{
  "id": 8526962,
  "name": "CAROLINA FIRST NATIONAL BANK, Plaintiff v. DOUGLAS GALLERY OF HOMES, LTD. (formerly HARLESTON AND MAGNESS, INC., d/b/a GALLERY OF HOMES), and ERNEST R. MAGNESS and JAMES A. JENNINGS, Defendants, ERNEST R. MAGNESS, Third Party Plaintiff v. MARINELL S. MOORE, Individually and as Executrix of the Estate of B. T. Moore, Third Party Defendant, and ERNEST R. MAGNESS, Third Party Plaintiff v. DOUGLAS GALLERY OF HOMES, LTD., Third Party Defendant",
  "name_abbreviation": "Carolina First National Bank v. Douglas Gallery of Homes, Ltd.",
  "decision_date": "1984-05-01",
  "docket_number": "No. 8327SC166",
  "first_page": "246",
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  "last_updated": "2023-07-14T17:24:21.303361+00:00",
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    "date_added": "2019-08-29",
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    "judges": [
      "Judges Arnold and Whichard concur."
    ],
    "parties": [
      "CAROLINA FIRST NATIONAL BANK, Plaintiff v. DOUGLAS GALLERY OF HOMES, LTD. (formerly HARLESTON AND MAGNESS, INC., d/b/a GALLERY OF HOMES), and ERNEST R. MAGNESS and JAMES A. JENNINGS, Defendants, ERNEST R. MAGNESS, Third Party Plaintiff v. MARINELL S. MOORE, Individually and as Executrix of the Estate of B. T. Moore, Third Party Defendant, and ERNEST R. MAGNESS, Third Party Plaintiff v. DOUGLAS GALLERY OF HOMES, LTD., Third Party Defendant"
    ],
    "opinions": [
      {
        "text": "BECTON, Judge.\nPlaintiff, payee, Carolina First National Bank (CFNB), instituted this action on 23 September 1981 against the maker, defendant Harleston & Magness, Inc. (Harleston), and the endorsers, defendants Ernest R. Magness and James A. Jennings, of a negotiable promissory note made payable to \u201cCAROLINA First National Bank, or Order.\u201d In his Answer, Magness admitted his endorsement on the note, but raised several defenses. Neither Harleston nor Jennings appeared at trial. Magness made a motion for a directed verdict under Rule 50 of the North Carolina Rules of Civil Procedure at the close of CFNB\u2019s evidence. The specific grounds stated to the trial court under Rule 50 were:\n[T]he lawsuit has been brought by Carolina First National Bank which no longer exists and NCNB is the holder of the note. Rule 17 requires that all actions be prosecuted in the name of the real party in interest and Defendant may have defenses against the holder, NCNB, that cannot be asserted against Carolina First National Bank. Further, there was no evidence that the holder of the note, NCNB, gave value for it.\nThe trial court deferred ruling on the motion. After presenting no evidence, Magness renewed his motion. Magness\u2019 motions were denied. The trial court then granted CFNB\u2019s motion for a directed verdict under Rule 50 at the close of all the evidence. Magness appeals.\nI\nOn appeal, Magness argues that the trial court erred in denying his motions for directed verdict and granting CFNB\u2019s motion for directed verdict when (1) \u201cuncontradicted evidence showed [CFNB] no longer existed and no evidence as to the identity of the holder or owner of the note was offered,\u201d and (2) the evidence \u201cdemonstrated the action was not prosecuted by the real party in interest and [CFNB] failed to make [a] motion for joinder or substitution.\u201d\nBecause Magness did not raise the issue of the \u201cidentity of the holder\u201d before the trial court in his specific grounds for the directed verdict motion, we cannot consider this argument on appeal. Feibus & Co. v. Godley Const. Co., 301 N.C. 294, 271 S.E. 2d 385 (1980).\nFor the following reasons, we remand to the trial court to amend the pleadings and substitute the real party in interest in its directed verdict.\nII\nIn its Complaint, filed 23 September 1981, CFNB alleged that \u201cPlaintiff is a National Banking Association with principal office in Lincolnton, Lincoln County, N.C.\u201d The matter came on for trial in early November 1982. The testimony of CFNB\u2019s sole witness, Neil Ferguson, a Vice President with North Carolina National Bank (NCNB), revealed that CFNB had merged with an unnamed bank and, therefore, was no longer in existence. Ferguson explained,\nIn October of 1978 Carolina First National Bank was a national banking corporation licensed to do banking in North Carolina. As to whether there is now a Carolina First National Bank in existence, it\u2019s been merged to another bank. There are no more signs at the Denver office of Carolina First National Bank. I am employed by NCNB and it is NCNB that I am here for today.\nFerguson did not establish how NCNB came into possession of the note; that is, whether NCNB was the surviving bank or its transferee, but Ferguson did present the note at trial.\nFaced with evidence of a merger, we are asked to determine whether the action could continue in CFNB\u2019s name, although CFNB, the merged bank, ceased to exist at the time of the merger. N.C. Gen. Stat. \u00a7\u00a7 53-12 to -13 (1982). N.C. Gen. Stat. \u00a7 1A-1, Rule 17(a) (1983) provides that \u201c[e]very claim shall be prosecuted in the name of the real party in interest.\u201d A real party in interest is \u201c \u2018a party who is benefited or injured by the judgment in the case\u2019, [citation omitted] [and] who by substantive law has the legal right to enforce the claim in question.\u201d Reliance Ins. Co. v. Walker, 33 N.C. App. 15, 18-19, 234 S.E. 2d 206, 209, disc. rev. denied, 293 N.C. 159, 236 S.E. 2d 704 (1977) (quoting Parnell v. Nationwide Mut. Ins. Co., 263 N.C. 445, 448, 139 S.E. 2d 723, 726 (1965)). In a bank merger, the surviving bank or its transferee has the legal right to enforce the claim because the surviving bank succeeds to the merged bank\u2019s holder status by operation of law. G.S. \u00a7 53-13; see also Econo-Travel Motor Hotel Corp. v. Taylor, 301 N.C. 200, 271 S.E. 2d 54 (1980).\nCFNB asserts, though, that N.C. Gen. Stat. \u00a7 1A-1, Rule 25(d) (1983) controls:\nIn case of any transfer of interest other than by death, the action shall be continued in the name of the original party; but, upon motion of any party, the court may allow the person to whom the transfer is made to be joined with the original party.\nAt first blush, Rule 25(d) appears to be the solution to our quandary. However, we remind the parties that Rule 25(d) is merely a procedural rule. Substantive law governs its application. 7A C. Wright and A. Miller, Federal Practice and Procedure \u00a7 1958, at 664 (1972). The statutory provision dealing with bank mergers, G.S. \u00a7 53-12, provides:\nIn case of either transfer or merger or consolidation the rights of creditors shall be preserved unimpaired, and the respective companies deemed to be in existence to preserve such rights for a period of three years.\nThe merged bank is deemed to continue in existence to defend in actions by creditors. No statutory language enables a merged bank to continue prosecuting an action for a period of time after the merger. The legislative intent is clear, especially in light of the corporate merger provision, N.C. Gen. Stat. \u00a7 55-110(c) (1982), which permits the prosecution and defense of actions in the name of the merged corporation.\n[A]ny claim existing or action or proceeding, civil or criminal, pending by or against any such [merged] corporations may be prosecuted as if such merger or consolidation had not taken place, or such surviving or new corporation may be substituted in its place. . . .\nG.S. \u00a7 55-110(c). Since the substantive law does not authorize a merged bank to continue prosecuting an action, Rule 25(d) is not applicable to the case sub judice.\nWe return to the provisions of G.S. \u00a7 1A-1, Rule 17(a), real party in interest. Rule 17(a) provides that:\nNo action shall be dismissed on the grounds that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of, the real party in interest; and such ratification, joinder or substitution shall have the same effect as if the action had been commenced in the name of the real party in interest.\nMagness first raised his real party in interest objection in his motion for a directed verdict at the close of CFNB\u2019s evidence. The trial court subsequently denied Magness\u2019 motions and granted CFNB\u2019s motion for a directed verdict.\nIn Booker v. Everhart, 294 N.C. 146, 240 S.E. 2d 360 (1978), our Supreme Court relied on the lenient language of Rule 17(a) dealing with dismissal, when it remanded an action on a nonnegotiable promissory note for a new trial, because the trial court had failed to join a necessary party plaintiff under N.C. Gen. Stat. \u00a7 1A-1, Rule 19 (1983).\nWhere, as here, a fatal defect of the parties is disclosed, the court should refuse to deal with the merits of the case until the absent parties are brought into the action, and in the absence of a proper motion by a competent person, the defect should be corrected by ex mero motu ruling of the court. [Citations omitted.] Absence of necessary parties does not merit a nonsuit. Instead, the court should order a continuance so as to provide a reasonable time for them to be brought in and plead.\nBooker, 294 N.C. at 158, 240 S.E. 2d at 367.\nApplying Rule 17(a) and the reasoning in Booker to the case sub judice, we hold that the absence of the real party in interest did not warrant a directed verdict. Therefore, the trial court did not err in denying Magness\u2019 motion. However, before ruling on the merits by granting CFNB\u2019s motion, the trial court should have granted a continuance to permit the real party in interest to be substituted, or the trial court should have corrected the defect by ex mero mo tu ruling.\nNevertheless, the trial court\u2019s error does not require a new trial. Unlike Booker, an action with a fatal defect \u2014 the absence of a necessary party \u2014 the absence of the real party in interest in the case sub judice does not constitute a \u201cfatal defect,\u201d since Magness has failed to \u201cshow real prejudice in not having had the real party joined at the original trial.\u201d 3A J. Moore and J. Lucas, Moore\u2019s Federal Practice \u00a7 17.15, at 17-187 (2d ed. 1984). Magness, in his Answer, admitted his endorsement on the note. Although he alleged defenses in his Answer, he presented no evidence at trial. He argues, in his specific grounds for the motion for a directed verdict: \u201cDefendant may have defenses against the holder, NCNB, that cannot be asserted against Carolina First National Bank.\u201d We disagree.\nA holder in due course takes subject to the defenses of any party to the instrument with whom he has dealt. N.C. Gen. Stat. \u00a7 25-3-305 (Supp. 1983). If CFNB dealt with Magness through an authorized agent, as alleged in Magness\u2019 Answer, CFNB was subject to Magness\u2019 defenses. Since NCNB did not establish holder in due course status, both NCNB and CFNB were subject to Magness\u2019 alleged defenses. See N.C. Gen. Stat. \u00a7 25-3-302 (1965). Magness\u2019 failure to present evidence proving the alleged defenses shows that he was not prejudiced by not having had the real party joined.\nWe, therefore, leave the trial court\u2019s directed verdict in favor of CFNB intact, but remand the case to the trial court to amend the pleadings and to substitute the real party in interest in its verdict. See Econo-Travel\nRemanded.\nJudges Arnold and Whichard concur.",
        "type": "majority",
        "author": "BECTON, Judge."
      }
    ],
    "attorneys": [
      "Erwin and Beddow, P.A., by Timothy W. Griffin and Fenton T. Erwin, Jr., for defendant appellant Magness.",
      "Jonas, Jonas & Rhyne, by Richard E. Jonas, for plaintiff ap-pellee."
    ],
    "corrections": "",
    "head_matter": "CAROLINA FIRST NATIONAL BANK, Plaintiff v. DOUGLAS GALLERY OF HOMES, LTD. (formerly HARLESTON AND MAGNESS, INC., d/b/a GALLERY OF HOMES), and ERNEST R. MAGNESS and JAMES A. JENNINGS, Defendants, ERNEST R. MAGNESS, Third Party Plaintiff v. MARINELL S. MOORE, Individually and as Executrix of the Estate of B. T. Moore, Third Party Defendant, and ERNEST R. MAGNESS, Third Party Plaintiff v. DOUGLAS GALLERY OF HOMES, LTD., Third Party Defendant\nNo. 8327SC166\n(Filed 1 May 1984)\n1. Appeal and Error 8 4; Rules of Civil Procedure 8 50.5\u2014 denial of directed verdict-different ground from that asserted in trial\nIn reviewing the denial of a motion for directed verdict, the appellate court could not consider an argument not stated as a specific ground for the motion at trial.\n2. Banks and Banking 8 23; Bills and Notes 8 18\u2014 bank merger \u2014 right of action on promissory note\nIn a bank merger, the surviving bank or its transferee has the legal right to enforce the claim of a promissory note because the surviving bank succeeds to the merged bank\u2019s holder status by operation of law. G.S. 53-13.\n3. Banks and Banking 8 23; Rules of Civil Procedure 8 25\u2014 bank merger \u2014no continuance of action by merged bank\nSince the substantive law of G.S. 55-110(c) does not authorize a merged bank to continue prosecuting an action, G.S. 1A-1, Rule 25(d) does not do so.\n4. Bills and Notes 8 18; Rules of Civil Procedure 8 19\u2014 effect of absence of necessary party\nIn an action on a promissory note by a bank which had merged with another bank and was no longer in existence, the absence of the surviving bank, the real party in interest, from the action did not warrant a directed verdict. Rather, the trial court should have granted a continuance to permit the real party in interest to be substituted or should have corrected the defect by an ex mero motu ruling.\n5. Rules of Civil Procedure 8 19\u2014 absence of real party in interest \u2014 failure to show prejudice \u2014remand for substitution of party\nWhere defendant failed to show real prejudice in not having had the real party in interest joined at the original trial, the trial court\u2019s directed verdict in favor of plaintiff will be left intact, but the case will be remanded to the trial court to amend the pleadings and to substitute the real party in interest in its verdict.\nAppeal by defendant from Russell G. Walker, Jr., Judge. Judgment entered 2 November 1982 in Superior Court, Lincoln County. Heard in the Court of Appeals 17 January 1984.\nErwin and Beddow, P.A., by Timothy W. Griffin and Fenton T. Erwin, Jr., for defendant appellant Magness.\nJonas, Jonas & Rhyne, by Richard E. Jonas, for plaintiff ap-pellee."
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