Cinco Enterprises, Inc. v. Benso

• Decision Date: 28 September 1999
• Docket Number: No. 89,435.,89,435.
• Citation: 995 P.2d 1080,1999 OK 80
• Parties: CINCO ENTERPRISES, INC., Plaintiff/Appellant, v. Pasquale BENSO, Defendant/Appellee, v. American Financial Network, Inc., Additional Defendant/Appellant.
• Court: Oklahoma Supreme Court

995 P.2d 1080

1999 OK 80

CINCO ENTERPRISES, INC., Plaintiff/Appellant, v. Pasquale BENSO, Defendant/Appellee, v. American Financial Network, Inc., Additional Defendant/Appellant.

No. 89,435.

Supreme Court of Oklahoma.

September 28, 1999.

Rehearing Denied December 13, 1999.

D. Benham Kirk, Jr., Michael C. Turpen, R. Scott Thompson, Oklahoma City, Oklahoma, for Appellee/Petitioner. Michael C. Bigheart, Enid, Oklahoma, for Appellants.

¶ 1 KAUGER, J

¶ 2 The issues¹ presented are: 1) whether the cause is governed by the law of the case in Cinco Enterprises, Inc. v. Benso, 1994 OK 135, 890 P.2d 866 [Cinco I] holding that federal law did not bar the defense of failure of consideration to the guaranty contract; and 2) whether sufficient evidence of consideration was presented to support an award for antecedent debts under the guaranty agreement. We hold that: 1) under the facts presented, no inequity results in the application of the settled law of Cinco I determining that federal law was not a bar to the defense of failure of consideration; and 2) extending antecedent debts contemporaneous with the execution of the guaranty agreement was sufficient consideration to support liability for the payment of two of the five notes.

FACTS

¶ 3 Between June of 1984 and April of 1985, Steve J. Benso executed five notes in favor of the Norman Bank of Commerce [Bank/NBC].² The notes were not covered by a guaranty agreement when executed. However, Steve Benso received a sixth loan for $11,100.00 on August 9, 1985, which was guaranteed by his father, the defendant/appellee, Pasquale Benso [Benso/guarantor]. The guaranty contract provides in pertinent part:

"The undersigned Guarantor(s) hereby requests the Lender to give and continue to give the above name [sic] Customer(s) credit, and in consideration for any credit given, the undersigned Guarantor hereby absolutely and unconditionally guarantees payment on demand . . . Guarantor agrees to pay . . . any and all existing and future indebtedness and liabilities of every kind, including all renewals, extensions, and modifications thereof from Customer(s) to Lender, however and whenever created or arising, or evidenced, or acquired . . ."

¶ 4 The Bank became insolvent in November of 1986, and the Federal Deposit Insurance Corporation [FDIC] was appointed as liquidating agent. In March of 1987, the plaintiff/appellant, Cinco Enterprises, Inc. [Cinco], purchased all six notes from the FDIC. Pursuant to a settlement offer, Benso paid Cinco $5,550.00 in satisfaction of the sixth note. When no agreement could be reached on the five remaining notes, Cinco filed suit against both Steve and Pasquale Benso on November 25, 1988. Steve Benso discharged his liability in bankruptcy, and Cinco proceeded against the guarantor.

¶ 5 When Benso's counsel did not appear for a pre-trial conference on August 24, 1989, Cinco obtained a default judgment. Although the default judgment was vacated and a minute order was filed indicating the motion to vacate had been sustained,³ Cinco filed an affidavit of judgment in December of 1991. In March of the following year, Cinco instituted garnishment proceedings. On March 26, 1992, Benso was notified that accounts in two banks had been garnished and that no checks would be honored. Benso could not reach his attorney of record. However, another attorney visited with him about the problem and contacted Cinco. Subsequently, Cinco issued an order of discharge and released the lien judgment.

¶ 6 Finding that Benso was obligated on all the notes, the trial court granted summary judgment on July 2, 1992. Noting arguments of the parties concerning the D'Oench Duhme doctrine [D'Oench, Duhme & Co., Inc. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942)] and its statutory counterpart, 12 U.S.C. § 1823(e),⁴ the Court of Civil Appeals affirmed.⁵ We reversed on certiorari in Cinco I holding that: 1) because no secret agreement existed which might diminish a bank asset, the D'Oench, Duhme doctrine did not pre-empt the state law defense of failure of consideration; 2) the consideration for the promise to answer for the five notes executed prior to the guaranty agreement was a material fact not proven on summary judgment; 3) an inquiry into the facts surrounding the guaranty — which did not recite consideration — was appropriate; and 4) a question of fact remained on the issue of accord and satisfaction.

¶ 7 While appeal was pending in Cinco I, Benso filed a separate action against Cinco. On remand, this cause was consolidated with Benso's assertions of wrongful garnishment, negligence, negligence per se, breach of contract, abuse of process and intentional infliction of mental distress against Cinco and an added defendant, American Financial Network, Inc. [AFN]. The jury found in favor of the guarantor on both the contractual and tort claims, and it awarded Benso $25,000 in actual damages and $141,059.25 in punitive damages. The trial court denied motions for judgment notwithstanding the verdict and for new trial and remitted actual damages to $12,500 and punitive damages to $50,000. Although the Court of Civil Appeals upheld the remitted monetary awards, it reversed on the issue of liability determining that Benso's state law defenses were barred by 12 U.S.C. § 1823(e). We granted certiorari on June 22, 1999.

I.

¶ 8 UNDER THE FACTS PRESENTED, THE CAUSE IS GOVERNED BY THE HOLDING IN CINCO ENTERPRISES, INC. V. BENSO, 1994 OK 135, 890 P.2d 866 [CINCO I] THAT THE GUARANTY AGREEMENT IS SUBJECT TO THE DEFENSE OF FAILURE OF CONSIDERATION.

¶ 9 Benso relies upon Cinco I for the proposition that the state law defense of failure of consideration is available to avoid liability on the five notes executed before the guaranty contract was signed. Cinco recognizes that Cinco I holds that there was no secret agreement barring the state law defense under the D'Oench, Duhme doctrine. Nevertheless, it asserts that failure of the Court to specifically address the doctrine's statutory counterpart, 18 U.S.C. § 1823(e),⁶ precludes application of the cause as the settled law of the case. We disagree.

¶ 10 The settled-law-of-the-case doctrine operates to bar relitigation in the same case issues decided in the prior appellate opinion.⁷ The prior opinion settles and determines all questions actually presented and all questions existing in the record and involved in the decision by implication.⁸ Although the record in a prior cause is not a part of the appeal in a subsequent action, we take judicial notice of our former opinions to determine the binding effect of the cause in a subsequent action.⁹ In Cinco I, the Court of Civil Appeals opinion referred to 12 U.S.C. § 1823(e);¹⁰ both Cinco and Benso argued the statute's legal effect in their respective appellate briefs before this Court;¹¹ and the opinion cites the statute.¹² Despite the presentation of arguments concerning the statute, this Court determined in Cinco I that no secret agreement existed barring the failure of consideration defense.

¶ 11 We recognize that, in the majority of cases, state law and other defenses to the D'Oench, Duhme doctrine and its statutory codification, 18 U.S.C. § 1823(e), have been rejected.¹³ Nevertheless, when an appellate court rules upon an issue, as we did in Cinco I, that ruling becomes the law of the case and controls all subsequent proceedings in the action which will not be reversed on appeal.¹⁴ Only when the prior decision is found to be erroneous, and the Court is convinced that failure to reverse will result in a gross or manifest injustice will the cause be overturned.¹⁵

¶ 12 The guaranty agreement does not identify the note or notes guaranteed. However, on August 14, 1985, James K. West [West], Executive Vice President of NBC, dictated a memorandum to Steve Benso's file. The memorandum refers only to the sixth note executed in an amount "slightly over $11,000.00." The memorandum states that "[Steve Benso's] father, Patsy Benso, has guaranteed the note."¹⁶ [Emphasis provided.] West's affidavit, filed as an exhibit to Benso's motion for summary judgment in Cinco I, indicates that neither the Bank nor Benso ever intended that the guaranty was to cover anything other than note number 6 for $11,100.00. The understanding expressed in the bank officer's affidavit is supported by testimony elicited from Steve Benso¹⁷ and from the guarantor at trial.¹⁸ When the guaranty was executed, neither the guarantor nor the bank's representative intended that the guaranty would cover anything other than the sixth note for $11,100.00.

¶ 13 Under the bank's standard procedures, it would appear that the guaranty was limited to a single obligation. In addition to providing an understanding of the situation under which the guaranty was executed, Mr. West's affidavit also outlines NBC'S practices in relation to guaranty agreements — specifically that: 1) guaranty agreements were filed only in files to which they pertained; and 2) separate guaranty agreements were required for each individual loan extended.¹⁹ Here, the guaranty agreement was filed only with the sixth note for $11,100.00. It did not appear in any of the files relating to the five previous loans nor did it specifically identify the antecedent debts.

¶ 14 When the cause was returned for trial under the mandate of Cinco I, Cinco was given the opportunity to present evidence of consideration given for extension of the antecedent debts. As noted in section II. infra, Cinco was successful in presenting evidence that two of the five notes were extended contemporaneously with the execution of the sixth note. The principal debt under all five notes totaled $53,301.57.²⁰ The notes extended — notes number 1 and 2 — constituted the majority of the debt, totaling $45,801.57.

¶ 15 Although we express no opinion the effect of a state law defense to 18 U.S.C. § 1823(e) may have in a future cause, we note that some jurisdictions have allowed such...