The decisions sustaining regulatory legislation to prevent fraud are numerous, and they fully support the law herein attacked. Particularly in point are People v. Craven, 219 Cal. 522 [ 27 P.2d 906], upholding the provisions of the Corporate Securities Act requiring an individual to secure a permit for the issuance of "certificates of interest"; and Wholesale Tobacco DealersBureau v. National Candy Tobacco Co., 11 Cal.2d 634 [ 82 P.2d 3, 118 A.L.R. 486], upholding the California Unfair Practices Act. (See, also, Hall v. Geiger-Jones Co., 242 U.S. 539 [37 Sup. Ct. 217, 61 L.Ed. 480, Ann. Cas. 1917C, 643, L.R.A. 1917F, 514], on corporate securities acts; Riley v. Chambers, 181 Cal. 589 [ 185 P. 855, 8 A.L.R. 418], upholding the California Real Estate Brokers' License Act; Gregory v. Hecke, 73 Cal.App. 268 [ 238 P. 787], sustaining the statute preventing adulteration, false labeling or fraud in sale of germicides used for plant pests; Pacific Coast Box Basket Co. v. White, 296 U.S. 176 [56 Sup. Ct. 159, 80 L.Ed. 138, 101 A.L.R. 853], upholding law regulating size and shape of berry containers; and many other authorities reviewed in the above decisions.)
) It is settled by our recent decision in People v. Craven, 219 Cal. 522 [ 27 P.2d 906], that oil interests such as those transferred without permit herein are "securities" within the meaning of the act, and that the individual lessee who issues such interests may constitutionally be required to obtain a permit therefor. The application of the Craven case to the present appeal will be apparent from a statement of the facts of the instant case.
was not in fact a substantial right but rather that it was a purely formal right never expected to be utilized and therefore a most immaterial, wholly unimportant provision which we are at liberty to disregard in attempting to discover the true character of the instruments. Being persuaded to the view that the grant of a right to drill and develop the land described in the so-called "mineral deeds" was, under the circumstances, purely formal and manifestly illusory we find most pertinent to the present problem the following quotation from page 555 of the cited case: "Instruments such as those in the Craven case ( People v. Craven, 219 Cal. 522 [ 27 P.2d 906]) and the instant case are not issued to persons who expect to reap a profit from their own services and efforts exerted in the management and operation of oil-bearing property, but to those in the category of investors, who, for a consideration paid, stipulate for a right to share in the profits or proceeds of a business enterprise or venture to be conducted by others." The second decision to which we refer is People v. Rubens, 11 Cal.App. (2d) 576 [ 54 P.2d 98, 100, 1107].
" In the case of People v. Craven, 219 Cal. 522 [ 27 P.2d 906], the defendant was convicted of selling shares in an oil and gas project without a permit, contrary to the Corporate Securities Act. The defendant owned an oil lease upon which he issued and sold shares in the proposed enterprise.
"The word 'security' shall include any stock, bond, note, treasury stock, debenture, evidence of indebtedness, certificate of interest or participation, certificate of interest in a profit-sharing agreement, certificate of interest in an oil, gas or mining title or lease, collateral trust certificate, any transferable share, investment contract, or beneficial interest in title to property, profits or earnings, . . ." Under circumstances very similar to those which exist in the present case it was determined in the recent cases of People v. Craven, 219 Cal. 522 [ 27 P.2d 906], and Domestic Foreign Petroleum Co., Ltd., v. Long, 4 Cal. (2d) 547 [ 51 P.2d 73], that contracts which were called "grant deeds" assigning undivided interests in oil and gas leases entitling the holders thereof to participate in the proceeds of the petroleum produced by the vendor from the land were in fact "securities" within the meaning of the Corporate Securities Act which are prohibited from being transferred or sold without first procuring a permit therefor from the corporation commissioner. In the last-mentioned case it was contended, as it is in this case, that the challenged instrument was called a deed and was in the nature of a deed containing the significant language that the leasehold interest in land was thereby "granted and conveyed" and on the contrary that it was therefore not a "security" for an interest in an oil enterprise.
But those two cases are not authority for us to concur in their results because of subsequent treatment by the California Supreme Court. People v. Craven, 219 Cal. 522, 27 P.2d 906 (1933), limited Pace and Lesser. The Craven court rejected the argument that the Legislature of California had exceeded its powers and infringed upon the constitutional rights of persons to freely enjoy, possess, and dispose of property owned by them when it required an owner who also was the issuer of securities to register.
[3] A "certificate of interest in an oil, gas or mining title or lease" is a security within the meaning of the Corporate Securities Act (Stats. 1937, p. 1429, § 2, par. (a), subd. 7). An instrument which evidences a fractional or percentage interest in oil and gas production is such a certificate of interest ( People v. Craven (1933), 219 Cal. 522, 524 [ 27 P.2d 906]) and a permit is required for the issuance of such a certificate in a bona fide, private transaction ( Domestic Foreign Pet.Co., Ltd. v. Long (1935), 4 Cal.2d 547, 558 [ 51 P.2d 73]). [4] But, defendants urge, they did not issue a security to Moore; their transaction with him was an innocent "agreement to make a lawful attempt to dispose of an interest in a security."
The purpose of the statute is to protect the unsuspecting public against the sale of worthless real estate securities, whether those securities be offered for sale by the owners of the lots or by others. This the Legislature may constitutionally do as it has in adopting regulations governing the sale of corporate securities ( People v. Craven, 219 Cal. 522, 526-527 [ 27 P.2d 906]; People v. Rankin, 169 Cal.App.2d 150, 158-159 [ 337 P.2d 182]) and sale of subdivision lots ( In re Sidebotham, supra, 12 Cal.2d 434, 436). Language to the contrary in People v. Pace, 73 Cal.App. 548 [ 238 P. 1089], cited by defendant has been properly characterized by our Supreme Court as language "not necessary to the decision."
When the Corporate Securities Act was adopted in California, it was urged that "the legislature exceeded its powers and thereby infringed upon the constitutional rights of persons to freely enjoy, possess and dispose of property acquired or owned by them." ( People v. Craven (1933) 219 Cal. 522, 525 [ 27 P.2d 906].) Similar opposition was voiced to the disclosure required of real estate brokers by the commissioner, and, it was said, the statute was arbitrary, indefinite and the terms inadequately defined.
[1] It is settled that the transfer of a landowner's royalty interest is the transfer of a security. ( People v. Craven, 219 Cal. 522 [ 27 P.2d 906]; Domestic Foreign Petroleum Co. v. Long, 4 Cal.2d 547, 554 [ 51 P.2d 73].) [2] The first question is whether the mortgage and transfer here involved come within the exception of the Corporate Securities Act (Stats. 1917, p. 673, as amended, Stats. 1941, p. 2064; Deering's Gen. Laws, Act 3814), set forth in section 2, subdivision c, as follows: "(c) Sales of securities exempted.