Valley Min. Corp., Inc. v. Metro Bank, s. 78-563

• Decision Date: 02 May 1980
• Docket Number: Nos. 78-563,78-563X,s. 78-563
• Parties: 28 UCC Rep.Serv. 1231 VALLEY MINING CORPORATION, INC., et al., v. METRO BANK, etc., et al. METRO BANK, etc., et al. v. VALLEY MINING CORPORATION et al.
• Court: Alabama Supreme Court

Page 158

383 So.2d 158

28 UCC Rep.Serv. 1231

VALLEY MINING CORPORATION, INC., et al., v. METRO BANK, etc., et al.

METRO BANK, etc., et al. v. VALLEY MINING CORPORATION et al.

Nos. 78-563, 78-563X.

Supreme Court of Alabama.

May 2, 1980.

Douglas Corretti and Samuel Maples, Corretti, Newsom & Rogers, Birmingham, and Lee Bains and Jon Terry, Bessemer, for appellants.

Norman K. Brown, Bessemer, and Richard F. Ogle, of Denaburg, Schoel, Meyerson & Ogle, Birmingham, for appellees.

MADDOX, Justice.

The maker of a promissory note and individual guarantors appeal from a judgment entered against them pursuant to a jury verdict, claiming:

(1) The trial court incorrectly instructed the jury that they could not find the guarantors liable on the note unless they also found the principal debtor liable.

(2) The testimony of an F.B.I. agent, even though relevant, was highly prejudicial, and should have been excluded because it suggested that a federal investigation of the events surrounding the case had been conducted.

(3) The trial judge should have instructed the jury that if the creditor dealt with the collateral in a commercially unreasonable manner, the creditor was not entitled to recover a deficiency.

The creditor cross-appealed, claiming that the trial judge erred in entering a judgment pursuant to the jury verdict which found the three individual guarantors liable for only one-third of the total debt.

The pleadings were lengthy, but a simple and concise statement of the claims, counterclaims and cross-claims is as follows:

The bank (Metro) sued the principal debtor and the individual guarantors, Sam Raine, Jr., Norman Ceravolo, and Jerome Lacy, to recover its debt, but also claimed that two of the individual guarantors, Raine and Ceravolo, had fraudulently procured a continuation of the notes and guarantees.

The debtor (Valley Mining) and the individual guarantors denied liability, set up some affirmative defenses, including the statute of frauds, usury and commercially unreasonable behavior, and filed a counterclaim in which they alleged that Metro had wrongfully repossessed and sold certain equipment (collateral) belonging to them. Metro denied this. Lacy, one of the guarantors, filed a cross-claim, in which he alleged that Ceravolo and Raine had fraudulently misrepresented certain facts to him and had conspired to defraud him.

The cause was heard before the Honorable George H. Wright, Jr., special judge, sitting for the Honorable Walter Bridges, who had recused himself, on March 19, 1979, and proceeded until the jury returned its verdict on the 14th day of April, 1979. On May 11, 1979, the trial judge entered a final judgment in which he ordered and decreed:

(1) That the plaintiff Metro Bank have and recover of defendant Valley Mining Corporation the sum of $236,788.94 in compensatory damages.

(2) That the plaintiff Metro Bank have and recover of defendant Sam Raine, Jr. the sum of $78,929.65 compensatory damages.

(3) That the plaintiff Metro Bank have and recover of defendant Norman Ceravolo the sum of $78,929.65 compensatory damages.

(4) That the plaintiff Metro Bank have and recover of defendant Jerome Lacy the sum of $78,929.64 compensatory damages.

(5) That the plaintiff Metro Bank have and recover of defendant Sam Raine, Jr. the sum of $10,000.00 punitive damages.

(6) That the plaintiff Metro Bank have and recover of defendant Norman Ceravolo the sum of $10,000.00 punitive damages.

(7) That defendant Valley Mining Corporation have and recover of plaintiff Metro Bank the sum of $10,000.00 punitive damages.

(8) That defendant and cross-plaintiff Jerome Lacy have and recover of defendants Sam Raine, Jr. and Norman Ceravolo the sum of $50,000.00 compensatory damages.

(9) That all costs incurred herein are hereby taxed against the defendants, Valley Mining Corporation, Sam Raine, Jr., Norman Ceravolo and Jerome Lacy, for which execution may issue.

I

Did the trial judge improperly instruct the jury in the law relative to the liability of a guarantor? Here's how the question arose. After the jury began deliberations, they sent a note to the court on the second day of their deliberations which read as follows "If you want to give damages to the bank from all three defendants, which paper do you use?"

Thereafter, the court, with the consent of the attorneys for the parties, instructed the bailiff to tell the jury that they could use any of the verdict forms that were submitted to them at the start of their deliberations or they could write their own verdict. At 3:13 p. m. on the 14th day of April, 1979, the jury returned a verdict. The record shows the following occurrence:

"THE COURT: All right, Ladies and gentlemen of the jury, have you arrived at a verdict or verdicts in this case?

"MR. COLEMAN: Yes, sir, we have.

"THE COURT: Mr. Coleman, are you the foreman?

"MR. COLEMAN: Yes, sir.

"THE COURT: Would you read the verdicts, sir?

"MR. COLEMAN: We, the jury, find for the plaintiff, Metro Bank on its complaint against the defendants Sam Raine, Norman Ceravolo, and Jerome Lacy to each pay one-third of balance of two hundred thirty-six thousand seven hundred eighty-eight dollars and ninety-four cents.

"THE COURT: All right.

"MR. COLEMAN: We, the jury find in favor of the Defendant-Cross Plaintiff Lacy and against the Defendants Raine and Ceravolo and assess his compensatory damages at fifty thousand dollars. We, the jury find for the Defendant Valley Mining Corporation on its counter claim alleging fraud against Metro Bank and assess the Defendant Valley Mining Corporation punitive damages of ten thousand dollars. We, the jury, find for the Plaintiff, Metro Bank, on its complaint against Defendant Sam Raine, Jr. and assess its damages at ten thousand dollars punitive damages.

"THE COURT: All right. Let me ask you this: Is the first verdict the verdict against all of the defendants?

"MR. COLEMAN: Right. Raine, Ceravolo and Lacy.

"THE COURT: Is that compensatory or punitive damages?

"MR. COLEMAN: That is compensatory. What the balance was owed the Bank after the equipment and everything was sold that they should pay the Bank what they owed them.

"THE COURT: If you could, hand me those verdicts and I am going to let you go back out into the jury room just for a few minutes, ladies and gentlemen."

After discussing the verdicts with attorneys outside the presence of the jury, and over strenuous objection, the trial judge further charged the jury as follows:

"THE COURT: * * * But you have not yet reached a verdict on the complaint of Metro Bank against Valley Mining Corporation. You recall Valley Mining Corporation was the one allegedly who signed those notes, executed the notes and the three that you have returned verdicts against were the guarantors. They signed the guarantee agreement there. So you still must return a verdict one way or the other as to the complaint of Metro Bank against Valley Mining Corporation. I remind you you have already returned a verdict on Valley Mining Corporation's counter claim against the Bank. You have returned a verdict on that. But you have not returned a verdict on the complaint of Metro Bank against Valley Mining Corporation. So at this time I must send you out for further deliberations until you reach a verdict on that. Under the law of the State of Alabama, guarantors on a note cannot be liable for the payment of that note unless the principal is liable. That is the law of the State of Alabama. Now you may retire at this time and continue your deliberations and I will let you take the verdicts back with you you have already rendered, but don't change these verdicts."

Shortly thereafter, the jury returned a verdict for Metro against Valley Mining in the sum of $236,788.94, which is the same amount as the total sum for which they had found the three guarantors to be liable.

We find that the trial judge correctly instructed the jury to return for further deliberations when it became apparent that the jury failed to return a verdict on Metro's claim against Valley Mining. In Hood v. Ham, 342 So.2d 1317 (Ala.1977), this Court stated, in citing the rule that a trial court's authority to amend a jury verdict is limited to matters of form or clerical error and does not extend to matters of substance required to be passed upon by the jury:

"This rule applies with equal force where there is a total absence of a jury verdict; and it is no answer to speculate that, in view of the verdict returned in the companion case, it is 'apparent' what the jury 'must have' intended. Upon demand of a jury trial, the plaintiff was entitled to have his cause adjudicated by a jury verdict. Where the jury returns no verdict whatsoever, there is no authority recognized in our law for the trial Court to enter a final judgment of dismissal." 342 So.2d at 1318.

We further find that the instruction that the guarantor of a note cannot be liable for the payment of the note unless the principal is found to be liable is an accurate statement of the law, and appropriate here, because we have examined the "Guaranty Agreement" executed in this case and find it is, in fact, a guaranty agreement, rather than a surety agreement, as claimed by Valley Mining.

In reaching our conclusion, we applied the following principles of law:

"A guaranty in its technical sense is collateral to, and made independently of, the principal contract which is guaranteed; and the guarantor's liability is secondary rather than primary or original." 38 C.J.S. Guaranty § 2 (1943).

"A surety is bound with his principal as an original promissor; a guarantor is only bound if and when the creditor is unable to collect from the principal debtor." Davenport & Harris Undertaking Co. v. Roberson, 219 Ala. 203, 205, 121 So. 733 (1929).

We find no error in the trial judge's instruction to the jury on the law concerning the liability of a principal debtor and its guarantors.

II

The second question we will address is whether...