Ragsdale v. Kennedy, 76

Citation209 S.E.2d 494,286 N.C. 130
Decision Date26 November 1974
Docket NumberNo. 76,76
PartiesHugh A. RAGSDALE, Sr. v. Sherman KENNEDY et al.
CourtUnited States State Supreme Court of North Carolina

Warlick, Milsted & Dotson by Alex Warlick, Jr., Jacksonville, for plaintiff appellee.

Zennie L. Riggs, Jacksonville, for defendant appellants.

HUSKINS, Justice:

The sole question for decision is whether the Court of Appeals erred in affirming judgment on the pleadings in favor of the plaintiff.

Judgment on the pleadings was granted in this case on the ground that defendants' answer failed to state a valid defense. In reviewing that action by the trial court, the Court of Appeals held, and properly so, that defendants' 'first defense,' 'second defense' and 'fourth defense' raise no material issues of fact. We therefore put them aside.

The Court of Appeals treated defendants' 'third defense' as a counterclaim pursuant to Rule 8(c) of the Rules of Civil Procedure which provides, Inter alia: 'When a party has mistakenly designated a defense as a counterclaim or a counterclaim as a defense, the court on terms, if justice so requires, shall treat the pleading as if there had been a proper designation.' We concur in the view that defendants' allegations of fraud are in the nature of a counterclaim even though designated a defense. See Hutchins v. Davis, 230 N.C. 67, 52 S.E.2d 210 (1949). So treated, we must now determine whether defendants have stated a claim of fraud sufficient to overcome plaintiff's motion for judgment on the pleadings.

Motion for judgment on the pleadings is authorized by Rule 12(c) of the North Carolina Rules of Civil Procedure. G.S. § 1A--1, Rule 12(c)(1969). The motion operates substantially the same as under the code system before adoption of the new rules of civil procedure. See Powell v. Powell, 271 N.C. 420, 156 S.E.2d 691 (1967); Reidsville v. Burton, 269 N.C. 206, 152 S.E.2d 147 (1967); Edwards v. Edwards, 261 N.C. 445, 135 S.E.2d 18 (1964); 6 Strong, North Carolina Index 2d, Pleadings, § 38 (1968).

North Carolina's Rule 12(c) is identical to its federal counterpart. The rule's function is to dispose of baseless claims or defenses when the formal pleadings reveal their lack of merit. A motion for judgment on the pleadings is the proper procedure when all the material allegations of fact are admitted in the pleadings and only questions of law remain. When the pleadings do not resolve all the factual issues, judgment on the pleadings is generally iinappropriate. 5 Wright and Miller, Federal Practice and Procedure, § 1367 (1969).

Judgment on the pleadings is a summary procedure and the judgment is final. See James, Civil Procedure § 6.17 (1965). Therefore, each motion under Rule 12(c) must be carefully scrutinized lest the nonmoving party be precluded from a full and fair hearing on the merits. The movant is held to a strict standard and must show that no material issue of facts exists and that he is clearly entitled to judgment. Southern Ohio Bank v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 479 F.2d 478 (6th Cir. 1973).

The trial court is required to view the facts and permissible inferences in the light most favorable to the nonmoving party. All well pleaded factual allegations in the nonmoving party's pleadings are taken as true and all contravening assertions in the movant's pleadings are taken as false. Beal v. Missouri Pac. R.R. Corp., 312 U.S. 45, 61 S.Ct. 418, 85 L.Ed. 577 (1941); Austad v. United States, 386 F.2d 147 (9th Cir. 1967); See 2A Moore's Federal Practice, § 12.15 (1974); 5 Wright and Miller, Federal Practice and Procedure, § 1368 (1969). All allegations in the nonmovant's pleadings, except conclusions of law, legally impossible facts, and matters not admissible in evidence at the trial, are deemed admitted by the movant for purposes of the motion. Kohen v. H. S. Crocker Company, 260 F.2d 790 (5th Cir. 1958); Duhame v. United States, 119 F.Supp. 192 (Ct.Cl.1954); Hargis Canneries, Inc. v. United States, 60 F.Supp. 729 (W.D.Ark.1945). We consider the case before us in light of these principles.

The 'third defense,' viewed in the light most favorable to defendants, alleges that on 22 November 1972, for a consideration of $60,000.00, defendants purchased from plaintiff 12,500 shares of common stock of Onslow Livestock Corporation plus corporation notes with a face value of $29,000.00. Defendants paid plaintiff $40,000.00 in cash and executed the $20,000.00 note plaintiff now sues to collect. At the time of the transaction plaintiff was president and general manager of the Onslow Livestock Corporation and, from 6 June 1972 to 22 November 1972, ran the corporation without holding any meetings of the board of directors and without interference from defendants. Defendant Brown had been a stockholder since incorporation and was a member of the board of directors when the transaction took place. The other defendants became stockholders and board members on 6 June 1972.

The 'third defense' further alleges that in the negotiations and discussions preceding the transaction plaintiff falsely represented that the business was a 'gold mine' and a 'going concern,' and that he concealed material financial facts concerning the corporation's liquidity and indebtedness. More specifically, the pleading alleges that plaintiff failed to disclose that during the period from 6 June 1972 to 22 November 1972 the corporation's cash funds decreased by $20,000.00; that plaintiff had borrowed for the corporation an additional $15,000.00; that the corporation's open account with Ralston-Purina Company increased by $10,000.00; that the corporation incurred a liability of $3,910.00 on a bank overdraft; that a corporate demand note had become delinquent because the interest had not been paid when due; and that the corporate working capital was so depleted and corporate income so inadequate that the corporation could not pay its normal operating expenses. The financial deterioration of the corporation resulted in a forced sale of corporate assets soon after the transaction giving rise to the $20,000.00 note sued upon. As a result, defendants were damaged 'by at least the amount that the plaintiff is suing for,' I.e., $20,000.00 plus interest and attorney's fees.

We hold that the foregoing allegations in defendants' 'third defense' raise a material issue of fact and render judgment on the pleadings inappropriate. While fraud has no all-embracing definition and is better left undefined lest crafty men find a way of committing fraud which avoids the definition, the following essential elements of actionable fraud are well established: (1) False representation or concealment of a material fact, (2) reasonably calculated to deceive, (3) made with intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the injury party. Johnson v. Owens, 263 N.C. 754, 140 S.E.2d 311 (1965); Early v. Eley, 243 N.C. 695, 91 S.E.2d 919 (1956); Vail v. Vail, 233 N.C. 109, 63 S.E.2d 202 (1951); Insurance Co. v. Guilford County, 226 N.C. 441, 38 S.E.2d 519 (1946); Laundry Machinery Co. v. Skinner, 225 N.C. 285, 34 S.E.2d 190 (1945); Ward v. Heath, 222 N.C. 470, 24 S.E.2d 5 (1943); Pritchard v. Dailey, 168 N.C. 330, 84 S.E. 392 (1915).

A subsisting or ascertainable facts, as distinguished from a matter of opinion or representation relating to future prospects, must be misrepresented. Berwer v. Insurance Co., 214 N.C. 554, 200 S.E. 1 (1938); Cash Register Co. v. Townsend, 137 N.C. 652, 50 S.E. 306 (1905). And generally, the misrepresentation must be definite and specific, New Bern v. White, 251 N.C. 65, 110 S.E.2d 446 (1959), but the specificity required depends upon the tendency of the statements to deceive under the circumstances. 'A vague statement that a property or business is 'profitable' or a 'money-maker' may sometimes...

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