Pritchett v. Thomas Plater & Co.

• Decision Date: 16 May 1921
• Citation: 232 S.W. 961,144 Tenn. 406
• Parties: PRITCHETT v. THOMAS PLATER & CO. ET AL.
• Court: Tennessee Supreme Court

232 S.W. 961

144 Tenn. 406

PRITCHETT v. THOMAS PLATER & CO. ET AL.

Supreme Court of Tennessee.

May 16, 1921

Appeal from Chancery Court, Davidson County; John T. Lellyett Chancellor.

Suit by Mrs. Lillie D. Pritchett, guardian of Samuel Pritchett against Thomas Plater & Co. and others. Decree for complainant, and defendant Plater & Co. appeals. Decree modified. Petitions to rehear denied.

Vertrees & Vertrees and A. W. Stockell, Jr., all of Nashville, for appellant.

Pitts & McConnico, of Nashville, for appellee.

HALL J.

This appeal involves the validity of the sale of certain stock in the Nashville Gas Company, owned jointly by A. W. Stockell and Samuel Pritchett (husband of complainant), and also some stock owned by the said Samuel Pritchett individually, to the defendant Thomas Plater & Company (a banking and brokerage corporation), doing business in the city of Nashville, Tenn., on June 21, 1911.

The stock in question consisted of 758.4 shares owned by Pritchett and Stockell jointly, or as partners, each owning an undivided one-half interest in the same, and 111 shares owned by Pritchett individually.

The bill was filed by complainant on April 27, 1912, as guardian of her husband, who had been declared insane in a lunacy proceeding regularly had on April 25, 1912, seeking to have said sale set aside, in so far as the one-half undivided interest of her ward was concerned in the joint or partnership stock, and the 111 shares owned by him individually, upon the ground that her ward was insane at the time of the sale and lacked mental capacity to make a valid and binding contract, which fact was known to defendant's officers, who negotiated the purchase on behalf of defendant, or could have been known to them by the exercise of ordinary diligence.

The bill alleged that the stock was worth $105 per share, while the defendant only paid $80 per share for the entire purchase; that complainant was entitled, on behalf of her ward, to recover this stock in specie; but that she did not desire to visit upon defendant any undue hardship or injustice, and was therefore willing and offered to refund to defendant the consideration paid for said stock, either in cash, or by crediting said consideration upon any legal and valid indebtedness which her ward owed defendant at the time of said sale; that in default of the return to her by defendant of said stock in specie she was entitled to recover of defendant its present value, including any dividends collected and interest, less the sums paid on, or applied to, the discharge of valid and bona fide debts of her ward. And the bill prayed accordingly.

Defendant answered the bill. It denied:

(1) That complainant's ward was insane at the time of the sale to defendant, or that he lacked mental capacity to make the sale, but possessed mental capacity to make a valid and binding contract.

(2) That even if complainant's ward did not have sufficient mental capacity to make the sale, his incapacity was not known to defendant's officers, who negotiated the purchase of said stock, nor was it apparent to those who knew and dealt with him.

(3) That complainant's ward and Mr. A. W. Stockell were partners as to the 758.4 shares of gas stock, the sale of which was, in fact, negotiated and made by said Stockell to defendant, and that Stockell, as a partner in said stock, had the legal authority to make said sale and bind complainant's ward, notwithstanding his mental incapacity.

(4) That the price paid was a fair and full price, and was several dollars per share above the market, and the transaction was in all respects fair and open, and made with buyers who stood in no fiduciary relation.

(5) That the sale was made to pay debts owing by complainant's ward created at a time when he was capable and sane, and it was a sale of stock pledged when the debts were incurred to secure the payment of same, and held continuously thereafter by the owners and holders of the notes, for the payment of which the stock stood pledged, and no prejudice resulted to complainant's ward by reason of said sale.

Upon the hearing the chancellor decreed in complainant's favor, adjudging that complainant was entitled to recover of defendant the net sum received by defendant for all of said stock, at $105 per share, with interest from date received, and the dividends collected thereon by defendant, with interest, less all the payments and expenditures made by defendant to or for her said ward, with interest from dates paid, including a note for $794.15, and an item of mistake shown of $274.99, the total recovery amounting to $17,732.37.

From this decree the defendant Plater & Co. have appealed to this court, and have assigned errors, and seek a reversal of the chancellor's decree.

It appears from the evidence that Samuel Pritchett (complainant's ward) died in the year 1915, at the age of 65. He resided in the city of Nashville at the time of his death, having resided in said city all of his life. He and complainant were married in the year 1881. In the year 1907 he had become the owner of 550 or 600 shares of stock of the Nashville Gas Company, which was of the par value of $100 per share. He had also been connected with the management of the gas company for a number of years, but was dismissed by one D. Shelby Williams when he became president of that company. This Mr. Pritchett felt keenly and resented. It also appears that the dividends of the gas company were reduced to 3 per cent. under Mr. Williams' administration. This also Mr. Pritchett disapproved, and he began the prosecution of a plan to secure the election of a board of directors that would favor and make an increase in the dividends of the company.

Mr. A. W. Stockell, a member of the Nashville bar, and a gentleman of standing and integrity, who represented the Cooper interest in the gas company, and controlled and looked after the stock in that company, which passed to the legatees under the will of Judge Wm. F. Cooper, deceased, also disapproved of the reduction in dividends by the Williams administration. Mr. Stockell and Mr. Pritchett were intimate friends, and in 1908 they agreed that they would purchase enough stock in the gas company, together with their own holdings and the holdings of other friendly stockholders, to control the next election, and to elect a board of directors that would increase the dividends.

Pursuant to this plan, on January 2, 1908, they entered into the following agreement:

"Nashville, Tennessee, January 2, 1908.

This is to witness that Samuel Pritchett and A. W. Stockell have agreed to buy Nashville Gas Company stock on a joint account, executing their joint notes for the amounts of purchase money with the purchased stock attached as collateral, and where additional collateral is required the said Pritchett provides this and this additional stock is to be returned to him upon payment of the notes to which it is attached. Such profit as is made on the purchased stock is to be equally divided between us.

[Signed] A. W. Stockell.

Samuel Pritchett.

January 15, 1910.

Up to the present time we have bought of gas stock under above agreement 632 shares, of which 432 shares stand in the name of Thomas Plater & Company, 100 shares in the name of Goulding Marr, and 100 shares in the name of A. W. Stockell.

[Signed] A. W. Stockell.

Samuel Pritchett."

The first purchase of stock in the gas company made by Stockell and Pritchett under this agreement was made on November 25, 1908, and the last purchase by them was made on January 15, 1910. Their purchases were in accordance with the provisions of the agreement. While Mr. Stockell attended to making most of the purchases, when they executed notes each partner signed his own name thereto. They had no firm name, and the agreement expressly provided that they should execute their joint notes. They purchased sufficient stock to get control of the management of the company, and they, with the co-operation of other friendly stockholders, elected a new board of directors; but it appears that when the new board took possession of the company's affairs and investigated its condition they, too, refused to increase the dividends. This action upon the part of the new board of directors resulted in Stockell and Pritchett losing the particular thing they had set about to secure, and their situation was this: They owed over $60,000 for stock purchased, to secure the payment of which all the stock they had purchased and 226 shares additional of Mr. Pritchett's individual stock was pledged to secure said indebtedness. Furthermore, this large indebtedness was being carried at an interest rate twice as large as the dividends that were being declared by the gas company. The result was that Stockell and Pritchett set about to sell their stock and liquidate their indebtedness.

In May, 1911, Mr. Stockell approached defendant with a proposition to sell their holdings in the gas company, which then amounted to 1,000 shares. The defendant, on May 29, 1911, took from Mr. Stockell an option on 1,000 shares of gas stock at the price of $80 per share, good until the 10th day of June, 1911. The option provided that upon the failure of said Thomas Plater & Co. to demand, receive, and pay for said stock by noon on the 10th day of June, 1911, the option was to be null and void.

It also appears that Mr. Pritchett executed a written authorization on May 22, 1911, authorizing Mr. Stockell to sell to defendant at $80 per share the stock owned by them jointly and also agreed that Stockell might sell to defendant at the same figure 75 shares of his individual stock, which was then held by defendant as collateral to a note which Stockell owed the defendant for $6,000, and apply the proceeds of...