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CLAYTON v. JAMES B. CLOW & SONS

December 10, 1962

JOANNA GWIN CLOW CLAYTON AND JOANNA GWIN CLOW, A MINOR, BY HUGH A. CLAYTON, HER NEXT FRIEND, PLAINTIFFS,
v.
JAMES B. CLOW & SONS, A CORPORATION ET AL., DEFENDANTS.



The opinion of the court was delivered by: Robson, District Judge.

  Plaintiffs, by Complaint filed June 27, 1955,*fn1 seek restitution of 91,200 shares of common stock of James B. Clow & Sons, a corporation,*fn2 as a part of the testamentary trust of the late Charles R. Clow, Sr.*fn3 These 91,200*fn4 shares were the result of numerous stock splits,*fn5 from the 2,850 shares which had been transferred to the Company by Charles, Sr.'s widow, Hattie*fn6 (trustee under the testamentary trust), in these four transactions:
  1,250 shares at $25 on January 15, 1935
    500 shares at $30 on December 24, 1935
    600 shares at $50 on April 28, 1938
    500 shares at $50 on July 1, 1938

These shares were derived from the 437½ shares*fn7 which had originally constituted the testamentary trust corpus. The 1,250 shares involved in the first transaction were used by the Company to effect a merger; the 1,600 shares involved in the last three transactions were later transferred to William E. Clow, Sr.,*fn8 brother of Charles, Sr. and an officer and director of the Company.

The very narrow, and principal, issue in this enormously complicated controversy is whether William, Sr., procured the transfers from Mrs. Pryor of the 2,850 shares of common stock in the Company at inadequate prices, in breach of his fiduciary relations, either express or implied.

The physical proportions of this record and the problems involved are clearly demonstrated by an outline of its statistics. There are some 3,023 pages of transcript of the trial testimony; plaintiffs' exhibits number 2,993 (No. 2992 alone has 230 pages); defendants have 241 exhibits. The total number of pages of these exhibits runs about 6,000. There are additionally some 2,663 pages of depositions; 189 pages of excerpts from William, Sr.'s diary, along with a thick volume, unpaged, of summaries therefrom; about ten court envelopes of pleadings, interrogatories, requests for admissions, rulings, and miscellany. The proposed findings of fact and conclusions of law and objections thereto aggregate 334 pages, and the briefs after trial total 856 pages.

The testamentary trust had been created by the will, executed February 17, 1908, of Charles, Sr. who died on May 7, 1910. The will provided, in part, as follows:

  (c) "* * * [Mrs. Pryor] is hereby given the right at
  any time to sell, assign, transfer and dispose of the
  whole or any part of said capital stock upon consent
  thereto given in writing by William E. Clow,

  Harry B. Clow and James C. Clow, or in case of the
  death of any of them, then upon the like consent in
  writing of the survivor or survivors of them and the
  heirs, devisees, executors and administrators of the
  deceased."
  (d) "* * * [The proceeds] shall be invested and
  reinvested from time to time in such securities or in
  such loans as my said Trustee shall elect with the
  consent in writing of said William E. Clow, Harry B.
  Clow and James C. Clow, or any two of them. * * *"

In addition to seeking recovery of the shares of stock, plaintiffs seek a monetary recovery of $2,755,071.90, which sum constitutes dividends through December 31, 1959, plus five per cent interest thereon, and the amount of a 1936 dividend note, and interest, which Mrs. Pryor sold at discount to William, Sr. They point out that the defendant Delaware corporation has 294,624 treasury shares and 417,120 authorized unissued shares so it has "ample" shares to provide for the return of 92,112 shares "wrongfully acquired" of the trust corpus. If William, Sr.'s successor-defendants restore the stock for which they are allegedly liable, to the trust corpus, liability of the Company would be accordingly reduced. As to defendant Johnson, plaintiffs suggest that the exact extent of his liability abide determination of recovery from William, Sr.'s successor-defendants and the Company.

Plaintiffs assert the right to recover on behalf of the trust estate of Charles, Sr. any shares or dividends which belong to the trust estate whether or not such trust property is distributable to them or to other persons as the beneficial owners thereof, because the trustee has failed to sue therefor.*fn9

Charles, Sr. left an only child, Charles R. Clow, Jr.,*fn10 who first married Linda, by whom he had a child, Charles III. Charles, Jr. procured a California divorce, and remarried to Ella, before the expiration of a year from the divorce. The marriage to Ella was annulled and Charles, Jr. later married the present plaintiff, Joanna Gwin Clow [Clayton], by whom he had a daughter, Joanna Gwin Clow, also a plaintiff.*fn11 Charles, Jr. died in a plane accident in service on March 1, 1943.

Mrs. Pryor, subsequent to Charles, Sr.'s death, married three times: first to Mr. Lawrence Peters, then Mr. Charles O. Pfeil, and later, Mr. Lawrence Pryor, who survived her. Mrs. Pryor was living at the time of the institution of this suit, but she declined to bring it or join in the suit.*fn12

Defendants are the Company, the executor of the estate of Mrs. Pryor (the testamentary trustee of Charles, Sr.), Earle F. Johnson,*fn13 and numerous others,*fn14 as transferees of this Clow common stock and trustees of trusts or executors of estates to which the stock has been traced.

When Charles, Sr.'s will was executed the corporate by-laws restricted stock sales to nonshareholders by requiring that such stock be first offered to existing shareholders under the same terms. The only common stockholders at that time were his three brothers: William, Sr., Harry B. and James C., and James M. Johnson, who owned ten shares.

Charles, Sr. at the time of his death owed the Company $14,930.

The principal business of the Company since 1910 has been the manufacture of cast iron pressure pipes and fittings. It had pipe plants at Birmingham, Alabama, Coshocton, Ohio, and Newcomerstown, Ohio. Its stock has never been listed or traded on any exchange or over the counter. There had been only seven transfers of the stock up to the time of the transactions here involved.*fn15

The ancestor, James B. Clow, in his will of January 5, 1904, bequeathed all his property equally to his four sons, William, Sr., Harry B., James C. and Charles, Sr., except the stock in the Clow Company, which he gave equally to the three sons, excepting William, Sr., but he went on to explain the reason he was excluded*fn16 was because he already possessed a large block of the stock. The four brothers, sons of James B. Clow, by agreement dated January 30, 1908, agreed that the provision in the father's will "shall be disregarded, and all the capital stock (both preferred and common) * * * shall be divided equally between" them, one-fourth to each. Plaintiffs cite, even this 1904 agreement as indicative of William, Sr.'s overwhelming drive to procure control of the Company.

On April 28, 1932, a document executed by Mrs. Pryor, Charles, Jr. and Linda, and witnessed by Mr. Pryor, followed a suggestion by Mr. Sidney Murray, attorney for the Company. It arose out of the financial necessities of Mrs. Pryor. The Company had suspended common stock dividends in that month and she had borrowed $27,500 on a ninety-day note from a bank. Also, Charles, Jr. had left his first wife, Linda, in August, 1931, and she too had gone to William, Sr. about her financial problems in April, 1932. The advances from time to time were made by Clow Company on Company checks and were charged to the personal account of William, Sr. They bore interest at 6%; 1,312½ shares of Clow stock had been assigned by Mrs. Pryor, Charles, Jr. and Linda as collateral.

On November 18, 1935, Charles, Jr. transferred to his mother, Mrs. Pryor, his remainder interest under the testamentary trust, whereupon the Company issued new certificates.*fn17 Later, on July 26, 1940, this November 18, 1935, transaction was rescinded. These two transactions are important to the respective parties' contentions and the conclusion of this case, as affecting the right or power of Mrs. Pryor to make the challenged transfers to the Company in the interval between the two documents, and as barring a cause of action in plaintiffs.

Also of importance in the solution of this cause is a Mississippi court decree, by consent, entered December 14, 1953, construing Charles, Sr.'s will, as resulting in an intestacy of the remainder interest lodged by the will in Charles, Jr. The will made no specific provision for Charles, Jr.'s predeceasing his mother, the eventuality which actually occurred. As a concomitant to the consent decree, there were executed by the plaintiffs covenants not to sue Mrs. Pryor. All these documents are covered in greater detail later herein.

In ruling*fn18 upon various motions, including that for summary judgment, Judge Julius J. Hoffman of this Court set out with meticulous detail the facts of the controversy and legal contentions of the respective parties. He concluded that it could not be determined at that time as a matter of law that no genuine issue of fact was involved, and therefore denied the motions. He held the Illinois statute of limitations was inapplicable because this was in essence an equitable cause of action to which the doctrine of laches must be applied, but again, concluded a factual issue was involved preventing disposition of the issue.

While the Court has deep respect for the monumental and magnificent research task the plaintiffs have performed, it nevertheless remains completely unconvinced of the soundness of their premise that William, Sr. engineered a "campaign" to purloin the trust stock from Mrs. Pryor or that the Company, or he, paid less than its full value, as it was then known or knowable.*fn19

Plaintiffs repeatedly stress statistics and statements by William, Sr. and others which they deem overwhelmingly indicative of fraud, concealment, misrepresentation, chicanery, and a campaign to procure the trust shares from Mrs. Pryor so William, Sr. might have complete control of the Company. They assert that if she had been fully apprised by William, Sr. of all the details of the Company's finances and its mode of operation, he could not have swindled the shares from her at such low values.

The Court believes that if such were the true state of facts, and Mrs. Pryor and her husband honestly believed plaintiffs' theories, she as trustee (and as grandmother), had a duty to protect, and in fact would have fulfilled that duty, to her descendant and would have participated fully and wholeheartedly in the suit for recovery. She was the one, other than William, Sr., who knew the real "pulse" of the transactions. Yet she declined to participate in this cause with a stupendous sum at stake. That very declination, informed as ostensibly it later was, carries extreme weight with the Court. It is not convinced that either age or state of health deterred her, rather a reluctance to turn against the only source of succor she had in her long interval of financial distress.*fn20 Plaintiffs state: "At their deposition in this action Mr. and Mrs. Pryor still believed that William, Sr. had not taken advantage of them or done anything improper." The Court accords great weight to that belief as based on the actualities of the case, not on a masterful fabrication of figures infinitely illuminated by hindsight.

Furthermore, in reaching its conclusion that the Company, and thereafter, William, Sr., breached no possible fiduciary relation and treated Mrs. Pryor with absolute integrity, the Court is deeply influenced by the findings*fn21 of value of this stock by the Federal Government when confronted with the same problem at the time of imposition of estate taxes on two estates, and the State of Illinois when imposing inheritance taxes. These governmental agencies charged with this task are experts in the field of evaluation of the stock of closed corporations. They have the duty of imposing taxes on a basis which is just to the taxpayer and to the governments — an ascertainment made on accounting facts fully presented at a time fairly contemporaneous with the determination. Yet the values of Clow common stock at which the taxes were levied were below those paid by the Company and by William, Sr.

The Court cannot see how it can be claimed that William, Sr. "exaggerated" the personal problems of Charles, Jr., or deprecated his financial wisdom. Charles, Jr. was a thrice married man, deserted a wife and infant child, was unable to hold a position, and was continually borrowing from his mother. It seems to the Court that William, Sr. exercised extreme patience and resourcefulness in wrestling with Charles, Jr.'s problems. Nor is the Court unaware of the favorable aspects of Charles' life — his service to country and death in service; his charm of personality. But it remained for someone with business acumen or funds to seek a way to support his mother, wives, and children.

Charles, Jr.'s first wife, Linda, went to Greenville, Mississippi, in April, 1936, and had him arrested. Mr. Pryor and Attorney Hafter secured Charles, Jr.'s release. Linda's divorce proceedings against Charles, Jr. were settled on April 27, 1936, by Mr. Pryor and Attorney Hafter who came to Chicago. They also saw William, Sr. and Attorney Murray. Mr. Pryor and Mr. Hafter had a Clow stock certificate for 500 shares with them and a letter signed by Mrs. Pryor and Charles, Jr. asking that the certificate be cancelled and new ones issued: 200 shares to Linda, 200 shares to a trustee for Charles III and 100 shares for Mrs. Pryor. The divorce decree was entered May 4, 1936, and the stock transferred as requested.

Charles, Jr. at the age of twenty-one was employed by the Company, on May 3, 1926, in the shipping and receiving section. A supervisor reported that Charles, Jr. was not only "no good but a detriment." He went back to work for the Company about April 15, 1930, shortly after his marriage to Linda, but he became ill and was hospitalized and returned to work in the Fall. He left the Company June 24, 1931, to work for the Chicago World's Fair. There was some assertion that Charles, Jr. was not as well treated as others of the younger Clow generation, but the evidence showed that he had no predisposition to hard, consistent work, or regular hours. However, he was at one time paid $24 a week when other employees doing comparable work were earning $14 or $15 a week.

William, Sr.'s conscientious handling of the problem of Charles, Jr. is exemplified by this letter of March 17, 1938, to Mrs. Pryor:

    "I was under the impression that you had paid all
  of Charles' debts. The boy has no realization of
  penalties for breaking the law. * * * I am told you
  know that he gave a check to his doctor for $190.00
  for services rendered when he had nothing in the
  bank. Now that means that unless it is paid Charles
  cannot come into the state of Illinois without being
  arrested. * * * Assuming that you know all about it
  and intend to pay the bill, if you will authorize us
  to make the payment, I think in all probability we
  can have the doctor accept the amount without any
  interest and give a receipt to Charles for his debt
  in full. So far as I know, this is the last debt that
  Charles has in this part of the country. I hope so,
  for honestly, Hattie, I do not really need Charles'
  troubles — I have got enough of mine. * * *"

Evidently there was no reply to this letter because on March 29 William, Sr. wrote a strongly worded letter seeking a reply and received a wire authorizing settlement of the bill, and word of appreciation.

A chronology of events here involved is set forth below.*fn22

Outline of Plaintiffs' Contentions

Plaintiffs predicate their cause of action on these four bases:

(1) The existence of breaches of an express trust under the "consent" provisions (Article Third, Clauses (c) and (d) quoted above) of Charles, Sr.'s will through (a) self-dealing by William, Sr. and the other advisory trustees, and (b) the lack of written consents of all required persons to the purported sales by the trustee.

(2) The presumption of fraud arising out of the purchase of property by or for the benefit of William, Sr. as the dominant party in his confidential relationship with Mrs. Pryor as trustee, and her son, as the servient parties in that relationship, and the failure of defendants to overcome such presumption of fraud by an affirmative showing that the transactions were fair, including full and frank disclosure of all the material facts and the payment of a fair and adequate price on each of the four acquisitions of trust stock.

(3) The actual fraud on the part of William, Sr. and the Company through concealment and misrepresentations of material facts on each of the four acquisitions of trust stock, and through William, Sr.'s calculated, persistent campaign to acquire the trust stock for himself.

(4) The breaches of fiduciary duty owed by William, Sr. in his capacity as the principal officer, director and controlling stockholder of the Company to Mrs. Pryor as trustee, in her capacity as a stockholder of the Company, requiring him to make full disclosure to her of all material facts before purchasing stock from her, purportedly for the Company.

More specifically, as to the first contention, plaintiffs maintain that in requiring the brothers' or their heirs' consents to the sale of the Clow stock by Mrs. Pryor as trustee, and the reinvestment of the proceeds, it was Charles, Sr.'s intent expressly to make the consenters trustees for the benefit of his young and inexperienced wife and infant child. They contend that the sales without such consents were beyond the power of Mrs. Pryor as trustee to make, and ineffective because all the required persons*fn23 did not consent. Plaintiffs predicate the liability of the Company and Mr. Johnson on their alleged participation in the asserted breaches of express trust and confidential relationship having full knowledge thereof.*fn24 Plaintiffs do not predicate their claim upon unjust enrichment, but solely upon tracing trust property. While they have no objection to these defendants' proving the amounts they have paid for income tax on the dividends on the disputed shares, they deem such evidence irrelevant because it could not reduce their liability to plaintiffs, and "if any defendants paid taxes on property or income that does not belong to them, they should apply for tax refunds."*fn25

The plaintiffs assert that the consents of Charles, Jr. and Mrs. Pryor to the four transfers of trust stock to the Company were ineffective because they were executed without knowledge of the material facts relating to the transactions, the consents being prepared by some of defendants and given with the inference that they were approved by the Company's counsel, Mr. Sidney Murray.

Plaintiffs maintain that prohibited self-dealing in the trust property, by an advisory trustee expressly named in the will, in itself requires that the acquisitions be set aside, without regard to their fairness or the adequacy of the prices paid. They predicate this position on the rule "unyielding and inflexible" against self-dealing, stated in Bennett v. Weber, 323 Ill. 283, 294, 154 N.E. 105, 109, where it was said:

    "A trustee cannot purchase from himself or at his
  own sale. The law does not stop to inquire into the
  fairness of the sale or the adequacy of the price,
  but stamps its disapproval upon a transaction which
  creates a conflict between the self-interest and
  integrity of the trustee." (Italics supplied.)

Laches, plaintiffs claim, do not bar their suit because they had no knowledge of any of the material facts on which the cause of action is based until shortly before the filing of the complaint and until after discovery herein, or knowledge, even, that William, Sr. had purchased all 1600 shares involved in the last three transactions. They state there was no lack of diligence on their part, nor was there even a duty of diligence, because of the confidential relation. Furthermore, since Charles, Jr. had only an equitable reversionary interest, it did not come into possession until after Mrs. Pryor's death on June 1, 1959, and there has been no prejudice because the suit was not brought earlier.

Plaintiffs also maintain that the covenants not to sue, given Mrs. Pryor in settling the 1953 Mississippi litigation did not release her or any of the defendants as to the subject matter of this action for making the sales, but only as to the money received by Mrs. Pryor in these transactions. Furthermore, the covenants were executed in Mississippi where the release of one joint obligor does not release others unless there is clear intent so to do.

Secondarily, plaintiffs contend that there was a confidential relationship between William, Sr. and Mrs. Pryor, her husband, and her son, from which a presumption of fraud arises, which presumption was not overcome by evidence adduced by defendants. The confidential relationship was the result of many aspects of the dominant-servient relationship between them. Thus plaintiffs state that "The development of a sense of absolute confidence in him by Mrs. Pryor was the cornerstone of William, Sr.'s success in obtaining Mrs. Pryor's trust stock. He played skillfully and in harmony upon each of his separate relationships with her, weaving them into a single strong tie of unshakable trust and confidence in him. He used to the maximum the family relation, the express trust relation under Charles, Sr.'s will, his relations as an officer and director to her as a stockholder, his professed solicitude for her welfare and his repeated assurances that he always put her interest ahead of his own as a trustee should. Thus he won her absolute trust and confidence. Without it he could never have succeeded in his campaign to obtain her trust stock."

Plaintiffs go on to assert that Mrs. Pryor had no independent advice, other than from her husband and son, neither of whom had more information than she, and there was a duty on the part of defendants to inform them all of the material facts.

The fourth position of plaintiffs is predicated on the premise that William, Sr. and his brother's sons, Harry, Jr. and Beach, held a total of 82.5% stock interest in the Company and William, Sr., as a trustee "violates his duty if he sells trust property to * * * a corporation in which he has a controlling or substantial interest." (Restatement, Second, Trusts, § 170(i); Kinney v. Lindgren, 373 Ill. 415, 422, 26 N.E.2d 471 (1940))

In the margin are set forth briefly some of the many alleged facts plaintiffs deem indicative of William, Sr.'s motive to acquire a controlling interest in the Company.*fn26

They believe those facts, with others, conclusively prove William, Sr.'s overwhelming desire to control the Company at any cost, and that he went to very great lengths to defraud Mrs. Pryor and to delude her and her son and others into parting with their stock when they had no alternative in their financial distress.

Outline of Defendants' Contentions

The Court will consolidate for consideration both branches of the defendants, the individuals and the Company. It is the defendants' position that:

1. Plaintiffs have no standing because under the will of Charles, Sr., Mrs. Pryor became entitled to the corpus of the trust if Charles, Jr. predeceased her, as he did.*fn27

2. Plaintiffs have no standing because Charles, Jr., through whom they claim, transferred his interest to his mother by agreement of November 18, 1935, and also because he approved each sale.*fn28

3. Plaintiffs' claims are barred by the five-year statute of limitations and by laches.*fn29

4. The shares plaintiffs seek were received by Mrs. Pryor as dividends and she was entitled to keep them, and had the right to dispose of them.

5. The "consent" clause (c) of Charles, Sr.'s will was made solely for the benefit of the other members of the Clow family, and only they can complain, and failure to object was equivalent to assent.*fn30 It is a question of fact*fn31 whether "consentors" are fiduciaries, and even if they are, courts have refused to apply the rule against self-dealing when the evidence indicated the creator of the trust did not intend to prevent him from purchasing trust property.*fn32

6. The Mississippi decree construing Charles, Sr.'s will was by consent and pertained only to the shares then in the trust, and it was by the Clow Company's consent that the stock was placed in Mrs. Pryor's name.

7. William, Sr. was not a trustee and Attorney Murray's calling him one did not invest him with that stature. Mrs. Pryor was the only trustee.

8. The July 26, 1940, rescission document did not void ab initio the prior executed sales and affected only the 2,000 shares mentioned therein, and did not cover the 3,250 shares theretofore transferred.

9. Defendants deny there was self-dealing, actual fraud, or presumed fraud arising from a confidential relation or nondisclosure.

10. The stock which Mrs. Pryor sold, she had received as dividends and she therefore had an absolute right to use dividends.

11. Defendants deny the inadequacy of valuation by the Company or William, Sr., or the invalidity of advances and loans to others, officers or employees of the Company or their close relatives.

Many are the alleged facts which defendants deem indicative of a lack of fraud on the part of William, Sr.*fn33

Mrs. Pryor's Financial Condition

The very fount of this litigation arose from the continued desperate financial condition of Mrs. Pryor during the depths of the depression. Her's was not a unique position. She had requested and received a loan from the Company for $5,000 in November, 1936, to be repaid from anticipated dividends. A dividend of $5 a share in cash and $6 in note, due in 1941 and carrying 3% interest, was declared in December,*fn34 with Mrs. Pryor receiving cash of $15,500 (not excepting the $5,000 loan) and an $18,600 note. In April, 1937, Mrs. Pryor borrowed $5,000 from William, Sr. against her dividend note, and in July, 1937, she took up the matter of discounting her dividend note with William, Sr. He wrote her back July 8 that the value of her $18,600 note, after deducting the $5,000 was $10,309, and on July 13 she wired him she would sell it for that price. The note was discounted at 4%.*fn35

In October, 1937, Mrs. Pryor was hospitalized and went to Florida to recuperate, and Mr. Pryor wrote William, Sr. at that time:

    "It is quite true that Hattie has received some
  handsome dividends but we have used them in helping
  Charles to equip his place and in making permanent
  improvements here. I do not feel that a dollar has
  been spent unwisely but it makes it difficult at this
  time when we are netting about $30 from a bale of
  cotton whereas the same bale netted about $90 last
  year.

William, Sr. wrote asking the amount he needed and he would try to secure it as a debit against the next dividend. He received a reply from Mrs. Pryor telling of her debts, including one for a new car for Charles, Jr., and asking for $5,000 to pay her's and Charles, Jr.'s debts. The Company advanced the sum and charged it to William, Sr.'s account.*fn36

Defendants' Exhibit 91, a memorandum as to Mrs. Pryor (Pfeil), would indicate that she was indebted for $24,500 secured by 1,500 shares of Texas Corporation.*fn37

A letter of January 25, 1938, from Attorney Wynn to Mrs. Pryor indicated that she had some $34,000 debts to two local institutions and it was intimated that Mrs. Pryor did not want to go to the Clows again for money, and on February 1 he wrote her "Larry (Mr. Pryor) went to Chicago and I am glad he did not offer to sell any stock." The records of the Southern Credit Company revealed that L.B. Pryor had a balance due them of $23,851.88, secured in part by 1,000 shares of Clow stock, valued at $50 (a valuation requested by them in a letter to Clow Company, although the lender thought the stock possibly had a value of $100 at the time). In a financial statement of L.B. Pryor for a loan of $7,500 made April 11, 1938, there was listed 3,100 shares of common Clow stock at a value of $310,000. Liabilities at that time totaled $78,800, including $34,650 notes payable, and mortgages totaling $41,400. In an application for a $13,300 loan January 25, 1939, there were listed as assets 2,000 shares of Clow common and 200 shares U.P. Nat. Bank, for a total of $205,600. Liabilities listed totaled $47,600.

One undated letter from Mrs. Pryor to William, Sr. stated her debt to him as $13,565.89 and it was to be paid by deduction of 500 shares from the 4,000 shares the Company held and the proceeds for same should be paid $13,565.89 to William, Sr. and the balance of $1,434.11 to her, the stock being sold for $15,000 or $30 a share.

The Pryors' necessities for the 1938 sales arose out of their crop loss and the need for payment of the crop loan which on April 8, 1938, was approximately $21,409*fn38 to Southern Credit Corporation, which plaintiffs say "was vigorously pressing her for payment" and she sought to borrow $20,000 against future dividends which William, Sr. refused*fn39 offering to buy the stock instead.

Plaintiffs complain that the Company declared, prior to September 12, 1938, only a one dollar dividend in March, 1938, while having earnings in the first quarter of $158,933 and $263,364 for the first month, which would have warranted, they claim, a several dollar dividend, but instead in June, 1938, the Company prepaid $145,600 of dividend notes*fn40 not due until December, 1941, which would be equal to $4.85 a share on the common stock. Plaintiffs seem to forget that defendants were denying themselves, as well, of these possible common stock dividends and that the dividend note payment inured to the Company's financial benefit to have this interest-bearing indebtedness off its books.

Nor is there any doubt of Mrs. Pryor's earlier need for money. In a letter of June 3, 1935, she itemized 51 bills totaling $4,024.89, and additional items of taxes and insurance of $1,285.65. In a wire dated June 20, 1935, she stated: "Have not received papers; urgent I have money Saturday morning; people pressing and doubting my promise. * * *" A letter from Greenville Bank & Trust Co. (Greenville, Miss.) to William, Sr., dated December 12, 1935, stated that Mr. Hafter was authorized to settle Mrs. Pryor's and Charles, Jr.'s debt, approximating $13,000, for which were to be returned 4,000 shares of Clow Company common stock and 1,542 shares of U.S. Pipe & Foundry Co. William, Sr., however, was so alarmed over the situation he wrote her he would not turn a share of the stock over to any one but her; that she had no chance of realizing enough money to satisfy a loan she would make, giving the stock as security therefor. Mrs. Pryor then wrote that her chief idea was to protect Charles, Jr. and get the stock out of Illinois.

A very long letter of January 19, 1937, from William, Sr. to Mr. Pryor concerned a $295 debt of Mrs. Pryor for which judgment had been allegedly procured by a creditor who approached the Clows for payment, and William, Sr. was fearful of adverse newspaper publicity and requested authority to pay the debt as against future dividends in case the last dividend had been used up in payment of the Kansas City mortgage. The letter also intimated that Mr. Pryor had been apprised of the Clow Company finances on a visit to Chicago, and William, Sr. further outlined its condition at the time of writing. William, Sr. got a wire back that Mrs. Pryor thought the bill was $125 and that she had paid it the previous December. William, Sr. communicated the wire to the creditor and wrote the results to Mrs. Pryor.*fn41

It seems to the Court that this letter clearly reveals the characters of the two principal actors in this controversy, to which deduction this Court must attach importance since the plaintiffs or their predecessors did not see fit to bring the suit until after the decease of William, Sr., and Mrs. Pryor herself refused to bring suit or participate therein.

A letter of April 16, 1937, from Kent to Mrs. Pryor reveals the sending of a $5,000 check to her with the understanding she would send the dividend note she had received, as security, with interest of 3½%, stated to be the same as the dividend bore. He added stern admonitions against speculating in commodities.

In June, Mrs. Pryor wired as to the dividend she then expected in order to pay her income tax, to which William, Sr. replied by letter that due to strikes they felt they should buy materials for the future and business had not been as good as expected so it was considered prudent not to declare a dividend at that time.

The patience of the Clow Company is epitomized in this letter from E.F. Johnson, to Mrs. Pryor, dated December 2, 1933:

    "We are today paying a bill of our customer * * *
  for $40.04, for work he did for Charlie in September
  of 1931. * * * This is the only bill of Charlie's
  that we have paid, but we felt that we just couldn't
  have an old customer of our company lose because of
  having given credit to the grandson of Captain Clow.
  We are, if you have no objections, going to charge
  this against future dividends payable to you on your
  Clow stock."

Mrs. Pryor's income in earlier years had been very substantial. According to a May 18, 1932, memorandum re Mrs. Pryor, it was stated that until recently a dividend had been paid of $1,600 a month; another memorandum of May 30, 1932, stated she had received monthly dividends of $1,312.50 and an extra dividend of 10% at the end of the year. A letter to a banker, evidently from Attorney Wynn, dated March 25, 1938, stated that Mrs. Pryor had received $32,000 in dividends for the year 1935, and $20,000 for the year 1936. But her income tax return stated she had received $34,100 for 1936 from the Clow Company. Her income tax return for 1938 took advantage of a $25,000 loss on the capital sale of the 500 shares, taking a 1913 valuation therefor of $50,000. She took a similar $25,000 loss in 1938 for the 500 shares of Clow stock sold to the Company in that year.

On February 29, 1936, the first preferred stock of U.S. Pipe and Foundry Company was retired and Mrs. Pryor received therefor $32,382, on which she paid income taxes on the capital gain. There is no evidence she asked the Clow family as to its mode of reinvestment under the will of Charles, Sr., nor what disposition she made of the proceeds.

Trustee under express trust

One facet of defendants' liability is predicated, as above stated, upon William, Sr.'s liability for breaches of an alleged express trust by virtue of his being named in clauses (c) and (d) of Article Third of the will of Charles, Sr. By clause (c) William, Sr.'s, his brothers' and their heirs' consent to sale of the trust's Clow stock was required, and by clause (d) William, Sr.'s and his brothers' consent to the reinvestment of the proceeds of a sale of such stock was required.

Plaintiffs interpret provision (c) not for the benefit of other stockholders, because a Company by-law already so provided.*fn42

The proposed findings of plaintiffs also infer that Charles, Sr.'s will arose out of an awareness from the brothers' agreement, shortly after the father's death, of William, Sr.'s "strong and aggressive" interest in acquiring more stock of the Corporation, and therefore Charles, Sr. could not have intended by the consent provision to confer additional power upon William, Sr. to veto sales of trust stock for his own purposes in derogation of the interest of the trust estate, but rather for the exclusive benefit of his trust estate.*fn43

In respect to plaintiffs' contention that the transfers by Mrs. Pryor were invalid because not all of the required consents by members of the Clow family or their heirs were procured approving the transfers, the Court concludes that the fallacy of this contention inheres in the untenable position that the consent provision was for the benefit of the cestuis rather than of the consenters. In line with the conclusion that it was for the benefit of the other stockholders of this closely held stock, it follows that only they for whose benefit the provision was intended have the right to challenge its omission or breach.*fn44 Plaintiffs' further contention that the consents which were actually procured were ineffective because the consenters lacked necessary information to wise exercise of their right must fail for similar reason.

Plaintiffs have conjured up what seems to the Court a completely tortured construction of the "consent" provision (Article Third (c)). This was a close family corporation with by-laws providing against transfer to others without prior offer to other stockholders — a not unusual provision in this kind of situation. The fact that the testamentary trust contained other provisions solely for the benefit of the cestuis does not render an interpretation favorable to other family members, of the "consent provision" insupportable, inconsistent or illogical.

The formulators of the by-law and the testator necessarily contemplated "self-dealing" by officers and directors, it being inherent in the purchase of stock in their family corporation.

The Court is strongly of the opinion that William, Sr. was not a trustee*fn45 under the provisions of clauses (c) and (d) of the will of Charles, Sr. He was not so denominated in the instrument while the widow was so called.

The Court has no doubt in its conclusion that the "consent" provision of clause (c) was solely for the benefit of the other members of the Clow family in their common endeavor to keep the Company family-owned. The Company by-law protected the rights of family stockholders so the testator was fully aware that self-dealing was necessarily contemplated.

It is noteworthy that the scrivener of Charles, Sr.'s will used the word "trustee" in both clauses (c) and (d) when speaking of the widow named to handle the trust estate. Inferentially his failure to so describe the brothers and their heirs in those very same clauses should have significance as indicative of an intent not to charge them as trustees.

Plaintiffs claim that since it is a rule of law that wherever possible the Court should harmonize the provisions of a will to avoid conflict (36 Illinois Law and Practice, Wills, Sec. 218, p. 315), the two consent clauses of Charles, Sr.'s will should both be construed as for the beneficiaries' benefit and the brothers trustees under both provisions, otherwise there would be created an irreconcilable conflict. This the Court feels is a slurring of ideas — one could well be a trustee under only one provision without conflict arising as to the remaining portions. Be that as it may, however, since the Court has concluded clause (c) requiring consent for sale of the Clow stock was for the benefit of Clow family members and not the testator's heirs, therefore there need be no carry-over of interpretation of trusteeship to all other clauses, but on the contrary there could be a carry-over of the idea of non-trusteeship under the remaining provisions.

The Court believes that one weakness in plaintiffs' case is revealed when they assert (p. 84 of Plaintiffs' Reply to Defendants' Brief after Trial, filed July 17, 1961):

    "As we have already pointed out with respect to the
  breach of the express trust by William, Sr., since he
  was an admitted fiduciary with a standard of conduct
  `similar to that of a trustee,' he was bound to act
  as a trustee in all matters relating to the trust
  estate. William, Sr.'s fiduciary duties were not
  limited to his functions under clause (d), i.e., the
  reinvestment of trust funds. He did not represent
  himself as a limited trustee. He told her he was
  `trustee of the estate' and that his approval of
  sales of trust stock was required as `trustee.'"
  (Italics supplied.)

If clause (c) be construed as for the benefit of William, Sr. and his brothers, there would be a very substantial basis for the holding of a limited trusteeship, if any, pertaining solely to reinvestments under clause (d).

Plaintiffs preclude defendants' interpretation of Charles, Sr.'s will from "surrounding circumstances" because such circumstances may be used only when the language of the will is uncertain or ambiguous, but never to establish an intention of the testator not found in the will itself.*fn46 Since the will does not refer to the by-law, nor does the evidence show the lawyer who drafted the will knew of its existence, it may not be used to show an intent to benefit the consenters personally when the will itself shows the contrary — that they were fiduciaries or advisory trustees. However, it is apparent from a reading of clause (c) alone that it was meant only for the benefit of the other members of the Clow family.

Furthermore, plaintiffs claim no gift to or intention to benefit the consenters can be inferred from silence in the will.*fn47 Nor will the will be construed in favor of the testator's more remote relatives, his brothers, as against his closest relatives, his widow and only child.*fn48 They say the construction contended for would cut down the value of the trust property held for the testator's widow and child by creating an absolute veto power on the sale of the Clow stock in favor of the testator's brothers and their successors. This would go directly contrary to the fundamental presumption of the law favoring the closest relatives and conforming most nearly to the general law of inheritance. And the presumption is particularly strong here since the trust stock constituted the testator's sole property, so the absolute veto power would be applicable to the entire trust property. Again, the Court feels plaintiffs are citing general rules of will interpretation inapplicable in view of the exceptional fact situation of a close family corporation.

Plaintiffs point to the alleged subterfuge employed by William, Sr., on the advice of Attorney Murray, that the Company purchase Mrs. Pryor's stock, and after an interval, William, Sr. purchasing the stock himself. There can be no question that the indirect sales were utilized as a protective means deemed appropriate to make sales from Mrs. Pryor legal. Plaintiffs lose sight of the fact that William, Sr. and his attorney were seeking a means to help Mrs. Pryor divest herself of stock for which there was no market and to obtain funds of which she was in dire need. The device was employed not to take advantage of her, but to assist her in solving her very pressing and real financial necessities.

The Court is sympathetic to defendants' construction of the will that there was an implied grant by the testator to the defendants of the right to purchase the Clow Company stock. Plaintiffs state this is squarely contrary to the law of Illinois which permits a trustee to buy trust assets only if expressly authorized to do so.*fn49 They distinguish the Victor v. Hillebrecht, 405 Ill. 264, 90 N.E.2d 751 (1950), case by pointing out that that case did not involve trust property, and the suit was brought by the beneficiary from whom the purchase was made. And in the In re Steele's Estate, 377 Pa. 250, 103 A.2d 409 (1954), case the trustee was put in a conflicting position by the express terms of the trust. Under the Company by-laws, persons whom plaintiffs would hold as trustees, had a specific legal right to purchase before the stock could be sold to an outsider.

Plaintiffs maintain the defendants "in effect, concede by their silence" that there were no written consents to the second transaction; no written consents by Harry, Sr.'s widow and two daughters; the consents actually given to the first, third and fourth transactions were invalid if clause (c) was for the benefit of the trust, and the "purported" consents of Beach, Pearl and Harry, Jr. were invalid by reason of their lack of information and failure to exercise judgment in executing the written consents solicited from them by the Company and William, Sr. They point out that consent without knowledge is totally ineffective.*fn50 They dispute defendants' interpretation of the word "heirs" and contend it is broad enough to encompass Harry, Sr.'s widow and daughters.*fn51 They maintain the consent, under clause (c) had to be in writing, so that "substantial compliance" as asserted by defendants by discussion of the sale by Harry, Jr. with his family was insufficient, and furthermore, Harry, Jr. himself had a "pathetic lack of information about each transaction." Plaintiffs claim they are not estopped to assert lack of consents because their trustee failed to obtain them in that they and the trust estate are in no way bound by any breach of trust caused or participated in by the Company and William, Sr., who undertook to procure for Mrs. Pryor all the necessary consents, as advised by Attorney Murray.

As to the obtaining of the requisite consents, defendants assert that under defendants' construction of the will the appropriate consents were procured, but even under plaintiffs' construction they were also obtained in that the widow and daughters of Harry B. Clow are not "heirs, devisees, executors and administrators" the legal title to the Clow stock having vested in Harry, Jr. as trustee and they simply having an interest in income. They claim that the will being drawn in 1908, the word "heir" must be taken as having the meaning it then had, i.e., one inheriting through intestacy.*fn52 Furthermore, there was substantial compliance in that Harry B. Clow, Jr., testified he discussed the matter with his mother and sisters and they had no objection to the sale. Finally, they maintain that plaintiffs are estopped because Mrs. Pryor did not seek the advice of any of the so-called consenters, leaving it to Mr. Johnson to procure those consents Mr. Murray thought necessary.

Defendants dispute that the granting of a power of consent makes the holder a fiduciary and precludes its exercise in his own favor, his status depending on "all the circumstances"*fn53 and the "relationship of the holder of the power to the trust, as well as the nature of the power, is an important consideration."*fn54 And even a fiduciary is not always precluded from self-dealing with trust property where the settlor did not so intend,*fn55 especially where "testator knowingly placed his trustee * * * in a position which he knew might conflict with interest of the trust. * * *"*fn56

It is noteworthy that on April 28, 1938, Mrs. Pryor signed a confirmation of sale of 600 shares, at $50 a share, to the Company; the document bore the consent of Charles R. Clow; and that of W.E. Clow, J.B. Clow, Pearl Clow and Harry B. Clow. A similar document, dated July 1, 1938, covering 500 shares at $50 a share was signed by Mrs. Pryor, Charles R. Clow, J. Beach Clow, Harry B. Clow, Pearl Libby Clow and W.E. Clow. Plaintiffs belittle such documents as being prepared by defendants and signed by unenlightened individuals. They were signed by educated adults, compos mentis, who sought no further information before signing. The defendants point out that the plaintiffs who sue are barred from raising any question regarding lack of consents because Mrs. Pryor did not seek any advice from any of the so-called consenters and did not seek any consents from them, and inasmuch as she could not claim invalidity on that ground neither can the plaintiffs.

As defendants point out, Charles, Jr., through whom plaintiffs claim, gave his written consent to each sale, the consent stating the number of shares, and the price at which sold. He had been consulted before each sale by Mrs. Pryor. These consents of Charles, Jr., therefore estop plaintiffs.

Clause (d) gives rise to a trusteeship, plaintiffs maintain, because it is the law in Illinois that persons who are given control over the actions of a trustee in the management of trust property are fiduciaries equivalent to co-trustees.*fn57 They further argue that because William, Sr. was a fiduciary under clause (d) requiring his consent to reinvestment, he was under a duty not to engage in self-dealing, his duty of loyalty not being limited to the reinvestment functions. They cite Wootten v. Wootten, 151 F.2d 147 (10th Cir., 1945), which holds that a trustee may not compete with his beneficiary in the acquisition of property, even though the interest purchased by the fiduciary is not the property of the beneficiary.*fn58

The requirement of clause (d) that the brothers or their heirs approve reinvestment was unrelated to sales under clause (c) and simply endowed the brothers with an advisory duty to the actual trustee. The evidence here adduced would amply sustain a finding that the brothers carried out the duty in a highly commendable manner, resulting in the purchase of dividend producing stocks evidently far superior to any investment the trustee herself was capable of arriving at. Mrs. Pryor failed generally, however, to utilize the brothers' capabilities as financial advisors because her desperate financial need left no money available for decisions on reinvestment. She failed to make reinvestments at all of the trust proceeds received from later transfers of Clow stock to the Company. Was William, Sr. to police her actions? The will did not so charge him. Mrs. Pryor, furthermore, was forgiven her breaches of trust by these plaintiffs in the Mississippi consent decree, in their covenants not to sue.

Confidential Relationship Between William, Sr. and Mrs. Pryor

Prime reliance is placed by plaintiffs on the existence of a confidential relationship between William, Sr. and Mrs. Pryor. They state that all that is required in Illinois to establish a fiduciary relationship is that "trust and confidence are reposed by one person in another, who, as a result thereof, gains influence and superiority over the other."*fn59 Further basis is found in the Restatement, Second, Trusts, Sec. 185, which provides:

    "Where under the terms of the trust a person has
  power to control the action of the trustee, if he
  holds the power as a fiduciary, he is liable for any
  loss resulting to the trust estate from a breach of
  his duty as fiduciary. His liability is similar to
  that of a trustee."

Plaintiffs maintain the evidence of William, Sr.'s confidential relationship is shown by insurmountable evidence — undisputed evidence — so overwhelming that no shadow of doubt remains as to its existence. They assert that defendants "made no effort whatever to prove that any of the pertinent facts regarding any of the four transactions had been disclosed to Mrs. Pryor as trustee, or to Charles, Jr.," so that they as servient parties had "entered into the transactions with eyes wide open and that the dominant party had no advantage through superior knowledge of the pertinent facts. Here it seems clear that none of the stock acquisitions could have been made if the pertinent facts had been disclosed. * * * She would have learned that the passing of the dividends by the Corporation was due in large measure to the huge unauthorized salaries and bonuses*fn60 taken by William, Sr. and his sons." Plaintiffs also maintain that Mrs. Pryor would have learned she was the only one required to pay interest on loans or to put up security; that she was entitled to elect at least one director thus enabling her to have had access to all the financial and business reports of the Company. Plaintiffs also stress the lack by Mrs. Pryor of "competent and independent advice before completing the transaction." They quote excerpts showing that she sought such advice from no one.

Further, plaintiffs say, "The rigid rule in Illinois is that where the confidential relationship exists the dominant party must show in order to sustain the transaction `that he made a free and frank disclosure of all the relevant information he had.'"*fn61 The nondisclosure need not be intentional, nor need it be shown it was relied on. Of the many facts which William, Sr. did not disclose which he should have disclosed and did not, was that which they now contend, that he was not a trustee,*fn62 and the extent of his own self-interest in the transactions. Mrs. Pryor and Charles, Jr. were furnished none of the annual certified audits, the detailed monthly financial statements, the income tax returns, the detailed balance sheets, or the profit and loss statements. The short annual reports were insufficient to enable the recipient to determine the value of the common stock. William, Sr.'s letters contained only "fragmentary financial information." Plaintiffs describe the fraud of William, Sr. as "deliberate, continuing and vigorous" and he was "aggressive, ambitious and skillful," guilty of "direct falsehoods," and the record as revealing "a depressing and sordid story of actual fraud. * * *"

They assert that to overcome the presumption of fraud arising out of a transaction within a confidential relationship, the dominant party has the burden of proving fair-dealing, including (1) full disclosure of all material facts, (2) the payment of a fair and an adequate price, and (3) competent and independent advice.*fn63

Plaintiffs distinguish the applicability of the case of Harry Alter Company v. Chrysler Corporation, 285 F.2d 903 (7th Cir., 1960), which holds it "incumbent upon plaintiff to prove by a preponderance of the evidence that a false representation was made as to some material fact, that the defendant know of the falsity and intended that plaintiff should rely upon the representation, that plaintiff, in ignorance of the falsity thereof, did rely upon the false representation, and that damage to the plaintiff resulted from its reliance thereon." Plaintiffs point out that that case involved a situation wholly independent of a fiduciary relation and did not involve a trust relation. Plaintiffs state that where there is a confidential relationship, it is wholly immaterial that no misrepresentations were made "once the confidential relationship is established between William, Sr. and Mrs. Pryor as trustee, the burden is squarely on defendants to establish that full disclosure of all material facts was made to her, that fair and adequate prices were paid, that she had competent and independent advice, and that the transactions were not improperly induced."

Plaintiffs also distinguish the Moneta v. Hoinacki, 394 Ill. 47, 67 N.E.2d 204 (1946) case, which would seemingly require "domination" as a prerequisite to a confidential relationship, as being said in an obiter dictum, with citation of a holding not supportive of the dictum. Furthermore, William, Sr.'s "superiority and influence over Mrs. Pryor and her son was (sic) so great that it did amount to domination of them."

Plaintiffs dispute defendants' derisive comments that Mrs. Pryor was no longer Charles, Sr.'s widow at the time of the transactions, with citations upholding the proposition that a wife remains a widow despite her remarriage.*fn64 But, irrespective of a legal relationship, the important fact is that they regarded themselves in a close family relationship. "He was the blood uncle of her son," they say. They cite statements wherein William, Sr. said or wrote he regarded Charles, Jr. as if he were his son. They say William, Sr. "had the full advantage of this (brother-in-law) relationship, enhanced by his blandishments." And he "played hard upon her family ties by discussing the most intimate family matters, even going to the point of discussing her death and with which of her deceased husbands' spirits she should consort."*fn65

Plaintiffs staunchly maintain that Mr. and Mrs. Pryor had no outside counsel, either legal or financial, on any of the four transactions. If their counsel were present, they were bypassed or represented others.

Defendants, on the other hand, deny there was a confidential relationship between William, Sr. and Mrs. Pryor, or a dominant-servient relationship; that although she had sought William, Sr.'s advice with regard to some permanent solution to her financial problems and he had consulted Mr. Murray and had written her a number of letters with regard to the possibility of creating a trust for herself and Charles, Jr., she consulted first with the law firm of Waring, Walker & Cox in Memphis and later with the Greenville firm of Wynn, Hafter & Lake, and completely rejected Mr. Murray's suggestion for the creation of a trust. The relationship between Mrs. Pryor and William, Sr. during the year 1935 remained as it had been in the past. He saw her but once during the year 1935 and that was when she came with Mr. Hafter to present the assignment of November 19, 1935.

To refute factually the existence of a confidential relation, defendants point out that it was 25 years at the time of the first transaction since she had been the widow of Charles, Sr. She had married three persons thereafter, each unknown to William, Sr.; to Mr. Lawrence Peters from 1912 to 1918, with whom she lived in California; to Mr. Charles O. Pfeil for the years 1922 to 1927, with whom she lived in Memphis, and then to Lawrence Pryor on January 1, 1932, with whom she lived in Greenville, Mississippi. William, Sr., visited her but once, in 1915, in California.

Defendants deny the imputation that William, Sr. dominated and influenced Mrs. Pryor's decisions, and maintain that she did not to any extent entrust the handling of her affairs to him — the test mentioned in McCartney v. McCartney, 8 Ill.2d 494, 499, 134 N.E.2d 789 (1956). She did not act in all her business affairs under his advice and direction, doing nothing contrary to his wishes (the test in Lipscomb v. Allen, 298 Ill. 537, 132 N.E. 206 (1921)). Nor was his will imposed over hers or influence exerted upon her in making the decision. (Landau v. Landau, 20 Ill.2d 381, 170 N.E.2d 1 (1960)) They point out there is no record of William, Sr.'s having had any part in her handling of the business transactions connected with the settling of Charles, Sr.'s estate. Nor does the record show his having had anything to do with her business transactions during her marriage to Mr. Peters, or her marriage to Mr. Pfeil and the executorship of his estate. She had secured loans of $30,000 with a Memphis bank in 1931 and when she was trying to determine whether to sell some Texas Corporation stock held as security she consulted the President of the First National Bank of Chicago.*fn67 Her first business contact with William, Sr. was in April, 1932, when she arranged to borrow from the Company so that $150 payments would be made each to her and Linda, the advances to be charged to William, Sr., and bearing 6% interest. At that time she was indebted to the Union Planters Bank to the extent of approximately $27,000.

Mrs. Pryor's independence of judgment, in opposition to any charge of domination, is demonstrated, defendants claim, by her refusal of William, Sr.'s July 30, 1934, offer to exchange some of her Clow stock for dividend paying stock he held. They insist that she had a remarkable understanding of business affairs, was mentally capable of protecting herself from any overreaching William, Sr. might have attempted. She had enough independence of judgment in 1918 to refuse to sell Clow stock to William, Sr. for $150, making a counter offer for sale at $200, which was refused. She had been named executor of two husbands' wills. She had dealings with banks and investment houses. She owed one bank $89,950 in 1933. She had the counsel of, among others, Mr. Pryor, a college graduate, who dealt in real estate. They had a 2,060 acre plantation with some twenty to thirty families thereon. First they grew cotton; then raised beef cattle. He came with her twice to Chicago when a possible first sale of the stock was discussed. She also had the advice of her son, Charles, Jr. Mr. Pryor stated that all the sales of the stock had been discussed by the three. They read the Company's financial statements and kept a file of them. Defendants also point out that Mrs. Pryor had the advice of Attorney Wynn, a leading lawyer of Greenville and president of the Southern Credit Corporation. The Wynn firm had represented both the Pryors and Charles, Jr. as far back as 1932.

As to the claimed fraud and duress of William, Sr., defendants, denying that there was a personal, confidential relationship between Mrs. Pryor and William, Sr., maintain there was therefore no constructive fraud or burden of rebuttal. They point out that plaintiffs have the burden of proving the existence of such a relation. They state that the concept underlying a confidential relationship is that one person is in a position to dominate and influence the actions of another and that the other, reposing special confidence and trust, is in fact servient to the will of the dominant person. In such a case, fraud is presumed and a constructive trust is imposed upon the property secured by the dominant person who then has the burden of proving that he acted fairly in the transaction.*fn68 The relationship does not arise as a matter of law from the fact of family relationship.*fn69

Defendants cite the 1960 pronouncement of the Illinois Supreme Court delineating the factors to be taken as a guide in determining the existence of a confidential relationship, thus:

    "Factors to be taken into consideration are degree
  of kinship, if any, disparity in age, health, mental
  condition, education and business experience between
  the parties, and the extent to which the allegedly
  servient party entrusted the handling of his business
  and financial

  affairs to the other and reposed faith and confidence
  in him."*fn70

They also maintain that to establish the confidential relationship the evidence must be so strong, unequivocal and unmistakable as to lead to but one conclusion,*fn71 by "clear and convincing evidence,"*fn72 "strong, unequivocal and unmistakable."*fn73

In answer to the self-dealing argument of plaintiffs, defendants reply that since William, Sr. was not a trustee under the will for the trust, the principle of self-dealing was inapplicable; furthermore, the sale of the stock was to the Company and exchanged for the minority interest in the National Cast Iron Pipe Company to effect the merger, and the stock was distributed to the minority shareholders of the latter company.

Defendants state that the suggestion William, Sr. made to Mrs. Pryor that the estate be closed and a trust created was actually the idea of Mr. Murray after talking to the Northern Trust Company. In fact, he urgd her to see her own attorneys and she did see the Wynn firm and accepted their advice.

The Court has studied with great care the decisions of Illinois bearing upon the creation and incidents of the status of a confidential relationship, such as plaintiffs assert existed between William, Sr. and Mrs. Pryor. It concludes that no such legal relationship existed here. There was great cordiality, long friendship, and real interest in each other's affairs. William, Sr. freely gave copious advice, little of which seems to have been followed. He tried to give assistance in solving pressing and perplexing financial distress. He worried about his nephew's recurrent marital problems. But he did not "dominate" Mrs. Pryor, nor was she "servient" to him. She did as she pleased. She consulted attorneys when she felt the need therefor. She conferred with bankers. She talked over her problems with her husbands, and with her son. She was thousands of miles away from William, Sr. during almost all of these transactions, with the exception of brief, occasional visits. She was a capable adult, used to handling very large sums of money and plantations. She was well-traveled. Her expenditures were tremendous. The facts as revealed by this record do not substantiate plaintiffs' assertion of a young and inexperienced widow with an infant child relying upon the predatory patriarch of the family of her first husband, deceased decades theretofore. There can be no question she fully understood the nature and effect of the documents she was executing. She suffered from no mental or physical impediment. She without question entered into the transactions "voluntarily, deliberately, and advisedly, knowing [their] nature and effect, and * * * her consent was not obtained by reason of the power and influence to which the relationship * * * might be supposed to give rise." (Zeigler v. Illinois Trust and Savings Bank, 245 Ill. 180, 197, 91 N.E. 1041, 1047, 28 L.R.A.,N.S., 1112.)*fn74

One of the most recent expositions of the law of fiduciary relations in the State of Illinois was in the case of Boryca v. Parry, 24 Ill.2d 320, 181 N.E.2d 124, decided March 23, 1962. It is very apposite here. The Court there said at pp. 327-329, 181 N.E.2d at pp. 127-129:

    "It is conceded that a fiduciary relationship
  existed between defendant and her mother, with the
  former being the dominant party, thus bringing into
  operation familiar and well-settled principles. Where
  such a relationship exists, the law presumes as
  fraudulent any transaction between the parties
  wherein the dominant party has profited, and the
  latter must rebut the presumption of fraud by clear
  and convincing proof that he has exercised good faith
  and has not betrayed the trust and confidence reposed
  in him. If such burden of proof is not discharged by
  the dominant party, the transaction will be set aside
  in equity. (Hofert v. Latorri, 22 Ill.2d 126,
  174 N.E.2d 866; McFail v. Braden, 19 Ill.2d 108,
  166 N.E.2d 46.) On the other hand, `if a conveyance was
  not procured through improper means attended with
  circumstances of oppression or overreaching, but was
  entered into by the grantor with full knowledge of
  its nature and effect and because of his or her
  deliberate, voluntary and intelligent desire, the
  existence of a fiduciary relation does not invalidate
  the transaction.' (Clark v. Clark, 398 Ill. 592,
  602, 76 N.E.2d 446, 451; see also: Matanic v.
  Krajach, 392 Ill. 547, 64 N.E.2d 885; Uksas v.
  Zelensky, 21 Ill.2d 303, 172 N.E.2d 359.)
  Transactions between parties to a fiduciary
  relation, if open, fair and deliberately made, are as
  valid as transactions between other parties.
  Schueler v. Blomstrand, 394 Ill. 600, 69 N.E.2d 328;
  Winkelman v. Winkelman, 307 Ill. 249, 138 N.E. 637.
    "We are in accord with the master and chancellor
  that the evidence here precludes any finding that
  defendant was the aggressor in the transaction, or
  that the mother's actions were prompted or induced by
  misrepresentation, overreaching or fraud on
  defendant's part. Instead, it appears that the deed
  and trust agreement under attack were executed as a
  result of the mother's own volition after a full
  disclosure of their nature and upon competent and
  independent legal advice. * * *
    "Nowhere in the record does it appear that she
  [grantor] suffered from either mental or physical
  impediment which would affect her ability to know and
  comprehend the nature and effect of the documents

  she executed. * * * [I]t appears that a full
  disclosure of the nature and effect of the
  instruments was made to her [the grantor] and that
  she fully understood them." (Italics supplied.)

This is not a case similar to Hofert v. Latorri, 22 Ill.2d 126, 174 N.E.2d 866 (1961), where two daughters of the deceased brought an action against their brother and his wife to impose a constructive trust upon a two-flat building conveyed by their father and his wife to the defendants in joint tenancy, the evidence disclosing that the father was 77 years of age at the time of the conveyance and had suffered at least one stroke. The father had constantly consulted with the son about the property. That evidence showed a confidential relationship between the father and son, and was held under the circumstances, sufficient to raise a presumption of fraud and undue influence on the part of the son, and a decree imposing a constructive trust upon the property in favor of the plaintiffs was affirmed where defendants declined to offer any proof before the master and there was nothing in the record to rebut the presumption of fraud and undue influence. The Illinois Supreme Court said 22 Ill.2d at pp. 131-132, 174 N.E.2d at p. 869:

  "* * * Over the years the father had constantly
  consulted his son about `what repairs had to be done
  to the house, who had to do them.' * * * Those were
  the circumstances that existed when he turned to his
  son for advice as to what should be done with the
  property, and they point clearly to the existence of
  a confidential relationship.
  "* * * What is at issue in determining whether a
  confidential or fiduciary relationship exists, for
  the purpose of establishing a constructive trust, is
  the state of mind of the grantor. What is required
  is clear and convincing evidence that he reposed
  trust and confidence in the grantee. That state of
  mind, like any other, can be shown circumstantially.
  The defendants objected to the admission of evidence
  that Filippi turned over his bank account to his son
  with directions to use it to pay the father's bills
  and to divide the balance with his sisters. That
  evidence, however, was admissible to show the
  father's mental attitude toward his son. Unmistakably
  it established that a confidential relationship
  existed * * * when the bank account was transferred.
    "The defendants made no effort to rebut the
  presumption of fraud and undue influence that arose
  from the proof that a confidential relationship
  existed and that the dominant party had gained from
  the transaction. * * * There was no showing of
  adequate consideration, and no suggestion that the
  grantor had received any independent advice."
  (Italics supplied.)

"It has been held that a fiduciary relation exists in all cases in which there is confidence reposed on one side and a resulting superiority and influence on the other; likewise, the fiduciary relationship includes not only legal and technical relations * * * but it extends to every possible case in which a fiduciary relationship exists in fact and in which there is confidence reposed on one side and resulting domination on the other. * * * The relationship need not be legal, but it may be moral, social, domestic or merely personal. * * *" (Coppens v. Coppens, 395 Ill. 326, 335, 70 N.E.2d 54, 59) Where that fiduciary relationship exists, "the burden is upon * * * [the one in the dominant position] to establish by clear and convincing proof the fairness of the transactions between them * * *." (Ibid. at p. 335, 70 N.E.2d 54 at p. 60) Further statement of the legal principles*fn75 appears in Children's Home of Rockford v. Andress, 380 Ill. 452, 465, 466, 44 N.E.2d 437, 444 (1942), where the Supreme Court said: "To establish a fiduciary relationship by parol evidence the proof must be clear, convincing and so strong, unequivocal and unmistakable as to lead to but one conclusion. * * * Such relationship being established the burden is on one benefitting by the transfer of property to show that it was procured fairly and without the exercise of undue influence. * * * [T]o establish a fiduciary relation it is not necessary to prove actual frauds." (Italics supplied.)

The Andress case, supra, held that a stock transfer would not be set aside where the transferor had received the "fair value" therefor. In 90 C.J.S. Trusts, § 303, the rule is stated:

  "One of the most familiar doctrines of the law of
  trusts is that a trustee cannot purchase trust
  property from himself * * *. The general rule does
  not apply where the purchase is for the use and
  benefit of the cestuis que trust, at their request;
  and a sale of the trust property by a trustee to
  himself for adequate consideration may be upheld
  where it is made with the consent of the cestui que
  trust, acting with full knowledge and independent
  thought, the parties being sui juris and dealing at
  arm's length, and there being no concealment of fact
  or misrepresentation * * *."

Restatement, Second, Trusts, § 2, comment b. states the principles thus:

    "Although the relation between two persons is not a
  fiduciary relation, it may, nevertheless, be a
  confidential relation. A confidential relation exists
  between two persons when one has gained the
  confidence of the other and purports to act or advise
  with the other's interest in mind. A confidential
  relation may exist although there is no fiduciary
  relation; it is particularly likely to exist where
  there is a family relationship or one of friendship
  or such a relation of confidence as that which arises
  between physician and patient. * * * If one person
  is in a confidential, but not a fiduciary, relation
  to another, a transaction between them will not be
  set aside at the instance of one of them unless in
  fact he placed confidence in the other and the other,
  by fraud or undue influence or otherwise, abused the
  confidence placed in him. * * *" (Italics supplied.)

Neither Mrs. Pryor nor Charles, Jr. was a stranger to legal counsel. On many occasions they employed attorneys to assist them in their affairs.*fn76 A letter dated April 24, 1936, from Mrs. Pryor and Charles, Jr. to the Company, stated the delivery of a certificate for 500 shares of Clow Company stock which was delivered to the bearer, Mr. Hafter, "our attorney," and requesting co-operation with him. When Mrs. Pryor was having financial problems in the summer of 1931, owing the Union Planters Bank of Memphis some $30,000 she had been conferring with Attorney Walker of Memphis, and Mr. Melvin Traylor, president of the First National Bank of Chicago, who had advised her to sell her Texas Corporation stock. She had also consulted her father, Mr. Barth, and her son, but nothing in the record shows she consulted William, Sr. in 1931.

The purchase by the Company of Mrs. Pryor's stock was not a hit or miss matter on her part. Her wire of April 15, 1938, to the Company states:

  "Charles Larry*fn77 and I had Conference.
  Decided Would Appreciate If You Buy Six Hundred
  Shares My Stock. Would Put Us Out Of Debt. * * *"
  (Italics supplied.)

It is understandable that plaintiffs deem William, Sr. sustained a confidential relation with Mrs. Pryor by virtue of his own voluntary assumption of the arduous chore of keeping her and her family solvent. The Court is also in full accord that William, Sr. had the duty of full and frank disclosure of all material facts, the payment of a fair and adequate price for stock Mrs. Pryor sold, absence of undue influence, and, where there was no possibility of competent and independent advice, with the principle of law quoted by plaintiffs from the decision of the Illinois Supreme Court in Works v. McNeil, 1 Ill.2d 47, at p. 52, 115 N.E.2d 320, at p. 322 (1953):

    "Where such a relationship exists at the time of a
  transaction whereby the dominant party appears to
  gain at the expense of the dependent party, the
  transaction is to be deemed presumptively fraudulent
  and will be set aside unless the one in whom the
  confidence and trust is reposed establishes its
  fairness by clear and convincing proof. Clark v.
  Clark, 398 Ill. 592, 76 N.E.2d 446. Important factors
  in determining whether a particular transaction is
  fair include a showing by the fiduciary: (1) that he
  made a free and frank disclosure of all the relevant
  information he had; (2) that the consideration was
  adequate; and, (3) that the principal had competent
  and independent advice before completing the
  transaction."

The deposition of Mrs. Pryor revealed that she had discussed the stock transactions with her husband and with Charles, Jr. and they expressed no dissatisfaction whatsoever as to them.

It therefore seems evident that Mrs. Pryor sustained no servient relation to William, Sr. and he no dominant one to her. She conferred with others concerning the transactions. She was wise enough to consult an attorney when she felt she needed one.*fn78 She acted contrary to William, Sr.'s suggestions when she wished to. The degree of kinship was remote. There was no disparity in age or health. The evidence is not so strong, unequivocal and unmistakable as to lead to but one conclusion by clear and convincing evidence, that a confidential relationship existed as that legal concept has been outlined by the decisions. In fact, the evidence would indicate the very contrary.

Plaintiffs cite many instances*fn79 of William, Sr.'s contact with Mrs. Pryor and others to substantiate their allegation of a confidential relationship between them, he the dominant and she the servient. The Court, however, reads additionally into these contacts an abiding interest of William, Sr. in Mrs. Pryor, her son's and her grandson's welfare — which interest she needed despite an adult son, three husbands subsequent to William, Sr.'s brother, and numerous other conferees, including attorneys and bankers. It can see no reason for plaintiffs' feeling that William, Sr., a layman, had a duty to apprise Mrs. Pryor of her responsibilities as a trustee and police her activities when she had lawyers at her beck and call and used them frequently, and who were fully aware of her legal responsibilities.

Plaintiffs contend that Mrs. Pryor had "little or no knowledge of business affairs and demonstrated it most convincingly. * * * She was wholly naive on this — her most important business responsibility" in that she consulted no lawyer, banker, security expert or other trained advisor on any of the four trust stock acquisitions. She kept no records, or separate bank account and never filed fiduciary returns as trustee. The Court believes plaintiffs are in error in this assertion of naivete — witness the self-confident letter to President Melvin Traylor of the First National Bank of Chicago.*fn80 Her problem was her inability — a common defect — to keep expenditures within income. Also, she was saddled with a son with similar deficiencies.

The Court sees no reason for penalizing defendants because the trustee herself was, as plaintiffs called her "as unknowledgeable and improvident as a child" and possessed of "extremely poor business management." She was a trustee, their trustee, and one plaintiff's grandmother. Defendants should not be made to pay for her ineptitudes, irresponsibility and improvidence.

William, Sr.'s General Intent and Character

It is necessary in order to determine William, Sr.'s true intent to relate a multiplicity of detail in order to deduce the motivation for his acts. Principally the bases for the determination lay in contemporaneous documents and transactions.

Plaintiffs contend that William, Sr. was "acting solely for the personal benefit and interest of himself and his own immediate family, rather than for the purpose of helping or aiding Mrs. Pryor personally or the trust estate of Charles, Jr. * * *." They glean from fragmentary items an overpowering desire on the part of William, Sr. to acquire common stock of the Company. They read into isolated and innocuous instances an intense greed for this stock in the Company which he founded. Such for example is the fact that at the end of each year the diary reflects the holdings of his own and other families of common stockholders.*fn81 Plaintiffs ridicule defendants' assertions that William, Sr.'s acquisition of the stock was not "inordinate or avaricious" and characterize a purchase by William, Jr. and Kent's wife of 500 shares from the treasury stock as "plundering" and an "unauthorized raid at an inadequate price" to maintain Clow family control to prevent outsiders' gaining control and making a quick profit to the detriment of the rest of them.*fn82

William, Sr. was a man in his seventies at the time of these transactions. He was a happy family man, as is evidenced by his note to Mrs. Pryor on June 10, 1939, thanking her for her wire of congratulations:

    "* * * We certainly are to be congratulated. Mighty
  few couples have been married fifty-seven years and
  had as happy a life as Margaret and I have had — for
  which we are both very thankful."

Harry H. Wolf, certified public accountant for the Clow Company, stated that William, Sr.'s reputation was "excellent, the best." He was described by the present president of the Company, John Madden, as "one of the greatest men" he had ever known, and was held in that regard by the vast majority of his employees. "He had a terrific interest in everybody. He was a hard taskmaster. * * *" Mr. Mannion, senior vice president of the Continental Bank, said that William, Sr.'s reputation for integrity and honesty was good. William Clow, Sr. was not a man without humor. When he had been advised by Mrs. Pryor that she had just spent seven weeks in a hospital from an insect bite, he wrote her on October 23, 1939:

    "I am wondering if you realize that you are getting
  to an age when you have got to take care of yourself.
  Now suppose you do it or the first thing you know you
  will be in a heap of a lot of trouble, for I might
  suggest that at the present time you have got three
  spirits waiting for you, and you are going to have a
  terrible time choosing which one you are going to
  stay with. I do not suppose you have ever thought of
  this, but you had better do some thinking for like
  myself you have gotten up to an age when it is mighty
  easy to step off into the unknown."

Mr. Pryor on his deposition stated that he had never, prior to the filing of this suit, had any occasion to think the Company had been unfair to Mrs. Pryor, to Charles, Jr. or himself, nor did Mrs. Pryor or Charles, Jr. so feel. Mrs. Pryor and Charles, Jr. never expressed any lack of confidence in any of them. None of them, to his knowledge, ever attended a stockholders' meeting; they never asked for a seat on the Board of Directors; there was never a time when he asked about the Company that he did not get a full, frank answer.*fn83 When he was asked whether anything had occurred since the transactions to make him think they were unfair, he answered in the negative.

In response to her letter of reply Mr. Clow, Sr. wrote on May 10, 1938:

    "The best news in the letter you wrote me Thursday,
  May 5th, was the fact you do not need the additional
  funds. However, I want you to appreciate the fact
  that if in the future you may want to dispose of some
  of your stock there may be no way for me to manage
  the transaction for you."

A letter from William, Sr. to Mrs. Pryor, dated May 20, 1935, states:

    "* * * [Y]ou are certainly up against it harder
  than either one of us anticipated. The lawyer very
  definitely says that I cannot safely buy the stock;
  that I am a trustee of the will and consequently
  even if Charles signed the papers and was agreeable
  to a disposition of the stock * * * in the years to
  come the stock became very valuable, he or one of
  the future wives that he may marry, or those that he
  claims now to be wives of his, or their heirs, could
  attack the settlement and give us all kinds of
  trouble." (Italics supplied.)

How prophetic! The letter continues:

    "I have not the slightest objection to buying the
  stock if it can be done legally. * * * I guess I have
  got to turn the whole thing over to you. I have done
  the best I could and failed. Lawyer and auditor are
  set against my buying the stock. You have good
  lawyers in Memphis and you can tell them the
  situation better than I can. * * * You can say to
  your Memphis lawyer that if he can find any way by
  which I can legally purchase the stock by transfer of
  dividend paying securities in accordance with the
  will, I will gladly do it. * * * I am no lawyer, but
  I have read that

  will pretty carefully. * * * I believe that the
  securities now in your possession for life can under
  that will and with Charles's full consent and
  approval be sold to me for an agreed ...

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