Madill Bank and Trust Co. v. Herrmann

• Decision Date: 03 February 1987
• Docket Number: 62264,No. 3,Nos. 62461,s. 62461,3
• Citation: 1987 OK CIV APP 4,738 P.2d 567
• Court: United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma
• Parties: 1987 OK CIV APP 4, 3 UCC Rep.Serv.2d 1436 MADILL BANK AND TRUST COMPANY, Appellee, v. George HERRMANN & Buel Lasley, Appellants. Court of Appeals of Oklahoma, Division

Page 567

738 P.2d 567

1987 OK CIV APP 4, 3 UCC Rep.Serv.2d 1436

MADILL BANK AND TRUST COMPANY, Appellee, v. George HERRMANN & Buel Lasley, Appellants.

Nos. 62461, 62264.

Released For Publication by Order of the Court of Appeals of Oklahoma, Division No. 3.

Court of Appeals of Oklahoma Division No. 3.

Feb. 3, 1987.

Rehearing Denied March 24, 1987.

As Corrected May 14, 1987.

Certiorari Denied June 2, 1987.

Drew Neville, Von Russell Creel, William J. Skepnek and Rhonda Murphy Reynolds, Linn & Helms, Oklahoma City, for appellants.

Brooke S. Murphy and Harry Woods, Jr., Crowe & Dunlevy, Oklahoma City, for appellee.

BAILEY, Judge:

Appellants bring this appeal from a jury verdict awarding Appellee recovery on a promissory note. Appellee Madill Bank and Trust filed suit against Appellants George Herrmann and Buel Lasley to recover on a promissory note, alleging that Appellants were co-makers on the note. Appellants interposed general denials, and in defense asserted that they had been induced to sign the note by the fraud of Appellee Bank and its officers, that their signatures had been obtained on the note by virtue of misrepresentations and/or mutual mistakes of material facts, and that the Appellee Bank had allowed the collateral to become impaired, thereby discharging Appellants from liability. Based on these same allegations, Appellants counter-claimed for rescission of their contractual liability and for actual and punitive damages.

Evidence adduced during the eight-day trial revealed that Appellants signed a promissory note, held by Appellee Bank, on behalf of Denny McCoy. McCoy was engaged in the cattle business, buying cattle and paying for the cattle with checks drawn on Appellee Bank. McCoy and Heinold Hog Markets had reached an agreement by which McCoy would draw money from the account with which to pay for cattle purchases and Heinold would deposit sufficient funds to cover the draws; McCoy was to pay back the money drawn from proceeds derived from sales of the cattle purchased. Subsequently, Heinold learned that McCoy was using funds from the account to finance McCoy's ranching operation and demanded repayment of the funds withdrawn by McCoy, approximately $3.8 million. Heinold additionally refused to honor an additional $800,000.00 in checks drawn by McCoy, leaving McCoy in need of almost $4.8 million to meet his obligations.

In order to meet this demand, McCoy sought the assistance of Appellee Bank. Appellee Bank, with the participation of Liberty National Bank in Oklahoma City arranged financing of approximately $3.4 million for McCoy. As part and parcel of the financing agreement, Appellants were required to sign the promissory note as additional parties. Appellants acknowledged their individual liability on the note by a separate letter which was explained and/or read to Appellants before and at the time of execution of the loan documents.

At trial, Appellants attempted to show that Appellee Bank, through its officers, misrepresented and/or was mistaken as to the extent and nature of Apellants' liability as co-makers on the note, rather than that of guarantors as asserted by Appellants. Appellants also attempted to show that Appellee Bank allowed the collateral to be sold without application of the proceeds to the indebtedness, thereby impairing the collateral and discharging Appellants from liability. Appellants also sought to introduce evidence of lending limit violations by the Appellee and evidence of threats of suit by Heinold against Appellee in support of their theory of fraud, which evidence was denied admission by the Trial Court.

After the presentation of evidence, both parties demurred to the evidence and requested directed verdicts in their favor. The Trial Court sustained Appellee's demurrer and directed verdict for Appellee on the issues of misrepresentation, mutual mistake and impairment of collateral. The fraud issue as a defense and as a counter-claim was submitted to the jury by proper instruction. The jury returned a verdict for Appellee on the note, and, after further instruction, awarded recovery of $1,942,641.68, the amount of principal due on the note at the time of trial. The Trial Court subsequently entertained Appellee's motions for determination of interest due, and for Appellee's attorneys' fees and costs. The Trial Court awarded Appellees $1,028,794.24 as interest due at the time of trial, $400,000.00 in attorneys' fees (a sum alleged by Appellees to be well less than the 15% provided for in the note) and $65,650.57 in costs.

Appellants assert as their first proposition of error the error of the Trial Court in overruling Appellants' Motion to Join Additional Parties, by which Appellants sought to join the other signatories and obligors on the note as parties defendant. However, and under the law in effect at the time, we find the Appellants failed to timely raise the issue of defect of parties, thus having waived the objection, and affirm the Trial Court's ruling.

It is clear that 12 O.S.1981 § 236 (repealed 1984) required the joinder of those parties who are "necessary" for a complete determination of the controversy. It is also clear that a defect of parties must be raised in a timely manner by motion or by answer, or else the objection to the alleged defect in parties is waived. 12 O.S.1981 § 236 (repealed 1984); 12 O.S.1981 § 268A (repealed 1984); 12 O.S.1981 § 269 (repealed 1984); Wiggins v. Sterne, 293 P.2d 603 (Okl.1956). As Appellants did not raise the issue of defect of parties by motion until some eight or nine months after the filing of their answer and the case was at issue, we find that the Appellants did not raise the issue of defect of parties in a timely manner, and that they effectively waived this objection.

Further, the facts of this case show unquestionably that Appellants signed the note in question as an accommodation to their acquaintance and business associate, McCoy, acknowledging their individual liability on the note by separate letter. The authority is ample to support Appellants' liability to Appellee as accommodation makers. 12A O.S.1981 § 3-415; In re Hill, 7 B.R. 433 (Bkrt.WD Okl.1980); White & Summers, Uniform Commercial Code, § 13-12; pp. 512-513. As Appellants signed understanding their individual liability on the note, they are also liable as makers. Vinick v. Fourth National Bank of Tulsa, 531 P.2d 327 (Okl.1974); Beneficial Finance Co. of Norman v. Marshall, 551 P.2d 315 (Okl.App.1976). Under the law in effect at the time, joint obligors could be sued separately or together as the Plaintiff might choose. 12 O.S.1981 § 234 (repealed 1984); Janeway v. Vandeventer, 172 Okl. 379, 45 P.2d 79 (1935). The other obligors, therefore, were not necessary parties in the Appellee's suit against Appellants, and Appellants' Motion to Join the other signatories and obligors was properly overruled on this ground also.

In their second proposition of error, the Appellants assert the error of the Trial Court in excluding certain evidence of lending limit violations of the Appellee Bank in its loans to McCoy, which evidence included an FDIC report in that regard. Appellants also complain of the exclusion of the deposition of an agent of Heinold showing threats of suit levelled at Appellee Bank arising from the McCoy transactions. Appellants further assert the error of the Trial Court in denying admission of a promissory note allegedly executed some days in advance of the note sued upon, which note purported to show the status of Appellants as guarantors, rather than co-makers.

Appellants attempted to introduce evidence of violations by Appellee Bank of state and federal law imposing individual liability on bank officers for loans in excess of lending limits, which evidence included an FDIC report of an investigation of Appellee Bank in that regard. Appellants assert that the exclusion of this evidence prevented them from proving their defense and counter-claim of fraud by preventing Appellants from establishing the bias of Appellee Bank's president and impeaching his credibility.

A party seeking to establish fraud must prove each of the elements thereof by clear, convincing and satisfactory evidence. Barriner v. Stedman, 580 P.2d 514 (Okl.1978). In that regard, the law presumes honesty and fair dealing, and fraud may not be inferred from acts which are consistent with honesty of purpose. Knudson v. Weeks, 394 F.Supp. 963 (WD Okl.1975); Houston Oilers, Inc. v. Neely, 361 F.2d 36 (10th Cir.1966), cert. den. 385 U.S. 840, 87 S.Ct. 92, 17 L.Ed.2d 74; Mohoma Oil Co. v. Ambassador Oil Corp., 474 P.2d 950 (Okl.1970). With these rules in mind, we turn our attention to the rules as to the admissibility of evidence to determine if the evidence sought to be introduced was properly excluded.

Otherwise relevant evidence may be excluded if the probative value of the evidence is outweighed by the danger of unfair prejudice, confusion of the issues, misleading the jury, delay or needless presentation of cumulative evidence. 12 O.S.1981 § 2403. Rulings of the Trial Court on the admissibility of evidence will not be disturbed in the absence of a strong showing of prejudice to the proponent, or a breach of his fundamental rights. Cooper v. State, 671 P.2d 1168 (Okl.Cr.1983); Samara v. State, 398 P.2d 89 (Okl.1964), cert. den. and appeal dismissed, 381 U.S. 354, 85 S.Ct. 1556, 14 L.Ed.2d 681 (1965).

Under these rules, then, we find the exclusion of the proferred evidence of lending limit violations and alleged personal bias of Appellee Bank's president to be a proper exercise of the Trial Court's discretion, of which we find no abuse. See, Cooper, supra; Missouri-Kansas-Texas R. Co. v. Harper, 468 P.2d 1014 (Okl.1970). In the case of the lending limit violations, the offered evidence was also cumulative, as the personal liability of the Appellee Bank's president for over-limit loans was well developed in the president's own testimony. As to the...