### IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE PATRICK J. MCREDMOND, JR., ET AL 

### . v. ESTATE OF ANDREW

MARIANELLI, ET AL 

### . Direct Appeal from the Chancery Court for Davidson County No. 93-2368-III Ellen Hobbs Lyle, Chancellor

No. M1999-00321-COA-R3-CV - Decided June 16, 2000

Minority shareholders in a

Kentucky a

pparel manufac

turing company

brought this suit

in the name of the corporation. The plaintiffs claimed an agreement approv ed by the

Board of Directors siphoned off a significant portion of the corporation’s revenues to another entity in which the defendant directors had an interest. The trial court dismissed the derivative claim on summary judgment,finding that the action of the Boa rd was not voidable

under Kentucky

’s conflict of inte

rest law. It also found that the d irectors did not vio

late thei r fiducia ry duty to the cor

poration. We affirm the judgment on

the conflict of interest issue; we reverse as to certain officers and directors on the fiduciary duty issue. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in Part; Reversed in Part; and Remanded
C ANTRELL , P.J., M.S., delivered the opinion of the court, in which K OCH and C AIN , JJ. joined.
G. Thomas Nebel, John I. Harris, III, Jeffre y T. Loy a nd Kenneth R. Jones, Jr., Nashville, Tennessee, for the app ell ant s, P atr ick J. M cRe dmo nd, Jr. and Mon ica McR edm ond Terr y. Cyrus L. Booker and Cha rlnette A. R ichard, Nashville, Tennessee, for the appellees, Estate of Andrew Marianelli, Walter Marianelli, David Manning, Edwin S. Pyle and Gordon Fer ragina
John P. B ranham and Kat hryn E. Barnett, Nashville, Tennessee, for the appellee Milano Corporation.
OPINION
I. T HE M ARKETING S ERVICE A GREEMENT
This case arose from a Marketing Service Agreement between a long-e stablished Kentucky a pparel maker named Elk Brand Manufacturing Company, a nd a new entity called Milano Corpora tion, expressly formed to provide marketing services for Elk. I n 1989, the future of the-2-

manufa cturer

wa s uncertain because of dramatic changes in the apparel industry , and imminent changes in the management of Elk Brand.
Andrew Marianelli, Patrick McRedmond and Louis McRedmond had purchased

Elk Brand in 1966. Mr. Marianelli, the majority shareholder, assumed the operation of th e company. The McRedmonds ser ved on t he Bo ard, but too k no rol e in the day-t o-d ay ma nage men t of the com pan y. 1n 1989, all three men were at or near retirement age. Mr. Marianelli was se eking to reduc e his management role at Elk Brand, and to step down as its CEO.
Walt erMarian elli, Andrew’s son, was a member of Elk Brand’s Board of Directors. He wishedto take over themanagement of the company and to acquire his fa

ther’s shares, b

ut he did nothave sufficient capitalto purchase them. He proposed a plan to the Board which he claimed would benefit the

company, wh

ile allowing him to

accomplish his own

goals.
The plan had two compo nents. The f irst involved the formation of a new entity, called Milano Corporation, to take over marketing for E

lk Brand. Milano w

as to be owned by

certain Elk Brand managers, with

Walter Marianelli taking an 80% stake. The new c ompany would

enter into a Marketing Serv

ices Agreeme

nt (MSA) with Elk Br

and, whereby

Milano would

useits best efforts to promote the sale of Elk Brand’s products, and the apparel company would agree to pay Milano 4% of its total sales up to $30 million, 6% o f its sales in excess of $30 million, and 20% of any increases in Elk Brand’s net profits, based upon a three-y ear rolling average.
A copy of the proposed MSA

was distributed to t

he directors at a

Board meeting

on August 17, 1989. The propos al was discussed at the next Board meeting on September 13, 1989, after which t he Board unanimously agreed to implement it and to allow the MSA to take effe c t retroactively

to September 1, 198

9. The directors

present and vo ting were Andr ew Marianelli, Walter Marianelli, Patrick McRedmond, Curtis Brasher, and Edwin Pyle.
The second component of Walter Marianelli’s plan involved Milano borrowing $5 million from Third National Bank for the purpose of purchasing Elk Brand stock from his father and from other stockholders. Each stockholder received a lett

er from Milano, of

fering to purchase up to 60% of the stockholder’s shares at a price of $400 per share. The letter acknowledged that the per share price was determined

arbitrarily by

Milano, and that it amounted to about 60% of the book value of the shares. It also identified all the present and anticipated shareholders and offic ers in Milano.
The loan was to be secured by a pledge of the purchased stoc k, and by the fees to be

paid to Milano under the MSA. Be cause of the stre

ngth of the colla

teral, the bank did not require Walter Marianelli

to personally

guarantee the

loan. He thus obtai

ned a controlli

ng in terest in Elk Brand without a signific

ant expenditure of

, or risk to, his own c

apital.
In the first three years of the MSA, the sales of Elk Brand’s products increase d. However, Elk Brand suffer ed net loss es of $1,85 7,597 duri ng that perio d. At the same time Milano’s net-3-

income after taxes amounted

to $3,130,429. Elk B

rand’s profits re

bounded to recor

d levels in 1993, 94, and 95, as did its sales volume. The company again showed losses in 1996 and 97.
On April 15, 1993, attorneys for 32 Elk Brand shareholders (most of them members of the McRedmondfamily) a ddressed a dema nd letter to the co

rporation and to se

ven directors of

Elk Brand and Milano. The le

tter asserted tha

t the operation of

the MSA was financially

detrimental to the minority shareholders, a nd demanded that the Board te rminate the MSA and

file suit against Milano for

the return of the

fees it had colle

cted. It also r

ecited that one of

its purposes was to

make the necessary demands which are a pre-requisite to be met by minority shareholder s prior to filing a shareholder derivative suit under Kentucky law. Ky . Rev. Stat. § 271B.7-400.
II. D ISMISSA

L AND A PPEAL OF THE D ERIVATIVE S UIT
The Directors decided not to respond to the demand, and on August 16, 1993, the minority shareholders brought suit for the benefit of Elk Brand agains

t Milano and its offi

cers and direct

ors. Andrew Marianelli was also named. The plaintiffs claimed that the MSA was voidable as a conflict of interest transaction, because of a direct or indirect interest in the transaction possessed by Andrew andWalter Marianelli, E dwin Pyle and Curtis Brasher, and because the material facts of the transactionwere not disclosed. See Ky. Rev. Stat. § 271B.8-310. The y a lso claimed that the individual defendants had conspired to create and use Milano as a repository

for funds unlawf

ully diverted from Elk Brand through the MSA.
The defendants responded b y filing a motion to dismiss. They arg ued that the court

should defe rto the bu siness judgment of the defendants on Elk Brand’s Board of Directors, who had investigated

the plaintiffs’ c

laims, and determi

ned that it was not in

the best interest of

Elk Brand to pursue thos e claims. They also c ontended that the p

laintiffs did not fa

irly and ade

quately represent the interests of Elk Brand’s minority shareholders. An extensive hearing on the motion was conducted over three days in April 1994, in Part I of the Chancery Court of

Davidson County. At the conclusion of the hearing, the chancellor directed bothparties to submit proposed findings of fact and conclusions of law to the court . T he court adoptedthe proposed findings and conclusions submitted by the defendants. The court

announced that since it had to

consider evidence

outside the pleadings, it would treat the motion to dismiss as one for summary judgment. See Tenn. R. Civ. P. 12.02. On August 10, 1994, the court dismissed the suit on summary

judgment.
The plaintiffs appealed to this court . In a per curiam opinion, McRedmond v. Ma rianelli , No. 01A-01-9412-CH-00594 (Tenn. Ct. App. Dec. 6, 1996, at Nashville), we reversed the trial court. We found that the chancellor had erred by granting summary judgment to defendants who had fa iled to meet their

burden of producing uncontradicted evidence that would entitle them to judgment as a matter of law. Byrd v. Hall, 847 S.W.2d 208 (Tenn. 1993). We also found that the “busine s s judgment rule” could not be used by the directors and contro lling majority shareholders of a corporationto immunize themselves from action s to protec t the rights of minority shareholders-4-

against them, else the minority shareholders would have no recourse against the machinations of the maj ori ty. Finally we found there to be no reason to b eliev e that the plaintif

fs could not fairly represent the in

terests of all the

Elk Brand stockh

olders.
III. F URTHER P ROCEEDINGS
On remand, the cha

ncellor recus ed himself from further participation in this case, and the case was transferred to Part III of the Davidson County Chancery Court. The def endants renewed their motion for summary judgment. On October 2, 1998,th e trial court granted partial summary judgment to the defendants, finding that the “safe harbor”

provision of Kentu

cky conflic

t of interest statute was met, in that the material facts of the MSA and of the directors’ interest were disclosed and known to a major

ity of disinte

rested director

s. On February 9, 1999, the trial court grant ed defend ants’ second motion for summary judgment,thereby dis

posing of pla

intiffs’ cla

ims in their entirety. The court found that the defendants

were not guilty of any misre presentation, or of any breach of fiduciary

duty to Elk Brand, andstated that the MSA w as fair. On April

21, 1999, the trial court de nied the plaintiff

s’ motion to alter or amend. The present appeal followed.
IV. C ONFLICT OF I NTEREST
Since Elk Brand is

a corporation organized under the laws of Kentucky, i

ts internal corpo

rate affairs are governed by Kentucky law. Director conflict of

interest transactions are regulated by Ky. Rev. Stat. § 271B.8-310 which reads in pertinent part, (1) A conflict of interest transaction shal l be a trans action with the cor poration in which a director of the corporation has a direct or indirect interest. A co n flict of interest transaction shall not be voidable by the cor porati on solely because of the director's interest in the transaction if any one of the following is true: (a) The material fa

cts of the transa

ction and the dire

ctor's i nterest were disclosedor known to the board of directors or a committee of the board of directors andthe board of dir

ectors or committee authorized, approved, or ratified the transaction; (b) The material facts of the transaction and the director’s interest were disclosedor known to the shar eholders entitled

to vote and th

ey author

ized, approved, or ratified the transaction; or (c) The transaction was fair to the corporation. (2) For purposes of this section, a director of the corporation shall have an indirect interest in a transaction if: (a) Another entity in which he has a materialfinancial interest or in which he is a general partner is a party to the transac tion; or-5- (b) Another

entity of which he is a director, officer, or trustee is a party to the transactionand the transaction is or should be considered by the board of directors of the corporation. (3) For purposes of subsection (1)(a) of this section, a conflict of interest transaction shallbe considered auth

orized, approved

, or ratified if it r

eceives the aff

irmative vote of a m aj ority of the directors on the board of directors (or on the committee) who have no dire ct or indirec t interest in the transaction, but a transaction shall not be authorized, approved, or ratified under this section by a single director. If a majority of the direct ors who have no dir ect or indirect in

terest in the tran

saction vote to authorize, approve, or ratify the transaction, a quoru m shall be present for the purpose of taking acti

on under t his section. The presence of or a vote cast by, a director with a direct or indirect interest in the transaction shall not affect the validity of any action taken under subsection (1)(a) of thi s section if the transactio n is otherwise authorized, approved, or ratified as provided in that subsection.

. . . W alter Marianelli’s interest in the transaction before us clearly meets the def i nition of a n indirect conflict of interest under section (2) of the statute. However, the tra nsaction is not voida

ble i f at least two directors did not have an interest in the transaction, and were fully informed of the material facts of the transaction and of Walter Marianelli’s interest in it, before voti ng fo r it . Ky. Rev. Stat. § 271B.8-310(3).
The minority shareholders concede that Patrick McRedmond Sr. was a disinterested director. However, they argue that all the other directors

had an indirect in

terest in the MSA. They contend that in the above statute, the word “if,” found in the phrase “[f]or purposes of this section, a director of the corporation s

hall have an indir

ect interest in a t

ransaction if

. . .” should

be read as describing only one type of indirect interest, and not to mean “ if and only if.”
The plaintiffs argu

e that Andrew Mar

ianelli had an indi

rect i nterest i n the transaction because of his relationship

with his son and because he woul d benefit from the

purchase of his o

wn shares; that Edwin Pyle’s conflict of inter est arose from his

role as personal

attorney to

the Marianelli fam ily; and that

Curtis Brasher’ s indirect intere st could be deduce

d from his long-te

rm relationship to Andrew Marianel li, and the presence of Elk Brand profit-sharing funds in the bank where Mr. Brasher was employed.
We do not believe that we need resolvethe question of whe ther Andrew Mar

ianelli or Edwin Pyle possessed an indirect

interest that

should be recog

nized under the sta

tute, because it a

ppears to us that Curtis Brasher

did not. The plaintiffs alleged (1) that Mr. Brasher was a close personal friend of Andrew Marianelli’s, (2) that in their thirty ye ars on the Board together Mr. Brasher never voted aga inst Mr. Marianelli, and (3) Elk Brand profit-sharing funds were held in the bank where M r
. Brasher was employed.-6-

Curtis Brasher did state that he considered Andrew Marianelli to be his friend. He also stated that as Chairman of the Boar d of Elk Brand fr om 1966 on, Mr. Bra

sher’s practic

e was to thresh issues out with t he other mem bers of the Bo ard before ta king a formal vote on any proposal, in order to achieve unanimity of purpose.
We believe that if the

ties of friendship

or a long histo

r y of voting the same way w ere sufficient to constitute a conflict of interest, the actions of a gre

at many cor

porate directors would likely f all und er attack. Such a holding would tend to undermine the general principle that the businessand affairs of a

corporation are

to be managed by

its directors, Aronson v. Lewis , 473 A.2d 805, 812 (Del. Supr. 1984). It would also be inconsistent with the non-interventionist policies that Tennessee’s courts have co n sistently followed in regard to internal corporate matters. Lewis v. Boyd , 838 S.W.2d 215, 220 (Tenn. Ct. App. 1992). Finally, it is clear from the record that Elk Brand relied upon several Nashville banks for most of its banking need

s, and that only

relatively small sums were deposited in the First City Bank and Trust Company of Hopkinsville, Mr. B rasher’s bank.
Since we have found that Mr. Brasher d id not have a n interest in the tr ansaction, we mus

t determine whether heand Patrick McRed mond Sr. were awa

re of the materia

l facts of the transaction andof Walter Marianelli’s interest in Milano Corporation. The affidavit of Curtis Brasher states that the issues the MSA was designed to address, and the structure of the agreement, were discussed by the Board of Direc

tors for about a y

ear before the

y voted to ap

prove the agre

ement; that all

directors participated

in the discussi

ons; and th at all questions asked by each director were answer ed. Mr. Brasher states that he knew who the owner s o f Milano Corporation would be, and he knew that Walter Marianelli would ow n t he majority of its shares, but that he did not know, or did not remember, exactly what percentage of the ne w corporation each shareholder would own.
Mr. Brasher’s test

imony at the 1 994 hearing bef ore Part I of

the Chancery

Court supports

the statements

in his affidavits, as do the minutes of the Board for the years 1988 and 1989. Plaintiffs attempt to raise doub ts as to the truthfulness of the affidavit by pouncing on some seeming inconsistencies between testimony and affidavit,

but after reading both, it does not appear to us that they hav e rai sed que sti ons of m ate ria l fa ct s uch as w oul d pr ecl ude sum mar y judgmen t for the defendants on the question of conflict of interest.
The MSA had a term of five years, with a provision for automatic annual renewals, subject to the right of either

of the parties to te

rminate the agreement by giving timely written notice to the other. In 1994, the Board considered a resolution to renew the MSA for five y ears. By that time, the Board members w

ere all familiar

with the operation

of the agreeme

nt, and with its eff

ect on Elk Brand, as well w

ith the allegatio

ns of the present s

uit.
The members of the Board in 1994 were Curtis Brash er, Patrick McRe

dmond Sr., Edwin Pyle, Andrew Marianelli, Louis McRedmond, David Manning a nd Walter Marianelli. Five of the seven directors voted in favor of renewal, with L

ouis McRedmond and Walter Marianelli abstainin g. Of course both of them had a n interest in the outc ome, as did David Manni ng, who held 1% of the1 By this time, the profi

t sharing plan wh

ich had been held

at Mr. Brash

er’s bank had been terminated, so the interest the plaintiffs claimed was in existence in 1989 did n ot exist at the time of the renewal of the MSA in 1994.
-7- stock in Milano. Once again, Patrick McRedmond Sr. and Curtis Brasher 1 voted for the resolution, thus negating any

pos sibility that the transaction could be found voidable under the Kentucky Conflict of Interest Statute, supra.
The defendants argued that once the question of conflict of i nterest was reso

lved in their favor, no further inquir

y was requi

red, and they

were automa

tic ally entitled to dismissal of the remaining claims. The chancellor correctly found that the complaint contained causes of action that could be distinguished from

the conflict

of interest claim. After examining the record, however, she concluded that the defendants were entitled to summary judgment on those claims also.
The appellants

claim that the chancellor erred by concluding that the MSA was f air, andin ruling that the appellee

s had met their

fiduciary duties. The appellees argue that the question of the “fairness” of the MSA was not before the trial court and is not before this court. We agree. Ky. Rev. Stat. § 271B.8-310 permits a defendant to attem ptto prove that a challenged transactionwas fair to thecorporation if he is unable to prove t

hat it had been “authorized, ratified or approved” by

a majority of

the disinterested

directors who we

re fully informed as to

the material facts of the transaction. Since the court found that Patrick McRedmon d and Curti s Brasher were bothdisinterested and were fully informed, it was not required to make any factual finding within the context

of the Kentucky

conflict of inter

est law regar

ding the fairne

ss of the MSA transaction. Thus, the trial court’s finding that the MSA was fair need not be reviewed by this court, but may be considered mere surplusage.
V. B REACH OF F IDUCIARY D UTY
The question of fiduci

ary duty stands on a differ

ent footing. I

t is axiomatic that the officers anddirectors of a corporation owe a fiduciary duty to the corporationand to its shareholders. Johns v. Caldwell , 601 S. W.2d 37 (Tenn. Ct. Ap p. 1980); Acree v. E.I.F.C., Inc ., 5 02 S .W. 2d 4 3 (K y. 1973). Controlling shareholders likewise owe a fiduciary

duty to minority shareholders. Nelms v. Weaver , 681 S.W.2d 547, 549 (Tenn. 1984). The reason for that d uty was desc

ribed by this

court in Intertherm, Inc., v. Olympic Homes Systems , 569 S.W.2d 467 (Tenn. Ct. App. 1978):
“As a fi duciary, the officer or director [or majority shareholder] has a stro n g influence on how the corporation conducts its affairs, and a correspondingly strong duty not to con

duct those affai

rs to the unfair detriment of others, such as minority shareholders or creditors, who also have legitimate interests in the corporation but lack the power of the fiduciary.”
569 S.W.2d at 471.-8-

A fiduciary is person or entity holding the c haracter of a trustee. Svanoe v. Jurgens , 33 N.E. 955 (Ill. 1893). A

fiduciary duty is the duty to act primarily for another’s be nefit. Haluka v. Baker , 34 N.E.2d 68 (Ohio App. 1941). With respect to directors in a close corporation, “They are required to act in the utmost goodfaith, and . . . they implie dly underta

ke to give to the e

nterprise the be

nefit of t heir care and best judgment and to exercise the powers conferred solely in the interest of the corporation. . . and not for their own p ersonal interes ts. 18B Am. Jur. Corporations § 1689. A fiduciary is not an insurer, Young v. Phillips , 93 S.W.2d 634 (Tenn. 1936), but is bound to exercise good faith and due diligence. Lee v . First National Bank , 263 S.W. 89 (Tenn. 19 24); Wallace v. Lincoln Savings Bank , 89 Tenn. 630 (1891).
The trial judge disposed of the issue of the fiduciary

duty by concluding that the MSA was “fair.” Her conclusion was based on a factual finding that Elk Brand survived and profited from the MSA.
We think the facts ar e indispute

on that issue. Although Elk Brand faced an uncertain future in 1989, we think afinder of fact c ould conclude tha

t it could have surv

ived even without t

he benefit of the MSA with

Milano, and that the

profits transfer

red to Milano, with l

ittle investment on it

s part, could have accrued to Elk Brand.
The reco rd shows that only two individuals were critical to Milano’s success: Walter Marianelli

and Gordon Ferragina. One was a director of Elk Brand and the other a former

employee. In the first th

ree year s of the MSA Milano sh

owed a net income

after taxes of $3, 130,429 and Elk Brand suffered $1,857,597 in losses. Elk Brand recovered and showed record profits in 1993, 1994, and1995, but again fell into th e loss column in 1996 a nd 1997. Milano cont

inued to take its commissions off the top of Elk B rand’s sales. Th

e plaintiffs offe

red an expert opini

on that the Elk Brand Board failed to properly discharg e its duties in approving the MSA.
We do not conclude that all the conflicting evidence shows a breach of duty , but we do think that the evidence co

uldsupport that conclusion. Therefore, sum mary judgm

ent on the fiducia

ry duty issue was improper. Byrd v. Hall 847 S.W.2d 208 (Tenn. 1993).
A. T HE P ARTIES
The transactions in question in this action are the 1989 MSA between Elk Brand and Milano andits renewal in 1994 . Therefore, on ly the offic

ers, directors,

or majority shareholders at the time of the transactions had a fiduciary duty to Elk Brand or the minority sharehol d ers. As a matter of law some of the following defendants did not have that duty and the liability of others should be restricted to the

relevant time per

iods.2 See Section B, The Burden of Proof.
-9- 1. M ILANO a. The 1989 MSA
Milano didnot own any stock in Elk Brand at the time the MSA was appro ved in 1989. In fact, Milano’s offer to purchase Elk Brand shares was contingent on approval of the MSA. At the critical point in time, therefore, Milano was simply a potential purchaser of an interest in Elk

Brand.
The plaintiffs argu

e that thiscase is not just

about approval of the MSA, but it is also about Milano receiving the excessive payments under the MSA. But we cannot find a ny support

for the argument that a party having

a contract with a

corporation viola

tes a fiduciary

duty to the corporation or to the minority shareholders by continuing to rec eive the benefits of the contract after acquiring control of the corporation. It may have been a bad contract f

or Elk Brand, but

Milano did not violate a duty to Elk B

rand by ac

cepting its bene

fits.
b. The MSA Renewal
Milano was the majority shareholder when the Elk Brand Boar d renewed the M SA. It is ge ne rally held that transactions between a corporation and its majority, dominant, or controlling shareholder

will be closely

scruti nized by the courts with the burden of proof placed upon the shareholder

when the good faith and fairness of such a transacti

on is challenged. Intertherm, Inc. v. Olympic Homes Systems , 569 S.W.2d 467, 471- 2 (Tenn. Ct. App. 1978). Thus, Milano’s transactions with Elk Brand ar e subject to close

scrutiny, and under

normal circumsta

nces, it would have the burden o

f showing the g

ood faith and fair

ness of such trans

actions. 2
2. Gordon Ferr

agina
Mr. Ferragina was not an Elk Brand director in 1989 or

when the MSA was renewed in 1994. Therefore, he took no action th at could be classi

fied as a breac

h of his fiduciary

duty to Elk Brand. 3. David Manning Mr. Manning bec

amea member

of the Elk Brand Board in 1992. He did not play any part in the initial adoption of the MSA in 1989. He has a one percent interest in Milano, and could be said to have an interest in the renewals after he became a member of the Board. Therefore, his action in voting for the renewal(s) should also be subjected to close scrut iny. See In tertherm, Inc. v. Olympic Homes Systems , supra.
B. T HE B URDEN OF P ROOF
One thing remains to be said about the burden of proof on

this issue. We have cited the cases placing a high burden on

fiduciaries that

engage in transactions with

the corporation t

hey repre sent.-10-

For those directors tha t had no interest in the transactions, the burden may not be as great. The defendants,

however, cite a Kentucky statute, Ky. Rev. Stat. § 271B.8-300 which pr ovides that a director shall not be liable for monetary damages unless the director’s fa ilure to perform his/her duties amounts to willful misconductor was wanton or reckless. Ky. Rev. Stat. § 271B.8-300 (5)(a) an d (b). The burdenof proof is placed on the person claiming the breach to prove it by c lear and convincing evidence. Ky. Rev. Stat. § 271B.8-300(b).
Since the issue of the burden of proof was not decided by the court below we will not decide it here. The trial court on r e mand will decide who bears the burden of proof and the quantum of proof necessar

y to carry it.
We affirm the trial court’s refusal to set aside the MSA on the ground of a conflict of inte

rest. We affirm

the dismissal of Mr. Ferragina on the claim of a breach of fidu

ciary dutie

s. We reverse the trial court’s dismi

ssal of the claims ba sed on a breach of a fiduciary duty , but we restrict the liability of the individual defendants to the time period after they became fiduciaries. We remand the case to the Chancery Court of Davidson County f or fu rtherproceedings and tax the costs on appeal equally to the appellants and the appellees with the exception of Mr. Ferr agina.