Petition for Writ of Certiorari — Hobbs v. Custom Finance Co.

JUN 1 18

In The MICHACL RODSK, UR.

SUPREME COURT OF THE UNITED STATES

October Term, 1971

NO.

aw

DeWITT T. HOBBS, JR.,

Petitioner,

oma v.

CUSTOM FINANCE COMPANY, etc.,

GUERDON INDUSTRIES, INC., etc., and

MAGNOLIA HOMES MANUFAC TURING CORPORATION, etc.,

Respondents,

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

PETER K. BABALAS

ARTHUR C. ERMLICH

and

CHARLES R. CLOUD

210 Atlantic National Bank Bldg.

Norfolk, Virginia 23510

Counsel for P etitioner

Fi SALE I SI EAI IES OT TY

BP ae nach ako ee LE

—

INDEX

Page

oo ee ar 2

0 OTST TS Tee eee ee eee 2

QUESTIONS PRESENTED ............... 2

STATUTORY PROVISIONS INVOLVED ....... 3

STATEMENT OF THE CASE............... 4

REASONS FOR GRANTING THE WRIT........

1. When it is alleged that a party with unclean

hands has taken advantage of its own wrongs and

has committed criminal acts, a Court should in-

quire into such alleged wrongdoings so as to pro-

tect its own integrity and the administration of

justice; and the sanctioning of such a refusal by

a lower Court is such a departure from the accept-

ed and usual course of judicial proceedings, as to

call for an exercise of this Court’s power of super-

vision. : 14

2. Whether one by reason of the circumstances of

the parties and/or by operation of law becomes a

surety is an important federal question which

has not been, but should be settled by this court. 20

a” ee 25

APPENDIX

District Court’s Minutes and Opinion.......... la

District Court’s Memorandum Opinion ......... 3a

District Court’s [First] Final Judgment........ 6a

District Court’s [Second] Final Judgment....... 12a

Court of Appeal’s Opinion ................ l4a

Court of Appeal’s Denial of Rehearing Petition. . . 17a

STATUTES, AUTHORITIES AND CASES

Code of Virginia (1950), § 8.3-119........ 3, 24

Code of Virginia (1950), § 8.3-606....... 3, 23, 24

Code of Virginia (1959), § 50-11......... 4,25

Broom’s Legal Maxims, Tenth Edition ....... 15

50 Am. Jur., Suretyship, § 11 ............. 20

37 ie EE REPRE CU TE ee eee 21

Citizens & Marine Bank, v. McMurran, 138 Va. 657,

ae ee SD 66k iwi aw ow 60 0 23

Dey, Receiver v. Martin, 78 Va. 1(1883)..... 23

Frank Adam Electric Co. v. Westinghouse Elec. &

Mfgr. Co., 146 F.2d 165, (8th Cir., 1945) .. 18

Godwin v. Gerling, 40 ALR2d 1250, 362 Mo. 19, 239

Bits CUED 5 We oe es ek ee 20

Hardinge Co. v. Jones & Laughlin Steel Corp., 164

F. Supp. 75, (D.C. Pa., 1958) ......... 18

Johnson v. Yellow Cab Transit Co., 321 U.S. 383, 64

S.Ct. 622, 88 L. Ed. 814 (1943) ........ 18

Olmstead v. United States, 297 U.S. 438, 72 L.Ed.

944, 48 S.Ct. 564 (1927) ..... Kceieak tomers 15, 18

Re Estate of Ives, 72 ALR 2d 278, 248 N.C. 176,

Se ce eT COEDS be 6 eves ee wees 15

7

In The

SUPREME COURT OF THE UNITED STATES

October Term, 1971

' Bs]

V.

DeWITT T. HOBBS, JR.,

Petitioner,

and

CUSTOM FINANCE COMPANY, etc.,

GUERDON INDUSTRIES, INC., etc., and

MAGNOLIA HOMES MANUFAC TURING CORPORATION ,etc.,

Respondents,

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

DeWitt T. Hobbs, Jr. hereby submits his petition

and respectfully prays that a writ of certiorari issue

to review the judgment and opinion of the United States

Court of Appeals for the Fourth Circuit entered in this

proceeding on January 27, 1972.

OPINIONS BELOW

The per curiam opinion of the United States Court

of Appeals for the Fourth Circuit, not yet reported,

appears in the Appendix hereto. Also included in such

Appendix are two memorandum opinions delivered by

the United States District Court for the Eastern District

of Virginia in connection with the judgments rendered

which Petitioner seefs to review; and which are ufte- ic

“a. | —

JURISDICTION

1. The judgment of the United States Court ‘of

Appeals for the Fourth Circuit was entered January

27, 1972.

2. A timely petition for rehearing was denied by the

United States Court of Appeals for the Fourth Circuit

on March 3, 1972.

3. Petitioner believes that 28 U.S.C. § 1254 (1)

confers on this court jurisdiction to review the judg-

ment in question by writ of certiorari.

QUESTIONS PRESENTED

1. When allegations are made raising ‘‘unclean

hands’’ issues, should a court inquire further into the

matter before granting judgment to the party who al-

legedly has ‘‘unclean hands’’ relating directly to, the

suit controversy?

2. Are the allegations and settlement matters in a

separate suit between joint venture partners sufficient

evidence of ‘‘unclean hands’’ to deny recovery in an

independent suit by one of the joint venture partners

against a third party arising out of the same subject

matter?

7

; , a

pone Fr ae eee et ee Pron SAD MURR HN ont

——

3. Do adverse actions of a noteholder even though

made in good faith operate to change the status of the

maker to one of a surety where the subject note is de-

pendent upon and arises out of a contract between the

parties?

STATUTORY PROVISIONS INVOLVED

In this case the following statutes of the Code of

Virginia (1950), as amended are involved:

§ 8.3-119. Other writings affecting instrument.

(1) As between the obligor and his immediate

obligee or any transferee the terms of an instru-

ment may be modified or affected by any other

written agreement executed as a part of the same

transaction, except that a holder in due course is

not affected by any limitation of his rights arising

out of the separate written agreement if he had no

notice of the limitation when he took the instru-

ment.

(2) A separate agreement does not affect the

negotiability of an instrument. (1964, c. 219.)

§ 8.3 -606. Impairment of reccurse or of collateral.

(1) The holder discharges any party to the in-

strument to the extent that without such party’s con-

sent the holder

(a) without express reservation of rights re-

leases or agrees not to sue any person against

whom the party has to the knowledge of the holder

a right of recourse or agrees to suspend the right

to enforce against such person the instrument or

collateral or otherwise discharges such person,

except that failure or delay in effecting any re-

—_ P 3.

I

quired presentment, protest or notice of dishonor

with respect to any such person does not discharge

any party as to whom presentment, protest or notice

of dishonor is effective or unnecessary; or

(b) unjustifiably impairs any collateral for the

instrument given by or on behalf of the party or any

person against whom he has a right of recourse.

(2) By express reservation of rights against a

party with a right of recourse the holder preserves

(a) all his rights against such party as of the

time when the instrument was originally due; and

(b) the right of the party to pay the instrument

as of that time; and

(c) all rights of such party to recourse against

others. (Code 1950, § 6-473; 1964,c. 219.)

§ 50-11. Admissions and representations.

An admission or representation made by any

partner concerning partnership affairs within the

scope of his authority as conferred by this chapter

is evidence against the partnership. (1918, p. 544;

Michie Code 1942, § 4359(11).)

STATEMENT OF THE CASE

This suit originated by means of an interpleader

complaint filed under the provisions of Title 28, Section

1335, of the United States Code, as amended. Old Kent

Bank and Trust Company held approximately $26,018.77

in accounts which had been assigned to it by DeWitt

T. Hobbs, Jr. Conflicting claims to these accounts

had been made by DeWitt T. Hobbs, Jr., Custom Finance

Company, Magnolia Homes Manufacturing Corporation,

Guerdon Industries, Inc., and others. Old Kent Bank and

4.

ES TOR I PORCINE F

Trust Company filed its interpleader complaint in the

United States District Court for the Western District of

Michigan, Southern Division. The case was transferred

to the United States District Court for the Eastern

District of Virginia, Norfolk Division. At the present

time Old Kent Bank and Tr"s+ Company has no interest

in the proceedings. The present controversy arises out

of cross-claims filed in the interpleader suit.

Eastern Trailer Sales, Inc. is a bankrupt Virginia

corporation. In 1966 Eastern Trailer Sales, Inc. was

engaged in the retail sale of trailers and mobile homes.

Sales were made from approximately seventeen different

lots located throughout the State of Virginia. These

lots were operated by the following wholly owned sub-

sidiaries of Eastern Trailer Sales, Inc.: Eastern Trailer

Sales of Richmond, Inc.; Magnolia Trailer Sales and

Finance, Inc.; National Trailer Sales and Finance, Inc.;

Ten-L Mobile Homes of Norfolk, Inc.; Tab’s Trailer

Sales, Inc.; Miracle Mobile Homes of Norfolk, Inc.;

Capitol Mobile Homes, Inc.; Frontier Mobile Homes,

Inc.; Oceana Mobile Homes, Inc.; and Western Trailer

Sales, Inc. Eastern Trailer Sales, Inc. and its sub-

sidiaries are hereinafter called Retail Dealer,

As of 1966 Retail Dealer had been doing business

with Magnolia Homes Manufacturing Corporation, Custom

Finance Company, Armour Mobile Homes Sales Cor-

poration of Virginia, and Magnolia Mobile Homes Sales

Corporation of Virginia. Magnolia is a Mississippi cor-

poration engaged in the manufacture of mobile homes

with various subsidiaries located throughout the United

States; which formerly included Armour Mobile Homes

Sales Corporation of Virginia and Magnolia Mobile

Homes Sales Corporation. These two subsidiaries

were dissolved by merger with Magnolia Mobile Homes

Manufacturing Corporation of Virginia which was a

5.

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wholly owned subsidiary of Magnolia to whose interest

Magnolia succeeded. Magnolia’s principal office is

located in Vicksburg, Mississippi. Custom, with its

principal office in Vicksburg, Mississippi, was a

Mississippi corporation engaged in the financing

business. All of the stock of Custom was owned by

Magnolia, and upon the liquidation of Custom, all of

its assets and liabilities became the assets and lia-

bilities of Magnolia. Guerdon is a Delaware corporation,

with its principal office in Louisville, Kentucky.

Guerdon is doing business in various states of the

United States and is engaged in the manufacture of

mobile homes, pre-built homes and other related ac-

tivities. Magnolia merged with Guerdon, and all of the

stock of Magnolia is now owned by Guerdon. Custom,

Magnolia, and Guerdon are hereinafter referred to as

Respondent Manufacturer.

Midland-Guardian Company of Georgia was a wholly

owned subsidiary of Midland-Guarcian Company. Midland

and its subsidiaries are engaged in dealer and consumer

financing inthe Midwestern and the Southeastern United

States. Midland is unrelated to any of the parties in

this suit, except that Midland at one time was a joint

venture partner with Respondent Manufacturer. As of

1966 and before, Retail Dealer was doing business

with Midland. At that time Midland was financing the

inventory purchases of Retail Dealer from Respondent

Manufacturer. Retail Dealer would receive from Respon-

dent Manufacturer new trailers and mobile homes. At

such time as these units were physically received by

retail dealer, Midland, hereinafter called Finance

Company, would receive documents issued by Re-

spondent Manufacturer. The trade purpose of these

documents was to evidence title to the new trailers

and mobile homes. These documents are sometimes

es

called Certificates of Origin and/or Certificates of

Title. These documents would enable the Finance

Company to perfect senior liens upon the new trailers

and mobile homes. In this way the Finance Company

would be secured for funds loaned to Retail Dealer;

and, of course, such funds would enable Retail Dealer

to purchase new trailers and mobile homes from Re-

spondent Manufacturer.

When Retail Dealer would sell and remove a trailer

or mobile home from one of its lots, it was required to

notify the Finance Company and pay a proportionate

share of its debt to the Finance Company. This pay-

ment would represent the amount loaned to Retail

Dealer for the original purchase of the subject trailer

or mobile home from the Respondent Manufacturer. At

such time as it received payment, Finance Company

would deliver the document to the Retail Dealer. In

order for the Retail Dealer to transfer a clear title to

a retail purchaser, it was necessary that it obtain

such document from the Finance Company.

From time to time it was ‘he trade custom of

Financy Company to make a physical inspection of

Retail Dealer’s lots. The purpose was to determine

that all trailers and mobile homes which secured the

loan and were represented by such documents were

still physically in the possession of Retail Dealer. If

any trailer or mobile home was not found in the posses-

sion of Retail Dealer, them it was assumed that Retail

Dealer had sold the trailer without paying the Finance

Company’s debt. In such a situation, a party is said to

be ‘‘Out of trust’? as to such missing property for which

the lien remains unsatisfied and the debt unpaid.

In 1966, Retail Dealer, Finance Company, and

Respondent Manufacturer, along with DeWitt T. Hobbs,

Jr., hereinafter called Petitioner, entered into an ex-

tensive written agreement, dated May 12, 1966. (See

defendant’s Exhibit U and Exhibit D, record page 343).

At that time and for almost nine years before, Retail

Dealer was and had been Trailer Manufacturer’s largest

dealer. Retail Dealer had experienced financial dif-

ficulty;.and this was the setting for the May 12, 1966,

agreement.

Pursuant to the terms of the May 12, 1966, agree-

ment, three promissory notes were made by Retail

Dealer. One note was dated May 12, 1966, in the sum

of $200,000.00, payable to the order of Respondent

Manufacturer; one was dated May 12, 1966, in the sum

of $499,841.43, payable to the order of Respondent

Manufacturer; and one was dated May 26, 1966, in the

sum of $100,000.00, payable to the order of Retail

Manufacturer. Petitioner under the terms of the May

12, 1966, agreement, also signed the three notes. Two

checks were paid to Retail Dealer by Respondent Man-

ufacturer; one check, dated May 11, 1966, was in the

sum of $200,000.00, and another check, dated May 26,

1966, was in the sum of $100,000.00. The two notes in

the same amounts evidenced the debts forthese checks.

The third note for $499,841.43 represented a previous

debt of Retail Dealer to Respondent Manufacturer. These

payments and notes were according to the express terms

of the May 12, 1966 agreement. To secure these notes,

certain reserve accounts of Retail Dealer were assigned

to Respondent Manufacturer by instrument dated May

16, 1966. Neither the notes, assignment, nor the agree-

ment of May 12, 1966, expressly states the capacity

of Petitioner.

In 1966 Retail Dealer was perhaps one of the

largest retail sellers of trailers and mobile homes in

the United States. At that time it had approximately

200 employees, including Petitioner. Petitioner was

es

also a corporate officer, director and the sole stock-

holder of Retail Dealer. After the May 12, 1966, agree-

ment was reached, Retail Dealer continued to operate

its business as before.

During the first part of July, 1966, Finance Company

and Respondent Manufacturer complained that Retail

Dealer had breached the agreement of May 12, 1966, and

failed to make payments on the notes. Also, it was

claimed that Retail Dealer was ‘‘out of trust’’; i.e.,

trailers and mobile homes were missing from Retail

Dealer’s lots for which Finance Company had not

been paid, and for which the documents of title re-

mained in the possession of Finance Company.

Instead of pursuing the usual and customary legal

remedies, Respondent Manufacturer and Finance Com-

pany elected to enter into a joint venture agreement

evidenced by a letter, dated July 13, 1966. (See Re-

spondent Manufacturer’s Exhibit W; and Exhibit #E,

Record page 361), Pursuant to this joint venture agree-

ment, Finance Company and Respondent Manufacturer

exercised stock and proxy assignments of Retail Dealer

given to them under the agreement of May 12, 1966.

Over the objection of Petitioner, Finance Company and

Respondent Manufacturer continued the May 12, 1966,

agreement in full force and effect, except that Petition-

er was removed as a corporate officer, director and

employee. Further, Petitioner from that point on had

no voice or control in the affairs of Retail Dealer.

Petitioner was made to disassociate himself from the

affairs of Retail Dealer.

By means of their position of full control, Respon-

dent Manufacturer and Finance Company caused Retail

Dealer to continue on in business. This included caus-

ing Retail Dealer to borrow from them an additional

—_ : 9.

$300,000.00 secured by items included in the May 12,

1966, agreement and all other funds and assets of the

Retail Dealer. Thus, under the joint venture agreement

of July 13, 1966, and without Petitioner’s consent

additional funds were borrowed by Retail Dealer. Retail

Dealer, but not Petitioner, executed additional promis-

sory notes and security agreements. Petitioner never

consented to the changes and additions: made to the

May 12, 1966, agreement by the joint venture agreement

of July 13, 1966.

Within a few months thereafter, in 1966, while

under the control and supervision of Finance Company

and Respondent Manutacturer, the financial condition

of Retail Dealer deteriorated. Certain Federal taxes

were not paid and Internal Revenue agents closed the

business of Retail Dealer in October of 1966.

While Petitioner controlled and supervised Retail

Dealer, its business records and corporate minutes

were available and were sufficient to permit audited

reports of Retail Dealer’s business. After Respondent

Manufacturer and Finance Company took control and

supervision of Retail Dealer, the bulk of such records

disappeared. A bankruptcy petition was filed against

Retail Dealer in 1967, but before that, on November

21, 1966, Respondent Manufacturer filed suit against

Finance Company. 1 (See Volume II of the record,

pages 320 through 798.) This suit was between the two

joint venture partners and arose out of their relation-

ships with Retail Dealer and the agreements of May

12, 1966, and July 13, 1966. In the complaint of Trailer

Manufacturer against Finance Company the following

allegations, among others, were set forth:

1. See record, page 308, for order incorporating herein

the record of ended Civil Action No. 5873 for appeal pur-

purposes, etc.

10.

ILI GL oe OE EOE LS LOE LE ELFEN, SRE ENE

=~—~—V“""

1. Finance Company at all times pertinent to

the May 12, 1966, agreement, had its representa-

tives located on the premises of Retail Dealer

and such representatives approved checks drawn

by Retail Dealer which may not have been properly

applied in accordance with the terms of the May

12, 1966, agreement and the July 13, 1966, agree-

ment.

2. Finance Company wrongfully seized possession

and set aside for its own use all the corporate

records, books, accounts, furniture, fixtures and

equipment of Retail Dealer.

Finance Company answered the complaint by deny-

ing the essential allegations, and then went on to

allege:

1. Respondent Manufacturer had not performed

all of the terms required of it by the May 12, 1966,

agreement.

2. Respondent Manufacturer was issuing false or

fictitious invoices, and releasing certificates of

origin for trailers and mobile homes to the Retail

Dealer prior to the delivery of such trailers and

mobile homes to Retail Dealer.

Finance Company filed a counter-claim alleging:

1. Respondent Manufacturer falsely stated that

the debt of Trailer Dealer to it on May 12, 1966,

was $499,841.40. 2

2. Respondent Manufacturer received payments

from Retail Dealer after May 12, 1966, in breach

of the agreement of that date.

2. This is the debt represented by one of the notes upon

which judgment was granted herein against Petitioner in favor

of Respondent Manufacturer. See final judgment, Record

page 304.

Pager

Hat

11.

3. Respondent Manufacturer refused to reimburse

Finance Company for its loss suffered by reason

of 22 mobile homes being out of trust by Retail

Dealer after July 13, 1966. 3

4. Respondent Manufacturer permitted the Retail

Dealer to be out of trust and allowed Retail

Dealer to make payments for mobile homes pur-

chased in many instances as long as two or three

months after invoice date.

5. Respondent Manufacturer’s acts were contrib-

uting causes to the economic failure of Retail

Dealer.

Respondent Manufacturer then amended its Com-

plaint and stated that Finance Company knew that the

Agreements of May 12, 1966, and July 13, 1966 would

place both in a position of control with regard to the

Operation and supervision of the affairs of Retail

Dealer. Respondent Manufacturer admitted that as a

result, Financy Company and it actually controlled

and- supervised operations of Retail Dealer. Respond-

ent Manufacturer alleged that it relied upon Finance

Company to apply the sums advanced in accordance

with the two agreements.

Respondent Manufacturer and Finance Company

actively fought one another almost four years. Finally,

in the latter part of 1970 they compromised their suit,

By agreement, a final order was entered terminating the

case. Such termination was provided for in the release

agreement; and they also agreed to terminate the

bankruptcy proceedings of Retail Dealer. (See Respond-

ent Manufacturer’s - Guerdon Exhibit X-1). From an

inspection of the suit papers in the case between

3. As noted, infra,this was after Petitioner had been re-

moved as an officer, director and employee of Retail Dealer.

12.

ERA ? OS IE Ee ¥

—

Respondent Manufacturer and Finance Company, it can

be seen that there never was an accounting for Retail

Dealer’s operations while under their control.

Until the counter-claims were filed in the present

case, there was never a suit brought against Petitioner

by Respondent Manufacturer. And the claims finally

brought against Petitioner were brought in the form of

simple promissory note actions on the three notes

mentioned previously. One claim was based on the

note for $499,841.43 which evidenced an amount

allegedly due — this is the same debt that the joint

venture partner claimed to be falsely stated by the

Respondent Manufacturer. In the present controversy,

Respondent Manufacturer has implied that Petitioner

individually was responsible for Retail Dealer being

“‘out of trust’’. However, Respondent Manufacturer

offers no explanation for the 22 mobile homes ‘“‘out of

trust’? by Retail Dealer after Petitioner lost control,

and after Retail Dealer was under the control and super-

vision of Respondent Manufacturer and Finance Com-

Company.

Finance Company in its allegations does suggest

an explanation. When Respondent Manufacturer issued

false documents of title, this resulted in Finance Com-

pany floor planning fictitious property - property which

was never actually in the possession of Retail Dealer

and presumably property which did not exist. Obviously,

someone connected with Retail Dealer had to cooperate

with Respondent Manufacturer in order to obtain the

financing from Finance Company. The fact that the

‘fout of trust’? condition continued after Petitioner

left, points out that it was permitted by a person other

than Petitioner.

Petitioner was not aware of Respondent Manufac-

13.

turer’s illegal acts until after the trial in this case.

At the trial Petitioner was misled by the false testi-

mony of Mildred C. Johnson, a representative and

officer of Respondent Manufacturer. When asked about

the litigation between Respondent Manufacturer and

Finance Company, she denied that there was any

problem, denied that the inability to obtain an account-

ing was part of the reason for the suit, and denied any

problem with the May 12, 1966, agreement, This same

witness swore to the truth of the original complaint

filed by the Respondent Manufacturer against the

Finance Company.

In its suit against Finance Company, Respondent

Manufacturer said that the Finance Company had the

records of Retail Dealer and that payments were made

and received in violation of the May 12, 1966, agrce-

ment. Both joint venture partners claimed that records

had been secreted by one another contrary to the spirit

and terms of the May 12, 1966, agreement. In its claim

against Petitioner, Respondent Manufacturer relied on

its own records to prove the sums then due against

Petitioner on the promissory notes. Over Petitioner’s

objection, Respondent Manufacturer never offered the

audited records of Retail Dealer, and never explained

its inability to provide such. Judgments for the indicat-

ed balances were entered against Petitioner as a maker

of the notes.

REASONS FOR GRANTING WRIT

1. When it is alleged that a party with unclean

hands has taken advantage of its own wrongs

and has committed criminal acts, a Court should

inquire into such alleged wrongdoings so as to

protect its own integrity and the administration of

justice; and the sanctioning of such a refusal by

14.

LEI IOROLO GS SL OIE ETL LIE NE

a lower Court is such a departure fromthe accept-

ed and usualcourse of judicial proceedings, as to

call for an exercise ofthis Court’s power of super-

vision.

One usually thinks of the ‘‘clean hands maxim”

as being applicable in courts of equity. In the present

case the Courts below have consistently construed the

Respondent Manufacturer’s suit to be simple law ac-

tions for the breach of promissory notes. Perhaps the

Courts below felt that the ‘‘clean hands maxim’’ did

not apply in law actions. Of course, this is not cor-

rect. As stated by Justice Brandeis:

The maxim of unclean hands comes from courts

of equity. But the principle prevails also in

courts of law. Its common application is in civil

actions between private parties. Olmstead v.

United States, 297 U.S. 438, 483; 72 L.Ed. 944;

48 S.Ct. 564; and 66 ALR 376 (1927).

This statement is supported in Broom’s Legal Max-

ims, Tenth Edition, at page 191, stating ‘‘The maxim

that no man shall take advantage of his own wrongs

is fully recognized in courts of law and equity, and

admits of illustration from every branch of legal pro-

cedure. See also, Re Estate of Ives, 72 ALR 2d 278,

248 N.C. 176, 102 S.E. 2d 807 (1958).

Or, perhaps the lower Courts felt that Petitioner’s

complaint was not timely raised. The wrongful acts

were not brought to the Court’s attention until after

the trial and after one of the final judgments had been

entered. The ‘‘Motion of DeWitt T. Hobbs, Jr. for

Relief from Final Judgment Pursuant to Rule 60 of the

Federal Rules of Civil Procedure” first brought to the

attention of the Court the wrongful acts of the Respond-

ent Manufacturer. This motion raised the following

issues:

a5.

a. The Respondent Manufacturer had fraudulently

misrepresented to the Court its claims against

Petitioner.

b. The Record in the ended suit between Respond-

ent Manufacturer and its joint venture partner

contradicted testimony in the present case

given by Mildred C. Johnson, in behalf of the

Respondent Manufacturer.

c. The Record in the ended civil case between the

joint venture partners alleged numerous fraudulent

acts of the Respondent Manufacturer which af-

fected Petitioner and which would excuse Pe-

titioner from any liability. See Record, page 268

through 272.

Further, Petitioner’s counsel in arguing the motion

emphasized that the pleadings in the ended suit be-

tween Respondent Manufacturer and its joint venture

partner, Finance Company, alleged criminal acts on

the part of Respondent Manufacturer. See Record, Re-

porter’s Transcript, Volume VIII, page 13, lines 1 -- 10.

Inhis Petition for rehearing submitted to the Fourth

Circuit Court of Appeals, Petitioner raised the ‘‘clean

hands’”’ issue. In spite of this, neither the District

Court nor the Court of Appeals has directly commented

on the ‘“‘clean hands’’ issue. However, the District

Court in speaking of the ended suit between the joint

venture partner and Respondent Manufacturer did say:

The Court: That was between, as I recall it, the

Guerdon Industries, or then whatever the name

of the company was from down inMississippi and

the other company as to the agreement between

them. But that hasn’t anything to do with the

$498,000.

16.

PEA STRIP CNEL EYE PORTER Ts AMEE RRND ERC IED

Mr. Cloud: It certainly did.

The Court: I think I know more about the case

than you do, Mr. Cloud, under the circumstances.

But I will read the motion and the affidavit and

will let you hear from me in the next couple of

days. If there is anything done in it, it is going

to be a very brief delay for you to file whatever

discovery evidence you can file. And this is the

last go-around, if I do this. Do you understand

that? See Record, Reporter’s Transcript, Volume

VIII, pg. 13, lines 11 through 23.

In its Memorandum Opinion as to this Motion, the

District Court said: ‘‘A review of that motion adds

nothing relevant to the matters before this court and

is denied.’’ See Record, page 281. And later, the

District Court went on to state: ‘‘It represents some of

the free-wheeling general language that roars in a tea-

pot.’’ See Record, page 281. Yet, a mere perusal of the

record in the ended case would have indicated that the

suit concerned the very agreement upon which the

three promissory notes were based; and upon which

Respondent Manufacturer was suing Petitioner.

In spite of the District Court’s statement to the

contrary, the record of the case between the Respond-

ent Manufacturer and Finance Company does indicate

that the $498,000.00 was in issue. In its counter-

claim against Respondent Manufacturer, the joint

venture partner claimed:

Plaintiffs [Respondent Manufacturer] represented

that the entire indebtedness of Eastern Trailer

Sales, Inc., and its subsidiaries owed to plain-

tiffs on May 12, 1966, was $499,841.43. Said

representation was false. See Record, Paragraph

III, 2, page 461.

17.

Petitioner urges that the lower Courts should have

responded to the ‘‘clean hands’’ issue when raised.

Consider the following:

Whenever in the course of a proceeding the Court

is informed in any way that the plaintiff is with-

out clean hands. . . the Court should inquire into

the facts of its own accord, and if it finds the

charge to be true, relief should not be granted.

Frank Adam Electric Company v. Westinghouse

Electric and Manufacturing Company, 146 F. 2d

165, 167 (8th Circuit, 1945). Emphasis added.

This principle was recognized in Hardinge Co, v.

Jones and Laughlin Steel Corp., 164 F. Supp. 75, 77

(D.C. Pa., 1958) wherein the Court said:

In applying the ‘‘clean hands’’ maxim, the Court

is concerned primarily with protecting its own

integrity from improper action by a party .. . the

latter [Clean hands maxim] need not even be

pleaded.

Justice Frankfurter, in Johnson v. Yellow Cab

Transit Company, 321 U.S. 383, 403, 64 S.Ct. 622, 88

L.Ed. 814 (1943) quoting Justice Brandeis, states:

But the objection that the plaintiff comes with

unclean hands will be taken by the Court itself.

It will be taken despite the wish to the contrary

of all the parties to the litigation. The Court

protects itself. Olmstead v. United States, supra

at page 485.

The lower Court was encouraged and urged to in-

quire into the alleged wrongful, fraudulent and criminal

acts of the Respondent Manufacturer. Instead, the lower

Court let stand its previous judgment on two of the

notes and granted another judgment to the Respondent

Manufacturer on the third note. This third note was in

18.

WF Y PRESTR LIE DAEMON OS eo ORC RRR OH NIK AN 5 ’ t

the principal sum of $499,841.43 -- this was the same

note representing the same debt said to be falsely

Stated by a party in a position to know: Respondent

Manufacturer’s joint venture partner, Finance Company.

To an impartial vbserver this would seem to sug-

gest that power, prestige and money can limit the

administration of justice. Here two corporate giants

took control of Retail Dealer. While under their con-

trol, records which would explain their operation disa-

ppeared. In discussing any statements and records

which might have remained after the Respondent

Manufacturer operated and controlled the business, one

of its corporate officers stated: “No, sir. The last time

I was there you couldn’t find any books and records,

and everything was in a mess. All the deferred certif-

icates suddenly disappeared . . .”’ See Record, Report-

er’s Transcript, Vol. V, p. 242, line 24 to p. 243, line

3.

One blamed the other for the failure of the company.

One claimed the other committed fraudulent and criminal

acts. During this fight, neither made claims against

Petitioner. Instead, their money and power permitted

them to litigate in Court for years, and then, by their

own agreement, to terminate both the suit, as well as

the related bankruptcy case. The wrongful acts plus

the records which would show what took place were

thus buried. It became impossible for Petitioner to

fully present his defense. Instead of bringing in the

records of Bankrupt Retail Dealer, Respondent Manu-

facturer brought in its records to misrepresent what

happened. Petitioner was given the impossible burden

of producing records to prove otherwise -- records which

Respondent Manufacturer and its joint venture partner

had previously refused to provide; and which they con-

trolled. Surely fairness should deny the claim of

19,

Respondent Manufacturer. Petitioner adopts the fol-

lowing principle as being clearly applicable in this

case:

Under the ‘unclean hands’ doctrine, misconduct

which will bar an action in equity does not neces-

sarily need to be fraudulent; it is erough that the

party seeking relief has been guilty of inequit-

able conduct inthe very matter about which affirm-

ative relief is sought. Godwin v. Gerling, 40 ALR

2d 1250, 362, Mo. 19, 239 S.W. 2d 352 (1951).

Respondent Manufacturer should have been denied

a recovery.

2. Whether one by reason of the circumstances

of the parties and/or by operation of law becomes

a surety is an important federal question which

has not been, but should be settled by this court.

This issue is very much related to the ‘‘clean

hands’’ issue, supra, A surety relationship is where

the parties are not on an equal footing. Such a rela-

tionship may be present from the start by reason of the

express terms of the agreement, or it may arise later

by reason of a change in circumstances. 50 Am. Jur.,

Suretyship § 11 states:

The relation of suretyship, although it generally

is created by express contract of the parties and

withthe consent of the creditor, may nevertheless

arise by operation of law, for the law will some-

times place a person already bound upon some

other contract in the situation of surety by ex-

tending to him the privileges of this relationship.

In either instance the acts of the creditor affecting

the surety must be fair and equitable. If not, he will be

denied relief against the surety.

20.

Mead pecnk: tne a ee ee

PRISE ALS SO AT AS ST 6 ere ¥

Even though there are no contractual terms of sur-

etyship, where fairness demands, it will be supplied.

See 18 M.J., Suretyship, § 3 stating ‘‘Also, for the pur-

pose of working out equity and justice, parties may be

treated in a court of equity as standing in a relation

of suretyship.. .’’

If not before, Petitioner surely by operation of law

became a surety at some point after he was ousted by

Respondent Manufacturer and its joint venture partner.

After ousting Petitioner they proceeded to run and con-

trol the business until it failed. They made changes to

the original May 12, 1966 agreement and caused the

Retail Dealer to execute additional notes and security

instruments and thereby borrow additional money.

There is no dispute about this -- Respondent Manu-

facturer has stated:

(e) The Plaintiffs [Respondent Manufacturer] in

accordance with the terms and spirit of the Agree-

ments of May 12, 1966 and July 13, 1966, ailowed

the defendants inance Company] to control

and supervise the operations of Eastern Trailer

Sales, Inc.; allowed the defendants to maintain

agents and employees of the defendants at the

premises of Eastern Trailer Sales, Inc. to the ex-

clusion of those of the plaintiffs; advanced the

sum of $429,791.96 to Eastern and the defend-

ants and allowed the defendants to control the

application of all sums advanced bw the plain-

tiffs and the defendants, and relied upon the de-

fendants applying sums advanced in accordance

with the Agreements of May 12, 1966 and July

13, 1966. See Record, page 519.

All was done without Petitioner’s consent, and over

his objection. More than once in the trial we find con-

flicting statements by Respondent Manufacturer denying

control by the joint venture partners:

21.

Q. Well, I use that not in the strict sense, but I

submit that you did direct the operation of

Eastern.

A. No, Sir. We did not direct the operations of

Eastern. We elected the same management when

Mr. Hobbs was there.

Q. Now you couldn’t have, Mrs. Johnson, because

he had gone.

A. With the exception of Mr. Hobbs.

See Record, Reporter’s Transcript Volume VI,

page 285, lines 13 -- 20.

The July 13, 1966 agreement amended the May 12,

1966 agreement; there is no dispute about this:

Q. My point is that the May 12 agreement, and

this is a question, wasn’t it put on the shelf and

the July 13th agreement became a brand-new thing

that the parties abided by?

A. No, Sir. If it was put on the shelf we couldn’t

have foreclosed on the rolling stock or done any-

thing with the incentives, or we couldn’t have

done anything with the reserves. No. That is not

spelled out in the July 13th agreement. We didn’t

put it on the shelf. It is an amendment to it.

See Record, Reporter’s Transcript Volume VI,

page 287, lines 11 -- 20.

Nor is there any dispute that Petitioner was not a

party to the July 13, 1966 agreement. After Petitioner

was required to resign,

A. We [Respondent Manufacturer] immediately

went to Eastern Trailer Sales to set up person-

nel of Eastern and give areas of responsibility

to employees of Eastern Trailer Sales, Inc. that

were on the premises. Mr. Zersey and Mr. Phipps,

22.

Mr. Wheatly was there, and we designated areas

of responsibility, and they were familiar with

the business and had been long employees of

the business. We then reached an agreement

with Midland Guardian that we would advance up

to the sum of $300,000.

Q. Pause right there. I now show you a docu-

ment designated as Exhibit W in the pre-trial

order and a letter agreement dated July 13, 1966,

and ask you if you can identify that?

A. Yes. I drafted that account.

See Record, Reporter’s Transcript, Volume V,

page 91, line 24 -- page 92, line 12.

It has long been established in Virginia that a

change in a contract without the consent of a surety

operates to discharge the surety from liability. In

Dey, Receiver v. Martin, 78 Va. 1 (1883), the Court

said:

An endorser of a note is a surety for the maker;

and the doctrine is well established that any

change in the contract, however immaterial, and

even though it be for his advantage, discharges

the surety, if made without his consent.

See also Citizens & Marine Bank of N.N. v. McMurran,

138 Va. 657, 662, 123 S.E. 507 (1924). Yet, the lower

court seemed to take the position that the execution

of a negotiable instrument negated all defenses, in-

cluding those of a surety.

It was also suggested that § 8.3-606, Code of Vir-

ginia (1950), as amended (Uniform Commercial Code)

changed the holding in the Dey case, supra. See the

final paragraph to the Virginia Code Commission’s

Comment to § 8.3-606, Code of Virginia. This may be

true if the controversy is limited to negotiable instru-

23.

ments. No where is it suggested that this code section

changes the general law of contracts as far as surety-

ship is concerned. In this case the three notes were

governed by the agreement of May 12, 1966, Here,

§ 8.3-119 (1), Code of Virginia (1950), as amended

states:

As between obligor and his immediate obligee or

any transferee the terms of an instrument may be

modified or affected by any other written agree-

ment executed as a part of the same trans-

action...

Surely the court below should have considered the

notes as being interrelated and dependent upon the

May 12, 1966 agreement. Also, the court should have

interpreted the May 12, 1966 agreement in the light of

the surrounding facts and circumstances so as to de-

termine whether the terms of the notes by operation of

law were modified to the extent that Petitioner became

a surety rather than a maker.

Even if this was not the case, the acts of Respond-

ent Manufacturer would discharge Petitioner under

§ 8.3-606 of the Virginia Code, supra which in part

provides:

(1)(b) The holder discharges any party to the in-

strument to the extent that without such party’s

consent the holder . . . unjustifiably impairs any

collateral for the instrument given by or on be-

half of the party or any person against whom he

has a right of recourse.

At the very least the acts of Respondent Manufacturer

as holder impaired the collateral. Petitioner has no

chance of making a recovery against the now bankrupt

Retail Dealer.

_—7"—~"™

Respondent Manufacturer’s joint venture partner

blames the failure of Retail Dealer on Respondent

Manufacturer. See Record, page 465, paragraph VII, 6.

Hornbook law reminds us that statements of the partner

about the other within the scope of the partnership

constitute evidence against the partnership. The State

of Virginia follows this rule: ‘“‘An admission or repre-

resentation made by any partner concerning partner-

ship affairs within the scope of his authority as con-

ferred by this chapter is evidence against the partner-

ship.” § 50-11, Code of Virginia (1950), as amended.

Petitioner has set forth some of the wrongful acts

of which Respondent Manufacturer has been accused by

its joint venture partner, Finance Company. This very

partner has said that after the business failed the

Respondent Manufacturer failed to make an accounting

of the monies due the bankrupt retail dealer on account

of incentives and reserves. See Record, page 462,

paragraph IV, 3. The alleged wrongs of Respondent

Manufacturer are too numerous to relate; but only the

slightest perusal of the Record will establish that these

two joint venture partners claimed wrongful acts on one

anothers part in relation to the bankrupt retail dealer

and the May 12, 1966 agreement. This was clearly

evidence to support Petitioner’s contentions -- and it

impeaches the evidence of the Respondent Manufactur-

er in chief, as well as the testimony of its officer,

supra, Whether or not Petitioner was a surety, these

acts would operate to discharge him from liability on

the notes.

CONCLUSION

Petitioner respectfully submits that a writ of cer-

tiorari should issue to review the judgment and opinion

—_— 25.

of the United States Court of Appeals for the Fourth

Circuit.

CHARLES R. CLOUD

of counsel

210 Atlantic National Bank Bldg.

Norfolk, Virginia 23510

APPENDIX

IN THE UNITED STATES DISTRICT COURT

FOR THE

EASTERN DISTRICT OF VIRGINIA

Norfolk Division

OLD KENT BANK AND TRUST CO

v.

DeWITT T. HOBBS, JR., et als

CIVIL ACTION

464-70-N

COURT MINUTES AND OPINION

This matter came on for a motion for summary judg-

ment presented by Mr. MacMillan in connection with a

$499 843. Open note signed by Mr. Hobbs and his corp-

oration, a copy of which is in the file and is dated

April 12, 1966.

It was represented to me that a hearing before Judge

Kellam in October that the trial on the $499,843. issue

was separated from the trial on a $300 000. obligation

(composed of two notes $200,000. plus $100,000.), in

order to give the defendant, Hobbs, an opportunity to

take discovery towards proving any defense that he

might have to a note which admittedly he executed.

As I understand those defenses, they are:

(1) That the agreement of May 12, 1966 makes this a

corporate responsibility and would relieve Hobbs per-

sonally. I have told Mr. Ball that I thought this was a

frivolous defense in view of the fact that Mr. Hobbs

has personally signed the note. In my finance ex-

la

perience, this is the reason individuals are required to

sign corporate notes so that there will be no question

that the responsibility is for the individual and not one

to be absorbed by the corporation.

(2) Mr. Ball suggests that the agreement of May 12

was in some manner breached by the parties who were

the lenders under that agreement and as such, Mr.

Hobbs has been discharged from his liability. I told

Mr. Ball that I heard all of the evidence that I thought

that was available on this subject dealing with the

termination of the agreements and the ouster of Hobbs

in July of 1966 and that unless there was additional

evidence from some source not yet produced, I was

convinced that there had been no violation of the

agreement and that this would not. be a valid de-

fense.

(3) Mr. Ball suggests that the creditors preferred

themselves in the disposition of assets that came in

their hands.

I have given Mr. Ball 30 days, until March 2, 1971,

to take such deposition and to present to me such

evidence as he feels would in any wise sustain any

one of these three defenses and I will review it at that

time.

I have been completely candid with him that unless

he produces something I have not yet heard,I intend

to enter summary judgment on the $499,843. note on

that date. If the evidence presented in form of dis-

covery is such as to warrant a further trial date, one

will be immediately set to the end that this case will

get off this docket this spring, one way or the other.

2a

EL NS GO REBT TENT CIO LOE NS EEE EN NE LAE EERILY BENT

COPIES OF THESE MINUTES WERE FORWARD-

ED TO COUNSEL PRESENT.

John A. MacKenzie

United States District Judge

Norfolk, Virginia

February 2, 1971

IN THE UNITED STATES DISTRICT COURT

FOR THE

EASTERN DISTRICT OF VIRGINIA

Norfolk Division

OLD KENT BANK AND TRUST CO.

V.

DwWITT T. HOBBS, JR., et als

CIVIL ACTION

464-70-N

MEMORANDUM OPINION

On January 4 and 5, 1971, this court fully heard

testimony on the matter of defendants’ liability on two

notes, one dated May 12, 1966 in the amount of

$200,000.00, and the second dated May 30, 1966 in the

3a

amount of $100,000. The decision that there was lia-

bility and that the Old Kent Bank and Trust Company

reserve had been pledged as security for that liability,

was announced from the hench at the conclusion of the

evidence. The court might add that the evidence sup-

portive of that decision was not simply a preponder-

ance -- it was overwhelming -- and for the most part

not relevantly questioned.

The entry of a formal judgment order as to that

phase of the case was entered on February 2, 1971. No

cause to set the same aside under Rule 60 of the

Federal Rules of Civil Procedure has been shown. It

will not be disturbed.

* * * *

There remained pending - by order - not an issue

to be heard on January 4, 1971, - the matter of Hobbs’

liability on a note signed by him personally (and also

by his many corporations), dated May 12, 1966, in the

amount of $499,841.43, being the balance due for

mobile units delivered but not then paid for. The cor-

rectness of the amount of the note was agreed to by

him in the text thereof.

On February 2, 1971, a motion for summary judg-

ment on that note came on to be heard. Mr. Ball, attorn-

ey for Hobbs, objected to the entry of the judgment,

suggesting that he wanted additional time to seek

discovery information.

This same ‘‘evidence to be discovered,” had earlier

been the reason, on December 2, 1970, for the separa-

tion of the $499,841.43 note from the issues to be

heard on January 4, 1971. Nothing was done to pursue

such discovery between December 2, 1970, to January

4, 1971, nor to February 2, 1971, nor to March 2, 1971.

——

On February 2, 1971, the court was of the mind to

then grant summary judgment on the $499,841.43 note,

but in an abundance of caution, gave the defendant

Hobbs until March 2, 1971, to take further discovery and

to present it.

On March 2, 1971, no further effort at discovery

has been made. Instead, defendant Hobbs has hired

new attorneys and files a ‘‘Motion of DeWitt T. Hobbs,

Jr. for Relief from Final Judgment Pursuant to Rule

60 of the Federal Rules of Civil Procedure.”

A review of that motion adds nothing relevant to

the matters before this court and is DENIED.

The thirty days given Mr. Ball, Hobbs’ attorney,

to take and present any deposition was allowed only

with reference to the $499,841.43 note and had nothing

to do with the liability already announced on January

5, 1971 on the two notes of May 12, 1966 and May 30,

1966, totaling $300,000.00.

The case now rests solely on the matter of the

$499,841.43 note. That note is in evidence, signed by

Hobbs, acknowledging it to be a proper account for

mobile units for which payment was then due in May,

1966. Testimony from an accountant for Eastern

Trailer Sales, and others, already heard by the court,

fix that amount as correct. Hobbs, himself, gave a like

figure to the attorney for Midland-Guardian Co.

Twice, final disposition has been delayed pend-

ing Hobbs’ taking further evidence. None has been pro-

duced.

The language of the motion apparently addressed

to the judgment already rendered on the May 12 and

May 30, 1966 notes, but which can be construed as re-

lating also to the $499,841.43 note adds nothing. It

en

represents none of the free-wheeling general language

that roars in a teapot.

The motion for summary judgment will be granted

upon presentation by the attorney for Guerdon Indus-

tries, Inc. of a proper order referring to this brief

Memorandum Opinion.

United States District Judge

Norfolk, Virginia

March 5, 1971

IN THE UNITED STATES DISTRICT COURT

FOR THE

EASTERN DISTRICT OF VIRGINIA

Norfolk, Division

OLD KENT BANK AND TRUST CO.

Vv.

DeWITT T. HOBBS, JR., et als

CIVIL ACTION

464-70-N

[First]

FINAL JUDGMENT

This day again came the parties on the Interpleader

Petition of Old Kent Bank & Trust Company of Grand

6a

DPUuRey NS ae a5 ee ee 2 As Te @ - :

aa

=~"

Rapids, Michigan, transferred to this District from the

United States District Court for the Western District

of Michigan, Southern Division, by Order of Transfer

dated June 12, 1970; on the Cross-Claim of Custom

Finance Company against DeWitt T. Hobbs, Jr., and

his Answer thereto; on the Cross-Claim of DeWitt T.

Hobbs, Jr. against Guerdon Industries, Inc., Magnolia

Homes Manufacturing Corp. and Custom Finance Comp-

any, and their Answer thereto; on the Cross-Claim of

Magnolia Homes Manufacturing Corp. against DeWitt

T. Hobbs, Jr. and his Answer thereto; on the pre-trial

admissions and stipulations; on the evidence and ex-

hibits presented at the ore tenus hearing on the merits

held on January 4th and Sth, 1971, all matters of fact

and law having been submitted to the Court for determ-

ination; on the memoranda of law and argument of

counsel; and on the Court’s Meincrandum Opinion of

Jenuary 5, 1971; and,

It appearing to the Court that William R. Moore,

Jr., Trustee in Bankruptcy for Eastern Trailer Sales,

Inc., Fred Martin, State Court Receiver for Eastern

Trailer Sales, Inc., and John M. Cloud, Attorney for

the Receiver, were all made parties to the Interpleader

Petition filed herein, and appeared and stated that

they had no interest in the matters in controversy in

this case, it is determined that the Estate of Eastern

Trailer Sales, Inc., bankrupt, has no interest in the

funds before the Court; and,

It further appearing that by agreement dated May

12, 1966, Eastern Trailer Sales, Inc. and its subsidiar-

ies and DeWitt T. Hobbs, Jr., individually, solemnly

covenanted and agreed to assign all bank reserve ac-

counts owned by Eastern Trailer Sales, Inc. to Custom

Finance Company to secure certain promissory notes

aggregating $300,000.00 and dated May 12, 1966 and

ef 7 ae , 7a

to further secure a certain promissory note to Magnolia

Mobile Homes Sales Corp. and Armor Mobile Homes

Sales Corp. in the sum of $499,841.43 and dated May

12, 1966, the said reserve accounts to be applied first

to satisfy Custom Finance Company loans and then to

be applied to the loans of said Magnolia and Armor;

and,

It further appearing that by instrument dated May

16, 1966, Eastern Trailer Sales, Inc. and its subsidiar-

ies did fully assign all of its interest in the various

reserve accounts in the Southern Bank of Norfolk,

Norfolk, Virginia, Bank of Chesapeake, Chesapeake,

Virginia, G.A.C. Finance Corporation, of Detroit,

Michigan, Old Kent Bank & Trust Company, Grand Rap-

ids, Michigan, Union Bank & Trust Company, Bethle-

hem, Pennsylvania, General Electric Credit Corp.,

Philadelphia, Pennsylvania, American Security &

Trust Company, Washington, D.C., Philadelphia Na-

tional Bank, Philadelphia, Pennsylvania, and Commer-

cial Credit Corporation, Norfolk, Virginia, to Custom

Finance Company; and

It further appearing Eastern Trailer Sales, Inc. and

its subsidiaries, the owner of said reserves, agreed

on July 13, 1966, to further assign said reserves to

secure a series of promissory notes aggregating

$156,000.00 to Magnolia Homes Manufacturing Corp.,

of Vicksburg, Mississippi; and,

It appearing to the Court, and the Court so finds

and determines, that DeWitt T. Hobbs, Jr. has no inter-

est whatsoever in or to any of the aforesaid bank re-

serve accounts, either in his own name or in the name

of Eastern Trailer Sales, having assigned all of his

right, title and interest in or to the said bank reserve

accounts in the Southern Bank of Norfolk, Norfolk,

ie ee el ee

__ ——

Virginia, Bank of Chesapeake, Chesapeake, Virginia,

G.A.C. Finance Corporation, of Detroit, Michigan, Old

Kent Bank & Trust Company, Grand Rapids, Michigan,

Union Bank & Trust Company, Bethlehem, Pennsy]-

vania, General Electric Credit Corp., Philadelphia,

Pennsylvania, American Security & Trust Company,

Washington D.C., Philadelphia National Bank, Phil-

adelphia, Pennsylvania, and Commercial Credit Corp-

oration, Norfolk, Virginia, to Eastern Trailer Sales,

Inc. at the time of its incorporation of the sole propriet-

orship known as DeWitt T. Hobbs, Jt., individually

and trading as Eastern Trailer Sales, said sole pro-

prietorship having ceased doing business on January

1, 1963; and

It further appearing that Guerdon Industries, Inc.

and Magnolia Home&S Mfg. Corp. and Custom Finance

Company have applied by motion for a determination

under Rule 54(b), and it appearing that the Court by

its Memorandum Opinion of January 5, 1971 determined

all but one of the multiple claims involved in this pro-

ceeding, namely, Guerdon’s Cross-Bill against DeWitt

T. Hobbs, Jr. for judgment on a certain promissory

note in the sum of $499,841.43 which claim is continued

on the docket notwithstanding this final judgment

order, and that no just reason for delay in directing

final judgment as to the several claims already de-

cided has been shown, the Court doth ORDER pursuant

to Rule 54(b) of the Federal Rules of Civil Procedure

that this judgment order is a final judgment as to each

of the following determined matters:

NOW THEREFORE, the Court doth ORDER, AD-

JUDGE and DECREE that:

1. The sum of $27,686.96 held in the registry of

this Court and being the net proceeds of the bank re-

9a

eneememiaanoatiatias

serve accounts heretofore on deposit in the Old Kent r

Bank & Trust Company of Grand Rapids, Michigan, is

ORDERED and DECLARED to be the sole property of

Magnolia Homes Manufacturing Company of Vicksburg,

Mississippi, successor of Custom Finarice Company,

and the Clerk of this Court is hereby ORDERED and

DIRECTED to cause said fund to be paid over and

delivered to Magnolia Mobile Homes Manufacturing

Corporation, successor of Custom Finance Company;

and,

2. Magnolia Mobile Homes Manufacturing Corpora-

tion of Vicksburg, Mississippi, successor of Custom

Finance Company, is hereby AWARDED Final Judg-

ment on the promissory note payableto Custom Finance

Company dated May 12, 1966 in the original amount of

$200,000.00, against DeWitt T. Hobbs, Jr., a joint

maker thereof, in the aggregate sum of $87,833.48, rep-

resenting a principal balance due of $47,716.82, plus

interest of $32,132.66 to December 31, 1970, plus

10% attorneys’ fees of $7,984.00, attorneys’ fees having

been reserved in said note, plus interest at 6% per

annum from January 1, 1971, until paid; provided;

however, there shall be credited against this judg-

ment award the sum of $28,457.98 from the fund of

$27,686.96 on deposit in this Court when said fund is

received by the said noteholder; and

3. Magnolia Mobile Homes Manufacturing Corpora-

tion, of Vicksburg, Mississippi, successor of Custom

Finance Company, is hereby AWARDED Final Judg-

ment on the promissory note payable to Custom Finance

Company dated May 30, 1966 in the original amount of

$100,000.00 against DeWitt T. Hobbs, Jr., joint maker

on said note, in the aggregate sum of $43,912.20, re-

presenting the principal balance due on said note of

$23,912.20, plus accrued interest to December 31,

OS RT EF px

10a

| 1970 of $16,061.78, plus 10% attorneys’ fees of

$3,992.00, attorneys’ fees having been reserved in

) scid note, said judgment to bear interest at 6% per

annum from January 1, 1971 until paid; provided,

however, there shall be credited against said judg-

ment award the sum of $9,228.98 of the fund of

$27,686.96 on deposit in this Court when such fund

is received by said noteholder; and

4. The Cross-Claim of DeWitt T. Hobbs, Jr.,

against Guerdon Industries, Inc., Magnolia Homes

Manufacturing Corporation and Custom Finance Com-

pany is hereby ORDERED FOREVER DISMISSED with

prejudice; and,

5. Magnolia Mobile Homes Manufacturing Corpora-

tion is also awarded a Final Judgment against DeWitt

T. Hobbs for the costs of this proceeding, including,

but not limited to, the attorneys’ fees of Old Kent Bank

& Trust Company in filing of the Interpleader Petition

in the sum of $1,140.00 and its costs of $104.20, both

of which sums in the course of this proceeding were

deducted from the bank reserve account deposited in

this Court by Old Kent Bank & Trust Company; which

judgment shall bear interest at 6% per annum from the

date of this judgment.

District Judge

In Norfolk, Virginia

February 2, 1971

IN THE UNITED STATES DISTRICT COURT

FOR THE |

EASTERN DISTRICT OF VIRGINIA

Norfolk, Division

OLD KENT BANK AND TRUST CO.

Vv.

DeWITT T. HOBBS, JR., et als

CIVIL ACTION

464-70-N

[Second]

FINAL JUDGMENT

This day came the parties on the Cross-Bill of

Guerdon Industries, Inc. and Magnolia Homes Manu-

facturing Corporation praying judgment against DeWitt

T. Hobbs, Jr. on a certain negotiable promissory note

dated May 12, 1966 in the sum of $499,841.43; on the

Answer to DeWitt T. Hobbs, Jr.; on the evidence

heard ore tenus in open court on January 4 and 5,

1971, and the exhibits filed therein; on the Motion for

Summary Judgment with exhibits attached filed by the

Cross-Plaintiffs; on the argument of counsel heard

on February 2 and March 2, 1971; on the Motion and

Affidavit of DeWitt T. Hobbs, Jr. for Relief pursuant to

Rule 60 of the Federal Rules of Civil Procedure; and on

the Memorandum Opinion of the Court dated March 5,

1971; and,

It appearing to the Court from the foregoing that

there is no genuine, material issue of law or fact to be

determined by the Court and that DeWitt, T. Hobbs, Jr.

is justly ind>bted to Magnolia Homes Manufacturing

__ ——

Corporation of Vicksburg, Mississippi, parent and

successor of Magnolia Mobile Homes Manufacturing

Corporation of Virginia and Armor Mobile Homes Sales

Corporation of Virginia, on a certain note dated May

12, 1966 in the principal sum of $499,841.43, plus

interest, costs and attorneys fees as provided in said

note;

Now, therefore, the Court doth ORDER, AD-

JUDGE and DECREE that Magnolia Homes Manu-

facturing Corporation of Vicksburg, Mississippi, be,

and it hereby is, awarded judgment against DeWitt

T. Hobbs, Jr. in the principal sum of $499,841.43, plus

interest of. six per cent (6%) per annum from May 12,

1966 to the date hereof in the sum of $145,203.95, plus

ten per cent (10%) attorneys fees and the costs of this

proceeding, which judgment shall bear interest at the

rate of six per cent (6%) per annum from the date hereof.

. l3a

=

UNITED STATES COURT OF APPEALS

For The Fourth Circuit

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 71-1578

Old Kent Bank & Trust Company,

Original Interpleader Plaintiff,

versus

DeWitt T. Hobbs, Jr.,

Appellant,

and

Custom Finance Company, etc.,

Guerdon Industries, Inc., etc., and

Magnolia Homes Manufacturing Corporation,

Appellees.

Appeal from the United States District Court for the

Eastern District of Virginia, at Norfolk.

MacKenzie, District Judge.

(Argued December 7, 197! Decided January 27, 1972.)

Before Boreman, Senior Circuit Judge,

and Winter and Craven, Circuit Judges.

14a

as JOLLET EEE BSS ae

-—

Charles R. Cloud (Peter K. Babalas, on brief) for

Appellant, and E. Leslie Cox and Robert R. MacMillan

(Breeden, Howard and MacMillan, on brief) for Appellees.

PER CURIAM:

In an interpleader action, the defendants filed cross-

claims against one another. DeWitt T. Hobbs, Jr.

sought a declaration that he was discharged from lia-

bility on two notes, in the aggregate amount of

$300,000.00, payable to Custom Finance Company be-

cause of payment in full, or, in the alternative, bacause

of Custom’s breach of agreement between him, Custom,

Magnolia Homes Manufacturing Corporation, and

Guerdon Industries, Inc.; and he sought damages

from Custom, Magnolia and Guerdon. The agreement

had been entered into after Hobbs’ enterprise, Eastern

Trailer Sales, Incorporated, and its subsidiaries, were

recognized to be in severe financial difficulty and it

was made in an effort to save them. New loans of

$300,000.00 were made to Eastern and Hobbs, evidenc-

ed by the two notes and a third note evidencing exist-

ing indebtedness of $499,841.43 was also given. The

new loans and the existing indebtedness were secured

and the lenders made certain agreements as to how

they would deal with the collateral. Custom cross-

claimed against Hobbs for the unpaid balanc2:of those

notes and the third note. The district court entered

judgment against Hobbs for the unpaid balance of the

notes and dismissed Hobbs’ cross-claim for damages

for lack of proof. Hobbs has appealed.

The only two questions raised on appeal are

whether Hobbs was discharged from liability on the

notes because of Custom’s breach of the agreement

and whether Hobbs proved his entitlement to damages

Site a | =

for breach of the agreement.* As to the former, it is

Hobbs’ argument that he was a surety on the notes

and not a maker and as a surety, discharged by treat-

ment of the collateral not in accordance with the agree-

ment and without his consent; but we agree with the

district court that Hobbs was a maker. We need not

consider what defenses, if any, he might be able to

assert if he were a surety. We also agree with the

district court that Hobbs failed _ prove that the agree-

ment was breached and, hence, that he was entitléd to

damages. The proof to show unpaid balances on the

three notes in the amounts for which judgment was

entered was sufficient.

AFFIRMED.

*Motions to dismiss the appeal for failure to

comply with various Rules of Appellate Proce-

dure were filed. Although it is clear that the

rules were not complied with, we need not con-

sider these defaults in the view we take of the

appeal on its merits.

: ——' PERRI RE FES SS GRITS EO ey ise

—

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 71-1578

Old Kent Bank & Trust Company,

Original Interpleader Plaintiff,

versus

DeWitt T. Hobbs, Jr.,

Appellant,

and

Custom Finance Company, etc.,

Guerdon Industries, Inc., etc., and

Magnolia Homes Manufacturing Corporation,

Appellees,

ORDER

The petition for rehearing of DeWitt T. Hobbs, Jr.

having been read and considered, it is with the concur-

rence of Judge Boreman and Judge Craven, ORDERED,

that said petition be, and it is hereby, denied.

For the Court:

s/Harrison L. Winter

United States Circuit Judge

March 3, 1972

Samuel W. Phillips Clerk

OPER P a S PRea ISRN S S oe ee oe aed PRL PELE IER Re he mons ren ey,