Schmidt v. McIlroy Bank & Trust

• Decision Date: 10 June 1991
• Docket Number: No. 91-116,91-116
• Citation: 306 Ark. 28,811 S.W.2d 281
• Parties: Paul A. SCHMIDT, Pauline B. Schmidt, Paul G. Schmidt, Appellants, v. McILROY BANK & TRUST, Appellee.
• Court: Arkansas Supreme Court

Page 281

811 S.W.2d 281

306 Ark. 28

Paul A. SCHMIDT, Pauline B. Schmidt, Paul G. Schmidt, Appellants, v. McILROY BANK & TRUST, Appellee.

No. 91-116.

Supreme Court of Arkansas.

June 10, 1991.

Steven D. Tennant, Farmington, C. Thomas Pearson, Jr., Fayetteville, for appellants.

Robert R. Estes, Fayetteville, for appellee.

DUDLEY, Justice.

The appellants, Paul A. Schmidt, Pauline B. Schmidt, and Paul G. Schmidt, were the sole stockholders in the Acro Corporation, a family farming corporation. The corporation held its checking accounts in, and borrowed extensively from, the appellee McIlroy Bank and Trust. The notes, security agreements, and mortgage involved in this dispute were executed in the corporation name. After the corporation overdrew one of its checking accounts, the bank declared its loans to the corporation insecure. The bank accelerated payment of the notes, made demand for payment, filed suit in chancery court for foreclosure on the security for the notes, and sought a judgment for the remaining deficiency, if any, against the corporation, as well as the individual appellants as guarantors of the notes. The chancery court suit apparently has not been finally concluded. See McIlroy Bank & Trust v. Acro Corp., 30 Ark.App. 189, 785 S.W.2d 47 (1990).

Next, the corporation and the individual appellants filed this "lender's liability" suit against the bank in circuit court. They asked damages for the corporation and damages for themselves as stockholders, but did not ask relief for themselves as guarantors of notes, possibly because the chancery court had not yet determined whether there was a deficiency for the guarantors to pay. The bank filed an answer and a motion for summary judgment with supporting exhibits and affidavits. The corporation and the individual appellants filed an amended complaint and again asked damages for the corporation and themselves as stockholders, but, again, did not ask for damages as a result of the guaranty agreement.

The trial court granted summary judgment against the corporation on the ground that its charter had been revoked for failure to pay franchise fees, but did not grant summary judgment against the individual appellants.

The bank filed a second motion for summary judgment with attached exhibits showing that all notes, security agreements, and mortgages were executed in the name of the corporation and were only guaranteed by the individual appellants. The appellants filed a brief opposing the summary judgment and two of their arguments were that they had "stated a cause of action against the bank under the guarantees" and that "the real parties in interest in this cause of action are the individuals as guarantors." The concluding paragraph of their brief begins as follows: "The plaintiffs [appellants] have clearly shown that the real parties in interest under the facts set forth in the amended complaint are the individuals as guarantors and parties to the notes and extensions. The plaintiffs should be allowed to amend their complaint to permit the real parties to prosecute the action." However, even though ARCP Rule 15(a) provides in part, "a party may amend his pleadings at any time without leave of court," the appellants did not file an amended complaint.

The bank filed a brief in which it responded that 12B Fletcher, Cyclopedia of Corporations, § 5916, p. 447 (Perm.Ed.1984) provides that "a personal guaranty may be a basis upon which suit can be brought," but that the individual appellants "have not alleged any individual causes of action on the basis of their guaranty contracts." Then, at the hearing on the second motion for summary judgment the bank's attorney stated:

One other issue that I would like to address is the fact that plaintiffs now raise a cause of action based upon the guaranty contracts. This is not plead in the Complaint, and not plead in the amended Complaint. I cannot find the word "guaranty" or "guaranty contract with guarantor" or any derivative thereof in the Complaint or amended Complaint. (Tr. 1262). The first time "guaranty" shows up is in the plaintiff's response to the Defendant's second Motion for Summary Judgment. A personal guaranty may be a basis upon which a suit can be brought. There is no question about that. At no time have plaintiffs plead a cause of action on the guaranty contracts.

The individual appellants' attorney responded, "We ask the court to allow the plaintiffs to amend the complaint for the sole purpose to include the individuals as guarantors and state a cause of action that would not leave any question...." Again, the individual appellants did not amend the complaint, either orally or in writing. Immediately thereafter the court, from the bench, announced that it was granting summary judgment against the individual appellants, and further stated:

Second, as far as the guarantees, there's no allegation in either the Complaint or amended Complaint which I earlier allowed to stand, is not plead in either one of these two Complaints. I think that, on the day of the hearing on a motion for a summary judgment, is too late to amend the Complaints to include it, so I'm going to deny your oral motion, Mr. Tennant, to amend your Complaint at this particular point in time.

For their first point of appeal, the individual appellants argue that the trial court erred in refusing to permit them to amend their complaint because (1) "the trial court raised the issue on its own motion" and (2) the trial court did not require a showing of prejudice to the bank or undue delay in the disposition of the cause. Under the facts of this case the arguments are without merit.

ARCP Rule 15(a) provides in pertinent part:

[A] party may amend his pleadings at any time without leave of the court. Where, however, upon motion of an opposing party, the court determines that prejudice would result or the disposition of the cause would be unduly delayed because of the filing of an amendment, the court may strike such amended pleading or grant a continuance of the proceeding.

The intent of the rule is stated in the reporter's notes as follows: "The Committee believed that the amendments to pleadings should be allowed in nearly all instances without special permission from the court. The court is, however, given discretion to strike any amendment which would cause prejudice or unduly prolong the disposition of a case." We have followed that stated intent. See Webb v. Workers Compensation Comm'n, 286 Ark. 399, 692 S.W.2d 233 (1985); Kay v. Economy Fire & Cas. Co., 284 Ark. 11, 678 S.W.2d 365 (1984).

Appellants argue that the trial court erred in denying the oral motion to amend "on its own motion." The argument is fallacious. The trial court did not rule "on its own motion." Instead, the trial court responded to appellants' unnecessary motion to amend. It was not a ruling on the court's own motion. If the making of a ruling on that unneeded motion was error, it was invited error. We do not reverse for invited error. Missouri Pac. R.R. Co. v. Gilbert, 206 Ark. 683, 178 S.W.2d 73 (1944).

Appellants also argue that the trial court erred because it did not make a finding that the proposed amendment would cause either prejudice or undue delay of the disposition of the case. The argument is without merit for two reasons. First, the matter was not brought to the attention of the trial judge, and we do not reverse for matters raised for the first time on appeal. Bohannan v. Underwood, 300 Ark. 110, 776 S.W.2d 827 (1989). Second, the proposed amendment was never offered, and the trial court had no way of knowing whether prejudice or undue delay would result. Until the trial court knew the factual details of the allegation, it could not know whether additional depositions or interrogatories were necessary. Similarly, we have no way of knowing, and we will not presume error. The rule requires a finding of prejudice or undue delay only when the court strikes a pleading. In that situation the court would naturally have the facts alleged in the amendment before it and would be able to determine whether prejudice or undue delay would occur. The rule does not require a finding of prejudice or undue delay when a party has merely filed an unnecessary motion seeking to amend. The trial court and the other party are entitled to know the factual allegations of the amendment. If our holding were otherwise a party who was responding to a motion for summary judgment and who was worried about the sufficiency of his proof would always file a motion to amend before the hearing solely as a dilatory safety valve. He would always get more time, because the trial judge could not make a ruling on prejudice or delay. The result would be slower and more expensive determination of the action. That is not the purpose of our rule.

The appellants did not argue below, and do not argue in this appeal, that they orally amended their complaint to state a cause of action as guarantors. Under our long standing procedure, we consider only arguments raised by the parties. We do not consider reversing the trial court for the unargued reason that the appellants orally amended their complaint to state a cause of action as guarantors.

The appellants next argue that the granting of summary judgment was in error because an issue of material fact remained to be decided. In brief, their argument is that when the corporation's charter was revoked for failure to pay franchise fees, the officers and shareholders were considered to be operating the business as a partnership and were individually liable for the obligations of the de facto corporation, see Whitaker v. Mitchell Mfg. Co., 219 Ark. 779, 244 S.W.2d 965 (1952); Gazette Publishing Co. v. Brady, 204 Ark 396, 162 S.W.2d 494 (1942), and since they were subjected to individual liability as partners, they ought to be allowed, in fairness, to bring suit in the same capacity. The argument, while novel, is without merit. The...