Southern Nat. Life Realty Corp. v. People's Bank of Bardstown

• Decision Date: 27 November 1917
• Citation: 178 Ky. 80,198 S.W. 543
• Parties: SOUTHERN NAT. LIFE REALTY CORP. ET AL. v. PEOPLE'S BANK OF BARDSTOWN. [a1]
• Court: Kentucky Court of Appeals

198 S.W. 543

178 Ky. 80

SOUTHERN NAT. LIFE REALTY CORP. ET AL. v. PEOPLE'S BANK OF BARDSTOWN. ^[a1]

Court of Appeals of Kentucky.

November 27, 1917

Appeal from Circuit Court, Nelson County.

Action by the People's Bank of Bardstown against the Southern National Life Realty Corporation and others. Judgment for plaintiff, and certain defendants appeal. Affirmed in part and in part reversed.

Nat W Halstead, of Bardstown, and Helm Bruce, Bruce & Bullitt, and Grover C. Sales, all of Louisville, for appellants.

Jno. S Kelley, Victor L. Kelley, and R. C. Cherry, all of Bardstown, for appellee.

CLARKE J.

Appellee, plaintiff below, filed this action against appellants, Southern National Life Realty Corporation, M. K. Allen, and John W. Ray, together with three others who are not parties to the appeal, to enforce the collection of a note for $5,000 executed and delivered to it by the defendants October 6, 1913, and due February 6, 1914, with interest from date. The realty corporation filed a separate answer in three paragraphs, in each of which it alleged its name was signed to the note, as surety, by its president, and that it was not liable upon the note; in the first paragraph because, as a corporation, it had no authority to sign such an obligation as surety; in the second paragraph that its president was not empowered by its board of directors to sign its name as surety; and in the third paragraph that collateral deposited with plaintiff by the principal debtor as security for the payment of the note had been, after its execution and before maturity, surrendered to the principal without its knowledge or consent, and it was thereby released from liability.

Defendants M. K. Allen and John W. Ray in their separate answer of two paragraphs alleged they were sureties on the note, and that they were released from liability thereon; in the first paragraph because plaintiff had surrendered to the principal debtor, after execution and before maturity of the note, collateral securities pledged by the principal for the payment of the note; and in the second paragraph because at the maturity of the note the principal debtor had on deposit with plaintiff funds sufficient to pay the note, and that plaintiff failed to discharge the note out of such funds.

Thereafter plaintiff filed an amended petition, alleging that the statement in its original petition that the realty corporation was incorporated was made by mistake of the draftsman, and denied that it was incorporated, alleging that it was a copartnership, composed of Allen, Ray, and the other individual defendants, and a judgment was asked against each defendant as members of the partnership.

Defendants Allen and Ray then entered a motion to require the plaintiff to elect whether it would proceed against them under its original or amended petition, and, being required so to do, plaintiff elected to prosecute its original petition against these defendants, and this additional order was entered:

"On motion of plaintiff the amended petition herein is dismissed without prejudice as to the Southern National Life Realty Corporation."

A demurrer was then sustained to each paragraph of the answer of the defendants Allen and Ray, and, upon their refusal to plead further, a judgment was rendered against them for the amount of the note, $5,000, and interest. Demurrer was also filed and sustained to the third paragraph of the answer of the realty corporation, and a reply filed traversing the allegations of the first and second paragraphs of that answer.

Upon these issues a trial was had before a jury which resulted in a verdict and judgment against the realty corporation for the amount of the note, $5,000, and interest.

Defendants realty corporation, Allen, and Ray are appealing from these judgments.

As the defenses of the realty corporation were separately considered and tried in the court below and present different questions upon appeal from those controlling the judgment against appellants Allen and Ray, we shall consider first and separately the appeal of the realty corporation.

As the judgment against the realty corporation resulted from the verdict of a jury upon evidence heard respecting the defenses presented in the first two paragraphs of its answer, and as appellant has not brought up the evidence heard by the jury, it is manifest that, upon the issues of fact submitted to the jury, the defendant is precluded, and that nothing is before us but the sufficiency of the pleadings to sustain the judgment. Martin v. Richardson, 94 Ky. 183, 21 S.W. 1039, 14 Ky. Law Rep. 847, 19 L.R.A. 692, 42 Am.St.Rep. 353; Clark v. Wallace Oil Co., 155 Ky. 836, 160 S.W. 506.

1. It is insisted that the pleadings do not support the judgment for two reasons: First, because of the allegations in the amended petition that defendant realty corporation was not a corporation; and, second, because the third paragraph of the answer, to which a demurrer was sustained, presents a defense.

(a) Counsel for defendant argue, with seeming confidence, that the allegations of the amended petition are to be considered as part of the pleadings because not expressly withdrawn, although, as we have seen, the amended petition was "dismissed without prejudice as to the Southern National Life Realty Corporation." This contention seems to us so obviously untenable as to merit but slight discussion. The dismissal certainly removed the pleading from all consideration upon behalf of plaintiff as if it had never been filed; plaintiff surely could not have been granted any relief upon the strength of any statement therein, nor can the defendant with any better reason. We are unable to discover any material difference, in effect, between a withdrawal and a dismissal, and are clearly of the opinion that the dismissal was equivalent to a withdrawal of every allegation contained in it, as a dismissal leaves the parties as if the action had not been filed. Magill v. Mercantile Trust Co., 81 Ky. 132; Freeman on Judgments, § 270.

(b) The sole issue of fact upon the defense presented by the first paragraph of the answer was whether the realty corporation was a surety on the note, and this same issue of fact was raised by the second paragraph of the answer, with only one other, and that of no avail to the defendant unless the jury decided it was a surety, and not the principal, in the note; so that a finding by the jury for plaintiff necessarily decided that defendant was not a surety, but was the principal, in the note sued upon. The jury did find for the plaintiff, and it is not claimed the pleadings upon the two defenses tried before the jury do not support the judgment, but it is argued that the allegations of the third paragraph of the answer, to which a demurrer was sustained, must be taken as true, and that, as it is therein stated that the defendant was merely a surety on the note and released by the surrender of collateral held as security for the payment of the note, the pleadings do not sustain the judgment. This argument, although ingenious, is certainly not sound. While it is true that, upon a test of the sufficiency of a pleading upon demurrer, its allegations are taken as true, and the third paragraph does, in our judgment for reasons hereinafter explained, present a defense, and the court erred in sustaining a demurrer to it, that fact does not authorize us to reverse the judgment, because, under the peculiar facts thus presented, it was not a prejudicial error.

Of course, if the defense tendered by the third paragraph had been an entirely distinct and separate defense, based upon facts different from those of the defenses tried, its rejection would show that the pleadings did not support the judgment and necessitate a reversal; but in the instant case all these defenses depended entirely upon a single primary allegation of fact, that the defendant was surety on the note, without which there was no defense in any paragraph; and in the trial of this question of fact, vital alike to all three tendered defenses, its existence was disallowed by the jury; and, on account of the absence from the record of the evidence heard, we cannot question their decision of this fact. It therefore results that, although the defense set up in the third paragraph was erroneously disallowed by the court, the allegation of fact upon which it rested was tried and decided adversely to the defendant, and it was not prejudiced by the error, because it could not have altered the verdict.

Moreover, the pleadings do sustain the judgment, because the only issue presented by the rejected third paragraph that was not submitted to the jury is whether or not the plaintiff surrendered collateral deposited to secure the note, which was not a defense to the defendant unless it was a surety merely, and that question was tried by the jury and decided adversely to it.

We therefore conclude the pleadings support the judgment against the appellant Southern National Life Realty Corporation, and it should be affirmed.

2. In the first paragraph of their an swer as amended, to which a demurrer was sustained, defendants Allen and Ray alleged as a defense that subsequent to the execution of the note sued on, upon which it is admitted they were sureties only, the plaintiff, knowing they were sureties merely, and without their knowledge or consent, surrendered to the principal on the note collateral securities that he had deposited with the bank to secure its payment, and which were held for that purpose by the plaintiff when the note sued on was executed.

Counsel for plaintiff insist these allegations, if true, do not state a defense, and in support of this contention rely solely upon the opinion of this court so holding upon a petition for...