Corr v. Leisey, 2866

• Decision Date: 09 March 1962
• Docket Number: No. 2866,2866
• Parties: Francis J. CORR and Dorothy Corr, his wife, Appellants, v. C. E. ELISEY, Appellee.
• Court: Florida District Court of Appeals

Page 795

138 So.2d 795

Francis J. CORR and Dorothy Corr, his wife, Appellants, v. C. E. ELISEY, Appellee.

No. 2866.

District Court of Appeal of Florida, Second District.

March 9, 1962.

Rehearing Denied March 27, 1962.

Hugh C. Macfarlane and William Terrell Hodges, Macfarlane, Ferguson, Allison & Kelly, Tampa, for appellants.

Marvin E. Barkin and Leslie D. Scharf, Fowler, White, Gillen, Humkey & Trenam, Tampa, for appellee.

ALLEN, Judge.

Appellant, defendant below, brings this interlocutory appeal from an order striking certain of his amended affirmative defenses which had been previously stricken several times.

Plaintiff brought suit to impose a constructive trust upon a portion of certain lands held by defendant and acquired by him from the Ruskin Vegetable Cooperative in which plaintiff was a director. The complaint alleges that prior to the purchase by defendant, plaintiff had also been interested in acquiring this land. Defendant had approached the plaintiff and proposed that if the plaintiff would refrain from purchasing the land but would approve its sale to defendant by the cooperative in which plaintiff was a director, defendant would, in consideration for such forbearance and approval, convey a certain portion of the land to plaintiff. The plaintiff accepted this proposition and then wrote a letter to the cooperative stating:

'This letter is written to advise you that I am approving the sale of the 15 acres at corner of Miller mac Road and U. S. 41 to Francis J. Corr for the sum of $15,000.00 with the understanding that I am to receive the corner 200 ft. X 200 ft. from Francis J. Corr.'

Defendant Corr initialed this letter and scratched out the $15,000.00 figure, substituting instead the figure $20,000.00. After defendant acquired the land from the cooperative, plaintiff called upon him to convey to plaintiff the corner 200 ft. X 200 ft. and defendant refused.

Defendant answered, admitted signing the letter to the cooperative, denied any duty as a constructive trustee and alleged certain affirmative defenses. The affirmative defenses in the amended answer which were stricken by the order appealed from alleged that plaintiff was a vice-president and director of the cooperative at all times material; that plaintiff had refused to approve the sale of the land to defendant and had been personally interested in acquiring the land; that the other directors of the cooperative had been unwilling to sell the land to the defendant until the plaintiff approved the sale; and that such approval was given on condition that defendant reconvey the corner lot to plaintiff.

Whereupon defendant alleged that this conduct by the plaintiff was a breach of his fiduciary duty to the cooperative; that the ultimate conveyance to the plaintiff would result in his acquiring the land from the cooperative free of cost; that the alleged agreement of reconveyance would result in defendant receiving less than the total land purchased and a sale of land by the cooperative at less than full market value; and that the sale of land at less than its full market value pursuant to an agreement by which the plaintiff, an officer and director of the cooperative, would derive a personal profit not shared in common with other stockholders was a fraud on the cooperative and contrary to public policy.

In essence, the affirmative defenses allege that the agreement entered into by plaintiff, as a corporate director, was self dealing under the agreement to the detriment of the cooperative; and that a self dealing contract by a corporate director concerning the disposition of corporate property is unenforceable against a third party as being contrary to public policy.

The portions of the affirmative defenses not stricken leave a factual issue pending in the cause below relating to whether further negotiations as to price for the reconveyance of the corner lot were contemplated by plaintiff and defendant in their agreement.

The circuit judge stated that he was of the opinion that the alleged contract would be enforceable between the plaintiff and defendants unless there was fraud or bad faith exercised by the plaintiff on the Directors of the Ruskin Vegetable cooperative through a lack of full disclosure to said board of directors, and thereafter struck various defenses raising this question.

This court, in a recent case, Schaal v. Face, Fla.App.1961, 135 So.2d 252, held that a contract could not be enforced, although fully executed, as far as services rendered were concerned where a public policy statute of the state was violated.

This court also held in the case of Armco Drainage & Metal Products v. County of Pinellas, Fla.App.1962, 137 So.2d 234, that where the Board of County Commissioners of Pinellas County contracted to purchase certain material of over $1,000 in value without complying with the bidding statutes of Florida, that this was a public policy statute and therefore a party who participated in such a violation could not recover from the county.

The question here involved is where a director has brought about a sale of corporate property, is the director's prior personal contract with the third party purchaser for conveyance of a portion of the property to said director enforceable, full disclosure of his to-be-acquired interest having been made to the other directors before the sale?

Apparently from the pleadings both the plaintiff and the defendant had, prior to the purchase by the defendant, been interested in acquiring certain property owned by the cooperative corporation. The members of the board of directors were unwilling to sell the land to the defendant unless the plaintiff would approve the sale. The defendant approached the plaintiff and, after certain discussions, suggested that if the plaintiff would withdraw from purchasing the property so that the defendant could purchase it, the defendant would make available to the plaintiff a corner lot of the property, which the plaintiff agreed to. The plaintiff wrote a letter to the cooperative which was initialed by the defendant, advising the co-operative that he approved the sale of 15 acres to the defendant for $20,000 with the understanding that the plaintiff would receive a corner lot of some 200 X 200 feet after the purchase from the defendant. After this letter was received, the board of directors authorized the purchase of the 15 acres by the defendant.

We are not confronted in the instant case with the rights of the corporation of which the plaintiff was a director and officer, but rather the rights of a third person who is neither a creditor, officer or otherwise interested in the Ruskin Vegetable Cooperative so far as this record is concerned.

In selling or purchasing property for the corporation, the officers must act in good faith. In 19 C.J.S. Corporations § 774, p. 136, the rule generally is stated as follows:

'As in other transactions, the directors in dealing with the corporate property must exercise the same degree of care that men of ordinary prudence would exercise with respect to their own property, and such dealings will be subjected to the severest scrutiny when challenged in a court of equity. * * *'

The same authority states in § 775, p. 137:

'A purchase of corporate property by an officer or director is not void, but is voidable at the instance of the corporation if it acts promptly and offers to return the consideration. The courts will uphold the purchase when, and only when, it was fairly made for an adequate consideration, the burden being on the purchasing officer to show the fairness and the adequacy of consideration.'

Again in § 776, p. 142, it is stated:

'Ordinarily a sale of property to a corporation by an officer or director will be upheld when, and only when, it is fairly and openly made and is free from fraud or bad faith. The relief awarded may consist in holding the officer or director liable for the profits made by him, or of a rescission of the sale and a restoration of the vendor to his former position, or of a refusal of specific performance. An injunction may be granted restraining directors who have an interest in certain property from voting or acting officially upon a proposition to purchase the same.'

The 'good faith' rule in any dealing between a director and the corporation is dealt with in 1 Hornstein, Corporation Law and Practice § 439, p. 541 (1959) as follows:

'Common Law Standard of Good Faith--Self Dealing.

'Self-dealing is the category of action most frequently complained of when directors are charged with departures from the standard of good faith. The problem could, of course, be easily solved by a rigid prohibition, a prophylaxis which operates almost automatically. Such a mechanical rule was promulgated by the courts, and for a long time was summarily applied. It declared that...