Ragsdale v. Kennedy

209 S.E.2d 494 (1974) 286 N.C. 130

Hugh A. RAGSDALE, Sr.
v.
Sherman KENNEDY et al.

No. 76.

Supreme Court of North Carolina.

November 26, 1974.

Warlick, Milsted & Dotson by Alex Warlick, Jr., Jacksonville, for plaintiff appellee.

Zennie L. Riggs, Jacksonville, for defendant appellants.

HUSKINS, Justice:

The sole question for decision is whether the Court of Appeals erred in affirming judgment on the pleadings in favor of the plaintiff.

Judgment on the pleadings was granted in this case on the ground that defendants' answer failed to state a valid defense. In reviewing that action by the trial court, the Court of Appeals held, and properly so, that defendants' "first defense," "second defense" and "fourth defense" raise no material issues of fact. We therefore put them aside.

The Court of Appeals treated defendants' "third defense" as a counterclaim pursuant to Rule 8(c) of the Rules of Civil Procedure which provides, inter alia: "When a party has mistakenly designated a defense as a counterclaim or a counterclaim as a defense, the court on terms, if justice so requires, shall treat the pleading as if there had been a proper designation." We concur in the view that defendants' allegations of fraud are in the nature of a counterclaim even though designated a defense. See Hutchins v. Davis, 230 N.C. 67, 52 S.E.2d 210 (1949). So treated, we must now determine whether defendants have stated a claim of fraud sufficient to overcome plaintiff's motion for judgment on the pleadings.

Motion for judgment on the pleadings is authorized by Rule 12(c) of the North Carolina Rules of Civil Procedure. G.S. § 1A-1, Rule 12(c) (1969). The motion operates substantially the same as under the code system before adoption of the new rules of civil procedure. See Powell v. Powell, 271 N.C. 420, 156 S.E.2d 691 (1967); Reidsville v. Burton, 269 N.C. 206, 152 S.E.2d 147 (1967); Edwards v. Edwards, 261 N.C. 445, 135 S.E.2d 18 (1964); 6 Strong, North Carolina Index 2d, Pleadings, § 38 (1968).

North Carolina's Rule 12(c) is identical to its federal counterpart. The rule's function is to dispose of baseless claims or defenses when the formal pleadings reveal their lack of merit. A motion for judgment on the pleadings is the proper procedure when all the material allegations of fact are admitted in the pleadings and only questions of law remain. When the pleadings do not resolve all the factual issues, judgment on the pleadings is generally inappropriate. 5 Wright and Miller, Federal Practice and Procedure, § 1367 (1969).

Judgment on the pleadings is a summary procedure and the judgment is final. See James, Civil Procedure § 6.17 (1965). Therefore, each motion under Rule 12(c) must be carefully scrutinized lest the nonmoving party be precluded from a full and fair hearing on the merits. The movant is held to a strict standard and must show that no material issue of facts exists and that he is clearly entitled to judgment. Southern Ohio Bank v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 479 F.2d 478 (6th Cir. 1973).

The trial court is required to view the facts and permissible inferences in the light most favorable to the nonmoving party. All well pleaded factual allegations in the nonmoving party's pleadings are taken as true and all contravening assertions in the movant's pleadings are taken as false. Beal v. Missouri Pac. R. R. Corp., 312 U.S. 45, 61 S.Ct. 418, 85 L.Ed. 577 (1941); Austad v. United States, 386 F.2d 147 (9th Cir. 1967); see 2A Moore's Federal Practice, § 12.15 (1974); 5 Wright and Miller, Federal Practice and Procedure, § 1368 (1969). All allegations in the nonmovant's pleadings, except conclusions of law, legally impossible facts, and matters not admissible in evidence at the trial, are deemed admitted by the movant for purposes of the motion. Kohen v. H. S. Crocker Company, 260 F.2d 790 (5th Cir. 1958); Duhame v. United States, 119 F.Supp. 192 (Ct.Cl.1954); Hargis Canneries, Inc. v. United States, 60 F.Supp. 729 (W.D.Ark.1945). We consider the case before us in light of these principles.

The "third defense," viewed in the light most favorable to defendants, alleges that on 22 November 1972, for a consideration of $60,000.00, defendants purchased from plaintiff 12,500 shares of common stock of Onslow Livestock Corporation plus corporation notes with a face value of $29,000.00. Defendants paid plaintiff $40,000.00 in cash and executed the $20,000.00 note plaintiff now sues to collect. At the time of the transaction plaintiff was president and general manager of the Onslow Livestock Corporation and, from 6 June 1972 to 22 November 1972, ran the corporation without holding any meetings of the board of directors and without interference from defendants. Defendant Brown had been a stockholder since incorporation and was a member of the board of directors when the transaction took place. The other defendants became stockholders and board members on 6 June 1972.

The "third defense" further alleges that in the negotiations and discussions preceding the transaction plaintiff falsely represented that the business was a "gold mine" and a "going concern," and that he concealed material financial facts concerning the corporation's liquidity and indebtedness. More specifically, the pleading alleges that plaintiff failed to disclose that during the period from 6 June 1972 to 22 November 1972 the corporation's cash funds decreased by $20,000.00; that plaintiff had borrowed for the corporation an additional $15,000.00; that the corporation's open account with Ralston-Purina Company increased by $10,000.00; that the corporation incurred a liability of $3,910.00 on a bank overdraft; that a corporate demand note had become delinquent because the interest had not been paid when due; and that the corporate working capital was so depleted and corporate income so inadequate that the corporation could not pay its normal operating expenses. The financial deterioration of the corporation resulted in a forced sale of corporate assets soon after the transaction giving rise to the $20,000.00 note sued upon. As a result, defendants were damaged "by at least the amount that the plaintiff is suing for," i. e., $20,000.00 plus interest and attorney's fees.

We hold that the foregoing allegations in defendants' "third defense" raise a material issue of fact and render judgment on the pleadings inappropriate. While fraud has no all-embracing definition and is better left undefined lest crafty men find a way of committing fraud which avoids the definition, the following essential elements of actionable fraud are well established: (1) False representation or concealment of a material fact, (2) reasonably calculated to deceive, (3) made with intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the injured party. Johnson v. Owens, 263 N.C. 754, 140 S.E.2d 311 (1965); Early v. Eley, 243 N.C. 695, 91 S.E.2d 919 (1956); Vail v. Vail, 233 N.C. 109, 63 S.E.2d 202 (1951); Insurance Co. v. Guilford County, 226 N.C. 441, 38 S.E.2d 519 (1946); Laundry Machinery Co. v. Skinner, 225 N.C. 285, 34 S.E.2d 190 (1945); Ward v. Heath, 222 N.C. 470, 24 S.E.2d 5 (1943); Pritchard v. Dailey, 168 N.C. 330, 84 S.E. 392 (1915).

A subsisting or ascertainable fact, as distinguished from a matter of opinion or representation relating to future prospects, must be misrepresented. Berwer v. Insurance Co., 214 N.C. 554, 200 S.E. 1 (1938); Cash Register Co. v. Townsend, 137 N.C. 652, 50 S.E. 306 (1905). And generally, the misrepresentation must be definite and specific, New Bern v. White, 251 N.C. 65, 110 S.E.2d 446 (1959), but the specificity required depends upon the tendency of the statements to deceive under the circumstances. "A vague statement that a property or business is ``profitable' or a ``money-maker' may sometimes be treated as one of fact, as where the speaker had a peculiar knowledge of the facts and knew that the property or business had lost money for several years. But where the representee knows that the representer does not have knowledge of the facts, so that a statement that a business is ``profitable' is obviously a guess or an opinion, it does not constitute actionable fraud." Annotation, False Representations as to Income, Profits, or Productivity of Property as Fraud, 27 A.L.R.2d 14 (1953). Here, according to defendants' allegations, plaintiff as president of the corporation had peculiar knowledge of the facts and knew that the business had lost money in recent months. In our judgment the representations alleged in defendants' "third defense" present a jury question as to whether plaintiff's positive representations that the corporation was a "gold mine" and a "going concern" were intended and received as mere expressions of opinion or as statements of a material fact. Machine Co. v. Feezer, 152 N.C. 516, 67 S.E. 1004 (1910); 37 C.J.S. Fraud § 124 (1943).

It is a permissible inference that plaintiff knew of the worsening condition of the corporation while defendants did not know. When plaintiff undertook to describe the business as a "gold mine" and a "going concern" he incurred a concomitant duty to make a full disclosure of any extenuating financial circumstances which counteracted his positive assertions concerning the condition of the corporation. The rule is that even though a vendor may have no duty to speak under the circumstances, nevertheless if he does assume to speak he must make a full and fair disclosure as to the matters he discusses. Low v. Wheeler, 207 Cal.App.2d 477, 24 Cal.Rptr. 538 (1962); Franchey v. Hannes, 152 Conn. 372, 207 A.2d 268 (1965); Vokes v. Arthur Murray, Inc., 212 So.2d 906, 28 A.L.R.3d 1405 (Fla. App.1968); Shepherd v. Woodson, 328 S.W.2d 1 (Mo.1959); State ex rel. Nebraska State Bar Association v. Richards, 165 Neb. 80, 84 N.W.2d 136 (1957); Krause v. Eugene Dodge, Inc., 265 Or. 486, 509 P.2d 1199 (1973); 37 Am.Jur.2d, Fraud and Deceit, § 146 (1968); cf. Wicker v. Worthy, 51 N.C. 500 (1859).

Moreover, it is settled law in this jurisdiction that when the circumstances make it the duty of the seller to apprise the buyer of defects in the subject matter of the sale known to the seller but not to the buyer, suppression of the defects constitutes fraud. Setzer v. Insurance Co., 257 N.C. 396, 126 S.E.2d 135 (1962); Brooks v. Construction Co., 253 N.C. 214, 116 S.E.2d 454 (1960); Manufacturing Co. v. Taylor, 230 N.C. 680, 55 S.E.2d 311 (1949); Isler v. Brown, 196 N.C. 685, 146 S.E. 803 (1929).

For the reasons stated, we hold that defendants' "third defense" states a counterclaim under Rules 8(a) and 9(b) for alleged actionable fraud which is sufficient to repel plaintiff's motion for judgment on the pleadings. Accordingly, the decision of the Court of Appeals is reversed and the cause is remanded to that Court for further remand to the Superior Court of Onslow County for proceedings consistent with this opinion.

Reversed and remanded.

BOBBITT, C. J., not sitting.