Opinion
No. 31477.
January 7, 1935.
BILLS AND NOTES. Principal and surety.
Indulgences granted to maker of note by holder held not to relieve one who signed note as surety and accommodation indorser from liability on note, where indulgences were not for definite time or supported by consideration (Code 1930, section 2957).
APPEAL from the Circuit Court of Jackson County.
H.P. Heidelberg, of Pascagoula, for appellant.
The case involves section 2957, Code of 1930.
Under the pleadings in this case, to-wit: The special plea of the appellee, there is not the least allegation or intimation that any notice in writing was ever given the bank wherein the appellee called upon the bank to file suit against the maker of the note, Edwards, and the notice under the special plea does not show or intimate that there was any consideration paid to, received by, or that the bank benefited from in holding off and trying to get the maker, Edwards, to pay the note sued on, and we respectfully submit to the court that the lower court erred in not sustaining appellant's demurrer to the special plea of the appellee as we insist the case at bar comes clearly within the section.
The statute, in our opinion, fixes the only way in which an endorser can be relieved of his endorsement of a note and that is by the serving of written notice as provided by statute.
The courts have held that where there is an extension granted that is based upon a consideration received by the holder of the note that will relieve the endorser of the note, but if and until there is some consideration passing to the holder of the note a mere extension or prolonging of the time for the paying on the note will not relieve the endorser of the liability.
Chas. E. Clark, of Ocean Springs, for appellee.
The brief of the appellant herein apparently assumes that the appellee is attempting to make defense under section 2954 of the Code of 1930. The pleadings and the testimony of the defendant disposes of any such contention.
If the creditor knows that the surety is about to give him notice, but his conduct prevents it being given, the surety is discharged if the principal afterwards becomes insolvent.
32 Cyc., page 103.
The surety is discharged by a concealment of material facts by the creditor, when inquiry is made by the former, or by any act of the creditor which causes the surety to forego taking steps to protect himself.
32 Cyc., pages 214 and 264; Foster v. Walker, 34 Miss. 365.
It has been held in a majority of the states that a moral and equitable duty rests upon the creditor to obtain payment, if possible, from the debtor, and not from one who is a mere surety, and if the creditor omits to do this, when notified by the surety that a longer indulgence will expose him to hazard, and he actually suffers loss by the neglect of the creditor, he ought to be discharged.
Stearns on the Law of Suretyship (Feinsinger 4 Ed.), pages 177-8; Martin v. Skehan, 2 Colo. 614; Thompson v. Robinson, 34 Ark. 44; Thompson v. Watson (Tenn.), 10 Yerg. 362; Wilson v, Tebbetts, 29 Ark. 579.
The endorser of a note, being secondarily liable, is discharged by an agreement between the holder of the note and the maker, without his consent, by which the right of action against the latter is suspended, if but for a day.
Timberlake v. Thayer, 71 Miss. 279; Brown v. Propliet, 53 Miss. 649; Howle v. Edwards, 11 So. 748, 97 Ala. 649.
J.S. Love, as superintendent of banks, instituted this suit in the circuit court of Jackson county against the appellee, Charles E. Clark, on a promissory note for the principal sum of two hundred dollars, payable to the Farmers' Merchants' State Bank of Ocean Springs, Mississippi, now in liquidation, and signed by J.P. Edwards as maker, and indorsed by the appellee. Upon the trial of the cause there was a verdict and judgment in favor of the appellee, from which the superintendent of banks perfected an appeal to this court. Thereafter, in pursuance of the provisions of chapter 146, Laws 1934, the chancery court of Jackson county appointed T.W. Milner as receiver of said defunct bank to supersede the superintendent of banks in the liquidation thereof, and directed the receiver to prosecute the appeal herein. Thereafter by proper order in this court the said Milner was substituted as appellant herein.
To the declaration filed in the court below, after a demurrer was overruled, the appellee filed a special plea, alleging, in substance, that the note sued on was indorsed by the appellee for the accommodation of the maker and merely as a surety for him, which fact was then well known to the said Merchants' Farmers' State Bank; that, after the maturity of said note, the said bank was urged by the appellee to proceed with the collection thereof, and was requested to surrender to him the possession of said note, with authority to take steps to enforce its collection; that, as bearing upon the ability of the maker, J.P. Edwards, to pay the note, and as a reason for urging that said note be collected, and that appellee be permitted to proceed to enforce the collection thereof, appellee called to the attention of the officers of the bank the fact that, on account of habits of dissipation, the maker of the note was likely to lose his position as postmaster of Ocean Springs, Mississippi, from which he received a substantial income; but that the bank insisted on handling the matter in its own way, and advised the appellee that arrangements had been made for the payment of the note in monthly installments, and that the time of payment was extended from time to time until the maker of the note did, in fact, lose his position and become insolvent and unable to pay the note and until he had secured a discharge in bankruptcy.
The plea further alleged that on account of the arbitrary handling of the matter by the officers of the bank, their refusal and neglect to heed his warnings, their assurance that arrangements had been made for settlement of the note, and their long silence about the payment or renewal thereof, the appellee was finally lulled into a sense of security and safety, and was led to believe that the note had been paid, or that he would no longer be looked to for the payment thereof, and was led to desist from his efforts to collect it, and that by reason of these facts he was discharged from further liability on said note.
To this special plea a demurrer was interposed and overruled. A replication thereto was then filed, and, upon the evidence offered at the trial, the cause was submitted to the jury under an instruction for the appellee which authorized a verdict in his favor if the facts were found to be in substantial accord with the averments of the special plea.
There is no contention that the notice required by section 2957, Code 1930, to relieve a surety or accommodation indorser from liability, was given by the appellee. It is expressly provided by that statute that no notice except one in writing shall be effective to relieve a surety or indorser from liability, and that no act of a creditor shall constitute a waiver of such notice in writing.
The special plea of the appellee, as well as his instruction to the jury, proceeded upon the theory that he was relieved from liability by reason of indulgences granted to the maker of the note by the holder thereof; but there was no averment in this plea and no proof that the alleged forbearance and indulgences were for a definite period or were supported by any sort of consideration. In the case of Thornton v. Dabney, 23 Miss. 559, it was held that "an extension of time by a creditor to a principal to effect the release of a surety, must be for a definite fixed period on a sufficient consideration, and without the consent of the surety." In Brown v. Prophit, 53 Miss. 649, the court in effect held that no forbearance or indulgence will release a surety except one granted for a consideration passing to the creditor. In that case it was held that: "An agreement between the holder and principal maker of a note that the latter may retain the sum due for a definite period of time, upon his promise to pay usurious interest, will discharge a surety on said note not consenting to such contract of forbearance," and "A contract between the creditor and principal debtor to forbear for some definite period, in consideration of the payment of usurious interest, releases the nonconsenting surety, whether the interest is paid or not; but in the absence of such a contract, payment of the stipulated interest will not discharge the surety, even though, because of such payment, the creditor continues his indulgence to the debtor."
We conclude, therefore, that the facts alleged in the special plea presented no defense to the suit, and that the demurrer should have been sustained; consequently, the judgment of the court below will be reversed and the cause remanded.
Reversed and remanded.