Security and Exchange Commission v. W.J Howley Co.

Security and Exchange Commission v. W.J Howley Co.


The acquisition of property with expectation of good returns under the management of a third party is a sound business idea and undertaking for people who need to invest in a field where they have limited knowledge about. This is the case with the security exchange commission v. W.J Howley, whereby investors put their money to an investment in a citrus grove where managing companies would do all the work and give the net earnings to the investors. The investors got into agreements that could not be out rightly termed as being investment contracts or separately being deeds on their own for the lease and the management. 

Facts in the case

The case was; Security and Exchange Commission v. W.J Howley Company. The district court denied an injunction at the time and the court of Appeal affirmed the judgment. There was an argument that the Court of Appeal was acting in conflict with the federal and state positions. The investors were not forced to get into a contract with W. J Howley but were advised on the feasibility of getting into the partnership to generate more profits. The investors were being encouraged to make the purchase so that Howley could expand the business significantly. This means that both the investors and the company were aware of the deal they were getting into only that it was not clear whether it was an investment contract.

Legal procedure

The case progressed from the district courts to the supreme courts because of the appeals to higher courts in the hope for fairer rulings.  The district court was not in agreement with an injunction and the case moved to the courts of appeal. At the courts of Appeal, the case moved from one level to another each upholding the ruling from the previous junior courts. There was a worry that the courts would pass judgements that would conflict with the statutes of the State and Federal governments at the supreme-court levels.

The court’s decision and reasoning

The supreme courts decided to uphold the ruling of the junior courts because there was no additional evidence that would have the courts overrule the previous rulings at the top. However there was a slight specification from the issues raised in the lower courts, the agreement was considered an investment contract while in the lower courts each was treated separately. The courts needed to get into an agreement that the criteria for an investment contract had to involve the money of the investor being put in a place that generates profits or employment that can be considered beneficial to the investor.

The district court’s decision that the agreement accompanied with all the documentation made a complete investment contract complete. The lower courts considered the service and the lease contracts as separate agreements in terms of legal documentation. The courts were at liberty to interpret the case as they saw fit because there was no defined explanation and clarity on the factors that make up an investment contract. The court had to make reference to the case, State v. Gopher Tire& Rubber Co. where it was determined that an investment contract involved putting money in a way that it is supposed to generate returns in terms of profit or employment earning income.

Argument in support of or in opposition to the court’s decision

The court was right in terming the agreements as being separate at the lower courts because each agreement can be held independently. However, when the two agreements are merged into one, they form the investment contract. The investment contracts cater for the money put in by the investor with the prospects of generating profits. This is the reason for the courts to have conflicting rulings throughout the appeals as some judges would treat each agreement separately while the others would merge the two and come up with an investment contract. The ambiguity of the investment contract is what makes the case complicated for the courts to determine.

How the case impacted business

The case made it difficult for the investors to see the true benefits of the citrus fields. It is important that these factors are ironed out before the investors begin demanding complete ownership or a refund of their share of the investment. The terms of the lease and purchases were only beneficial to the companies running the fields because the owners did not have the clearance to get themselves to the market space. This information was hidden from the members of the public and only came to light during the case proceedings making the profits plunge significantly.

The possession of the warranty deeds and the sales contracts are used to determine the amount of returns that each investor is supposed to get at the end of each financial year. The business arrangement in this instance is difficult to establish because the terms of sharing profit are ambiguous and difficult to split among the people. However, during the case, it was made clearer that the investors needed not enlist he services of the dominant companies in order to use their property and access the market. 


To conclude, the ability of the court to determine whether the deeds would be regarded as investment contracts would be considered with regards to the case, State v. Gopher Tire& Rubber Co. where the terms of an investment contracts were almost clearly defined. Investment is the pooling of money to one project with the prospects of earning money. This means that using the case, State V. Gopher Tire & Rubber Co., the agreement between the investors and W. J Howley is considered an investment contract. He investors in the Citrus Grove are convinced that leasing the land and contracting W. J Howley Co. will earn those profits and create employment for the employees of the company making it an investment contract by the standard set by the State v. Gopher Tire& Rubber Co. case.


Financial and Securities Regulation, SEC v. W.J. Howey Co., 328 U.S. 293 (1946) Case opinion here:

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