FISCHER v. HAMMONS, 32 Ariz. 423 (1927)

259 P. 676

G. FISCHER, Appellant, v. A.T. HAMMONS, Superintendent of Banks of Arizona, as Receiver of THE BANK OF JEROME, an Arizona Corporation, Insolvent, Appellee.

Civil No. 2596.Supreme Court of Arizona.
Filed September 19, 1927.

1. APPEAL AND ERROR — WHERE PLEADING WAS TREATED AS COMPLAINT IN TRIAL COURT, APPELLANT CANNOT URGE ON APPEAL THAT IT WAS MERE MOTION NOT SUBJECT TO DEMURRER. — Where pleading was treated as a complaint by both parties in the trial court, and case was disposed of there on theory that it was a complaint,

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the appellant cannot for the first time urge on appeal that it was a mere motion not subject to demurrer.

2. PLEADING — WHERE PETITION WAS TREATED AS COMPLAINT BY BOTH PARTIES, OBJECTIONS APPEARING ON FACE OF PETITION COULD BE RAISED BY DEMURRER. — Where a petition was treated in the trial court by both parties as a complaint, it was proper to raise by means of a demurrer any objections appearing on its face.

3. PLEADING — DEMURRER NEED NOT BE VERIFIED. — It is never necessary or even proper to verify a demurrer.

4. JUDGMENT — WHERE SECOND ACTION IS ON SAME CAUSE OF ACTION, JUDGMENT IN FIRST ACTION IS CONCLUSIVE ON MATTERS WHICH MIGHT HAVE BEEN LITIGATED THEN. — Where a second action has been brought on the same cause of action as a previous action, the judgment in the first action is conclusive as to matters which the parties had an opportunity to litigate at that time.

5. JUDGMENT — WHERE SECOND ACTION IS ON DIFFERENT CAUSE OF ACTION, JUDGMENT IN PRIOR ACTION IS ONLY CONCLUSIVE AS TO MATTERS ACTUALLY ADJUDICATED. — Where a second action, although between the same parties, is on a different cause of action than the previous litigation, the judgment is not conclusive on all matters which might have been litigated in the first action, but only as to such questions as were actually in issue and adjudicated.

6. JUDGMENT — SET-OFF MAY BE PLEADED, OR NOT, AT DEFENDANT’S OPTION. — The general rule is that a set-off may be pleaded, or not, at the option of the defendant.

7. JUDGMENT — WHERE DEFENDANT DOES NOT PLEAD SET-OFF, HE MAY SUE UPON IT AS INDEPENDENT CAUSE OF ACTION OR RELY ON IT IN ANOTHER ACTION, THOUGH JUDGMENT IN FIRST ACTION WAS ADVERSE. — Where the defendant does not plead a set-off, the right to sue upon it as an independent cause of action or to rely upon it in another action is not affected or impaired by a judgment against the defendant in the first action.

8. JUDGMENT — WHERE SUBJECT MATTER OF SET-OFF IS SO INVOLVED IN DETERMINING ISSUES THAT JUDGMENT NECESSARILY DETERMINES FACTS, JUDGMENT ADVERSE TO DEFENDANT BARS SUIT ON SET-OFF. Where the subject matter of a set-off is so involved in the determination of an issue that the judgment necessarily determines the facts which defendant would have to establish to maintain

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a set-off, suit on the set-off is barred by judgment adverse to the defendant, although he did not plead the set-off.

9. JUDGMENT — UNACCEPTED OFFER TO CREDIT BANK BALANCE ON NOTES HELD NOT TO CREATE “OPEN AND MUTUAL ACCOUNT,” SUCH THAT JUDGMENT FOR BANK BALANCE, NOTES NOT BEING PLEADED, WOULD PRECLUDE BANK RECEIVER FROM BRINGING ACTION ON NOTES. — An unaccepted offer to credit bank balance on notes held by bank held not to create an “open and mutual account,” such that judgment against the bank for the bank balance, notes not being pleaded, would not preclude bank receiver’s subsequent action on the notes, notwithstanding the plaintiff in his action for his bank balance requested that the bank’s receiver plead the notes as a set-off; “an open and mutual account” being one where there are running or concurrent dealings between the parties which are kept unclosed with expectation of further transactions.

10. PLEADING — AFFIDAVITS ARE NOT PART OF A COMPLAINT, FOR PURPOSE OF DEMURRER. — Affidavits attached to a complaint are not a part thereof, for the purpose of demurrer.

11. BANKS AND BANKING — PROMISE BY CASHIER THAT BANK WOULD NOT CALL ON ACCOMMODATION PARTY TO PAY NOTES HELD NOT TO RELIEVE HIM FROM OBLIGATION TO DO SO (CIV. CODE 1913, PAR. 4174). — Promise by bank cashier to an accommodation party signing notes payable to the bank, that the bank would not call upon him to pay the notes, held not to release him from his obligation to do so, in view of Civil Code of 1913, paragraph 4174, providing that an accommodation party is liable to a holder for value, notwithstanding the holder knew him to be only an accommodation party.

12. BILLS AND NOTES — ACCOMMODATION PARTY, SIGNING NOTES PAYABLE TO BANK ON CASHIER’S PROMISE THAT HE WOULD NOT BE CALLED UPON TO PAY, CANNOT RELY ON DEFENSE OF FRAUD IN ACTION BY RECEIVER OF BANK. — An accommodation party, who signed notes payable to a bank on the cashier’s promise that the bank would not call upon him to pay the notes, cannot defeat recovery by the receiver of the bank on the ground that the alleged fraudulent conduct of the cashier should be imputed to the bank and bank was therefore trustee ex maleficio, since he was himself a party to the alleged fraud.

13. EQUITY — HE WHO COMES INTO EQUITY MUST COME WITH CLEAN HANDS. — He who asks the aid of a court of equity must come into court with clean hands.


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CONDITION THREE OTHER SIGNATURES WERE SECURED WILL BE IMPUTED TO BANK. — Where it is established that a bank cashier was apparently acting for bank in securing signature of accommodation party to note, his knowledge that the party signed the note on condition three other signatures were secured will be imputed to the bank.

15. BILLS AND NOTES — CONDITIONAL SIGNATURE IS VALID DEFENSE. — Where accommodation party to note to bank signed it on condition three other signatures were secured and the other signatures were not secured, receiver of bank cannot hold party liable.

16. BANKS AND BANKING — WHERE PARTY SIGNING NOTE ON CONDITION OTHER SIGNATURES ARE SECURED KNOWS BANK CASHIER IS ACTING FOR HIMSELF, CASHIER’S KNOWLEDGE OF CONDITION WILL NOT BE IMPUTED TO BANK. — Where an accommodation party, signing note payable to bank on condition that other signatures are to be secured, knows that bank’s cashier is acting for himself in the transaction and is not representing the bank, the cashier’s knowledge of the condition will not be imputed to the bank and the bank’s receiver can hold the accommodation party, notwithstanding other signatures have not been obtained.

17. CANCELLATION OF INSTRUMENTS — PETITION TO CANCEL NOTE, ALLEGING THAT PETITIONER SIGNED NOTE ONLY ON CONDITION THREE OTHER SIGNATURES WERE SECURED, WHICH WAS NOT DONE, HELD NOT DEMURRABLE. — Petition for cancellation of note, alleging that petitioner signed it at request of bank’s cashier who represented that he would also secure the signatures of three other persons thereto, and that petitioner signed the note on that condition, and the three other signatures were not obtained, held to state a cause of action not subject to demurrer.

See (1-3) 3 C.J., p. 718, n. 50; 31 Cyc., p. 273, n. 30, p. 308, n. 23. (4, 5) 34 C.J., p. 911, n. 35. (6, 7) 34C.J., p. 864, n. 15. (8) 34 C.J., p. 865, n. 18. (9) 1C.J., p. 601, n. 64, 66. (10) 31 Cyc., p. 324, n. 30. (11) 7C.J., p. 557, n. 48. (12, 13) 9 C.J., p. 1219, n. 22; 21C.J., p. 180, n. 89. (14-17) 7 C.J., p. 534, n. 93; 8 C.J., p. 207, n. 18.

[4] See 15 Cal. Jur. 142; 15 R.C.L. 974.

[5] See 15 R.C.L. 977.

[7] Prior action in which claim might have been asserted by set-off, counterclaim or cross-petition, as barring or abating subsequent independent action thereon, see note in 8A.L.R. 694. See, also, 15 Cal. Jur. 158; 15 R.C.L. 972.

[9] See 1 Cal. Jur. 143-145.

[14] See 4 Cal. Jur. 162.

APPEAL from an order of the Superior Court of the County of Yavapai. John J. Sweeney, Judge. Order reversed and cause remanded with instructions.

Mr. J. Gardner Scott, for Appellant.

Mr. John L. Sullivan and Mr. John A. McGuire, for Appellee.

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This is an appeal from an order denying the petition of G. Fischer, hereinafter called appellant, to have certain promissory notes signed by him, and held by appellee, A.T. Hammons, superintendent of banks, as receiver of the Bank of Jerome, an insolvent banking corporation, hereinafter called the bank, declared void and of no effect as to him, and to have his signature thereon canceled.

The petition, after setting up the formal matters necessary, alleges, in substance, as follows: At the time the bank closed its doors, appellant was indebted to it on a note of his own in the sum of $1,000, but had deposited with the bank enough to pay said note and leave a balance of $3,048.88. The receiver also held three notes, payable to the bank, one for $7,500, signed by appellant and one John D. Johnson; one for $4,000, signed by appellant and F.A. Hemphill, Peter Gordon and Johnson; and a third for $1,391.62, signed by appellant, Gordon, and Johnson. Appellant presented his claim for the balance due on his deposit, with affidavits attached repudiating any liability on the notes, and alleging they were obtained by the bank through the fraud of its cashier, Paul Deming, which claim was by the receiver approved as an offset on the three notes above described. Thereafter appellant filed suit on the claim, requesting that the receiver be required to plead as an offset thereto the three notes. The receiver refused in said suit to plead the notes or to make any claim or demand therein that they be paid. Judgment was rendered for the sum of $3,048.88 in favor of appellant against the receiver, and it was ordered that the judgment be recognized as a general claim against the assets of the bank and paid as other general claims. Thereafter appellant demanded that the receiver cancel his name on the three notes and acknowledge that he was not liable thereon, and, this demand being refused, brought this action.

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There was an allegation that the uncanceled notes in the hands of the receiver were a menace to appellant, and that his signatures thereto were void for the reasons set forth in the affidavits, and a prayer that the court order them canceled, so far as appellant was concerned. The receiver was cited to appear and answer the petition and a demurrer was filed by him, setting up five objections to the petition. Appellant moved to strike the demurrers, and the two matters were argued together and submitted. It does not appear from the record whether they were ever formally disposed of, but some months later a minute order was made denying the petition, and it is from this order the appeal was taken.

So far as the record before us shows, we are unable to determine whether the ground of the court’s action was a failure of appellant to amend his petition after the motion to strike was denied and the demurrer was sustained, or whether there was an answer filed and a hearing on the merits. Both parties in their briefs have presented the case on the former theory, and we have therefore assumed such to be the fact. There are some six assignments of error, which we will consider in accordance with the legal questions raised. The first is that since the initial document filed by appellant, though entitled a “petition,” is in reality a motion and duly verified, no demurrer lies thereto and as no verified answer was filed, the trial court should have accepted the facts therein set up as true, under paragraph 477, Revised Statutes of Arizona 1913, Civil Code.

Whatever the so-called petition may have been technically, it was apparently treated as a complaint by both parties in the trial court, and the case was presented and disposed of there on the theory that it was such. Appellant cannot for the first time in this court urge that it was a mere motion. Tevis v. Ryan, 13 Ariz. 120, 108 P. 461; affirmed

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233 U.S. 273, 58 L.Ed. 957, 34 Sup. Ct. Rep. 481. It was therefore proper to raise by means of a demurrer any objections appearing on the face of the petition, and, of course, it is never necessary or even proper to verify a demurrer.

The demurrer presents five specific grounds, and if any one of them be well taken the action of the trial court would ordinarily be upheld. The first four, however, are formal in their nature, and since both parties have requested, both in their briefs and on oral argument, that the appeal be determined on its merits so as to minimize further litigation, we will dispose of the matter on the fifth, which is that the complaint does not state facts sufficient to constitute a cause of action. Assuming for the purpose of the demurrer, therefore, that appellant had the right in this form of proceeding, and without the consent of court or making the other signers of the notes involved parties thereto, to have determined whether or not such notes should be canceled as to him, we have two questions to answer. The first may be thus stated:

“Has appellant properly pleaded a judgment of such a nature as to establish conclusively that by such judgment appellee is barred from a recovery on the notes in question?”

The petition on this point reads as follows:

“That thereupon, and in good season, to wit, May 15th, 1926, and leave of court having been first obtained, petitioner filed action in the above-entitled court upon said claim; and requested that said receiver, in the event he believed petitioner to be liable upon said notes, or either of them, to plead the same defense of his said action as an offset thereto, that said issue might be determined therein; but, that notwithstanding said request, said receiver did not interpose said notes, or either of them, in defense of petitioner’s said claim, . . . that said defendant did not put in an appearance until June 26th, 1926,

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and that upon making such appearance failed to set up said notes, or either of them, or to make any claim or demand whatsoever thereon. . . . That thereafter . . . your petitioner secured judgment against said receiver in said action, . . . which judgment is docketed in . . . the records of this court . . . wherein it was adjudicated and decided that said sum of $3,048.88 is justly due your petitioner, and ordered, adjudged, and decreed that petitioner have . . . judgment against said receiver in said sum; and . . . that said judgment be recognized as a general claim against the assets . . . of said bank . . . and that the same be paid as is, or may be, other general claims.”

It is the claim of appellant that appellee, having had the right to litigate in said suit the question of the liability of appellant on said notes and having failed to do so, cannot in another action maintain that he is liable thereon. Appellee, on the other hand, while admitting that a judgment is, as to the particular action in which it is rendered, a bar not only as to every question litigated, but as to all which could have been litigated, contends that where suit is later brought on an entirely different cause of action, the judgment is merely an estoppel as to the matters actually litigated, and not as to those which could have been made issues, but which were not.

We are of the opinion that the true rule is well stated as follows:

“The rule is often stated in general terms that a judgment is conclusive not only upon the questions actually contested and determined, but upon all matters which might have been litigated and decided in that suit; and this is undoubtedly true of all matters properly belonging to the subject of the controversy and within the scope of the issues, so that each party must make the most of his case or defense, bringing forward all his facts, grounds, reasons, or evidence in support of it, on pain of

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being barred from showing such omitted matter in a subsequent suit; and it is also true that where the second suit is upon the same cause of action all matters which might have been litigated are conclusively settled by the judgment; and that generally the estoppel applies where defenses which were available in the first action but not then set up are sought to be used in a second action either by way of defense or as the foundation of a claim for relief. But the weight of authority is that where the second action, although between the same parties, is on a different cause of action, the judgment is not conclusive on all matters which might have been litigated in the former action, but only as to such points or questions as were actually in issue and adjudicated thereon.” 34 C.J. 909.

Appellant’s suit in the case relied on by him was for a balance due on a deposit. The judgment pleaded, so far as set up in the petition, determined only what that balance was, nor was the issue of the validity of the three notes ever presented to or settled by the trial court. On the contrary, appellant sets up affirmatively that appellee refused to join issues thereon, though he was requested to do so, and appellant, of course, could not by himself plead an item as a set-off and then repudiate it in the same breath.

The general rule is that a set-off may be pleaded, or not, at the option of the defendant; and that, if not pleaded, the right to sue upon it as an independent cause of action or to rely upon it in another action by the same defendant is not affected or impaired by a judgment against the defendant. 34 C.J. 864 Roach v. Privett, 90 Ala. 391, 24 Am. St. Rep. 819, 7 So. 808.

It is true that where the subject matter of the set-off is so involved in the determination of the issue in the former action that the judgment therein necessarily determines the facts which defendant

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would have to establish to maintain his set-off, the latter is barred. Paccalona v. Peninsula Bank Lumber Co., 171 Mich. 605, 137 N.W. 518. But such is not the case herein. The issue tendered by appellant to establish his claim to a balance due from the receiver on his deposit in no way involved the validity of the three notes, nor were any of the facts necessary to prove his case material in any action which might later be brought on the notes.

It is urged, however, that the receiver by admitting the amount due as balance on the deposit and offering to credit it on the notes converted the whole matter into an open account, so that his only remedy was on such account, and, appellant having sued thereon, the former was bound to plead the notes as items of the account or they were waived. We cannot agree with this view of the receiver’s actions. His offer was to accept the balance which he admitted was due appellant on his deposit as a partial payment of the three notes. This offer was never accepted by appellant, but was, on the contrary, repudiated. An “open and mutual account” is generally taken to mean one where there are running or concurrent dealings between the parties, which are kept unclosed with the expectation of further transactions, nor is an express contract, whether oral or written, which defines the duties and liabilities of the parties as a rule an open account Connor Livestock Co. et al. v. Fisher, ante, p. 80, 255 P. 996. Even had appellant accepted the offer of the receiver, the notes would not have become a part of such an account. They would have still remained “an express contract defining the duties and liabilities of the parties” on which a payment had been made.
We are of the opinion that no judgment was pleaded by appellant which was res adjudicata as to whether or not he was liable on the notes.

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The other question, and the one going to the merits of the matter is, “Did appellant set up what would be a good defense to an action on the notes?” This defense appears in the affidavits attached to the petition. Technically, affidavits attached to a complaint are not a part thereof for the purpose of demurrer State ex rel. Young v. Superior Court, 14 Ariz. 126, 125 P. 707; McPherson v. Hattich, 10 Ariz. 104, 85 P. 731 Greenlee Co. v. Cotey, 17 Ariz. 542, 155 P. 302. Since appellee has waived this point, however, we consider them as though contained in the body of the complaint. The first refers to the $7,500 note and alleges:

That appellant “signed the same at the instance and request of Paul H. Deming, who was then the cashier of said bank; that said Deming, . . . in order to induce affiant thereto, stated and represented to affiant that he, Deming, would also secure the signatures of three other persons thereto, . . . and that said note would not be complete nor delivered to said bank, nor would affiant be bound thereby, unless each of said persons also signed the same; that affiant believed said statements . . . and relied solely thereon . . . and solely upon said terms . . . signed the same; that the said Deming failed to secure the signature of any said persons thereto except (naming one); that affiant received no money or other consideration therefor.”

The second deals with the notes for $4,000 and $1,391.62, and sets up:

“That at all the times herein one Paul H. Deming was . . . the cashier of said bank. That during said time . . . said bank was . . . trustee of the Black Gold Royalties . . . that said Deming was the actual manager . . . of said corporation, and that affiant was . . . a . . . stockholder . . . of said corporation. That . . . said Deming represented to affiant it was necessary that he, Deming, secure another signature to each of three certain promissory notes . . . to wit, four thousand dollars ($4,000), and thirteen hundred

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ninety-one and Sixty-two One Hundredth Dollars ($1391.62), . . . and requested affiant to sign the same; that . . . in order to induce affiant to do so, said Deming stated . . . that the signing thereof was but a temporary expedient and a mere form; that affiant would not at any time be called upon to pay any of said notes or any part thereof; that each of said notes, if not paid out of the funds of the corporation, would be taken care of by one. . . . That affiant believed said statements . . . and relied solely thereon; that by reason thereof, . . . affiant signed said notes; that affiant never at any time, or at all, received any money or other consideration whatsoever therefor. . . .”

So far as the defense set up to the notes for $4,000 and $1,391.62 is concerned, it is, in substance, that Deming, who was cashier of the bank, told appellant that it was only a form, and that the bank would never call on appellant to pay the note. Appellant was merely an accommodation party, it is true, but a promise made by the cashier of the bank that he would not be called on to pay the note would not release him from an obligation to do so. Paragraph 4174, Rev. Stats. Ariz. 1913, Civ. Code; Hughes v. Riggs Bank, 29 Ariz. 44, 239 P. 297 Albuquerque Nat. Bank v. Stewart, 3 Ariz. 293, 30 P. 303.

Nor can appellant as against these notes set up that notice of the alleged fraudulent conduct of Deming was imputed to the bank, and that, therefore, it was a trustee ex maleficio. Admitting that, under the doctrine of Hughes v. Riggs Bank, supra, notice to Deming was notice to the bank, appellant’s own affidavit establishes conclusively that he was a party to a transaction which he must have known was intended to deceive or defraud someone. He cannot, when he finds he was the one deceived, rely on the equitable defense of fraud. “He who comes into equity must come with clean hands.” The petition did not state a defense to the two notes.

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The $7,500 note stands in a different category. Ordinarily, when A. signs a note at the request of B., with the agreement that it will not be delivered until C. and D. also sign, the note is not valid in the hands of a holder with knowledge of the facts, if C. and D. fail to sign. 8 C.J. 207. The affidavit does not allege actual knowledge by the bank of such agreement by Deming, but was it implied? That would depend on whether during the transaction Deming either was acting, or represented that he was acting, for the bank in securing appellant’s signature, or whether he was, to appellant’s knowledge, acting for himself therein. If the former, then the knowledge was imputed, even though, as a matter of fact, the representation was untrue Hughes v. Riggs Bank, supra. If the latter, then it was not.

The petition therefore did on its face set up a defense which would be available against the note for $7,500, unless upon a proper answer and evidence it should appear that Deming, to appellant’s knowledge, was acting for someone other than the bank in obtaining the latter’s signature.

Since it was agreed that the court should decide the appeal on its merits, we have not passed upon, though we have examined, other points, formal in their nature, which might otherwise have affected the decision.

The order denying the petition is reversed and the cause remanded, with instructions to overrule the demurrer to the petition, with leave to appellee to answer, and that such further proceedings be taken as may be proper in accordance with the views expressed herein.

ROSS, C.J., and McALISTER, J., concur.

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