Davis v. First Nat. Bank of Albany

• Decision Date: 04 December 1917
• Citation: 168 P. 929,86 Or. 474
• Parties: DAVIS ET AL. v. FIRST NAT. BANK OF ALBANY ET AL.
• Court: Oregon Supreme Court

168 P. 929

86 Or. 474

DAVIS ET AL. v. FIRST NAT. BANK OF ALBANY ET AL.

Supreme Court of Oregon

December 4, 1917

Department 2.

Appeal from Circuit Court, Linn County; Wm. Galloway, Judge.

Suit by W. H. Davis and another against the First National Bank of Albany, Or., Alfred C. Schmitt, and others. From an adverse judgment, the defendants named appeal. Reversed as to the bank, and affirmed as to Schmitt.

See also, 161 P. 93.

The defendant bank commenced an action against W. H. Davis and Worth Huston, plaintiffs, to recover upon a promissory note of which the following is a copy:

"Albany Oregon, May 24, 1912. $11,261.50.

"On June 30, 1912, after date, without grace, for value received, I promise to pay to the order of the First National Bank of Albany, Oregon, eleven thousand two hundred sixty-one 5-100 dollars, with interest from date at the rate of 8 per cent. per annum, with reasonable attorney's fees, if suit or action is commenced, or other proceedings taken to collect this note or any part thereof. Principal and interest payable in U.S. gold coin of the present standard, at the First National Bank Albany, Oregon. The makers and indorsers of this note hereby waive diligence, demand, protest and notice.

"W H. Davis.

"Worth Huston."

The bank alleged that no part of the note had been paid except interest thereon to June 30, 1914, and that $800 was a reasonable attorney's fee in the action. Davis and Huston answered denying that $800 or any greater sum than $200 was a reasonable attorney's fee therein, and, as plaintiffs filed a complaint in equity in the nature of a cross-bill making the bank and Alfred C. Schmitt, Linnhaven Orchard Company, E. C. Roberts, Charles H. Wieder, Geo. H. Crowell, Owen Beam, F. J. Fletcher, and J. M. Hawkins, defendants, claiming that plaintiffs were entitled to relief arising out of facts requiring the interposition of a court of equity and material to their defense in the law action. The proceedings in the law action were stayed. The equity suit was tried, resulting in a decree in favor of plaintiffs and perpetually enjoining the action at law. The defendants First National Bank and Alfred C. Schmitt appeal.

By their cross-complaint plaintiffs aver in addition to the formal allegations:

"That on about the 31st day of May, 1910, the defendant the Linnhaven Orchard Company applied to the defendant the First National Bank of Albany, Oregon, for a loan of ten thousand five hundred ($10,500.00) dollars for its own use and benefit, whereupon the said bank expressed a willingness to make said loan to said Linnhaven Orchard Company, but desired that the plaintiffs herein should sign the note evidencing said loan.

"That thereupon at said time it was agreed by and between the plaintiffs herein and the defendants herein that the plaintiffs herein would sign said note to said bank evidencing said loan, but in fact as surety for the payment of said loan by the said Linnhaven Orchard Company, the said company then and there agreeing to pay said note in full, and as part of said agreement and transaction it was further agreed by and between the plaintiffs herein and the defendants Alfred C. Schmitt, E. C. Roberts, Chas. H. Wieder, Geo. H. Crowell, Owen Beam, F. J. Fletcher and J. M. Hawkins that they would join and severally obligate and bind themselves as cosureties for the said Linnhaven Orchard Company for the payment of said note evidencing said loan as aforesaid.

"That thereupon at said time and as part of said transaction and in pursuance to said agreement and as surety for the said Linnhaven Orchard Company as aforesaid the said plaintiff, W. H. Davis, signed a certain promissory note, for the sum of ten thousand five hundred ($10,500.00) dollars, dated the 1st day of June, 1910, and payable to the order of said First National Bank of Albany, Oregon, due on December 1, 1910, and bearing interest at the rate of 8 per cent. per annum, and the said plaintiff Worth Huston thereafter * * * as surety for said Linnhaven Orchard Company as aforesaid, indorsed said note on the back thereof and thereby guaranteed the payment of said note and waived protest, demand, and notice of nonpayment thereof.

"That at said time and as part of said transaction and in pursuance of said agreement so made as aforesaid, and with intent to bind themselves as cosureties with the plaintiffs herein for the payment of said note evidencing said loan, by said defendant bank, as aforesaid, to said Linnhaven Orchard Company, the defendant Hawkins signed a certain other promissory note, dated the 31st day of May, 1910, for the sum of ten thousand five hundred dollars ($10,500.00) payable to the order of the plaintiffs herein, bearing interest at the rate of 8 per cent. per annum from date, and the defendants E. C. Roberts, Chas. H. Wieder, Geo. H. Crowell, Owen Beam, F. J. Fletcher and Alfred C. Schmitt with like intent and in pursuance of said agreement of said suretyship as aforesaid, and for the purpose of binding themselves as cosureties with the said plaintiffs herein, and the said defendant J. M. Hawkins at the said time and as part of said transaction indorsed said note, and thereupon the said note was by the said defendant J. M. Hawkins and the said indorsers thereof duly delivered to the plaintiffs herein."

It was also averred in substance that the note evidencing the loan was delivered to the bank and the note signed by J. M. Hawkins and indorsed as aforesaid was delivered to the bank as collateral security for the payment of the loan and so held by the bank; that the original note was renewed from time to time by Davis and Huston until the note in question was executed in lieu of it and a portion of the interest thereon; that the Linnhaven Orchard Company made several interest payments to the bank, and that the latter knew that the loan was the debt of that company which is insolvent; that the plaintiffs have not sufficient means to pay the note without great hardship to them. They pray that it be adjudged that the note is a debt of the orchard company and that they and the defendants, other than the bank and the orchard company are cosureties for the payment of the same; that the bank have judgment against the orchard company for the amount of the note and interest; that the execution on the judgment be enforced against that company first, and, if the judgment is not fully satisfied, the balance be enforced against the sureties pro rata. This prayer was granted. A demurrer was interposed to the first complaint but not to the amended complaint. The defendants the First National Bank of Albany and Alfred Schmitt, answered putting in issue the merits of the cross-complaint. Other facts are stated in the opinion. Upon the trial the appealing defendants objected to the introduction of any evidence to support the cross-complaint upon the grounds that the same did not state facts sufficient to constitute a cause of suit, and that oral evidence was incompetent to vary the terms of the written note in question. The objection was overruled.

G. G. Schmitt, of Portland (Schmitt & Schmitt, of Portland, on the brief), for appellants. H. H. Hewitt and Gale S. Hill, both of Albany (Hewitt & Sox and Hill & Marks, all of Albany, on the brief), for respondents.

BEAN, J. (after stating the facts as above).

Counsel for the answering defendants maintain that the complaint in this suit is insufficient to entitle the plaintiffs to equitable relief or to constitute a defense or partial defense to the note sued on. Section 390, L. O. L., provides in part:

"In an action at law, where the defendant is entitled to relief, arising out of facts requiring the interposition of a court of equity, and material to his defense, he may, upon filing his answer therein, also as plaintiff, file a complaint in equity in the nature of a cross-bill, which shall stay the proceedings at law, and the case thereafter shall proceed as in a suit in equity, in which said proceedings may be perpetually enjoined by final decree, or allowed to proceed in accordance with such final decree."

It will be noticed that in order to stay the law action the defendants must be entitled not only to relief arising out of facts requiring the interposition of a court of equity, but such facts must be material to their defense. The cross-complaint in equity is allowed to be filed upon filing an answer in the action. This provision plainly presupposes that the answer so filed will raise an issue which it will require equitable relief to sustain. The answer in the law action raised an issue only as to the reasonableness of the attorney's fee claimed. In other words, if the defendants in the law action did not appear to have a defense thereto, then it would be impossible for them to be entitled to equitable relief material to their defense.

Under the above section of the Code, while the defendants are not restricted merely to defensive matter, in such a complaint in equity, the relief sought must operate as an entire or partial defense to the action at law. The mere fact that a defendant can state a cause of suit against a plaintiff or other parties entitling him to equitable relief will not of itself warrant the filing of such complaint. White v Savage, 48 Or. 604, 87 P. 1040; Tooze v. Heighton, 79 Or. 545, 156 P. 245; Haaland v. Miller, 67 Or. 346, 350, 136 P. 9; Carroll v. Bowne, 55 Or. 316, 106 P. 331. Under the latter state of facts the action at law should be allowed to proceed and the suit should be maintained independently thereof. Stated in a general way, a defendant may plead in his cross-complaint facts which show that plaintiff ought not to recover. If the thing pleaded be an equitable right, it may be availed of by filing a cross-complaint...