Mishler v. Stouwie

• Decision Date: 18 February 1981
• Docket Number: No. 63958,63958
• Parties: Russell G. MISHLER, Appellee, v. Cecil STOUWIE and Carl VanderWal, Appellants, Greg Harrison, Defendant.
• Court: Iowa Supreme Court

Page 744

301 N.W.2d 744

Russell G. MISHLER, Appellee, v. Cecil STOUWIE and Carl VanderWal, Appellants, Greg Harrison, Defendant.

No. 63958.

Supreme Court of Iowa.

Feb. 18, 1981.

Gerald A. LoRang of Miller & LoRang, Nevada, for appellants.

Barry Minear of Swift, Minear & Hansen, Des Moines, for appellee.

Considered by REYNOLDSON, C. J., UHLENHOPP, HARRIS, ALLBEE and McGIVERIN, JJ.

ALLBEE, Justice.

Defendants Cecil Stouwie and Carl VanderWal appeal from trial court's judgment dismissing their petition to vacate a default judgment rendered against them. Our review having revealed no error, we affirm that judgment.

This action was originally predicated upon a promissory note made by Stouwie, VanderWal and their co-defendant, Greg Harrison, and given to plaintiff Russell G. Mishler as part of the consideration of a contract for the purchase of the assets and goodwill of plaintiff's sanitation business. The promissory note, dated April 1, 1976, was in the amount of $25,000, representing that portion of the purchase price not paid in cash. Each of the three defendants signed the note, which recited that each signer as principal, jointly and severally, promised to pay the sum of the note on terms provided in the note. The three defendants subsequently formed a corporation known as Ankeny Garbage Services, Inc. Later, on September 14, 1976, Stouwie and VanderWal sold their respective interests in that corporation to Harrison, who in turn purported to release them from any business related liability.

On December 12, 1977, plaintiff filed a petition alleging default in the payments on the promissory note and seeking judgment against the three defendants for the remaining balance of $20,878.33. Defendant Harrison timely filed an answer and counterclaim. Stouwie and VanderWal, however, neither appeared nor filed a motion or answer, and on January 27, 1978, defaults were entered and judgment was rendered against them for the sum claimed. See Iowa R.Civ.P. 230-232 (defaults and judgment thereon).

Stouwie and VanderWal filed the petition to vacate the default judgment on April 21, 1978, relying upon Iowa R.Civ.P. 252. ¹ As indicated at the outset, that petition was denied and this appeal followed.

Briefly stated, the issues presented for review by Stouwie and VanderWal are whether trial court erred (1) in entering judgment by default against two of the three makers of the promissory note when the third, Harrison, had pleaded a defense to plaintiff's right to recover; (2) in finding that the defaults did not result from unavoidable casualty or misfortune; (3) in concluding that the sixty day limitation period of Iowa R.Civ.P. 236 does not result in an unconstitutional denial of equal protection; (4) in finding that plaintiff was not a party to the Stouwie, VanderWal and Harrison agreement of September 14, 1976; and (5) in concluding that they failed to show that they had a meritorious defense to plaintiff's action.

I. Initially Stouwie and VanderWal contend trial court erred in entering a default judgment against them because defendant Harrison had interposed a defense which they state "goes to the right of plaintiff to recover against any of the partners or the partnership." Nevertheless, what they claim to be a defense to plaintiff's right of recovery is in actuality pleaded as a counterclaim by Harrison, and not defensively. In that counterclaim, Harrison alleges the breach by plaintiff of a noncompetition provision contained in the contract of purchase of the sanitation business; Harrison further alleges that because of the breach he is entitled to monetary recompense. As pleaded, Harrison's allegation of breach is only a claim which, if successful, could offset his liability on the note; it is not pleaded as a defense which, as Stouwie and VanderWal urge, goes to the validity or enforceability of the obligation.

Moreover, the authorities cited by Stouwie and VanderWal in this connection pertain solely to principles of partnership and contract law, and are inapposite here. We are concerned in this case with the liability of makers of a promissory note, thus implicating the Uniform Commercial Code. Ch. 554, The Code 1979. Consequently, we must consider the application of that statute to the circumstances at hand.

The district judge who entered the default judgment was confronted with a petition demanding judgment for the balance due on the promissory note, a record reflecting service of process upon these two defendants and the lack of any appearance, motion or answer in their behalf. When presented with the promissory note, the judge was obliged to presume the signatures of Stouwie and VanderWal were genuine or authorized. § 554.3307(1)(b) (unless specifically denied each signature on an instrument is admitted and presumed to be genuine or authorized); 554.1201(31) (defining "presumed" as meaning "that the trier of fact must find the existence of the fact presumed unless and until evidence is introduced which would support a finding of its nonexistence"); see Metropolitan Mortgage Fund, Inc. v. Basiliko, 44 Md.App. 158, 164-65, 407 A.2d 773, 777-78 (Ct.Spec.App.1979), aff'd, Md., 415 A.2d 582 (1980). In addition, the judge could take into account that by law "(u)nless the instrument otherwise specifies two or more persons who sign as maker ... as part of the same transaction are jointly and severally liable...." § 554.3118(e); see Hubert v. Lawson, 146 Ga.App. 698, 698-99, 247 S.E.2d 223, 224 (1978); Ghitter v. Edge, 118 Ga.App. 750, 752-53, 165 S.E.2d 598, 600 (1968); Caldwell v. Stevenson, 567 S.W.2d 278, 279 (Tex.Civ.App.1978). See also J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code § 13-7, at 499-500 (1972). As previously related, the note here was signed by Stouwie, VanderWal and Harrison, and stated that each signed as principal and that they jointly and severally promised to pay the note. In view of the foregoing factors, the judge had no cause to decline to enter the defaults and judgment against Stouwie and VanderWal prior to an adjudication of the action against Harrison and of his counterclaim, and we find no error at this juncture.

II. The next issue relates to trial court's determination that Stouwie and VanderWal failed in their burden of establishing that they were prevented from defending plaintiff's action because of unavoidable casualty or misfortune, as alleged in their petition to vacate the default judgment. See Iowa R.Civ.P. 252(e). Several familiar principles apply to our examination of this issue. We accord the trial court considerable discretion in determining whether to grant relief when vacation of a judgment is sought, and we are more reluctant to find an abuse of discretion when relief has been granted than when it has been denied. Kreft v. Fisher Aviation, Inc., 264 N.W.2d 297, 303 (Iowa 1978). Nonetheless, our review of a trial court adjudication under Iowa R.Civ.P. 252 is on assigned errors; it is not de novo. The trial court's findings of fact have the effect of a jury verdict, and those findings are binding on us if there is substantial evidence to support them. Lemke v. Lemke, 206 N.W.2d 895, 897 (Iowa 1973).

In this case it is not disputed that Stouwie and VanderWal were each served with an original notice of the commencement of action by plaintiff. Nor do they dispute their failure to appear and defend; they, however, seek to excuse that failure. Because more than sixty days had elapsed from entry of the default judgment at the time these defendants became aware of its entry, the judgment could not be set aside on grounds delineated in Iowa R.Civ.P. 236. ² See Kreft, 264 N.W.2d at 301-02. Hence the filing of a petition pursuant to rule 252.

With their petition to vacate the default judgment, Stouwie and VanderWal attached supporting affidavits and tendered an answer to plaintiff's petition. See Iowa R.Civ.P. 253(a). ³ The proposed answer denied the petition's material allegations and raised as an affirmative defense the assertion that Harrison, when purchasing their interests in Ankeny Garbage Services, had assumed all the liabilities of that business, including the debt evidenced by the promissory note involved here. The affidavits of Stouwie and VanderWal contained assertions of these same facts. They further declared in those affidavits that upon receiving service of plaintiff's original notice on about December 15, 1977, they each attempted to contact Harrison; failing to reach him, each spoke to Harrison's mother, who told both of them not to worry, that their interests would be protected by Harrison. Neither Stouwie nor VanderWal alleged that he did anything more to ensure that his interests were in fact protected.

According to their petition to vacate the default judgment, these defendants first became aware of the default judgment against them when, on April 17, 1978, they were served with notice of garnishment upon the bank account of the business they then operated. They also alleged a lack of notice from the district court clerk of the default judgment, as provided in Iowa R.Civ.P. 233. ⁴ See Kreft, 264 N.W.2d at 300-01.

On January 22, 1979, following a hearing held at an earlier date, trial court entered judgment dismissing the petition to vacate the default judgment. Stouwie and VanderWal then filed motions to enlarge or amend the court's findings and conclusions and to reopen the case for further evidence. After permitting an evidentiary hearing, trial court on June 27 confirmed its prior determination that these defendants had failed to establish that they were prevented from defending plaintiff's action because of unavoidable casualty or misfortune.

Stouwie and VanderWal had the burden of showing trial court that they were prevented from defending plaintiff's action by reason of unavoidable casualty or misfortune, the grounds provided in rule 252(e). Lemke, 206 N.W.2d at 897. Those grounds were defined in Claeys...