Duarte v. Bank of Hawaii

• Decision Date: 07 March 1961
• Docket Number: No. 16573.,16573.
• Parties: John G. DUARTE and T. S. Shinn, Appellants, v. BANK OF HAWAII, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

287 F.2d 51 (1961)

John G. DUARTE and T. S. Shinn, Appellants, v. BANK OF HAWAII, Appellee.

No. 16573.

United States Court of Appeals Ninth Circuit.

February 13, 1961.

Rehearing Denied March 7, 1961.

R. G. Dodge, Honolulu, Hawaii, Enos Vincent, Wailuku, Maui, for Shinn.

O. P. Soares, Honolulu, Hawaii, for Duarte.

Heen, Kai & Dodge, Honolulu, Hawaii, of counsel for appellants.

Richard E. Stifel, Honolulu, Hawaii, (Anderson, Wrenn & Jenks, Honolulu, Hawaii, of counsel), for appellee.

Before STEPHENS, HAMLEY and MERRILL, Circuit Judges.

HAMLEY, Circuit Judge.

This is an action on a promissory note instituted by the Bank of Hawaii, promissee and holder, in the Circuit Court of the Second Judicial Circuit, Territory of Hawaii. Named as defendants were Y. H. Char and Wm. H. Crozier, Jr., makers of the note, and the two accommodation endorsers, John G. Duarte and T. S. Shinn. The action was thereafter dismissed as to Char and Crozier.

The remaining parties filed cross motions for summary judgment. Defendants' motions were denied and plaintiff's motion was granted. Judgment was accordingly entered for the bank against both defendants, the monetary award being $41,063.47.

Duarte and Shinn appealed to the Supreme Court of Hawaii, which affirmed. Bank of Hawaii v. Char, 43 Haw. 17, reaffirmed on rehearing, 43 Haw. 223. Appeal was then taken to this court. We have jurisdiction under 28 U.S.C.A. § 1293 and section 13 of Public Law 863, 73 Stat. 10, enacted March 18, 1959. See 28 U.S.C.A. § 91 and notes under §§ 1252, 1293.

In their opening brief in this court appellants argue that they were released from liability as endorsers because the proceeds received from a contract assigned to the bank as security for the note were diverted to other purposes. They argue further that at the very least they were entitled to have their liability as endorsers reduced by the amount of such proceeds which the bank applied toward the payment of other notes not then due. Appellants contend that there is no genuine issue as to any material fact which prevented the trial court from so ruling on the motions for summary judgment.

After the filing of appellants' opening brief, appellee bank moved for dismissal of the appeal. In support of this motion it was pointed out that the territorial supreme court declined to consider the contentions which appellants seek to raise here, having held that these contentions were not presented to the trial court. Appellee argued that the territorial supreme court was correct in holding that these contentions had not been made in the trial court and that this being the case it was also correct in declining to consider those contentions on appeal. Since for this assertedly good reason these contentions were not considered by the territorial supreme court, appellee argued that they should not be considered by this court.

The motion for dismissal of this appeal was denied by another panel of this court. Appellee then filed its answering brief in which the same argument is made as was advanced in support of the motion to dismiss the appeal. In addition appellee argues that on the undisputed facts of record it must be held that there was no diversion of security which effectuated a release of appellants from liability as endorsers on the notes.

We turn to the question of whether the territorial supreme court erred in declining to consider on the merits appellants' contentions relative to release because of diversion of security.¹ This is, indeed, the only question which we need decide. If the territorial supreme court did not err in declining to consider these questions we must affirm without reaching those questions on the merits. On the other hand, if that court should have dealt with those questions our proper course would be to remand for further proceedings to the successor of the territorial supreme or circuit court, again without reaching the merits of the contentions appellants present here.²

As previously stated, the refusal of the territorial supreme court to consider appellants' contentions relating to diversion of security was premised on the view that those contentions were not advanced in the trial court. Appellants urge here that this premise is without foundation and that these contentions were raised in the trial court. Consideration of this point requires that we review the trial court proceedings.

Appellants Duarte and Shinn filed separate but practically identical answers to the complaint which appellee bank filed in instituting this action. In the first paragraph of each answer it was recited, in addition to a general denial, that the respective defendant "gives notice that he intends to rely, inter alia, upon the defenses of release, payment, and/or bar by former adjudication." In the second paragraph of each answer it was alleged "as and for a separate defense" that the adjudication in another proceeding known as "Equity No. 333" had effectuated a complete bar to the instant action.

The bank thereafter filed in the cause a formal discontinuance of the action with respect to defendants Char and Crozier, who were the makers of the note upon which suit was brought. The remaining parties then entered into a stipulation the effect of which was to retract appellants' general denials and affirmative defenses of payment.

Shinn and Duarte then filed identical motions for summary judgment. The ground on which such motions were made was different than that stated in any of the defenses theretofore pleaded. It was that by dismissing this action as to the makers at a time when the statute of limitations had run, the bank discharged the makers from liability, and that by reason thereof appellants as endorsers were also discharged. This ground was stated and developed in a memorandum filed by appellants.

Appellee filed a responsive memorandum joining issue on this one point. At the same time appellee filed a counter motion for summary judgment, unsupported by an affidavit or memorandum. Appellants filed no affidavits or memoranda in opposition to appellee's motion for summary judgment.

The three motions were then set for oral argument at the same time. In the opinion thereafter filed by the trial court it is recited that both appellants and appellees presented memoranda and verbal arguments in support of their respective motions. As just noted, however, the memoranda dealt only with the defense urged in support of appellants' motions. The opinion of the trial court dealt with that defense and also with the defense raised in appellants' answers based on an alleged estoppel by the former adjudication.

It thus appears that at the time of the oral argument on the motions for summary judgment, all concerned proceeded as if the only defenses then relied upon by appellants were those of discharge by dismissal as to the makers and estoppel by former judgment.

But appellants argue that notwithstanding the lack of affidavits dealing with any other defense and the lack of any reference to other defenses in the memoranda and the opinion of the trial court, the defense of release was raised in their answers in the trial court. They further argue that their present contentions relative to release by reason of diversion of security are pertinent to that defense. Hence, it is argued, these contentions must be regarded as having been made in the trial court.

In appellants' answer the only averment relative to this defense was the word "release" in a single sentence referring to a number of defenses on which appellants would rely. This was not adequate pleading of the affirmative defense of release. It constituted a mere conclusional allegation without any supporting factual allegations, and it was not separately stated. See Kohen v. H. S. Crocker Co., Inc., 5 Cir., 260 F.2d 790; Fed.R.Civ.P. 8(b) (c), 10(b), 28 U.S.C.A.

Nevertheless, it might have been regarded as a sufficient pleading upon which appellants could have grounded the contentions concerning diversion of security which they now advance. On a motion for summary judgment, pleadings are to be liberally construed in favor of the party opposing the motion. McHenry v. Ford Motor Co., 6...