Arizona Mining & Trading Co. v. Benton , 12 Ariz. 373 ( 1909 )

KENT, O. J. —

Benton brought suit in the court below against the Arizona Mining and Trading Company on a promissory note for $18,242.05 alleged to have been executed to him by the company, and to be due and owing from it. The summons was served on C. A. Overlook, the president of the defendant company, on May 12, 1908, and on the same day a pleading entitled an answer, verified by the said Overlook, as president of the company, was filed on its behalf, reading as follows, omitting the title of the court and cause: “Comes now the defendant, the Arizona Mining and Trading Company, a corporation, and, answering the complaint filed herein, admits as substantially true the material allegations thereof, and alleges that this defendant is unable at this time to pay the indebtedness set forth in said complaint, or any part thereof. "Wherefore this defendant prays judgment of this court in accordance with law.' Arizona Mining and Trading Company. C. A. Overlook, President.” On the same day the case was brought on for trial in the district court, and a judgment rendered in favor of the plaintiff for the amount of the note and interest, the said judgment containing the following recital: * ‘ Evidence is now introduced on behalf of the plaintiff, and it further appearing from the verified pleadings on file herein, as well as from said evidence, that the allegations of the complaint are true and proven, and the matter having been submitted to the court for finding and decision, and the court being fully advised in and concerning the premises, it is therefore ordered,” and so forth. On May 21st the defendant company, through its attorneys, filed a motion to vacate and set aside the judgment so entered, and for leave to file a proposed answer attached to the motion. The motion was based on the ground that the judgment was obtained by fraud and collusion, and that it was obtained upon an answer purporting to have been made on behalf of the defendant by Overlook, its president, admitting the truth of the allegations of the complaint, which answer was made collusively and fraudulently by Overlook at the instance and request of plaintiff without any authority on the part of the defendant company to Overlook to appear in said action or file said answer, and alleged that the defendant had a meritorious defense to the action and the whole thereof, and had no notice of said action or opportunity to present its defense. The motion was supported by the affidavits of E. H. Lewis, W. F. Rudolph, and J. F. Ross. The affidavits of Lewis and Rudolph set forth that the board of directors of the defendant company consisted of themselves and Overlook, the president; that neither of the affiants had any knowledge or notice of the filing of the action or the rendering of the judgment therein, or of any service of any process on the corporation until after the judgment was rendered; that the directors of the company had never authorized Overlook to file an answer or appear in behalf of the corporation. They' further alleged on information and belief that Overlook was personally interested in, and a beneficiary of, the note sued on. The affidavit of Ross stated that he was at the county seat on the day the answer in the case was filed by Overlook, and that Overlook saw him there, and that though Overlook knew that Ross was the counsel and legal adviser of the board of directors of the defendant company, Overlook did not inform Ross of the filing of the action or the filing of the answer made by Overlook in the action, or disclose to Ross anything whatever concerning the action. The answer which the corporation asked leave to file was verified by Rudolph as one of the directors of the corporation, and denied that the promissory note sued upon by Benton was founded upon any consideration, or that there was any sum due Benton thereon fby the company, and affirmatively set forth matters of defense which, if true, were sufficient to defeat Benton’s claim. On the twenty-fifth day of May the plaintiff, Benton, filed in the office of the clerk of the court a reply to the answer sought to be interposed by the defendant corporation, setting up matters in contravention of the alleged facts set forth in said answer. A motion was made by the attorneys for the corporation to strike the reply from the files on the ground that it was prematurely filed, and that it appeared upon its face to be for the purpose of answering the allegations set forth in the defendant’s answer, and, as it went to the merits of the defense as alleged in the answer, was not a proper pleading or properly before the court upon the motion to set aside the judgment in the ease. The motion to strike this reply from the files was denied hy the court. The president, Overlook, filed an affidavit, in which he stated that,.upon being served with the summons and complaint in the case, he believed it to he his duty to make such answer to the complaint as the facts would warrant, and for that reason executed and filed the answer therein; that it was not filed at the request of the plaintiff or his attorneys, hut in accordance with his own belief as to his duty in the matter; that he had no interest as to whether the plaintiff recovered on the note sued on in the complaint or not; that he did not know or believe that Ross was the counsel of the company. Upon the return day of the motion to set aside the judgment, the court took the testimony of a number of witnesses, and went fully, not only into the question of collusion and interest, hut also into the merits of the case, both as to the plaintiff Benton’s claim and as-to the validity of the company’s defense thereto, and at the conclusion thereof denied the motion, holding that the evidence showed that there was no want of consideration for the note; that there was no fraud or collusion between the president Overlook and the plaintiff or his counsel ; that the execution of the note was authorized by the directors of the defendant company; that the company obtained the money and used it to pay its running expenses; and that there was nothing in the evidence that would militate against the bona* fides of the claim or affect the consideration for which the note was given. The court further held that the answer filed by Overlook, the president, could not be considered as a confession of judgment in the case, since the case had been taken up upon the issue raised hy the answer filed and the judgment had been rendered after the taking pf evidence and upon a hearing on the merits, and further held that, as there was no possible defense to the action, the step taken by the president in admitting the debt was the wise course and merely a prudent business act on the part of the president for the corporation. The matter comes before this court upon an appeal from the denial of the motion to vacate and set aside the judgment.

We have deemed it desirable to set forth thus fully the record in the case as the situation is somewhat involved. The reply to the defendant’s proposed answer would seem to have been prematurely filed. It did not controvert the allegations in support of the motion to vacate the judgment, but put in issue the matter alleged in the proposed answer in defense of the cause of action of the plaintiff. It properly had no place in the record, since no answer had been filed, but only an application to file an answer was presented. The court below heard a large amount of testimony covering all the phases of the case, and upon such testimony concluded that the defendant had no sufficient defense to the action, and that there was no fraud or collusion, and therefore refused to set aside the judgment, and permit the filing of such defense. So far as the question of the alleged collusion between Overlook and the plaintiff’s attorneys and the alleged personal interest of Overlook in the plaintiff’s action and the judgment was concerned, it was proper for the court to weigh the facts presented either by affidavit or by the taking of oral testimony, if that method was desired, and to determine the questions. We do not think, however, upon a motion to set aside a judgment and allow a defendant to present its defense, that the court should hear testimony for the purpose of determining the merits of such defense, or pass upon such merits where such a valid defense is prima facie shown to exist by an affidavit of merits or by a verified answer explicitly showing its nature and sufficiency. A determination of such issue upon a motion to set aside a judgment deprives the party, not only of his day in court, but of his right of appeal from the decision upon such issue. Whether or not a defendant shall be permitted to open a default or set aside a judgment lies in the wise discretion of the trial court, but the determination in that respect is to be based upon a proper presentation by the moving party, first, of sufficient grounds to invoke the exercise of the discretion; and, second, of alleged facts sufficient to show prima facie a valid defense, but the truth of such facts and the sufficiency of the defense as a matter of law is a question to be determined upon the trial of the case, and not upon the motion.

In the case before us the defendant presented to the trial court by its affidavits and proposed answer facts sufficient to show prima facie a valid defense to the action. Without inquiring into the truth or falsity of such defense, it was then the duty of the trial court to ascertain whether grounds existed sufficient to warrant the court to grant the application in the exercise of a wise discretion. It is true that the record shows that the company itself presented orally upon the motion this evidence by which it hoped to sustain its contention that it had a valid defense; but this was very probably done because the reply which the court had refused to strike put these facts at issue, though they were improperly at issue, since this question was not then properly before the court. We have not on this appeal, therefore, considered the question whether upon the facts orally presented to the trial court upon the motion the trial court was right in concluding that the defense of the company upon the merits was as a matter of law or of fact insufficient. Apart from this, and treating, as we think should have been done, the defense sought to be interposed by the company as prima facie sufficient, we have to determine the question whether the court erred in not holding that sufficient grounds existed to call for the granting of the motion in the exercise of a proper discretion. We think sufficient grounds to call for such action are to be found in the record. It appeared that Overlook, the president of the company, on the same day that he was served with the summons and complaint, caused the document which was styled the answer of the company to be drawn for him by one of the plaintiff’s attorneys, and the action was that day brought to trial and judgment rendered. The trial court, however, upon the subsequent investigation into the facts made by it upon the hearing of the motion, found that there was no collusion between Overlook and the plaintiff’s attorneys, and no actual fraud, and we see no reason to question this conclusion so reached. We do not think, however, that the defendant company can be bound by the action of Overlook in appearing and filing in its behalf the answer interposed by him. Strictly speaking, and also under the provisions of our code, it was not an answer, since an answer, to be such, must be a confutation in fact or in law of the plaintiff's claim. In other words, its purpose being to defeat the action and to bar the plaintiff’s recovery, it must contain matter of defense or of avoidance. Though a document be denominated an answer, it does not become an answer from such denomination alone. Brower v. Nellis, 6 Ind. App. 323, 33 N. E. 672.

Whatever it be termed, or whatever its phraseology, the document in question was in effect a plea of confession of the cause of action. It is true that it did not in terms confess judgment or authorize the entry of judgment, but it did in terms acknowledge the debt and admit the company’s inability to pay. While the record shows that the trial court took evidence on the part of the plaintiff before rendering judgment, the judgment recites that the truth of the allegations of the complaint are also established by the verified pleadings, and the plea interposed by Overlook was such a one as would have enabled the court to render judgment for the plaintiff without any testimony being adduced by the plaintiff. The substance and not the form must be looked at. So viewed, it is in effect a plea of confession of judgment, and it must be so treated. Puget Sound Nat. Bank v. Levy, 10 Wash. 499, 45 Am. St. Rep. 803, 39 Pac. 142. We hold with what seems to be the better rule, that the president of a corporation may not, in the absence of statutory authority, confess judgment for his corporation without the express authority of the corporation, except, perhaps, in instances where the nature of the business of the corporation or the nature of the duties of the president are such that authority from the corporation so to act may be implied. Raub v. Blairstone Creamery Co., 56, N. J. L. 262, 28 Atl. 384; Stokes v. New Jersey Pottery Co., 46 N. J. L. 237; Adams v. Cross Wood Co., 27 Ill. App. 313; Cook on Corporations, 4th ed., pars. 716, 754. No such authority is claimed in this ease by the president, and the corporation has expressly repudiated his act in this direct proceeding brought in the same ease to set it aside. Furthermore, while the trial court found that there was no collusion between Overlook and the plaintiff or his attorneys, the testimony given shows, we think, such a personal interest of Overlook in the plaintiff’s claim antagonistic to the corporation as would preclude his admitting liability on the part of the corporation without its sanction or authority. Overlook testified that he originally had a claim against the company to the extent of $1,264.32, and that it was part of the note sued on; that he had assigned it to Benton, and had never received anything for the debt, the understanding being that Benton would assume the account, and, as soon as he collected the note from the company, would pay Overlook what was due him. Benton testified that he had paid nothing for the Overlook claim; that, when he collected the note, he expected to pay Overlook. It is true that Benton also testified that he intended to pay Overlook the amount due him whether he collected the note from the company or not. But while Overlook, therefore, had no direct claim upon the defendant company or the proceeds from the collection of the Benton note, it appears from the evidence that he was interested in the recovery, since the payment to him from Benton, if not dependent upon, was enhanced by Benton’s recovery.

We think by reason of these facts, and though there be no fraud to be imputed to Overlock or the plaintiff’s attorneys, the case was one in which the trial court should have sustained the motion to set aside the judgment, and have allowed the defendant company to interpose its answer. The order of the district court denying the motion is therefore reversed, and the case is remanded to the district court for further proceedings in conformity with this opinion.

SLOAN, CAMPBELL, and NAYE, JJ., concur.