General Ins. Co. of America v. Carnicero Dynasty Corp.

• Decision Date: 09 January 1976
• Docket Number: No. 13836,13836
• Citation: 545 P.2d 502
• Parties: GENERAL INSURANCE COMPANY OF AMERICA, Plaintiff and Respondent, v. CARNICERO DYNASTY CORPORATION, a corporation, et al., Defendants and Appellants.
• Court: Utah Supreme Court

Page 502

545 P.2d 502

GENERAL INSURANCE COMPANY OF AMERICA, Plaintiff and Respondent, v.CARNICERO DYNASTY CORPORATION, a corporation, et al Defendants and Appellants.

No. 13836.

Supreme Court of Utah.

Jan. 9, 1976.

Ronald C. Barker, Salt Lake City, for defendants and appellants.

Wallace R. Lauchnor, Bayle & Lauchnor, Salt Lake City, for plaintiff and respondent.

MAUGHAN, Justice:

Plaintiff initiated this action to recover pursuant to certain indemnity agreements.The matter was tried before the court and judgment was rendered against defendants.Of the defendants, Butchers alone appeal.We reverse.

Butcher was property manager for defendantCarnicero Dynasty Corporation, a construction company.Neither Butcher nor his wife was a shareholder or an officer of the corporation.Butcher, in his capacity as property manager, contacted plaintiff to procure a bid bond and payment and performance bonds for the corporation required by the government for the construction of a post office.Prior to issuing the bonds, plaintiff gave Butcher certain indemnity agreements to be executed by the officers of the corporation.Butcher, pursuant to instruction, procured the execution of the indemnity agreements by the individuals specified.Thereafter, plaintiff issued the bonds.Slightly over four months thereafter, plaintiff by its local agent requested the Butchers to sign an indemnity agreement, which they did.Rules cited refer to Utah Rules of Civil Procedure.

The evidence concerning the circumstances within which the Butchers individually executed the indemnity agreements was adduced during the presentation of the plaintiff's case.The testimony is summarized by the trial court in its remark that the insurance company as an obvious afterthought sent its agent to procure the signatures of Mr. and Mrs. Butcher on the indemnity agreement.Butchers' counsel made a motion, under Rule 15(b), to amend their answer to plead lack of consideration, on the ground that it was necessary to amend the pleadings to conform with the evidence.

The trial court denied this motion, on the ground that lack of consideration was an affirmative defense, of which the plaintiff had no notice.The trial court conceded that Butchers were not informed of the date of the indemnity agreement in the complaint but noted that a copy of the agreement was attached to certain interrogatories which were delivered on January 17, 1974.The court was of the opinion that this information as to the date of the indemnity agreement supplied a sufficient ground for Butchers to have amended their answer prior to the date of trial on May 22, 1974.

Plaintiff, in its complaint, alleged:

That the defendants, and each of them, in consideration for the issuance of said bonds, executed a General Agreement of Indemnity indemnifying the plaintiff herein for any and all loss that it might suffer as the result of its issuing said bonds.

Butchers, in their answer, neither admitted nor denied this averment, as required in Rule 8(b).Under Rule 8(b), this failure to respond by denial of the averment constituted an admission.The trial court was of the view that lack of consideration, although not specified as such, was an affirmative defense falling within Rule 8(c) and must be pleaded or it is waived under Rule 12(h).

A defense that merely controverts plaintiff's prima facie case is negative in character and should be pleaded in accordance with Rule 8(b)andRule 8(c) then becomes inapplicable, for an affirmative defense raises matter outside the scope of plaintiff's prima facie case.Furthermore, since the enumeration of affirmative defenses in Rule 8(c) is not exclusive 'any other matter constituting an avoidance or affirmative defense' must also be pleaded.Therefore, any matter that does not tend to controvert the opposing party's prima facie case shall be pleaded, and is not put in issue by a denial made pursuant to Rule 8(b).¹

There is a distinction between lack of consideration and failure of consideration.Where consideration is lacking, there can be no contract.Where consideration fails, there was a contract when the agreement was made, but because of some supervening cause, the promised performance fails.²Thus, failure of consideration is an affirmative defense as set forth in Rule 8(c).However, consideration or a substitute therefor must be established as part of plaintiff's prima facie case in a contract action.The defense of lack of consideration, a negative, is properly pleaded under Rule 8(b).

There is one other aspect which should be considered in connection with the trial court's denial of Butchers' motion to amend their answer.The trial court emphasized that Butchers should have amended their answer after receiving the answers to the interrogatories approximately four months prior to the trial.(The action had been commenced 3 1/2 years previously.)However, the applicable law regarding this matter does not indicate that the defense of lack of consideration would become apparent merely by being apprised that the indemnity agreement was executed subsequent to the issuance of te bonds.

. . . the execution of a bond of indemnity subsequent to the execution of the original undertaking will have the same force and effect as if it were executed simultaneously with the original undertaking, if its subsequent execution was pursuant to an arrangement or agreement between the indemnitee and the indemnitors, at the time or before the indemnitee became bound, that there should be executed to it a bond of indemnity.(Citations omitted.)³

During the presentation of plaintiff's case, the facts were adduced that there had not been an arrangement between Butchers and plaintiff, prior to the time that plaintiff became bound under the bond, that Butchers would execute an indemnity agreement.Plaintiff, as an afterthought, requested Butchers' signatures on an agreement.Thus the evidence indicated that the agreement under which plaintiff sought recovery was lacking in consideration and was not a contract.

Butchers moved to amend their answer to conform to the evidence under Rule 15(b).⁴It has two separate parts.The first part provides that if issues are tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.

Rule 15(b), of course, is applicable to defenses ⁵ as well as to claims, and to the extent to which it applies, Rule 15(b) operates as an exception to the rule that defenses not pleaded are waived.The fact that a defense, even an affirmative defense, has not been formally pleaded is immaterial if the issue was tried by express or implied consent.⁶

The treatise by Moore explains that an amendment to conform to evidence may be made at any time on motion of any party.The parties may, by express consent, or by the introduction of evidence without objection, amend the pleadings at will.During the trial if a party expressly requests leave to amend to conform pleadings to the proof adduced and to reflect issues raised by either express or implied consent, such leave should be granted.⁷

The first part of Rule 15(b) should be contrasted with the second part where an amendment is offered during trial in response to an objection to evidence, in such a case, the standards set forth in the second part of Rule 15(b) will apply, viz., leave...