Reed v. Davis
| Decision Date | 18 February 1965 |
| Docket Number | No. 37381,37381 |
| Parties | E. T. REED, Respondent, v. Kenneth DAVIS et ux., Appellants, Frederick Streib et ux., Defendants. Kenneth DAVIS et ux., Appellants, v. E. T. REED, Frederick P. Streib et ux., Lee Sutliffe, Willard Hatch, Respondents. * |
| Court | Washington Supreme Court |
Oscar A. Zabel, Kenneth Davis, Seattle, Gavin, Robinson, Kendrick & Redman, Leo C. Kendrick, Yakima, for appellants.
Jones, Grey, Kehoe, Hooper & Olsen, W. C. Anderson, Croson, Johnson & Wheelon, Robert B. Leslie, Robbins, Oseran & Robbins, Melville Oseran, Seattle, for respondents.
This appeal primarily involves a suit on a promissory note. On July 7, 1961, Kenneth Davis and Frederick Streib, and their wives, defendants, who hereafter will be referred to as Davis and Streib, respectively, executed as makers a $25,000 promissory note payable to plaintiff E. T. Reed. It was to mature July 7, 1963, with interest due quarterly at the rate of 6 per cent per annum. By terms of a written agreement entered into between Davis, Streib and Reed the note was given Reed in consideration for his loan of $25,000, which was to be used by Davis and Streib in promotion of a proposed Seattle hotel corporation. The tripartite agreement also provided that in the event such corporation were formed and successfully financed that Reed would have the option to take 20 per cent of its common stock in lieu of payment on the $25,000 note.
Davis and Streib planned to acquire Seattle's Earl Hotel and adjoining lot, remodel the 'Earl,' and construct an 80-unit addition on the lot. The promoters acquired the property and on November 21, 1961, formed the corporation as planned under the name, Heart of Seattle Hotel Co., Inc. They deeded over the property to the corporation. Stockholders were Davis, Streib, Lee Sutliffe (the supposed financial backer), and two others who are not involved in this appeal.
Almost from the beginning of the corporation, Davis was at odds with Streib and Sutliffe. At the root of the disharmony were Davis' persistent charges that Streib and Sutliffe were 'looting' the corporation. The intracorporate battling worsened, and Streib and Sutliffe sued in King County (cause No. 584830) to enjoin Davis' interference in the management of the corporation. Davis filed a counterclaim in the nature of a stockholder's derivative claim, in which he alleged mismanagement by Streib and Sutliffe.
Davis then petitioned the federal district court for involuntary reorganization of the corporation. The federal court promptly stayed cause No. 584830, asserting paramount jurisdiction, and ordered that all matters at issue in the superior court trial be brought on for hearing and determination in the federal court proceeding. The federal court confirmed a plan for reorganization of the insolvent corporation, under which its assets were ordered transferred to Senfour Investment, of which Sutliffe was a member. Davis' 'looting' charges were not passed upon in the order. Davis' 30 per cent stockholder's equity in Heart of Seattle Hotel Co., Inc., was lost in the transfer, along with the other stockholders' equities. Davis did not appeal that order, and it appears the stay order in the superior court suit (cause No. 584830) still stands.
The next step in the legal entanglement was this action. Reed filed suit on the note July 11, 1963, on defendants' failure to pay the principal and final interest payment. Streib had paid seven consecutive quarterly interest payments of $375. Reed sued for $25,375, plus interest after maturity, reasonable attorney fees, costs and disbursements. Davis then moved as third-party plaintiff to join Sutliffe and Willard Hatch, as third-party defendants under Rule of Pleading, Practice & Procedure 14, RCW Vol. O. Hatch was both an officer of the corporation and its counsel. The motion was granted. Davis filed his pro se responsive pleading, a 20-page document, which, in effect, comprised two parts.
The first portion was devoted to answering Reed's suit on the note. Davis denied delivery of the note, denied the money was owing, and denied that $2,500 was a reasonable attorney fee. He alleged as affirmative defenses: (1) failure of consideration on the note, and (2) that Reed had elected to take the stock option in 1962, thereby waiving any right to sue on the note and therefore was estopped and guilty of laches.
The second portion of the pleading contained allegations, conclusions and irrelevancies in which Davis sought to establish the existence of a conspiracy between Reed, Streib, Sutliffe and Hatch, the purpose of which was to deprive Davis of his interest in the hotel corporation. Davis alleged that the conspirators succeeded, attributing his loss of corporate interest in the reorganization proceedings to them. This interest, he claimed, was valued at $100,000. He therefore sought recovery in that amount from each of the alleged co-conspirators, by way of counterclaim against Reed, cross claim against Streib and third-party complaint against Sutliffe and Hatch.
Reed moved for judgment on the pleadings on his note claim against Davis alone. The trial court on August 29, 1963, granted Reed summary judgment against Davis on the note claim, treating Reed's motion for judgment on the pleadings as a motion for summary judgment in accord with Rule of Pleading, Practice and Procedure 12(c), RCW Vol. O; dismissed Davis' counterclaim against Reed on Reed's motion and third-party complaint against Hatch on Hatch's motion, each for failure to state a claim, and struck Davis' pleadings, in toto, on the following grounds alleged in Reed's motion: (1) failure to comply with Rule of Pleading, Practice and Procedure 8(e), RCW Vol. O, which requires pleadings to be simple, concise and direct; (2) failure to comply with Rule of Pleading, Practice and Procedure 12(f), RCW Vol. O, which authorizes the court to strike any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter; and (3) for the reason that in their totality they were vague, hyperbolic, visionary and replete with evidentiary facts, hearsay and conclusions of law. Though neither made any motions, Davis' cross claim against Streib and third-party complaint against Sutliffe fell because of the order striking the pleadings and the trial court's oral statement: 'In effect, I am disposing of the entire lawsuit.'
The trial court denominated its dismissal of Davis' counter- claim against Reed and third-party complaint against Hatch as one for failure to state a claim. This was error since the trial court considered the affidavits, counter-affidavits, deposition and other matters outside the pleadings. Under such circumstances the motions were converted into motions for summary judgment and we treat them as such. Rule of Pleading, Practice and Procedure 12(b), RCW Vol. O. William J. Kelly Co. v. Reconstruction Finance Corp., 172 F.2d 865 (C.A.1st); Dinwiddie v. Brown, 230 F.2d 465 (C.A.5th).
Subsequent to judgment Reed assigned the note, cause of action and judgment to W. C. Anderson, attorney for Mrs. Streib.
Davis appeals. Respondents are Reed and his assignee, W. C. Anderson, and Hatch.
Errors assigned by Davis fall into three main categories: First, that the trial court erred in granting summary judgment on the note; second, it erred in dismissing Davis' conspiracy claims; and third, it erred in striking Davis' pleadings, in toto.
Davis first contends the trial court erred in entering summary judgment on the note because the note was not introduced in evidence, the only evidence of it before the court being a photocopy attached as an exhibit to the complaint. This claim of error was not raised in the trial court. It will therefore not be considered on this appeal. Malstrom v. Kalland, 62 Wash.2d 732, 384 P.2d 613 (1963).
Davis next contends the trial court erred in granting summary judgment for the full amount of the note, since the evidence presented a genuine and material issue of fact on the question whether there was a partial failure of consideration in the amount of $2,500. We agree.
In his pleading, Davis stated that Reed had accepted a 'kick- back' from Streib, Davis' co-maker, pursuant to secret agreement, and, consequently, paid in only $22,500. Reed admitted receiving $2,500 from Streib, but alleged in an affidavit, without supporting evidence, that it was a bona fide loan. There was, however, evidence that Reed had paid the full $25,000.
Considering the evidence and reasonable inferences therefrom in favor of the non-movant, Davis, it presents a genuine issue of material fact. Balise v. Underwood, 62 Wash.2d 195, 381 P.2d 966 (1963). Reed failed to meet the burden of proving there was no such genuine issue on the question of whether the $2,500 payment was a bona fide loan or a 'kickback.'
It is not the trial court's function on a motion for summary judgment to resolve such a factual issue. Jolly v. Fossum, 59 Wash.2d 20, 365 P.2d 780 (1961). Therefore, the issue on the question of the alleged partial failure of consideration must go to trial. Should defendant prevail on this issue he would be entitled to a discharge, pro tanto. RCW 62.01.028; Burton v. Dunn, 55 Wash.2d 368, 347 P.2d 1065 (1960).
Davis' remaining contentions in relation to the note are patently frivolous and do not merit our further consideration. Summary judgment on the note to the extent of $22,500, together, with accumulated interest thereon, was therefore proper.
Next, we consider Davis' contention that the trial court erred in dismissing his conspiracy claims against Reed and Hatch.
Davis urges that his pleading allegation that Reed received a $2,500 'kickback' by secret agreement raised a genuine and material issue of fact on the question whether Reed was linked with the purported conspiracy to wrest away his (Davis') corporate interest. Even treating the allegation as true there is no showing...
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