Benson-Stabeck Co. v. Farmers' Elevator Co.

MR. JUSTICE COOPER delivered the opinion of the court. The plaintiff brought this action on five promissory notes, all dated April 27, 1918, aggregating the sum of $27,000, payable January 1 following, with interest at the rate of seven per cent per annum from date. Each bears the signature of the president and secretary of the defendant company and contains the following indorsement: “For value received we, the undersigned, guarantee the payment of the within note at time of maturity or any time thereafter, waiving demand, notice of payment and protest,” and was signed by Henry Bartz, W. M. Nelson, John O’Toole, C. V. Franson, Jacob Zeier, Fred H. Cavill, Chas. Witt, and Oscar Stageberg, the individual defendants in the action. They were all renewals of prior notes. The complaint alleges that, contemporaneously with the execution of the notes, the defendant Farmers’ Elevator Company, hereinafter called the Elevator Company, executed and delivered to plaintiff a chattel mortgage in writing upon a certain elevator situated at Barber, Mont., together with its fixtures and its contents; that, in accordance with the terms of the mortgage, after default in the payment of the notes, plaintiff foreclosed the mortgage by summary process, sold the property covered thereby on the 10th day of April, 1919, and indorsed on the notes the sum of $5,805.30, the net amount realized from the sale, after deducting costs and attorney’s fees. Another paragraph in the complaint alleges that, for the purpose of securing the notes, the defendant Franson executed and delivered to plaintiff a mortgage on two lots in the town site of Barber, Montana. There is another allegation in the complaint to the effect that the individual defendants, as directors, have failed, neglected and refused to file the annual — 401 — statements required by statute, and had thereby rendered themselves liable for all the debts of the corporation, including the promissory notes mentioned. The prayer is for judgment against the defendants and each of them for the amount of the notes, interest and attorney’s fees; that the Franson mortgage be foreclosed as provided by law, the proceeds of the sale applied upon the notes, and a judgment for any deficiency remaining unpaid be rendered against all the defendants. The answer of the defendant company for itself denies that Franson was one of its directors; admits the execution and delivery of the notes by the defendants and the giving of the mortgage by Franson, but denies that any or either of them were executed for a valuable consideration; admits that the company executed and delivered the chattel mortgage to plaintiff; admits that the mortgage was foreclosed and the elevator sold; but alleges that the consideration for the notes and chattel mortgage was illegal, fraudulent, null and void. In a second and separate defense it alleges affirmatively that the notes and the chattel mortgage on the elevator were executed and given 'to plaintiff with the distinct understanding and agreement that they should stand as collateral only to any account of indebtedness that the defendant might incur “by reason of advance to be made or credit to be extended for grain purchased, and not otherwise, or as renewals of such notes so given,” and that there was never any primary or other consideration therefor, and that defendant was not at the time of the execution of the notes or either of them indebted to plaintiff, and is not now indebted to plaintiff at all; that, if such indebtedness at any time existed, the same was created by plaintiff and the manager of the defendant, without the authority of the Elevator Company and illegally. The substantive allegations of the third affirmative defense are as follows: That at the time covered by all of these transactions “the plaintiff was ostensibly engaged in the business of broker and commission agent upon the Chamber of Commerce at Minneapolis, and the Board of Trade of Duluth, Minnesota, — 402 — dealing in grains, provisions and other commodities, but that it was, in fact, executing contracts, options, purchases and sales, trades, deals and futures • in grains and other commodities,” wherein neither party to the transaction contemplated or intended handling or delivering the thing ostensibly purchased or sold, but did contemplate and intend that the transactions should be settled upon the basis of the public market quotations of prices upon such Chamber of Commerce or Board of Trade without a bona fide transaction; that the plaintiff and Franson contemplated and intended that their transactions might be deemed terminated when the public market quotation of prices should reach a certain figure; that between January 1, 1914, and January 1, 1918,; the plaintiff executed orders for purchases, sales, or deals and trades in options and futures in grain ostensibly for the Elevator Company, but in fact for Franson personally, in excess of 475,000 bushels of grain, and failed to furnish the statement required by the provisions of section 8994 of the statute of the state of Minnesota; that all the purchases and sales thus carried on between Franson and the plaintiff were illegal and entailed losses in the sum of $41,527 and more, which losses were charged against the Elevator Company in the grain accounts of the plaintiff. For further defenses and as counterclaims the defendant Elevator Company seeks to recover of the plaintiff $12,000 for grain shipped to, and received by, it, sold and not paid for, and $10,000 damages for selling the elevator and converting the proceeds realized from the sale thereof. The answer of the individual defendants contains admissions similar to those in the answer of the Elevator Company, and alleges affirmatively that they signed the promissory notes as guarantors with the understanding and agreement that they should stand as collateral only to any indebtedness that the Elevator Company might incur in legitimate transactions growing out of buying grain and shipping it to market for sale. It also affirmatively alleges that Franson gambled on the grain markets of Minneapolis and Duluth, the plaintiff acting as403 broker therein, and that plaintiff wrongfully charged the losses sustained therein up to the Elevator Company in the grain account upon its books without their knowledge or consent as directors, and that such attempted balancing of the accounts was illegal. They also deny that they failed to file the annual statement required of them as directors. The reply puts in issue all the allegations of both answers and the counterclaims of the Elevator Company. Upon these issues the case was called for trial. Whereupon counsel for the defendants who have appealed made suitable demand for a trial by jury of the issues between themselves and the plaintiff. The court denied the motion upon the ground that the cause was one entirely in equity. To this ruling exception was taken. From the judgment rendered and the denial of their motion for a new trial all the defendants except Franson have appealed. Was there presented in the court below a ease wherein the defendants, other than Franson, were entitled to a jury trialf Section 23 of Article III of our Constitution provides that the right of a trial by jury shall be secured to all and remain inviolate. Section 6724 of the Revised Codes of 1907 (sec. 9327, Rev. Codes 1921) speaks in definite terms upon this question, and provides that “in actions for the recovery of * * * money claimed as due upon contract, or as damages for breach of contract, or for injuries, an issue of fact must be tried by a jury, unless a jury trial is waived or a reference is ordered as provided in this Code. Where in these cases there are issues both of law and fact, the issue of law must be first disposed of. In other cases issues of fact must be tried by the court, subject to its power to order any such issue to be tried by a jury, or to be referred to a referee, as provided in this Code.” The plaintiff’s contention is that the notes were given as security for money advanced in good faith to further the business operations of the Elevator Company. The defense is that — 404 — the plaintiff wrongfully took the money for which the notes were given and credited it on account of gambling contracts which it had been carrying on with Franson unbeknown to defendants as directors, wrongfully and without their authority. The primary right sought to be enforced by the plaintiff against Franson is the foreclosure of the mortgage on the two lots in the town of Barber, and the application of the proceeds derived from a sale thereof as a credit on the notes; against the Elevator Company it is to fix its liability as maker of the notes and against the individual defendants, as guarantors, and the assessment of the penalty for their failure, as directors, to file the annual statement required by section 3850 of the 1907 Codes (sec. 6003, Rev. Codes 1921). No equitable relief other than the foreclosure of the Franson mortgage is asked. The demands against the corporation and the individual defendants merely are “for money claimed as due upon contract” (Rev. Codes 1907, sec. 6724 [sec. 9327, Rev. Codes 1921]), and the penalty visited upon the defaulting directors above referred to. By the very terms of the section (6724 [9327]) the issues upon the notes between the plaintiff and all the defendants who have appealed must be tried by a jury. The same must be said of the demand based upon the failure of the directors to file the annual statement. That they are all legal demands for determination by a jury is too clear to require more than bare reference to the above statutes. However, to more effectually answer the argument of counsel for the plaintiff, a brief review will be made of a few of the cases which support the propositions here announced. Lehman v. Coulter, 40 N. D. 177, 168 N. W. 724, was an action to foreclose a chattel mortgage. The answer admitted all the allegations of the complaint, thus disposing of all the equitable issues in the case. Defendant also interposed two counterclaims for the recovery of money. The court said: “Where one brings an action to foreclose a chattel mortgage, and the answer admits all the allegations of the complaint, all of the equity matters in such case are disposed of, and there — 405 — is nothing before the court further to be considered in such equity proceedings; and where the answer, in addition to admitting all the allegations of the complaint in such equity proceedings, pleads two counterclaims for specific amounts for the recovery of money only, and at the time of the trial defendant demands a jury trial, such jury trial cannot be denied to him, and he is entitled to such jury trial as a matter of strict legal right.” The above holding was adhered to in Farmers’ National Bank v. Tudor (N. D.), 183 N. W. 845. State Bank of Cuthbert v. Carlton, 44 S. D. 199, 183 N. W. 119, was an action on two notes. The answer denied every allegation except the execution of the first note and pleaded a counterclaim. The complaint sought judgment upon the first note and reformation of the second. There were issues of fact as to the existence of the counterclaim. It was held that the ruling of the trial court that the issues were triable without a jury was erroneous, the court saying: “So far, at least, as one note was concerned, there were no issues raised except such as should have been tried by a jury.” In Maas v. Swalbach, 96 Misc. Rep. 559, 160 N. Y. Supp. 846, the supreme court said: “This action is brought to foreclose certain land contracts assigned to the plaintiff by the defendant Swalbach in part settlement of moneys which it is claimed he unlawfully appropriated and for judgment for deficiency against him and the defendant Anton Strauss, who guaranteed the repayment of the moneys alleged to have been misappropriated. The action is for both equitable and legal relief, and the defendant Strauss, who makes this application, is entitled to a jury trial of the legal issues raised by his answer, in which he sets up want of consideration, fraudulent representations and undue influence in securing the guaranty, and illegality in the settlement of the alleged misappropriations. Such a trial will be directed on motion of the defendant, under section 970 of the Code of Civil Procedure. (Wheelock v. Lee, 74 N. Y. 495, 500; Le Frois v. County of Monroe, 88 Hun, 109, 112, 34 N. Y. Supp. 612; Snell v. Niagara — 406 — Paper Co., 193 N. Y. 433, 86 N. E. 460, 25 L. R. A. (n. s.) 264.) ” To the same effect, see McNulty v. Mt. Morris Electric Light Co., 172 N. Y. 410, 65 N. E. 196; Sallady v. Webb, 2 Ohio Cir. Ct. R. 553, and Buller v. Milner, 95 Kan. 463, 148 Pac. 605. The grafting of the foreclosure proceeding against Franson alone upon the strictly legal issues between the plaintiff and the other defendants as maters and guarantors of the notes in suit, respectively—the primary purpose for which this action was brought—cannot deprive them of the right to a trial by jury recognized by section 6724, supra. There being issues of fact to be determined between all the parties except Franson, their dispute should have been submitted to a jury as an action at law in deference to their constitutional right. The judgment as to Franson is affirmed. The judgment as to the other defendants is reversed, as is also the order denying them a new trial, and the cause is remanded to the district court of Musselshell county, with directions to grant a new trial. Reversed and remanded. Mb. Chief Justice Callaway and Associate Justices Holloway, Calen and Stark concur.