Ft. Myers Development Corporation v. J.w. Mcwilliams Co.

• Decision Date: 13 May 1929
• Citation: 122 So. 264,97 Fla. 788
• Parties: FT. MYERS DEVELOPMENT CORPORATION v. J. W. McWILLIAMS CO.
• Court: Florida Supreme Court

122 So. 264

97 Fla. 788

FT. MYERS DEVELOPMENT CORPORATION v. J. W. McWILLIAMS CO.

Florida Supreme Court

May 13, 1929

En Banc.

Suit by the J. W. McWilliams Company against the Ft. Myers Development Corporation and another, in which the named defendant filed a counterclaim. From orders striking portions of the original and amended answers, the named defendant appeals.

Reversed.

Syllabus by the Court

SYLLABUS

Legal sufficiency of answer interposing counterclaim in equity suit is properly tested by motion to strike, but motion should be denied if material facts averred affect equities (Comp. Gen Laws 1927, § 4908). Legal sufficiency of answer, interposing counterclaim in equity suit, is properly tested by motion to strike, under Comp. Gen. Laws, 1927, § 4908 (Rev. Gen. St 1920, § 3122), but motion should not be granted, if material facts averred affect equities of case.

Promoters must act in utmost good faith in dealing for and with corporation. Promoters of a corporation must act in the utmost good faith in dealing on behalf of and with the corporation.

Promoters' sale of property to corporation at secret profit is breach of trust and fraud, for which they are liable to corporation at law or equity. Promoters' sale of property to corporation at secret profit is a breach of trust and fraud on corporation, to which they are liable at law or equity according to circumstances.

Corporation may recover damages for promoters' fraud in selling property to it at secret profit or rescind transaction and recover what it paid. Corporation may recover damages at law for promoters' fraud in selling property to it at secret profit or rescind the transaction in a proper case and recover what it parted with.

Motion to strike averments of answer admits truth of material ones. Motion to strike averments of answer admits such of them as are material to be true.

Parties concurring with promoters in defrauding corporation are liable for its resulting loss, though not sharing in profits. Parties concurring with promoters in carrying out scheme to defraud corporation, with knowledge of fraud, are liable to corporation for what it lost as result thereof, irrespective of their motive or degree of culpability, though they do not share in profits of fraud.

Answer interposing counterclaim for rescission of contract to purchase land held sufficient basis for proof of substantial injury to defendant corporation by complainant's and promoter's fraud. In suit to foreclose mortgage securing corporation's note for price of land, averments of answer, interposing counterclaim for rescission of contract and recovery of amount paid, that defendant accepted deed executed notes and mortgage, paid over $440,000 on price, and issued $350,000 of its stock to promoter who negotiated sale because of his and complainant's deception and fraud, held sufficient basis for proof of substantial injury to corporation.

Vendor aiding and abetting corporation's promoter and president in inducing corporation to incur obligations it would not otherwise have assumed cannot urge actual fraud or pecuniary injury as prerequisite to rescission of contract. Vendor conspiring with, and aiding and abetting, promoter, who became president of corporation purchasing land, in breach of his fiduciary duty thereto by fraudulently inducing it to incur obligations it would not otherwise have assumed, is in no position to urge actual fraud or resulting pecuniary injury as prerequisite to corporation's right to rescind contract.

Corporation may sue in equity to rescind fraudulent contract with promoters or other parties to fraud and recover what it parted with. A corporation may sue in equity to rescind and set aside a fraudulent contract with its promoters or third persons who are parties to fraud and breach of trust and recover what it parted with thereunder on returning what it received, if parties can be restored to their former position.

Corporation's suit to rescind fraudulent contract with promoters or other parties to fraud cannot be defeated on ground of adequate remedy at law. Corporation's suit in equity to rescind and set aside fraudulent contract with its promoters or other parties to fraud and recover what it parted with cannot be defeated on ground that there is an adequate remedy at law, since courts of equity and law have concurrent jurisdiction in such cases.

Deflation in land prices does not forbid purchaser's rescission of sale contract for fraud and breach of trust. Deflation in prices of land does not forbid purchaser's rescission of contract of sale for fraud and breach of trust.

Appeal from Circuit Court, Lee County; George W. Whitehurst, judge.

COUNSEL

E. J. L'Engle and J. W. Shands, both of Jacksonville, for appellant.

Treadwell & Treadwell, of Arcadia, and J. B. Campbell, of Ft. Meyers, for appellee.

OPINION

WEST Circuit Judge.

This is a suit to foreclose a mortgage on 23,000 acres of land in Lee county. The bill of complaint is in the usual form. The indebtedness, payment of which is secured by the mortgage, is evidenced by promissory notes of defendant, Ft. Myers Development Company, payable to complainant, J. W. McWilliams Company. The notes are in payment of a balance due on the purchase price of the land described in the mortgage.

The parties are given in this opinion the same designation as they bore in the court below.

By answer defendant averred deception and fraud in the transaction by complainant and Irving Walker, who negotiated the sale, and who, upon its organization, became a stockholder and president of defendant corporation.

There was an order sustaining a motion to strike all that portion of the answer whereby defendant seeks affirmative relief. Thereupon leave was granted defendant to file an amended answer and counterclaim. The amended answer contains substantially the same averments. The difference between them is not sufficient in substance to be material in considering the question presented on this appeal. The answers in form aver the deception and fraud of the complainant and Walker as a defense to foreclosure. And each of them reavers the same matter as counterclaim and prays for affirmative relief in the nature of rescission of the contract, recovery by defendant of moneys paid by it to complainant under the contract, and cancellation of shares of stock issued by defendant to Walker.

Upon motion of complainant paragraph 17 of the amended answer, by which it reavers all of the matters set forth in paragraph 5 to 16, inclusive, of the answer as its counterclaim and cross-action against the complainant and Walker, and the prayer of the answer for affirmative relief, were stricken. The motions to strike are general. Neither of them designates specifically the portions of the answer sought to be eliminated. It would be difficult to segregate and strip from the answer 'that portion' which 'seeks affirmative relief,' as stated in the motion to strike, from the original answer, or 'all portions' whereby 'affirmative relief is sought' and 'counterclaim asserted,' as stated in the motion to strike, from the amended answer.

This appeal if from the orders striking portions of the original and amended answers. The orders are assigned as errors.

The complainant seems to admit that the matters set forth in the answer may be properly pleaded as a defense to the suit, but to deny their sufficiency as a basis for counterclaim and affirmative relief. And while the averments with respect to the counterclaim and affirmative relief are identical with the averments as interposed as a defense to the suit, as to the former, as we understand the record, they are stricken, while as to the latter they remain in as an answer to the bill as fully and to the same effect as if the orders appealed from had not been made.

The question presented by the appeal, as stated in the brief on behalf of defendant, appellant here, is: May a vendor with impunity arm his vendee with a contract, reciting a false consideration, for the purpose of enabling him to defraud his principal and associates of a secret profit, and thereafter actively aid and abet such vendee in securing such secret profit from a corporation of which vendee is promoter and president?

In the brief on behalf of th appellee it is said the principal question to be determined is whether or not, in the absence of any averment of injury to itself under the contract complained of in the answer, defendant is entitled to rescind the entire contract and recover from complainant the portion of the purchase price which had been paid by it upon the property.

The difference between them, as we understand, is the defendant places the emphasis on the alleged fraud, while the complainant assumes that the answer contains no averment of injury.

The following statement contains the substance of paragraphs 5 to 16 of the amended answer, which as a counterclaim were stricken:

The mortgage and the notes described in the bill of complaint were executed and delivered by defendant to complainant, pursuant to a contract entered into between complainant and Walker, dated June 12, 1925. Prior to that time Walker was negotiating with complainant for the purchase ofthe land described in the mortgage, and complainant was then advised that Walker contemplated the promotion and organization of a corporation for the purchase of the land at a secret profit to himself, and, in order to induce others to join with him in such corporation, it would be necessary that Walker represent to such persons, and induce them to believe, that they would acquire an interest in the land, through such corporation, on the same terms and at the same price as Walker.

That complainant and Walker, conspiring...