United States v. Hayes

• Decision Date: 08 December 1966
• Docket Number: No. 20374.,20374.
• Citation: 369 F.2d 671
• Parties: UNITED STATES of America, Appellant, v. Howard C. HAYES and Gladys I. Hayes, his wife, Stanwood P. Whiteley and Margaret Whiteley, his wife, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

369 F.2d 671 (1966)

UNITED STATES of America, Appellant, v. Howard C. HAYES and Gladys I. Hayes, his wife, Stanwood P. Whiteley and Margaret Whiteley, his wife, Appellees.

No. 20374.

United States Court of Appeals Ninth Circuit.

December 8, 1966.

John W. Douglas, Asst. Atty. Gen., Morton Hollander, Walter H. Fleischer, Martin Jacobs, Attys., Civil Div., U. S. Dept. of Justice, Washington, D. C., Richard L. McVeigh, U. S. Atty., Anchorage, Alaska, for appellant.

Robert Boochever, of Faulkner, Banfield, Boochever & Doogan, Juneau, Alaska, for appellees.

Before JERTBERG and ELY, Circuit Judges, and FOLEY, Jr., District Judge.

ELY, Circuit Judge:

This appeal is from a judgment of dismissal entered by the District Court following a trial. The appellant, plaintiff below, had sought recovery of the unpaid portion of an obligation which had been guaranteed by appellees. The obligation arose from a loan made by the Reconstruction Finance Corporation, whose functions have since been transferred to the Small Business Administration. 22 Fed.Reg. 4633, 71 Stat. 647 (1957). The jurisdiction of the District Court is fixed by 28 U.S.C. § 1345, and our jurisdiction is conferred by 28 U.S.C. § 1291.

On May 28, 1953, Gastineau Corporation and Chicagof Corporation were the two partners of a partnership known as Hayes and Whiteley Enterprises. On the mentioned date they, as copartners, executed a promissory note in favor of the Reconstruction Finance Corporation. The note called for the payment of $49,200, and its maturity date was December 15, 1955. It was secured by a first mortgage on certain land and chattels owned by the partnership. The principal officers of the debtor corporations were Howard C. Hayes and Stanwood P. Whiteley, and on the date of the note's execution, they, together with their wives, executed a written guaranty of the obligation.

After the debt was reduced by a few payments, the copartnership fell into financial difficulty and was adjudicated a bankrupt. The Small Business Administration, as assignee of the Reconstruction Finance Corporation, instituted suit upon the note. The two partner corporations, although served, took no action in defense and defaulted. The trustee of the bankrupt partnership entered a general appearance, but, in effect, consented to the judgment which was sought and, on April 5, 1958, obtained. The judgment, in the amount of $48,983.72,¹ included the unpaid principal, the accrued interest, $4,000 in attorney's fees, and $4,968.49 to reimburse the plaintiff in that suit for "care and preservation of the mortgaged property." The appellee guarantors were not joined as defendants in the suit which resulted in this judgment. They claim that Mr. Hayes and Mr. Whiteley had been told by the "receiver" to stay away from the mortgaged property, that they had assisted the Reconstruction Finance Corporation by furnishing a requested affidavit, and that they abandoned interest in the suit against the note's principal obligors when one of them was told by a representative of the Reconstruction Finance Corporation that "* * * as long as the property was so badly dissipated, he could see no way * * * R.F.C. * * * could hold * * * them * * * personally responsible."

In its brief in our court, the appellant concedes that "During the time that the property had been under the control of the Trustee, it had depreciated in value, through vandalism and theft, and the property did not satisfy the judgment in full." After the proceeds of the foreclosure² had been applied to the judgment debt, there remained, according to a Return on Execution filed on June 30, 1958, an unsatisfied balance of $30,691.67. Over three years thereafter, in September, 1962, the plaintiff instituted the present action.³ In paragraph V of its complaint, it alleged "That the Judgment * * * of April 5, 1958 * * * remains unpaid in the principal amount of $30,691.57 together with interest accrued to the 30th day of August, 1962, in the amount of $7,811.00 together with interest at the rate of six (6%) percent per annum from the 30th day of August, 1962 until fully paid." The appellees denied the allegation. They also pleaded that the action was barred by an Alaskan statute of limitations and that an authorized representative of the plaintiff had orally released them from liability under the guaranty agreement.

In connection with a pre-trial conference conducted by the District Court, the appellant submitted a pre-trial memorandum which, among other things, recited, "Plaintiff expects to prove the allegations set forth in its complaint which are not admitted by the defendant's answer to wit: paragraph 5 and 6."

When, at the commencement of the trial, the district judge remarked, "* * * the contested issues of fact and law * * * are * * * first, the amount due as principal and interest to date from defendant to plaintiff * * *," the appellant's counsel commented, "I think the issues have been covered in the pre-trial memorandum, and also in the Court's present statement." Immediately thereafter, the appellant undertook to prove its case as it had represented in its pre-trial memorandum that it expected to do. It tendered a statement of account containing a self-serving declaration of the amount for which it claimed the appellees were indebted. Upon objection, the tender was rejected, and the appellant does not here challenge the correctness of the court's ruling in that respect. The appellant then produced a witness through whom it would have sought oral testimony as to the unpaid obligation, but the court, following the procedure upon which agreement had been reached at the pre-trial conference, refused to hear the testimony. The appellant had represented in its pre-trial memorandum that it would produce no witnesses.⁴ It repeated this representation as the trial began. It did not request to be relieved from its commitment, it did not request a continuance, and it does not now contend that the District Court erred in refusing to permit it to examine the witness.

Following the two efforts which have been described, the appellant did not attempt further proof. The appellees offered none which pertained to the amount of remaining debt, if any, and the challenged judgment of dismissal was entered. Essentially, it was based upon the court's conclusion that the appellant had failed to meet its burden of proof.

To us, the appellant vigorously urges that the District Court erred in its conclusion that the burden of proof on the disputed issue rested upon it. Incidental to this principal contention is the claim of error on the part of the court in finding that the true evidence of the amount of the indebtedness rested primarily within the knowledge and control of the appellant.

The appellant invokes a rule that a judgment obtained in a suit against a principal debtor is prima facie evidence of the liability of his guarantor or surety in a subsequent suit. Our attention is particularly directed to Moses v. United States, 166 U.S. 571, 600, 17 S.Ct. 682, 41 L.Ed. 1119 (1897), Lake County, for Use and Benefit of Baxley v. Massachusetts Bonding & Insurance Co., 75 F.2d 6, 8 (5th Cir. 1935), Massachusetts B. & Ins. Co. v. Robert E. Denike, Inc., 92 F.2d 657 (3rd Cir. 1937), Commonwealth, to Use of Ulshofer v. Turner, 340 Pa. 468, 17 A.2d 352, 354 (1941), and Home Ins. Co. of New York v. Savage, 231 Mo.App. 569, 103 S.W.2d 900 (1937).

Assuming that such a rule might be sometimes applicable, we agree with the District Court that it should not be operative here. In Home Ins. Co. of New York v. Savage, supra, which appellant emphasizes, the guarantors were joined in the suit in which judgment was taken against the principal. In other cases in which it has been said that a prior judgment constitutes prima facie evidence of the liability of a guarantor in a subsequent suit, it does not appear that the judgment obligation had been reduced by payment. See, e. g., Lake County for Use and Benefit of Baxley v. Massachusetts Bonding & Insurance Co., supra. In the present case, it was shown by the appellant's own allegations that some payments had been made toward the reduction of the indebtedness established by the judgment of April, 1958.

Appellees advance another exception to the rule upon which appellant now relies. This exception arises when the creditor's judgment against the principal, in a suit in which the guarantor is not joined, is taken by default or obtained by confession. Restatement, Security § 139(3) (1941). In the comment to the cited subsection of the Restatement, it is said, "Such a judgment against the principal does not create a rebuttable presumption of the principal's liability, in an action between creditor and surety." Restatement, Security § 139(3), comment e (1941). We support this proposition, and we are inclined to believe that the courts of Alaska, when confronted with the problem, will support it also. The Supreme Court of Alaska has frequently relied on Restatement rules. See, e. g., Thrift Shop, Inc. v. Alaska Mutual Savings Bank, 398 P.2d 657 (Alaska 1965). The issue is not whether the judgment is admissible...