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SEC v. W. J. Howey Co.

Supreme Court of the United States

May 2, 1946, Argued ; May 27, 1946, Decided

No. 843


 [*294]   [**1101]   [***1247]  MR. JUSTICE MURPHY delivered the opinion of the Court.

This case involves the application of § 2 (1) of the Securities Act of 1933 1 to an offering of units of a citrus grove development coupled with a contract for cultivating, marketing and remitting the net proceeds to the investor.

The Securities and Exchange Commission instituted this action to restrain the respondents [****4]  from using the mails and instrumentalities of interstate commerce in the offer and sale of unregistered and non-exempt securities in violation of § 5 (a) of the Act. The District Court denied the injunction, 60 F.Supp. 440, and the Fifth Circuit Court of Appeals affirmed the judgment, 151 F.2d 714. We granted certiorari on a petition alleging that the ruling of the Circuit Court of Appeals conflicted with other federal and state decisions and that it introduced a novel and unwarranted test under the statute which the Commission regarded as administratively impractical.

Most of the facts are stipulated. The respondents, W. J. Howey Company and Howey-in-the-Hills Service,  [*295]  Inc., are Florida corporations under direct common control and management. The Howey Company owns large tracts of citrus acreage in Lake County, Florida. During the past several years it has planted about 500 acres annually, keeping half of the groves itself and offering the other half to the public "to help us finance additional development." Howey-in-the-Hills Service, Inc., is a service company engaged in cultivating and developing many of these groves, including the [****5]  harvesting and marketing of the crops.

Each prospective customer is offered both a land sales contract and a service contract, after having been  [***1248]  told that it is not feasible to invest in a grove unless service arrangements are made. While the purchaser is free to make arrangements with other service companies, the superiority of Howey-in-the-Hills Service, Inc., is stressed. Indeed, 85% of the acreage sold during the 3-year period ending May 31, 1943, was covered by service contracts with Howey-in-the-Hills Service, Inc.

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328 U.S. 293 *; 66 S. Ct. 1100 **; 90 L. Ed. 1244 ***; 1946 U.S. LEXIS 3159 ****; 163 A.L.R. 1043



The Securities & Exchange Commission sued in the District Court to enjoin respondents from using the mails and instrumentalities of interstate commerce in the offer and sale of unregistered and non-exempt securities in violation of the Securities Act of 1933. The District Court denied the injunction. 60 F.Supp. 440. The Circuit Court of Appeals affirmed. 151 F.2d 714. This Court granted certiorari. 327 U.S. 773. Reversed, p. 301.

Disposition:  151 F.2d 714, reversed.


investment contract, enterprise, purchasers, groves, profits, citrus, Securities Act, service contract, investors, cultivation, contracts, offering, acre, land sale contract, courts, deeds

Business & Corporate Compliance, Contracts Law, Types of Contracts, Investment Contracts, Real Property Law, Securities Regulation, General Overview, Criminal Law & Procedure, Fraud, Securities Fraud, Elements, Deeds, Types of Deeds, Warranty Deeds, Securities Law, Initial Offerings of Securities, Definitions, Security Defined, Securities Act Actions, Definitions, Contract Formation, Acceptance, Blue Sky Laws, Exemptions & Exclusions, Exempt Issuers Transactions, Excluded Transactions, Offers & Sales, Registration of Securities, Transactions Involving Unregistered Securities