You can
search the entire site.
or go to the recent opinions, or the chronological or subject indices.
Johnson and Ulmer v. Schaub (2/11/94), 867 P 2d 812
<![CDATA[
NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501.
THE SUPREME COURT OF THE STATE OF ALASKA
JOHN JOHNSON, ROCKLYN ) Supreme Court No. S-5220
JOHNSON, and MARJORIE ULMER, )
) Superior Court No.
Appellants, ) 3AN-90-2896 CI
)
v. ) O P I N I O N
)
H.F. SCHAUB, ) [No. 4051 - February 11, 1994]
)
Appellee. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage,
Mark C. Rowland, Judge.
Appearances: Russell W. Pritchett,
Bellingham, Washington, for Appellants.
Harold M. Brown and Donald J. Manning,
Heller, Ehrman, White & McAuliffe, Anchorage,
for Appellee.
Before: Moore, Chief Justice,
Rabinowitz, Burke, Matthews and Compton,
Justices.
RABINOWITZ, Justice.
This appeal concerns a promissory note signed by John
Johnson ("J. Johnson") and Marjorie Ulmer ("Ulmer") payable to
H.F. Schaub ("Schaub") and an addendum securing the note signed
by J. Johnson and Rocklyn Johnson ("R. Johnson"). At issue is
whether the superior court erred in denying Ulmer and the
Johnsons' second motion for a continuance, in ruling that no
genuine issue of material fact existed with regard to the note's
validity, and in holding R. Johnson jointly and severally liable
for payment of the note.
I. FACTS AND PROCEEDINGS
Schaub agreed to loan money to J. Johnson and Ulmer to
purchase the M/V ZENITH, a marine vessel, from Alaska Shipping
Company ("ASC"). At the time of sale the vessel was mortgaged to
First Bank of Ketchikan. J. Johnson and Ulmer borrowed
$36,254.76 from Schaub to meet the 1989 mortgage payments on the
ZENITH. After execution of the promissory note, Schaub paid the
$36,254.76 directly to First Bank of Ketchikan.
Six months after executing the promissory note and
taking possession of the ZENITH pursuant to the contract for
sale, J. Johnson and R. Johnson executed an addendum to the
promissory note. Thereafter the Johnsons and Ulmer
refused to make payments on the promissory note, and Schaub filed
suit. The Johnsons answered and asserted several counterclaims
based on promissory estoppel, misrepresentation, breach of
warranty, and conversion. Trial was set for February 3, 1992.1
On January 27, 1992 the superior court granted a
continuance to Ulmer and the Johnsons because J. Johnson was
scheduled for surgery due to cancer. Trial was reset to commence
on March 23, 1992. Ulmer and the Johnsons moved for a second
continuance in late February based on J. Johnson's delayed
recovery from surgery and on advice from his physician. J.
Johnson's surgeon, William G. Griggs, M.D., called the surgery a
"major operation,"and stated that it would take "approximately
three months for [J. Johnson] to fully recuperate. It will
probably be the latter part of May before he will have sufficient
energy level and strength to travel."
In his response to this second motion for continuance,
Schaub advised the superior court that he sustained a fall in
mid-February, causing a decline in his health. As a result,
Schaub stated that he also would be unable to attend the trial
scheduled for March 23, 1992.2 Although he did not oppose the
second motion for a continuance, Schaub requested that the court
rule on his then pending motion for summary judgment, since a
favorable ruling would render moot the second motion for a
continuance. After considering the summary judgment motion, the
superior court ruled that the promissory note was valid, and that
genuine issues of material fact precluded summary judgment only
as to the Johnsons' counterclaim for misrepresentation. In
conjunction with this ruling, the superior court denied the
motion for a second continuance, holding that trial would
commence on March 23, 1992 as scheduled.3
On March 19, the Thursday before trial, J. Johnson
indicated to his attorney that he would be able to participate
telephonically at the March 23, 1992 trial. Schaub's counsel was
advised of this decision. The next day, March 20, the attorney
for Ulmer and the Johnsons first learned that J. Johnson's
physician had prohibited him from participating in any court
proceedings, including telephonic participation, until his blood
pressure was under control. Prior to receipt of this advice,
counsel had expected J. Johnson to participate telephonically.
Ulmer and the Johnsons' counsel filed a trial brief on March 20,
1992, which, in part, indicated that counsel was attempting to
obtain an affidavit from J. Johnson's physician, and that counsel
expected to file the affidavit in court on March 23, with a third
motion for a continuance.
Ulmer and the Johnsons filed their third motion for a
continuance in open court on March 23. The superior court denied
this motion, citing Schaub's appearance for trial,4 the late
filing of the third motion for continuance,5 the "very narrow"
issues of material fact which remained for trial, and the failure
to take steps to preserve J. Johnson's testimony for trial.
Subsequently, the superior court proceeded to trial on
Ulmer and the Johnsons' misrepresentation counterclaim. Schaub
was present, but J. Johnson, R. Johnson, and Ulmer were not.
After arguing that "[w]ithout John Johnson's testimony, I cannot
win," Ulmer and the Johnsons' trial counsel waived a jury trial.
Schaub's trial counsel and the judge agreed that it would be a
"charade" to select a jury if the Johnsons and Ulmer were not
going to put on a case. Ulmer and the Johnsons' trial counsel
then outlined the misrepresentation counterclaim, but offered no
proof. Because Ulmer and the Johnsons presented no evidence,
Schaub offered no evidence. At this point the superior court
entered judgment to Schaub, dismissing with prejudice Ulmer and
the Johnsons' misrepresentation counterclaim.
On May 29, 1992, the superior court entered judgment
for Schaub in the principal amount of $36,254.00, plus
prejudgment interest of $16,850.66, costs of $708.54, and
attorney's fees of $7,810.59, for a total judgment of $61,623.79.
II. THE SUPERIOR COURT ERRED IN ITS DENIAL OF THE SECOND MOTION
FOR CONTINUANCE OF THE MARCH 23, 1992 TRIAL.
"Generally, a trial court's refusal to grant a
continuance will not be disturbed on appeal unless an abuse of
discretion is demonstrated." Gregoire v. National Bank of
Alaska, 413 P.2d 27, 33 (Alaska), cert. denied, 385 U.S. 923
(1966). The trial court's decision to deny a continuance will be
reviewed in light of the particular facts and circumstances of
each individual case to determine whether the denial was so
unreasonable or so prejudicial as to amount to an abuse of
discretion. Siggelkow v. Siggelkow, 643 P.2d 985, 987 (Alaska
1982).
In Siggelkow, we recognized that "the trial court's
legitimate concern for preventing delay should not prejudice the
substantial rights of parties by forcing them to go to trial
without being able to fairly present their case." Id. We also
noted that "[g]enerally, the denial of a continuance requested on
the ground of ill health will be held reversible error only when
the applicant suffered prejudice as a result of the denial." Id.
Schaub was eighty-nine years old at the time of trial
and had a heart condition. J. Johnson was recovering from kidney
surgery, which was complicated by cancer and severe high blood
pressure. In order to appear in person at trial both Schaub and
J. Johnson needed to travel significant distances -- Schaub from
Ketchikan and J. Johnson from Washington.
The superior court granted the first motion for a
continuance by Ulmer and the Johnsons because of J. Johnson's
illness.6 A second continuance was requested because J.
Johnson's scheduled surgery had been delayed, cancer was
discovered, and J. Johnson was recovering slower than
anticipated. In the interim between the superior court's initial
grant of a continuance and J. Johnson's second motion for a
continuance, Schaub fell and injured himself. As a result Schaub
indicated that he would be unable to attend the trial scheduled
for March 23, 1992.
Thus, at the time of the second motion for a
continuance by Ulmer and the Johnsons, both parties were ill and
had indicated that they would be unable to attend the March 23
trial. Most significantly, Schaub did not oppose the second
motion for a continuance.
We can find no basis in the record for the superior
court's denial of the second motion for a continuance. Further,
the record does not indicate any abuse of trial process by the
attorney for Ulmer and the Johnsons. The second motion for a
continuance represents a legitimate recalendaring request in
light of J. Johnson's delayed recovery from surgery. As a result
of the superior court's denial of the second motion for
continuance, Ulmer and the Johnsons were seriously prejudiced in
their ability to present their misrepresentation claim.7 Thus we
conclude that the superior court's denial of Ulmer and the
Johnsons' second motion for a continuance constituted an abuse of
discretion and was therefore error.8
III. THE SUPERIOR COURT CORRECTLY DETERMINED THAT NO GENUINE
ISSUE OF MATERIAL FACT EXISTED WITH RESPECT TO VALID
CONSIDERATION FOR THE PROMISSORY NOTE.
"When reviewing an appeal from summary judgment, we
determine whether there was a genuine issue of material fact
before the trial court, and whether the moving party was entitled
to judgment on the law applicable to the established facts."
Crissey v. Alaska USA Fed. Credit Union, 811 P.2d 1057, 1059
(Alaska 1991).
The superior court granted Schaub summary judgment on
the question of whether valid consideration existed for the
promissory note executed by J. Johnson and Ulmer. The promissory
note reads, in relevant part:
FOR VALUE RECEIVED, John Johnson and
Marjorie Ulmer promises [sic] to pay to the
order of H. F. SCHAUB of Ketchikan, Alaska,
Thirty-Six Thousand, Two Hundred-Fifty-Four
Dollar [sic] ($36,254.00), lawful money of
the United States of America with interest
thereon at the rate of ten percent (10%) per
annum, payable as follows: In full,
including interest accruing from April 24,
1989, on or before forty-five (45) days from
date.
The makers, sureties, guarantors, and
endorsers hereof severally waive presentation
for payment, notice of dishonor, protest and
notice of protest. . . . In case suit or
action is instituted to collect this note, or
any portion thereof, I promise to pay, in
addition to the statutory court costs, such
attorneys' fees as the Court may adjudge
reasonable, and further agree to pay, even if
no suit or action is instituted thereon, such
collection costs, and such sums as attorneys'
fees, that the holder of this note may incur
in the collection of this note, or any
portion thereof, not exceeding fifteen
percent (15%) of the amount due.
J. Johnson contends that the note is invalid for lack
of consideration, since Schaub transferred the funds directly to
First Bank of Ketchikan. Schaub responds that consideration was
given in two forms: (1) payment by Schaub to the bank on behalf
of J. Johnson and Ulmer; and (2) the contract for the sale of the
ZENITH. The mortgage payments for the ZENITH in 1989 totaled
$36,254.76. Schaub argued that he transmitted that amount
directly to the bank because the loan's purpose was to meet the
1989 mortgage payments.9
Consideration may consist of performance for or from a
third party:
It matters not from whom the
consideration moves or to whom it goes. If
it is bargained for and given in exchange for
the promise, the promise is not gratuitous.
Restatement (Second) of Contracts 71 cmt. e (1981).10 Schaub
paid J. Johnson $36,254.76 in consideration for the promise to
repay the money. That the money was actually transferred
directly to First Bank of Ketchikan, a third party, does not
negate the sufficiency of the consideration. J. Johnson received
consideration, took possession of the vessel, and together with
R. Johnson, signed an addendum to the original promissory note
six months later. We hold that there is no genuine issue of
material fact as to whether adequate consideration was given for
the promissory note. Therefore, we affirm the superior court's
grant of summary judgment on this issue.
IV. THE SUPERIOR COURT ERRONEOUSLY DETERMINED THAT ROCKLYN
JOHNSON WAS PERSONALLY LIABLE ON THE PROMISSORY NOTE.
R. Johnson was not a party to the promissory note but
she did sign an addendum:
THIS ADDENDUM shall be attached and
become part of the existing personal note
made by and between JOHN JOHNSON and MARJORY
[sic] ULMER . . . and HERB SCHAUB . . . .
IN CONSIDERATION of Herb Schaub
extending the terms of the original unsecured
promissory note, John and Rocklyn Johnson
agree to secure the promissory note.
WHEREAS, the original promissory
note was signed by John Johnson and Marjory
[sic] Ulmer on April 24, 1989 in Juneau,
Alaska.
WHEREAS, the parties to this
addendum hereby agree to the following
provisions;
1. Interest accrued in the amount
of $1,867.20 shall be paid to Herb Schaub by
John Johnson and Rocklyn Johnson by November
10, 1989.
2. The promissory note in the
amount of $36,254.00 shall be paid in full on
or before December 1, 1989.
3. In the event the promissory
note in the amount of $36,254.00 is not paid
in full by December 1, 1989, then John and
Rocklyn Johnson shall secure the promissory
note with real property that has a value
equal to or more than the promissory note or
a Deed of Trust.
4. The security shall be
transferred to Herb Schaub by December 15,
1989.
5. There are no other agreements
to this addendum, either oral or written,
between the parties except those set out
within this addendum.
Summary judgment against R. Johnson as a maker of the
note is proper only if the addendum binds her to joint and
several liability for payment of the note.11 As noted, summary
judgment is appropriate when there is no genuine issue of
material fact and when the moving party is entitled to judgment
as a matter of law. State, Dep't of Corrections v. Welch, 805
P.2d 979, 981 (Alaska 1991).
In opposing Schaub's motion for summary judgment, R.
Johnson failed to present any evidence regarding her potential
liability under the note and addendum. Nor did R. Johnson file a
statement of genuine issues of material fact with respect to her
personal liability under the note and addendum.
However, Schaub is not entitled to summary judgment
against R. Johnson solely on the basis that she failed to file a
statement of genuine issues of material fact with regard to her
personal liability, or to offer any evidence which would create a
genuine issue of material fact. See Bauman v. State, Div. of
Family & Youth Servs., 768 P.2d 1097, 1099 (Alaska 1989). It was
incumbent upon Schaub to demonstrate in addition to the absence
of any genuine issue of material fact that, as a matter of law,
R. Johnson is jointly and severally liable on the note and
addendum. See Welch, 805 P.2d at 981.12
We conclude that the addendum is ambiguous because it
is reasonably subject to differing interpretations as to whether
R. Johnson is liable as a maker for payment of the promissory
note.13 See O'Neill Investigations, Inc. v. Illinois Employers
Ins. of Wausau, 636 P.2d 1170, 1174 (Alaska 1981) (contract
ambiguous where subject to differing interpretations); State v.
Fairbanks N. Star Borough Sch. Dist., 621 P.2d 1329, 1331 n.4
(Alaska 1981). The addendum's ambiguity stems from paragraph
two, which states that "[t]he promissory note in the amount of
$36,254.00 shall be paid in full on or before December 1, 1989."
R. Johnson argues that she is obligated to secure the note with
real property and is liable only for payment of interest in the
amount of $1,867.20, since paragraph two does not expressly make
her liable for payment of the note (in contrast to the express
provisions relating to interest and security, which explicitly
name R. Johnson). Schaub argues that R. Johnson agreed not only
to secure the note, but also to pay the note on or before
December 1, 1989 based on paragraph two. Under Schaub's view, R.
Johnson is jointly and severally liable with J. Johnson and Ulmer
for a cash judgment.
Because the addendum is subject to differing
interpretations, we conclude that the superior court erred in
ruling as a matter of law that Schaub is entitled to summary
judgment against R. Johnson as a maker of the note. On this
issue we must reverse the summary judgment against R. Johnson,
and remand to the superior court for further proceedings. On
remand the superior court should determine whether the extrinsic
evidence is conflicting, and generally proceed in accordance with
the following methodology:
The question of the meaning of a written
contract, including a review of the extrinsic
evidence to determine whether any of the
extrinsic evidence is conflicting, is a
preliminary question for the court. Where
there is conflicting extrinsic evidence the
court, rather than the jury, must nonetheless
decide the question of meaning except where
the written language, read in context, is
reasonably susceptible to both asserted
meanings.
Alaska Diversified Contractors, Inc. v. Lower Kuskokwim Sch.
Dist., 778 P.2d 581, 584 (Alaska 1989), cert. denied, 493 U.S.
1022 (1990).
However, it is clear that R. Johnson promised that the
note "shall be paid in full"and promised that if the note was
not paid in full she would secure the promissory note with real
property or a deed of trust of equal or greater value than the
amount outstanding. R. Johnson is therefore liable as a
guarantor of the note. If an execution is returned unsatisfied
against the makers of the note, R. Johnson may be ordered to post
security in accordance with the terms of her guarantee. If she
fails in that obligation, a money judgment for the amount
outstanding may be entered against her. See AS 45.03.419(d);
former AS 45.03.416(b)-(c).
V. CONCLUSION
We hold that the superior court's denial of Ulmer and
the Johnsons' second motion for continuance of the March 23, 1992
trial date constituted an abuse of discretion. Therefore, the
matter is REMANDED with directions to VACATE the judgments
previously entered and to reset the matter for trial. The
superior court's grant of summary judgment as to the existence of
valid legal consideration for the promissory note is AFFIRMED.
The superior court's grant of summary judgment against Rocklyn
Johnson as a maker of the note is REVERSED; however, the court
should enter summary judgment against Rocklyn Johnson as a
guarantor.
_______________________________
1 While the pretrial order signed November 1, 1991
indicates that the trial was set for February 3, 1991, the court
clearly intended for trial to begin in February 1992.
2 Schaub testified that he fell on some steps and
dislocated or broke his arm, that he took pain medicine every
morning and noon, and that he needed help putting on his clothes.
3 The Johnsons' counsel was on vacation from March 5,
1992 through March 17, 1992. Upon his return he learned of the
superior court's denial of the second motion for continuance.
Although he believed his client was severely prejudiced by being
unable to appear in person, he planned to have his client
participate telephonically.
4 The superior court stressed that Schaub was 89 years
old and in poor health, and that he had traveled from Ketchikan
to be present. The court stated that "considering Mr. Schaub's
age and physical condition, along with the other factors . . . it
seems clear . . . that the equities lie in favor of Mr. Schaub in
this instance."
5 Alaska Civil Rule 40(e)(2) requires all motions for
continuance to be filed at least five days before trial, except
with permission from the court.
6 J. Johnson was admitted to the hospital for blood
pressure problems. Tests taken at that time disclosed a tumor of
the right kidney. J. Johnson was then scheduled for surgery in
January 1992 with a "minimum" six-week post-operative
convalescence.
7 Friderici, the trial attorney for Ulmer and the
Johnsons, stated: "I felt we were severely prejudiced by the
inability to present Mr. Johnson in person. A voice over a
telephone versus a live witness is a fatal conflict that I'm
going to lose with the voice over the telephone." Friderici
further commented to the court:
Dr. Brown was -- I'm not sure what the
right term is -- upset is probably the
charitable way to say it, as to this trial
was going to kill him, and this was going to
kill him whether he showed up in person or
whether he talked over the telephone. I'm
not going to kill my client, I don't believe
I have to, that's why I moved for the
continuance. And we're here today, I can't
win without Mr. Johnson, the rest of it's a
sham without Mr. Johnson. I'm going to lose,
I recognize that.
8 This holding has made it unnecessary to determine
whether the superior court abused its discretion in denying Ulmer
and the Johnsons' third motion for a continuance of the trial.
9 Schaub notes that he was not liable to First Bank of
Ketchikan for this payment but that ASC was obligated on the
mortgage. Schaub was an officer and shareholder of ASC and had
guaranteed a portion of the mortgage payment; however, he was
only obligated to make partial mortgage payments in the event ASC
defaulted.
10 See also John Deere Co. v. Broomfield, 803 F.2d 408,
410 (8th Cir. 1986) ("Payment made to third party at promisor's
request constitutes consideration."); Guinn v. Hollcombe, 780
S.W.2d 30, 32 (Ark. App. 1989) (consideration may move from
promisor to third person); Kennebunk Sav. Bank v. West, 538 A.2d
303, 304 (Me. 1988) (benefits to a third party may constitute
adequate consideration, if intended by promisee); Shea v. Begley,
766 P.2d 418, 420 (Or. App. 1988) (promises for benefit of third
parties may be sufficient consideration).
11 R. Johnson's liability arises solely from the addendum
executed on November 3, 1989, and not from the note. Under AS
45.03.401, a person cannot be liable on a negotiable instrument,
such as the note, unless their signature appears on it.
Though not controlling authority, the former official
comment of the Uniform Commercial Code analog to AS 45.03.401
states:
Nothing in this section is intended to
prevent any liability arising apart from the
instrument itself. The party who does not
sign may still be liable on the original
obligation for which the instrument was given
. . . . He may of course be liable under any
separate writing.
Former U.C.C. 3-401 cmt. 1.
Thus, while R. Johnson is not liable under the note,
she still may be liable to Schaub based on the addendum.
12 Generally, interpretation of contracts such as the
addendum presents a question of law for courts to decide.
Zuelsdorf v. University of Alaska, 794 P.2d 932, 933 (Alaska
1990). The court's duty is to ascertain and give effect to the
parties' reasonable intent. Western Pioneer, Inc. v. Harbor
Enter., Inc., 818 P.2d 654, 656 (Alaska 1991). The court looks
first at the addendum itself. Stepanov v. Homer Elec. Ass'n,
Inc., 814 P.2d 731, 734 (Alaska 1991); Norton v. Herron, 677 P.2d
877, 880 (Alaska 1984). In determining intent, we also examine
relevant extrinsic evidence, Stepanov, 814 P.2d at 734; Norton,
677 P.2d at 880, and case law. Jensen v. Ramras, 792 P.2d 668,
670 (Alaska 1990). However, the only relevant extrinsic
evidence, Schaub's affidavit, merely states that the addendum
guaranteed the note.
13 It is clear that R. Johnson unambiguously agreed to pay
$1,867.20 interest and to secure the note with real property.
]]>
