Opinion
23642.
ARGUED SEPTEMBER 12, 1966.
DECIDED NOVEMBER 10, 1966. REHEARING DENIED NOVEMBER 23, 1966.
Temporary injunction. Chatham Superior Court. Before Judge Harrison.
Kravitch, Garfunkel Hendrix, Sylvan A. Garfunkel, for appellant.
John R. Calhoun, for appellees.
The trial judge did not err in denying the plaintiff's prayers for a temporary injunction.
ARGUED SEPTEMBER 12, 1966 — DECIDED NOVEMBER 10, 1966 — REHEARING DENIED NOVEMBER 23, 1966.
Ralph L. Crawford, authorized by John W. Lake, now deceased, to exercise a power of sale contained in a deed to secure debt from John M. Budreau to Lake, exercising the power, advertised the property therein described for sale on October 5, 1965. Whereupon, John M. Budreau, maker of the deed, instituted an equitable action praying that Crawford be enjoined from consummating the sale and distributing the funds arising from such sale.
Budreau was the owner of certain unimproved real estate located in Chatham County, Georgia. He, along with other individuals including John W. Lake formed a Florida corporation known as the Florida-Georgia Land Holding, Inc., to develop and improve the property as a subdivision for residential purposes. At all times Budreau was an officer and director in the corporation. In the forming of the corporation, Budreau deeded to the corporation the real estate located in Chatham County. The corporation, in return, executed to Budreau a deed to secure debt in the amount of $150,000 and issued to him 25% of the stock in the corporation. Subsequently, when the corporation needed to borrow money to develop the property, Budreau subordinated his debt deed to the lender thereof who was John W. Lake, also a member of the corporation. John W. Lake loaned to the corporation the sum of $170,000 and the corporation executed to him for that sum certain debt deeds for the amount of money that Lake loaned the corporation and Budreau subordinated his deed to secure debt to Lake for this money. Of the $170,000 Budreau himself received in excess of $40,000.
The corporation failed, and the debt deeds executed to John W. Lake were not paid and the same went into default years ago. Lake appointed Ralph L. Crawford as trustee to foreclose the debt deeds executed by the Florida-Georgia Land Holding, Inc., and the same was duly advertised and the present suit was filed to temporarily and permanently enjoin the foreclosure, an ex parte order was issued and a hearing was held thereon to determine if a temporary injunction should issue.
The petition charges a conspiracy to defraud Budreau out of property which he owned in Chatham County, in that John W. Lake approached him and agreed with him that a holding corporation would be organized, known as Florida-Georgia Land Holding, Inc., that the plaintiff would deed to the corporation his interest in the land so that the land could be developed by the corporation; that Lake further represented to the plaintiff that he was a man of immense wealth and that the land could be developed with beautiful lots on a lake which was to be excavated and constructed, bounded by a beautiful golf course and so developed that the property would bring easily more than two million dollars over and above what the cost of development would be. Relying upon the representations of Lake and his associates, not parties to the case, who were represented to be independent business men but later turned out to be "dupes, cronies and phonies," without any wealth or experience whatsoever and part of the Lake conspiracy, Budreau conveyed to the corporation his land by a deed and received from the corporation 25% stock in the corporation and a deed to secure debt representing the sum of $150,000.
The petition further alleges John W. Lake represented to the plaintiff that it was necessary for him to subordinate his deed to secure debt in order that Lake and his associates could obtain essential financing. Not being familiar with transactions of such an involved nature and being carried away by the deception of Lake and his associates, who overwhelmed his judgment by their profession of great wealth and familiarity in the financial world, and having no means of checking the truthfulness of their statements, Budreau subordinated the debt deed to them so that they could proceed to make loans on the property which it afterwards developed were made by Lake himself and therefore Lake was never a bona fide lender for value.
The petition also alleges that the exercise of the powers contained in the deeds to secure the loan of Lake to the corporation was premature and for that reason should be enjoined because by the terms of a contract entered into between the plaintiff Budreau and Lake on August 10, 1963, Lake agreed not to exercise the powers contained in the deeds until one year after an audit of the corporation's affairs had been made and that at the time the defendant trustee advertised the property described in the deed no audit had been made.
The contract reads: "In consideration of $10.00 and other valuable considerations herewith exchanged the following agreement is made this date between John W. Lake ... and John M. Budreau ... and is binding on both parties, their heirs and assignees. John M. Budreau agrees to immediately withdraw and discontinue action now pending in Savannah, Georgia, against John W. Lake reference certain mortgages on the Budreau acreage of about 1,000 acres now owned by Fla. Ga. Landholding Inc. these mortgages are now past due with accrued interest and back taxes. Budreau agrees to acknowledge the validity of said mortgages subject to an audit. John W. Lake agrees to extend these mortgages from one year from the present due date..."
When the case was heard on application for temporary injunction, Budreau admitted the Florida Georgia Land Holding, Inc., of which he was an officer, received and retained the entire amount of the $170,000 secured by its note and security deeds to Lake, and that of this amount the plaintiff actually accepted approximately $45,000. He made no offer to restore the money to Lake. The trial judge denied the temporary injunction and the plaintiff appeals to this court.
1. The petition contained prayers that the defendant trustee be restrained from selling the lands originally owned by the plaintiff under the power contained in the security deeds held by the trustee, settlor or principal, John W. Lake, and the further prayer that the defendant be restrained from distributing the money derived from the sale.
The affidavit made by counsel for the purpose of showing what transpired subsequently to the dissolution of the original order restraining the sale shows that, subsequent to the injunction hearing, the sale was conducted as though no suit for injunction had been filed; that the lands were purchased by Mrs. Lillian Lake, as executrix of John W. Lake's estate. The affidavit, however, states that there was no distribution of the money derived from the sale because none was paid, and concludes that it was not necessary since the lands were bought by Mrs. Lake in her capacity as executrix of John W. Lake who was the holder of the security deeds containing the power under which the sale was conducted.
In these circumstances it does not appear that the sale is an accomplished fact, because, where there is a contest as to whether the plaintiff or the executrix of John W. Lake's estate is entitled to the proceeds of the sale, title could not pass from the trustee to the executrix who bid the property in until the latter paid the purchase money. So, we do not consider the case moot and must decide whether the plaintiff's pleadings and proof demanded a temporary injunction in his favor to restrain the sale of the property and distribution of the funds arising from the sale.
2. The first ground upon which the plaintiff asserts he is entitled to the temporary injunction was that John W. Lake and certain associates, not parties to the case, induced him, through false representations as to their wealth, experience and the potential profits certain to be realized in developing and selling the lands owned by him in Chatham County, to enter with them upon the venture and to accomplish this common purpose to sell his lands to the Florida-Georgia Land Holding, Inc., for stock in the corporation and to agree in writing that the deed to secure the corporation's debt for the purchase money be subordinated to the lien of deeds to Lake to secure a loan from him for $170,000. The evidence submitted upon the hearing for temporary injunction did not support the contention. The proof submitted simply showed the organization of the corporation, the election of the plaintiff, first as the president and then to another office, and various proposals of the stockholders as to the most judicious manner of obtaining and spending money in the corporation's interest.
3. The second ground upon which the plaintiff contends the trial judge should have granted the temporary injunction was that the corporation's deed to Lake was executed by persons on behalf of the corporation who were not authorized by the corporation's bylaws to perform that function and that they acted without authorization of the corporation's stockholders. The deed was signed for the corporation by the secretary and attested by the treasurer. The bylaws provide: "The president shall sign and the secretary shall attest all notes, agreements and other instruments in writing made and entered into for or on behalf of the corporation..." Not all of the minutes of the stockholders were introduced into evidence and the question is not clear as to just what action was taken in reference to incurring the loan, although in various meetings of the body the loan was discussed in connection with the disposition of the money received from Lake.
"Generally, where there has been a waste or misapplication of the corporate funds by officers or directors of the company or others, a suit to compel them to account for such waste or misapplication should be brought in the name of the corporation, unless it appears that the directors refuse to prosecute the suit, or that the directors are the parties who made themselves answerable for the loss. Where suit is brought by stockholders, the corporation should be before the court and should be made either a party plaintiff or defendant; and the suit must be brought for the benefit of the corporation." Greenwood v. Greenblatt, 173 Ga. 551 (3a) ( 161 S.E. 135). It is not necessary, for reasons presently stated, to decide whether the rule should be applied in the present case. This is true because the record indisputably shows the corporation in due course received the $170,000 from Lake and used the same, a substantial part of which, some $45,000, was paid to the plaintiff who has ever since retained about $25,000 and received the benefit of having $20,000 more paid on debts for which he alone was liable. The plaintiff was an officer of the corporation when the money was borrowed from Lake, and actually participated in directing the disbursement of the $170,000 the corporation received from Lake. He made no offer of restitution.
There is no more salutary principle of equity than, "He who would have equity must do equity, and give effect to all equitable rights in the other party respecting the subject matter of the suit." Code § 37-104. For the plaintiff to retain Lake's money and at the same time protest the corporation's deed to secure the loan is invalid does not square with the requirement that he "do equity." See Smith v. Merck, 206 Ga. 361, 370 ( 57 S.E.2d 326); Crockett v. Oliver, 218 Ga. 620, 621 (1) ( 129 S.E.2d 806); Smith v. Brown, 220 Ga. 845 ( 142 S.E.2d 262).
In addition to this there was attached to the petition as an exhibit the contract between the plaintiff and Lake, long after the loan was made, which provided: "Budreau agrees to acknowledge the validity of said mortgages subject to an audit. John W. Lake agrees to extend these mortgages from one year from the present due date." Obviously the audit could serve no purpose except to establish the amount due on the notes given for the loan and the contract definitely committed the plaintiff to the validity of the Lake deeds.
4. Relying upon a clause of the sale agreement mentioned in the previous division of the opinion, the plaintiff insists Lake agreed to defer foreclosure of the deed given to secure the corporation's debt to him until an audit was made. There is no such provision in the contract. It does no more than consent that the due date of the debt be deferred for one year "from the present due date" which period had long expired before the foreclosure advertisement was published. The contract does provide simply: "Budreau agrees to acknowledge the validity of said mortgages subject to an audit... Lake agrees for examination of all records to determine the exact amount of mortgages amounts due to him for moneys advanced." No obligation was assumed by either party to procure the audit, but under the quoted provision the privilege was simply extended to both the plaintiff and Lake to have an audit made. By the terms of the contract, neither was obligated or bound to avail himself of this privilege.
5. The plaintiff correctly contended in the hearing before the chancellor the defendant trustee was advertising, along with the other lands described in the security deed, a part of his land that had been reconveyed to him in a quitclaim deed from Lake. The plaintiff now insists the judge erred in not granting a temporary injunction to, at least, restrain the sale of this land. However, it appears from the record that when the question arose the judge, sitting as chancellor in equity, exacted of the defendant trustee the promise that he would not sell such property and, upon the faith of this promise, denied the temporary injunction. The applicable pronouncement of this court is contained in Behn Foster v. Young Co., 21 Ga. 207 (5): "It is good ground to refuse an injunction, if the party against whom it is moved propose in the presence of the chancellor to do all that a court, on the most favorable construction of complaint's case, ought to decree for him, provided he complies with his proposition." The record shows the property was not sold. This case is within the holding above quoted.
Judgment affirmed. All the Justices concur.