Sommers v. Apalachicola Northern R. Co.

• Decision Date: 31 January 1918
• Parties: SOMMERS et al. v. APALACHICOLA NORTHERN R. CO. et al.
• Court: Florida Supreme Court

78 So. 25

75 Fla. 159

SOMMERS et al. v. APALACHICOLA NORTHERN R. CO. et al.

Florida Supreme Court

January 31, 1918

Appeal from Circuit Court, Franklin County; C. L. Wilson, Judge.

Bill in equity by David Sommers and others against the Apalachicola Northern Railroad Company and others. From an interlocutory order sustaining demurrers to the bill, interposed by a part of the defendants, complainants appeal. Reversed.

Syllabus by the Court

SYLLABUS

A bill in chancery which seeks an accounting from the agents of the complainants of moneys spent, profits made, and obligations incurred, and other appropriate relief, upon the alleged grounds that the agents practiced fraud upon their principals in the business which they were employed to transact, such fraud consisting in engaging in transactions beyond the scope of their employment as such agents; wasteful and dishonest expenditure of funds handled by them for their principal participating in fraudulent contracts with persons and corporations with whom they were associated in business in order to defraud their principals; and bad faith and corrupt practices from the inception of their employment, with the end in view of securing the profits for themselves which the business in hand might have produced for their principals--is not subject to demurrer as being without equity.

Equity will lend its aid where there is not a complete and adequate remedy at law.

A court of chancery having jurisdiction for one purpose will retain the bill as to all other matters germane and necessary to the attainment of justice between the parties.

Where it is not clear that the remedy at law is full and adequate equity will entertain jurisdiction in a cause between principal and agent to compel an accounting and for other appropriate relief, where the relations between the parties involve complicated accounts and fraudulent practices by one to benefit himself at the expense of the other.

COUNSEL Y. L. Watson, of Quincy, and W. C. Marshall, of St. Louis, Mo., for appellants.

W. J Oven, of Tallahassee, and George H. Williams, of St. Louis Mo., for appellees.

OPINION

PER CURIAM.

The appellants who were complainants below, exhibited their bill in equity in the circuit court for Franklin county against the appellees who were defendants below.

The bill, which is very lengthy, purports to contain the history and details of a very elaborate and complicated, but fraudulent, scheme on the part of certain persons named as defendants to defraud the complainants as stockholders of the Apalachicola Northern Railroad Company and the St. Joseph Land & Development Company, which are named as defendants, by assuming to exercise powers not resting upon them either by contract with the complainants or the corporations nor as officers or stockholders of the two corporations; by dishonest financial operations; wasteful expenditure of moneys held by them in a fiduciary capacity, and fraudulent operations under a contract with a Construction Company named in the bill as one of the defendants, which the same persons named as defendants controlled, and in which they were financially interested.

According to the bill of complaint the scheme was originated and is being carried out by Edwards Whittaker and H. Blaksley Collins, who were associated in business in St. Louis, Mo., as Edwards Whittaker & Co., J. C. Van Riper, president of the Illinois State Trust Company, and R. H. Hemphill of St. Louis, Mo., who had for their object the ultimate ownership of all the stock owned by the complainants in the Railway and Land Companies which are named as defendants, the control of those corporations by acquiring through fraudulent means the stock therein and the bonds issued by them, thus placing themselves in control of the franchises and properties of the two corporations, which were alleged to be of the value of several million dollars.

It is alleged that in this fraudulent scheme the above-named persons were assisted by certain other individuals, among whom was the defendant Xenophon P. Wilfley.

The bill is too lengthy to be quoted in full, especially as little benefit would be gained by so doing. We will undertake, however, to state the substance of its allegations.

The complainants and Hemphill were, on the 10th and 11th days of May, 1905, and for a time prior thereto, the owners of all the stock of the Apalachicola Northern Railroad Company, a Florida corporation, which stock amounted at that time to $500,000, which was the amount of its legally authorized capital stock. Ten per cent. of the capital stock had been paid in. They were also the owners of all the stock of the St. Joseph Land & Development Company, a Florida corporation, the authorized capital stock of which is not given. The railroad corporation was organized to construct a railroad and operate it from River Junction, Fla., to St. Joseph Bay on the Gulf in this state.

That the complainants and Hemphill had acquired a right of way for the railroad between the two points, lands for turnouts, switches, yards, and depots, had graded 4 miles of railroad bed, and spent $6,000 therefor, and had acquired from the state of Florida a land grant of 5,000 acres per mile. That they had also acquired an option on over 190,000 acres of land and 7,000 acres of land, with 7 miles of water front at St. Joseph's Bay.

The complainants desired to obtain funds with which to complete the road and make sufficient payments upon the lands to secure them. They needed $1,500,000, and applied to the defendants Whittaker & Co. and Van Riper to procure the loan, which was to be secured by a mortgage on all of the property of the Railroad Company and of the Land Company. Whittaker & Co. and Van Riper agreed to negotiate the loan for complainants, and to that end two contracts were entered into on May 10, 1905.

One contract was between Duffy, Hemphill, Hauze, and Sommers on the one side and Whittaker & Co. and Van Riper on the other; Sommers being described in the contract by mistake as being associated with Whittaker and Van Riper instead of with Duffy, Hemphill, and Hauze.

This contract recited that Duffy and others desired to obtain $1,000,000 to construct and equip the railroad for operation, the stock of which company they owned and controlled; that Whittaker and Van Riper were ready, willing, and able to obtain the sum desired by using the stocks, bonds, and other securities of the road 'in the manner set forth in another and separate agreement dated the --- day of May, 1905,' and that as payment for obtaining the $1,000,000 it was 'agreed that Whittaker & Co. should have one-twelfth (1/12), J. C. Van Riper one-twelfth (1/12), and Sommers two-twelfths (2/12) of said Railroad Company.' The remaining eight-twelfths were to be distributed between Hauze, Hemphill, Duffy, Trump, and Beverly. All the stock was to be pledged as security for the payment of the indebtedness, and the stock should be pooled and voted for a period of 5 years according to the terms of the 'said other agreement dated May ---, 1905.' The second agreement dated May 10, 1905, was between the same parties, Sommers by mistake being described as of the second part instead of one of the parties of the first part. This agreement also recited that all of the parties were interested in the construction, equipment, and operation of the railroad, and that the parties of the first part had commenced the formation of a corporation to be known as the St. Joseph Land & Development Company to handle the lands and properties which they had acquired; that Whittaker and Van Riper had furnished $500,000 to be used in the purchase of the lands, options upon which had been secured as stated, and that as consideration for what Whittaker and Van Riper had done they were to receive each oneseventh of the capital stock of the corporation. The remaining five-sevenths were to be distributed between Hemphill, Hauze, Sommers, and Duffy. It was also agreed, as in the first agreement, that all of the capital stock should be pledged as collateral security for the payment of the 'indebtedness mentioned in a certain agreement, dated the --- day of May, 1905, and that it should be held in a pool and voted for a period of five years,' according to the terms of the said agreement.

It is further alleged that Whittaker and Van Riper, instead of Causing bonds of the Railroad and Land Companies to be issued and secured by a mortgage upon the properties of the said companies as a means for raising the money desired, they 'caused Chas. B. Duffy to enter into a contract with them, dated the 11th day of May, 1905.' A copy of this contract, as well as copies of the two before referred to are attached to the bill as exhibits A, B, and C. The bill alleges that this contract of May 11th constituted part of the scheme to injure and defraud the complainants. That contract was entered into between Chas. B. Duffy of the first part and Whittaker & Co. and J. C. Van Riper, parties of the second part. It recited that Duffy owned all the capital stock of the Railroad Company which amounted, according to the contract, to $2,000,000, and that he owned all the capital stock of the Land Company, which the contract recited amounted to $1,000,000, and that Duffy desired to borrow $1,500,000 for the purpose of building the railroad and paying for the lands. It was agreed on the part of Duffy that he was to organize a corporation to be a holding company, and that the company, when organized, should become the owner of all the stocks and bonds of the Railroad Company and the Land Company, and that the holding company should pledge such stocks and bonds as collateral security for the repayment of the $1,500,000 on or before & years after date,...