Whigham v. Muehl
| Citation | 12 Fla. L. Weekly 289,500 So.2d 1374 |
| Decision Date | 20 January 1987 |
| Docket Number | No. BK-118,BK-118 |
| Parties | Blue Sky L. Rep. P 72,471, 12 Fla. L. Weekly 289 Horace WHIGHAM, Appellant/Cross-Appellee, v. Wallace W. MUEHL, Helen Muehl, and Mama's of North Florida, Inc., Appellees/Cross-Appellants. |
| Court | Court of Appeal of Florida (US) |
John A. Ratzlaff, of Trammell & Ratzlaff, Marianna, for appellant/cross-appellee.
Glenn L. Hess, Panama City, for appellees/cross-appellants.
Appellant Horace Whigham (Whigham) appeals from an order of final judgment in which the trial court found no culpability, hence no liability, on the part of appellee Helen Muehl. Appellees (the Muehls) raise four issues on cross appeal: (1) whether the trial court erred in finding a fraudulent securities transaction subject to the provisions of section 517.301, Florida Statutes; (2) whether the trial court erred in finding a fraudulent securities transaction under the Securities Exchange Act of 1934; (3) whether the trial court erred in finding Mama's of North Florida, Inc., liable for fraud; and (4) whether the trial court erred in awarding interest from March 26, 1981. We affirm in part and reverse in part.
On October 31, 1984, Whigham filed a 5-count complaint alleging: Count I--a violation of section 517.301, Florida Statutes, in that defendant Muehl fraudulently induced plaintiff Whigham to invest in Mama's of North Florida, Inc.; Count II--a violation of section 10(b) of the Securities Exchange Act of 1934; Count III--a violation of fiduciary duty by misrepresentation and concealment of material facts; Count IV--theft in accordance with sections 812.012 and 812.014, Florida Statutes; and Count V--a violation of section 607.157, Florida Statutes, in that Whigham was refused permission to inspect the books and records of Mama's of North Florida, Inc.
This case presents the unhappy scenario which sometimes transpires when friends attempt to go into business together. The record reflects that the Whighams and the Muehls had been friends of long standing, and the starting point of this case was the effort of one friend to assist the other during a period of unemployment. Appellee Wallace Muehl holds degrees in mechanical engineering and business administration. Prior to his move to Florida, Muehl had been plant operations manager for a company in Nebraska. The company went bankrupt in November 1980, at which time the Muehls and their three younger children moved to Georgia to live temporarily with an older son.
Until his retirement in 1983, Whigham worked in the international division of a pharmaceutical company. In 1980, when Muehl was undergoing job problems, Whigham and his wife lived in Arizona. Muehl called Whigham at Christmas to advise that he [Whigham] would be contacted as a job reference by several of Muehl's potential employers. During this same conversation, Muehl mentioned that he planned to open a business at Panama City Beach.
Subsequently, in a letter dated March 16, 1981, Muehl proposed the participation of the Whighams in the Panama City venture. In this same letter, Muehl outlined the potential for profit and advanced an investment proposal to the Whighams. Shortly after receipt of Muehl's letter, Whigham sent Muehl a check for $10,000. On April 8, 1981, Muehl wrote Whigham advising of the progress of construction on the business and outlining the percentage of return the Whighams could expect on their investment. In addition, the letter advised that the Muehls would sign a personal note to protect the Whighams' interests until such time as the reinvestment plan was completed.
In July 1981, the Muehls wrote to the Whighams, enclosing pictures of the Panama City venture, and referring to a projected opening date of August 1, 1981. In a letter to Whigham dated September 18, 1981, Muehl advised that their accountant had recommended postponement of incorporation of the business until such time as the business enjoyed a good cash flow. In the same letter, the Muehls expressed their intention to give the Whighams a part of the business, regardless of the debt owed to them, as a way of thanking their best friends.
In a letter dated October 3, 1981, Muehl described needed improvements and their costs, as well as the costs of incorporating. On October 8, 1981, Whigham sent Muehl a second check, this time for $5,000. Then in November 1981, Muehl went to Nevada, where the Whighams were living, and obtained a radar range and a Jeep pickup truck from the Whighams for use in the business. On this same trip, Whigham gave Muehl another check for $5,000. Throughout the remainder of 1981 and during 1982, the Whighams continued to receive phone calls and letters from the Muehls, partly of a personal nature and partly related to the business. By December 1982 Whigham had provided the Muehls with a total of $25,600 in cash and a $400 radar range.
By mid-1983, according to the evidence, Whigham became concerned about the business and felt a need for some security for the funds he had advanced to the Muehls. He asked to see the books and records, but Muehl gave various reasons not to produce the materials. Whigham tried to set up a meeting with the Muehls, and was finally successful in November 1983. Then in January 1984, Muehl proposed to deliver a promissory note to the Whighams. In February 1984, the promissory note was tendered, but Whigham found the payback terms unacceptable.
On June 12, 1984, Whigham signed an agreement for sale of stock. This agreement contemplated the stock transfer would take place in October 1984. Whigham testified that he was led to understand the delay was occasioned by the fact that the business was not yet incorporated. The incorporation had actually been effected in December 1983. Whigham was not apprised of this fact until August 2, 1984, and he did not see a balance sheet until he and his wife asked about it in Mrs. Muehl's presence. At that time, Mrs. Muehl insisted that the Whighams should be shown the records. The balance sheet indicated the total assets of the corporation were $19,000. The listed assets consisted principally of cash and inventory, and the land and buildings were not included as corporate assets.
Whigham was disconcerted by the facts revealed in the balance sheet, and on August 4, 1984, he wrote a memorandum to Muehl requesting specific details about the business. According to the evidence, neither Muehl nor his accountant discussed the matter voluntarily with Whigham. The record reflects that Muehl resisted release of his financial statement and bank statements. Muehl testified that he did not provide Whigham with access to the records because Whigham was not a partner in the business. According to Muehl, at the time the stock transfer was discussed, Whigham knew the stock was at a low value. Muehl admitted, however, that Whigham had not seen the records at that time. In response to a question from the trial judge, Muehl acknowledged he had received $26,000 from the Whighams, and said he did not consider the $26,000 a gift, nor did he consider the money an investment in the business.
The record reflects that the Muehls' accountant had been authorized to provide only the June 1984 statement to Whigham. The record also reflects that Mrs. Muehl was an equal partner in the business when it was first organized. When the business was incorporated, Mrs. Muehl became a stockholder and vice-president. All partnership assets, including real property, were held jointly by Mr. and Mrs. Muehl.
The cause was tried without a jury. At the close of Whigham's case, the trial court directed a verdict for Muehl on Count IV, the theft count, but denied the motion for directed verdict as to Counts I, II, III, and V. 1 Then in the final judgment, the trial court found that defendants Wallace Muehl and Mama's of North Florida, Inc. obtained money from Whigham by means of an untrue or misleading statement, and noted particularly the defendants' failure to disclose the true condition of the business and the failure to advise that the business was already incorporated when the agreement for sale of stock was made. However, the trial court found no culpability on the part of Helen Muehl, and further found that Whigham failed to prove entitlement to recovery on Counts III and V. Thereafter, Whigham's motion to amend the final judgment was denied, and this appeal ensued.
The business venture undertaken by the Muehls, with financial assistance from appellant, was organized initially as a partnership. It is undisputed, however, that all parties involved in this venture contemplated the formation of a corporation at such point in time that incorporation became financially feasible.
By statute, a partner is accountable for representations made by another partner, when those representations are made within the scope of the partnership. 2 By the same token, a partner is charged with knowledge of partnership affairs, except in circumstances where fraud has been committed on the partnership. 3 In addition, the partnership is liable in the event one partner acting within the course of partnership business, receives and misapplies money or property from a person outside the partnership. 4 Furthermore, all partners are jointly and severally liable for conduct chargeable to the partnership. 5 Finally, dissolution of a partnership does not, in and of itself, discharge the existing liability of any partner. 6
Moreover, just as partners are charged with knowledge of and liability for the conduct of a co-partner acting within the scope of the partnership, corporate officers and directors are charged with knowledge of corporate conduct and affairs. For example, in Manatee County Growers' Association v. Florida Power & Light Company, 113 Fla. 449, 152 So. 181, 185 (1934), the court observed:
It is elementary that directors are charged with full knowledge of the conduct of the affairs of the corporations of which they are members and th...
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