the Development Company Conset of the
ate ee Company will not be unreasonably with-
2. This agreement, attached form of deed an
Riders (hereby incorporated into this wocsemg cng
erence), constitute a contract and the entire agreement
between the parties. The purchaser acknowledges that
no representations have been made to induce him to enter
into this agreement except as are set forth in it.
3. After the Purchase Price, and interest if is pai
‘ any, is paid
in full the Development Company will supply yi with
on
— i
inion of Bahamian Counsel in the form usual in the
rah. showing your title to be good and marketable
and will convey title free and clear of all liens and en-
cumbrances, by a form of deed with full Statutory Cove-
nants for Title as provided for by Bahamian Law pre-
pared at no cost to you (an English copy of which is at-
tached hereto) to be first duly executed by you, subject
only to the exceptions and reservations and conditions
and ‘restrictions set forth in the form of deed and the
easements for utilities shown on the plat or plan of your
Subdivision. The form of deed refers to exceptions and
reservations contained in the original Crown Grant, which
are the usual exceptions and reservations found in Crown
Grants of land in the Bahama Islands and which relate
to reservation by the Crown of rights to underlying sil-
ver, gold, other precious metals, coal and oil, together
with a right to enter and remain as necessary to search
for and remove the same. The Development Company
will pay the Bahamian stamp duty on the deed and fees
for recording with the Registry of Records. At your re-
quest the Development Company will also have the deed
recorded for you, with the understanding that you will
not hold th eDevelopment Company responsible for any
delay beyond its control.
4. If the Development Company is unable to obtain an
Opinion of Bahamian Counsel as to title to your land
in the form usual in the Bahamas for the transfer of real
estate, and after the use of reasonable diligence is un-
able to make the title to your property good and market-
able, then it will return to you in full all money (inelud-
ing interest) which you have paid on this property thus
releasing both parties from any and all further obliga-
tions hereunder.
5. Any notices to be served hereunder shall be sufficient-
ly served on the Purchaser if sent by prepaid registered
post addressed to the Purchaser at his last known ad-
dress and upon the Development Company if sent by pre-
paid registered post addressed to the office of the Devel-
Fe ai Mia At PA ns rita ate A presi ie OAR ae ste eA Ee Ame tc te PMN ARAB 5-0
en ee
— 21a —
opment Company within the Bahama Islands. Any notice
sent in accordance with the provisions of this clause shall
be deemed to have been served if sent by past Four (4)
days after the date upon which the wrapper or envelope
containing the same shall have been posted.
6. For the purposes of this agreement ‘‘force majeure’’
shall mean fire, war, acts of God, governmental control,
embargo, machinery or power failure, any cause affecting
supply of construction materials, or any events beyond
the control of the Development Company.
7. The word ‘‘Dollar’’ or symbol $ wherever used in this
agreement shall mean ‘‘Dollar’’ in the currency of the
United States of America, but the Vendor shall accept
payment of all sums due under the terms hereof in any
currency in an amount which is fully and freely convert-
ible at the time each payment is made into the amount of
United States dollars then due.
8. All annual sums received as a part of the purchase
consideration of this Acceptance and Guarantee will be
used solely to repair, maintain, improve, construct and
operate facilities for the general welfare of land owners
in subdivisions developed or to be developed in the future
by The Grand Bahama Development Company Limited.
9. Under United States Law, a purchaser must receive
a copy of the Property Report filed with the Office of In-
terstate Land Sales Registration, U.S. Department of
Housing and Urban Development in advance of or at the
time of his signing this Agreement. The purchaser shall
have the option to void this Agreement should he not re-
ceive said Property Report. In the event that the pur-
chaser has received the Property Report less than forty-
eight (48) hours before executing his Agreement, the pur-
chaser shall have the right to revoke this Agreement with-
in forty-eight (48) hours of the time of signing by the
purchaser, except that the foregoing revocation authority
shall not apply in the case of a purchaser who (1) has
received the Property Report and inspected the lot to
— 22a —
be purchased in advance of signing this Agreement and
(2) “edmavlaiaes by his signature that he has made such
inspection and has read and understood such report.
. When you have completed all payments the Develop-
sai Gina will at your request before the deed has
been executed, offer another lot of the equivalent: price
if then available for the purpose of immediate building,
either in the same subdivision or another subdivision
where construction is then in progress, which will be con-
veyed to you in exchange for the lot purchased under this
agreement.
11. This Acceptance and Guarantee constitutes an offer
“ purchase ee is not effective or binding on either party
until the Development Company has received from you
at its offices in Freeport, Grand Bahama Island, Bahamas,
the full amount of cash down payment as shown on line 2
Section B hereto, the copy of this Acceptance and Guar-
antee marked ‘‘Development Company Copy”’ and the
copy of this Acceptance and Guarantee marked Pur-
chaser’s Copy (Permanent)’’ both copies signed by you
in the space provided and until the copy of the Acceptance
and Guarantee marked ‘‘Purchaser’s Copy (Permanent)
has been signed in the Bahamas on behalf of the Devel-
opment Company. The effective date of the resultant con-
tract shall be the date shown on line Al on revrse side
hereto. Your (Permanent) copy will thereupon be posted
to you.
12. Acknowledgment: (a) I understand that the Devel-
opment Company will grant me the following grace pe-
riods without penalty if I am unable to make any pay-
ment (after this Acceptance and Guarantee becomes ef-
fective and binding) exactly on the date due: 60 days
if 10% or less of the principal amount of the purchase
price has been paid; 90 days if more than 10% but less
than 25% of the principal amount of the purchase price
has been paid; 120 days if more than 25% but less than
50% of the principal amount of the purchase price has
been paid, and 150 days if more than 50% of the principal
i eal
=
amount of the purchase price has been paid. This pro-
vision shall not prohibit the accumulation of interest for
the period of time the contract may be in default. I fur-
ther understand that at least 14 days prior to the expi-
ration date of such grace period the Development Com-
pany shall notify me in writing, by certified, or registered
mail, of the amount then due under this agreement and
the exact expiration date of such grace period and that I
shall not be deemed in default in the payment of any in-
stallment due under this agreement unless and until such
notice shall have been given. ] wnderstand that although
I am under no personal liability to make any payments
on this contract, since the Development Company has
taken this property off the real estate market and will be
turning away other prospective purchasers as well as
incurring development and other expenses in connection
with this sale, all prior payments made by me will be
retained by the Development Company as agreed upon
and as liquidated damages in the event that I fail to
make any required payment on the purchase of this prop-
erty exactly on the date due or within the grace period
as set forth herein or in the event this contract is not
brought current within said grace and neither party will
have any further claim against the other. (b) I acknowl-
edge that I have read and understand the property re-
port filed with the Office of interstate Land Sales regis-
tration, and that I have not inspected the property cov-
ered by this agreement. I also acknowledge receipt of a
copy of the form of Deed.
(c) Each purchaser shall initial one of the following state-
ments:
T.G. I acknowledge that I expect to use this property for
investment or income producing purposes and I do not ex-
pect to use it as my residence.
I acknowledge that I expect to use this property as my
residence.
i eo hee Tee a i Dt es
|
|
:
|
=
Signed by the Purchaser(s) this 25th day of August 1971
at 11 o’clock P.M.
Witnessed :
/s/ Jay Lemon /s/ Thomas Gatto
As to Purchaser *"(Purchaser’s Signature)
(Purchaser’s Signature)
This document was designed by legal counsel for
THE GRAND BAHAMA DEVELOPMENT COMPANY
LTD
EXHIBIT D
State Of Illinois
Tllinois Installment Land Sales Section
PUBLIC PROPERTY REPORT
OF
The Grand Bahama Development Company Limited
LUCAYA
Subdivision Units
BARBARY BEACH
DEVONSHIRE UNIT 1
WINDERMERE
Located in Lucaya, Grand Bahama Island, Bahamas
January 1969
THIS REPORT IS FILED WITH THE ILLINOIS
INSTALLMENT LAND SALES SECTION AS RE-
QUIRED BY LAW. HOWEVER, THE FILING DOES
NOT CONSTITUTE AN ENDORSEMENT OF THE
PROPERTY, AND THE DEPARTMENT OF REGIS-
TRATION AND EDUCATION OF THE STATE OF
ILLINOIS HAS NOT, IN ANY WAY, PASSED ON
THE MERITS OF THE LAND BEING OFFERED
FOR SALE OR LEASE.
—
PROPERTY REPORT
Part I—General
. Name of Subdivider:
The Grand Bahama Development
Company Limited.
Address:
International Bazaar, Freeport,
Grand Bahama Island, Bahamas.
- Name of Subdivision and units or area covered:
LUCAYA: Sub-units known as—
Barbary Beach
Devonshire Unit 1
Windermere
. Legal Title Holder:
The Grand Bahama Development
Company Limited.
. Name and address of principal Illinois broker(s) sell-
ing subdivision’s land:
Bahama International Realty,
Robert Trackman, President, Suite
600, 154 E. Erie Street, Chicago,
Illinois. Phone 944-6535.
(a) Name and location of person who will hold copies
of documents relative to transactions with IIli-
nois purchasers:
Robert Trackman, Suite 600, 154
EK. Erie Street, Chicago, Illinois.
Lucaya, Grand Bahama _ Island,
Bahamas.
. Location:
(a) Describe route to Subdivision:
Easterly from Freeport on Sun-
rise Highway and Midshipman
Road.
(b) Briefly describe the general area surrounding the
Subdivision including the existence of any nearby
towns or communities and distance thereto:
Gently rolling pineland with a
— 26a —
limestone coral base with the flora
and fauna typical of tropical cli-
mates. Freeport with an _ esti-
mated population of 20,000 is 14
miles from the centre of the Sub-
division.
6. Size of Subdivision:
948 lots.
NOTE: This is the total number of lots in the subdivi-
sions, and does not reflect those sold or under
contract for sale.
7. Have the individual parcels or tracts offered for sale
ever been surveyed and platted?
Yes.
Surveyed by E. R. Brownell, Reg-
istered Florida Land Surveyor.
Plats were recorded in the Reg-
istry of Records, Registrar Gen-
eral’s Office, Nassau, New Prov-
idence Island, Bahama Islands.
(a) Will each parcel or tract offered for sale be
marked so that it can be located by the purchaser?
Lots are not individually staked;
however, permanent Monuments
and Control Points enable any
Surveyor to locate individual lots.
8. What public transportation is available to the subdivi-
sion?
None.
What shopping facilities are nearby? How far are
these from the centre of the Subdivision?
A complete spectrum of shopping
facilities, retail stores and serv-
ices are available in Freeport
which is approximately 14 miles
from the centre of the Subdivi-
sion.
eee ee ee ee ae
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Part II—Land Use
9. Briefly describe the present topographical characteris-
tics of the land:
Gently rolling pineland with a
limestone coral base and eleva-
tion range from 5 to 30’ above
Mean Low Water.
10. Is the subdivision, or any parcels or tracts thereof,
covered by surface water at any time of the year?
No.
11. For what purpose or use ............ individual tracts or
parcels a a be put in their present con-
dition?
Lots cannot be used in their pres-
ent condition. Upon completion of
the promised improvements (see
Question 14) the lots may be used
for the purposes set forth in
Question 23-B.
12. Have any homes been completed in the Subdivision?
No.
13. Summarize all restrictions, easements or reservations
a the Subdivision or the afforded parcels or
racts:
ALL restrictions, easements or reservations are set
forth in the sales contract and the ................ which
are a part of the contract and should be read by the
purchaser. Mineral rights are reserved ............ Crown
as is customary in the Bahamas.
NOTE: All construction must comply with the Building
and Sanitary Code and any other applicable laws
or regulations.
Part [1]—Improvemeunts
14, If there is a plan of development for the entire sub-
division, describe and detail the nature of the im-
provements to be made and when these will be in:
The Development Company promises to, within sixty
(60) months from the date of acceptance of the signed
—
purchase agreement, bring to Barbary Beach and
Windemere primary electricity, main water and road
paving adjacent to the property boundary line and to
Devonshire primary electricity and road paving ad-
jacent to the property boundary line.
15. Are the following presently available to the Subdivi-
sion or to any of the individual parcels or tracts
offered for sale, and who will supply these?
(List the cost to an individual lot owner for connect-
ing the same.) sat
Electricity: NO. Freeport Power Company, Limited.
Refundable meter deposit of $60.00 is pre-
sently required. Monthly Residential
Rater:
First 30 KWH.............. B$ .070 per KWH
Next 500 KWH.............. $ .050 per KWH
Next 280 KWH.............. $ .045 per KWH
Additional KWH.......... $ .030 per KWH
Telephone: NO. The Grand Bahama Telephone Com-
pany Limited. Refundable deposit of
$30.00 is presently required.
Residential Telephone Charges:
Installation ..........seees $10.00 per month
os, | eeainemencnennan 8.07 per month
Two-party line ...........0. 6.63 per month
Sewage NO. (At purchaser’s expense.) Cased well
Disposal: one-compartment septic tank. Single fam-
ily dwelling cost is estimated at $650.
Since cost is related to density, it is not
possible to provide an estimate on lards
zoned other than single family. In some
eases of multiple dwelling, a Package
Treatment Plant may be required.
Gas: YES. Bottled gas through retail commer-
cial outlets. Price: 39c-56e per gallon de-
pending on usage.
Water: NO. The Grand Bahama Utility Company,
Limited. Refundable tapping charge of
_—
$56.00 plus a refundable $30.00 water me-
ter deposit.
Residential rate $1.14 per 1,000 gallons, flat.
NOTE: Rates in effect 30 September 1969 for single fam-
ily residence. Such rates may change from time
to time as indicated by economic needs and con-
ditions.
Part IV—The Contract And Title
16. At the time the deed is required to be delivered to
the purchasers, will all parcels or tracts in the sub-
division be accessible by conventional automobile?
Under an instalment contract, Yes. See Question 14.
NOTE: Cash purchase or prepayment of an instalment
contract does not accelerate the completion date of
the promised improvements.
Who will care for future care and maintenance?
The Development Company has made the following
provisions:
Purchasers will pay an annual service charge in ac-
cordance with the terms of the Contract and Deed.
These sums will be used solely for the purposes of
building, maintaining and improving roads, drainage,
walkways, utilities, waterways, bulkheads, parks,
‘beaches and other community facilities on land devel-
oped for sale by the Development Company.
A schedule of the annual service is available upon
request.
The Acceptance and Guarantee (Sales Contract) and
Deed provide detailed information and should be care-
fully read.
17. What is the distance to the available schools in the
area?
Elementary and high schools—publie and parochial
—are 11 to 14 miles from the centre of the Subdivi-
sions.
— 30a —
NOTE: Purchasers should contact the local schools re-
garding school facilities and bus service.
18. Is fire protection provided and by whom?
The Bahama Fire Service of the
Bahamas Government.
19. What additional sum will the purchaser be required
to pay other than actual purchase price in connec-
tion with their purchase or ownership of lots in the
Subdivision, aside from taxes, stamps, recording cost
and assessments validly imposed by governmental au-
thority? SEE QUESTION 6 AND 23.
20. Is there a refund privilege.
No.
SALES MAY BE MADE ON CONTRACTS OF
SALE. PROSPECTIVE PURCHASERS SHOULD
READ AND UNDERSTAND THE TERMS OF
THESE CONTRACTS BEFORE SIGNING THEM.
21. Will the purchaser receive an insurable title?
Yes.
If yes, at whose expense?
Purchaser may obtain Title Insur-
ance Policy at his expense.
Part V—Mortgages
22. (a) Is part ef your Subdivision encumbered by a
blanket mortgage?
No. There is a Debenture that creates a Floating Se-
curity and under which the Development Company
has an absolute right to convey title in the ordinary
course of business.
Part VI—Summary And Other Data
23. Other pertinent factors that may amplify, explain or
add to any anwers previously given in this Prop-
erty Report:
ee -
— 3la—
A. Contract Rider:
In respect of the promised improvements, certain
Riders to the Contract pertaining to road paving and
utilities are applicable to specific Subdivisions and
should be attached to and form a part of the Pur-
chase Agreement.
(i) The cost of servicing a building with individual
water and electricity lines must be borne by the
Purchaser.
B. Zoning.
BARBARY BEACH = Multi-family/Hi-rise
& Tourist Commercial
DEVONSHIRE UNIT 1 = Duplex
WINDERMERE = Multi-family (4-plex)
C. Terms And Conditions Of Sale:
“saw may be made for cash or on an installment
asis:
1. Cash Sales:
(a) The purchaser will receive a cash discount as
scheduled herein:
List Price Of Property Cash Discount
Sales—$4,999 or less 7%
Sales—$5,000 to $9,999 8%
Sales—$10,000 and more 9%
2. Term Sales:
(a) Down payment is a minimum of 20% of the
contract price;
(b) Monthly payments, to include principal and
accrued interest, amortize the contract bal-
ance over the term of the agreement not to
exceed seven (7) years;
(c) Conventional interest is charged at the rate
of 6% per annum on the unpaid principal bal-
ance;
—=—
(d) Purchaser shall have the right to pre-pay
at any time the balance due upon the contract
without penalty ;
(i) After thirty (30) days of the date of the
signed purchase contract, the purchaser
will, upon pre-payment in full of the
principal balance remaining due under the
contract together with any accrued in-
terest, be entitled to a discount in the
amount of 10% of the principal balance
being pre-paid.
3. Cash purchase or pre-payment of an insufficient
contract does not ........cceeee the completion date
of promised improvements.
4. Also, see the Acceptance and Guarantee (Sales
Contract) and any applicable Riders thereto and
the Deed.
D. Exchange:
When the purchaser has completed all payments,
the Development Company will upon request before
the deed has been executed, offer another lot of the
equivalent price if then available for the purpose of
immediate building, either in the same subdivision
or another subdivision where construction is then in
progress which will be conveyed in exchange for the
lot originally purchased.
E. Inspection:
In order that a purchaser may inspect his selected
lot, he may for a limited time only and under speci-
fred circumstances, reserve a lot upon payment of a
sum not to exceed $250, for an inspection trip which
sum is not refundable; however, upon purchase, the
purchaser will be allowed a credit in like amount
against the purchase price.
F. Resale:
The Development Company does not engage in
negotiating resales of land or of purchasers’ interests
in installment contracts. Any such resale, transfer of
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— 33a —
contract interest, or assignment can be affected by
the purchaser himself or with the help of any real
estate broker he may select. Any assignment of in-
terest in a contract requires the written consent of the
Development Company. Consent will not be unrea-
sonably withheld if the new person assumes all con-
ditions of the original contract and its riders.
G. Dollar Conversion:
The word “Dollar” or symbol “$” wherever used in
the purchase contract shall mean “Dollar” in the eur-
rency of the United States of America, but the sub-
divider agrees to accept payment of all sums due in
any currency in an amount which is fully and freely
convertible at the time each payment is made into the
amount of United States dollars then due.
H. Deed:
Upon payment in full for a homesite, each purchaser
will be given the following:
(1) Deed with full Statutory Covenants for Title in
the form usual in the Bahamas.
(2) An opinion of Bahamian Counsel showing the
Title to be good and marketable, subject to the
exceptions and reservations in the Deed and Con-
tract.
Copies of Deeds are filed with the Department as
Exhibits, and are also attached to and form a part of
the Purchase Agreement.
SPECIAL NOTE: * * * * THIS DEPARTMENT REC-
OMMENDS THAT YOU SEE
BEFORE BUYING.
NOTE: A PROGRESS REPORT IS AVAILABLE OF
THE WORK, IMPROVEMENTS AND IN-
STALLATIONS COMPLETED AND IN PRO-
GRESS IN ACCORDANCE WITH AN
AGREED COMPLETION SCHEDULE AND
IS FILED WITH THE DEPARTMENT EACH
MONTH. |
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.