Citations
- 75 Fla. 159
Full opinion text
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 Saint 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, Missouri, as Edwards Whittaker and Company; J. C. Van Riper, President of the Illinois State Trust Company and R. H. Hemphill of St. Louis, Missouri, 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 Xenophan 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 $500,000:00’ which was the amount of its legally authorized capital stock. Ten percent. of the capital stock had been paid in. They were also the owners of all the stock of the Saint 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, Florida, 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 turn-outs, switches, yards and depots; had •graded four miles of railroad bed and spent six thousand dollars therefor and had acquired from the State of Florida a land grant of five thousand acres per mile. That they had also acquired an option on over a hundred and ninety thousand acres of land and seven thousand acres of land with seven 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 a million and a half dollars and applied to the defendants Whittaker & Company 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 & Company and Van Riper agreed to negotiate the loan for complainants and to, that end two contracts were entered into on May 10th, 1905.
One contract was between Duffy, Hemphill, Hauze and Sommers on the, one side and Whittaker & Company and Van Riper on the other. Sommers being described in the contract by mistake as being associated with Whit-taker and Van Riper instead of with. Duffy, Hemphill and Hauze.
This contract recited that Duffy and others desired to obtain a million dollars 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 million dollars it was “agreed that Whittaker & Company 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 (8-12) 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 five 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. Josephs Land & Development Company to handle the lands and properties which they had acquired; that Whittaker and Van Riper had furnished 1500,000.00 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 one-seventh (1-7) of the capital stock of the corporation. The remaining five-sevenths (5-7) 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 oi 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 the 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 Whit-taker & Company 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 $2,000,000.00 and that he owned all the capital stock of the Land Company which the contract recited amounted to $1,000,000.00 and that Duffy desired to borrow a million and a half dollars 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 $1,500,000.00 on or before three years after date with five percent, interest; that the stock of the Railroad and Land Companies should be pooled for five years, be controlled by four trustees to be selected by Duffy and Whittaker and Van Riper. There should be seven directors in each of the companies, three of whom to be selected by Duffy’s trustees, three by Whittaker and Van Riper’s trustees and the seventh by the Illinois State Trust Company who was to be the trustee in both pooling agreements; that the Holding Company which was to be known as The Florida Company should have seven directors selected in the same manner; that the contract for building and equipping the railroad should be let to the Morey Engineering & Construction Company at cost and ten per cent, profit. This ' contract, according to the allegations of the bill, contained many provisions relating to the evidences of indebtedness which were to be issued by The Florida Company and the security therefor. Some reference is made to a collateral agreement and collateral notes which were to be in such form as designated by Whittaker and Van Riper; that the money derived from the notes was to be used to pay for the lands of the Land Company and the office expenses of the Railroad Company during construction; that the title to all the lands at St. Joseph’s Bay which was then in Sommers should be conveyed to the Land Company and that all contracts for lands should also pass to the Company. It was provided that the entire bond issue of the Railroad Company should “not be less than eighty-five per cent, of their par value;” that certain lands might be sold at the price fixed; that during each year the pooling agreement remained in force the President of each of the three companies should be named by the trustees selected by Duffy,the Treasurers should be selected by the trustees named by Whittaker and Van Riper; that all moneys derived from the sale of lands, timber, turpentine rights, the operation of the railroad or from any source should be paid to the Illinois State Trust Company as Trustee and at an agreed time should be used in the payment of the indebtedness. It was further provided by this agreement that Whittaker and Van Riper should receive for their services in disposing of the notes ■ or .bonds to be issued by the holding company the sum of $750,000.00 to be paid in three years and' the collateral securities of the holding company were to be held in trust for the- payment of that sum of money as well as for the payment of the $l,500;000.00'in bonds; that when the indebtedness should be paid the securities held by the trust - company should be returned to The Florida or Holding Company. On the part of Whittaker and Van Riper it was agreed that if they were satisfied with the regularity of the proceedings in' the matter of the organization of the corporations and were satisfied with the title to the lands as well as- the value of the same they would “negotiate said notes or bonds and obtain $1,500,000.00 as aforesaid and agreed to advance the sum of $250,000.00 of this- amount to be used in exercising the option of purchase” on certain lands. The bill alleges' that these three agreements were prepared by the defendant Wilfley as attorney for Whit-taker and Van Riper and- that he also organized The Florida Company in Maine and prepared all the documents, forms, stocks, bonds and notes used in the transaction under the direction and control of Whittaker and Van Riper. It is then alleged "that the defendants Whit-taker and Van Riper having secured the agreement with Duffy of May the 11th, ■ above réferréd to, which it is alleged was part of the scheme to defraud the complainants, proceeded unlawfully and without authority to increase the capital stock of the railroad; that they caused it to issue $2,000,000.00' of bonds which were secured by a mortgage on all its properties, caused the Land Company to issue $2,000,000.00 of bonds secured by mortgage on all its properties and then transferred its bonds to the Illinois State Trust Company and' have not up to this time sold or negotiated any of them. At the same time and without any legal authority they issued certificates for $3,000,000.00 of stock of the Railroad Company and $2,000,000.00 of stock of the Land Company in- the name of Duffy and caused the same to be endorsed by him in blank and were by Whittaker and Van Riper delivered to the Illinois State Trust Compány which holds the same; that the issuing of such bonds and stocks was never authorized'by the complainants nor acquiesced in, consented to or ratified by them and that'no money whatever was ever paid either to the Land Company or to the Railroad Company for any of such certificates of stock or bonds; that as a part of the scheme to cheat and defraud the complainants Whittaker and Van Riper then caused The Florida Company to issue 1,500 bonds of the denomination of $1,000.00 each and 1,500 non-interest-bearing bonds-of the denomination of $300.00 each all to mature in three years; that they caused The Florida Company then to execute a mortgage to secure the payment of said bonds which aggregated $1,950,000.00 which mortgage was based solely on the stocks-and bonds of the Railroad and Land Companies above mentioned and which were on deposit with the Illinois - State Trust Company as •trustee. In addition to the above issue of bonds of $1,-950,000.00 Whittaker and Van Riper without any authority caused The Florida Company to issue $300,000.00 more of bonds which were also secured by mortgage upon the same stock and bonds for the Railroad and Land Companies held by the Illinois State Trust Company. .
The bonds of The Florida Company, so illegally and unlawfully issued as stated, were, so the bill alleges, made payable in three years whereas the bonds of the Railroad and Land Company were payable in twenty years it. being intended and designed by Whittaker and Van Riper not to complete the railroad within three years so that it could not be earning money enough to pay off and discharge the indebtedness and that the Land Company should be so mismanaged that it would not yield enough. revenue from the sale of lands and turpentine to pay off its indebtedness and that upon the maturity of the bonds issued by The Florida Company the mortgage would be foreclosed, the stocks and bonds sold and the complainants thus deprived' of all- their rights and interests in both companies.
The bill alleges this to be the purpose of the defendants Whittaker and Van Riper. It then recites in detail the steps taken by these defendants to accomplish that purpose. It alleges that as soon as these arrangements were made Whittaker and Van Riper assumed control of the affairs of the Railroad and Land Company; that they caused a contract to be entered into between the Railroad Company and the Morey Engineering & Construction Company which, it is alleged, they owned and controlled, for the construction of the railroad and that they caused this Company to begin work on the railroad before the mortgage given by the railroad to secure its bonds was placed upon record. This was done, so it is alleged, with the fraudulent purpose of giving theConstrnction Company a lien upon the railroad properties prior to the lien of the bond holders of that company. That Whittaker and Van Riper did not advance the $250,000.00' which the . contract made on May the 11th provided they .should furnish and that they had received $1,500,000.00 for the sale of the 1,500 five per cent, bonds issued by The Florida Company, out of which they had paid $425,000.00 on account of the purchase of lands and that they- had in their control the remainder of the proceeds- of the bonds amounting to $1,075,000.00 with which to construct railroads; that instead of using the money for that purpose they, pursuant to their scheme to defraud the complainants, mis-managed • the affairs of the railroad through the Morey Engineering & Construction Company, squandered the - money in needless and unnecessary expenses and by fraudulent claims pretended, that the total cost of building the eighty miles of railroad amounted to $1,618,321.00 of which only about $790,000.00 had been paid and that there remained due to the Morey Engineering & Construction Company a balance of $820,000.00 approximately. These claims, representations and ‘ pretenses of Whittaker and Van Riper are alleged to be fraudulent and made for the purpose of defrauding the complainants and pursuant to the scheme to acquire the ultimate ownership of the stock owned by the complainants in the Railroad and Land Company, to secure control of the corporations and thus acquire valuable properties greatly in excess of the $1,500,000.00 indebtedness of the two companies and deprive the complainants of all equity or beneficial interest therein. That as a part of this fraudulent scheme the defendants Whittaker and Van Riper refused to make any sale of turpentine rights although at one time they had an opportunity to realize over $1,000,000.00 for turpentine rights from the lands upon which the complainants had secured option; that the refusal to sell these turpentine rights resulted in rendering the companies unable to meet the obligations' of The Florida Company when the latter became due; that Whittaker and Van Riper then procured the Morey Engineering & Construction Company in July, 1907, when the road was completed to institute pro codings in the Circuit Court for Franklin County to enforce a lien against the railroad for the alleged balance due for constructing the same; that Whittaker and' Van Riper employed the counsel for that company as well as for the Railroad Company and the Illinois State Trust Company and that the suit was 'a collusion. wholly controlled by Whit-taker and Van Riper, based upon a pretended balance due for the construction of the railroad, which balánce did not exist in fact and for the purpose of swindling and defrauding the complainants; that pursuant to the scheme and by fraud practiced on the Court they secured the appointment of Faulhaber as a receiver for the Railroad Company. In the meantime' Whittaker and Van Riper represented to complainants that in obtaining the receiver they merely desired to preserve the status of ¿11 the companies during the then financial stringency of the money market while they were in fact' secretly engaged in' an attempt to impose upon the Court and obtain a decree by consent in favor of the Morey Engineering & Construction Company against the defendants in 'the suit.
It is also alleged that in the Fall of 1907 Whittaker and Van Riper caused The Florida Company to notify the Illinois State Trust Company that there were no funds in The Florida Company with which to pay interest upon the coupons on the bonds issued by The Florida Company which coupons were due in September of that year; that the railroad had been completed to River Junction at a cost of $1,600,000.00; that the lands at St. Joseph’s Bay had been fully paid for and that part of the purchase price of the timber lands had been paid and there was still an indebtedness on account of the purchase of the lands and on account of the balance due to the Morey Engineering & Construction Company which had a lien upon the property of the railroad; that the resources of the company amounted to a total of $4,850,000.00 and that the liabilities of the company amounted to $3,590,000.00, leaving a balance in resources over liabilities of $1,259,500.00; that Whittaker and Van Riper pursuing their oi’iginal scheme to defraud the complainants proposed to form a new company which was to become the purchaser of all the securities held by the Illinois State Trust Company for The Florida Company at a foreclosure sale of the mortgage made by the latter company. This new company was to issue $4,000,000.00 of common stock, $1,000,000.00 of preferred stock. $2,000,000.00 of ten year bpnds and $1,500,000.00 sis per cent ten year bonds, making a total stock and bond issue of $8,500,000.00. This stock and bonds. of the new company were to be distributed between the holders of the first $1,500;000.00 of The Florida Company’s bonds and the $450,000.00 non-interest-bearing bonds and the holders of the $300,000.00 second mortgage bonds and the remainder, not so distributed, was to be sold and that which was not sold to be placed in the treasury. The distribution of bonds and stock in the new company thus to be formed was to be made, so the bill alleges, in such maner as that Whittaker and Van Riper should receive $750,000.00 of preferred stock and $225,000.00 of common stock in the new company for the $750,000.00 of the Florida Company’s 'bonds which they- took as compensation for negotiating the original loan of $1,500,000.00 on the stocks and bonds of the Railroad and Land Company; that the holders of the $1,500,000.00 Florida Company’s bonds should receive a like amount in common stock and a like amount in second mortgage bonds, or $3,000,000.00 in place of their $1,500,000.00 investment. Two million of first mortgage bonds; two million dollars of common stock and two hundred and fifty thousand dollars of preferred stock to remain in the treasury, and two hundred and seventy-five thousand dollars of common stock to be sold. This arrangement so the bill alleges would place Whittaker and Van Riper and the holders of the Florida Company’s $1,500,000.00 five per cent bonds in control of the new company and thus “freeze out all the stockholders” of the railroad and land companies.
The bill contains allegations to the effect that Whit-taker and Van Riper, pursuant to their scheme to defraud the complainants of all their interests in the railroad and land companies and the properties and equities therein which they had secured, intentionally mismanaged the affairs of the two companies,' squandered and wasted the moneys in their hands to be used in the interests of the two companies, had refused to pay the balance due on the lands, had supported the fraudulent claims of the Morey Engineering Company which the defendants owned and controlled and that their every act was part of the original scheme to defraud the complainants which they originated at the very outset of the transaction when the complainant applied to them to procure a loan of $1,500,000.00. It is also alleged that the railroad and land companies are officered, managed and controlled by the defendants and that the complainants have been denied all right to participate in the affairs of the companies, and ousted of their rights to properties which they had originally acquired for the land company hut they had nevertheless made' written demands upon the railroad and land companies and upon Faulhaber as receiver of .the railroad company to bring such suits as might be necessary in the interest of the two companies to relieve them of the entanglements in which they had become involved by the fraud and mismanagement of the defendants, but that such request had been denied.
The bill prays that the three contracts referred to be canceled; that the bonds and mortgages of the railroad and land companies be declared a cloud upon the lands and properties of the companies; that the Illinois State Trust Company be ordered to deliver the bonds and mortgages and stocks of the railroad and land companies to the said companies respectively, and that the legally owned stocks be ordered issued to the stockholders of the companies in proportion to their interest therein set out except that Whittaker and Van Riper be divested of all interest because of their fraudulent practices; that the first and second mortgage bonds of The Florida Company be declared null and void; that the Pine Forest Land Company be enjoined from foreclosing a certain mortgage; that the amount found to be due the Pine Forest Land Company be adjudged to be a lien upon the lands and properties of the St. Joseph Land & Development Company; that all proceedings in the case of the Morey Engineering & Construction Company against the Railroad Company be stayed and enjoined forever and that an accounting be taken as to what is due the Morey Engineering & Construction Company and that amount be adjudged to be a lien upon the properties of the Railroad Company but subject to the lien existing in favor of the owners of the .original $1,500,000.00 of first mortgage interest bearing bonds issued by The Florida Company; that Faulhaber be removed as receiver; that an accounting be taken of the proceeds of the sale of The Florida Company’s first mortgage interest bearing bonds and how much thereof has been used for the payment of lands and properties of the St. Joseph Land & Development Company and how much has been used in the construction of the railroad and that so much as may be found to have been spent in behalf of those two companies be adjudged to be liens upon their properties respectively; that an accounting be taken with the Morey Engineering & Construction Company and Whittaker and Van Riper as to what was a reasonable cost for the construction of the railroad and that a judgment be rendered in favor of the Railroad Company against the Morey Engineering & Construction Company and against Whittaker and Van Riper for the difference paid' for reasonable cost of such construction and the amount actually paid to the Engineering Company, and for other and general relief.
Demurrers to this bill were interposed by The Morey Engineering & Construction Company, by Edwards Whitaker, by E. A. Faulhaber, St. Joseph Land & Development Company, Xenophon Wilfley and R. H. Hemphill upon the grounds that there was no equity in the bill; that the complainants had no interest in the subject matter set forth; that the defendants were not necessary parties; that the bill was multifarious; that the complainants were barred by laches and that they were estopped by their own acts from setting up the matters contained in the bill and that they had failed to state any facts which were essential to entitle them to relief prayed; that the bill was deficient in certainty and for other good causes, and that so far as the Morey Engineering & Construction Company was concerned that the hill showed that the matters and things set forth in the bill were res adjudicata in that the same questions had been settled and decided in a suit pending in the Circuit Court of the Second Judical Circuit of the State wherein the Morey Engineering Company was plaintiff and the Illinois Trust Company,' The Florida Company and the Railroad and Land Companies were defendants. These demurrers were sustained by the' Judge of the Fourteenth Judicial Circuit acting in place of the Judge of the Second Judicial Circuit who was disqualified, and from the interlocutory order sustaining the demurrers the complainants appeal.
We think that this order should be reversed because the bill does contain equity and we think that the complainants were neither estopped nor barred by laches from seeking appropriate relief; that the bill is not multifarious as to either one of the defendants and that each one of the defendants is a proper if not a necessary part.
The bill is framed upon the theory that the complainants have been unfairly dealt with by their agents whom they employed to negotiate for them a loan of $1,500,000.00 which was to be secured by a mortgage upon properties valued at several million dollars. That by fraud which consisted of bad faith, the usurpation of authority, exercising powers beyond the scope of their agency, ignoring tire laws of the land, fraudulent issuing of certificates of stock of the railroad and land companies, wasteful and dishonest expenditure of funds held by them in a fiduciary capacity, participating with a construction company to defraud their principals to the end that they might personally reap the benefits therefrom, false promises of ’financial aid made to secure confidence and to be broken at an opportune time, excessive charges for compensation and bad faith, corrupt practice and dishonest methods from the inception of the original agreement during' every step taken by them under their pretended authority to the present time, the defendants Whittaker and Company and Van Riper and those associated with them, - as assistants have cheated and defrauded their employers under the guise of financial operations.
According to the bill the defendants saw an opportunity to acquire by dishonest methods and a small risk of money, a large and valuable property which belonged to the complainants and by abusing the confidence of those who employed them proceeded in the manner stated to take for themselves the profits which should have gone to their employers.
The defendants Whittaker and Company and Van Riper, according to the bill, undertook for a stated compensation to be paid by their employers, to procure a loan for them of $1,500,000.00 which was to be secured by a pledge of the stocks and bonds of the railroad and land companies whose properties' after the judicious expenditure of the money' would be reasonably worth approximately sixteen million 'dollars, against which would be the indebtedness of $1,500,000.00 plus the contingent and extraordinary expenses'' that might fee incurred in developing the properties of the two companies. For this service the defendants were to receive two-twelfths of the railroad company and two-sevenths of the capital stock of the land company. But the defendants not acting in good faith did not carry out their agreement, but by the practice of 'fraud upon the complainants in the manner stated secured for themselves and those whom they' associated with them' the control and practical ownership of all the properties of the railroad and- land company by acquiring the controlling interest in a corporation to which passed the ownership of all the stocks and bonds of the two companies.
This alleged fraudulent conduct on the part of the defendants Whittaker and Company and Van Riper and their agents and associates we think entitles the complainants in equity to an accounting from those defendants of the moneys properly expended and the profits received by them through and by their various operations and connections in this behalf; to the cancellation of the stocks and bonds of the railroad and land companies which the defendants without authority of law issued to Duffy and deposited with the Illinois Trust Company, and to such other relief as the nature of the case may require to the end that the complainants may without injury to innocent purchasers .for value be placed in the situation they occupied upon the issue of the first 11,500,000.00 indebtedness upon the lawfully issued stock and bonds of the railroad and land companies.
Equity will lend its aid where there is not a full, complete or adequate remedy at law. See Hunter v. Bradford, 3 Fla. 269; Cordon v. Simonton, 10 Fla. 179; Broome v. Alston, 8 Fla. 307; Carter v. Bennett, 6 Fla. 214.
It is settled in this State that a court of chancery having jurisdiction for one purpose will .retain the bill as to all other matters necessary to the attainment of justice between the parties and arising out of the subject-matters. See Carter v. Bennett, supra; Farrell v. Forrest Investment Co., 73 Fla. 191, 74 South Rep. 216; Capital City Bank v. Hilson, 64 Fla. 206, 60 South. Rep. 189; Carlton v. Hilliard, 64 Fla. 228, 60 South. Rep. 220.
Even if a court of law would entertain jurisdiction to compel the payment of damages by defendants for a breach of their contract, nevertheless as the relations between complainants and defendants involve complicated accounts, and it is not clear that the remedy at law is full and adequate, equity will entertain jurisdiction. See Craft v. Craft, 74 Fla. 262, 76 South. Rep. 772.
There is nothing in the bill to show that the complainants were guilty of laches, or that they are estopped from pursuing the relief sought by this bill, nor is the defense of res adjudicata, available to the Morey Enginering Company. The complainants were not parties to the- suit instituted by that company in the Circuit Court for Franklin County against the railroad company and others and are not bound by the orders therein. See Yullee v. Canova, 11 Fla. 9; Virginia-Carolina Chemical Co. v. Fisher, 58 Fla. 377, 50 South. Rep. 504; Bell v. Niles, 61 Fla. 114, 55 South. Rep. 392. Nor do we think the bill is multifarious. Farrell v. Forrest Investment Co., supra.
The interlocutory order of February- 5th, 1916, sustaining the demurrers to the bill of complaint is reversed.
Taylor, Whitfield, Ellis and West, J. J., concur.
Browne, C. J., concurs in the reversal.
Browne, C. J.
concurring. — I fully concur in the judgment pronounced by the court in this case, but as we have reached the same conclusion by a different process of reasoning I prefer to state my views and theory in a separate opinion.
This cause comes here on appeal from the decree and judgment of the Circuit Court for Franklin County, sustaining the demurrers to the complainants’ bill in equity brought by David Sommers, W. R. Hauze, Charles B. Duffy, J. H. Trump and B. H. Beverly, dona fide stockholders of the Apalachicola Northern Railroad Company and of the St. Joseph Land and Development Company, because the officers of these corporations would not sue, for the following purposes:
“1. To declare null and cancel two contracts dated May 10th, 1905, between Charles B. Duffy, Robert H. Hemphill and William R. Hauze, parties of the first part, and Whittaker & Co., J. C. Van Riper and David Sommers, parties of the second part.
2. To declare null and cancel a contract dated May 11th, 1905, between Charles B. Duffy, party of the first part, and Whittaker & Co. and J. C. Van Riper, party of the second part, as a cloud upon the title of property of the railroad.
3. To declare null and cancel an issue of $3,000,000 stock and $2,000,000 bonds of the said railroad company, secured by a mortgage, as a cloud upon the title of the property of the railroad company.
4. "To declare null and cancel an issue of $2,000,000 stock and $2,000,000 bonds of said land company secured by a mortgage, as a cloud upon the title of the property of the Land Company.
5. To declare null and cancel an issue of $1,500,000 bonds of the Florida Company.
6. To declare null and foreclose the mortgage of the Florida Company to secure the $1,500,000 bonds of that company and to declare the purchasers at such foreclosure sale trustees for the benefit of the creditors and stockholders of the Railroad and Land Companies.
7. To require an accounting by Whittaker & Co. and Van Riper of the trust funds that came into their possession for the construction of the railroad and for the purchase of 192,310 acres of pine lands, and an accounting by the Morey Engineering & Construction Company of the amount received by it for the construction of the Railroad, cu.i to. charge all of said parties for the difference between the reasonable cost of the construction of said Railroad and the amount misspent by them in so doing, and an accounting by Whittaker and Van Riper of their management of the funds and business of the Railroad Company, the Land Company and the Florida Company.
8. To ascertain the true cost of the construction of the Railroad and.the true amount spent fob the'purchase of the pine lands, and to declare such amounts first liens upon the properties of each of said companies separately for the benefit of all persons who bóna fide'put-up money therefor, and to permit complainants to redeem said properties by paying off said liens within a specified time, or in the event of their failure so to do, to have said properties sold to pay said liens, the balance over and above said liens to go to the bona fide stockholders of the Railroad and Land Companies.
9. For general relief.”
As the contracts sought to be annulled cannot be epitomized without in some degree changing their import, I give them in full:
“This Agreement, made and entered into this tenth day of May, A. D. 1905, by and between Charles B. Duffy, Robert H. Hemphill and William R. Hauze, parties of the first part, and Whittaker & Company, J. C. Van Riper and David Sommers, parties of the second part, WITNESSETH :
That Whereas, the parties of the first part own or control all of the capital stock of the Apalachicola Northern Railroad Company (a corporation organized under the laws of the State of Florida), and
Whereas the parties of the first part are desirous of obtaining the sum of One Million' Dollars, the amount necessary to construct arid equip the said Railroad ready for operation, and
Whereas, the parties of the second part represent that they are ready, willing, and able to obtain said sum to be used .for such purpose, by using the stock, bonds and other securities of said Railroad Company in the manner set forth in another and separate agreement dated the Eleventh day of May, A. D. 1905.
Now Therefore, in consideration of the seryices of the parties of the second part in raising and obtaining, said sum of One Million Dollars for the construction and equipment of said railroad,
It is Hereby Agreed that Whittaker & Company shall have one-twelfth, J. C. Van Riper one-twelfth, David Sommers two-twelfths of the capital stock of said Railroad Company.
And It Is Further Agreed that all of said stock shall be issued to the different parties entitled to the same, the certificates stating the number of shares to each, and that all of said stock shall be pledged as collateral security for the payment of the indebtedness of the Railroad Company above mentioned.
And It Is Hereby Agreed that all of said capital stock shall be pooled and voted for a period of five years according to the terms of said agreement dated the eleventh day of May, A. D. 1905.
IN WITNESS WHEREOF, the parties hereto 'have hereunto set their hands and seals the day and year first above written.
(Five copies executed.)
(Signed) CHAS. B. DUFFY . (Seal)
R. H. HEMPHILL By CHAS. B. DUFFY ”
W. R. HAUZE WHITTAKER'& CO.' ”
J. C. VAN RIPER" ' ”
DAVID SOMMERS.’'’ ”
THIS AGREEMENT made and entered into this Tenth day of May, A. D. 1905, by and between Charles B. Duffy, Robert H. Hemphill and William R. Hauze, parties of the first part, and Whitaker & Company, J. C. Van Riper and David Sommers, parties of the second part, WITNESSETH:
THAT WHEREAS, -all of the .parties hereto are interested in the construction and equipment and operation of the Apalachicola Northern Railroad Company, and
WHEREAS, the parties of the first part have heretofore commenced the formation of a corporation known as the St. Joseph Land and Development Company, organized under the laws of the State of Florida with a capital stock of One Million Dollars, which said harbor and dock privileges, etc., as set forth in its charter, and
WHEREAS, the parties of the second part have furnished or caused to be furnished', the sum of Five Hundred Thousand ($5'00,000) to be used in the purchase of timber lands and the business of the Company, and have been instrumental in financing the construction and equipment of said Railroad,
NOW THEREFORE, IT IS HEREBY AGREED that when the incorporation is completed and charter obtained, certificates shall be issued conveying to each of the following named parties the number of shares set opposite each name.
Whitaker and Company — one seventh of the capital stock,
J. C. Van Riper, one seventh of the capital stock,
Charles B. Duffy, one seventh ” ” ” ”
R. H. Hemphill, one seventh ” ” ” ”
W. R. Hauze, one seventh ” ” ” ”
David Sommers, two sevenths ” ” ” ”
AND IT IS FURTHER AGREED that all of said capital stock shall be pledged as collateral security for the payment of the indebtedness mentioned in a certain agreement dated the Eleventh day of May, A. D. 1905, according to the terms of said agreement, and that all of said capital stock shall be held in a pool and voted for a period of five years from said date, according to the terms set forth in said agreement.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals the day and year first above written:
(Five copies executed.)
(Signed) CHAS. B. DUFFY (Seal)
R. H. HEMPHILL,
By CHAS. B. DUFFY,
W. R. HAUZE ”
WHITAKER & CO. ”
J. C. YAN RIPER ”
DAYID SOMMERS, ”
“THIS AGREEMENT, made and entered into this eleventh day of May, A. D. 1905, by and between CHARLES B. DUFFY, party of the first part, and WHITAKER & COMPANY and J. C. VAN RIPER, parties of the second part, WITNESSETH:
THAT WHEREAS the party of the first part owns or controls all of the capital stock of the Apalachicola Northern Railroad Company, amounting to Two Million Dollars (-$2,000,000), and all of the capital stock of the St. Joseph Land and Development Company, amounting to one million dollars ($1,000,000), and is desirous,of borrowing $1,500,000 for the purpose óf building and equipping said Apalachicola Northern Railroad Company, and of paying for certain lands for the St. Joseph Land and Development Company, and in order to obtain said $1,500,00.0 the party of the first part hereby agrees as follows : *
FIRST: To organize The Florida Company, or a holding company, under the laws of- the State of Florida, or under the laws of any State that may b,e desired by the party of the second part, which said Holding Company (when organized) shall become the owner of all of the stocks and all of the bonds of the'aforesaid Apalachicola Northern Railroad Company and the St. Joseph Land and Development Company.
SECOND: Said Holding Company shall pledge all of its stocks and bonds and .collateral security for the repayment of $1,500,000 payable on or before three years after date with interest at the rate of 5% per annum, payable semi-annually.
THIRD: The stock of the above named Apalachicola Northern Railroad Company and St. Joseph Land and Development Company shall be pooled for a period of five years, and controlled by four Trustees, two of which are selected by party of the first part, and two by parties of the second part.
FOURTH: There shall be seven (7) Directors in each of said companies, three of which are to be named by trustees of party of the first part, and three by trustees of parties of the second part, and the seventh director in each company shall be named by the Illinois State Trust Company, trustee in both pooling agreements.
“FIFTH: The holding company shall have seven directors to he selected by the same parties and in the same manner set forth in fourth paragraph hereof, and the stock issued by it shall be pooled and held in the same manner and for the same period of time as set forth in third paragraph hereof.
“SIXTH: The Railroad Company is entitled to a subside of five thousand (5000) acres of land per mile constructed under its charter, this subsidy land being granted by an Act of the Legislature of Florida. The title to this subsidy land will not become vested in- the Railroad Company until the Railroad is completed, but the mortgage or trust deed covering said Railroad Company to secure its issue of bonds shall be made in the blanket form to include all subsidy lands as the title to same becomes vested in said Railroad Company.
“SEVENTH: That the -contract for building and equipping said Railroad shall be let to the Morey Engineering & Construction Company at cost and a profit of •10% in addition thereto. The contract is to be made between the Railroad Company and the said Construction Company direct under such plans and specifications as are approved by Charles B. Duffy and J. C. Van Riper.
“EIGHTH: The collateral agreement and the collateral notes are to be of such form as is designated by the party of the second part except the notes are to be payable on or before three years after date with interest at 5% payable semi-annually.
“NINTH: The moneys derived from the notes are to be used in building and equipping said Railroad and the purchase of lands for the St. Joseph Land and Development Company as may be agreed on, except that out of such moneys can be paid the office expenses of the Railroad Company during the construction period, and the interest charges.
“TENTH: All of the land contracts now obtained or to be obtained, and any and all lands that may be given or donated for the building of the Railroad as well as all lands heretofore purchased at St. Joseph’s Bay are to be deeded to the said Land Company.
“ELEVENTH: The entire issue of said Railroad Company’s bonds may be sold . to the highest bidder at not less than 85% of their par value.
“TWELFTH: If considered advisable by the parties interested the tract of land, known as the ‘Powers tract’ purchased from the Pine Forest Land Company may be sold at not less than $10.00 per acre.
“THIRTEENTH: The subsidy lands may be sold at not less than $4.00 per acre.
“FOURTEENTH: During each year the pooling agreement is in force, the Presidents of each of the three Companies are to be named by the Trustees selected by the party of the first, part, and the Treasurers of each Company during said period are to be named by the Trustees selected by parties of the second part. All other officials are to be agreed upon.
“FIFTEENTH: It is agreed that all moneys derived from the sale of lands, timber, turpentine rights, the operation' of said Railroad-, or from any other source, by either of said companies, shall be paid to- the Illinois State Trust Company, trustee, and at an agreed time shall be used in the payment of the indebtedness mentioned herein.
“SIXTEENTH: It is agreed that the parties of the second part shall receive for their services in disposing of the notes above mentioned, the sum of $750,000 to be paid on or before three years from date, the collateral securities of the holding company shall be held in trust for the payment of the above mentioned $750,0,00 and the $1,500,-000 hereinbefore mentioned.
“SEVENTEENTH:. It is agreed that when the indebtedness herein mentioned is all paid, the securities held by the Illinois State Trust Company shall be returned to the Florida or holding Company.
“EIGHTEENTH: If after investigation the parties of the second part shall be satisfied that the corporations herein above mentioned are legally constituted, and all proceedings connected with said corporations have been properly .performed, and the title to the lands mentioned are good, and the report of their representatives as to the value of the Pine Forest Land Company tract is satisfactory, then the parties of the second part agree to negotiate said notes and obtain the sum of $1,500,000’ to be used as aforesaid, and agree to advance the sum of $250,-000 of this amount to be used in exercising the option of purchase on the Pine Forest Land Company tract on the seventeenth day of May, 1905, the balance of the money to be used as above set forth.
“IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals the day and year first above written.
(Signed), CHAS. B. DUFFY,' (Seal)
WHITAKER & CO, ”
J. C. VAN RIPER, ”
Without attempting to give a synopsis of the bill, it charges that in furtherance of a fraudulent scheme to freeze out the complainants and get possession of the valuable franchises, subsidies, options, lands and other properties of the Apalachicola Northern Railroad Company and of the St. Joseph Land and Development Company, Whitaker & Company and Van Riper violated the agreements of May 10th and 11th and caused the Apalachicola Northern Railroad Company, the St. Joseph Land and Development Company and the Florida Company to do certain acts which were illegal and ultra- vires, and that the.voting power of the stock was so exercised by a pooling company as to- wreck the Apalachicola Northern Railroad Company and St. Joseph Land and Development Company, and to defraud the complainants of their stock in these- companies and of their valuable properties. The defendants demurred to the bill, on the grounds that, '
1. There is no equity in the bill.
2. That the complainants had not offered to do equity.
3. That the complainants have no interest in the subject matter.
4. That the bill is multifarious.
5. That the complainants are barred by their laches.
6. That the complainants are estopped.
The bill prays:
1. That the two contracts of May 10th, 1905, and the contract of May 11th, 1905, be declared null and void and cancelled, and that the bonds and mortgages of the Apalachicola Northern Railroad Company and the St. Joseph Land and Development Company be cancelled as a cloud upon the lands and properties of said companies.
2. That the Illinois State Trust Company be ordered to deliver the bonds and mortgages and the stocks of the Railroad and Land Companies to said company and that the legally owned stocks be issued to the stockholders in proportion to their interest, except that Whitaker, Collins and Van Riper be divested of all their interest therein because by their fraudulent practices.
3. That the first and second mortgage bonds of the Florida Company be declared null and void.
4. That the Pine Forest Land Company be enjoined from foreclosing the Wilfley mortgage, but that, any amount that is due said company be ascertained in this proceeding and adjudged a lien upon the lands and properties of the St. Joseph Land and Development Company.
5. That all proceedings of the Morey Engineering and Construction Company against the Apalachicola Northern Railroad Company et al be enjoined; and for an accounting, and whatever is due the Morey Construction Company be adjudged a lien on the properties of the Railroad Company subject to a prior lien in favor of l)Ofia fide subscribers for the million five thousand dollars first mortgage bonds of the Florida Company to the extent that the money so derived was used in the contraction of the said railroad.
6. That E. A. Faulhaber be removed a s Receiver of the Apalachicola Northern Railroad Company and a proper person appointed as Receiver of the Railroad Company and the Land Company.
7. That an accounting be had to ascertain how much of the proceeds of the sale of the Florida Company’s million five hundred thousand dollar bonds was used in part payment for the lands, properties and debts of the St. Joseph Land and Development Company, and how much was used in the construction of the Apalachicola Northern Railroad, and that such amounts be declared a lien upon the properties and lands of the said companies according to the separate benefits received, and that such lien be declared a first lien and prior to any lien of the Morey Engineering and Construction Company, and that the lien against the lands of the St. Joseph Land and Development Company be declared a second lien, and subject to the lien of the Pine Forest Land Company.
8. That an accounting be had with the Morey Engineering and Construction Company, Whitaker and Company and J. C. Van Riper as to the reasonable price and cost of the construction of the Railroad, and the amount paid by Whitaker and Company and Van Riper to the Morey Engineering and Construction Company, and for judgment in favor of the Railroad Company against the Morey Company and against Whitaker and Company and Van Riper for the difference between the reasonable and proper cost of the construction of the railroad and the amount actually paid to Morey Company by Whittaker and Company and Van Riper; and for accounting between the Railroad Company and the Land Company and Whitaker and Company and Van Riper, for monies received and expended in the completion of the payment for lands of the Land Company, and in the construction of the railroad, and for judgment in favor of the Land Company and the Railroad Company against Whitaker and Company and Van Riper for all monies improperly or illegally paid by them out of the trust funds, that came into their hands.
9. That the Railroad and Land Companies be allowed a reasonable time to discharge the liens adjudged against each, and if same are not paid at the expiration of such time the property, lands and franchises of either or both be sold to satisfy the liens.
The complainants’ theory of the case is that the several wrongful and unlawful acts which they allege certain of the defendants caused the three corporations to do, were performed by the corporations acting as such, and that such corporate acts were ultra vires and void. The defendant’s theory is that the acts complained of were the acts of individuals and' that the doctrine of ultra vires does not apply.’ Thus, counsel for appellees say, “Suppose these complainants instead of going to St. Louis and being the owners of bonds and stock of Florida corporations, had gone to a bank in Tallahsasee for a loan, and the application for the loan had been granted and they had executed a collateral note and had deposited the stocks and bonds of the corporations as security for the payment of their note and on the due date of the note they had made default in payment and the bank had advertised the collateral for sale and had sold it, would the situation have been greatly different? We think not.”
I think the bill sustains the appellants’ theory. The several allegations that certain of these defendants “caused” the Apalachicola Northern Railroad Company, the St. Joseph Land and Development Company and the Florida Company to do certain things are equivalent to charging that the corporations as such, did them, and the language used' is for the purpose of emphasizing the complete domination by these defendants of the directors of the several corporations. The bill charges the commission of a number of illegal and ultra vires acts, but before proceeding to the discussion of any of them, I may observe that the bill sets out a most ingenious and stupendous scheme to wreck the Railroad Company and the Land Company and to defraud the complainants of their interest and property therein. Ingenious and involved as was the scheme, it is fortunate that the policy of the law is to circumvent such fraudulent practices, and to restore to the victims, what they would be robbed of but for the intervention of courts of equity.
In the treatment of this case I will first discuss the acts and doings of the corporations performed in compliance with the terms of the contracts, and next, what they did contrary to, without the authority thereof.
In discussing the contracts themselves it is first necessary to ascertain if they required the corporations to do any illegal or ultra vires acts. In doing this the contracts must be treated as one, in-so-far as tbeir contradictions and inconsistencies will permit. The parties of the first part in the contract of May 10 were Duffy, Hemphill and Hauze, on behalf of the Apalachicola Northern Railroad Company and the St. Joseph Land and Development Company. But in the contract of May 11, Duffy alone is the party of the first part. In all these contracts Whitaker & Company, Van Riper and Sommers are the parties of the second part. Notwithstanding both the contracts of May 10 refer to a contract dated May 11,-there are such discrepancies between them as to create a doubt whether the, parties who signed the first'contracts, contemplated or fully understood the stipulations of the second. However that may be, it is apparent from the contracts and the allegations of the bill, that Whitaker and Company and Yan Riper had a sinister purpose in the unique method they pursued in making these contracts.
The Railroad Company’s contract of May 10 recited that Duffy, Hemphill and Hauze, own or control all the capital stock of the Railroad Company. The Land Company’s contract of same date recites that the same parties have commenced the formation of a company known as the St. Joseph Land and Development Company, but in the contract of May 11, Duffy asserts that he owns and controls all the capital stock of the said St. Joseph Land and Development Company amounting to $1,000,000.00. Why Hemphill and Hauze are not parties to this contract and how this Company which was not organized on the 10th became a fully organized corporation on the 11th and Duffy became the owner or representative of its entire capital stock amounting to $1,000,000.00 is unexplained.
Ostensibly the purpose of the Railroad Company was to borrow a million dollars to construct and equip the Apalachicola Northern Railroad Company, and of the St. Joseph Land and Development Company to borrow five hundred thousand dollars to purchase timber lands on which it had options. The contracts provided for the organization of a holding company which when organized should become the owner of all the stocks and all the bonds of the Railroad Company and the Land Company, and the holding company was to pledge the same for the repayment of á million and a half dollars to be raised on its notes, and the money derived therefrom was to be used to build and equip the railroad, and to purchase lands for the St. Joseph Land and Development Company and for the office expenses of the Railroad Company during the construction of the road, and the interest charges. There is nothing in the contracts to indicate that these monies were to be kept separate, or that the million dollars raised on the security of stocks and bonds of the Railroad Company was to be used exclusively for building and equipping the railroad, and that the $500,000.00 raised on the securities of the Land Company were to be used exclusively to pay for lands for the Land Company, but the money was to be used as required for either of these purposes, and for office expenses during the construction period, and for interest charges. Thus the Railroad Company and the Land Company were each to guarantee the payment of the obligations of the other, and pledge their stock mutually for that purpose. In effect they were to become partners in the joint enterprise of building and equipping the Apalachicola Northern Railroad Company and buying lands for the St. Joseph Land and Development Company. It is true, this was to be done through the medium of a holding company, but however it was done, the effect was that they became guarantors for each other. It seems well settled that a railroad corporation has no power to become the guarantor of another corporation, unless authorized by statute to do so. There is no statute in Florida giving such authority, and this court governed by sound principles of public policy, should declare such guarantee ultra vires and void. In the case of Louisville, N. A. & C. Ry. Co. v. Louisville Trust Co., 174 U. S. 552, 19 Sup. Ct. Rep. 817, the court said: “A railroad corporation, unless authorized by its act of incorporation or by other statute's to do so, has no power to guarantee the bonds of another corporation; and such a guaranty, or any contract to give one, if not authorized by statute is beyond the scope of the power of the. corporation, and strictly ultra vires, unlawful, and void, and incapable of being made good by ratification or estoppel.”
In People v. North River Sugar Refining Co., 121 N. Y. 582, text 626, 24 N. E. Rep. 834, the court said: “Without either approval or disapproval of the views expressed upon that branch of the case by the courts below, we are enabled to decide that in this State there can be no partnerships of separate and independent .corporations, whether directly, or indirectly ’through the medium of a Trust.”
In Pearce v. Madison and Indianapolis Railroad Company and Peru and Indianapolis Railroad Company, 21 How. (U. S.) 441, two corporations organized to build two distinct lines of railroad, consolidated; it was held, they had no right to' do so or to place both under the same management, or to subject the capital of one to answer for the liabilities of the other, without legislative authority. Citing McGregor v. The Official Manager of the Deal and Dover Railway Co., (16 L. and Eq. 180), where it Avas held that a railroad company “was bound to apply all the funds of the company for the purposes provided for by the act, and for no other purpose whatever, and a contract to do something beyond these was a contract to do an illegal act.”
People infest their money - in the capital stock of a corpora