Tucker v. McDell's, Inc.
| Decision Date | 24 October 1961 |
| Parties | , Blue Sky L. Rep. P 70,556 Matthew TUCKER v. McDELL'S, INC., et al. |
| Court | Tennessee Court of Appeals |
Cox, Epps, Powell & Weller, Johnson City, for plaintiff in error.
Simmonds, Bowman & Herndon, and Thomas E. Mitchell, Johnson City, for defendants in error.
The plaintiff, Matthew Tucker, sued to recover the purchase price of capital stock in the corporate defendant, claiming it was sold to him by the defendants, McDell's Inc., Joe McCoy and W. G. Waddell, in violation of the provisions of the Securities Law of 1955 (TCA § 48-1601 et seq.), and to recover attorney's fees and court costs authorized by said statute. The Court found in favor of the defendants and a judgment was entered dismissing the suit at the plaintiff's cost. The plaintiff filed a 'renewed motion for a directed verdict and for a new trial', and, when it was overruled, appealed in error to this Court.
In his declaration, the plaintiff alleged that he purchased 50 shares of stock from the defendant corporation for $5,000.00, and that the defendants Joe McCoy and W. G. Waddell, as officers and directors of the corporation, participated and aided in the sale; that after making the purchase, the plaintiff found that the stock of the defendant corporation had not been registered under the Securities Law of 1955, and that the defendant corporation was not a registered dealer of securities.
The plaintiff further alleged that he elected to declare the purchase of the stock void as provided in said Securities Act, and tendered the stock certificates to the corporate defendant and demanded full payment of the purchase price of the stock, with interest. When the demand was not met, the plaintiff filed this suit.
The defendants plead 'nil debit'; denied that they contracted with the plaintiff; denied that they offered or ever intended to offer any stock for sale to the public, and alleged that they did not, therefore, come within the purview of the Securities Act of 1955; and specifically plead estoppel.
The case was tried to a jury, and, after hearing the evidence, the Court, with the approval of all parties, withdrew the case from the consideration of the jury and found in favor of the defendants as set out above.
The material facts in this cause are not disputed. McDell's Inc. was incorporated under the laws of the State of Tennessee on March 22, 1956, with authority to have outstanding five hundred shares of $100.00 par value common stock. Gregg McCoy and the defendants, Joe McCoy and W. G. Waddell, were the incorporators, and subscribed for an aggregate of 100 shares of stock. There were no other stockholders. The defendant Joe McCoy was elected president, the defendant Waddell was elected secretary-treasurer, and Gregg McCoy was elected vice-president. The three incorporators were elected directors.
The Corporation began the manufacture and sale of heat cables, and wall and bathroom heaters in the summer of 1956. The corporation prospered and showed a net profit of $6990.73 for the period of January 1, 1957 to August 31, 1957.
In an effort to increase its capitalization, the corporate defendant, through the defendants McCoy and Waddell, negotiated with the plaintiff during the months of July and August, 1957 in an effort to sell 50 shares of stock. The plaintiff visited the corporate place of business near Jonesboro, Tennessee, and examined the corporate books and observed the physical properties. The defendant Waddell prepared a financial statement, a profit and loss statement and an inventory sheet for the plaintiff.
In September 1957, the plaintiff agreed to buy fifty shares of the corporate stock at par of $100.00 per share, with the understanding that the plaintiff would be a director and vice-president. The plaintiff met with the stockholders and directors of the corporate defendant on September 9, 1957. The by-laws of the corporation were amended to increase the number of directors and officers and to provide for the sale of the stock. The plaintiff subscribed for 50 shares of stock and paid the sum of $5,000.00 to the corporate defendant. The plaintiff was immediately elected a director and vice-president of the corporate defendant.
After becoming an officer and director, the plaintiff kept in close touch with the business, checking the books and accounts each week, and aiding in the collection of delinquent accounts. He attended the annual meetings of stockholders and of the directors, and helped set the policy of the company. He was one of the directors that decided that the corporate defendant should 'devote an all out effort to speed the manufacture and get a patent on the thermostatic line voltage control'.
The defendant corporation was unable to manufacture thermostats competitively with other and larger corporations, and the directors and stockholders decided to liquidate the corporation. The plaintiff took part in this decision, and voted to liquidate.
Several months later and after liquidation was well underway, if not completed, the plaintiff tendered the return of the stock in the corporate defendant and made demand for payment of the purchase price, plus 5 per cent interest.
The stock of the corporate defendant had not been registered under the Securities Law of 1955, and the corporation was not a registered dealer of securities in this State.
TCA § 48-1607 provides:
'Securities must be registered--Exceptions.--It shall be unlawful to sell any securities within this state, except those exempt under § 48-1619 or those sold in transactions exempt under § 48-1632, unless such securities shall have been registered as provided in §§ 48-1608--48-1614.'
Under TCA § 48-1645, it is provided:
There is no contention that the stock of the defendant corporation is an exempt security under TCA § 48-1619.
Considering the above evidence in the light of the pleadings and the quoted sections of the Securities Law of 1955, it is evident that the defendants are jointly and severally liable to the plaintiff for the purchase price of the stock in question, together with all taxable court costs and reasonable attorney's fees, if
(1) the Securities Law of 1955 is applicable to a single privately negotiated sale of stock; and
(2) the plaintiff is not estopped from asserting any rights he might have under the Securities Law of 1955 by reason of his acts after purchasing said stock.
It is insisted by the defendants that the legislature intended that the Securities Act of 1955 apply only to 'public offerings' of stock, and not to a single private sale. In support of this...
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