## Facts

- Arthur and Samuel Dilbert agreed to sell their cousin, Abraham Dilbert, 164,540 shares of Dilbert’s Quality Supermarkets, Inc. stock at $6 per share under a staged, installment purchase contract; the shares were unregistered.
- The agreement included an “investment” commitment by Abraham and his designees, structured to fit a Securities Act exemption and to avoid a public distribution.
- Partners of S. D. Fuller & Co. executed an unconditional guaranty of Abraham’s performance and entered a related designation agreement to acquire part of the initial shares and 55% of later installment shares.
- Abraham secretly sold 3,500 shares to Sol Davis, who resold most of them on a public exchange; Abraham did not disclose this to the sellers or the guarantors.
- Abraham defaulted on the first installment payment due in March 1962; the sellers declared a default and sought enforcement.
- The guarantors sued for declaratory relief that the stock-purchase contract and guaranty were void or unenforceable under the Securities Act based on alleged § 5 violations; the SEC appeared as amicus curiae.

## Issues

1. Whether the stock-purchase contract was void or unenforceable because it allegedly involved an illegal public distribution of unregistered securities in violation of § 5 of the Securities Act of 1933.
2. Whether contractual investment representations and restrictions were sufficient to characterize the transaction as an exempt investment/private transaction as between sellers and purchaser.
3. Whether a purchaser’s concealed resale into the public market required denial of contract enforcement as a matter of federal securities-law policy, including as to the guarantors.

## Decision

- The court declined to declare the stock-purchase contract void or unenforceable and held the sellers could enforce it.
- The court held that Abraham’s undisclosed resale and resulting public resales did not invalidate the sellers’ contractual rights or render the entire agreement an unlawful distribution attributable to the sellers.
- The court rejected the guarantors’ Securities Act illegality defense and held the guaranty enforceable.
- The court accepted the SEC’s view that enforcement better served the public interest under the Securities Act than voiding the agreement.

## Legal Principles

- A securities-law violation does not automatically render a related private contract void; enforceability depends on whether nullification would advance the purposes of the Securities Act in the circumstances presented.
- Where sellers structure a block sale with investment representations and restrictions, a buyer’s concealed resale in breach of those commitments does not necessarily taint the sellers’ transaction or defeat their contract rights.
- Federal securities laws are primarily protective; they are not generally applied to relieve a defaulting purchaser or guarantor of obligations where doing so would reward the wrongdoing and frustrate compliance-focused contracting.
- An absolute guaranty remains enforceable when the underlying agreement is enforceable and the asserted illegality is collateral and attributable to the principal obligor’s concealed conduct.

## Conclusion

The court enforced a staged purchase contract for unregistered stock and an accompanying guaranty, holding that the buyer’s secret resale into the public market did not require voiding the sellers’ agreement or excusing guarantors, and that securities-law policy favored enforcing investment-holding commitments rather than rewarding a defaulting buyer or guarantors invoking his misconduct.


Fuller v. Dilbert, 244 F. Supp. 196 (S.D.N.Y. 1965)