State Ex Rel. Northwestern Bank v. Fidelity & Casualty Company of New York , 268 N.C. 234 ( 1966 )

150 S.E.2d 396 (1966) 268 N.C. 234

STATE of North Carolina ex rel. the NORTH-WESTERN BANK, Guardian for Martha Roberta Cross, Plaintiffs,
v.
FIDELITY AND CASUALTY COMPANY OF NEW YORK and Martha Thelma Cross, former Guardian, Defendants.

No. 110.

Supreme Court of North Carolina.

October 12, 1966.

Joseph C. Reynolds, Asheville, for plaintiffs.

Uzzell & Dumont, Asheville, for Fidelity and Casualty Company of New York, defendant.

George Pennell, Asheville, for Martha Thelma Cross, defendant.

LAKE, Justice.

The motion of the appellees to dismiss the present appeal for the failure of the appellant to forward to the appellees copies of its brief, as required by the Rules of this Court, is denied. The alternative motion of the appellees for an extension of time for the filing of their own brief is allowed.

The appellant assigns as error an interlocutory order by Patton, J., at the February 1964 Session striking from the complaint paragraph 13, reading:

"That there is due the plaintiff by the defendant, in addition to the amount in the preceding paragraph, compound interest on said principal, due from the 11th day of November, 1960 until the final settlement of this action."

and also striking from the prayer for relief the word "compound" preceding the word "interest."

The stricken paragraph stated a mere conclusion without supporting factual allegations. It was, therefore, not error to strike it from the complaint. Pinnix v. Toomey, 242 N.C. 358, 87 S.E.2d 893. Furthermore, such ruling was not prejudicial to the plaintiff since paragraph 14, alleging that "under the terms of the bond * * * set forth in Exhibit A, the plaintiff is entitled to recover * * * $4,693.90 and compound interest," was not stricken.

The striking of the word "compound" from the prayer for relief, so that it is now a prayer that the plaintiff "recover of the defendant * * * $4,693.90 with interest thereon," was not prejudicial to the plaintiff. Relief will be granted to the extent warranted by the allegations in the complaint and by the proof. Fremont City Board of Education v. Wayne County Board of Education, 259 N.C. 280, 130 S.E. 2d 408. We do not now have before us the question of what relief the plaintiff is entitled to have. The action has not yet been tried on its merits.

The appellant also assigns as error another interlocutory order entered by Martin, J., at the March 1965 Session, vacating a judgment by default against the defendant Martha Thelma Cross and permitting her to file an answer, which she did. This order recites that "the Court having heard arguments of Counsel, * * * makes the following Findings of Fact." These include a finding to the effect that the failure to file the answer within the time allowed was due to excusable neglect on the part of the attorney representing Mrs. Cross, which was not attributable to her, and a finding that her attorney states that she has a meritorious defense in that she expended all of the funds for the exclusive education, maintenance and support of the minor. The appellant contends that it was error to enter the order because the motion was not verified and no sworn testimony was introduced. However, the record does not indicate that the plaintiff filed any response to the motion, or controverted the facts as stated therein when arguing the matter before Martin, J. Upon this record, we are unable to find error in the order.

We come now to the judgment of Copeland, J., sustaining the pleas in bar and dismissing the action. Its validity depends upon whether the plaintiff, or its ward, is bound by the judgment of Clarkson, J., in the former action instituted by Fidelity.

We are not here concerned with the validity and effect of the judgment of Clarkson, J., as between Fidelity and Mrs. Cross and we do not now decide that question.

Similarly, it is not necessary to decide upon this appeal whether G.S. § 33-17 and G.S. § 33-42, upon which Fidelity relied as the basis for its proceeding, entitle the surety upon the bond of a guardian, who has already been removed from the guardianship, to institute a proceeding to require such former guardian to indemnify the surety against apprehended loss and to obtain therein a judicial determination of the propriety, or lack of propriety, of expenditures made by such former guardian prior to removal.

The question presented by this appeal is whether such a determination in a proceeding between the surety and the former guardian is conclusive as against a successor guardian and the ward, neither of whom was a party to that proceeding when the adjudication was made. The answer to that question is "No."

In Carolina Power & Light Co. v. Merrimack Mutual Fire Insurance Co., 238 N.C. 679, at page 689, 79 S.E.2d 167, at page 173, Devin, C. J., speaking for the Court said:

"Estoppel by judgment operates only on parties and their privies. It is a maxim of law that no person shall be affected by any judicial investigation to which he is not a party, unless his relation to some of the parties was such as to make him responsible for the final result of the litigation. An adjudication affects only those who are parties to the judgment and their privies, and gives no rights to or against third parties. 1 Freeman on Judgments, sec. 407. Privies are ``persons connected together or having a mutual interest in the same action or thing, by some relation other than that of actual contract between them.' Black's Law Dictionary. ``To make a man a privy to an action, he must have acquired an interest in the subject-matter of the action, either by inheritance, succession, or purchase of a party subsequent to the action, or he must hold the property subordinately.' Ballentine's Law Dictionary. ``Any of those persons having mutual or successive relationship to the same right of property.' Webster."

To the same effect, see: Bullock v. Crouch, 243 N.C. 40, 89 S.E.2d 749; Tarkington v. Rock Hill Printing & Finishing Co., 230 N.C. 354, 53 S.E.2d 269, 11 A.L.R. 2d 221; Rabil v. Farris, 213 N.C. 414, 196 S.E. 321, 116 A.L.R. 1083; 30A Am. Jur., Judgments, § 393.

The plaintiff, though successor to Mrs. Cross as guardian of the minor, is not in privity with Mrs. Cross in respect to the proceeding instituted by Fidelity. That proceeding was instituted after Mrs. Cross had been removed from the guardianship and the plaintiff appointed. The interest of the plaintiff with respect to the matters involved is adverse to the interest of Mrs. Cross, not derived from her as her transferee.

It is not necessary for us now to determine whether the judgment of Patton, J., in the former proceeding, sustaining the demurrer of the Bank, and the resulting dismissal of that action as against the Bank were proper. It is sufficient, for the purpose of this appeal, that such judgment was, in fact, entered and the Bank was dismissed as a party to that proceeding. It is immaterial, for the purposes of this appeal, whether the Bank was or was not a proper, or even a necessary, party to the former proceeding instituted by Fidelity, or that its dismissal therefrom was upon its own motion. Be that as it may, the fact remains that, at the time Clarkson, J., entered his judgment in the former proceeding, neither the Bank nor its ward was a party thereto.

The right to become a party to an action does not, in the absence of its exercise, cause one to be bound by a judgment entered therein. Western Union Telegraph Co. v. Foster, 247 U.S. 105, 38 S.Ct. 438, 62 L.Ed. 1006; Tutt v. Smith, 201 Iowa 107, 204 N.W. 294, 48 A.L.R. 394; O'Hara v. Pittston Co., 186 Va. 325, 42 S.E.2d 269, 174 A.L.R. 945; 30A Am. Jur., Judgments, § 394; 1 Freeman on Judgments, 5th ed., § 411. That one, who might have participated in the former action and there asserted his rights, knew that such action was pending does not make the judgment rendered therein conclusive as to him. O'Hara v. Pittson Co., supra. Even though he was once a party to the action and was permitted to withdraw therefrom, or was dismissed therefrom on his own motion, he is not bound by a judgment entered therein after he ceased to be a party to it.

In Owens v. Alexander, 78 N.C. 1, Reade, J., speaking for the Court, said:

"The defendant Johnston was originally one of the plaintiffs in the cause, but at an early stage of it he was permitted to retreat. Subsequently a decree was made that upon his paying so much money a title to the land should be made to him, of which land he is in possession. And now a notice is served on him to show cause why he should not perform the decree, and why in the meantime a receiver should not be appointed to take possession of the land and the mines thereon. To this the defendant answers that he was not a party in the cause at the time the decree was made, and that therefore the same is a nullity as to him. Unquestionably this is a complete defense."

In Babcock v. Standish, 53 N.J.Eq. 376, 33 A. 385, 30 L.R.A. 604, the Court said:

"[A]lthough she [the party claimed to be estopped by a judgment] was originally made party to that suit, she was dismissed therefrom. She was not bound by the decree, and its adjudications on the essential facts do not estop her from contesting them, and requiring other proof. If she was a proper party in that cause, Standish could have appealed from the order dismissing her therefrom, and by its reversal would have bound her by the decree. But, after dismissal, the decree was as ineffective against her as if she had not been originally a party to the suit."

To the same effect, see: Holt Mfg. Co. v. Collins, 154 Cal. 265, 97 P. 516, 519; Miller v. Miller, 263 Ill. 18, 104 N.E. 1078.

In 1 Freeman on Judgments, 5th ed., § 412, it is said:

"The fact that a person was a party to an action in its earlier stages does not bind him by the judgment, unless he was also a party when it was rendered. If he, by permission of the court, withdraws from the action or is dismissed from it, so that he is no longer a party, then the power of the court over him terminates, and a judgment subsequently entered cannot affect his interests, though he may be bound by it as to his codefendants, whom he was bound to indemnify. Persons as to whom a nonsuit was granted before a judgment on the merits was rendered are not concluded by it; neither can they claim the benefit of it."

Thus, when Patton, J., sustained the demurrer of the Bank in the proceeding instituted by Fidelity and the Bank was dismissed from that proceeding, the Bank became a stranger to it and could not be bound by any judgment subsequently entered therein.

The fact that the ward testified in the former proceeding as a witness for her mother, the former guardian, would not make the judgment therein a conclusive determination of the rights of the ward, or of those of her present guardian. Even an adult witness is not, for that reason, bound by a judgment in an action to which he or she was not a party. Lee v. Independent School District, 149 Iowa 345, 128 N.W. 533, 37 L.R.A.,N.S., 383; Wright v. Andrews, 130 Mass. 149; Fowler v. Blount, 191 Mich. 575, 158 N.W. 114; 1 Freeman on Judgments, 5th ed., §§ 410 and 434. Obviously, a minor, called as a witness in a proceeding to which she was not a party and in which she was not represented by a general guardian, a guardian ad litem or a next friend, should not be precluded by a judgment entered therein. It is to be noted that the testimony of the minor in the former proceeding was simply to the effect that her mother had been "generous" with her and had not used her funds for the mother's own benefit. This is not even an admission that the expenditures made by the mother were proper expenditures for a guardian.

We do not, of course, suggest that there was collusion between Fidelity and Mrs. Cross in the former action, but to hold that the successor guardian and its ward are bound by the decree entered therein, at a time when neither was a party to that action, would expose estates of minors to the danger of collusive actions. The interests of the guardian alleged to be in default and of that guardian's surety are identical insofar as a determination that there has been no default is concerned.

Since the Bank was not a party to the proceeding instituted by Fidelity at the time of the entry of the judgment of Clarkson, J., that judgment is not binding upon the Bank and the doctrine of res judicata has no application. Consequently, it was error to sustain the pleas in bar and to dismiss the present action. The Bank, on behalf of its ward, is entitled to its day in court and to an opportunity to establish its right, if any, to recover of Mrs. Cross and the surety on her bond.

Reversed.

HIGGINS, J., did not participate in the consideration or decision of this appeal.