Bankers Mutual Capital Corp. v. United States Fidelity and Guaranty Co.

Bankers Mutual Capital Corporation (Bankers) (plaintiff) purchased accounts receivable owed to Mike Lang Electrical Contractors, Inc. (MLEC), a subcontractor, by Jessla Construction Corporation (Jessla) (defendant), a general contractor. Bankers then entered into 11 joint-check agreements with Jessla, through Jessla’s president and agent, Felix Lima (defendant), under which Jessla would transfer MLEC’s portion of future pay requisitions to Bankers. A joint-check agreement is a type of construction agreement intended to secure payments owed by a contractor or subcontractor to a third party. However, Lima and Jessla misrepresented to Bankers how many other creditors had the right to collect from the pay requisitions. The number of competing creditors impacted Bankers’ ability to collect what it was owed. Bankers filed a fraud-in-the-inducement claim against Lima and Jessla, alleging that Lima, as Jessla’s agent, knowingly and willfully misrepresented the number of creditors to Bankers, that the misrepresentation was made before Bankers entered into the joint-check agreements, that Bankers would not have entered into the joint-check agreements but for Lima’s misrepresentations, and that Bankers relied on Lima’s misrepresentations to its detriment. Lima and Jessla moved to dismiss, arguing that Bankers failed to plead a cause of action for fraud in the inducement with sufficient particularity. After a hearing, and without making any factual findings, the trial court dismissed Bankers’ complaint. Bankers appealed.