Ladd v. Knowles

505 S.W.2d 662, 1974 WL 325552
CourtCourt of Appeals of Texas
DecidedJanuary 28, 1974
Docket8423
StatusPublished
Cited by33 cases

This text of 505 S.W.2d 662 (Ladd v. Knowles) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Ladd v. Knowles, 505 S.W.2d 662, 1974 WL 325552 (Tex. Ct. App. 1974).

Opinion

*664 REYNOLDS, Justice.

Plaintiffs Dale Ladd and Gene Gates failed to secure a favorable jury verdict in their suit based on violations of securities laws and on common law fraud to rescind their agreements to purchase stock and to recover from defendants Eddie Knowles, Mike Montgomery and Don Vars, the purchase price paid and claimed damages. The take-nothing judgment entered has been appealed on eleven listed points of error. Affirmed.

The consideration of the points of error necessitates an extended chronology and a particularization of the facts testified to on the trial. The shares of stock involved are those of Agricultural Computing Company, Inc., a private corporation organized by T. M. Brooks and others under the laws of Texas, hereinafter referred to as ACC. Formed in July, 1968, ACC’s primary purpose was to computerize the feedlot industry in the Texas Panhandle region. The common stock authorized and issued to the original subscribers at one dollar per share was not registered, as the written subscription agreement made clear, and was restricted as to transfer. 1

One of the original subscribers and shareholders of record was Norman Motley. Out of his 125,000 subscribed shares, he held 70,000 of them for his sister Nina Jean Stewart, who paid Motley one dollar per share for them, pursuant to their oral agreement that the stock could not be transferred to her until the restrictions were removed. In late July, 1968, Motley, on behalf of Mrs. Stewart, sold 2,000 of her shares to defendant Mike Montgomery, a broker', in the Amarillo brokerage office of Dallas Rupe & Son, for $2,000.00 paid by Montgomery with his personal check. The evidence is that Montgomery bought the stock for the account of KMV Associates, an entity composed of defendants Eddie Knowles and Don Vars, residents of Canyon, and Mike Montgomery for the purpose of investing in stocks. On the same day, Knowles and Vars gave Montgomery their respective personal checks for one-third of the purchase price.

Plaintiffs Dale Ladd and Gene Gates, residents of Pampa, acknowledge that at all times during the events leading up to and including the stock transactions involved here, Ladd was the agent for Gates. Plaintiffs became acquainted with ACC through one of its organizers, T. M. Brooks. Ladd and Gates previously had made successful investments in other computer businesses organized by Brooks, and they wanted in on the “ground floor” of ACC before its stock “went public.” Upon learning that ACC’s original stock issue had been subscribed, Ladd, on behalf of himself and Gates, began the attempt to buy some of the stock before any public offering was made.

Ladd was a customer of Dallas Rupe & Son. He contacted Robert C. Hill, branch manager of the Amarillo office, and asked if Hill knew of anyone who was willing to sell some ACC stock. It is not precisely clear how or in what manner or by which words of communication that Ladd was informed, but it is accepted that Montgomery was the source of the information, that Knowles might sell some ACC stock. Ladd was told the price of the stock would be four dollars a share, and he requested a broker in the office to have Knowles send him a letter.

Following a conference between the members of KMV Associates, at which it was determined that the 2,000 shares of stock would be sold for four dollars per *665 share, Knowles mailed Ladd a blank form agreement, prepared or caused to be prepared by Montgomery, for approval and signature. Ladd was not satisfied with the form of the agreement. With the assistance of a Pampa insurance man, two letter agreements were prepared, one for Ladd and one for Gates, which were transmitted to Knowles with Ladd’s letter reading in part:

“From being involved in the past on this same type of transaction I believe that the letter of agreement would be signed by you rather than by me.
“Since I was purchasing this in partnership with Mr. Gates I am enclosing two separate agreements for your approval and signature ....
“Our checks in the total amount of $8,000.00 will be mailed to you on the same date that I receive this completed agreement back.”

Knowles signed the agreements 2 on September 20, 1968, mailed them, and received the personal checks of Ladd and Gates made payable to his order in the sum of $4,000.00 each. The checks were endorsed and deposited to the account of KMV Associates, and each of the defendants received one-third of the sale price.

Both plaintiffs knew at the time of the transactions that the stock was not registered, that it was restricted from transfer, and that it could not be transferred to them until the restrictions were removed. They also knew that the venture was speculative, that ACC might never succeed with a public registration and that the restriction on transferability might never be removed. Furthermore, they knew that Knowles did not have a stock certificate and that the stock had not been transferred into his name.

Thereafter, both plaintiffs, acting through Ladd, purchased other similar ACC stock on letter agreements from J. R. Barnhill, who was not an original subscriber and who had no certificate of stock. Ladd also purchased stock in two other companies that merged with ACC, and he finally acquired over 30,000 shares of ACC stock. ACC was not a successful venture; it did not succeed with a public registration of its stock; the restriction on transferability was never removed; and the stock ceased to have any market value. At the time of trial, ACC’s liabilities exceeded its assets.

In August of 1971, Ladd caused his accountant to write a letter to Knowles, requesting the number of the stock certificate or a refund of the purchase money with interest. Gates testified he personally never made any demand for delivery of a certificate to him, since he knew that the stock had not become transferable.

Shortly thereafter, Ladd telephoned the office of Schneider Bernet & Hickman to inquire about some stock quotes. The telephone was answered by Montgomery, who had joined the firm on June 1, 1970, when Dallas Rupe & Son closed its Amarillo office. Ladd’s recollection of the conversation was that when Montgomery discovered Ladd was calling, Montgomery told him "... to get off of Eddie Knowles’ back, that I had no right to writing him any kind of letter, that he was strictly legal in doing what he did.” Ac *666 cording to Ladd, Montgomery did not give him a stock certificate number and did not state that he had an interest in the stock plaintiffs had purchased. Montgomery’s rememberance of the occurrence was that after Knowles received the letter from Ladd’s accountant, Montgomery contacted Mrs. Stewart for the certificate number. He then telephoned Ladd “. . . and told him that Eddie had to be out of town, that I was advising him of which certificate the stock that we owed him would come from.” Montgomery did not recall telling Ladd “to get off of Knowles’ back” and, although Ladd . . made a reference of some sort to legal action, or a lawsuit or something . . .,” he did not recall trying to persuade Ladd.

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Bluebook (online)
505 S.W.2d 662, 1974 WL 325552, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ladd-v-knowles-texapp-1974.