Tel Service Co. v. General Capital Corp., s. 37860

• Decision Date: 29 October 1969
• Docket Number: Nos. 37860,37858,s. 37860
• Citation: 227 So.2d 667
• Parties: TEL SERVICE CO., Inc., a Florida corporation; G. E. Grass and Richard A. Noll, Appellants, Cross-Appellees, v. GENERAL CAPITAL CORPORATION, a Florida corporation, Appellee, Cross-Appellant. TEL SERVICE CO., Inc., a Florida corporation; G. E. Grass and Richard A. Noll, Petitioners, Cross-Respondents, v. GENERAL CAPITAL CORPORATION, Respondent, Cross-Petitioner.
• Court: Florida Supreme Court

Page 667

227 So.2d 667

TEL SERVICE CO., Inc., a Florida corporation; G. E. Grass and Richard A. Noll, Appellants, Cross-Appellees, v. GENERAL CAPITAL CORPORATION, a Florida corporation, Appellee, Cross-Appellant.

TEL SERVICE CO., Inc., a Florida corporation; G. E. Grass and Richard A. Noll, Petitioners, Cross-Respondents, v. GENERAL CAPITAL CORPORATION, Respondent, Cross-Petitioner.

Nos. 37860, 37858.

Supreme Court of Florida.

Oct. 29, 1969.

William B. Holland, Winter Haven, E. A. Bosarge, Bartow, Henry M. Sinclair, Miami, Norman Sand and Sinclair, Louis & Huttoe, Miami, for appellants, cross-appellees, petitioners-cross-respondents.

William Reece Smith, Jr. of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, Tampa, for appellee, cross-appellant, respondent-cross-petitioner.

ERVIN, Chief Justice.

We review the appeal of Appellants Tel Service Co., Inc., a Florida corporation; G. E. Grass and Richard A. Noll, and the cross-appeal of the Appellee General Capital Corporation, a Florida corporation, from the decision in this case of the District Court of Appeal, Second District, reported in 212 So.2d 369. The parties also filed petition and cross-petition respectively, for a writ of certiorari to review the decision.

As reflected in the reported decision and opinion of the District Court, the Appellant Tel Service Co., Inc., initially sought a recovery in the Circuit Court from Appellee General Capital Corporation because of the latter's alleged usury charges.

The Circuit Court, after hearings, entered a final decree in favor of Tel Service, holding certain transactions between the parties to be criminally usurious loans in violation of F.S. Section 687.07, F.S.A., directing that Tel Service recover the aggregate principal amounts of the loans, i.e., $568.705.73, and interest charged thereon from General Capital Corporation.

The Circuit Court specifically found that General Capital required a partnership composed of G. E. Grass and Richard A. Noll to change their form of business from a partnership to a corporation (Tel Service) before General Capital would enter business relations with the firm. This finding of the Circuit Court was made in connection with its basic holding that the transactions between the parties were loans and not sales.

General Capital appealed this final decree to the District Court. While the appeal was pending, the Florida Legislature enacted Chapter 65--299, now appearing in the Florida Statutes as Section 687.11, F.S.A. Because of this enactment the District Court deemed it appropriate to remand the cause to the Circuit Court for reconsideration in the light of Chapter 65--299.

While the cause was on remand in the Circuit Court, that court granted permission to Tel Service to amend its complaint to include G. E. Grass and Richard A. Noll as parties plaintiff and allege that said individuals as a condition to Tel Service obtaining the loans from General Capital were required to guarantee the payment thereof. It was alleged by Tel Service in its amendment that these individuals were the actual borrowers or real parties in interest, and not Tel Service, the corporation.

After hearings on the amended complaint and defenses, the Circuit Court entered its amended final decree reaffirming its findings that the transactions were loans and not sales, but adding that the transactions were actually loan transactions between General Capital and Grass and Noll, the corporation Tel Service being a mere conduit of corporate form furthering an unlawful scheme. It found that Chapter 65--299 was inapplicable to the individual plaintiffs, Grass and Noll. After an accounting which it had ordered in its final decree to determine the amount of recovery, i.e., the alleged usurious loans and the interest charged and paid thereon, the Circuit Court found that the individual plaintiffs Grass and Noll, as the real parties in interest, were entitled to recover from General Capital pursuant to F.S. Section 687.07, F.S.A., the sum of $710,911.08.

General Capital appealed the final decree and judgment summarized just above to the District Court, which in its reported opinion and decision in 212 So.2d 369 reversed in part and affirmed in part as follows:

(1) It affirmed the finding in the final decree that the transactions were usurious loans and not sales.

(2) It held that the defenses of laches, unclean hands, or the statute of limitations did not bar a recovery by plaintiff Tel Service.

(3) It held that in relinquishing jurisdiction and remanding the cause to the Circuit Court to determine the applicability of Chapter 65--299 to the cause as it existed, did not convey authority on the Circuit Court to reshape the proceedings as was done below by substituting Grass and Noll as the real parties plaintiff and allowing amendment to the complaint for these individuals to seek recovery from General Capital because of the alleged usurious loans to them rather than to Tel Service.

(4) It held Chapter 65--299 (F.S. § 687.11, F.S.A.) to be constitutional and applicable to the instant litigation.

(5) Since Chapter 65--299 provides a borrowing corporation is only entitled to recover interest and not principal on a usurious loan, the District Court reduced the Circuit Court's judgment from $710,911.08 to $125,912.65, and directed that final judgment for said sum be entered in favor of Tel Service, eliminating the individuals, Grass and Noll, as plaintiffs in the litigation.

Our jurisdiction of the appeal is invoked because the District Court upheld the validity of Chapter 65--299.

Our review covers the five points outlined above which summarize the holding of the District Court. In addition, our review includes a further point raised by General Capital, through its motions filed while this appeal was pending concerning the applicability of further intervening legislation, to wit, Chapter 69--135, Laws of Florida 1969.

The effect of the trial court's allowance of the amendment substituting Grass and Noll as real parties plaintiff and the reasons assigned therefor can only be construed as a holding by the Circuit Court that under the circumstances the corporate veil of Tel Service should be pierced and the individuals treated as alter egos of the corporation. The most compelling evidentiary finding by the Circuit Court asserted to support this position is that General Capital, as lender, had required Tel Service to change its form of business organization from a partnership to a corporation so that a higher rate of interest could be charged (15 per cent to corporations compared to 10 per cent to individuals). Such factual consideration, measured against the evidentiary requirements necessary to justify disregarding a corporate entity, is not sufficient for such result under the circumstances here presented. The law dispositive of this question was settled in Holland v. Gross (Fla.1956), 89 So.2d 255, where this Court, quoting from American Jurisprudence, stated:

"* * * While the corporate entity may generally be disregarded where it is used as a cloak or cover for fraud or illegality, the corporate entity of a corporation organized merely for the purpose of executing a mortgage on terms usurious in the case of an individual may not be disregarded in order to let in the defense of usury, available to an individual, but not to the corporation * * *.' (55 Am.Jur., Sec. 105, p. 396.'

In reaching the conclusion that the present case is governed by the principle enunciated in Holland v. Gross, supra, we did not overlook cases cited by Appellants where corporate entities were disregarded because of findings by trial courts that loans were in fact made to individuals and that the corporations formed were devices to evade the usury laws. See Gilbert v. Doris R. Corporation (Fla.App.1959), 111 So.2d 682; Atlas Subsidiaries of Florida, Inc. v. O. & O. Inc. (Fla.App.1964), 166 So.2d 458. We believe the principles adhered to in the cases just cited are entirely consistent with the rule connounced in Holland v. Gross, the distinguishing feature being only in the application of the principles to the facts presented in each case.

The testimony offered by Grass to the effect General Capital insisted on the formation of a corporation to be the borrower in order that a higher rate of interest could be charged when the loans were made is not sufficient to establish the loans were actually made to Grass and Noll. Such testimony, without more, is insufficient to form the basis for discregarding the corporation entity. We conclude, therefore, that on the record before us the trial court erroneously found that the loan transactions were made to the individuals, Grass and Noll, rather than to the Appellant corporation, Tel Service.

The evidentiary situation in the instant case is sufficiently parallel to the controlling facts in Monmouth Capital Corporation v. Holmdel Village Shops, Inc. (1966), 92 N.J.Super. 480, 224 A.2d 35, to warrant application herein of the view adopted in that case. In that case it was said:

'Borrower corporation, which was organized because of lender's legitimate policy of dealing only with corporations, and which had bank account, adopted corporate resolutions in connection with other borrowers, paid real estate taxes, entered into leases with tenants, and acted as valid legal entity, was neither shell nor cloak and was barred by statute from asserting defense of usury in lender's mortgage foreclosure action where chief stockholder had capable legal advice before forming corporation and was a knowledgeable businessman, notwithstanding that lender's only reason for dealing with corporations applicable was to be able to charge amount in excess of six percent per annum fixed by statute. * * *' (At 35--36.)

For the reasons stated here, as well as those outlined by the District Court, we see no basis for disturbing the holding of the District Court on this point.

We next consider the question...